With the increase in population and trust of people in banks, the banks started to perform many other functions to facilitate the different sectors of economy in addition to their basic functions of accepting deposits and lending money.
Because of the expansion in the banking business, it became very difficult for banks to perform the entire functions just under one roof. So the banking experts decided to divide the banks according to their importance and functions.
- ACCORDING TO INCORPORATION
- Chartered Banks:
These are the banks, which are established by the order of king (Royal order). They perform the same functions like other commercial banks or the functions, which are laid down in their charter. For instance, Chartered Bank of England etc.
- Statutory Banks:
These banks are formed by the order of president or by the Special Act of parliament. The main objective of these banks is the welfare of public and profit is not so important. These banks have monopoly in their field, (e.g.,) IDBL and ZTBL etc. in Pakistan.
- ACCORDING TO REGISTRATION
- Scheduled Banks:
These are the banks, which are registered in the list of central bank. They are bound to follow the instructions and policies of central bank. For instance Habib Bank Limited, Allied Bank Limited in Pakistan etc. The paid up capital of scheduled bank must not be less than Rs. 10 billion (By 31-12-2014).
Note: With the implementation of Basel III, all banks / DFIs would be required to comply with the capital adequacy framework which comprises the following three capital standards:
- Minimum Capital Requirement (MCR): The MCR standard sets the nominal amount of capital banks / DFIs are required to hold. No bank / DFI shall commence and carry on its business in Pakistan unless it meets the nominal capital requirements prescribed by SBP from time to time.
- Capital Adequacy Ratio: The Capital Adequacy Ratio (CAR) assesses the capital requirement based on the risks faced by the banks / DFIs. The banks are required to comply with the minimum requirements as specified by State Bank of Pakistan on standalone as well as consolidated basis. ,
(Hi) Leverage Ratio: Leverage Ratio of 3% is being introduced in response to the recently published Basel III Accord as the third capital standard (parallel run to commence from March 31, 2014) which is simple, transparent and independent measure of risk.
- Non-scheduled Banks:
These are the banks, which are not registered in the list of central bank. They are not bound to follow the instruction and polices of the central bank. For example, Sindh Provincial Cooperative Bank etc.
- MONEY CREATIVE BANKS
- Central Banks:
Every civilized country has its own central bank. Its main function is to manage the monetary system of the country internally as well as externally. The primary objective is not to earn profit but to provide guidelines io other banks, which improves banking system. It has sole authority of note issue. For example, State Bank of Pakistan etc.
- Commercial Banks:
These are profit-seeking institutions. They accept deposits and provide short term, medium term and long-term loans for various sectors. These are called the heart of financial structure. They also perform the agency and utility services to facilitate the customers in financial matters, (e.g.) MCB and UBL etc.
- ACCORDING TO OWNERSHIP
- Government Banks:
These are the banks, which are owned by central or provincial government of any country. The Government is responsible to frame and control the policies of these banks and it has sole right to receive all benefits and profit, (e.g.) FWBL etc.
- Private Banks:
These are the banks, which are owned by the people of any country. The people (shareholders) elect the directors to frame and control the policies and they also share the profits or losses of these banks, (e.g.) Bank Alflah Ltd. and Soneri Bank Ltd. etc.
- ACCORDING TO DOMICILE
- Home Banks:
These banks are owned and controlled by the government or the people of that country in which they provide the banking services (e.g.) National Bank of Pakistan and Habib Bank Limited etc.
- Foreign Banks:
These banks are not owned and controlled by the government or people of that country in which they are providing the banking services (e.g.) City Bank and Beutsche Bank = Pakistan etc.
- DEVELOPMENT BANKS
- Agricultural Development Banks:
These banks are formed to develop the agriculture sector of the country. They provide Loans to purchase modern machinery, fertilizers and seeds etc. For example ZaraiTaraqiati Bank Limited (ZTBL) in Pakistan.
