Saturday, August 22, 2009

Bank and its Types

Every thing with which we are much familiar, is difficult to be defined. The paradox applies to the bank also. We are much familiar with bank in our daily life, but when it comes to definition, one is bound to keep silent. Different people have defined bank in different ways. In simple and direct words, we think of a bank as an institution which accepts deposits from public and lends money. People either for the sake of safety, or for the sake of income in the form of interest or for both, like to deposit their money with the banks. Banks accept their deposits on interest and lend it to other people on a higher rate of interest, thereby earning profit for themselves. In this contex we may refer to the following definitions.
According to code of exchange Bills (1892) of England “In a bank we include every person, firm or company having a place of business where credits are opened by deposits or collection of money or currency, subject to be paid or remitted on drafts or cheques or orders or money as advanced or loaned on stocks etc”.
According to Kinley “Bank is an establishment which makes to individuals such advance of moey as may be required and safely made and to which individual entrust money when not required by them for use. As per Sayer “ordinary banking business consists of changing cash or bank deposits and bank deposits for cash, transferring bank deposits from one person or corporation (one depositor) to another, giving bank deposits in exchange for bills of exchange, government bonds, the secured or unsecured promises of businessmen to repay etc”.
Gantur Says “The word ‘Bank’ express the business which consist in efficient an account of others receipts and payments buying and selling, either money or gold and silver or letters of exchange and drafts, public securities and shares in industrial enterprises - in a word – all obligations whose creation has resulted from the use”.
Thus in simple words we may say that bank is an institution dealing in money and credit. It is an institution which receives money as deposits, lend money on credit. IOU promises to pay on its customers, orders and there are accepted by other people in payment of their debts. A bank buys the credit off their customers and it sells its own credit too its customers. Since people deposit their money with the bank, the other people who know it, regard them credit worthy and if bank promises to pay his customer’s debt to them, they accept it.
All these definitions define bank in the form of the function what the bank does. They narrate the functions of a bank in one or the other way and say that whoever may do all this is a banker or bank. In the end we come to the conclusion that A bank is that which does banking i.e. any person, firm or company performing banking functions. Since the definitions of bank given by different scholars are only functional and narrative in character, we must understand the banking rather than bank. Banking is the sum of the functions of a bank.
Although primary business of bank is to receive deposits and give loans, yet some banks are specialised in one task. While others are in other tasks on the basis of this specialisation the banks are classified under the following heads.
The Central Bank is the principal bank in a country. It is the head of the banking system in a country. It is the banker’s bank. It is the banker of the government. The deposits of the government are maintained with it, it lends money to the government and has the responsibility of adjusting all the responsibilities in monetary and financial metters which the government bestows upon it. In addition to this Central Bank has the role authority of controlling the credit and money supply of the country. It controls the value of currency by its role right of issuing notes. It controls commercial banks through the various techniques such as discount rate, manipulations, open market operations, changes in the reserve ratio and the selective credit control.
The main function of commercial banks are accepting deposits, lending money through over draft, loans, discounting of bills etc, working as an agent of its customers in the tasks assigned by their customers and financing of trade and industry. But it must be noted that these banks lend money on short term basis. Besides doing the function of commercial banking they also deal in foreign exchange and may do some other banking functions also.
Industrial banks arrange long term loans for industry. These banks accept long term fixed deposits. These banks mainly deal in the financing of industry for long periods. Such loans are also given for specific purposes which are productive and expected to yield return after the allowed time.
Agriculture has its own problems and hence there are separate banks to finance it. They advance long term and short term loans to agriculturists. Long term credit is needed for making permanent improvements in land, buying more lands and introducing better methods and costlier implements. Short term credit is meant to supply funds for day-to-day operation of the agriculturists. These include buying of seeds and manures, personal and Labour expenses and payment of water rates and taxes etc. the nature of securities offered by the agriculturists and the length of time for which capital is required, make it impossible for commercial banks, exchange banks and industrial banks to make up this finance.
These banks provide loans to the cultivators by mortgaging their land whenever the cultivator has to do some permanent reforms in his land viz making boundary around the field, purchase of machine, digging of well on for any other work. He can borrow money from land mortgage bank by mortgaging his land such banks arrange short, medium and long term loans.
These banks mainly deal in foreign exchange. They purchase foreign currencies and sell then to those people who have to make payments abroad. Though commercial banks deal in foreign exchange as their specific function, yet these banks are specific in the task. Exchange banks besides financing foreign trade, also finance the internal trade.
These types of banks are nothing else then commercial banks, but their organization is carried on co-operative lines. The principles of co-operation are different from all other forms of the Joint Stock Organizations. They are treated on different stand due to some peculiarities in regard to their fund and character.
Though all commercial banks have saving accounts with them, there may be some specialised banks which deal in the small amounts of the savings of the people.
While different kinds of banks described above are banks run on modern lines, there are some private bankers who combine trading and carry on their business in the most antiquated form. Such bankers are present in England, their number is sufficiently large even in the country. Almost the whole of the agriculture industry and a considerable portion of the internal trade is financed by them.
There are certain other kinds of banks which have arisen in due course to meet the specialised needs of people. In England and America, we have got investment banks whose object is to control the distribution of capital into several uses. American trade unions have also got labour banks where the savings of the labourers are pooled together. Some of the colleges in this country have started student banks to receive the deposits of the student community. The merchant bankers or Accepting Houses of London perhaps represent another highly specialised development of the financial structure.
In the Indo-Pak sub-continent, these bankers are known by different names in different places. These are known as Shahukar, Khatri, Multani, Shareef, Mahajer Bhal wana etc. These indigenous bankers serve a substantial part of financial need of the country particularly in the rural area.


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