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| What is Bank ? Definition & Types of Bank || Banking System |
A Bank can be said to be a replica of a country's economy. In today's article, we will know what is Banking System or Bank and How many types of Bank is divided in the market? Although everyone must have heard about the bank, but hardly everyone has complete information about the banking system.
Along with knowing these points, you need to know about [Banking System in India & The Functions of RBI ⪧ CRR, SLR, RRR, BR, NPA] Click to Read...
What is Bank ? Definition & Types of Bank || Banking System
Table of article's content# What is a Banking system
/ Definition of a Bank
# Types of Banks
- Scheduled Bank & Non scheduled Bank
- Commercial Bank
- Co-operative Bank
- Regional Rural Bank
- Development Bank
- Small finance Bank
- Payment Bank
What is a Banking System / Definition of a Bank
In ancient times banks used to deposit only money and lend money, in return of which some fee was charged. But at the present time the Bank controls the entire financial system of a country and makes the life of the people of the country financially and socially easy.◉ A Bank is a financial institution that plays the role of an intermediary. These include people who have a lot of money and who need money.
◉ The Bank reduces the risk between the lender and the taker.
◉ A financial institution that distributes money or controls the entire financial market is called a Banking System.
◉ Banks affect the entire financial system.
◉ Banks have the ability to change the direction and condition of development.
◉ Banking system is the infrastructure of economic development of the entire country, it affects the lives of people.
◉ In the Vedic civilization, the money lender was called Naphtara or Nalekh and the market was usury.
◉ Interest is described in Manusmriti.
Types of Bank
The function of the center bank is to control, supervise and regulate other banks present in the country. All countries have different center banks.India country's largest monetary institutions "Reserve Bank of India" issues rules and guidelines for all types of banks in India.
These banks are divided into the following sections : -
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| Types of Bank |
Scheduled Bank & Non-scheduled Bank
◉ The Banks that join the Second Schedule of the Central Bank / Reserve Bank of India Act, 1934 are placed in the category of scheduled banks.
◉ The sum of the paid up capital and reserve fund of the scheduled banks is at least equal to Rs 5 lacs.
◉ As per the instructions of the Reserve Bank of India, the scheduled bank has to keep a certain percentage of its deposits in the form of CRR (Cash Reserve Ratio) with the RBI and keep sufficient amount of capital as SLR (Statutory Liquidity Ratio) in bank.
◉ Non-scheduled Banks which are not included in the second schedule of the RBI (Reserve Bank of India) due to non-fulfillment of the conditions of being a scheduled bank
◉ Banks which have not been included in the Second Schedule to the RBI ( Reserve Bank of India) Act, 1934, are called non-scheduled banks.
Commercial Bank
◉ Banks used in the routine of normal person are placed in the category of commercial bank
◉ It is governed by the Banking Regulation Act 1947
◉ The main function of these banks is to open different types of accounts and accept deposits from people and provide loans to them.
◉ The first commercial bank in India was started in 1770 in Kolkata under the name of "Bank of Hindustan".
◉ Commercial Bank divide into three part
Public Sector Bank
◉ The public bank is also known as the government bank because the majority of these banks are held by the government and it is a nationalized bank.
◉ Public bank's participation in banking industry is more than about two-thirds which is much higher than other banks.
Private Sector Bank
◉ Banks in which the main control is not with the government but with private / institutional and shareholders are called private banks. These are business class banks.
Foreign Bank
◉ As the name itself suggests, this bank refers to a foreign bank.
◉ Although the headquarters of these banks are outside, but like other banks, the rules of commercial banks also apply to this bank.
◉ For example RBS (Royal Bank of Scotland), Bank of America,N.A. India, Citi Bank and HSCB (Hong Kong & Shanghai Banking Corporation) etc.
Co-operative Bank
◉ Banks run by a selected cooperative societies are classified as cooperative banks.
◉ These banks are governed by the rules of the state cooperative societies Act., which are different for different states.
◉ These banks operate on the basis of no profit and no loss.
◉ The cooperative bank is divided into rural co-operative banks and urban cooperative banks by sector.
◉ For example : - Ahmedabad Mercantile Co-Op Bank Ltd., Kalupur Commercial Coop., Madhavpura Mercantile Co-Op Bank Ltd., Mehsana Urban Co-Op Bank Ltd. etc.
Rural Co-operative Banks & Urban Co-operative Bank
◉ Rural Co-operative Banks provide loans for agriculture, animal husbandry, fisheries etc. in rural areas and Urban Cooperative Banks provide loans for personal, self-employment, small scale industries in urban areas.
Regional Rural Bank
◉ It is also a type of commercial bank, but the purpose of these banks is to extend banking services to rural and remote areas where commercial banks (public, private, foreign banks) are not able to provide facilities.
◉ The objective of the Regional Rural Bank is to elevate the weaker sections such as agricultural laborers, farmers and small traders by giving them financial assistance.
◉ Regional Rural Banks are mainly present in rural areas and semi-urban areas.
◉ Government work of these banks like giving wages to MNREGA laborers, distributing pension is on it.
◉ Regional Rural Banks were established on October 2, 1975
◉ For example : - Punjab Gramin Bank, Rajasthan Marudhara Gramin Bank Baroda, Rajasthan Kshetriya Gramin Bank, Malwa Gramin Bank, J&K Grameen Bank etc.
Development bank
◉ These banks provide assistance for investment in industry and infrastructure to accelerate the economy of a nation.
◉ Industrial Development Bank of India, Industrial Finance Corporation of India and State Finance Corporation etc. are examples of Development Bank
Small finance Bank
◉ The Reserve Bank of India established Small Finance Bank in the year 2014 to promote financial inclusion and uplift small business.
◉ The objective of these banks is to provide financial facilities to those sections of the population who are currently untouched by banking facilities, ie the main customers of Small Finance Bank are small industrialists, farmers, small business owners who are unable to get loans by commercial banks. They can get loans by joining with small finance banks.
◉ For Example :- AU Small Finanace Bank, Fincare Small finance Bank, ESAF etc.
Payment Bank
◉ Payment bank is the latest category of banking system in India
◉ The main objective of these banks is to open accounts of low income families, small businesses, other units in the unorganized sector and workers etc.
◉ Most of payment banks are used for services such as payment of bills and small business interchange.
◉ This bank has proved to be helpful in spreading financial inclusion.
◉ As per RBI rules, this bank can only deposit a limited amount of up to Rs 1 lac per customer.
◉ These banks are based only on deposits that do not provide loans and interest to the customer.
◉ These banks use and disseminate services like ATM card (debit card, credit card), net banking and mobile banking.
◉For Example :- airtel payment Bank, Paytm Bank, Jio Payments Bank LTD., m-pesa payment bank etc.
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