Types of Banking

1) Saving Banks

Saving banks are established to create saving habit among the people. These banks are helpful for salaried people and low income groups. The deposits collected from customers are invested in bonds, securities, etc. At present most of the commercial banks carry the functions of savings banks. Postal department also performs the functions of saving bank.

2) Commercial Banks

Commercial banks are established with an objective to help businessmen. These banks collect money from general public and give short-term loans to businessmen by way of cash credits, overdrafts, etc. Commercial banks provide various services like collecting cheques, bill of exchange, remittance money from one place to another place.

In India, commercial banks are established under Companies Act, 1956. In 1969, 14 commercial banks were nationalised by Government of India. The policies regarding deposits, loans, rate of interest, etc. of these banks are controlled by the Central Bank.

3) Industrial Banks / Development Banks

Industrial / Development banks collect cash by issuing shares & debenturesand providing long-term loans to industries. The main objective of these banks is to provide long-term loans for expansion and modernisation of industries.

In India such banks are established on a large scale after independence. They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of India (ICICI) and Industrial Development Bank of India (IDBI).

4) Land Mortgage / Land Development Banks

Land Mortgage or Land Development banks are also known as Agricultural Banks because these are formed to finance agricultural sector. They also help in land development.

In India, Government has come forward to assist these banks. The Government has guaranteed the debentures issued by such banks. There is a great risk involved in the financing of agriculture and generally commercial banks do not take much interest in financing agricultural sector.

5) Indigenous Banks

Indigenous banks means Money Lenders and Sahukars. They collect deposits from general public and grant loans to the needy persons out of their own funds as well as from deposits. These indigenous banks are popular in villages and small towns. They perform combined functions of trading and banking activities. Certain well-known indian communities like Marwaries and Multani even today run specialised indigenous banks.

6) Central / Federal / National Bank

Every country of the world has a central bank. In India, Reserve Bank of India, in U.S.A, Federal Reserve and in U.K, Bank of England. These central banks are the bankers of the other banks. They provide specialised functions i.e. issue of paper currency, working as bankers of government, supervising and controlling foreign exchange. A central bank is a non-profit making institution. It does not deal with the public but it deals with other banks. The principal responsibility of Central Bank is thorough control on currency of a country.

7) Co-operative Banks

In India, Co-operative banks are registered under the Co-operative Societies Act, 1912. They generally give credit facilities to small farmers, salaried employees, small-scale industries, etc. Co-operative Banks are available in rural as well as in urban areas. The functions of these banks are just similar to commercial banks.

8) Exchange Banks

Hong Kong Bank, Bank of Tokyo, Bank of America are the examples of Foreign Banks working in India. These banks are mainly concerned with financing foreign trade.

Following are the various functions of Exchange Banks :-

1. Remitting money from one country to another country,
2. Discounting of foreign bills,
3. Buying and Selling Gold and Silver, and
4. Helping Import and Export Trade.

9) Consumers Banks

Consumers bank is a new addition to the existing type of banks. Such banks are usually found only in advanced countries like U.S.A. and Germany. The main objective of this bank is to give loans to consumers for purchase of the durables like Motor car, television set, washing machine, furniture, etc. The consumers have to repay the loans in easy instalments.

10) Unit  Banking V/s Branch Banking

In Branch Banking, the Branches in India are set up under Section 23 of Banking Regulations Act, 1949. A branch should cater to all banking services and include a specialised branch, a satellite office, an extension counter, an ATM, administrative office, service branch and a credit card centre for the purpose of branch authorisation policy. It helps in better management, more inclusion and risk diversification.

On the other hand, Unit banking is a limited way of banking where banks operate only from a single branch (or a few branches in the same area) taking care of local community. Unit system of banking originated in the united States. In Unit system, the size of banks is small as compared to branch banking. Due to small scale of operations and quick decisions, the work is more efficient. These banks are involved in developmental works in the areas of operations. The management enjoys more autonomy and thus more discretionary powers. However, due to single units, the risk is not distributed or diversified. It may however encourage outside local influences.

11) Public Sector Banks V/s Private Sector Banks

Public sector banks are those where majority of the stake in the bank is held by government. Where as in private sector bank, majority is held by shareholders of the bank. Individuals get a fair idea, if we say SBI is a public sector bank and ICICI is a private sector bank. Both type of bank offer same services, however charges differ and so as the quality and time duration for the services provided.

