A commercial bank is a kind of financial organisation that carries all the operations related to deposit and withdrawal of money for the general public, providing loans for investment, etc. These banks are profit-making organisations and do business only to make a profit.
Agency functions of a commercial bank
Commercial banks provide certain services to their customers in return of some commission, these are called as agency functions.
Some of the agency functions of a commercial bank are listed below
- Collection of cheques, bills and drafts.
- Payment of interest, instalments of loans, insurance premium etc.
- Purchase and sale of securities
- Collection of interest, dividend etc.
- Transfer of funds through demand drafts, mail transfer etc.
- Purchase and sale of foreign exchange.
Other vital functions of Commercial Bank
The functions of commercial banks are classified into two main categories
(a) Primary functions
- Accepts deposit
- Provides Loan and Advances
- Credit Cash
(b) Secondary functions
- Discounting bills of exchange
- Overdraft Facility
- Purchasing and Selling of the Securities
- Locker Facilities
- Paying and Gather the Credit – It uses different instruments like a promissory note, cheques, and bill of exchange