- Industrial Development Banks:
These banks are established to promote the industrial sector of the country. They provide loans to set up new industries, extension of existing industries and rehabilitation of sick units e.g. Industrial Development Bank Limited (IDBL) in Pakistan.
- Regional Development Banks:
These banks are established to develop a particular region of the world. They help to improve the living conditions and to obtain modem technology for the development e.g. Asian Development Bank (ADB).
- International Development Banks:
These are the banks, which provide assistance for the progress and economic development of all the countries. They work for the development of industry, agriculture and social welfare of all countries e.g. International Bank of Reconstruction and Development (IBRD).
- ACCORDING TO FUNCTIONS
- Savings Banks:
These are the banks, which are established to encourage and to collect the scattered savings of poor and middle class people. They also give profit to depositors and their savings contributes a lot for the development of country, (e.g.) National Saving Centres and Post Offices etc.
- Exchange Banks:
These are the banks, which provide foreign exchange to importers and exporters of the country (e.g.) Western Union Bank etc. They provide the services of:
- Conversion of local currency into foreign currency.
- Issuance of traveller’s cheques;
- Payment of draft.
They also make investments in foreign trade.
- Investment Banks:
These are the banks which provide capital to different companies by purchasing their shares and also finance for the purchase and sale of securities like stocks and shares. They also act as underwriters by purchasing the shares of new companies. For example, Trust Investment Bank Ltd. and Atlas Investment Bank Ltd. etc.
- Mortgage Banks:
These banks provide loans to people against their movable and immovable property. Generally, they pledge or mortgage movable property
ift form of gold, silver and financial documents and immovable property tike house, shop and land etc. Mortgage bank is helpful to buy and develop lands. These loans are generally granted to agriculture (e.g.) Mortgage bank of Australia and Spain.
- Consumer Banks:
. These banks are established to facilitate the consumers for purchasing consumer goods. Normally, these loans are termed as nonproductive loan. There is no consumer bank in Pakistan. The commercial banks are performing the functions of consumer banking.
- Cooperative Banks:
These banks are set up to provide credit facilities to small farmers and industrialists to raise their income level. These banks are formed under Cooperative Societies Act 1925 and can be registered with registrar of cooperative societies at provincial headquarters. They may be scheduled or nonscheduled. e.g. Punjab Provincial Co-operative Bank etc.
- Micro Finance Banks:
Micro finance banking (MFB) is a newly introduced concept in banking system. Dr. Yunas of Bangladesh is considered pioneer of micro finance banking. He was also awarded “Nobel Prize” for his valuable services in the development of micro finance banking. MFB has been more appreciated in developing countries like Pakistan because of its key function of encouraging small business community like shopkeepers, small traders and farmers etc. For example, Khushali Bank and Finca Micro Finance Bank etc. in Pakistan are specialized in this type of financing.
- OTHER BANKS
- School Banks:
These banks are established to develop the habit of saving among school children. In this system of a banking, the bank officials provide banking facilities to students at their schools. This system is not prevailing in Pakistan. The first school bank was Beloit Saving Bank, which was established in USA in 1882.
- Consortium Banks:
These are the banks established and run by some other banks. Member banks from their own sources provide the funds of consortium banks. These banks provide finance to big business houses and industries to meet their longterm requirement, (e.g.,) Orion Bank and British Middle East Bank etc.
- Labour Banks:
The first labour bank was set-up in America. A labour union can ^blished this bank for the welfare of workers (employees). The employees
contribute in different funds (e.g.,) pension fund, group insurance, union hind and social security fund during their employment which can be kept by these banks on the behalf of employees. Moreover the employees also deposit their saving in these banks. For example, Saving Bank of Chicago imd Amalgamated Trusts Chicago of America etc.
- Islamic Banks:
Islamic banks are the banks, which operate under the provisions of Sharia. Islamic banks offer their clients the products and services duly approved by Sharia Supervisory Committee, which are called “Sharia <ompliant Products”. These banks work on profit and loss sharing principles e.g., Meezan Bank Limited and Dubai Islamic Bank etc.
