KINDS OF BANKS
Types of Banks on the basis of sphere of activities:
The commercial banks are classified into various types on the basis of their spheres of activities, ownership, domicile etc. The main types of banks in Pakistan are as under:-
(A) Classification on the basis of functions
(1) Every civilized country now has its own central bank. The primary function of the central bank is to regulate the flow of money and credit in order to promote efficiency, stability and growth in the country. In Pakistan State Bank of Pakistan, is the country’s central bank. (In England it in Bank of England, in America it is the Federal Reserve System).
(2) Commercial Banks. Commercial Banks are those banks which are engaged in performing the routine duties of banking business. They collect surplus money from the people. They make loans and advances in the form of overdrafts, cash credits, discounting bills of exchange. Commercial banks also manufacture credit money. They also provide agency services and general utility services. The banks, in short are considered the lifeblood of the economic society. In Pakistan National Bank of Pakistan, United Bank Limited, Habib Bank Limited, etc. are performing the functions of commercial banks
(3) Exchange Banks. Exchange banks mainly deal with international trade. These banks take the responsibility of settlement of foreign exchange and arrange the foreign business. In Pakistan, all the nationalized commercial banks have been allowed to do the business of exchange banks.
(4) Saving Banks. Saving banks are those banks which collect and keep the small savings of the public. They are called thrift promoting institutions. The saving banks invest the funds in the safest government securities. Post offices and saving centers perform the business of saving banks in Pakistan.
(5) Agricultural Banks. Agricultural banks are set up to provide financial assistance to the agriculturists. The agricultural banks provide short term credit to the farmers for the purchase of seeds, manure, etc. They also make medium term advances for buying tractors and introducing modern techniques in farming. In Pakistan, Agricultural Development Bank of Pakistan was set up in 1981 for meeting the financial requirement of agriculture.
(6) Industrial Banks. The industrial banks mainly provide medium and long term credit to the industries. Since the industrial banks have long term deposits, they are in a position to permit long term investment in industries. In Pakistan, the Industrial Development Bank (IDBP) was set up in 1961. The other institutions engaged in providing financial assistance to industries are PICIC, NDFC, ICP, etc.
(B) Classification on the basis of ownership
(7) The banks are classified, on the basis of ownership, into three categories i.e., (i) Public sector banks, (ii) Private sector banks, (iii) Cooperative banks.
(a) Public sector banks. They are owned and controlled by the government such as National Bank, Habib Bank etc.
(b) Private sector banks. These are owned by corporations such MCB, ABL, City Bank etc.
(c) Cooperative banks. Cooperative banks are established mainly to provide short and medium term loans for rural development in general. In Pakistan, these banks are set up under the Cooperative Society Act of 1925 in the country.
(8) Classification on the basis of domicile. The banks are divided on the basis of domicile into two categories (a) Domestic banks which are registered and incorporated within the country and (b) Foreign banks which have their origin and head offices in the foreign country.
(9) Scheduled and non-scheduled banks. (i) The scheduled banks are those which have paid up capital reserves of not less than Rs. 5 million in Pakistan. They are members of the clearing house managed and supervised by SBP. (ii) The non scheduled banks are those which are not included in the Second Schedule of State Bank of Pakistan (SBP) Act, 1956. They have a minimum paid up capital value of Rs. fifty thousand but does not exceed Rs. five million.
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