Meaning and Classification of Banks

A bank is a financial institution that accepts deposits from the public, repayable on demand or otherwise, and uses these deposits to lend and invest, with the object of earning profit. By pooling the savings of many and channelling them to borrowers, banks act as the central intermediaries of the financial system and play a decisive role in the growth of a modern economy.

Banks can be classified by their function:

• Central Bank — the apex monetary authority of a country (in India, the Reserve Bank of India). It issues currency, acts as banker to the government and to other banks, and controls credit. There is only one central bank in a country, and it does not deal directly with the general public.
• Commercial Banks — banks that accept deposits from the public and provide loans and other services for profit (e.g. public-sector banks, private-sector banks, foreign banks). They are the banks with which the public deals daily.
• Cooperative Banks — member-owned banks serving mainly agriculture and small businesses, organised on cooperative principles.
• Development (Industrial) Banks — institutions that provide long-term finance for industry and infrastructure.

This chapter follows the standard treatment of money and banking taught nationally; the Tamil Nadu HSC syllabus draws on the same banking principles.