Type of Banks: Different Banks & their

Classifications (Global)
The focus of banking is varied, the needs diverse and methods different. Banking institutions
offer an assortment of services from deposits in savings accounts to housing and business
loans to check clearing, underwriting and credit cards. The world is fast changing and
globalization in conjunction with technological advances is changing the landscape of
banking industry. Both individuals and business customers are demanding faster and
innovative products & services. Banking industry is also heavily regulated and has its own
share of challenges to deliver financial objectives to people and organizations.

Thus, distinctive kinds of banks are evolving to cater to the various business demands, social
needs and global complexities. These different banking institutions conduct their operations
in a different manner. However, on the basis of their functions, clientele served and products
or services offered, we can classify banks as follows:

Basis of Products/Services

Retail Banks

Commercial banks

Investment Banks

Basis of Statue

Cooperative banks

Central banks

Specialized banks
1. Retail Banks:
Retail banks provide basic banking services to individual consumers. Examples include
savings accounts, recurring and fixed deposits and secured and un-secured loans. Products
and services offered by retail banks include safe deposit boxes, checks and savings
accounting, certificates of deposit (CDs), mortgages, consumer and car loans, personal credit
cards etc. The objective of retail banks is to provide services to individuals rather than
commercial clients. They can be found in highly residential areas catering to day to day
banking needs of public. They may additionally offer wealth management and consultancy to
their clients. Some common examples of retail banks are community development banks,
private banks, savings bank and postal saving banks. They are explained below:

Community Development Banks

Provide services to underserved markets or populations, example Rural Banks in

India, generally incentivized and regulated by the government.

Private Banks:

Some private retail banks manage the assets of high-net-worth individuals and
provide specialized services like wealth management.

Savings Banks:

These are deposit oriented branches, also could be an extension counter of an existing
bank branch that accept savings deposits and provide basic banking.

Postal Saving Banks:

Postal banks are the banks operated and controlled by National Postal Departments
and provide basic banking services to retail customers. These banks are very effective
in small towns and villages and provide financial inclusion to a section of society
which otherwise would not have been catered by other banks.

2. Commercial Banks:
Banking means accepting deposits of money from the public for the purpose of lending or
investment. Deposit-taking institutions take the form of commercial banks, which accept
deposits and make commercial, real estate, and other loans. Commercial banks in modern
capitalist societies act as financial intermediaries, raising funds from depositors and lending
the same funds to borrowers. The depositors’ claims against the bank, their deposits, are
liquid, meaning banks are expected to redeem deposits on demand, instantly. Banks’ claims
against their borrowers are much less liquid, giving borrowers a much longer span of time to
repay money owed banks. Because a bank cannot immediately reclaim money lent to
borrowers, it may face bankruptcy if all its depositors show up on a given day to withdraw all
their money. Commercial bank serves the interests of its depositors by utilizing the funds
collected in profitable ventures and in-return offers variety of services to its customers.

Services provided by commercial banks include credit and debit cards, bank accounts,
deposits and loans, and deposit mobilization. They also provide secured and unsecured loans.
These commercial banks are the oldest institutions in banking history and generally have a
wide network of branches spread throughout the area of their operations.

Commercial banks may either be owned by the government or may be run in the private
sector. Based on their ownership structure they can be classified as public sector and private
sector banks.

Public Sector Banks:

Public sectors banks are those in which the government has a major stake and they usually
need to emphasize on social objectives than on profitability. The main objectives of public
sector banks is to ensure there is no monopoly and control of banking and financial services
by few individuals or business houses and to ensure compliance with regulations and promote
the needs of the underprivileged and weaker sections of society, cater to the needs of
agriculture and other priority sectors and prevent concentration of wealth and economic
power. These banks play a revolutionary role in lending, particularly to the priority sector,
constituting of agriculture, small-scale industries and small businesses. In India, there are 27
public sector banks that have been nationalized by the government to protect the interests of
majority of the citizens. Some examples are State Bank of India, Union Bank of India etc.

