Banks and its Types – Working & Overview

Bank is an important organ of the modern trade and commerce. Banks and its activities in India are regulated by the Banking Regulations Act, 1949.

Banking: Under section 5(b) of the said act “Banking” means, the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise.

Banking Company: Any bank which transacts this business in India is called a banking company. However, any company which is engaged in the manufacturer of goods or carriers on any trade and which accepts deposits of money from the public merely for the purpose of financing its business as manufacturer or trader shall not be deemed to transact the business of banking. It may be mentioned that the Banking Regulation Act, 1949 is not applicable to a primary agricultural society, a co-operative land mortgage bank and nay other co-operative society except in the manner and to the extent specified in Part V of the Act.

Types of banks:

1. Rural Bank
2. Commercial Bank
3. Cooperative bank

Commercial banks can be domestic banks or foreign banks

Domestic banks can be scheduled banks or non-scheduled banks

Scheduled banks can be nationalized banks or non-nationalized banks

Scheduled banks in India constitute those bank which have been included in the Second  Schedule of Reverse Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down wide section 42(6)(a) of the Act.

The banks included in this schedule should fulfill the following conditions.

he paid up capital and reserves of an aggregate value of bank should not be less the Rs.5,00,000

Any activity of the bank will not adversely affect the interests of depositors

The Reserve bank of India includes a bank in this schedule if it fulfils certain conditions. 

The Reserve Bank gives certain facilities to scheduled banks which include the followings

1. The purchase, sale and re discounting of certain bills of exchange or promissory notes
2. Purchase and sale of foreign exchange
3. Purchase, sale and re discounting of foreign bills of exchange
4. Making of loans and advances to scheduled banks
5. Maintenance of accounts of the scheduled bank in its banking department and issue department
6. Remittance of money between difference branches of scheduled banks through the offices, branches or agencies of Reserve Bank free of cost or at nominal rates.