Banking

Types of banks-part 2

Last time, we have discussed 3 types of banks. Today we will discuss more types of banks:

1.)   Types of banks on the basis of function:

i)                    Commercial banks: These are the banks which do banking business to earn profit, which advances loan for short period of time. These banks do not issue notes but create credit on the basis of their cash deposits. Thus commercial banks deal with money and credit for the purpose of earning profit. SBI, PNB, Canara banks etc. are its examples.

ii)                  Industrial banks: these banks give long-term and medium term loan to the industries for their development. These banks also purchase the shares as well as under-write the debentures of the industries like IDBI, IFC, SFC etc.

Also read: Types of banks-part 1

iii)                Agricultural banks: These banks provide short term loan to the farmers for purchase of seeds and fertilizers and long term loan for making permanent improvement in their land. At village level, agricultural cooperative societies, at tehsil level, cooperative unions, at district levels, cooperative banks, at state levels state cooperative banks and at national level NABARD has been established.

iv)                Foreign banks. These are already discussed in the topic on the basis of domicile in types of banks-part one.

v)                  Saving banks: These banks collect small saving across the country and put them in productive use. The first saving bank was established in Germany in 1765. In India post office act as a saving bank.

vi)                Central banks: Central bank is the main bank of any country. It issue currency, control credit, regulates banking systems, acts as bank of government. In India RBI acts as central bank. The first central bank was established in Sweden.

vii)              Indigenous banks: These banks found their origin in India. They made significant contribution in agriculture and industrial developments. Before independence rural money lenders were the forerunners of these banks.

2) Types of banks on the basis of organizational structure:

i) Unit banking: These banks function in a limited area and helps low branch office. Such banks deposit their money in big banks called correspondent banks. These banks are popular in USA.

ii) Branch banking: Under this system a bank establishes its head office in some big city and operates various branches all over the country. Overall control of the branches is done by the board of directors. These banks are popular in India, France etc.

i)                    Group banking: Under this two or more banks operate under the control of a holding company. These banks are subsidiary of a holding company. A holding company must have at least twenty-five percent share of these banks.

ii)                  Chain banking: In this case some individuals or group of individuals control two or more banks. The group of individuals buys bulk of shares of two or more banks and control and manage them. These are popular in USA.

iii)                Correspondent banking: It is based upon the practice of smaller banks carrying deposits with larger banks. The larger banks are called correspondent banks.

These are the types of banks.

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