Types of banks

Article / Finance and Investing

Types of banks
Qais Zahir , Student (MBA), Afghanistan

Kinds of Banks / Types of banks

BANK: Bank is an institution which deals in money, in general, it receives deposits and advance loans.
1. Commercial Bank
2. Central Bank
3. Development Bank
KINDS OF DEVELOPMENT BANK(Development Financial Institutions “DFIs"):
1. Industrial Bank
2. Agricultural Bank
3. Mortgage Bank
Commercial bank receives deposits and advance loans to promote business and commerce. Their important functions include making payment against cheques, advancing loans and overdrafts, issuing letters of credit, discounting bills of exchange, transferring of money.
It plays an important role in the creation of credit money.
1. Scheduled Banks
2. Non scheduled Banks
Scheduled Banks:
These are the banks which are the member of the central bank.
Once they become the scheduled bank they enjoy the following facilities and services from the central bank.
1- Rediscounting of the bill of exchange.
2- Cleaning house
3- Lender of last resort
4- Advisory services
However, such banks have to discharge certain liabilities to the central bank.
• Maintaining cash reserve at the central bank as a mandatory requirement.
• Following credit control policy of the central bank.
Because of their being member of the central bank, the scheduled commercial banks enjoy a strong market and financial goodwill which attracts huge amount of deposits from industrialists, renders, and the public at large. They also borrow from these banks with confidence and at better conditions than non-scheduled banks.
Non-Scheduled Bank:
These banks are not the members of the central bank. And hence they cannot get all those facilities and services that are allowed to scheduled banks from the central bank.
They also do not enjoy the public confidence in practice, such banks do not exist.
Functions of Commercial Bank:
Functions of commercial banks can be divided into the following:
1. Primary Functions
2. Secondary Functions
Primary Functions:
• Receiving Deposits
• Advancing Loans
Receiving Deposits:
This is the function of the formation of capital; Capital is formed by receiving deposits from the depositors/accountholders.
Advancing Loans:
The bank advances loans on an interest, the interest rate which is much higher than that allowed on various kinds of deposits.
This difference of interest earned and paid is the main source of the bank income. The loans may be secured or unsecured and is mostly for short period.
Secondary Functions:
• Public utility services
• Agency services
Public Utility Services:
Under this category, the bank performs the following functions.
1-Accepting and discounting bills of exchange
2-Transfer of money
3-Creation of credit money
4-Underwriting of shares
5-Issuing letter of credit (L/C)
6-Providing lockers services
Agency Services:
Under this category, the bank performs the following functions.
1-Accepting Cheques and Bills
2-Dealing in Shares and Bonds
3-Acting as Attorney
It is the bank which is responsible for the financial and economic stability of the country. It offers services to the state and banking industry.
As a banker to the state it monopolizes the issue of currency notes, manages public debts and acts as a custodian of foreign exchange and national reserves.
As a banker to the scheduled banks it rediscounts their bills of exchange.
Clears their cheques drawn on each other.
Industrial Bank:
Industrial bank offer valuable services for the development of industries in a country. They offer long-term loans to the industrialists.
They prepare feasibility reports on new projects and expansion plans. They provide valuable consultations on the establishment of factories, their modernization and improvement. They are a part of development financial institutions (DFIs).
Agricultural Bank:
The agricultural bank plays a vital role in the agriculture field. It provides loans farmers, landlords, and feudal, to enable them to buy fertilizers, seeds, tractors. With such loans they also finance water and irrigation expenses, the loans are offered against the hypothecation (Mortgage) of the land and its harvest or crop of a season.
Mortgage Bank:
It is the bank that commands its capital through deposits and dealing in shares and bonds.
Mortgage banks lend for purchasing and reclaiming land, and discharging old debts.
They mortgage 50 percent of the land.
The period of loan ranges between 15 and 30 years. These loans are provided to their members.
1. Private Bank
2. Public Bank
3. Nationalized Bank
4. Partnership Bank
5. Chartered Bank
6. Cooperative Bank
Private Bank:
This is the bank which is formed as a private company which is run by a group f person, relatives or friends not exceeding 50 in number.
Public Bank:
These banks are established under companies’ ordinance 1984 and enjoy public investment. Most of commercial banks are founded as public banks/public companies.
Their minimum numbers of members are is seven.
Nationalized Bank:
Tthese are the ones which originally acted as public company and later were taken up by the government.
In Pakistan, n 1974, all major commercial banks in the private sector were nationalized. These banks’ equity is 100 percent owned by the government.
Partnership Bank:
This type of bank is established under a partnership Act 1932. The capital is brought is by partners whose minimum number is 2 and maximum 10.
Chartered Bank:
A bank may be organized as a chartered bank which is formed by the order of the king or queen of a country. Bank of England is its example.
Cooperative Bank:
Bank organized under cooperative societies act are called cooperative banks, they work on mutual cooperation of the members.
This banks may be subdivided as follows:
1- Primary Cooperative Societies
2- Central Cooperative banking union
3- Provincial Cooperative Banks

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Other Views by this Author: منابع وعوامل تشکیل دهنده ریسک دارای های مالی | Usefulness of economics | Mixed Economy | Islamic Modes of Financing

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