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TNPSC Free Notes Economy In English – Types of Banks

இந்தக் கட்டுரையில், TNPSC குரூப் 1, குரூப் 2, குரூப் 2A, குரூப் 4 மாநிலப் போட்டித் தேர்வுகளான TNUSRB, TRB, TET, TNEB போன்றவற்றுக்கான  முறைகள் இலவசக் குறிப்புகளைப் பெறுவீர்கள்.தேர்வுக்கு தயாராவோர் இங்குள்ள பாடக்குறிப்புகளை படித்து பயன்பெற வாழ்த்துகிறோம்.

Types of Banks

Commercial banks
 Commercial bank refers to a bank, or a division of a large bank, which more specifically
deals with deposit and loan services provided to corporations or large/ middle-sized
business — as opposed to individual members of the public/small business.
 They do not provide, long-term credit, as liquidity of assets is to be maintained.

The Agricultural Refinance Development Corporation (ARDC)
 Agricultural Refinance Development Corporation (ARDC) was established by an
Act of Parliament. It started functioning from July 1, 1963.
 Its aim is to bridge the gap in agricultural finance and to extend credit for projects
involving agricultural development.
Objectives of the ARDC
 To provide necessary funds by way of Refinancing to eligible institutions such as
the Central Land Development Banks, State Co-operative Banks, and Scheduled
 To subscribe to the debentures floated by the Central Land Development banks, State
Co-operative Banks, and Scheduled banks, provided they were approved by the Reserve
Bank of India (RBI).
Regional Rural Banks (RRBs)
 RRBs are also called as Gramin banks.
 A key feature of the late Prime Minister Indira Gandhi’s 20-point economic plan is to free rural
farmers and artisans from indebtedness.
 It was in pursuance of the New Economic programme that the Government of India set up
Regional Rural Banks (RRBs) in 1975.
 The share capital of RRB is 50% by the Central Government, 15% by the concerned State
Government and 35% by the sponsoring commercial bank.
 The main objective of the RRBs is to provide credit and other facilities particularly to the
small and marginal farmers, agricultural labourers, artisans and small entrepreneurs to
develop agriculture, trade, commerce, industry and other productive activities in the
rural areas.
RBI Concessions to RRBs
 They can maintain cash reserve ratio at 3 per cent and statutory liquidity ratio at 25
percent, and
 They also provide the facilities of refinance through NABARD.
NABARD and its role in Agricultural credit
 RBI has shown keen interest in agricultural credit and maintained a separate
department for this purpose.
 A National Bank for Agriculture and Rural Development (NABARD) was set up on July
1982 by an Act of Parliament.

 NABARD take over the functions of ARDC and the refinancing functions of RBI in relation
to Co-operative banks and RRBs.
 NABARD has inherited its apex role from the RBI i.e. it performs all the functions
performed by the RBI about agricultural credit.
 NABARD capital was equally shared by RBI and Government of India (GOI).
 Government of India nominates three of its Central Board Directors on the board of
 A Deputy Governor of the RBI is appointed as the Chairman of NABARD.
Three Tier Cooperative Credit Structure

State Cooperative Bank

Central Cooperative Bank

Primary Cooperative Society

Functions of NABARD
 NABARD acts as a refinancing institution for all kinds of production and investment credit
to agriculture, small-scale industries, cottage and village industries, handicrafts and rural
crafts and real artisans and other allied economic activities with a view to promote
integrated rural development.
 It provides short-term, medium-term and long-term credits to state co-operative banks
(SCBs), RRBs, LDBs and other financial institutions approved by the RBI.
 NABARD gives long-term loans (upto 20 years) to State Governments to enable them to
subscribe to the share capital of co-operative credit societies.

 NABARD gives long-term loans to any institution approved by the Central Government or
contribute to the share capital or invests in securities of any institution concerned with
agriculture and rural development.
 NABARD has the responsibility of co ordinating the activities of Central and State
Governments, the Planning Commission (now NITI Aayog) and other all India and State
level institutions entrusted with the development of small-scale industries, village and
cottage industries, rural crafts, industries in the tiny and decentralized sectors, etc.
 It has the responsibility to inspect RRBs and co-operative banks, other than primary co-
operative societies.
 It maintains a Research and Development Fund to promote research in agriculture and
rural development.
Functions of Commercial Banks
Functions of Commercial Banks
 Commercial banks are institutions that conduct business with profit motive by accepting
public deposits and lending loans for various investment purposes.
 The functions of commercial banks are broadly classified into primary functions and
secondary functions.
Primary Functions
1. Accepting deposits
2. Advancing loans
1. Accepting Deposits
 It implies that commercial banks are mainly dependent on public deposits.
 There are two types of deposits. They are demand deposits and time deposits.
Demand Deposits
 It refers to deposits that can be withdrawn by individuals without any prior
notice to the bank.
 The owners of these deposits are allowed to withdraw money anytime by writing
a withdrawal slip or a cheque at the bank counter or from ATM centres using
debit card.
Time Deposits
 It refers to deposits that are made for a certain committed period of time.
 Banks pay higher interest on time deposits.

 These deposits can be withdrawn only after a specific time period by providing
written notice to the bank.

2. Advancing Loans
 It refers to granting loans to individuals and businesses.
 Commercial banks grant loans in the form of overdraft, cash credit, and discounting bills
of exchange.
Secondary Functions
1. Agency functions
2. General utility functions
3. Transferring funds
4. Letter of Credit
1. Agency Functions
It implies that commercial banks act as agents of customers by performing various functions.
Collecting Cheques
Banks collect cheques and bills of exchange on behalf of their customers through clearing house
facilities provided by the central bank.

Collecting Income
 Commercial banks collect dividends, pension, salaries, rents, and interests on
investments on behalf of their customers.
 A credit voucher is sent to customers for information when any income is collected by
the bank.
Paying Expenses
 Commercial banks make the payments of various obligations of customers, such as
telephone bills, insurance premium, school fees, and rents.
 Similar to credit voucher, a debit voucher is sent to customers for information when
expenses are paid by the bank.
2. General Utility Functions

It implies that commercial banks provide some utility services to customers by performing
various functions.
Providing Locker Facilities
 Commercial banks offer locker facilities to its customers for the safe custody of
jewellery, shares, debentures, and other valuable items.
 Banks are not responsible for the items in the lockers.
Issuing Traveler’s Cheques
Banks issue traveller’s cheques to individuals for travelling outside the country.
Dealing in Foreign Exchange
 Commercial banks help in providing foreign exchange to business people dealing in
exports and imports.
 Commercial banks need to take permission of the Central Bank for dealing in foreign
3. Transferring Funds
 It refers to the transferring of funds from one bank to another.
 Funds are transferred by means of draft, telephonic transfer, and electronic transfer.
4. Letter of Credit
Commercial banks issue letters of credit to their customers to certify their creditworthiness.
Other Functions
1. Money Supply
2. Credit Creation
Money Supply
 It helps in increasing the money supply.
 For instance, a bank lends Rs. 5 lakh to an individual and opens a demand deposit in the
name of that individual. Bank makes a credit entry of Rs. 5 lakh in that account. This
leads to the creation of demand deposits in that account.
 The point to be noted here is that there is no payment in cash.
 Thus, without printing additional money, the supply of money is increased.
Credit Creation
 Credit creation means the multiplication of loans and advances.

 Commercial banks receive deposits from the public and use these deposits to
give loans.
Collection of Statistics:
Banks collect and publish statistics related to trade, commerce and industry


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