Private sector banks:

The private-sector banks are banks where majority of their ownership is held by private
shareholders and not by the government. Private sector banks are owned, managed and
controlled by private promoters and they are free to operate as per market forces. To ensure
their safety and smooth functioning there are generally entry barriers and regulatory criteria
set like the minimum net worth etc. This ensures safety of public deposits entrusted with such
institutions and they are also regulated by guidelines issued by Central Banks from time to
time. Some examples of private sector banks in India are ICICI Bank, Yes Bank and Axis
Bank.

Importance of Commercial Banks:

Commercial banks play a very important role in the economic development of any country as
they mobilize deposits that inculcates saving habit in the public. Commercial banks also
facilitate payments through cheques and help happening of financial transactions without
actual movement of cash providing a layer of security to comfort to such transactions. They
also offer variety of business services like offering loans and credit facilities, allowing
overdraft facilities, issuing letters of credit & guarantee (LC’s and LG’s). They also provide
clearing services like discounting of bills, collection of cheques, drafts & bills of exchange
etc. and facilitates remittance and receiving of money on behalf of its customers. The term
“bank” has become synonymous nowadays and most often refers to these commercial banks.

The emerging environment offer ample opportunities to banks to venture into new and
profitable areas. Also, due to deregulation, commercial banks are also now competing more
with investment banks in money market operations, bond underwriting, and financial
advisory work.
3. Cooperative Banks:
Cooperative banks are private sector banks. Co-operative banks are also mutual savings
banks meant essentially for providing cheap credit to their members. A cooperative bank is a
voluntary association of members for self-help and caters to their financial needs on a mutual
basis. They accept deposits and make mortgage and other types of loans to its
members. These banks are also subject to control and inspection by the Reserve Bank of
India but they are generally governed by a different statue, which is more flexible and easy to
comply with compared to central bank acts. In India, they are governed by the provisions of
State Cooperative Societies Act. Another type is credit unions, which are cooperative
organizations that issue share certificates and make member (consumer) and other loans.

These institutions are an important source of rural credit i.e., agricultural financing in India.
Co-operative banks get their resources from issuance of their shares, accepting public
deposits and also taking loans from the state cooperative banks. They also get short and
medium term loans from the Reserve Bank of India. To enhance safety and public confidence
in cooperative banks, the Reserve Bank of India has extended the Credit Guarantee Scheme
to cooperative banks.

4. Investment Banks:
An investment bank is a financial institution that assists individuals, corporations and
governments in raising capital by underwriting and/or acting as the client's agent in the
issuance of securities. An investment bank may also assist companies involved in mergers
and acquisitions, and provide ancillary services such as market making, trading of
derivatives, fixed income instruments, foreign exchange, commodities, and equity
securities. Investment banks aid companies in acquiring funds and they provide advice for a
wide range of transactions. These banks also offer financial consulting services to companies
and give advice on mergers and acquisitions and management of public assets.

5. Central Banks:
Every country has a Central Bank of its own generally regulated by a special act. Central
banks are bankers’ banks, and these banks trace their history from the Bank of England. It is
called a Central Bank because it occupies a central position in the banking system and acts as
the highest financial authority. The main function of this bank is to regulate and supervise the
whole banking system in the country. It is a banker's bank and controller of credit in the
country. They guarantee stable monetary and financial policy from country to country and
play an important role in the economy of the country. Typical functions include
implementing monetary policy, managing foreign exchange and gold reserves, making
decisions regarding official interest rates, acting as banker to the government and other
banks, and regulating and supervising the banking industry.

