Bank is an institution that deals in money. In general, it receives deposits and advance loans.
By functions banks can be classified into the following categories:
1. Commercial bank
2. Central bank
3. Industrial bank
4. Agriculture bank
5. Savings bank
6. Exchange bank
7. Mortgage bank
Commercial Bank: Commercial bank receives deposits and advance loans to promote business and commerce. Their important functions include making payment against cheques, advancing loans and overdrafts, issuing letters of credit, discounting bills of exchange, transferring of money (by TT, bank drafts, pay orders)
Businesses and salaried persons are provided the facility of operating bank accounts. They settle their accounts by issuing cheques. The bank not only facilitates trade but also helps agriculturists to some extent. Those commercial banks who become the member of the central bank are known as scheduled banks. The following are the famous commercial banks in Pakistan:
United Bank, Habib Bank, Muslim Commercial Bank, National Bank of Pakistan, Allied Bank Limited. In addition, new commercial banks are coming up in the private sector.
Central Bank: It is the bank which is responsible for the financial and economic stability of the country. It offers services to the state and banking industry. As a banker to the state it monopolises the issue of currency notes, manages public debts and acts as a custodian of foreign exchange and national reserves. As a banker to the scheduled banks it rediscounts their bills of exchange, clears their cheques drawn on each other, and regulates their activities. Every country has its own central bank.
Industrial Bank: Industrial banks offer valuable services for the development of industries in a country. They offer long-term loans, both in local and foreign currencies, to the industrialists. They prepare feasibility reports on new projects and expansion plans. They provide valuable consultations on the establishment of factories, their modernization and improvement. They are a part of development financial institution (DFIs).
Agricultural Bank: The agricultural bank plays a vital role in the agriculture field. It provides loans to farmers, landlords, and feudal, to enable them to buy fertilizers, seeds, tractors. With such loans they also finance water and irrigation expenses. The loans are offered against the hypothecation (mortgage) of the land and its harvest or crop of a season.
Savings Bank: Its objective is to encourage savings of the common man. These small savings, if deposited with the bank, turn into a large amount which is channelled in the development of commerce and trade. The more the savings are mobilized, the greater the prospects are for national investment. Savings banks offer interest or profit to their accountholders. Now savings banking is attached with commercial banks.
Exchange Bank: It deals in foreign exchange and is involved in foreign trade. It provides foreign exchange to importers. It buys and sells foreign exchange at open market rates which are generally different from the rates determined by the central bank. Now foreign exchange dealings are made by commercial banks and money changers.
Mortgage Bank: It is the bank that commands its capital through deposits and dealing in shares and bonds. It finances agricultural people. It is of three kinds.
Quasi cooperative bank
First two are non-scheduled banks. However all commercial banks in Pakistan performing mortgage functions are schedule banks.
Mortgage banks lend for purchasing and reclaiming land, and discharging old debts. They mortgage 50 percent of the land. The period of loan ranges between 15 and 30 years. These loans are provided to their members.
Kinds of Banks by Ownership
The existing banking system provides for the following organizations under which a bank can be formed.
Private Bank: This is the bank which is formed as a private company which is run by a group of persons, relatives or friends not exceeding 50 in number. Such banks include merchant banks, discounting and accepting houses. Discounting and accepting refer to those of bills of exchange.
Public Bank: These banks are established under Companies Ordinance 1984 and enjoy public investment. Most of the commercial banks are founded as public banks/ public companies. Their minimum number of members is seven.
Nationalized Bank: These are the ones which originally acted as public company and later were taken up by the government. In Pakistan, in 1974, all major commercial banks in the private sector were nationalized. These banks’ equity is 100 percent owned by the government.
Partnership Bank: This type of bank is established under a Partnership Act 1932. The capital is brought in by partners whose minimum number is 2 and maximum 10.
Statutory Bank: This category comes into existence under the statute of a legislative assembly. In Pakistan its examples include State Bank of Pakistan, IDBP, ADBP, PICIC.
Chartered Bank: A bank may be organized as a chartered bank which is formed by the order of the king or queen of a country. Bank of England is its example.
Cooperative Bank: Bank organized under cooperative societies act are called cooperative banks. They work on mutual cooperation of the members. The banks may be subdivided as follows:
1. Primary cooperative societies
2. Central cooperative banking union
3. Provincial cooperative banks
At present in Pakistan there are over 28,000 primary cooperative societies, 52 central cooperative banking unions, and four provincial cooperative banks one each established in all the four provinces.
(Departments of Banks)
The following are the departments of chief importance of a bank.
Cash Department: This department is responsible for the receipt and payment of cash. It maintains all records and accounting to this regard. The department conducts audit of cash so as to check any misappropriation or embezzlement of it. It also determines as to how much till cash is required.
Accounts Department: It gathers and keeps the record of all accounting data obtained from the head office and branches of the bank. Audit is one of its functions that comes in its purview. All the accounting work in other departments is done under its supervision. The department prepares final accounts of the bank.
Human Resource Department: This department is responsible for hiring and firing and other personnel affairs. Training, orientation, placement, promotion, transfer, termination, retirement, salaries and wages, overtime, and recreation fall under the purview o the human resource department. It also deals with the affairs of the labor union.
Legal Department: The legal department of a bank is responsible for legal matters of the bank. Its functions include interpretation of the banking and government laws, and their enforcement. It deals with the court matters. It prepares legal suits against defaulters and acts as a respondent to any lawsuit filed against the bank.
Public Relations: It goes for making and maintaining good relations with the leaders of the business world, customers, politicians, and public opinion leaders. It is responsible for the good market image and goodwill of the bank.
Security Department: This department is responsible for the security of the property of the bank. It provides security systems and sends armed guards to branches. It takes all such measures necessary for the safety of the assets of the bank.