Explain the functions of a commercial bank.
Explain the functions of a commercial bank.
Functions of Commercial Banks:
The function of commercial bank can be divided into three categories.
(i) Primary Functions: A commercial bank performs two primary functions
(a) Accepting Deposits: Commercial bank accepts deposits from the public in the following forms:
(a) Current account
(b) Fixed deposit account
(c) Saving account
(d) Recurring deposit account
(b) Providing Loans and Advances: A commercial bank provides loans and advances both for productive purpose as well as consumption (household) purpose. The commercial bank provides cash credit, demand loans, and short-term loans.
(ii) Secondary Functions: In addition to the primary functions, banks also perform the following secondary functions:
(a) Overdraft Facility: It refers to a facility in which an account holder is allowed to overdraw amount up to limit from his current account.
(b) Discounting Bills of Exchange: The commercial bank provides the facility of discounting bills before the date of maturity.
(iii) Agency Functions: A commercial bank acts as an agent for his customer. Some of the agency functions are:
(a) Transfer of funds
(b) Collection and payment of various items
(c) Purchase and sale of foreign exchange
(d) Purchase and sale of securities
(e) Act as a consultant
(f) Provide a locker facility
(g) Provide information and statistical data of the customers
Functions of Commercial Banks:
The function of commercial bank can be divided into three categories.
(i) Primary Functions: A commercial bank performs two primary functions
(a) Accepting Deposits: Commercial bank accepts deposits from the public in the following forms:
(a) Current account
(b) Fixed deposit account
(c) Saving account
(d) Recurring deposit account
(b) Providing Loans and Advances: A commercial bank provides loans and advances both for productive purpose as well as consumption (household) purpose. The commercial bank provides cash credit, demand loans, and short-term loans.
(ii) Secondary Functions: In addition to the primary functions, banks also perform the following secondary functions:
(a) Overdraft Facility: It refers to a facility in which an account holder is allowed to overdraw amount up to limit from his current account.
(b) Discounting Bills of Exchange: The commercial bank provides the facility of discounting bills before the date of maturity.
(iii) Agency Functions: A commercial bank acts as an agent for his customer. Some of the agency functions are:
(a) Transfer of funds
(b) Collection and payment of various items
(c) Purchase and sale of foreign exchange
(d) Purchase and sale of securities
(e) Act as a consultant
(f) Provide a locker facility
(g) Provide information and statistical data of the customers