These banks buy government debt, have a monopoly on the issuance of paper money, and
often act as a lender of last resort to commercial banks. The Central bank of any country
supervises controls and regulates the activities of all the commercial banks of that country. It
also acts as a government banker. It controls and coordinates currency and credit policies of
any country. In India, Reserve Bank of India is the central bank. It is the apex bank and the
statutory institution in the money market of the country.
6. Specialized Banks:
Specialized banks are dedicated banks that excel in a particular product, service or sector and
provide mission based services to a section of society. Some examples of specialized banks
are industrial banks, land development banks, regional rural banks, foreign exchange banks,
and export-import banks etc. addressing specific needs of these unique areas. These banks
provide distinctive services or products like financial aid to industries, heavy turnkey projects
and foreign trade. Some specialized banks are discussed below:

Industrial Banks:

Industrial banks target to promote rapid industrial development. They provide specialized
medium and long term loans to industrial sector backed by consultancy, supervision and
expertise. They support industrial growth by rendering other services like project
identification, preparation of project reports, providing technical advice and managerial
services etc. They also do underwriting of public issues by corporate sector or help industrial
units get finance through consortium or provide guarantee to other financial institutions. We
have a number of such banks in India like Industrial Development Bank of India (IDB),
Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation
of India Ltd. (ICICI), Industrial Reconstruction Bank of India (IRBI), etc.

Land Development Banks:

These banks support development of agriculture and land. They provide long term credit to
agriculture for purposes such as pump sets, tractors, digging up wells, land improvement, etc.

These banks get funding by issuing debentures, which are generally subscribed by the State
Bank Group, other commercial banks, LIC and Reserve Bank of India. These banks grant
loans to farmers against the security of their land.

Regional Rural Banks:

These banks support small and marginal farmers by extending credit to them in rural areas.
They cater to the credit needs of small and marginal farmers, agricultural laborers, artisans
and small entrepreneurs in rural areas. The RRB's are sponsored by scheduled banks, usually
a nationalized commercial bank.

Import – Export Banks:

Import-Export banks are generally setup by government like central banks to promote trade
activities in import and export. They support exporters and importers by providing financial
assistance, acting as principal financial institution, coordinating working of other institutions
engaged in export and import to facilitate the growth of international trade. They provide
traditional export finance and also do financing of export oriented units. The bank finances
and insures foreign purchases of goods for customers unable or unwilling to accept credit
risk. Some examples are Export-Import Bank of India (Exim Bank), Export–Import Bank of
the United States etc.
Banking Operations: Understanding
Various Transactions & Activities
Banks perform various types of transactions and activities to support their banking business.
These transactions may include making or accepting payments, trading, clearing and
settlement of accounts, and custody. Knowing the operational aspects of banking is very
important for understanding the value chain of the banking industry. Now, we will discuss the
most important supporting activities performed by banking institutions. Key Activities:

1. Acceptance of Deposits
2. Lending of Funds
3. Clearing of Cheques
4. Remittance of Funds
5. Lockers & Safe Deposits
6. Bill Payment Services
7. Online Banking
8. Credit & Debit Cards
9. Overseas Banking Services
10. Wealth Management
11. Investment Banking
12. Social Objectives

Acceptance of Deposits
Deposits are the basis of the loan operations since banks are both borrowers and lenders of
money. As borrowers they pay interest and as lenders they grant loans and get interest. These
deposits are generally taken through current account, savings account and fixed deposits.
Current account deposits can be withdrawn to the extent of the balance at any time without
any prior notice. Savings accounts are for encouraging savings by individuals. Banks pay rate
of interest as decided by central banks on the deposits. Withdrawal from these accounts has
some restrictions in relation to the amount as well as number of times in a given period. Fixed
accounts are time deposits with higher rate of interest as compared to the savings accounts. A
premature withdrawal is permissible with a percentage of interest being forfeited.

Lending of Funds:
Second major activity of banks is to provide loans and advances out of the money received
through deposits. These advances can be made in the form of overdrafts, cash credits,
discounting trade bills, term loans, consumer credits and other misc. advances. The funds lent
out by banks contribute a great deal to trade, industry, transport and other business activities. 

