Explain the agency functions of commercial banks

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

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