Banking and its Type

What is Money?
Money is the habitually accepted mode of exchange. In an economy which comprises of only
one individual, there cannot be any exchange of goods and therefore there is no part for money.
Money is anything that is generally accepted as a means of exchange and at the same time, act as
a measure and as a store of value.

Economic exchanges without the conciliation of money are known as barter exchanges or barter
systems. However, they presume the rather unlikely double coincidence of wants. Contemplate,
for instance, an individual who has an excess amount of rice which he or she wishes to trade for
clothing. If he or she is not fortunate enough, he or she may be unable to find another person
who has the absolute opposite demand for rice with an excess of clothing to offer in exchange.
The search costs may become restrictive as the number of individuals goes high. Hence, to
smoothen the transaction, an intermediate commodity is necessary which is suitable and
acceptable to both parties. Such a commodity is known as money. The individuals can then sell
their products for money and use this money to buy the goods they need. Though the help of
exchanges is contemplated to be the primary role of money, it serves other causes as well.

What is Banking?
Banking is directly or indirectly connected with the trade of a country and the life of each and
every individual. It is an industry that manages credit, cash, and other financial transactions. In
banking, the commercial bank is the most influential institution for any country’s economy or for
providing any credit to its customers. In India, banking company is responsible for transacting all
the business transactions including withdrawal of cheques, payments, and investments, etc. In
other words, the bank is involved in the deposit and withdrawal of money, repayable on demand,
savings and earning a decent amount of profits by lending money.

Bank also helps to mobilize the savings of an individual, making funds accessible to business
and help them to start a new venture.

However, unlike the commercial bank, the private sector banks are owned, operated and
regulated by private investors and have the right to operate according to the market forces.

Banking is a trade of accepting deposits and lending money. It is functioned by financial

intermediaries, which executes the functions of shielding deposits and furnishing loans to the
public.
To put it in other words, banking means accepting for the cause of lending or investment of
deposits of money from public outstanding on-demand and can be withdrawn by cheque, draft
order.

History of banking

The history of banking began with the first

prototype banks which were the merchants of the world, who
gave grain loans to farmers and traders who carried goods
between cities. This was around 2000 BC
in Assyria, India and Sumeria. Later, in ancient Greece and during
the Roman Empire, lenders based in temples gave loans, while
accepting deposits and performing the change of money.
Archaeology from this period in ancient China and India also
shows evidence of money lending.

Many histories position the crucial historical development of

a banking system to medieval and Renaissance Italy and
particularly the affluent cities of Florence, Venice and Genoa.
The Bardi and Peruzzi Families dominated banking in 14th
century Florence, establishing branches in many other parts
of Europe.[1] The most famous Italian bank was the Medici bank,
established by Giovanni Medici in 1397.[2] The oldest bank still in
existence is Banca Monte dei Paschi di Siena, headquartered
in Siena, Italy, which has been operating continuously since 1472.
[3]

Development of banking spread from northern Italy throughout

the Holy Roman Empire, and in the 15th and 16th century to
northern Europe. This was followed by a number of important
innovations that took place in Amsterdam during the Dutch
Republic in the 17th century, and in London since the 18th
century. During the 20th century, developments in
telecommunications and computing caused major changes to
banks' operations and let banks dramatically increase in size and
geographic spread. The financial crisis of 2007–2008 caused
many bank failures, including some of the world's largest banks,
and provoked much debate about bank regulation.

Types of Bank
Banks are further segregated into four types.

 Commercial Bank- These banks are regulated by banking regulation act 1949. They

accept the public deposit from the public for the purpose of lending or investment.
  Cooperative Bank- Cooperative Banks are undertaken by the State Cooperative
Societies Act and gives cheap credit to their members. The rural population is depended
on the cooperative bank for financial backup.
 Specialized Bank- This bank provides financial help to special industries and foreign
trade etc. Few examples of specialized banks are foreign exchange banks, export &
import banks, development banks, and export-import banks, etc.
 Central Bank- This bank manages, checks and monitors all the activities of the
commercial banks of a country.


What is Commercial Bank?

