Role of Bank, Types and Functions of Bank

What is Bank ? 
Bank is a lawful organisation, which accepts deposits that can be withdrawn on demand. It also lends money to individuals and business houses that need it.

Role of Banking-

1.      Banks provide funds for business as well as personal needs    of individuals. They play
a significant role in the economy of a nation. Let us know about the role of banking.

2.      It encourages savings habit amongst people and thereby  makes funds available for
productive use.

3.      It facilitates business transactions through receipts and  payments by cheques instead
of currency.

4.      It provides loans and advances to businessmen for short  term and long-term purposes.

5.      It also facilitates import-export transactions.

Types of Banks

There are various types of banks which operate in our country –

1. Central Bank (RBI, in India)

2.      Commercial Banks

  •           Public Sector Banks
  •           Private Sector Banks
  •           Foreign Banks

3.      Development Banks (IFCI, SFCs)

4.      Co-operative Banks

  • Primary Credit Societies
  • Central Co-operative Banks
  • State Co-operative Banks

5.      Specialized Banks (EXIM Bank, SIDBI, NABARD)
         Central bank

  • RBI is the central bank of India.
  • A bank which is entrusted with the functions of guiding and regulating the banking system of a country is known as its Central bank.

Commercial Banks

 Commercial Banks are banking institutions that accept deposits and grant short-term loans and advances to their    customers.

Types of Commercial banks

Commercial banks are of three types i.e., Public sector banks, Private sector banks and foreign banks.

  • Public Sector Banks

These are banks where majority stake is held by the Government of India or Reserve Bank of India. Examples of public sector banks are: State Bank of India, Corporation Bank, Bank of Baroda and Dena Bank, etc.

  • Private Sectors Banks

In case of private sector banks majority of share capital of the bank is held by private individuals. These banks are registered as companies with limited liability. For example: The ICICI Bank, Axis Bank, Federal Bank etc.

  • Foreign Banks

These banks are registered and have their headquarters in a foreign country but operate their branches in our country. Some of the foreign banks operating in our country are Hong Kong and Shanghai Banking Corporation (HSBC), Citibank, American Express Bank, Standard & Chartered Bank,etc.

Development Banks

Business often requires medium and long-term capital for purchase of machinery and equipment, for using latest technology, or for expansion and modernization. Such financial assistance is provided by Development Banks.

Types of Co-operative Banks

There are three types of co-operative banks operating in our country :

  1. Primary Credit Societies:
  2. Central Co-operative Banks:
  3. State Co-operative Banks:

Specialized Banks

NABARD (National Bank For Agriculture And Rural Development)–

          Headquarter – Mumbai
Established – 12 July 1982
Chairman – Dr. Haish Kumar Bhanwala.

NHB (National Housing Bank)

          Headquarter – New Delhi
Established –  8 July 1988

Exim (Export Import Bank)

          Headquarter – Mumbai
Established     – 1982

IDBI* (Industrial Development Bank of India)

          Headquarter –   Mumbai
Established     – July 1964

SIDBI (Small Industries Development Bank of India)

          Headquarter –   Lucknow
Established     – 02 April,1990

* IDBI work as a development Bank and Commercial Bank also.

Function of commercial banks

 The functions of commercial banks are of two types.
(A) Primary functions; and
(B) Secondary functions.

Primary functions

  1. Accepting deposits.
  2. Granting loans and advances.

Accepting deposits

The most important activity of a commercial bank is to mobilize deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks.

Grant of loans and advances

The second important function of a commercial bank is to grant loans and advances.


A loan is granted for a specific time period. Generally commercial banks provide short-term loans.  But term loans, i.e., loans for more than a year may also be granted.

An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally granted for a short period of time.

Types of Advances

1.      Cash Credit                 2.  Overdraft                3. Discounting of