- By Muneeb Jamal
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It is not easy to define a bank because different experts have defined a bank highlighting its various functions. Some important definitions are discussed in this article.
Definition Of Bank:
Professor Geoffrey Crowther has defined bank in his book "An outline of Money" in the following words, bank is a firm which collects money from those who have it spare. It lends money to those who require it.
Keeping in view the role of a bank. Professor Kinley has defined bank as "A bank is an institution which receives deposits of money and advances loans."
1. Simple definition:
The term bank can be defined in a simple language as follows:
"A bank is a financial institution whose main business is to accept money on deposit from some people and to advance loans on interest to some others."
2. Classification Of Banks:
Banks can be classified into various types on the basis of their functions, ownership, domicile, status, etc. The main types of banks in Pakistan are as under:
3. Classification On The Basis Of Functions:
On the basis of functions or activities, the banks can be classified as follows:
3.1. Central Bank:
The most important bank in a country is the central bank. It stands at the top of all other banks. The main aim of a central bank is to maintain monetary and economic stability of a country. It enjoys the monopoly of note issue. Every country has a central bank of its own with different names.
The State Bank of Pakistan, the Reserve Bank of India, the Bank of England and the Federal Reserve System of America are the names of some of the central banks of different countries.
3.2. Commercial Bank:
Commercial banks are the most common type of banks.They conduct their business purely on profit motive. The main function of a commercial bank is to accept deposits from those who have surplus funds and lend on interest to those who require funds. The National Bank of Pakistan, the Habib Bank Limited, the Muslim Commercial Bank Limited, the United Bank Limited, are some of the examples of commercial banks in Pakistan.
3.3. Industrial Bank:
Industrial banks are those which meet the long-term credit needs of industries. The leading countries of the world have separate industrial banks to provide industrial finance. Industrial Development Bank of Pakistan was established in 1961 to provide long-term finance for the promotion of industries. The Industrial Bank of Japan, the Industrial Mortgage Bank in Finland the Industrial Development Bank of Pakistan are the examples of industrial banks.
3.4. Agricultural Bank:
Agricultural banks provide long-term, medium-term and short-term finance to agriculture sector. Zarai Taraqiati Bank of Pakistan, the Federal Land Bank of America, the Agricultural Mortgage Corporation in England are some of the examples cf agricultural banks.
3.5. Exchange Bank:
The exchange banks are those specialized banks which carry on foreign exchange business. Foreign trade transactions are settled through these banks. Exchange banks purchase, sell and collect foreign bills, issue letter of credit, facilitate foreign remittances through bank draft, telegraphic transfer, etc.
In Pakistan some of the commercial banks are authorized to conduct foreign exchange business. Some foreign banks like National and Grindlays Bank Ltd., the Standard Chartered Bank Ltd, etc., are . functioning as exchange banks in Pakistan.
3.6. Saving Bank:
The principal aim of saving banks is to collect and pool together the scattered savings of the community. Saving banks are usually departments of commercial banks. There may be separate saving-banks in some countries of the world. In Pakistan, there is-no saving bank. Commercial banks and post offices carry on saving banks functions. The saving banks invest funds in the safest government securities.
3.7. Investment Bank:
Investment banks purchase and sell shares, bonds and securities. They assist joint stock companies and government bodies to raise money through the sale of shares and bonds. Investment banks also perform the usual banking functions of receiving deposits and advancing loans. Investment Corporation of Pakistan and National Investment Trust Ltd. (N.I.T) are serving as investment banks in Pakistan.
3.8. Mortgage Bank:
Mortgage banks provide long-term loan against the mortgage of agricultural lands, houses and other such immovable property. House Building Finance Corporation is working as mortgage bank in Pakistan to provide funds for house building.
3.9. Micro-finance bank:
The main objectives of micro-finance banks is to provide small loans to small traders, the loans are granted for short-term and medium terms. In Pakistan micro-finance banks and Khush-hali bank are the examples of this type of bank.
4. Classification On The Basis Of Ownership
On the basis of ownership, banks can be classified as follows:
4.1. Public sector bank:
The banks which are Owned and controlled by the government of a country are called public sector banks. For example. National Bank of Pakistan Ltd. and.First Women Bank Ltd.
4.2. Private sector bank:
The banks which are owned and operated by the private sector are called private sector banks. For example, Al-Habib Bank Ltd.Askari Bank Ltd.KASB Bank Ltd., etc.
4.3. Co-operative bank:
The banks which are established and controlled under Co-operative Societies Act are called co-operative banks. In Pakistan these banks are set up under the Co-operative Society Act 1925. These banks are very essential for improving the conditions of rural agriculturists and small producers.
They are not profit making institutions. The Federal co-operative bank, Punjab provincial cooperative bank Ltd., Sind Provincial Co-operative Bank Ltd., KPK Provincial Co-operative Ltd.and Baluchistan Provincial Co-operative Bank Ltd. are the examples of co-operative banks in Pakistan.
5. Classification On The Basis Of Domicile
On the basis of domicile, the banks can be divided into two types as follows:
5.1. Domestic bank:
The banks which are registered and incorporated within the country are called domestic banks. These banks provide financial assistance domestically. In Pakistan the banks registered under Pakistan Companies Ordinance 1984 and regulated under Pakistan Banking Companies Ordinance - 1962 are called domestic banks. National Bank of Pakistan Ltd, Habib Bank Ltd, Askari Bank Ltd, etc, are the domestic banks in Pakistan.
5.2. Foreign banks:
The banks which have their origin and head offices in the foreign country are called foreign banks. Foreign banks are the branches of the banks incorporated abroad. The Standard Chartered Bank Ltd, National and Grindlays Bank Ltd, Al-Falah Bank Ltd, are some examples of foreign banks.
6. Classification On The Basis Of Status
On the basis of status, the banks can be classified as follows:
6.1. Scheduled bank:
A bank which is included in the list of banks maintained by the central bank of the country is called scheduled bank. A bank, in order to be scheduled, has to fulfill certain conditions. It should co-operate with the central bank in making its monetary policy successful. A scheduled bank may be commercial bank, industrial bank, agricultural bank or an exchange bank.
6.2. Non-scheduled bank:
A non-scheduled bank is one which is not included in the list of banks maintained by the central bank. It does not require to maintain any balance with the central bank or satisfy other requirements.