Classification of Banks

Classification of Banks

Classification of Banks

A bank is one kind of financial institution which deals with money and other monetary instruments and conducts business. Bank receives deposits from one group of people and lends it to other groups of people. By this process, the bank earns a profit.

A bank can be classified in different ways. The classification of banks from all categories is given followings:

Types of Banks: Types of Bank on the Basis of Ownership:

The banks are classified on the basis of ownership into two categories.

  1. Public Sector Banks: The banks owned and controlled by the Government are called Public sector bank,
  2. Private Sector Banks: The banks owned by corporations are called private sector banks.

Types of Bank on the Basis of Domicile:

The banks are classified on the basis of domicile into two categories.

  1. Domestic Banks: The banks registered and incorporated within the country are called domestic banks.
  2. Foreign Banks: The banks which have their origin and head offices in the foreign countries are called foreign banks.

Types of bank on the Basis of Function: The banks are classified on the basis of function into the following categories.

(1) Central Bank: Central Bank is the bank of banks. Every civilized country now has its own central bank. The primary function of the central bank is to regulate the flow of money and credit in order to promote efficiency, stability and growth in the country.

(2) Commercial Banks: Commercial banks are those banks which are engaged in performing the routine duties of banking business. They collect surplus money and make loans and advances in the form of overdrafts cash credit and discounting bills of exchange. They also provide special financial services and agency services. Commercial banks in short are considered the lifeblood of the economic society.

(3) Exchange Banks: Exchange banks are mainly deal with international trade. These banks take the responsibility of settlement of foreign exchange and arrange the foreign businesses.

(4) Saving Banks: Saving banks are those banks which collect and keep the small savings of .the public. They are called thrift promoting institutions. The Saving banks invest the funds in the safest government securities and offer reasonable rate of profit on saving accounts. Students, government employees and household women are usually opening such accounts. A prior notice to bank is necessary for withdrawal of huge amount.

(5) Agriculture Banks: The bank is responsible for the development of agriculture sector of the country. Agriculture banks are set tip to provide financial assistance to the agriculturists and agro-based industries.

(6) Industrial Banks: The Industrial banks provide medium and long-term credit to the industries. The growth of industries depends on these banks.

(7) Co-operative Banks: Cooperative banking is retail and commercial banking organized on a cooperative basis. Cooperative banking institutions take deposits and lend money in most parts of the world.

(8) Mortgage Banks: A Mortgage bank specializes in originating and/or servicing mortgage loans.

(9) Investment Banks: An investment bank is a financial institution that assists corporations and governments in raising capital by underwriting and acting as the agent in the issuance of securities. .An investment bank also assists companies involved in mergers and acquisitions, derivatives, etc.

(10) Merchant Banks: In banking, a merchant bank is a financial institution primarily engaged in offering financial services and advice to corporations and to wealthy individuals. The term can also be used to describe the private equity activities of banking.

(11) Consortium Banks: A merchant banking subsidiary set up by several banks that may or may not be of the same nationality. Consortium banks are common in the Euromarkets and are active in loan syndication.

(12) Export-Import Banks: The bank which is related to export and import finance of the country is called export import bank.

(13) School Banks: This type of bank offers special financial feature for the schools. This bank also gives loans to the administration.