Question

Explain the various types of banks based on the functions

Answer 1

1. Central Bank:

• A chief bank that keeps a check on and synchronizes with all the other banks in a particular country is known as the Central Bank of the country.
• In India, the post of the Central Bank is that of the ‘Reserve Bank of India’ (RBI).
• The RBI is also known as the ‘government’s bank’ or the ‘banker’s bank’.
• The RBI is responsible for regulating and guiding other banks in the country.
• It emanates the currency of the country i.e the Indian Rupee.
• It executes and carries out financial and monetary strategies, approaches, and determining policies.
• The RBI overlooks the pecuniary system of the country by handling the finances.
• It is also responsible for foreign exchange.
• All of these functions always take place under the supervision of the government of the country.

2. Cooperative Banks:

• Such banks operate under the state government’s act.
• The main objective of these banks is to ensure the social well – being of the public.
• This is done by offering loans that are open to concession based on user comfort.

3. Commercial Banks

• Such banks operate under the Banking Companies Act of 1956.
• These are often run by either the government or any private firm.
• The major aim of such banks is to earn maximum profit through their commercial policies.
• The deposit amount by its users acts as a major resource of its reserve.
• Concessional interest fares are only offered when directed by the CBI.
• These are appropriate for operation in both urban and rural areas.

4. Regional Rural Banks

• Operating under the Regional Rural Bank Act of 1976, these banks started in 1975.
• These banks aim at the development of rural and agricultural areas with the help of concessional loan offerings.
• The establishment of 196 has taken place in between 1987 – 2005.
• The ownership of these banks belong 50% to the national government, 15% to the state government, and 35% to the commercial bank.

5. Local Area Banks

• Operating under the Companies Act, 1956 these banks originated in the year 1996.
• These are commercially driven banks with the aim of earning profit.
• These are run by private firms.