Clearing of Cheques
Cheques books are issued to the holders of accounts in banks. Cheque is a negotiable
instrument and most convenient and widely used credit instrument. Cheques are used to
facilitate trade and business by endorsements and withdrawal of deposits. Banks render a
very important service to their customers by collecting their cheques drawn on other banks. It
is the most convenient and an inexpensive medium of exchange that does not require actual
movement of cash from one transacting party to another. Mainly, two types of cheques are
often used bearer and crossed. Bearer cheques can be encashed immediately at bank counters
whereas crossed cheques can only be deposited in the payees account.  
Remittance of Funds
Banks also facilitate fund transfer from one place to another, leveraging the vast network of
branches that are interconnected to each other. Many banking instruments are in usage for
enabling transfer of funds from one account to another like bank drafts, pay orders, wire or
mail transfers. Bank earns nominal commission by way of bank charges on some of the
transfers. The bank issues a draft for the amount at its own branch which can be credited to
another account which might be with different branch or different bank. Banks collect the
amount on behalf of the depositor which is known as clearing process. 

Lockers & Safe Deposits

Bank safe deposit lockers are a good option for safeguarding valuables and important
documents. Each locker is operated by combination of two sets of keys, one for the customer,
and the other with the bank. The locker can only be operated if both the keys are used. Banks
charge nominal fees to provide the locker facility.  

Bill Payment Services

Banks also provide services related to bill payments, payment of insurance premium,
collection of dividend etc. Recurring payments can be automated for payment using the
facilities extended by modern banks. Account holders can directly pay from their account or
using credit/debit cards for their electricity, gas, landline and mobile phone billers and many
more.

Online Banking
The growth of Internet and e-commerce has transformed banking industry and customers are
fast moving from branch banking to virtual banking. Users with internet on PC or Mobile can
get connected to the banks website and avail a variety of banking services and functions.
These services lower the transaction costs and add to the ease and speed of the transaction
flow.

Credit & Debit Cards

Credit cards issued by banks are another form of lending, and they are not only good business
for the bank, they help the economy. Offering Credit Card is a profitable form of lending for
banks that has greatly expanded in the last few years. Banks compete fiercely for this
business and offer varying forms and types of credit-card accounts. Many banks change or
negotiate rates with consumers, and special low-rate promotions and various types of
discounts are being offered as an incentive to use card and do purchasing. People buy things
with credit, and keep merchandise moving and manufacturing producing at a more rapid rate
than if transactions had to take place in cash. Although there is risk in the unwise use of
credit cards by consumers, the judicious use of credit stimulates the economy.
Overseas Banking Services
Banks offer financial services, such as payment accounts and lending opportunities, to
foreign clients. These foreign clients can be individuals and companies, though every
international bank has its own policies, most of them offer various products and services to
cater to the needs of their international clientele.
Banking products for this sector includes offshore banking, savings, investments, and
mortgages clubbed with a broad range of FX services including forward and spot
transactions.

Wealth Management
Wealth management services offered by banks include a full range of financial services and
products clubbed with advisory services from expert professionals. Wealth management
services are provided to an affluent client and may relate to any financial product. The
purpose of these services is to grow the wealth of the client, secure the financial position and
make most of the money over the long term. Various investment avenues could be mutual
funds, international global trading, time deposits, foreign exchange solutions or dual currency
placement etc.

Investment Banking
Wide range of services are provided under this umbrella and may include assessment of
investment needs, evaluation of asset structure and the liability-management requirements,
managing portfolios of financial assets, trading in securities, fixed income, commodity and
currency, corporate advisory services for mergers and acquisitions, corporate finance, and
debt and equity underwriting. Banks may also offer services related to cash-flow analysis,
development of investment policy, portfolio-construction, custody services, and portfolio
rebalancing, fundraising and philanthropic services. Banks may offer trading services offered
by exchanges/brokers or dealers like buying and selling of shares and debentures on
instructions from the client.

