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June 1, 2015
Different Types of Banks in Indian Economic System
The Financial Requirements in a modern economy are of a diverse nature, distinctive variety and large magnitude. These banks satisfy the various needs of people from every walk of life. The important kinds of banks mentioned below.
1. Commercial Banks: Commercial banks are established with an objective to help businessmen. These banks collect money from general public and give short-term loans to businessmen by way of cash credits, overdrafts, etc. Commercial banks provide various services like collecting cheques, bill of exchange, remittance money from one place to another place.In India, commercial banks are established under Companies Act, 1956. In 1969, 14 commercial banks were nationalized by Government of India, and the nationalization continued later also. The policies regarding deposits, loans, rate of interest, etc. of these banks are controlled by the Central Bank/ supervisor banks in that nation.
2. Saving Banks: Saving banks are established to create saving habit among the people. These banks are helpful for salaried people and low income groups. The deposits collected from customers are invested in bonds, securities, etc. At present most of the commercial banks carry the functions of savings banks. Now a days the development banks also discharging the functions of savings banks.
3. Land Mortgage or Land Development Banks: Land Mortgage or Land Development banks are also known as Agricultural Banks because these are formed to finance agricultural sector. They also help in land development. In India, Government has come forward to assist these banks. The Government has guaranteed the debentures issued by such banks. There is a great risk involved in the financing of agriculture and generally commercial banks do not take much interest in financing agricultural sector.
4. The indigenous banking system: It was carried by the indigenous bankers like Shroffs, Seths, Sahukars, Mahajans, Chettis etc though they did not evolve the sound banking system in India.
5. Central / Federal / National Bank: Every country of the world has a central bank. In India, Reserve Bank of India, in U.S.A, Federal Reserve and in U.K, Bank of England. These central banks are the bankers of the other banks. They provide specialized functions i.e. issue of paper currency, working as bankers of government, supervising and controlling foreign exchange. A central bank is a non-profit making institution. It does not deal with the public but it deals with other banks. The principal responsibility of Central Bank is thorough control on currency of a country.
6. Exchange Banks: Hong Kong Bank, Bank of Tokyo, Bank of America are the examples of Foreign Banks working in India. These banks are mainly concerned with financing foreign trade.
Following are the various functions of Exchange Banks: 1. Remitting money from one country to another country 2. Discounting of foreign bills 3. Buying and Selling Gold and Silver, and 4. Helping Import and Export Trade.
7. Consumer Banks: Consumers bank is a new addition to the existing type of banks. Such banks are usually found only in advanced countries like U.S.A. and Germany. The main objective of this bank is to give loans to consumers for purchase of the durables like Motor car, television set, washing machine, furniture, etc. The consumers have to repay the loans in easy installments.
8. Industrial / Development Banks: Industrial/ Development banks collect cash by issuing shares & debentures and providing longterm loans to industries. In the recent period they are also accepting cash deposits and lending. Development banks are specialized financial institutions. They provide medium and long-term finance to promote and develop important sectors like agriculture, industry, import-export, housing and allied activities. They provide finance to both private and public sector. Development banks are multipurpose financial institutions. To promote Industries after independence, the institutions/ and banks like Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI) were established. Development banking was started after the World War II. It provided finance to reconstruct the buildings and industries which were destroyed in the war.Industrial Development Banks Include : IFCI, IDBI, SIDBI etc. Agricultural Development Banks include - Nabard, Housing Development Banks - NHB etc.