Dear Readers,
Welcome to Mentor
for Bank Exams. Here I am presenting the notes on Banking Awareness
notes on Definition of Bank and Types of Banks. This will be
helpful for your bank exam preparation. Kindly make use of this!!!
DEFINITION
OF BANK
A bank is a financial
institution which deals in debts and credits. It accepts deposits, lends money
and also creates money. It bridges the gap between the savers and borrowers.
Banks are not merely traders in money but also in important sense manufacturers
of money.
TYPES OF
BANKS:
Broadly speaking, banks
can be classified into commercial banks and central bank. Commercial banks are
those which provide banking services for profit. The central bank has the
function of controlling commercial banks and various other economic activities.
There are many types of commercial banks such as deposit banks, industrial
banks, savings banks, agricultural banks, exchange banks, and miscellaneous
banks.
Deposit Banks: These banks accept deposits from the
public and lend them to needy parties. Since their deposits are for short
period only, these banks extend loans only for a short period. Ordinarily these
banks lend money for a period between 3 to 6 months. They do not like to lend
money for long periods or to invest their funds in any way in long term
securities.
Industrial Banks: Industries
require a huge capital for a long period to buy machinery and equipment.
Industrial banks help such industrialists. They provide long term loans to
industries. Besides, they buy shares and debentures of companies, and enable
them to have fixed capital. The important functions of Industrial banks are:
1) They accept long term deposits.
2) They meet the credit requirements of
industries by extending long term loans.
3) These banks advise the industrial
firms regarding the sale and purchase of shares and debentures.
Savings Banks: These
banks were specially established to encourage thrift among small savers and
therefore, they were willing to accept small sums as deposits. They encourage
savings of the poor and middle class people. In India we do not have such
special institutions, but post offices perform such functions. After
nationalisation most of the nationalised banks accept the saving deposits.
Agricultural Banks: Agriculture
has its own problems and hence there are separate banks to finance it. These
banks are organised on co-operative lines and therefore do not work on the
principle of maximum profit for the shareholders. These banks meet the credit
requirements of the farmers through term loans, viz., short, medium and long
term loans. There are two types of agricultural banks,
(a) Agricultural
Co-operative Banks, and
(b) Land Mortgage Banks.
Co-operative Banks are mainly for short periods. For long periods there are
Land Mortgage Banks. Both these types of banks are performing useful functions
in India.
Exchange Banks: These banks finance mostly for
the foreign trade of a country. Their main function is to discount, accept and
collect foreign bills of exchange. They buy and sell foreign currency and thus
help businessmen in their transactions. They also carry on the ordinary banking
business.
In India, there are some
commercial banks which are branches of foreign banks. These banks facilitate
for the conversion of Indian currency into foreign currency to make payments to
foreign exporters. They purchase bills from exporters and sell their proceeds
to importers. They purchase and sell “forward exchange” too and thus minimise
the difference in exchange rates between different periods, and also protect
merchants from losses arising out of exchange fluctuations by bearing the risk.
The industrial and commercial development of a country depends these days,
largely upon the efficiency of these institutions.
Miscellaneous Banks: There
are certain kinds of banks which have arisen in due course to meet the
specialised needs of the people. In England and America, there are investment
banks whose object is to control the distribution of capital into several uses.
American Trade Unions have got labour banks, where the savings of the labourers
are pooled together. In London, there are the London Discount House whose
business is “to go about the city seeking for bills to discount.” There are
numerous types of different banks in the world, carrying on one or the other
banking business.
