A bank is a financial institution that plays a crucial role in managing

money and credit. Its primary functions include collecting deposits from
the public and providing credit to individuals and businesses, which in turn
facilitates economic exchanges. Beyond these core activities, banks also
engage in various other functions such as credit creation, acting as agents
for their customers, and offering general financial services.

In essence, a bank is an organization that accepts deposits, extends loans,

and undertakes additional roles to support the financial needs of
individuals and the

broader economy.
1.
Types of Bank

Central Bank: A central bank, also known as a reserve bank or monetary

authority, is an institution responsible for managing a country's currency
and formulating monetary policies. It holds a monopoly on the issuance of
currency and plays a pivotal role in overseeing the commercial banking
system. In addition to regulating monetary supply, central banks often
have supervisory and regulatory powers to ensure the stability of member
institutions, prevent bank runs, and discourage irresponsible or fraudulent
behavior by commercial banks.
Commercial Banks: Commercial banks are financial institutions that
serve as the primary interface for individuals and small businesses in the
banking sector. They accept deposits, provide checking account services,
and offer a range of financial products such as certificates of deposit (CDs)
and savings accounts. Commercial banks generate revenue by lending
money and earning interest on loans, including mortgages, auto loans,
business loans, and personal loans.
3. cooperative bank

A cooperative bank in India is a type of financial institution that operates

on a cooperative basis, where its members are also its owners. These
banks are established to serve the financial needs of their members.
Cooperative banks offer a range of banking and financial services,
including savings and checking accounts, loans, and other financial
products.
 4. Specialised Bank
In India, a specialized bank refers to a financial institution that
focuses on specific sectors or functions rather than providing a
broad range of banking services. One prominent example is the
Small Industries Development Bank of India (SIDBI), supporting
and financing small and medium-sized enterprises (SMEs).
Another example is the National Bank for Agriculture and Rural
Development (NABARD), primarily focuses on the development of
the agricultural and rural sectors by providing financial
assistance, credit, and other supportive services. These
specialized banks play a key role in fostering economic
development

Function of Commercial Bank:

1. Accepting Deposits: Commercial banks mainly collect money from people,

and they have different types of bank accounts to meet various needs:

 Fixed Deposit Account: You put a certain amount of money in the bank
for a specific time. After that time, you can take your money back with
interest. The longer you leave the money, the more interest you get.
 Current Deposit Account: Businesspeople usually use this account. You
can put money in or take it out whenever you want. It's also known as a
demand deposit because you can demand your money back anytime.
However, no interest is given, and the bank may charge fees for its
services.
 Saving Deposit Account: It's for regular folks who want to save some
money. You can put in and take out money as needed. The bank pays you
some interest, but it's not as much as in a fixed deposit account.
 Recurring Deposit Account: This account encourages people to save
regularly. You deposit a fixed amount every month for a set time, and
after that, you get your money back with interest. The interest rate is
higher than in a regular savings account.
 Multiple Option Deposit Account: This is a special savings account. If
you put in more money than a certain limit, it automatically becomes a
fixed deposit, earning you more interest. If there's not enough money in
your regular account to cover a check, it automatically takes money from
the fixed deposit, reducing the risk of a bounced check. So, you get more
interest, and there's less chance of a check bouncing.

2. Lending Money: Commercial banks don't just store money; they also
lend it to people and businesses to help them with various financial needs.
Here are the main ways they do this:
 Term Loans: Banks provide loans for a fixed period to help people buy
things like machinery, trucks, scooters, or houses. The borrowers pay back
the loans in instalments, which can be monthly, quarterly, half-yearly, or
annually.
 Bank Overdraft: If you have a current account with the bank, you can
ask for permission to take out more money than you have in your
account. This extra amount is called an overdraft. It's a short-term
arrangement, usually for trustworthy customers. The bank might ask for
some security, like assets or personal guarantees, and they charge
interest on the extra money you've taken out.
 Cash Credit: In this setup, the bank lends money up to a certain limit
against current assets and other securities. The bank opens an account in
the borrower's name and allows them to withdraw money up to the
approved limit. Interest is charged only on the amount actually withdrawn.
 Discounting the Bill of Exchange: If a customer needs money before a
bill of exchange (a type of financial document) is due, the bank can
provide the money in advance. The bank charges a fee (discount) for this
service, covering the remaining period until the bill is due. It's a way for
customers to get funds quickly based on the security of their bills.

Secondary Functions:

1. Agent Functions: Commercial banks act as agents for their

customers, providing various services based on customer instructions:

 Collecting Bills and Cheques: Banks collect bills of exchange,

promissory notes, and cheques on behalf of their customers.
 Collecting Dividends and Interest: They handle the collection of
dividends and interest on investments.
 Buying and Selling Securities: Banks facilitate the buying and selling
of shares, debentures, and other securities for their customers.
 Payment Services: Banks make payments on behalf of customers,
including interest payments and insurance premiums.
 Funds Transfer: They assist in transferring funds from one branch to
another or from one place to another.
 Representation: Banks can act as representatives for their customers
when dealing with other banks and financial institutions.

