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What Is A Bank? How it Works, Types, Features and Classification


What is a bank? Whenever it comes to money in our mind, the bank picture comes in front of us—a place where you will get to see millions of crores of money in one place. Now the question arises that what exactly are these banks?

A bank is an intermediary between saver (saver) and borrower (borrower) in simple language. Here people either come to keep money, or they come to get money.

There was a time when we had to go to the bank for any work of money, whether to deposit (recruit) or withdraw (withdraw) money. In the banks, we had to stand in long queues and wait for our opportunity.


But now the time has changed, you do not need to go to the bank for many tasks. You can easily do all your tasks through Internet Banking and Mobile Banking right from home.

So today, I thought, why should I provide you complete information about what banks are, how many types are there and how they work, so that you also do not doubt the banks. So without delay, let’s start with the information about the bank.

What is a bank

A bank is a financial institution that does the work of giving and receiving money. At the same time, a bank keeps the extra money of people, which is called a Money Deposit. At the same time, they are given interest or interest by the bank for this money.


At the same time, the bank provides money to the people who need the money, but here those people have to give the interest of this money to the bank. Therefore, the bank performs a medium between Saver (money collector) and Borrower (money taker).

The word bank is derived either from the old Italian word banca or from the French word Banque, where both mean a Bench or money exchange table.

What are Deposit Rate and Lending Rate?

Banks often deposit money from the public (when people open their account and deposit money). It is also called Deposit Rate in significantly less interest.


At the same time, these banks provide this money to those in desperate need of money, that too at a very high interest rate, it is called Lending Rate.

What is a Net Interest Spread?

The Deposit Rate and Lending Rate of difference to the ‘ Net interest spread ‘ are called, and that the interest spread is the basic premise of the bank’s income.

Definition of bank

According to the Oxford Dictionary, a bank is ” an establishment that provides money to its consumers when applying for it.”


If we talk about finance, then it is the basis of any trade, commerce and industry. Speaking of now, then, of any modern business backbone is the Banking Sector.

Essay of Bank

We can say that the development of any country depends entirely on its banking system. As much as the government’s banking system is running, the country’s better will also be progressing.

Which bank introduced the first ATM in India?

Hongkong and Shanghai Banking Corporation first introduced the concept of ATM in India in 1987. This first ATM was set up in Andheri East, Mumbai.


Which Indian bank first opened its Overseas Bank and when?

Bank of India opened the first overseas branch in London in 1946.

Which commercial bank was first owned and managed by Indians themselves?

The first Indian commercial bank owned and managed by Indians themselves is the Central Bank of India.

Which is the oldest Public Sector Bank in India?

India’s oldest public Sector Bank is Allahabad Bank.


Which bank of India got the first ISO Certification?

Canara Bank was the first to receive ISO Certification.

Which Indian bank was the first to launch a mobile ATM?

ICICI Bank first started a mobile ATM.

Which is the largest bank in India?

The largest bank in India is the State Bank of India. State Bank of India is the largest commercial bank in India as of now. The Government Of India owns it. At the same time, its headquarter is located in Mumbai, and six regional offices in SAT are found worldwide.


It is the largest commercial bank in the country, whose asset value is around the US $ 881.95 billion in the 2018 financial year. The bank has around 14,000 branches, with 190 international units in about 36 countries.

SBI started with the Bank of Calcutta in 1806, while it is the oldest bank in Asia-Pacific. It provides many banking products and financial services through its network.

What is banking?

According to the Indian Banking Regulation Act, ‘ Taking money from the public based on the deposit that they have to repay also if there is a demand, then put this money in someplace where they can get the benefit .’


In simple words, the bank invests the money deposited by its consumers in such places from where they can profit, while it also provides interest to the consumers.

Bank features

Let us now know about some characteristics of the bank.

  • It can be either Individual or Firm or a Company.
  • It is a profit and service-oriented institution.
  • It works as a connecting link between borrowers and lenders.
  • It does business of money.
  • It accepts deposit from the public.
  • It provides Advances / Loans / Credit to customers.
  • It also provides Payment and Withdrawal facilities.
  • In addition, it also provides agency and utility services.

Bank classification

There are many types of banks in each country. At the same time, every kind of bank performs specific functions. Banks are classified according to their operations.


Banks are mainly classified as scheduled and non-scheduled banks.

Scheduled banks are then classified as commercial banks and cooperative banks.

Commercial banks are then classified as public sector banks, private sector banks, foreign banks and regional rural banks (RRBs).


