Question

Give the main functions of a commercial bank. Explain any one of them.

Answer 1

The three main functions of a commercial bank are:

(i) Accepting deposits

(ii) Advancing loans and

(iii) Agency functions like purchase and sale of securities and shares, transfer of funds, etc.

Advancing of loans: Extending loans is an important function of commercial banks. The deposits received by banks are not allowed to remain idle. So, after keeping certain cash reserves, the balance is given to borrowers as loans and interest is charged on these loans. Loans and advances can be made in different terms and tenures- like cash-credit, short-term loans, among others.