What is a Bank?
A bank is a financial institution that is licensed by the Reserve Bank of India (RBI) to receive deposits and make loans. It may also provide financial services to its customers such as locker facility, currency exchange and wealth management. It's vital to have banks as a part of the economy because it provides essential services for consumers and businesses.
There are four classifications of banks and are classified into four categories:
- Commercial Banks- Commercial Banks are further divided into public sector banks, private sector banks, foreign banks and Regional Rural Banks (RRB). Commercial Banks are regulated under the Banking Regulation Act, 1949 and their business model is outlined to make profits. Accepting deposits, and granting loans to the general public, corporate, and government are the primary functions of Commercial Banks.
- Small Finance Banks- These banks are a niche banking segment in India and they aim to provide financial inclusion to regions of the society that other banks don't serve. Their main customers are micro industries, small and marginal farmers, unorganized sector entities, and small business units. Small Finance Banks are licensed under Section 22 of the Banking Regulation Act, 1949 and are governed by the terms of RBI Act, 1934 and FEMA.
- Payments Banks- These banks are a relatively new form of banks in the Indian Banking industry, and RBI conceptualised it. It is allowed to accept a restricted deposit, currently, the amount is limited to Rs. 1 Lakh per customer. These banks also provide ATM cards, debit cards, net banking and mobile banking.
- Cooperative Banks- Cooperative banks are divided into urban and rural. registered under the Cooperative Societies Act, 1912, Cooperative banks are operated by an elected managing committee. They work on a no-profit and no-loss basis; they mainly serve small businesses, entrepreneurs, industries, and self-employment in urban areas. on the other hand, in rural areas, they mainly finance agriculture-based activities such as farming, livestock, and hatcheries.
