Bank / Banking – Meaning, Characteristics, Types of Banks

Section 5(B) of Banking Regulation Act defines Banking as “Accepting, for the purpose of investing or lending, deposits of money from the public, repayable on demand or otherwise” 

The term bank is derived from an Italian word ‘banca’ and from a French word ‘banque’ both meaning a Bench or Money exchange tables.

A bank is a financial institution which deals with deposits and advances and other related services. It receives money from those who want to save money in the form of deposits and lends to those who need it.

The Oxford Dictionary defines a bank as “A establishment for custody of money which it pays out on customer`s order”

Characteristics of a Bank / Features of Banking

• It may be an Individual/Firm/Company
• It is a profit and service oriented institution
• It acts as a connecting link between borrowers and lenders
• It deals with money
• It accepts deposits from public
• It provides Advances/Loans/Credit to customers
• It provides Payment and Withdrawal facilities
• It provides Agency and Utility Services

Types of Bank

(1) Central Bank – The bank that acts as the central monetary authority of the country and serves the government is a central bank. The main functions of a central bank are: Issue of notes, Providing and conducting banking services to/for the Government, Providing banking services to other banks.

(2) Commercial Bank: Commercial Banks comprise of public sector banks, private sectors banks and foreign banks which accept public deposits, advances loans to the public and offer other related services to earn profit.  

(3) Development Bank – It is a financial Institution concerned with providing all types of financial assistance to business units in form of loans, underwriting services, Investment and Guarantee Operations and Promotional Activities. It aims at industrial development and economic development in general.

(4) Investment Bank/Industrial Bank – These are Financial Intermediaries that acquire the savings of people and direct these savings into business enterprises seeking funds.

(5) Cooperative Bank – These banks are concerned with mobilizing savings and stimulating agricultural investment in the country. It can be classified into three types of banks:

• State co-operative Banks
• Central Co-operative Bank
• Primary Agricultural Credit Societies

(6) Regional Rural Bank/Agricultural Bank – These banks are oriented towards meeting the needs of the weaker section of the society consisting mainly of small entrepreneurs, farmers, agricultural labourers.

(7) Non-Banking Financial Company (NBFC) – According to RBI, It means a financial institution which is a company and a non-banking institution, whose principal business is receiving of deposits under various schemes or arrangement or lending or in any other manner. It can be classified into: Merchant Banks, Commercial Banks, Indigenous Banks

(8) Exchange Banks – These banks are involves with Buying and selling of Foreign currencies and accepting foreign bills of exchange.