A commercial bank is a kind of financial institution which carries all the
operations related to deposit and withdrawal of money for the general public,
providing loans for investment, etc. These banks are profit-making institutions
and do business only to make a profit.
The two primary characteristics of a commercial bank are lending and borrowing.
The bank receives the deposits and gives money to various projects to earn
interest (profit). The rate of interest that a bank offers to the depositors are known
as the borrowing rate, while the rate at which banks lends the money is called the
lending rate.
Related link: Banking and its Type

Function of Commercial Bank:

The functions of commercial banks are classified into two main division.
(a) Primary functions –

 Accepts deposit – The bank takes deposits in the form of saving, current,
and fixed deposits. The surplus balances collected from the firm and
individuals are lent to the temporary required of commercial transactions.
 Provides Loan and Advances – Another critical function of this bank is to
offer loans and advances to the entrepreneurs and businesspeople and
collect interest. For every bank, it is the primary source of making profits.
In this process, a bank retains a small number of deposits as a reserve
and offers (lends) the remaining amount to the borrowers in demand loans,
overdraft, cash credit, and short-run loans etc.
 Credit Cash- When a customer is provided with credit or loan, they are not
provided with liquid cash. First, a bank account is opened for the customer
 and then the money is transferred to the account. This process allows a
bank to create money.
(b) Secondary functions –

 Discounting bills of exchange – It is a written agreement acknowledging

the amount of money to be paid against the goods purchased at a given
point of time in future. The amount can also be cleared before the quoted
time through a discounting method of a commercial bank.
 Overdraft Facility – It is an advance given to a customer by keeping the
current account to overdraw up to the given limit.
 Purchasing and Selling of the Securities – The bank offers you with the
facility of selling and buying the securities.
 Locker Facilities – Bank provides lockers facility to the customers to keep
their valuable belonging or documents safely. Banks charge a minimum of
an annual fee for this service.
 Paying and Gather the Credit – It uses different instruments like a
promissory note, cheques, and bill of exchange.

Types of Commercial Bank:

There are three different types of commercial bank.

 Private Bank – It is one type of commercial banks where private

individuals and businesses own a majority of the share capital. All private
banks are recorded as companies with limited liability. For example, Bank
of Baroda, State Bank of India (SBI), Dena Bank, Corporation Bank, and
Punjab National Bank.
 Public Bank – It is those type of bank that is nationalized, and the
government holds a significant stake. Such as  Housing Development
Finance Corporation (HDFC) Bank, Industrial Credit and Investment
Corporation of India (ICICI) Bank, and Vysya Bank etc.
 Foreign Bank – These banks are established in foreign countries and
have branches in other countries. For instance, American Express Bank,
Hong Kong and Shanghai Banking Corporation (HSBC), Standard &
Chartered Bank, and Citibank etc.
You might also want to know: What is the 4Ps of Marketing?

Examples of Commercial Bank

Few examples of commercial bank in India are.
  State Bank of India (SBI)
 Housing Development Finance Corporation (HDFC) Bank
 Industrial Credit and Investment Corporation of India (ICICI) Bank
 Dena Bank
 Corporation Bank

Meaning of Cooperative Bank:

Cooperative bank is an institution established on the

cooperative basis and dealing in ordinary banking
business. Like other banks, the cooperative banks are
founded by collecting funds through shares, accept
deposits and grant loans.
1. Central Co-Operative Banks:
These banks are organized and operated at the district level
and can be of two types:
 Co-operative Banking Union
 Mixed control Co-operative Bank

In the first, the members of the bank are the co-operative

societies only. However, in the second, the members can be
co-operative societies as well as individuals. The central co-
operative banks lend money mainly to the affiliated primary
societies with typical loan tenure lending between 1 to 3
years.

2. State Co-Operative Banks:

These banks are organized and operated at the district level
and rest at the top of the hierarchy in the co-operative credit
structure.
With the help of State Co-operative Banks (SCBs), the RBI
funds the co-operative institutions. These banks also get
loans at an interest rate of 1% to 2% lower than the standard
bank rate.

3. Primary Co-Operative Banks:

These offer credit services in the urban and semi-urban
regions. Thus, they are not considered as agricultural credit
societies.
Primary Co-Operative Banks receive concessional refinance
service from RBI and IDBI from time to time for them to offer
housing loans and other types of loans that can be used by
small businesses.

4. Land Development Banks:

The land development banks are divided into three tiers which
are primary, state, and central. These offer credit services to
the farmers for developmental purposes. They used to be
regulated by the RBI as well as the state governments.
However, this responsibility was recently transferred to the
National Bank for Agricultural and Rural Development
(NABARD).

