What are the Functions of Banks?

The functions of banks are briefly highlighted in following Diagram or Chart. functions of banks

These functions of banks are explained in following paragraphs of this article.

A. Primary Functions of Banks The primary functions of a bank are also known as banking functions. They are the main functions of a bank. These primary functions of banks are explained below.

1. Accepting Deposits

The bank collects deposits from the public. These deposits can be of different types, such as :a. Saving Deposits b. Fixed Deposits c. Current Deposits d. Recurring Deposits a. Saving Deposits

This type of deposits encourages saving habit among the public. The rate of interest is low. At present it is about 5% p.a. Withdrawals of deposits are allowed subject to certain restrictions. This account is suitable to salary and wage earners. This account can be opened in single name or in joint names.

b. Fixed Deposits

Lump sum amount is deposited at one time for a specific period. Higher rate of interest is paid, which varies with the period of deposit. Withdrawals are not allowed before the expiry of the period. Those who have surplus funds go for fixed deposit.

c. Current Deposits

This type of account is operated by businessmen. Withdrawals are freely allowed. No interest is paid. In fact, there are service charges. The account holders can get the benefit of overdraft facility.

d. Recurring Deposits

This type of account is operated by salaried persons and petty traders. A certain sum of money is periodically deposited into the bank. Withdrawals are permitted only after the expiry of certain period. A higher rate of interest is paid.

2. Granting of Loans and Advances

The bank advances loans to the business community and other members of the public. The rate charged is higher than what it pays on deposits. The difference in the interest rates (lending rate and the deposit rate) is its profit. The types of bank loans and advances are :a. Overdraft b. Cash Credits c. Loans d. Discounting of Bill of Exchange a. Overdraft

This type of advances are given to current account holders. No separate account is maintained. All entries are made in the current account. A certain amount is sanctioned as overdraft which can be withdrawn within a certain period of time say three months or so. Interest is charged on actual amount withdrawn. An overdraft facility is granted against a collateral security. It is sanctioned to businessman and firms.

b. Cash Credits

The client is allowed cash credit upto a specific limit fixed in advance. It can be given to current account holders as well as to others who do not have an account with bank. Separate cash credit account is maintained. Interest is charged on the amount withdrawn in excess of limit. The cash credit is given

against the security of tangible assets and / or guarantees. The advance is given for a longer period and a larger amount of loan is sanctioned than that of overdraft.

c. Loans

It is normally for short term say a period of one year or medium term say a period of five years. Now-adays, banks do lend money for long term. Repayment of money can be in the form of installments spread over a period of time or in a lumpsum amount. Interest is charged on the actual amount sanctioned, whether withdrawn or not. The rate of interest may be slightly lower than what is charged on overdrafts and cash credits. Loans are normally secured against tangible assets of the company.

d. Discounting of Bill of Exchange

The bank can advance money by discounting or by purchasing bills of exchange both domestic and foreign bills. The bank pays the bill amount to the drawer or the beneficiary of the bill by deducting usual discount charges. On maturity, the bill is presented to the drawee or acceptor of the bill and the amount is collected.

B. Secondary Functions of Banks

The bank performs a number of secondary functions, also called as non-banking functions. These important secondary functions of banks are explained below.

1. Agency Functions

The bank acts as an agent of its customers. The bank performs a number of agency functions which includes :a. Transfer of Funds b. Collection of Cheques c. Periodic Payments d. Portfolio Management e. Periodic Collections f. Other Agency Functions

a. Transfer of Funds

The bank transfer funds from one branch to another or from one place to another.

b. Collection of Cheques

The bank collects the money of the cheques through clearing section of its customers. The bank also collects money of the bills of exchange.

c. Periodic Payments

On standing instructions of the client, the bank makes periodic payments in respect of electricity bills, rent, etc.

d. Portfolio Management

The banks also undertakes to purchase and sell the shares and debentures on behalf of the clients and accordingly debits or credits the account. This facility is called portfolio management.

e. Periodic Collections

The bank collects salary, pension, dividend and such other periodic collections on behalf of the client.

f. Other Agency Functions

They act as trustees, executors, advisers and administrators on behalf of its clients. They act as representatives of clients to deal with other banks and institutions.

