A commercial bank is a financial institution which performs two primary functions that includes accepting deposits from people by providing them a nominal rate of interest on it and offering loans for the purpose of consumption and investment by charging high rate of interest on it. Therefore, commercial banks has the following two primary functions:
1. Accepting deposits: Commercial banks accept deposits from people, businesses, and other entities in the form of deposits which they have that includes saving deposit, current deposit, recurring deposit and fixed deposit where they provide different rate of interest on such deposits depending upon the nature of the deposit.
2. Lending credits: The other function performed by commercial bank is to lend funds to customers in the form of loans and advances, cash credit, overdraft etc. with or without collateral at an agreed rate of interest for the purpose of consumption and investment.