Functions of Cooperative Banks in India: cooperative banks

functions
1. They function with the rule of “one member, one vote” and
function on “no profit, no loss” basis
2. It performs all the main banking functions of deposit
mobilization, the supply of credit and provision of remittance
facilities
 3. It provides financial assistance to the people with small means
to protect them from the debt trap of the moneylenders
4. It is engaged in tasks of production, processing, marketing,
distribution, servicing and banking in India
5. It supervises and guides affiliated societies
6. Mobilization of funds from their members
7. Advance loans to the members
8. Rural financing for farming, cattle, milk, hatchery, personal
finance, etc.
9. Urban financing for Self – employment, Industries Small scale
units, Home finance, Consumer finance, Personal finance

Examples
The new india cooperative bank
Comos cooperative bank

Specialized bank
Specialized Banks are banks which concentrate mainly on
financing specialized economic and social activities. Specialized
activities may be small and cottage industries financing.
Financing the rural asset less and landless people etc.

examples
Grameen Bank (G.B.) of Bangladesh is an example of Specialized
Bank.
Types
Export Import Bank of India (EXIM Bank) Small Industries Development Bank of
India. National Bank for Agricultural and Rural Development.

Functions

Central bank
What Is a Central Bank?
A central bank is a financial institution given privileged control
over the production and distribution of money and credit for a
nation or a group of nations. In modern economies, the central
bank is usually responsible for the formulation of monetary
policy and the regulation of member banks.

Central banks are inherently non-market-based or even anti-

competitive institutions. Although some are nationalized, many
central banks are not government agencies, and so are often
touted as being politically independent. However, even if a
central bank is not legally owned by the government, its
privileges are established and protected by law.

The critical feature of a central bank—distinguishing it from

other banks—is its legal monopoly status, which gives it the
privilege to issue banknotes and cash. Private commercial
banks are only permitted to issue demand liabilities, such
as checking deposits.

These functions are shown in Figure-4:

The different functions of a central bank (as discussed in Figure-4) are
explained as follows:

(a) Traditional Functions:

The traditional functions of the central bank include the following:

(i) Bank of issue:
(ii) Government’s banker, agent, and advisor:
(iii) Custodian of cash reserves of commercial banks:
(iv) Custodian of international currency:
(v) Bank of rediscount:
(vi) Lender of last resort:
(vii) Bank of central clearance, settlement, and transfer:
(viii) Controller of Credit:

(b) Developmental Functions:

(i) Developing specialized financial institutions:
 (ii) Influencing money market and capital market:
 (iii) Collecting statistical data:



Types
Three types of central bank. There are three sorts of central banks in the
world today:

commodity exporting economies' banks have an incentive to ease;

commodity importers' banks have an incentive to tighten;

opportunistic central banks will manipulate commodity price

consequences in support of their preset objectives

Example

RBI

What is e-banking? What are its benefits?

 It is the method in which the customer conducts transactions electronically via
the internet.
E-
 Some of the examples of e-banking are managing deposits accounts, online
banking
funds transfer, ATM, electronic data interchange, etc.,

 It provides 24 hours and 365 days of banking services.

 Load on branches can be reduced by having a centralized database for faster
processing.
Benefits  Customers can make a transaction from anywhere like home office market etc.
 It includes recording of each and every transactions.
 It provides greater customer satisfaction, higher security in terms of money.

Also, Explore:

 Business Studies Sample Paper Class 11

 Business Studies Sample Paper Class 12

Solved Questions:
Q.1 Name the banks which are owned and controlled by the government of India?
Answer:

Public sector banks.

Q.2 Give 4 examples of private sector banks?
Answer:

HDFC, ICICI, IDFC, AXIS banks.

Q.3 Name the banks which are operated under the provisions of cooperative societies act 1912?
Answer:

Cooperative banks.
Q.4 Which bank is known as the “apex bank” of India?
Answer:

Reserve Bank of India.

Q.5 Who is the bank of banks?
Answer:

Central Bank of the Country (RBI).

Commercial bank
https://byjus.com/commerce/functions-of-commercial-banks/

cooperative bank

https://www.economicsdiscussion.net/india/cooperative-banking/cooperative-banking-in-india-
history-structure-importance- and-weaknesses/31365

https://ask.careers/blogs/co-operative-bank-types/

https://sarkaribank.com/function-of-co-operative-bank/

specialized bank
central bank