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Functions of Banks

This article carries a detailed description of different types of banks in India and the functions of banks in India.

The Indian banking system is very different from other countries as it comprises both public and private banks. You shall have a wide range of bank options, from India’s most popular and widespread State Bank of India to the private Axis Bank. According to your feasibility, you can choose any bank that suits your needs the most. Most organisations offer different bank accounts, from savings to recurring accounts. So, you will have a myriad of options to choose from. Each account type has different utility and features. While utilities of bank account types are similar across different banks, their features are very different. A user must know about these bank accounts and their aspects to prevent miscommunication. 

Types of Banks

There are various types of banks in India. They perform an important function in maintaining the economic condition and represent the mixed economy of our country.

Banks in India can be classified into four types:

  1. Central Bank
  2. Commercial Bank
  3. Specialised Bank
  4. Cooperative Bank

Central Bank

In India, the central bank is the Reserve Bank of India. Most countries in this world have a central bank, which helps regulate the functions of all the other banks of that particular country. The Reserve Bank of India acts as the apex body which monitors and regulates all the other banks of India. In some situations, it also plays an essential role as the banker to the government. 

Functions of Central Bank 

  • The main function of a Central Bank in a country is to regulate all the other banks, thus acting as an apex body for the economic sector. 
  • It is the banker’s bank and hence acts as a guide to other banks.
  • The central bank is also responsible for issuing currency in the country. 
  • The Reserve Bank of India supervises the financial system of our country. 
  • It is responsible for implementing monetary policies. 

Commercial Banks

Commercial banks are organised under the Banking Companies Act 1956. They perform their functions for the public. They accept credits and grant loans. The main objective of commercial banks is to gain profit. They are owned by the state, any private entity or the government. They possess a well-unified structure. The main source of income for commercial banks is public deposits. Commercial banks can be further classified into three categories- 

  1. Private sector banks- A private entity owns the majority stake in a private sector bank. 
  2. Public sector banks- The government of India owns the majority stake in a public sector bank. 
  3. Foreign banks- The headquarters of a foreign bank lies in a foreign country, and only the branches are in our country. 

Functions of Commercial Banks

  • Commercial banks accept public deposits, which is the most important function. 
  • They provide loans to the customers.
  • They also provide an advance loan or overdraft to the customers.
  • They also invest their surplus funds in different securities.

Specialised Banks

The banks formed with specific goals to deal with the needs of a particular industry or a particular sector are specialised banks. Some of the examples of specialised banks are the Small Industries Development Bank of India (SIDBI), Export and Import Bank (EXIM Bank), National Bank for Agricultural & Rural Development (NABARD), etc.

Functions of Specialised Banks

  • The focus is on the import and export of some particular industries.
  • They also provide financial services to the industries for which they are working.

Cooperative Banks

A cooperative bank is a financial entity which belongs to its members. The members of this Bank are, at the same time, customers and the owners of their bank. Cooperative Banks are established under the state governments act- State Cooperative Societies Act. The Reserve Bank of India also regulates these banks. 

Functions of Cooperative Banks

  • The main function of the Cooperative Bank is to promote social welfare as they provide loans at low-interest rates. 
  • They play an important role in providing financial resources to the rural population.
  • They provide an alternative to the traditional defective credit system of village money lenders.
  • They also play a significant role in financial inclusion, especially in rural areas.

Conclusion :

With the demand for more bank accounts, the Indian banks have introduced many reforms. These reforms have made it feasible for users of all classes to deposit their funds, transfer them to another person, and more. As there are different bank accounts, one needs to know the specific rules according to the bank declaration or bulletin. The account types also differ according to the purpose. For example, both fixed and recurring accounts are deposit types. But fixed deposits need a lump sum amount as the principal, while the entire principal is divided into monthly premiums for recurring.

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Frequently asked questions

Get answers to the most common queries related to the SSC Examination Preparation.

Can one create deposit accounts through internet banking?

Ans : No, one won’t be able to create deposit accounts ...Read full

Are the interest rates similar for all banks?

Ans : No, the interest rates for different accounts across al...Read full

Name the three types of commercial banks?

Ans : The three types of commercial banks are the public sect...Read full

Write any three functions of the Reserve Bank of India?

Ans: The main function of a Central Bank in a country is to r...Read full

What is the main objective of a cooperative bank?

Ans: The main objective of a cooperative bank is to promote social welfare as they provide loans at...Read full