Commercial banks perform several functions, namely:
1.Receiving deposits
The basic function of commercial banks is to accept deposits from customers. These deposits are of the following types:
(I)Save accounts
Savings accounts meet the needs of people who want to save from their income and receive interest on the amount saved. Savings account holders can deposit checks, bills, etc. However, there is a restriction on withdrawals.
(ii)Fixed deposit accounts
See AlsoWhat is commercial banking?Walmart Inc Company Profile - OversigtIs commercial banking a good career path?Commercial banker career profileAs the name suggests, fixed deposit accounts involve holding deposits for fixed periods of time; for example Rs.500 per month for 5 years. The period must be determined in advance when opening the account. Holders of these accounts do not benefit from the check facility. The higher it will be over the period, the higher will be the interest rate determined by RBI.
(iii)Current deposit accounts
Deposit accounts are also called “demand deposits” because the depositor can withdraw money at any time via checks. Business Menus Use this account to make many transactions in one day; however, they do not earn interest on the deposits. Banks regularly provide account statements to current account holders.
2.Provision of loans and advances
The second main function of commercial banks is to provide loans and advances. The interest that banks charge on loans is higher than the interest that banks pay on demand deposits and savings deposits. Loans made by commercial banks are generally long-term and are made against securities. Advances are only provided by a bank for a short period.
3. Agency officials
The commercial banks perform various agency functions whose primary purpose is to receive deposits and make loans. Their features include:
(i) Transfer of Funds − Banks provide easy flow of funds from place to place through postal transfers, bills of exchange etc.
(ii) Collection of money − Banks also collect money on behalf of their customers through bills, cheques, etc.
(iii) Banks collect insurance premiums, dividends, interest on bonds etc.
(v) Bank assistant in the process of tax payment by the account holders.
(vi) Banks also play the role of administrators or executors of a will.
4. Discounting of bills of exchange
Commercial banks provide financial support to businesses by discounting bills of exchange. Banks purchase these customer-produced notes by deducting interest from the face value of the notes, making it easy to finance the business sector when needed.
5. Credit institution
Commercial banks create credit in the economy through demand deposits. Credit creation paves the way for growth in the economy.
6. Other features
(i) Provision of lockers
(ii) Purchase and sale of foreign currencies
(iii) Issuance of gift vouchers
(iv) Subscription to shares and debentures
(v) Providing information and statistics useful to customers
Commercial banks perform several functions, namely:
1.Receiving deposits
The basic function of commercial banks is to accept deposits from customers. These deposits are of the following types:
(I)Save accounts
Savings accounts meet the needs of people who want to save from their income and receive interest on the amount saved. Savings account holders can deposit checks, bills, etc. However, there is a restriction on withdrawals.
(ii)Fixed deposit accounts
As the name suggests, fixed deposit accounts involve holding deposits for fixed periods of time; for example Rs.500 per month for 5 years. The period must be determined in advance when opening the account. Holders of these accounts do not benefit from the check facility. The higher it will be over the period, the higher will be the interest rate determined by RBI.
(iii)Current deposit accounts
Deposit accounts are also called “demand deposits” because the depositor can withdraw money at any time via checks. Business Menus Use this account to make many transactions in one day; however, they do not earn interest on the deposits. Banks regularly provide account statements to current account holders.
2.Provision of loans and advances
The second main function of commercial banks is to provide loans and advances. The interest that banks charge on loans is higher than the interest that banks pay on demand deposits and savings deposits. Loans made by commercial banks are generally long-term and are made against securities. Advances are only provided by a bank for a short period.
3. Agency officials
The commercial banks perform various agency functions whose primary purpose is to receive deposits and make loans. Their features include:
(i) Transfer of Funds − Banks provide easy flow of funds from place to place through postal transfers, bills of exchange etc.
(ii) Collection of money − Banks also collect money on behalf of their customers through bills, cheques, etc.
(iii) Banks collect insurance premiums, dividends, interest on bonds etc.
(v) Bank assistant in the process of tax payment by the account holders.
(vi) Banks also play the role of administrators or executors of a will.
4. Discounting of bills of exchange
Commercial banks provide financial support to businesses by discounting bills of exchange. Banks purchase these customer-produced notes by deducting interest from the face value of the notes, making it easy to finance the business sector when needed.
5. Credit institution
Commercial banks create credit in the economy through demand deposits. Credit creation paves the way for growth in the economy.
6. Other features
(i) Provision of lockers
(ii) Purchase and sale of foreign currencies
(iii) Issuance of gift vouchers
(iv) Subscription to shares and debentures
(v) Providing information and statistics useful to customers
