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Question

State with reasons whether you agree or disagree with the following statements.
Accepting deposits is the only primary function of commercial banks.

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Solution

I do not agree with this statement.

The primary functions of a commercial bank are Accepting Deposits and Lending Funds.

1. Commercial banks accept deposits from people, businesses, and other entities in the form of:

  • Savings deposits
  • Time deposits
  • Current deposits

2. Another important activity is lending funds to customers in the form of loans and advances, cash credit, overdraft and discounting of bills, etc.

Loans are advances that a bank extends to his customers with or without security for a specified time and at an agreed rate of interest. Under the cash credit facility, the bank offers its customers a facility to borrow cash up to a certain limit against the security of goods. Further, an overdraft is an arrangement that a bank offers to customers wherein a temporary facility is offered to overdraw from the current account without any security.


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