Banks, in general, are financial institutions who accept money from savers as deposits, provide loans/advances to individual or firms in need of money and make investments for those who want to secure their future. It’s easier, to sum up how banks earn money in just four simple ways-
1) The interest paid by people for bank loans.
2) Various banking service fees and
3) Investing public funds as financial instruments in the stock market and
4) Buy and sell currencies of worldwide countries. But you can also find out below the profit gained by functional classification of banks.
Retail Banks– earn from middle-income groups like self-employed, salaried people by offering products and services for example-charging transaction processing fee for deposits in banks, savings accounts.ATM, mobile and online banking, Credit card, merchant transaction, and payment processing, Locker deposit fee, loan products, funds transfer, etc. Another strategy used by banks to gain more customers is to pay interest to them for holding deposits at banks.
Commercial Banks– earn money by following services-collect public deposits and assist the business professionals by giving them short-term loan services with high-interest rates in the form of overdrafts, cash credits, money remittance from different places, cheque collection, bills of exchange.
Nationalized Banks– they are non-profit making banks (since they maintain statutory cash reserve).They are banks to other banks and government. It is the only authority figure to issue paper currency.
Private Banks-whose stake-holding structure lies with high net worth individuals.
Agricultural Banks– such banks earn a profit by financing the agricultural sector with a land mortgage for their land development purpose. Lending rates of such banks are lower than commercial banks.
Co-operative Banks– earn by giving limited banking services in rural and urban areas like credit facilities to farmers, salary people, and small-scale industries. They follow the principle of cooperation with no profit and no loss strategy. Such banks get a large number of their borrowings from the central bank, state government, and other cooperative institutions.
Development Banks– make money by providing long-term loans to industries for their development, expansion, and modernization purpose for which the bank collects cash by issuing debenture and shares.
Exchange Banks-profit is made by financing foreign trade.
Investment Banks-gain huge money by providing financial advice fee and services to their corporate clients such as building financial performance reports, underwriting service, draft regulatory documents, issue, sell and trade shares in the secondary market, merger and acquisition tips and financial statements of companies to sustain in future.
Hence these are the predominant ways by which banks of any type run their business to earn and survive in the financial market.