Fulfillment of Social Objectives

In the recent past there has been a concerted effort by the policy makers in reorienting
banking towards achieving social objectives. There has been a major shift in the banking
policy to support more and more financial inclusion. Some trends in the recent past has been
a shift from urban orientation to rural orientation by opening more rural branches, from class
banking to mass banking by allowing zero balance account for poorer sections of society
using innovative practices.
Banking Operations: Different Types of
Payments & Payment Systems
As the commerce and economy expand, volume and variety of transactions expand where
there is a need to exchange the money. Using cash for each of these transactions is neither
feasible nor practically possible. There are concerns regarding security and transportation of
cash in cases where large amounts of money are involved. Banks support ease and velocity in
such cases by offering various payment systems as solutions.

What are Payment Systems?

A Payment System is a mechanism that facilitates transfer of value between a payer and a
beneficiary by which the payer discharges the payment obligations to the beneficiary.
Payment Systems are the medium to transfer funds from one person to another that facilitate
businesses and economies. Payment system enables two-way flow of payments in exchange
of goods and services in the economy. Payment systems help consumers to transfer funds to
each other. Cash is the traditional and most widely used payment instrument that consumers
use in their daily lives to purchase goods and services. Banking channels also provide other
payment instruments through different platforms and these are also widely used in commerce.
Payment systems comprises of instruments through which payments can be made, rules,
regulations and procedures that guide these payments, institutions which facilitate payment
mechanisms and legal systems etc. that are established to facilitate transfer of funds between
different participant institutions. Payment systems are used by individuals, banks, companies,
governments, etc. to make payments to one another.

Classification of Payment Methods

Payment Systems can be broadly classified into Large Value Systems and Retail Payment
Systems. For the purpose of making things easy to understand we have classified the various
payment methods in the following format:

1. Large Value Payment System:

2. Retail Payment System:
1. Cash Payment
2. Paper Based Payments
1. Cheques
2. Demand Drafts
3. Payment Orders or Banker’s Cheques:
3. Card Based Payments
1. Credit Card
2. Debit Card
4. Electronic Payments and Remittances
1. Electronic Clearing Services:
2. Electronic Funds Transfer:
3. Real Time Gross Settlement:
4. Internet Banking:
5. Mobile Banking:
1. Large Value Payment System:
Large value systems typically process high value critical payments. It is an essential payment
system which ensures the smooth functioning of the economy and the financial system. If this
system fails, it could trigger disruptions or transmit shocks within the economy. These
systems mostly relate to interbank / inter-financial institutional transactions. Generally these
large value systems are strictly regulated by the Central Banks of respective countries and are
electronic based. . These systems enable payments to be made electronically and instantly in
real time. They offer speed, reliability, safety, convenience, cost and accuracy. Some
examples of Large Value Payment Systems are:

1. Inter-Bank Cheques Clearing Systems (the Inter-bank Clearing)

2. High Value Cheques Clearing System (the High Value Clearing)
3. Government Securities Clearing System (the G-Sec Clearing)
4. Foreign Exchange Clearing System (the Forex Clearing)
5. Real Time Gross Settlement (RTGS) System
6. Systemically Important Payment Systems (SIPS)
7. FIJICLEAR to make large value payments in Fiji
8. SWIFT (Society for the Worldwide Interbank Financial Telecommunication)
9. Large Value Transfer System (LVTS) in Canada

2. Retail Payment System:

Retail payment systems generally cater to the payment of transactions related mainly to
settlement of obligations arising from purchase of goods and services. This payment system
is as important as the large value payment system and has a larger user group. They typically
handle transactions which are low in value, but very large in number, relating to individuals
firms and corporates. The retail payment systems in any country comprise both paper based
as well as electronic based systems. A person with a payment card of any kind is part of the
retail payment system. At the retail level most transactions involve cash, cheques, cards or
electronic transfers. Retail payments can be classified as:

Types of Bank Payments:

1. Cash Payment
2. Paper Based Payments
3. Card Based Payments
4. Electronic Payments and Remittances
5. 2(a) Cash Payment:

2(a) Cash Payment:

Cash payment is the oldest, most common payment system which is well known and is the
most preferred method for small payments because it involves no credit. With cash, you can
usually purchase goods and services easily as it widely accepted. Carrying too much cash is
risky as it can lead to theft and other problems. However, people still carry cash for its
convenience and flexibility. From the payee’s point of view, transactions are completed
immediately and this cash can be re-used for other transactions. This system is suited for
small amounts of payments.
 