2. General Utility Functions

The bank also performs general utility functions, such as :a. Issue of Drafts, Letter of Credits, etc. b. Locker Facility c. Underwriting of Shares d. Dealing in Foreign Exchange e. Project Reports f. Social Welfare Programmes

g. Other Utility Functions a. Issue of Drafts and Letter of Credits

Banks issue drafts for transferring money from one place to another. It also issues letter of credit, especially in case of, import trade. It also issues travellers' cheques.

b. Locker Facility

The bank provides a locker facility for the safe custody of valuable documents, gold ornaments and other valuables.

c. Underwriting of Shares

The bank underwrites shares and debentures through its merchant banking division.

d. Dealing in Foreign Exchange

The commercial banks are allowed by RBI to deal in foreign exchange.

e. Project Reports

The bank may also undertake to prepare project reports on behalf of its clients.

f. Social Welfare Programmes

It undertakes social welfare programmes, such as adult literacy programmes, public welfare campaigns, etc.

g. Other Utility Functions

It acts as a referee to financial standing of customers. It collects creditworthiness information about clients of its customers. It provides market information to its customers, etc. It provides travellers' cheque facility.

Different type of Loans in India Loan against Gold,Property,PPF,LIC

What are the different types of loans you can take in India ? Do you always think about Personal loan when you want a loan? A lot of people despite having different kind of assets go for personal loan even if they have other options where they can mortgage an existing asset and take a loan at lower interest rate. In this article I will give you 5 alternatives to personal loans and tell you a little bit about each.

Before we move forward let us understand a basic rule of lending. There are two kind of loans , Secured Loan and Unsecured Loan. Secured loan is a loan where a lender has access to some kind of asset so that incase you run away, he can liquidate the asset and take his full or partial money back, as there is a sense of security in secured loans, you have to pay a lower rate of interest on these loans. However an Unsecured loan is a loan where the lender has no access to any asset and incase you run away, bank has no way to get back that loan , thats the reason you have to pay very high interest rates on these loans, Personal loan and credit card are examples of these loans. The biggest reason why someone should go for these alternative loans is that the processing of these loans are much faster and better interest rates compared to a personal loan. So now lets see some alternatives to personal loan incase you posses an asset.

1. Loan against Gold Lets me start with the best option to take a secured loan in India. You can pledge your Gold jewellery and take a loan from Banks and companies like Muthoot Finance or Mannapuram Gold. The best thing about gold loan is that the processing is extremely fast (from few hours to 2-3 days) depending on your case. The way it works in Gold loan is like this The higher the margin of safety you leave , the lower the interest rate. Here is an example , if you have gold worth Rs 10 lacs and you are ready to pledge it for a loan of just 5 lacs, then you are leaving a comfortable margin of Rs 5 lacs for Bank (incase you run away

or gold prices decline) . So in this case you will get a very good interest rate offer , but if you take a loan which is 80% or 90% of the worth , then you will be asked for a very high interest rate. Generally the interest rate asked is between 12% 15% .

There are no pre-processing charges or too much documentation involved in gold loan, in most of the cases the only thing required is your address and id proof. thats all and you can get a loan within 24 hours easily .

2. Loan against your Insurance Policies (LIC/SBI) Lets talk about LIC policies here. You can also get a loan on your LIC policy incase its eligible for loan (most of them are) . But to get loan on your LIC policy, it should have a SURRENDER VALUE, which happens only after payment of 3 yearly premiums. Only after that you can avail for a loan which would be around 90% of Surrender Value. Lets see an example Ajay has a LIC endowment policy which has a yearly premium of Rs 50,000 . He has paid 10 years premium (total 5 lac) , the surrender value of his LIC policy is around 3 lacs at the moment. So he can get a loan of around 2.7 lacs.

One can take a loan either from LIC itself (recommended) or from banks, for which they will have to pledge their LIC policy totally to them. So incase they are not able to pay the loan, their LIC policy will be surrendered and company will take their money back. The best part of these loans is that you get it only at an interest rate of 9-10%. So if you have a LIC policy and it has a respectable Surrender Value , then you can take Loan against these policies and not take personal loan which has hefty interest rates. Check the loan amount available on your LIC policy by just sending this SMS ASKLIC YOURPOLICY-NUMBER LOAN to 56677

3. Loan against Fixed deposits Incase you have a Fixed Deposit for long-term and would not like to break it in times of emergency, you always have an option to take a loan against that Fixed Deposit. The interest rate you will have to pay on that loan should be 1-2% higher than the interest rate earned on the FD and the loan amount available to you would be around 75% 80% of the FD current Worth. For an example suppose you have a FD

which has its current worth at 10 lacs and you are earning 10% on that FD , then you can get around 8 lacs of loan at 12% interest rate . This is one good option incase you do not want to break the FD and also want to take a loan.

