Banking and its Type

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.

Types of Banking

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.

Functions of Commercial Banks

(1) Acceptance of Deposits

  • Banks provide the loans only on the basis of the amount deposited by the public.
  • Banks lend money and get interested in them.
  • They get funds for lending through deposits in current, savings accounts.
  • Banks pay interest on deposits according to the rates decided by RBI.

(2) Lending of Funds

  • This is the important function of banks to provide loans to the public.
  • Advances can be made in the form of overdrafts, cash credits, term loans, etc.

(3) Cheque Facilities

  • Banks provide the cheques facilities to the owners of saving, current a/c to withdraw their money.
  • It is the most developed form of credit instrument.
  • Banks also encash the cheques drawn on another bank.
  • There 2 types of cheques
  • Bearer cheques which are cashable immediately
  • Crossed cheques which are to be credited in the payee’s account.

(4) Remittance of Funds

  • Banks also provide the function of money transfer.
  • It provides the transfer of money through drafts, pays orders, Net banking, NEFT/RTGS etc. on nominal commission charges.
  • A payee can present the cheques in the drawer bank to collect the funds.

Types of Commercial banks

(1) Public Sector Banks

  • Public sector banks are those banks in which the major holding is of government.
  • Example: SBI, PNB, OBC, etc.

(2) Private Sector Banks

  • Private sector banks are those banks which are owned controlled and managed by private promoters.
  • They operate according to the market forces.
  • Example: HDFC, ICICI, Kotak Mahindra, etc.

What is e-banking? What are its benefits?

  • It is the method in which the customer conducts transactions electronically via the internet.
  • Some of the examples of e-banking are managing deposits accounts, online 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.
  • 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.

Solved Questions:

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

Public sector banks.

Q.2 Give 4 examples of private sector banks?


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

Cooperative banks.

Q.4 Which bank is known as the “apex bank” of India?

Reserve Bank of India.

Q.5 Who is the bank of banks?

Central Bank of the Country (RBI).

For more data on Business Studies Class 11 Syllabus, Commerce notifications and sample papers for Class 11 Commerce, stay tuned to BYJU’S.

1 Comment

  1. Helpful article.
    Thanks for a well written and informative post.

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