2(b) Paper Based Payments:

Paper based payments are in the form of cheques, demand drafts, payment orders, banker’s
cheques, refund orders, warrants etc. These are also referred to as negotiable instruments. For
simplicity, they are generally referred to as cheques. Advantages of paper based payments are
that they are safer than cash for example a crossed cheque can only be deposited into the
payee’s account. They are preferred for large amounts and a large number of payments to
avoid carrying large sums of cash. Payments can be made at payer’s convenience and posted
to the payee. The biggest disadvantage of paper based payments is that it can take up to 3 – 4
working days before funds are available to use. Moreover there is no guarantee that the payer
has sufficient funds and hence the cheque may become dishonored (bounce) by the bank and
it is advisable to use demand draft or banker’s cheque in such circumstances where trust is a
factor. There are extra costs if the payee wants an immediate clearance of funds. Paper based
instruments have other administrative costs associated to it.

2(b)(i) Cheques:

A cheque is an order to transfer funds from the payer’s bank to the account of the payee.
Cheques are simply a payment instruction from the account holder to his/her banker directing
that a certain sum of money should be paid to a specific individual or to the bearer of the
instrument. On receipt of cheques, the beneficiary will deposit it with his banker who will
collect the money through clearing house system, where banks in a city exchange cheques
with one another and settle the payments by arriving at a net amount of payables and
receivables. After exchange of cheque, the account of the issuer of the cheque is debited and
the credit is passed on to the banker of the beneficiary.

2(b)(ii)Demand Drafts:

Demand drafts are used when one person wants to send or transfer money (remit) to another
person who is in another city. The person wanting to send money, deposits cash in a bank or
issue a cheque in favor of the issuing bank, which issues him a demand draft. The demand
draft is sent to the person who is to receive the money. The receiver gives it to the
branch/bank where he holds an account and receives the payment. Banks normally charge a
commission for issuing demand drafts.

2(b)(iii) Payment Orders or Banker’s Cheques:

Payment orders or Banker’s Cheques are similar to demand drafts but are usually issued for
payments within a city. These are usually valid for a shorter period of time compared to other
instruments. Banks may charge a commission for issuing Payment Orders and Banker’s
Cheques.
2(c) Card Based Payments:

Card based payments are made by using a credit card or a debit card or an ATM Card. Major
advantages of card payments is that it will only be accepted if the card holder has sufficient
funds in his/her account and safer than cash and faster than the paper based payments. Can
also be used for mail order or online purchases and carries lesser risk than holding cash. The
risk of theft is mitigated by having pin codes. Some major disadvantages are that for the
merchant it might take up to three days for money to be received and acknowledged and
cards are operated at a fee payable to the bank generally both by the card holder and the
merchant.

2(c)(i) Credit Card:

Credit card system is a credit facility extended to a user who is issued a plastic card which
can be used in place of cash for making any type of payment/purchase. Credit Card enables
its holder to buy goods and services with a credit line given by credit card issuer. The
institution which issues the card has a tie up with the concerned merchant establishment and
the card issuing organization, if different, to facilitate this arrangement. The amounts charged
to the customer are paid by card issuer to the merchant and subsequently billed to the
customer. Funds are settled at a later date. Card holders are billed on a monthly basis and
bear financial charges (interest) on outstanding amounts if payments are not made by the due
date. Credit cards are issued through commercial banks and/or other issuers. A credit card
holder may not be an account holder in the bank which issues the credit card.

