I hope you enjoyed reading first part of my article on Indian Banking System. Here is the second installment covering different types of banks:
I will continue the overview on banking system in my next
post, till then happy reading. Happy reading! Please let me know if you have any
suggestion to make this blog better by commenting on posts or write to infocenter24x7blog@gmail.com Thanks!
Types of
Commercial Banks
1.
Deposit Banks: The most important
type of deposit banks is the commercial banks. They have connection with the
commercial class of people. These banks accept deposits from the public and
lend them to needy parties. Since their deposits are for short period only,
these banks extend loans only for a short period. Ordinarily these banks lend
money for a period between 3 to 6 months. They do not like to lend money for
long periods or to invest their funds in any way in long term securities.
2.
Industrial Banks: Industries require
a huge capital for a long period to buy machinery and equipment. Industrial
banks help such industrialists. They provide long term loans to industries.
Besides, they buy shares and debentures of companies, and enable them to have
fixed capital. Sometimes, they even underwrite the debentures and shares of big
industrial concerns. The important functions of industrial banks are:
1.
They accept long term deposits.
2.
They meet the credit requirements of industries by extending long term loans.
3.
These banks advise the industrial firms regarding the sale and purchase of
shares and debentures.
The
industrial banks play a vital role in accelerating industrial development. In India,
after attainment of independence, several industrial banks were started with large
paid up capital. They are, The Industrial Finance Corporation (I.F.C.), The State
Financial Corporations (S.F.C.), Industrial Credit and Investment Corporation of
India (ICICI) and Industrial Development Bank of India (IDBI) etc.
3.
Savings Banks: These banks were
specially established to encourage thrift among small savers and therefore,
they were willing to accept small sums as deposits. They encourage savings of
the poor and middle class people. In India we do not have such special
institutions, but post offices perform such functions. After nationalization most
of the nationalized banks accept the saving deposits.
4.
Agricultural Banks: Agriculture has
its own problems and hence there are separate banks to finance it. These banks
are organised on co-operative lines and therefore do not work on the principle
of maximum profit for the shareholders. These banks meet the credit
requirements of the farmers through term loans, viz., short, medium and long
term loans. There are two types of agricultural banks,
(a)
Agricultural Co-operative Banks, and
(b)
Land Mortgage Banks. Co-operative Banks are mainly for short periods. For long periods
there are Land Mortgage Banks. Both these types of banks are performing useful
functions in India.
5.
Exchange Banks: These banks finance
mostly for the foreign trade of a country. Their main function is to discount,
accept and collect foreign bills of exchange. They buy and sell foreign
currency and thus help businessmen in their transactions. They also carry on
the ordinary banking business.
In
India, there are some commercial banks which are branches of foreign banks. These
banks facilitate for the conversion of Indian currency into foreign currency to
make payments to foreign exporters. They purchase bills from exporters and sell
their proceeds to importers. They purchase and sell “forward exchange” too and thus minimize the difference in exchange rates between different periods, and also protect
merchants from losses arising out of exchange fluctuations by bearing the risk.
The industrial and commercial development of a country depends these days, largely
upon the efficiency of these institutions.
6.
Miscellaneous Banks: There are
certain kinds of banks which have arisen in due course to meet the specialized
needs of the people. In England and America, there are investment banks whose
object is to control the distribution of capital into several uses. American Trade
Unions have got labor banks, where the savings of the laborers are pooled
together. In London, there are the London Discount House whose business is “to go
about the city seeking for bills to discount.” There are numerous types of
different banks in the world, carrying on one or the other banking business.
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