Types of Banking and Constitution

07/07/2020 0 By indiafreenotes


The banking in India was originated only at 18th century. During the last decades, Bank of Hindustan should be first banks which were established in 1770 and liquated in 1829-32. And also The General Bank of India was established in 1786. The largest bank, and the oldest still in existence is the State Bank of India (S.B.I). It was originated as the Bank of Calcutta in 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three banks funded by a presidency government, the other two were the Bank of Bombay in 1840 and the Bank of Madras in 1843. These three banks were merged in 1921 to form the Imperial Bank of India and later it would become the State Bank of India in 1955. For many years the presidency banks had acted as quasi-central banks, as did their successors, until the Reserve Bank of India was established in 1935, under the Reserve Bank of India Act, 1934.

In 1960, the state bank of India had given control to their eight state associated banks under the state bank of India act 1959. These banks were now called as its associate banks. In 1969, The Indian government had nationalized 14 major private banks in India. In 1969, 6 more private banks were nationalized. These nationalized were majority lenders in Indian economy even now. They had dominated the banking sectors because of their large size and their networks. The Indian banking sector was broadly classified into scheduled and non-scheduled banks.

In the early 1990s, at the time of liberalization, the government had licensed a small number of private banks known as new generation tech-savvy banks and included global trust bank which later amalgamated with the oriental bank of commerce, UTI Bank, ICICI Bank and HDFC Bank. This would become along with the rapid growth in the economy of India revitalized the banking sector in India, which has seen rapid growth with strong contribution from the government banks, private banks and foreign banks. All foreign investors in banks might be given voting rights that could exceed the present capital of 10% at present. It has gone up to 74% with some restrictions. Bankers were used the 4–6–4 method (borrow at 4%; lend at 6%; go home at 4%) of functioning. This new wave ushered in a modern outlook and tech-savvy methods of working for traditional banks. All this led to the retail boom in India. People demanded more from their banks and received more.

Banking Financial Institutions

There is lot more to banking term than what most of the people recognize. Not all banks are shaped in equal manner or to operate for the same reason with same fundamentals. Since individuals or corporate have diversified needs of finance. “Different types of banking and financial institutions are operated to classify services based on distinctive types”. Name banks subject to large entity they are further divided into types based on universal arrangement of capital principles. Bank is an financial institution or intermediary institution for various financial necessities and dealing either directly or indirectly with financial system of nation’s economy. Due to this important factors banks are highly regulated by nation’s government or central bank of country. Banking industry is divided into different types based on client requirements for products and services.

Types of Banking Institutions and Financial Institutions:

  • Retail Banking
  • Commercial Banking
  • Private Banking
  • Investment Banking
  • Specialized financing
  • Central Banks
  1. Retail Banking

Retail banking is the procurement of administrations by a bank to individual rather than to organizations, corporate or other banks. Administrations offered services like savings, money transfers, loans, cheques, cards, etc. The term retail banking mostly recognize as financial institutions for managing an account administrations for individuals or managing retail clients which distinguish it from other banking types. To further understand retail banking refer to tutorial links.

Commercial banks provide administrations services such as making business advances, offering fundamental investment schemes, encouraging saving deposits, fixed deposits, Issuing bank drafts and bank cheques,  giving overdraft facilities, bond investment schemes, cash management, mortgage loans, debit cards, credit cards, etc.

There are two types of commercial banks, Public Commercial Banks and Private Commercial Banks. Public commercial banks refers to bank in which government holds major stake usually to emphasize on social objectives than on profitability. Whereas Private Commercial Banks are fully owned, managed and controlled by private supporter and they are free to operate without any government interference. For more details refer to the tutorial links.

  1. Private Banking

The expression “private” refers to administration services more on personal basis rather than mass population (Retail Banking). Private Banks refer as financial institutions for managing accounts, investments and other services offered by banks to high-net worth individuals (HNI) who are categories as high income professionals or large investors. Private banks subject to an essential part of wealth management for high income groups. They provide services like: assets management, tax advisory, financial brokers, offered solitary relationship manger.

  1. Investment Banking

An investment bank refers as a consultant or assisting institution for individuals, organizations and governments in raising capital by underwriting assets. And/or performing broker in issuing securities. An investment bank likewise assist organizations in simplifying acquisitions and mergers, trading in derivatives, equities, currencies, commodities by providing auxiliary services. Investment bank does not provide deposit services like commercial banks or retail banks.

Investment bank can likewise be divided into private and public based on information capacities and data obstruction. The private ranges deals with private insider data that cannot be freely disclosed, while public range such as stock examination deals with public data. For more details refer to tutorial course links.

  1. Specialized Financing

Specialized Banks offers various specialized services away from traditional banking. Specialized banks are financial institutions referred as foreign exchange banks, development banks, industry and mine banks, farms and agriculture banks, aboriginal banks (providing financial products and services to aboriginal communities), export-import banks with unique needs.

Some specialized banks are governed and regulated by state or central governments or both for re-structuring, planning and development of the country. Specialized banks and financial institutions are broadly categories into three types of specialized banks, they are:

  • Export Import Banks (EXIM Banks)
  • Small Industries Development Banks
  • Agricultural and Rural Development Banks
  1. Central Banks

A reserve bank, central bank, or monetary authority refers to a financial institution that manages a states or country. In term of currency, interest rates, currency valuation. Central bank holds monopoly in increasing monetary base also by prints the national currency. Central bank functions mostly include managing foreign exchange and gold reserves, implementing monetary policy, acting as a banker’s bank at time of crisis, making official policies regarding interest rates. Central bank holds superior power to protect country man by punishing banks or institutions for performing any reckless or fraudulent behaviour. Central banks are mostly designed and recognised as an independent and politically free entity. Examples: Reserve Bank of India (RBI) is the central bank of India, Bank of England, European Central Bank (ECB), People’s Bank of China, Federal Reserve of the United States of America, etc.