2(c)(ii) Debit Card:

Debit Card is a payment card where the transaction amount is deducted directly from the card
holder’s bank account upon authorization. Debit cards can be of two types, one which are
linked to an account and is issued by banks to account holders only. Second could be pre-
loaded cards where a certain amount is stored in the card. Generally, debit cards are also
ATM cards. The mode of using debit cards and credit cards is generally the same.

2(d) Electronic Payments and Remittances:

With the advent of computers and electronic communications a large number of alternative
electronic payment systems have emerged. These include electronic funds transfers, direct
credits, direct debits, internet banking and e-commerce payment systems. Payment systems
are used in lieu of tendering cash in domestic and international transactions and consist of a
major service provided by banks and other financial institutions. Standardization has allowed
some of these systems and networks to grow to a global scale, but there are still many country
and product specific systems.
2(d)(i) Electronic Clearing Services:

These are electronic payments offered by banking channels for receiving or making
payments. Electronic Clearing Service is a mode of payment by an institution and receipt by
individuals for interest, dividend, salary, pension, etc. This is an electronic money transfer
facility in which money is transferred automatically from a payer’s to payee’s bank accounts.
A large number of investors, shareholders, employees, ex-employees can receive their dues
electronically directly into their accounts on due dates without using paper
cheques/instruments. Similarly bank customers can make small value repetitive payments
such as electricity bills, telephone bills, loan installments, insurance premium, club fees, etc.
The payer instructs their bank to make direct debit payments and the payee provides amounts
and dates of the payments. The process operates on the basis of large number of small debits
and one consolidated credit from users to the service provider. The system provides the
convenience of paperless payment on due dates by direct debit to the customer’s account.
This facility can be used for paying different amounts and is useful for paying regular bills.
Advantages of this system are guaranteed payments and no need to remember payment dates.

2(d)(ii) Electronic Funds Transfer:

This electronic mode of remittance of funds is enabled by the participating banks under
supervision of the central bank of the country. The amount sent from the sender’s bank
branch is credited to the receiver’s bank branch on the same day or at the most the next day.
This facility saves the effort of sending a demand draft through post and the inherent delay in
reaching the money to the receiver. Banks may charge commission for using this service. 

2(d)(iii) Real Time Gross Settlement:

The real time gross settlement system facilitates instant transfer of money from one account
to other across cities. This is basically a large value remittance system where funds are
required to be transferred quickly. While all the above payment and remittance systems are
settled between banks on a net basis, this system is settled on a gross basis which means that
each transaction is settled independently. This facility is useful to banks for their funds
management, for companies to transfer large amounts for individuals who require urgent
payments.

2(d)(iv) Internet Banking:

Online banking (or Internet banking or E-banking) allows customers of a financial institution
to conduct financial transactions on a secure website operated by the institution. This is a
very fast and convenient way of performing banking transactions such as transferring funds
from your savings to current account or to a third party account. The major advantages are
that the payments are made at the convenience of the account holder and are secured by user
name and password. This facility can be used at any time and from anywhere in the world
with internet access. The only disadvantage is that for making this payment access to
computers and internet services is required and internet comes at an additional cost.
2(d)(v) Mobile Banking:

Mobile banking is a service provided through the combined effort of a bank and a mobile
service provider, to perform common banking transactions. An active bank account is needed
and a mobile phone equipped with features required by the bank. The advantages of this
system is that it is secured and available to user at all the times, very fast and convenient way
of making payments as the payments can be made from anywhere that has mobile network
coverage. Some disadvantages are security as mobiles need to be kept safely, otherwise
misuse may occur.

In a monetized economy there are many different types of transactions that are conducted
daily that facilitate the transfer of goods and services from one person to another and need to
be settled by way of a payment. Payment systems play an important role in any country and
are very important for the effective functioning of the economy. The central banks of the
country are an integral part of the payment systems as it monitors, supervisors and regulates
the whole payment system processes.