Various Types of Banks
Indian Banking System Notes
B.Com CBCS Pattern
Various Types of Banks
There are various types of banks which operate in our country to meet the financial requirements of different categories of people engaged in agriculture, business, profession etc. The banking institution may be divided into following types:
A) Based on the Structure or Organizational Setup:
Banks can be of five types based on
the structure or organizational setup, viz., unit bank, branch bank, group
bank, chain bank and correspondent bank.
1) Unit
Bank: Unit Bank is a type of bank under which the
banking operations are carried by a single branch with a single office and they
limit their operations to a limited area. Normally, unit banks may not have any
branch or it may have one or two branches. This unit banking system has its
origin in United State of America (USA) and each unit bank has its own
shareholders and board of management.
2) Branch
Bank: Branch Bank is a type of banking system under
which the banking operations are carried with the help of branch network and
the branches are controlled by the Head Office of the bank through their zonal
or regional offices. Each branch of a bank will be managed by a responsible
person called branch manager who will be assisted by the officers, clerks and
sub-staff. In England and India, this type of branch banking system is in
practice. In India, State Bank of India (SBI) is the biggest public sector bank
with a very wide network of 16000 branches.
3) Group
Bank: Group Bank is a system of banking under which
there will be holding company controlling the subsidiary companies which carry
out banking business. In some cases, both the holding and subsidiary companies
may carry out banking business. An example in India is SBI which has many
subsidiary banks such as State Bank of Mysore, State Bank of Indore, State Bank
of Hyderabad, State Bank of Bikaner and Jaipur, State Bank of Patiala and State
Bank of Travancore. These subsidiaries carry out banking and other operations
such as leasing, merchant banking and so on.
4) Chain
Bank: Chain Bank is a system under which different
banks come under a common control through common shareholders or by the
inter-locking of directors. An example in India is KarurVysya Bank and Lakshmi
Vilas Bank having their head offices located in the same place, viz., Karur and
sharing common directors by which they may have common management policy.
5)
Correspondent Bank: Correspondent Bank is a bank which
link two banks of different stature or size. Many Indian banks act as
correspondent banks for many foreign banks.
6) Pure Banking: Under pure Banking, the commercial
banks give only short-term loans to industry, trade and commerce. They
specialize in short term finance only. This type of banking is popular in U.K.
7) Mixed Banking: Mixed
banking is that system of banking under which the commercial banks perform the
dual function of commercial banking and investment banking, i.e., it combines
deposit and lending activity with investment banking. Commercial banks usually
offer both short-term as well as medium term loans. The German banking system
is the best example of mixed Banking.
8) Regional banking: In order to provide adequate and
timely credits to small borrowers in rural and semi-urban areas, Central Government
set up Regional Banks, known as Regional Rural Banks all over India jointly
with State Governments and some Commercial Banks. As they are permitted to
operate in particular region, it may help develop the regional economy.
B) Based on the Ownership:
Banks can be of four types based on the
ownership. They are public sector banks, private sector banks, foreign banks
and cooperative banks.
1) Public
Sector Banks: Public Sector Banks are those banks in which
majority stake (i.e., more than 50% of the shares) is held by the government of
the country. The words such as “The” or “Ltd” will not be found in their names
because the ownership of these banks is with the government and the liability
is unlimited in nature. Some examples of public sector banks in India include
Andhra Bank, Canara Bank, Union Bank of India, Allahabad Bank, Punjab National
Bank, Corporation Bank, Indian Bank and so on.
2) Private
Sector Banks: Private Sector Banks are those banks which
are owned by group of private shareholders. They elect board of directors which
manages the affairs of the banks. Some examples of private banks in India
include The Lakshmi Vilas Bank Ltd., The Karur Vysya Bank Ltd., The City Union
Bank Ltd., HDFC Bank, Axis Bank and son.
3) Foreign
Banks: Foreign Banks are those banks which belong to
foreign countries and have their incorporated head office in foreign countries
and branch offices in other countries. The share capital of the foreign banks
will be fully contributed by the foreign investors. Some examples of foreign
banks in Indian include ABM Amro bank, Standard Chartered Bank, JP Morgan Chase
Bank and so on.
4)
Cooperative Banks: Cooperative Banks are those banks which are
run by following cooperative principles of service motive. Their main motive is
not profit making but to help the weaker sections of the society. Some examples
of cooperative banks in India include Central Cooperative Banks, State
Cooperative Banks.