At the same time, cooperative banks are classified in urban and rural. At the same time, the concept of Payments Bank is becoming very popular in recent times.

Types of Banks

There are many types of banks. Different banks have been created for other works. Let’s all know about the bank.

Scheduled Banks

Schedules banks are covered under the 2nd Schedule to the Reserve Bank of India Act, 1934. A bank that has paid-up capital of about 5 Lakh or more. Only such banks qualify to come under the Schedule Bank category. These banks are eligible to take a loan from RBI at the bank rate also.


Commercial Banks

Commercial banks are regulated under the Banking Regulation Act, 1949. At the same time, their business model is designed to make a profit.

Their primary function is to accept deposits and provide loans to the general public, corporates and government.

At the same time, commercial banks are divided –

  • Public sector banks
  • Private sector banks
  • Foreign banks
  • Regional Rural Banks (RRB)

Public Sector Banks

These are nationalised banks and are responsible for more than 75% of the banking business of our country.

The government itself shares the majority of stakes in these banks. In terms of volumes, SBI is India’s largest public sector bank. This happened when its five associate banks joined it. At the same time, its position in the entire world also comes under the top 50 banks.

There are a total of 21 nationalised banks in India across the country.


Private Sector Banks

These include banks in which significant shareholders or equity hold private shareholders. All the banking rules and regulations that the RBI decides are applicable in these private sector banks.

Foreign Banks

A foreign bank is called one whose headquarters are located abroad, but it operates based on a private entity in India.

These banks have to follow the rules of both countries, one from where they are operating and the other where their headquarters are located.


For example, Citi Bank, Standard Chartered Bank and HSBC some of India leading foreign banks.

Regional Rural Banks

These are also scheduled commercial banks, but they are set up to provide this main objective with loans to the weaker section of the society such as farmers, labourers and small enterprises etc.

These operate at regional levels in different states of India. At the same time, most of their branches are kept in selected urban areas.


Other vital functions that RRBs perform

  1. We are providing banking and financial services in rural and semi-urban areas.
  2. Government operations such as providing salary to MGNREGA workers, grant of pension to employees.
  3. Para-Banking facilities like debit cards, credit cards and locker facilities.

Small Finance Banks

This is a niche banking segment in the country. At the same time, its primary goal is to provide financial inclusion to such sections of the society which banks do not serve.

These small finance banks have customers in micro industries, small and marginal farmers, unorganised sector entities and small business units. They have been licensed under section 22 of the Banking Regulation Act, 1949 and are governed under the RBI Act, 1934 and FEMA.


Co-operative Banks

Co-operative banks are registered under the Cooperative Societies Act, 1912. A chosen managing committee runs it.

They work on a no-profit no-loss basis and primarily serve entrepreneurs, small businesses, industries and self-employment in urban areas.

In rural areas, they mainly finance agriculture-based activities such as agriculture, livestock and hatcheries.


Payments Bank

Payments Bank is a very new model of the bank in the Indian Banking industry. RBI has conceptualised it, and it allows to accept a restricted deposit.

At the same time, its amount is currently limited to Rs. Up to 1 Lakh per customer only. At the same time, it offers services such as ATM cards, debit cards, net banking and mobile banking.

Commercial Banks

Commercial banks accept money and provide loans and advances from the public based on deposits and charge their customers and interest.


They mobilise small savings and promote the growth of trade and commerce. Generally, commercial banks provide money for a brief period. At the same time, they only offer to work for capital organisations. But in recent times, commercial banks are providing long-term capital to other organisations as well.

Exchange Banks

The main job of banks is to buy and sell foreign currencies and accept foreign bills of exchange.

What is a Non-Banking Financial Company (NBFC)?

According to RBI, a financial institution is a company and a non-banking institution whose principal business is to receive deposits under different schemes and make arrangements or lending in some other way.


It is classified into Merchant Banks, Commercial Banks, Indigenous Banks.

What are the Features of banks?

Let us now know about the features of banks.

1. Dealing with money

A bank is a financial institution that deals only with other people’s money, i.e. Depositors’ money.


2. Be either Individual / Firm / Company

A bank can either be a person, firm or even a company. A banking company means a company that is employed in the banking business.

3. Accepting Deposit

A bank accepts money from people in deposits often repaid on demand or after its fixed period is expiry (in case of fixed deposit). It provides safety to the customers against their promises. At the same time, it plays the role of a custodian of its customers’ funds.

4. Offers Loans to You

A bank provides you money in the size of loans that you can use in your place of need.


