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The bank is an institution that deals in money and provides other financial services. Banks accept deposits and lend money as loans from which they derive profits by charging interest on the principal amount.

How banks work
Banks are crucial to the economy of the country. Their primary function is to put their account holders' money to use by lending it out to others through loans of various kinds, like for buying homes, starting businesses, funding education etc.

When you deposit your money in the bank, it goes into a big pool of money along with everyone else's, and your account is credited with the amount of your deposit. When you write cheques or make withdrawals, that amount is deducted from your account balance. Interest you earn on your balance is also added to your account.

Banks are just like other businesses. They must make profit to survive. Banks make money by charging interest on loans, which is higher than the interest they pay on depositors' accounts. Thus the difference in the rate of interest amounts to profit.

Banks also charge fee for the services they provide like checking, ATM access and overdraft protection. Loans have their own set of fee that goes along with them. Another source of income for banks is investments and securities. Whatever money the bank has collected, it can invest safely in mutual funds or securities and earn money.

Did you know?

Bank money accounts for the greatest proportion by value of the total supply of money.

Types of Banks
Banks have traditionally been distinguished according to their primary functions. There are several types of banking institutions:
Commercial banks, which include national- and state-chartered banks, trust companies, stock savings banks, and industrial banks. Commercial banks were originally set up to provide services for businesses. Now, most commercial banks offer accounts to everyone.
Savings banks, savings and loans, Cooperative banks and Credit unions are classified as thrift institutions. They were originally set up to meet the specific needs of people who were not covered by commercial banks. Savings banks were originally meant for lower-income workers to save their money. Savings and loan associations and cooperative banks were established during the 1800s to make it possible for factory workers and other lower-income workers to buy homes. Credit unions were usually started by people with a common link, like working at the same company (usually a factory) or living in the same community.

But with time and modernisation, these distinctions have gradually narrowed and even though there is still a differentiation between banks and thrifts, they offer many of the same services. Commercial banks can offer car loans, thrift institutions can make commercial loans, and credit unions offer mortgages!

Nationalised Banks
The government of India nationalised 14 major banks with deposits over 50 crores on 19th July 1969 meaning that they would be under government control. This was done to encourage banks to spread out into rural and un-banked areas and make credit available to the large mass of people in those areas.

Reserve Bank of India - The central banking institution in the country
The Reserve Bank (RBI) is the central banking institution of India. It was established as a shareholders' bank and named the Central Bank of India on 1st April 1935. After Independence, The Reserve Bank of India bill seeking transfer to public ownership (i.e. for government ownership) was introduced in the parliament. The act was made by the parliament for giving public ownership to the bank and since 1st January 1949, the Reserve Bank is functioning as the state (or government) owned and state managed central bank of the country.
The present Governor of RBI is Mr. Bimal Jalan.

Did you know?

The RBI has the sole right to issue currency notes excluding one rupee note, which is issued by Finance Secretary to the Government of India.
The Bank is trusted with maintenance of the exchange value of the rupee in terms of US dollar.

World Bank

Conceived during World War II at Bretton Woods, New Hampshire, the World Bank Group is one of the world's largest sources of development assistance, working on dozens of programmes like poverty reduction, relief during natural disasters, humanitarian emergencies, promotion of education and better health on a global scale through its plans. It works in more than 100 developing economies with the primary focus of helping the poorest people and the poorest countries.

Did you know?

The World Bank's first loan was of $250 million to France in 1947 for post-World War II reconstruction.

The International Monetary Fund
The IMF is an international organization with 184 member countries that provides loans to governments unable to meet their international financial obligations. The IMF is also in charge of monitoring the global economy, ensuring that trade and exchange is occurring smoothly.