Explain the functions of commercial banks.
Explain the functions of commercial banks.
The main functions of commercial banks are described below : (i) Collection of deposits : One of the basis and primary functions of commercial banks is that they accept deposits from their clients. The depositors can withdraw their money from their accounts in the form of cash or through cheques and drafts.
(ii) Granting loans : Banks grant loans to industry, trade and commerce. The banks lend the money which they get in the form of deposits. The funds lent out by banks help in the development of trade and industry.
(iii) Collection of cheques and bills : Banks collect the cheques for their customers drawn on other banks. To collect cheques, banks have clearing houses. In case of local houses, the banks take no extra charges. For collecting outstation cheques, banks charge a commission. Banks also accept bills of exchange and encash them by charging a commission called discount before the maturity date.
(iv) Agency functions : Banks pay insurance premium on behalf of their clients. They also collect dividends, premium, interest, pension on behalf of customers and credit the same in their accounts.
(v) Custodial services : Commercial banks act as custodians by providing protection to the valuable articles of their clients.
(vi) Issue of letter of credit : Letter of credit is a very important document in external trade. It gives assurance of payment on behalf of the importer. The letter of credit is issued by the importers's bank to the exporter's bank to give assurance of payment on delivery of goods in the importer's country.
The main functions of commercial banks are described below : (i) Collection of deposits : One of the basis and primary functions of commercial banks is that they accept deposits from their clients. The depositors can withdraw their money from their accounts in the form of cash or through cheques and drafts.
(ii) Granting loans : Banks grant loans to industry, trade and commerce. The banks lend the money which they get in the form of deposits. The funds lent out by banks help in the development of trade and industry.
(iii) Collection of cheques and bills : Banks collect the cheques for their customers drawn on other banks. To collect cheques, banks have clearing houses. In case of local houses, the banks take no extra charges. For collecting outstation cheques, banks charge a commission. Banks also accept bills of exchange and encash them by charging a commission called discount before the maturity date.
(iv) Agency functions : Banks pay insurance premium on behalf of their clients. They also collect dividends, premium, interest, pension on behalf of customers and credit the same in their accounts.
(v) Custodial services : Commercial banks act as custodians by providing protection to the valuable articles of their clients.
(vi) Issue of letter of credit : Letter of credit is a very important document in external trade. It gives assurance of payment on behalf of the importer. The letter of credit is issued by the importers's bank to the exporter's bank to give assurance of payment on delivery of goods in the importer's country.