4. Loan against Property You can also take loan against your property (Residential and Commercial) . Banks give loan upto 50% of market value of the property or 30-40 times your monthly income . The interest rate charges is in range of 13-16% depending on how big the loan is and how much margin you can leave. Loan against property is generally recommended for those who want a big amount as loan for purposes like expansion of business, wedding or some big-ticket expenses. Incase you need just 2-3 lacs of loan then its not recommended.

There can be processing and prepayment charges in these loan against properties (LAP) . A good place to compare the loans against property is policybazaar page . Public sectors banks like Bank of Baroda, SBI banks are known to not charge the prepayment penalties and have lower processing charges . All the loans against property comes at FIXED interest rates.

5. Loan against Other investments Shares and Mutual Funds There are loans offered against Mutual Funds and Shares , but there is a list of approved Funds and Shares which can get loan, also as the values of shares and mutual funds are highly volatile, there is high level of margin required on it , Means that if you have shares worth Rs 10 lacs , the amount of loan you can get is much lower than 10 lacs.

Public Provident Fund - You can get loan on your PPF account also , but there are some restrictions , you can only get loan from the 3rd year to the 6th year and the amount of loan will be only 25% of the balance in the account 2 yrs back . For example If you want to take the loan in 5th year after opening your PPF account , then you will only get loan of 25% of the balance in 3rd year , if the balance was just Rs 2,00,00 in 3rd year, then you can only take loan of Rs 50,000 .

6. Home Loans

A home loan is a loan which is granted to the borrower by banks and financial institutions for the purpose of buying a house. Every person in their lifetime dreams of owning a house. A home loan gives financial assistance to the borrowers to buy a house which they can call as their "Own House". Buying a house is not an easy task. It requires a lot of financial planning. Necessities have to be taken into consideration when you plan to buy a house. A home is a place where you can easily relax and spend some quality time with family and friends. You spend some of the most beautiful moments of your life at home. It gives you a secured feeling. It is a loan which is granted against a security which could be a personal property or a commercial property. Housing loans are most often funded by banks. The banker possesses a conditional ownership over the property i.e., if the borrower fails to repay the loaned amount, then the banker has the right to realize the debt amount by selling off the property.

7. Personal Loans A personal loan is a loan granted by banks and financial institutes to finance the personal expenses. It is a loan which is purely granted on the integrity and credit worthiness of the borrower. It is a short-term loan which is used to support personal finances. It is a popular form of loan in todays world. It is the best way to attain financial aid in the form of cash for a short period of time. The expense ratio of people is touching the sky day by day. In such a scenario how do we meet our needs? How do we finance these need? These are the questions which pop up immediately in every individual's head. To take up a personal loan is the best solution to meet these requirements. This type of loan is undertaken for personal use, for family use or household use. It can be used for anything except for business purpose because it is neither a long-term mortgage loan nor a business loan.

The lenders who are in most cases banks and financial institutes lends money to the borrowers. The borrowers repay the loaned amount but not always in regular monthly installments. Personal loans are provided by the lenders at a cost which is commonly know as interest. It helps you meet your financial requirements. Such loans provide a helping hand when you plan to organize a family function, family vacation, and when you plan to give a surprise gift to your near and dear ones. It is of a great advantage, especially when you are need small amount of money for a short duration. It covers regular expenses like

travel expenses, medical expenses, holiday expenses, marriage expense and other similar type of expenses. It is a facility offered by banks and financial institutes which gives financial ability to the individuals to make purchase without having any funds saved. 8. Car Loans

A car loan is a loan taken from the bank to finance the purchase of car for personal use. It is a type of personal loan which allows a potential buyer to pay for the purchase of the car in equated monthly installments. It is a financial assistance offered by banks and financial institutes to buy a car of your choice. The lending company of the loan pays off the entire amount of the car at once and the borrower has to pay to the lending company in the form of monthly installment along with interest. It is one of the biggest advantage to those who wish to own a car immediately without compromising on their choice and preference. Features of Car Loan There are certain important features of a car loan which should be kept in mind before you finalize your decision of applying for a car loan. Some of the features are mentioned below:

The monthly payment structure can be arranged as per the suitability of the borrowers. Car loan comes with additional costs like registration cost, maintenance cost, road cost, insurance cost, loan insurance cost etc. The repayment of the debt amount can be made monthly or fortnightly. The loan period is anything between a period of 12 to 60 months. Generally deposits are not required to be payed by the borrowers. But if they do so, then they might be eligible to get a relief on monthly payment or a reduced payment term.

