Banking Services

Meaning of a Bank

A bank is a financial institution licensed to accept deposits of money from the public and lend that money out to those who need it, earning income mainly from the difference between the interest it pays depositors and the interest it charges borrowers. Because banks sit at the centre of almost every business transaction — receiving payments, extending credit, transferring funds — banking is often called the backbone of modern commerce.

Types of Banks

1. Central Bank (Reserve Bank of India) — India's apex bank, RBI, does not deal directly with the general public. It regulates and supervises all other banks, controls the money supply and credit in the economy, issues currency notes, and acts as banker to the Government of India and to other banks.

2. Commercial Banks — Banks that accept deposits and lend to the general public and businesses for profit. They are further divided into:

• Public sector banks — majority-owned by the Government (e.g. State Bank of India and other nationalised banks).
• Private sector banks — owned and run by private shareholders under RBI's licence and supervision.
• Foreign banks — banks incorporated abroad that operate branches in India.

3. Co-operative Banks — Registered under the co-operative societies law and organised on co-operative principles (one member, one vote), these mainly serve farmers, small traders, and rural/semi-urban communities, often at the district or state level.

4. Regional Rural Banks (RRBs) — Set up jointly by the central government, a state government, and a sponsoring commercial bank specifically to extend banking and credit facilities to farmers, agricultural labourers, and small entrepreneurs in rural areas.

5. Payments Banks — A newer, restricted category of bank permitted to accept small deposits and provide payment/remittance services (and services such as mobile banking) but not permitted to extend loans directly the way a full commercial bank does.

Key Services Offered by Banks

Accepting deposits — Banks mobilise the public's savings through several account types:

• Savings account — for individuals to save small sums, with limited withdrawals and a modest interest rate.
• Current account — mainly for businesses, allowing unlimited deposits and withdrawals, generally without interest, meant for frequent transactions.
• Fixed deposit (FD) — a lump sum deposited for a fixed period at a fixed, generally higher, rate of interest; premature withdrawal usually attracts a penalty.
• Recurring deposit (RD) — a fixed sum deposited every month for a fixed period, useful for building savings in small regular instalments.

Lending — Banks extend credit in several forms:

• Loans — a lump sum lent for a specific period against agreed interest and repayment terms.
• Overdraft — a short-term facility that lets a current-account holder withdraw somewhat more than the balance in the account, up to a sanctioned limit, generally used for temporary shortfalls.
• Cash credit — a running credit limit sanctioned against the security of stock or other assets, from which a business can draw funds repeatedly up to the limit as working-capital needs arise.

Agency and general utility services — Banks also collect cheques and bills on a customer's behalf, make routine payments (such as insurance premiums) on standing instruction, act as a trustee or executor, issue drafts and letters of credit, provide safe-deposit lockers, and deal in foreign exchange for customers who need it.

E-banking — Modern banks let customers transact without visiting a branch:

• NEFT (National Electronic Funds Transfer) — an electronic transfer processed in batches. …