Banking refers to the umbrella of services provided by financial institutions, such as accepting deposits and providing loans. Banking provides essential financial services like depositing, lending, and asset protection to support the economy.

Let’s take a deeper look into what banking is exactly, and why it’s such an important pillar of the economy.

What is Banking?

The primary purpose of banking is to facilitate the movement of money in the economy by helping people and businesses store, invest and borrow money. The industry includes financial institutions like banks, credit unions and NBFCs.

Banks and other financial institutions play a very important role in the economy. There are two kinds of banks: retail and investment banks. Let’s discuss the Indian banking system, its types, functions and how banking helps businesses.

Major Functions & Uses of Banking: 

1. Money Storage

  • Banks provide savings accounts that give the account owner interest on their deposit so that the money does not sit idly
  • Businesses store money in current accounts which are special accounts designed for the everyday financial needs of a business

Read more: Types of Current Account

2. Loan Facility

  • Banks also give out loans to both individuals and businesses.
  • These loans are to be paid back over a period of time with a certain amount of interest added.
  • People take loans for a number of reasons: to buy a new asset like a car, or house or for education.
  • Businesses take loans to meet liquidity needs, fund daily operations, execute payroll etc.

3. Corporate Finance Management

  • When businesses reach a mature stage and are looking to merge/acquire other organisations that might serve their long-term revenue prospects, they reach out to specialised banks known as investment banks to help with complex financial transactions like mergers and acquisitions or IPOs.
  • Generally, these banks do not offer retail or consumer banking services and only specialize in corporate finances. They are intermediaries in the transaction and work with large corporations, hedge funds, and other financial institutions.

Types of Banking: 

The banking system in India is divided into the following branches:

types of bank

Types of Commercial Banks:

Public Sector Banks Private Sector Banks Foreign Banks Regional Rural Banks
The major stakeholder of these banks is government entities such as the Ministry of finance.  These banks prioritise social welfare by providing access to financial services for people, micro & small-sized companies. These banks are governed by private firms or individuals and are for-profit.  These banks have headquarters in other countries and have Indian branches. These banks bring in modern banking technology & accelerate competition driving innovation across the industry.  These government of India-owned banks operate in rural areas to provide basic financial services such as pensions & MGNREGA disbursal to the people.
Example: SBI, Canara Bank, Bank of Baroda etc Example: Axis bank, ICICI bank, HDFC bank etc.  Example: Barclays, Citi bank etc.  Example: Andhra Pradesh Grameena Vikas Bank, J&K Grameen Bank etc. 

Types of Banking:

Based on the services & needs of individuals and businesses, we have come up with the below table to help you understand the types of banking & services offered by each type.

Retail Banking Corporate Banking Central Banking  Cooperative Banking 
  • These are banks that service individual customers. 
  • They offer loans, investment options, and even Demat accounts for stock trading.
  • These banks specialize in the complex financial needs of large institutions.
  • Services include current accounts, escrow accounts, & credit facilities.
  • These banks are the central regulatory authority of all banks in a country.
  • In India, banks are regulated by the Reserve Bank of India
  • Managed by an elected managing committee is referred to as a cooperative bank. 
  • It operates on a non-profit no-loss basis and mostly supports self-employed people, small company owners, and others in metropolitan areas. 
Service offered: Savings account, credit cards, home loans etc Service offered: current account, escrow account, corporate credit card etc Service offered: regulation & compliance, public debt & currency management  Service offered: ATM services, insurance etc. 

Modes of Banking:

Banking today exists in a myriad of forms, thanks to the advancement of technology.

Mobile Banking
  • Banks today have a mobile app where account holders can make transactions, check balances, open deposits and more. 
  • Most people today prefer a mobile app over a physical bank branch for basic functions. 
Internet Banking
  • Banks today also have a website where account holders can log in and carry out all the functions that previously required a visit to a bank branch.
Digital Banking
  • Digital banking is a service offered by brick-and-mortar banks, to make transactions easier for their customers. 
  • Digital banking has become so popular that most people now prefer making payments through NEFT or IMPS, or the newly launched UPI. 
  • Neobanks operate entirely online with no physical presence at all.
  • Neobanks offer flexibility and ease of use that legacy traditional banks typically do not, or cannot offer.
  • Legal regulations have not yet caught up to these new-age banks, the RBI “is cognizant of the benefits that neobanks bring to the table”. 

Latest Trends in Banking

banking top trends

Banking has witnessed the biggest transformation in the past few decades. With the rise of digital banking, neo-banks, digital currencies and more, the world of finance has been at the forefront of change.

Banking solutions like RazorpayX and Jupiter are helping make personal and business finances easier. Before fintechs, traditional banks did not offer ease of use or integrated solutions to all finance issues that businesses and individuals faced.

With fintechs like RazorpayX, businesses can supercharge every aspect of their financial operations.

  • Save time, reduce manual effort and eliminate errors with instant payouts
  • One single, powerful dashboard for all your money management needs
  • Intelligent invoice generation for vendor payments 
  • Smooth integrations with all major accounting platforms

And more where that came from. Your business is in the future – it’s up to you to ensure your banking is, too.


What is banking?

Banking is the industry that allows people and businesses to deposit, borrow and transfer money. The banking industry has been an important part of the economy ever since humans started using money.

Why is banking so important?

Banks play a very important role in the economy. They allow money to flow through the economy by providing credit, investment facilities and financial infrastructure.

What is the origin of banking?

Banking originated in the ancient world out of a need to keep extra money or gold safe. People also needed loans to grow crops or grain when times where hard. The basic functions of banking have more or less remained the same in modern times.

What are the different types of banks?

Commercial or retail banks and Corporate banks are the two main divisions of banking. There are also digital banks and neobanks.

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    Raghavi Kasa
    Author Raghavi Kasa

    Raghavi likes to think that because she writes for a living, she'd be good at writing a short bio for herself. But she isn't. She is good at binging K-drama, though.

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