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Functions of a Commercial Bank
Duties of Commercial Bank; Functions of a Commercial Bank
Functions of commercial banks can be classified into primary functions and secondary functions.
- Primary functions: The primary functions of the commercial bank are given in Banking Regulations Act, 1949.
(1) Accepting deposits of money:
The most important function of the commercial bank is to accept deposits from the public. A banker provides interest on all types of deposits and the public feel secured when their money is with the bank. People deposits their money in the form of (1) Savings account, (2) Current account, (3) Fixed deposits, (4) Recurring deposits. The interest provided by the bank is known as 'borrowing rate'.
(2) Advancing loans:
Another important function of these bank is to make loans and advances to the needy people. The loans may be in the form of call loans, over draft, cash credit, term loan and discounting of bills. It charges higher rate of interest for these loan. The interest charged by the bank for its lending is known as 'lending rate'.
(3) Transfer of deposit:
This is the most important function of a commercial bank. A bank has to transfer money of the depositor when demanded by them. Money can be transferred from one account to another account of the same person, or from one place to another, from one person to another. This can be done by the customer by using checks. In case of non customer, they can do this by using demand draft.
(4) Permitting withdrawals of money:
Bank allows the depositors to withdraw either the entire or a part of it by using withdrawal slips, checks etc. These withdrawals are allowed as per certain conditions of the bank for certain accounts.
- Secondary functions: In addition to the above banking or primary functions, bank does the following non-banking or secondary functions also.
(1) Agency services provided by Commercial Banks:
Commercial Banks perform a number of agency services to their customers. They are:
- Purchasing and selling of shares, securities, bonds etc.
- Collection and regular payments of bills, checks and other commercial instruments, dividends, interest etc as per the standing instructions given by their customers.
- Collection and payment of rents, insurance premium and other charges.
- Remittance of funds on behalf of their customers.
- Acts as trustees, representatives and executors of their clients.
- Act as income tax consultants and they prepare and finalize the income tax returns of their clients.
- Procedure tickets and passports for their customers.
(2) General Utility services rendered by Commercial Banks:
Modern nationalized banks render certain additional utility services to their customers. They are as follows:
- Safety vaults or lockers to provide security to their valuables like ornaments, documents etc.
- Provides traveler's checks to tourists.
- Issuing letter of credit to businessmen.
- Issuing credit card to their customers.
- Providing the facility of withdrawing cash anytime through ATM.
- Underwriting for shares and debentures issued by the companies.
- Providing educational loans, scholarships, book bank facility, arranging or sponsoring for exhibitions to students.
- Providing consultancy services regarding shares,taxation etc to the companies.
- Lending advice as a merchant banker to the businessmen and industrialists about their new projects, issue of shares and capital structure etc.
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