Banks are financial institutional bodies that accept and store deposits and provide credit to their customers. The bank uses the deposited money to grant loans to the customers as needed. Banks are considered the backbone of the Indian economy as they play an important role in shaping and maintaining the country’s economic condition. They are licensed financial institutions that enable a country’s economic growth and maintain its financial stability. They also play an important role in supporting existing businesses and empowering new ones. In most countries, they are strictly regulated.
Types of banks
There are various types of banks in India. They perform an important function in maintaining the economic condition and representing the mixed economy of our country.
Banks in India can be classified into four types
- Central Bank
- Commercial Banks
- Specialised Banks
- Cooperative Banks
Central bank
In India, the central bank is the Reserve Bank of India. Most countries have a central bank that regulates the functions of all the other banks. The Reserve Bank of India acts as the apex body which monitors and regulates all the other banks of India. In some situations, it also plays a vital role as a banker to the government.
Functions of the central bank
- The main function of a central bank in a country is to regulate all the other banks, thus acting as an apex body for the economic sector.
- It is the banker’s bank and hence acts as a guide to other banks.
- The central bank is also responsible for issuing currency in the country.
- The Reserve Bank of India supervises the financial system of our country.
- It is responsible for implementing monetary policies.
Commercial banks
Commercial banks are organised under the Banking Companies Act 1956. They perform their functions for the public. They accept credits and grant loans. The main objective of commercial banks is to make a profit. They are owned by the state, any private entity or the government. They possess a well-unified structure. The main source of income for commercial banks is public deposits. Commercial banks can be further classified into three categories-
- Private sector banks- A private entity owns the majority stake in a private sector bank.
- Public sector banks- The government of India owns the majority stake in a public sector bank.
- Foreign banks- The headquarters of foreign banks lie in their respective countries, and only the branches are in our country.
Functions of commercial banks
- Commercial banks accept deposits from the public, which is their most important function.
- They provide loans to the customers.
- They also provide an advance loan or overdraft facilities.
- They also invest their surplus funds in different securities.
Specialised banks
Banks formed with specific goals to deal with the needs of a particular industry or a particular sector are specialised banks. Some of the examples of specialised banks are: Small Industries Development Bank of India (SIDBI), Export and Import Bank (EXIM Bank), National Bank for Agricultural & Rural Development (NABARD), etc.
Functions of specialised banks
- They focus on import and export of particular industries.
- They also provide financial services to the industries for which they are working.
Cooperative banks
A cooperative bank is a financial entity belonging to its members. The members of a cooperative bank are its customers and its owners simultaneously. Cooperative banks are established under the State Cooperative Societies Act. The Reserve Bank of India also regulates these banks.
Functions of cooperative banks
- The primary function of cooperative banks is to promote social welfare; they provide loans at low interest rates.
- They play an important role in providing financial resources to the rural population.
- They provide an alternative to the traditional defective credit system of village money lenders.
- They also play a significant role in financial inclusion, especially in rural areas.
Conclusion
Banks are considered the backbone of the Indian economy as they play a crucial role in maintaining the country’s economic condition. Banks in India are classified into four types – the central bank, commercial banks, specialised banks and cooperative banks. The Reserve Bank of India is India’s central bank. The main function of the central bank in a country is to regulate all the other banks, thus acting as an apex body for the economic sector.
The main objective of commercial banks is to gain profit. They are owned by the state, any private entity or the government.
Banks formed with specific goals to deal with the needs of a particular industry or sector are specialised banks.
The members of a cooperative bank are both its customers and owners. The main function of cooperative banks is to promote social welfare.
