Similarly, it receives and make payments of insurance premium, income tax, electricity fee, etc on behalf of its customers. To a new customer, a loan account has to be opened from where the money is withdrawn by cheque but he pays interest on the full amount. Before publishing your Articles on this site, please read the following pages: 1. These banks are profit-making institutions and do business only to make a profit. Functions of Commercial Banks An institution that provides services like accepting the deposits, providing business loans, and offering basic investment products is known as the commercial banks. Thanks for the info helped me out in completing my project. Function of Commercial Bank: The functions of commercial banks are classified into two main divisions. It is that type of bank that is nationalised, and the government holds a significant stake. The rate of interest on this account is higher than on other accounts. Commercial banks, as their name suggests, ax profit-seeking institutions, i.e., they do banking business to earn the profit. They are advanced against first class securities. Accepting Deposits: It is the most important function of commercial banks. Another important function of commercial banks is to avail the foreign currency and facilitate transactions between the different currency of the different country. Advancing Loans: Next important function performed by the commercial bank is lending money to the individuals and companies. (iv) It discharges the functions of marketing, work as a trustee, administrator or executor for its customers. Agency Services 6. A commercial bank helps in foreign trade by financing his customers and by accepting foreign bills of exchange. 3. Primary Functions of Commercial Banks. The secondary functions can be classified under three heads, namely, agency functions, general utility functions, and other functions. Customers put their small savings in the safe and after two to three months the customers take the safe to the bank where the banker unlocks it before the customer and makes credit in the customer’s account. They perform various functions to meet the requirements of the people. The traditional functions of a commercial bank relate to the acceptance of deposits from the public and … Welcome to EconomicsDiscussion.net! The functions of commercial banks are classified into two main divisions. Here we discuss the functions of a commercial bank with examples, roles, and its differences with retail banking. There are three different types of commercial banks. Miscellaneous Services to Customers. All private banks are recorded as companies with limited liability. It satisfies the financial needs of the sectors such as agriculture, industry, trade, communication, etc. Recommended Articles. The basic role of a commercial bank is to provide financial services to the general public, businesses, and companies. A nominal rate of interest is allowed to the customer. The two primary characteristics of a commercial bank are lending and borrowing. This can be recalled at a very short-notice. So first function of the commercial bank is to receive deposits. Generally, the banks accept four types of deposits from the public which are as follows: Under this account the depositor can withdraw the money whenever he requires it. This website includes study notes, research papers, essays, articles and other allied information submitted by visitors like YOU. In order to earn profit the bank accept deposits and advance loans by keeping a small cash in reserve to meet the day to day needs of the customers. to the customers and it accepts bills on behalf of the customers. Such as Housing Development Finance Corporation (HDFC) Bank, Industrial Credit and Investment Corporation of India (ICICI) Bank and Yes Bank, etc. FUNCTIONS OF COMMERCIAL BANK Following are the important functions of the commercial bank. Additional information would be more helpful for the primary functions of commercial banks. Share Your Word File
The commercial bank is the financial institution performs diverse types of functions. For example, Bank of Baroda, State Bank of India (SBI), Dena Bank, Corporation Bank and Punjab National Bank. A credit voucher is sent to customers for information when any income is collected by the bank. Normally no interest is paid by the bank because the bank cannot utilise this money in earning and he must keep himself ready to meet the demand of the customer. Advancing Loans 3. Credit Creation 4. Financing Foreign Trade 5. Commercial banks grant loans in the form of overdraft, cash credit, and discounting bills of exchange. a financial institution which aims at making profits by initiating deposits from the public The banks make loans to the customers in the form of term loans, cash credit, overdraft and discounting of bills of exchange. He must keep cent per cent reserve against the deposit. That means they play very significant role in a process of economic social needs. Besides the primary functions of accepting and lending, bank performs a number of other functions which can be categorized under secondary function. 2-1 Commercial Banking Institutions-Role and functions 2. A commercial bank is a financial institution which performs the functions of accepting deposits from the general public and giving loans for investment to earn the profit. Commercial banks accept deposits from people, businesses, and other entities in the form of: Savings deposits – The commercial bank accepts small deposits, from households or persons, in order to encourage savings in the economy. The general role of commercial banks is to provide financial services to the general public and business, ensuring economic and social stability and sustainable growth of the economy. The following points highlight the top six functions of commercial banks. Commercial banks perform the following functions: (b) Secondary Functions: Refer to crucial functions of commercial banks. (a) Primary functions – Accepts deposit – The bank takes deposits in the form of saving, current and fixed deposits. Primary Functions 1. When a bank gives loan, it opens an account in the name of the loan taker and does not pay him in cash but allows him to draw the money according to his requirements. Commercial banks play a role in the creation of credit, which leads to an increase in production, employment, and consumer spending, thereby … What is Commercial Bank Functions | Download PDF free. Commercial Bank. Secondary Functions 1. Advancing Loans 3. Credit Creation 4. Financing Foreign Trade 5. Commercial banks function as he agent of their customers and help them several ways. The bank advances loan in the following manner: This type of loan is granted to businessmen against certain specified securities. The primary functions of a commercial bank are as follows: 1. The functions are: 1. The bank encourages the documents like D/A (Documents against acceptance) and D/P (Documents against payments) in foreign payments. These banks are established in foreign countries and have branches in other countries. Functions of a commercial bank 1. Agency Services 6. for its customers. Banks advance loans not only on the basis of the deposits of the public rather they also advance loans on the basis of depositing the money in the accounts of borrowers. The functions are: 1. The main functions of commercials banks are to accept deposit & provide loans, advances to the public. Under this account deposits are accepted for a fixed period say one, two, four or five years or above. A bank discharges agency services on behalf of its customers which are as follows: (i) The bank collects payments of bills of exchange, cheques dividends etc. The surplus balances collected from the firm and individuals are lent to the temporary required of commercial transactions. The banker deposits the amount of the bill in the current account of bill-holder after deducting the rate of interest for the period of the loan which is normally not more than 90 days. A commercial bank is a kind of financial institution which carries all the operations related to deposit and withdrawal of money for the general public, providing loans for investment, etc. In the modern-day, commercial banks are not just dealers but act as leaders in economic development. Accepting Deposits :-Some people have an excess money and they want to deposits it to some honest man or an institution who can also give them some profit. Credit card interest, payments, small loans, deposits, checking, and basic securities trading all contribute significantly to the bottom line. 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