Cooperative banks are a part of the set of
institutions, which are engaged in financing rural and agriculture
development. The other institutions in this set include
the RBI, NABARD, commercial banks and regional rural banks, cooperative banking is small-scale banking carried on a
no profit, no loss basis for mutual cooperation
and help. Cooperative banks were assigned the important role of delivering of
fruits of economic planning at the grass
roots level. Cooperative banking structure is viewed as a vehicle for
democratization of the Indian financial
system. They were conceived to supplant moneylender and indigenous bankers by
providing adequate short-term and long term
institutional credit at reasonable rates of interest.
C) Based on the Functions:
Banks can be of various types based on the
functions they perform. They include savings banks, commercial banks,
industrial banks, agricultural development banks, land mortgage/development
banks, cooperative banks, exchange banks, indigenous banks, consumer banks,
central banks.
a)
Central
Bank: Central Bank is known as guardian bank which
bank working in the country. Now a days, in every country there is one central
bank and is controlled by the govt. The central Bank manages and controls the
whole monetary system and also prepares monetary policy and other policies of
the govt.
b)
Commercial
Bank: The commercial bank generally extent short
terms loans to the business man and traders. They collect deposits from the
public and advance loans to the businessman and producer commercial banks are
normally owned by share holders. In India most of the joint stock banks are
commercial banks.
c)
Co-operative
Bank: Co-operatives banks are those banks which
established in co-operative sectors. Co-operative banks offer short term and
medium term loans to the agricultural sector. Farmers get various kinds of loan
for purchasing various agriculture inputs from co-operative banks.
d)
Foreign
exchange Banks: These are special types of banks which
specialize in financing foreign trade. Their main is to make international
payments through the purchase and sale of exchange bills.
e)
Industrial
banks: Industrial banks are those banks which
advance long term loans to industries. For the development of industries
various types of industrial banks are established. In India, various
institution like Industrial and finance co-operation of India (IFCI),
Industrial development bank of India, can be termed as Industrial Banks.
f)
Savings
Banks: Savings banks are those banks which offer
opportunities for saving to the small savers and also try to develop saving
habits among the people.
g)
Development
Banks: Development banks are specialized financial
institutions which provide medium and long term finance to private
entrepreneurs and help in economic development of the country.
h)
Agricultural/Land
Development Banks: Agricultural/Land Development Banks are those
banks which are known as Land Mortgage or Agricultural Banks as they provide
finance to agricultural sector. They provide long term loan for agriculture for
the purposes of purchase of new land, purchase of heavy agricultural machinery
such as tractor, repayment of old debt, conservation of soil and reclamation of
loans.
i)
Investment
Banks: Investment Banks are those banks which are
specialized in provide medium and long term financial assistance to business
and industry. They are also known as Industrial Banks as they are mainly
concerned with industrial finance.
j)
Export - Import Bank: These banks have been established for
the purpose of financing foreign trade. They concentrate their working on medium and long-term financing.
The Export-Import Bank of India (EXIM Bank) was established on January 1, 1982 as a statutory
corporation wholly owned by the central government.
k) Indigenous
Bankers: That
unorganised unit which provides productive, unproductive, long term, medium
term and short term loan at the
higher interest rate are known as indigenous bankers. These banks can be found
everywhere in cities, towns,
mandis and villages. Banking
in its crude from is as old as authentic history. All throughout the period of
India history, indigenous bankers and money lenders are recorded to have
existed and carried on the business of banking and money lending on a large
scale. Between 2000 and 1400 BC during the Vedic Period records of deposits and
lending are found. Renowned Hindu Law giver Manu has dealt with the matter of
deposits and pledges in section of his work. According to Manu – “a sensible
man should deposit has money with a person of good family, or good conduct,
will acquainted with the Law, veracious, having many relatives, wealthy and
honourable”. Reference is also made to the same in Kautilya’s Arthashastra. The
Indian banks enjoyed considerable public confidence and this can be gauged from
fact that hundis were used from the days of Mahabharata. During the Moghul
Period, the indigenous bankers were most prominent in connection with the
financing of trade and use of instruments of trade. From the early Vedic period
right through the Moghul period as well as that of the East India Company’s
rule until the middle of the 19th Century, indigenous bankers were
the hub of the Indian Financial System providing credit not only to the trade
but also to the Government.
l)
Rural Banking: A set of financial institution engaged
in financing of rural sector is termed as ‘Rural Banking’. The polices of financing of these banks have been
designed in such a way so that these institution can play catalyst role in the process of rural development.