Question

What is meant by a Commercial Bank ? Explain how Commercial banks provide credit facilities through the methods given below :
1) Cash Credit
2) Loan
3) Overdraft facility.

Answer 1

A commercial bank is a type of financial institution that accepts deposits, offers to check account services, make business, personal and mortgage loans and offers basic financial products.

Credit Facilities offered by commercial banks:

(i) Cash Credit: A cash credit is an arrangement between the bank and a client, and it allows the client to withdraw money beyond their account limit. The cash credit is advanced for a period of one year, but it may extend to even three years in special circumstances.

(ii) Loan: The public deposits are used by commercial banks for the purpose of granting loans to individuals and businesses. Commercial banks grant loans in the form of overdraft, cash credit, and discounting bills of exchange.

(iii) Overdraft facility: A bank overdraft is a form of financing that allows the current account holders to overdraw the account up to a specified limit.