Functions Of Banks In India and Types

Functions Of Bank in India and Types: In this article, aspirants will get information on the banking system in India, its functions, and the type of banks in India. Functions Of Bank in India and Types is an important topic for UPSC CSE, SSC, CAPF, State PSCs etc.

The Functions Of Banks in India and Types and the list of banks forms a very important part of the banking awareness syllabus which is included in almost every Government exam.

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What Is Bank?

• As a financial services provider, banks provide a safe place to store cash.
• As such, they play a vital role in the economy by providing essential services both to consumers and businesses.
• The economy relies heavily on banks. Bank definition goes to a financial institution authorized to accept deposits and provide credits.
• These institutions may also give economic assistance such as:
  • capital management
  • foreign exchange
  • Safe deposit boxes are commonly known as locker services.
  • Banks of a country are usually regulated by a central bank or the national government, in India all the banks
  • are regulated by the central bank, the Reserve Bank of India (RBI).

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Important Functions of Banks

Given below are the functions of the banks in India:

There are two types of functions of banks:

1. Primary functions – Accepting of deposits, Granting of loans and advances
2. Secondary Functions – Agency functions, Utility Functions

Primary Functions of Banks

• Acceptance of deposits from the public
• Provide demand withdrawal facility
• Lending facility
• Transfer of funds
• Issue of drafts
• Provide customers with locker facilities
• Dealing with foreign exchange

Secondary Functions of Banks

Agency Functions of Bank

Banks are the agents for their customers, hence it has to perform various agency functions as mentioned below:

• Transfer of Funds
• Periodic Collections
• Periodic Payments
• Collection of Cheques
• Portfolio Management
• Other Agency Functions

Utility Functions of Bank

• Issuing letters of credit, traveller’s cheque, etc.
• Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers.
• Providing customers with facilities of foreign exchange dealings
• Underwriting of shares and debentures
• Dealing in foreign exchanges
• Social Welfare programmes
• Project reports
• Standing guarantee on behalf of its customers, etc.

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List Of Different Types Of Banks

Banks can be classified into various types. Given below is the List Of Different Types Of Banks:

• Central Bank
• Cooperative Banks
• Commercial Banks
• Regional Rural Banks (RRB)
• Local Area Banks (LAB)
• Specialized Banks
• Small Finance Banks
• Payments Banks

Central Bank

• The Reserve Bank of India is the central bank of our country. Each country has a central bank that regulates all the other banks in that particular country.
• The main function of the central bank is to act as the Government’s Bank and guide and regulate the other banking institutions in the country. Given below are the functions of the central bank of a country:

• • Guiding other banks
  • Issuing currency
  • Implementing the monetary policies
  • Supervisor of the financial system
• In other words, the central bank of the country may also be known as the banker’s bank as it provides assistance to the other banks of the country and manages the financial system of the country, under the supervision of the Government.

• These banks are organised under the state government’s act. They give short term loans to the agriculture sector and other allied activities.
• The main goal of Cooperative Banks is to promote social welfare by providing concessional loans
• They are organised in the 3 tier structure

• • Tier 1 (State Level) – State Cooperative Banks (regulated by RBI, State Govt, NABARD)
    • Funded by RBI, government, NABARD. Money is then distributed to the public
    • Concessional CRR, SLR applies to these banks. (CRR- 3%, SLR- 25%)
    • Owned by the state government and top management is elected by members
  • Tier 2 (District Level) – Central/District Cooperative Banks
  • Tier 3 (Village Level) – Primary Agriculture Cooperative Banks

• Organised under the Banking Companies Act, 1956
• They operate on a commercial basis and its main objective is profit.
• They have a unified structure and are owned by the government, state, or any private entity.
• They tend to all sectors ranging from rural to urban
• These banks do not charge concessional interest rates unless instructed by the RBI
• Public deposits are the main source of funds for these banks

The commercial banks can be further divided into three categories:

1. Public sector Banks – A bank where the majority stakes are owned by the Government or the central bank of the country.
2. Private sector Banks – A bank where the majority stakes are owned by a private organization or an individual or a group of people
3. Foreign Banks – The banks with their headquarters in foreign countries and branches in our country, fall under this type of bank

List Of Commercial Banks In India

Given below is the list of commercial banks in India:

Regional Rural Banks (RRB)

• These are special types of commercial Banks that provide concessional credit to agriculture and rural sector.
• RRBs were established in 1975 and are registered under a Regional Rural Bank Act, 1976.
• RRBs are joint ventures between the Central government (50%), State government (15%), and a Commercial Bank (35%).
• 196 RRBs have been established from 1987 to 2005.
• From 2005 onwards government started merger of RRBs thus reducing the number of RRBs to 82
• One RRB cannot open its branches in more than 3 geographically connected districts.

• Introduced in India in the year 1996
• These are organized by the private sector
• Earning profit is the main objective of Local Area Banks
• Local Area Banks are registered under Companies Act, 1956
• At present, there are only 4 Local Area Banks all which are located in South India

Certain banks are introduced for specific purposes only. Such banks are called specialized banks. These include:

• Small Industries Development Bank of India (SIDBI) – Loan for a small scale industry or business can be taken from SIDBI. Financing small industries with modern technology and equipments is done with the help of this bank
• EXIM Bank – EXIM Bank stands for Export and Import Bank. To get loans or other financial assistance with  exporting or importing goods by foreign countries can be done through this type of bank
• National Bank for Agricultural & Rural Development (NABARD) – To get any kind of financial assistance for rural, handicraft, village, and agricultural development, people can turn to NABARD.

Note: There are various other specialized banks and each possesses a different role in helping develop the country financially.

• As the name suggests, this type of bank looks after the micro industries, small farmers, and the unorganized sector of the society by providing them loans and financial assistance.
• These banks are governed by the central bank of the country.
• Given below is the list of the Small Finance Banks in our country:

• The payments bank have been conceptualized by the Reserve Bank of India.
• People with an account in the payments bank can only deposit an amount of up to Rs.1,00,000/- and cannot apply for loans or credit cards under this account.
• Options for online banking, mobile banking, the issue of ATM, and debit card can be done through payments banks. Given below is a list of the few payments bank in our country:

• • Airtel Payments Bank
  • India Post Payments Bank
  • Fino Payments Bank
  • Jio Payments Bank
  • Paytm Payments Bank
  • NSDL Payments Bank

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