Types of banking, types of banks in India, Central Bank of India, Function of RBI, RBI monetary policy, History of banking in India, National income, Inflation, Gross domestic product are so many important topics for everyone who wants to learn about Indian banking and economy.
Banking
Banking is a commercial and business activity performed by many financial institutions by accepting deposits from individuals and entities and lend that money to individuals and entities and to invest the money for making profit and repay the money on demand.
Banking activity can be done by institutions which have banking license from RBI under Banking Regulation Act, 1949, Section 22(1).
Banking performs authentic and authoritative financial activities like account opening, deposits, term deposits, lending, investing, facilitates financial transactions, earn interest etc.
Different Types of Banking
- Branch Banking
- Retail Banking
- Wholesale Banking
- Relationship Banking
- Correspondent Banking
- Universal Banking
- Investment Banking
- Merchant Banking
- Internet Banking
- Social Banking
- Virtual Banking
- Narrow Banking
- Islamic Banking
- Shadow Banking
1. Branch banking
Branch is an icon or representative or small division of it’s parent organisation which performs banking services to the customers. Banks are allowed to set up and open the branch under Banking Regulation Act, 1949 Section 23. Branches cater all banking services that are offered by head branch.
Main advantage of branch banking is to cater the banking services across the nation, wherever any bank wants to serve the banking services.
Mostly branches offer same services as head branch offers but sometimes in metro cities specialized branches are opened for providing particular service like trade forex, credit card, CTS clearing, all types of account processing, demat account opening and transaction processing branch etc.
As corporate office of bank is managed by MD and CEO in same pattern branches are managed by branch managers. Branches can’t take own decision, they have to follow the instructions received from corporate office. Benefit of branch banking is, more the branches: more diversified the risk
2. Retail Banking
Retails banking means banking services which are catered directly to the individuals and small businesses on personal level. Retails banking processes the transactions of individuals and small businesses.
Banking services like saving and current account, cash deposit and withdrawal, cheque clearance, inward- outward payment, locker facility, term deposits, debit- credit card, insurance and investment, home loan, personal loan, gold loan, business loan, cash credit facility, mortgage loan, vehicle loan etc are served in retail banking.
Now a days in retail banking, bank creates an eco-system of all types of banking services around the customers. In retail banking, banks try to be a primary banker of it’s customers and try to make the customer loyal for bank.
3 Wholesale Banking
Wholesale banking means banking services which are catered to large customers and organizations like medium and large cap companies, real estate developers, investors and brokers, institutional customers, financial institutions etc.
Wholesale banking is beneficiary for institutions which require more services on large scale. Bank under wholesale banking caters services like finance wholesaling, working capital financing, underwriting, market making, consultancy, merger and acquisitions, fund management, insurance, etc.
4 Relationship Banking
Relationship banking name itself defines the banking services which are served to the customers on personal level one to one by expert and professional bankers. Relationship bankers always nurture the customer’s financial and investment literacy with expert advices.
Relationship bankers identify the need of customer, educate the customer about the need and assist with best appropriate banking solutions which can fulfill customer’s need. Banker who provides the relationship banking to the customer is called personal banker or relationship manager.
5 Correspondent Banking
First we will have to understand the meaning of correspondent. Correspondent means provide the services on behalf of someone else.
In correspondent banking, one bank acts as representative bank and provides banking services to the customers on behalf of other bank which don’t have physical presence over there. Correspondent banking is a bilateral agreement of banking services between two banks to provide the uninterrupted banking services to their customers.
Customers stay loyal to such banks as they get excellent customer service even in foreign lands.
For better understanding of correspondent banking we take an example. Every time it is not possible to open the bank branch everywhere worldwide.
Say for example suppose HDFC Bank Ltd acts as correspondent bank for Bank of America. If any customer of Bank of America visits the India, HDFC Bank Ltd will provide the banking services to the customer on behalf of Bank of America. Vice versa Bank of America will provide the banking services to the customer of HDFC Bank Ltd. in America.
Correspondent banks may perform Treasury services, foreign exchange, international investments and facilitate international trade and financial transactions on behalf of the foreign bank.
6 Universal Banking
Universal banking means inclusion of all types of banking services in one bank.
Universal banking is a types of banking under which a large bank runs variety of banking services like commercial banking, investment banking, mutual funds, merchant banking, insurance etc.
Objective of universal banking is to provide all banking services under one roof, building the bank as one stop solution, fulfill all types of need of the customer to make the customer loyal for the bank and these all services are provided by expert professional bankers.
7 Social Banking
Social banking name itself defines the banking services which are done for the welfare of the society. Social banking is a types of banking through which government and central bank provides the banking and financial inclusion services to the poor and low-income segment of the society. Government and Central bank took many decisions for social banking and financial inclusion like:
- Facility of Basic Savings Bank Deposit Account
- Facility of saving account under Pradhan Mantri Jan-Dhan Yojana
- Business Correspondent Model was introduced by Central Bank for providing the basic banking facilities to the remote areas of rural India.
- It is mandatory for banks to open 25% of new branches in rural areas which don’t have access to formal banking.
- Unbanked Branch Model was introduced by Central Bank in rural areas which don’t have access to formal banking.