Different Types of Bank & Banking

Bank

A bank is a financial institution that conducts banking processes. “Bank” means a service provider that accepts deposits from the public and creates credit. Lending activities can be carried out either directly by financial institutions or indirectly through capital markets. The bank accepts the surplus money of the people in the form of deposits and gives it to others in the form of loans and advances. 

Banking  

Banking is the process of carrying out the services provided by a bank. Its primary functions include accepting deposits, granting loans, facilitating payments, and offering other financial services. Modern banking emerged in the prosperous cities of Renaissance Italy during the 14th century. However, it evolved from much older traditions of credit and lending that originated in the ancient world, building on financial concepts developed by early civilizations.

Banks in the Economy

A bank can generate revenue in a variety of different ways, including interest, transaction fees, and financial advice. The bank profits from the difference between the level of interest it pays for deposits and other sources of funds and the level of interest it charges in its lending activities. Due to the importance of banks in the financial stability of a country, most jurisdictions exercise a high degree of regulation over banks. The bank was responsible for regulating the nation’s currency, managing credit and monetary policy, overseeing exchange controls, and maintaining the country’s official foreign exchange reserves.

The banking system plays a vital role in the modern economy by supporting financial transactions, promoting savings, providing credit, and driving economic growth. Banks also create money by purchasing assets, including both real assets and financial assets, which increases the money supply in the economy. When a bank approves a loan, it credits the agreed loan amount to the customer’s account, making the funds available for use. The customer signs a legally binding agreement to repay the loan, along with the applicable interest, within the agreed repayment period.

This creates a future stream of income for the bank through the repayment of the loan and the interest charged. Keeping your money in a bank is generally safe, as banks provide secure storage, regulatory oversight, and protection for your funds. The savings can be utilized to produce new capital assets. 

Different Types of Banks

• Central Banks:
  Central banks are normally government-owned and charged with quasi-regulatory responsibilities such as supervising commercial banks and controlling the cash interest rate. They generally provide liquidity to the banking system and act as the lender of last resort in the event of a crisis. 
• Commercial Banks:
  A commercial bank is a financial institution, or a division of a bank, that primarily provides deposit accounts, loans, and other financial services to businesses and corporations.
• Islamic Banks:
  Islamic banks operate in accordance with the principles of Islamic law (Sharia), offering financial services that comply with its ethical and religious guidelines. This form of banking revolves around several well-established principles based on Islamic law. 
• Community Development Banks:
  Community development banks are the regulated banks that provide financial services and credit to under-served markets or populations. 
• Credit Unions or Cooperative Banks:
  Credit unions are not-for-profit cooperatives owned by the depositors and often offer rates more favorable than for-profit banks. 
• Private Banks:
  Private banks provide wealth management services to high-net-worth individuals and families.
• Land Development Banks (LDB):
  The main objective of the LDBs is to promote the development of the land agriculturally and increase the agricultural production.
• Savings Banks:
  The original objective of savings banks is to provide easily accessible savings products to all of the population. But nowadays, savings banks have kept their focus on retail banking like payments, savings products, credits, and insurances for individuals or small and medium-sized enterprises. 
• Investment Banks:
  Investment banks relating to activities on the financial market. Merchant banks are the types of investment banks. 

Different Types of Bank Accounts 

• Current Account:
  In this account there are no limits for the number of transactions; these deposits are the most liquid deposits. 
• Savings Account:
  A savings account is meant for savings purposes. The savings account holder is allowed to withdraw money from the account as and when required.
• Recurring Deposit Account:
  This account is opened by those who want to save a certain amount of money regularly for a certain period of time and earn a higher interest rate.
• Fixed Deposit Account:
  A fixed deposit account is a type of bank account in which a specific amount of money is deposited for a fixed period, usually earning a guaranteed rate of interest. It is a one-time deposit and one-time withdrawal account.

Services

Banks provide different banking services like Mobile Banking, credit cards, debit cards, mortgages, mutual funds, personal loans, time deposits, ATM cards, checkbooks, national electronic fund transfer systems, real-time gross settlement, etc. Nowadays mobile banking is quite popular. It provides financial banking transactions remotely using a mobile device such as a smartphone or tablet. Unlike related internet banking, it uses software, usually called an app, provided by the financial institutions for the purpose. Mobile banking is available 24 hours a day, allowing users to access financial services anytime and from virtually anywhere.