2. General Utility Functions: Commercial banks also perform

miscellaneous functions to cater to general customer needs:

 Safe Custody: Banks provide lockers for customers to safely store

jewelry and other valuables.
 Creditworthiness Information: They offer information to customers
about the creditworthiness of other individuals or businesses.
 Trade Information: Banks supply various types of trade information that
can be useful to customers.
 Issuing Financial Instruments: Banks issue letters of credit, pay
orders, bank drafts, credit cards, and traveler's cheques to facilitate
financial transactions.
 Underwriting: Banks may underwrite the issuance of shares and
debentures, supporting companies in raising capital.
 Foreign Exchange Services: Banks provide foreign exchange services,
assisting importers and travelers going abroad.
 Bank Draft and Pay Order:
 Bank Draft: A financial instrument used to remit money from one
place to another. It involves depositing a specific amount in the
bank, which then issues a draft payable at its branch or other banks
in different locations. The payee can collect the money from the
drawee bank.
 Banker’s Cheque or Pay Order: Similar to a bank draft, but
typically used for local transactions. Pay orders are issued by banks
for local purposes, while bank drafts are used for outstation
transactions. A small commission is charged by the bank for issuing
these financial instruments.
Electronic Banking Services (E-Banking):

Electronic banking, or E-Banking, involves the use of computers and the

internet in banking operations. These services enable customers to
perform transactions without physically visiting a bank. Here are some
chief electronic banking services:

1. Electronic Fund Transfer (EFT):

 Banks use EFT to directly transfer wages and salaries from a
company's account to its employees' accounts.
 Examples include online payment of utility bills such as electricity,
water, insurance premiums, and house taxes.
2. Automatic Teller Machines (ATMs):
 ATMs are automatic machines that allow users to withdraw or
deposit money by inserting a card and entering a Personal
Identification Number (PIN).
 Available 24/7, ATMs provide convenient access to cash and basic
banking services.
3. Debit Card:
 A debit card is issued to customers, representing the funds
deposited in their bank accounts.
 Users can make immediate payments for goods or services based
on the available balance.
4. Credit Card:
 Banks issue credit cards to customers with a good reputation,
providing an overdraft facility.
 Cardholders can make purchases or obtain services up to a specified
credit limit, even without sufficient funds in their bank accounts.
5. TeleBanking:
  Customers can access information about their account balance and
recent transactions through telephone-based banking services.
6. Core Banking Solution (CBS) / Centralized Banking Solution:
 With CBS, customers can open an account in one branch and
operate it in any CBS branch of the same bank across the country.
 Transactions are seamless regardless of the specific branch.
7. National Electronic Fund Transfer (NEFT):
 NEFT is a nationwide system enabling electronic fund transfers
between individuals, firms, and companies across different banks.
8. Real-Time Gross Settlement (RTGS):
 RTGS is a funds transfer system where transactions happen in real-
time and on a gross basis, without waiting periods or netting.

 It is the fastest money transfer system through the banking channel

Benefits of E-Banking to Customers:

1. 24/7 Accessibility:
 E-Banking offers round-the-clock services, allowing customers to
conduct transactions at any time, 24 hours a day, 365 days a year.
This flexibility accommodates diverse schedules and time zones.
2. Convenient Transactions:
 Customers can perform banking activities conveniently from their
homes, offices, or while traveling using mobile phones. This
eliminates the need to visit physical bank branches for routine
transactions, enhancing convenience and accessibility.
3. Enhanced Security and Satisfaction:
 E-Banking provides a secure platform for transactions, reducing the
risks associated with carrying cash. Customers experience greater
satisfaction due to unlimited access to their accounts and the
assurance of robust security measures.

Benefits of E-Banking to Banks:

1. Lower Transaction Costs:

 E-Banking helps banks reduce transaction costs significantly.
Automated processes and digital transactions decrease the need for
manual intervention, paperwork, and physical infrastructure,
resulting in cost savings.
2. Centralized Database for Efficiency:
 Establishing a centralized database through E-Banking reduces the
workload on individual branches. This centralized approach
streamlines operations, enhances efficiency, and ensures
consistency in data management.
3. Competitive Advantage and Value Addition:
  E-Banking provides a competitive edge to banks in the financial
industry. Offering digital services adds value to the banking
relationship by meeting customer expectations for convenience and
accessibility. Banks that embrace E-Banking demonstrate
adaptability and responsiveness to changing customer preferences,
contributing to their overall competitiveness in the market.

In conclusion, E-Banking benefits both customers and banks by improving

accessibility, convenience, security, and operational efficiency. It positions
banks as technologically advanced institutions, fostering a positive and
competitive image in the financial landscape.