Different Types of Banks in India

Commercial banks:

Commercial banks are the most important types of banks. The term ‘commercial’ carries the significance that banking is a business like any other business. In other words, commercial banks are essentially profit-making institutions. They collect deposits from the public and lend money to business firms, traders, farmers, and consumers. Commercial banks normally meet the working capital needs of trade and industry and are a part of the money market. The current account deposits of commercial banks are used as a medium of exchange, i.e., for making transactions. Deposits of other banks are not so used. These are specialized institutions that give loans to various sectors of the economy.

Development banks:

Development banks are parts of a country’s capital market. In India, they are called public financial institutions. They are specialized financial institutions that supply long-term finance to large and medium industries. They also perform various promotional functions for accelerating the rate of capital formation in the country. In this way, they promote industrial development in particular and economic development in general. IFCI, IDBI, and ICICI are examples of such banks. These institutions have assumed crucial importance in providing an ever-increasing proportion of industrial finance and various types of development assistance to business enterprises in India.

Co-operative banks:

The co-operative banks are set up under the provisions of the co-operative society’s laws of a country. In India, such banks have been set up to provide credit to primary agricultural credit societies at low rates of interest. However, some co-operative banks also function in rural areas.

Land development banks:

These banks (called land mortgage banks in India) provide long-term credit to farmers for land development. They also give long-term loans to farmers for acquiring new land.

Investment banks:

When a corporate entity wants to issue new equity or debt securities, an investment bank serves the role of an intermediary. They sometimes also make investments in these companies through the purchase of equity shares.

Merchant banks:

A merchant bank helps a company to sell its new shares to the general public. The main job of a merchant bank is to raise money to lend to the industry. They do not lend money themselves but instead help circulate money from those who want to lend to firms who wish to borrow.

Foreign banks:

There are many foreign banks in India like the Citi Bank, the Hong Kong and Shanghai Bank, and the Bank of America. These are not nationalized institutions like Indian commercial banks.

Central bank:

The central bank is the bankers’ bank and is also the banker to the government. It controls the entire banking system of the country. The Reserve Bank of India (RBI) is India’s central bank and the Bank of England is that of England