Banks can be classified into various types on the basis of their ownership and functions. The following are the various types of banks:

A. Classification on the Basis of Ownership

 On the basis of ownership, banks can be classified into three categories:

1)  Public Sector Banks: This type of banks are organized, controlled, directed and owned by the government.

2)    Private Sector Banks: These banks are owned by the private individuals or corporations and not by the government or co-operative societies.

3)  Cooperative Banks: Cooperative banks are operated on the cooperative lines. Coopera­tive credit institutions are organized under the law of cooperative society and play an important role in meeting financial needs in the rural areas.

B. Classification on the Basis of Functions

 
On the basis of functions, banks can be classified into five categories:

1)      Central Bank: Central bank is fundamentally a chief bank of a nation. Important functions of the central bank are:  

a)      It issues currency notes.

b)      It acts as the banker, agent and financial adviser to the state.

c)      It is the custodian of nation's reserves of international currency.

d)     It serves as the lender of the last resort.

e)      It functions as the bank of central clearance, settlement and transfer and

f)       It acts as the controller of credit.

2)      Commercial Banks: A commercial bank is a financial intermediary which collects credit from lenders in the form of deposit and further lends in the form of loans and advances. Primarily, commercial banks are profit making organizations. It deals with money as well as short term debt instruments. The main objective of a commercial bank is to earn and maximize its profit by providing loans and advances and rendering ancillary services to its clients.

3)     Industrial Banks: Industrial banks, also known as investment banks, mainly meet the medium-term and long-term financial needs of the industries. Such long-term needs cannot be met by the commercial banks, which generally deal with short-term lending. The main functions of the industrial banks are:

a)      They accept long-term deposits.

b)   They grant long-term loans to the industrialists to enable them to purchase land, construct factory building, purchase heavy machinery etc.

c)      They help selling or even underwrite the debentures and shares of industrial firms.

4)   Agricultural Banks: Agricultural credit needs are different from those of industry and trade. Industrial and commercial banks normally do not deal with agricultural finance. The agriculturists require:

a)      Short-term credit to buy seeds, fertilizers and other inputs, and

b)   Long-term credit to purchase land, to make permanent improvements on land, to purchase agricultural machinery and equipment etc. Agricultural finance is generally provided by co-operative institutions. Agricultural co-operatives provide short-term loans and land development banks provide the long-term credit to the agriculturists.

5)   Exchange Banks: Exchange banks deal in foreign exchange and specialize in financing foreign trade. They facilitate international payments through the sale, purchase of bills of exchange, and thus play an important role in promoting foreign trade.

Banking is of ancient origin. But a very little is known about it prior to the middle age when the supposedly first public bank "Bank of Venice" was established in Europe in 1157 A.D. Incidentally with its founding started the age of modern banking. During those days banking used to be conducted by the individuals of the society, families and the members of the trading communities knows variously as merchants, goldsmiths (bullion traders) and money lenders etc. The predominant ownership pattern was that of single proprietorships. Alongside subsequently grew banking by partnerships. Long back, however, such banking has mostly been replaced by modern limited companies, corporations and multinationals. Recently remnants of banking by families on the basis of sole proprietorship or partnership are also on the process of being taken over by the modern companies in view of globalization of the economy and banking. 

Alongside activities and emphasis of the bank have also undergone dramatic and epoch making changes. Everyday new functions are being added to the list of banking functions. Not only that various types of banks are also emerging throughout the world. 

Meanwhile banks have also emerged as powerful financial institutions influencing the lives of billions of people in the world. They have been following different banking systems to cater to the needs of the economy and societies .

“A bank is a financial intermediary a dealer in loans and debts.” – Professor Cairncross

“A bank is an office or institution for the keeping, lending and exchanging etc. of money.” – Professor Chambers.

“A bank is a dealer in debt– his own and other people’s.”  – G. Crowther

“Bank is the trader of money and loan.” – J.C. Wood

“The institution which accepts the cheques of the persons from whom it collected money is current accounts is called bank.” – H. L. Hert

“Banks are the institutions whose debts are commonly accepted in settlement of the other people’s debt.” – R.S. Sayers.

“A bank is an economic institution whose main aim is to earn profit through exchange of money and credit instruments.” – John Henry

“A bank is an institution the primary function of which is to collect the unutilized money of the people and to lend it to others.” – R.P. Kent

“Banks are a variety of firm for the safe keeping of money and for the granting and transfer of credit.” – Coulborn

“A bank may be a person or a firm or a company who deals with money like other business organization.” – Prof. T. Hardy

“Bank is a real financial institution which receives deposit from a group of people and lends it to other group of people. – Barbari Block

“A bank performs an essentially distributive task, service or acts as an intermediary between borrowers and lenders. In a sense, however, a bank can be considered the heart of a complex financial structure.” – American Institution of Banking

“Bank is an organization chartered by the state or federal govt., principle functions of which are:

1. to receive demand deposits and pay customers cheques drawn against them.;
2. to receive time deposits and pay interest thereon.;
3. to discount notes, make loans, and invest in govt. or other securities.;
4. to collect cheques, drafts, notes etc.;
5. to issue drafts and cashier’s cheques.;
6. to certify depositors cheques and.;
7. when authorized by a chartard govt. it may act in a fiduciary capacity.”

