Types of Banks

Not every bank in the system does the same job. A student of AP Board Inter Commerce should be able to place any real-world bank into one of the following categories, each designed for a distinct purpose.

• Central bank. The single apex monetary authority of the country, which does not ordinarily deal with the general public but instead regulates and controls every other bank. It issues currency, acts as banker to the government, supervises all other banks and manages monetary policy. In India this role belongs to the Reserve Bank of India (RBI), covered in detail later in this chapter.
• Commercial banks. The everyday banks that accept deposits from the public and lend that money out for profit, earning mainly from the margin between the interest they pay depositors and the interest they charge borrowers. Commercial banks include public sector banks (majority government-owned), private sector banks and foreign banks operating branches in India.
• Cooperative banks. Organised on the cooperative principle of mutual help rather than pure profit, formed by a group of members — often farmers, weavers or small traders — who pool their savings and lend to one another at reasonable rates. They function at state, district and primary (village or town) level and are especially important in financing agriculture and small rural enterprise.
• 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, artisans and small entrepreneurs in areas a large commercial bank might otherwise find unprofitable to serve.
• Development banks. Also called term-lending institutions, these raise long-term funds and lend them for the specific purpose of industrial and infrastructure development, rather than accepting everyday public deposits the way a commercial bank does. …