5. Payment and Withdrawal

A bank provides an easy payment and withdrawal facility in checks and drafts to its customers. At the same time, it also brings bank money into circulation. This money is in the form of cheques, currents.

6. Agency and Utility Services

A bank provides many types of banking facilities to its customers. Under this comes general utility services and agency services.

7. Profit and Service Orientation

The bank is a profit-making institution that works from a service-oriented approach.


8. Its functions are constantly increasing

Banking is an evolutionary concept. This means that there is always continuous expansion and diversification based on its functions, services and activities.

9. Connecting Link

A bank does a connecting job As a link between borrowers and lenders of money. Banks take money from those who have a surplus of cash based on deposit, and while the need of the mind provides cash to the people in the shape of the loan with interest.

10. Having Banking Business

The main activity should be to do a banking business that is not a subsidiary of any other company.


11. Designating Your Identity

A bank should always use the word “bank” with its name so that everyone can know that it is a bank that deals with money.

Bank Work

Though banks are functions of many functions or banks, some of them are very prominent. These functions are divided into two classes.

  1. Bank Primary Functions
  2. Bank Secondary Functions

Primary Functions of a Bank

Now, these primary functions are also divided into two parts:


1. Saving/ Fixed/ Current Deposit

Deposits are the amount of money that a customer hands over to the bank. It is also called a deposit.

There are also some types of deposits.

  • Saving Deposit
  • Fixed Deposit
  • Current Deposit
  • Recurrent Deposit.

There are different types of deposit schemes based on the type of deposit and above depositing frequency.


For example, a fixed deposit in a fixed deposit is provided to the bank for a few years. This interest is compounded only when the deposit term is fully completed.

Providing this type of deposit services is a very primary function of any one bank.
So what happens if you need money? Should there not be any other primary function of the bank? Let’s know further.

In a saving deposit, the amount and rate of interest are pretty low. Withdrawals are allowed to be done here, but that too in a limited number. This account is most suitable for those people who are working somewhere, and their income comes from salary.


At the same time, a fixed deposit is a fixed sum provided to the consumer bank for a specified time. It is not allowed to make withdrawals before that set time.

In other words, in the current account or deposit, no interest is provided, and in it, the customer can withdraw and deposit the money as many times as he wants.
Now let’s look at another function:

2. Grant of approval of loans and advances

This bank gives money to other people on a time-interest basis. Here each loan amount is passed after the bank has considered a lot and together after securing the bank’s profit.


The bank also provides advances to its customers. These are the primary functions of all banks. At the same time, banks offer overdraft, cash credits, loans, and discounts on the bill of exchange.

Let us now consider the secondary functions of banks.

Secondary Functions of a bank

If we talk about the secondary functions of the bank, then these are to sell gold coins to the public or sell them insurance products, mutual fund products etc.


Let us now get a little information about what are the essential secondary functions of the bank:

1. Agency Functions

Banks are a kind of agent for their customers, where they invest money on behalf of their customer. By working based on an agent, they do many custom work such as transferring funds, collecting checks, filling periodic payments, portfolio management, making occasional collections, and other agency functions.
All these functions are secondary functions of the bank.

2. Common Utility Functions

Banks also do many utility functions. Some of the essential utility functions are to issue drafts, letter of credits, provide locker facility, underwriting shares, deal with foreign exchange, project reports, run social welfare programs, and other utility functions.


Banks also provide other services such as safe deposit locker facilities, safe custody facilities and Demat accounts.

By opening a Demat account, the account holder can easily trade in the stock exchange or the money market directly. The same customer who has a Demat account can now buy or sell shares from the share market.

General Utility Functions are also called Social development functions. In some areas, banks help you a lot in all kinds of transactions you have to do in the future.


For example, you have to pay your phone, electricity and other utility bills from a centre that banks are running. These were some of the essential functions of banks.

What did you learn today?

I hope you have liked this article about my bank (What is Bank). It has always been my endeavour to provide complete information about the bank’s work to the readers so that they can be contacted on any other sites, or there is no need to search in the context of that article on the internet.

This will also save their time, and they will also get all the information in one place. If you have any doubts about this article or want that there should be some improvement in it, you can write low comments.


If you liked this post like a bank or learned something, please post this post like Social Networks Share on Facebook, Google+ and Twitter, etc.

Ashish Kumar Mishra
Ashish Kumar Mishra
Ashish Kumar Mishra is the Founder and CEO at Spot News 18. He created Spot News 18 on 30 June 2019. His intention to make these News Websites was only to provide correct and official news to his readers. Now, he is working on Spot News 18 to expand his website reach to all parts of the world.

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