                                                                                    –  Dictionary of Banking and Finance

“A bank is an establishment which trades in money, an establishment for deposit, custody and issue of money and also for granting loans and discounting bills and facilitating transmission of remittances from one place to another.” – Imperial Dictionary

How Bank comes?

Definition of Bank

What Bank does?

Before going to definition let us have a look the scenario given here below:

You can see in first scenario there is a man who needs money and other one who has non performing lazy money but scared of steal of the money. In second scenario the man who needs money ask to lend money to other one? But there is a lack of trust that’s why he refuses to lend money. In third scenario the Bank comes to rescue both party. The bank offers the man to keep his non performing money to him and ensure the safety of that money moreover the bank offers interest to keep money. Later the Bank offer the other man that he can take loan with some conditions like giving some sorts of documents or goods as a mortgage, and he have to repay the debts within certain period of time with 17% interest. And finally bank do profit (17-5=12) by taking more interest from party (17%) and giving less interest (5%) to party.

So yes, bank does business with your money. It acts as an intermediary in financial transactions. It takes deposit and gives less interest to the depositor. The depositor can withdraw his/her money anytime with the cheque. It gives loan to the customer, party, factory, organization, even government with some conditions and in return it takes more interest from them and by this it makes profits.

Name of the Bank	Place, Country	Establishment Year	Comments
Shansi Bank	China	600 B.C.	First bank in the world.
Bank of Venice	Italy	1157 A.D.	First government bank in the world.
Riks Bank of Sweden	Sweden	1656	First note issued and certified bank in the world.
Bank of England	UK	1694	World’s first central bank.
The Hindustan Bank	Calcutta, India	1700	First commercial bank in Indian sub continental.
Bank of Prusia	German	1765	First established bank in German.
Central Bank of India	India	1785	One of the oldest banks in India.
Bank of Calcutta	Calcutta, India	1806	First presidency bank in Calcutta, India.
Bank of France	France	1800	Central bank of France
Bank of Madras	Madras, India	1843	Third presidency bank in Madras, India.
Reichs Bank	German	1875	Central Bank of German
Bank of Japan	Japan	1882	Central Bank of Japan
Federal Reserve System	USA	1913	Central Bank of USA
Reserve Bank of India	India	1935	First central bank in India
Habib Bank Ltd.	Mumbai, India	1941	First Muslim Bank in India
Sate Bank of Pakistan	Pakistan	1948	Central Bank of Pakistan
The Natonal Bank of Pakistan	Pakistan	1949	First listed commercial bank in Pakistan.
Bangladesh Bank	Bangladesh	1971	Central Bank of Bangladesh

Professor Geoffrey Crowther in his ‘An outline of Money’, Reprinted page-22, said that “The present-day banker has three ancestors; the merchant, the money-lender and the goldsmith. A modern bank is something of these.”

The goldsmith, the merchant and the money lender played very important roles in the evolution of banking business. The reason behind this was:

·        They were honorable, honest and trusted in society.

·        They had different image and society knew they had money.

·     They were trustworthy in the society and people kept their money to them as safety as people  believed they could ensure the safety of the money.

·        People came to them to borrow money when they needed.

After certain period of time when transaction increased, both parties agreed to handover handwritten slip to keep record and for proof of transactions. This slip system was very fruitful and trustworthy for both parties.

When the Goldsmiths, Merchants and Money-Lenders found lending money as a profitable business they started to lend money from others who had useless or lazy money to increase their deposit which allowed them to lend money with more interest. And this business turned into banking business. Gradually this business then introduced us with the following slips:

·         Deposit Slip.

·         Bank Note.

·         Withdrawal Slip.

·         Cheque.

·         Bank-draft.

·         Letter of credit.

·         Circular note.

·         Traveler’s cheque.

·         Traveler’s letter of credit etc.

Origin and the historical evolution of bank

The English word ‘Bank’ comes from the Italian word ‘Banco’. In Italian language the word ‘Banco’ means ‘Bench’ or 'Money Exchange Table'. According to some specialists this ‘Banco’ or ‘Bench’ were called Banca, Bancus, Banc etc by Italian people living in different areas. At the middle era in town Lombardi of Northern Italy, there was some Jews businessman who did money business sitting on ‘Bench’. For deposit they gave their customer deposit slip and for withdrawal they gave withdrawal slip to customer. Later this withdrawal slips were turned into ‘Cheques’. In that time Jews Money-Businessmen broke the ‘Bench’ or 'Money Exchange Table' of debtors who failed to repay the debts. And this is the source of the word ‘Bankrupt’.

According to some other specialists, the Italian word ‘Banco’ comes from the German and Austrian word ‘Banke’ which refers to Government Loan or Issuing Paper Note. In the middle of the 12^th century there was a war between German and Italy. In that war both Italian and German government needed money. And to collect deposit they offered their people to deposit their money to the government and in return after certain period they could withdraw with 5% interest. So both governments took loan from their people for the war. This loan was called ‘Monte’ in Italy and ‘Banke’ in German. So finally we can say the English word ‘Bank’ comes from Italian ‘Banco’ and German and Austrian ‘Banke’.

Banke (German Word) ------------> Banco (Italian Word) ------------> Bank (English Word)