Public Sector banks: A bank in which the government holds a major portion of the shares. Say for example, SBI is public sector bank, the government holding in this bank is 58.60%. Similarly PNB is a public sector bank, the government holds a stake of 58.87%. Usually, in public sector banks, government holdings are more than 50 per cent. Nationalized banks are public sector banks. In nationalized banks the government controls the bank. Some examples are SBI, PNB, etc

Private Sector Banks: Private sector banks are owned by private bodies. These banks management and controlled by private promoters. After the liberalization in the 1990s, the new private sector banks are those who got their licenses.

Difference between public and private sector bank

In a public sector bank more than fifty percentage of the stake is held by the Government. In a private sector majority of the stake owned to private shareholders.

Interest Rates offered by public sector bank are slightly higher. In case of loans, interest rates are marginally lower.

Private Sector Banks have made names in providing better service, however, they charge for the extra services provided by them. Public sector banks fees and charges are less such as on balance maintenance.

Mostly public sector accounts are opened for government employees for their salaries, fixed deposits, lockers etc. whereas private sector bank in India target company employees,for their salary accounts, credit cards and net banking.
 

12) Consortium Banks

A subsidiary bank created by numerous banks. A consortium bank is created to fund a specific project The consortium leverages individual banks' assets to achieve its objectives. All member banks have equal ownership shares – no one member has a controlling interest. After the bank's objective is met the consortium typically dissolves.

Consortium banks originated in the early 1960s and are predominantly found in Europe. They were originally created to enable smaller banks to participate in international banking activities. Consortium banks are not as active as in the past; however, examples can still be found both in the U.S. and overseas. Member banks can be headquartered in different countries.

13) Ethical Banking

An ethical bank, also known as a social, alternative, civic, or sustainable bank, is a bank concerned with the social and environmental impacts of its investments and loans. The ethical banking movement includes: ethical investment, impact investment, socially responsible investment, corporate social responsibility, and is also related to such movements as the fair trade movement, ethical consumerism, and social enterprise.

Other areas, such as fair trade, have comprehensive codes and regulations to which all industries that wish to be certified as fair trade must adhere. Ethical banking has not developed to this point; because of this it is difficult to create a concrete definition distinguishing exactly what it is that sets an ethical bank apart from conventional banks. Ethical banks are regulated by the same authorities as traditional banks and have to abide by the same rules. While there are differences between ethical banks, they do share a common set of principles, the most prominent being transparency and social and/or environmental aims of the projects they finance. Ethical banks sometimes work with narrower profit margins than traditional ones, and therefore they may have few offices and operate mostly by phone, Internet, or mail. Ethical banking is considered one of several forms of alternative banking.

14) Core Banking

Core banking is a banking service provided by a group of networked bank branches where customers may access their bank account and perform basic transactions from any of the member branch offices.

Core banking is often associated with retail banking and many banks treat the retail customers as their core banking customers. Businesses are usually managed via the Corporate banking division of the institution. Core banking covers basic depositing and lending of money.

Normal Core Banking functions will include transaction accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, mobile banking and branches.^[1]

The core banking services rely heavily on computer and network technology to allow a bank to centralise its record keeping and allow access from any location. It has been the development of banking software that has allowed core banking solutions to be developed.

15) Internet/Online Banking

Online banking, also known as internet banking, e-banking or virtual banking, is an electronic payment system that enables customers of a bank or other financial institution to conduct a range of financial transactions through the financial institution's website. The online banking system will typically connect to or be part of the core banking system operated by a bank and is in contrast to branch banking which was the traditional way customers accessed banking services.

16) Mobile Banking

Mobile banking is a service provided by a bank or other financial institution that allows its customers to conduct a range of financial transactions remotely using a mobile device such as a mobile phone or tablet, and using software, usually called an app, provided by the financial institution for the purpose. Mobile banking is usually available on a 24-hour basis. Some financial institutions have restrictions on which accounts may be accessed through mobile banking, as well as a limit on the amount that can be transacted.

17) Telephone Banking

Telephone banking is a service provided by a bank or other financial institution, that enables customers to perform a range of financial transactions over the telephone, without the need to visit a bank branch or automated teller machine. Telephone banking times are usually longer than branch opening times, and some financial institutions offer the service on a 24-hour basis. Most financial institutions have restrictions on which accounts may be accessed through telephone banking, as well as a limit on the amount that can be transacted.

18) Home Banking

The practice of conducting banking transactions from home rather than at branch locations. Home banking generally refers to either banking over the telephone or on the internet. The first experiments with internet banking started in the early 1980s, but it did not become popular until the mid 1990s when home internet access was widespread. Today, a variety of internet banks exist which maintain few, if any, physical branches.