9. Gold Loan
A gold loan is a loan which is taken against gold as a security. In India, gold loan has become popular these days. Many private banks, nationalized banks and finance companies are offering these loans at a very attractive interest rate. It is a type of short-term loan offered by financial companies to the borrowers who need to finance expenses such as marriage of a daughter, education of their children and various other small financial needs of the family. In the earlier times also people took loan from money lenders in

exchange of gold jewelry. The borrowers had to pay regular monthly interest to the money lenders. The lenders at that time charged a very high amount of interest. At times it happened that the borrowers payed interest more than the value of the principle amount of loan. So the concept of gold loan is one of the oldest in the history of the Indian financial structure.

The same concept is available today with certain terms and conditions to meet the short-term financial needs of the borrowers. Borrowers were exploited in the earlier days by charging a higher rate of interest on the loan amount. The invention of commercial banks in the economy was a boon for the society. The banks were the biggest help for people who needed loans on a regular basis for various reasons. The banks rates on loans were regulated by the Reserve Bank of India. They were further reduced by the central bank after the banks were nationalized.

Gold LoanGold is a important asset which can be converted in-to liquid money very easily. It can be exchanged for loan as well. It can be utilized to get financial aid instead of just keeping it idle at home. It is the best option to support small finances of yourself and your family. In India, "Muthoot Finance" is one of the biggest financial company that lends money against gold. In the recent days people opting for gold loans has risen to 24% from 17% with the rise in the gold prices. Like every other loans even gold loan comes with additional charges like processing fees, interest charge, valuation charge, late payment penalty and pre-payment penalty. These charges are not compulsorily charged by every service provider. Some may waive off certain charges while others may not. It is wise on the part of the borrower to go through all the terms and conditions of the loan before making a final decision. It is advisable to get detailed information about the loan from the service provider because these charges could change the final amount of loan.

Important Documents Required

If you wish to apply for a gold loan then here is a list of some important documents which you will have to submit to the loan provider. However, the documents might change depending upon the requirement of the lending company.

Identity proof of the applicant Voter's ID, Passport or Driving License Signature proof Passport, Voter's ID, Driving License or any other document with your authentic signature. Address proof ration card, electricity bill, telephone bill and other document which authenticates your current residential address. Two passport size photographs

As per the expert advise given by some of the financial advisers you should go for a gold loan only if you are confident about repaying the borrowed amount. If unfortunately you fail to do so, the bank or the financial company will take the control of the gold which is pledged with them and penalize you for not repaying the loan amount. Another important thing to bear in mind is to do a little market research before selecting any financial company for loan. The research will give you information about interest rate charged by different banks and finance companies. So you have a list of option to choose from instead of randomly selecting the lender. If you prefer private lenders then go for the ones who has been in the business for a long time.

Advantages of a Gold Loan The applicant of the loan is not required to disclose his income or salary. Non-working individuals can also take up a gold loan. This type of a loan requires less documentation. So it makes the process simple and easy. The interest rate charged by the lenders is much lower when compared to any other type of loans. The borrower gets a flexible repayment structure with a gold loan. They do not have to make monthly payments. The loaned amount can be repayed along the interest charge at one go. The processing time take for approving the loan is lesser than other types of loans. So it is the best option when you need immediate financial help. It is a boon for the rural people and mostly farmers who are eligible to get agricultural loan in exchange of gold. Gold loan is the last resort to any financial need which is immediate in nature and required for a short period of time. It is surely a very good option if you are not someone who has emotional attachment with your gold ornaments. It is the only safe thing available for loan when the forex market falls.

Interest rates for gold loan from different banks.

State Bank of India 13.75% to 14.25% Indian Bank 13.25% to 14.25% ICICI Bank 14 to 15% Indian Overseas Bank 14% ING Vysya 12 to 13% Canara Bank 14% Karur Vysya Bank 13.75% TNSC Bank 14%

10. Education Loan Education loan is a financial assistance which is offered by banks and institutes to help the parents pay the tuition fees and living expenses of their children when they wish to acquire higher education. Education has always been expensive in a developing country like India. It can be easily concluded from the mere fact of the persisting illiteracy in the economy. In a country like India, not everyone is blessed with quality education because parents could not afford expensive schools for their kids. Earlier they did not have any option but to ask their children to quit studies because they could not afford the expenses. However, the current scenario is not the same. It is true that the rising expenses have narrowed the scope of savings for future. In a tight financial position, the parents, especially belonging to the middle class and upper middle class section of the society, are compelled to opt for a loan to further educate their children.