ROLE OF BANKS

1. ACCEPTING DEPOSITS: One of the vital role of banks is accepting deposits. The deposits are
accepted from the public at large, and not merely from its shareholders or members. Banks
accept deposits by mobilizing the savings of the public. To mobilize the savings and to hold
deposits, banks pay interest on these deposits. To attract the depositors, banks maintain
different types of accounts like:
Fixed deposit account
Saving bank deposit account
Current account

2. LENDING OR ADVANCING LOANS: Lending or advancing loan is another imporatnat role played
by the bank. Lending on the basis of funds raised through acceptance of deposits from the
public. The usual methods adopted by banks to make advances are as follows:

Term loans: this is a lumpsum loan advanced with a fixed maturity period of more than
one year. Term loans are usually secured and provide medium to long term funds to the
borrower. The entire loan sanctioned is paid or credited to the account of the customer.
The entire amount of loan is chargeable to interest.

ROLE
OF
BANKS
ACCEPTING
DEPOSITS
ADVANCING
LOANS
REMITTANCE
KEEPING OF
VALUALES
FINANCIAL
INTERMEDIARY
CATALYTIC
AGENT
CATER NEEDS OF
VARIOUS
SEGMENTS
Money at call: It is a money lent for very short period, generally varying from 1 to 14
days. Such advances are usually made to other banks and financial institutions only.
Money at call ensures liquidity.

Overdraft: An overdraft is an advance given by allowing the customer to overdraw his
current account upto an agreed amount. The overdraft facility is given to the
businessmen who have current account in the bank. The interest is charged to the
extent the account is overdrawn. In case of overdraft facility, there is no restriction on
the number of withdrawals in the current account.

Discounting of bills: in a bill of exchange, the debtor accepts the bill drawn upon him by
the creditor and thus agrees to pay the amount mentioned on maturity. In discounting,
the banks takes the bill and after making deductions, makes the payment to the holder.

3. REMITTANCE OF FUNDS: Banks remit the funds on behalf of their clients from one place to
another through cheques, drafts etc.

4. KEEPING OF VALUALES FOR SAFE CUSTODY: Banks accept the valuable articles and documents
for safe custody. They provide the locker facility. The customers keep their valuables in these
lockers.

5. ROLE AS A FINANCIAL INTERMEDIARY: Banks play the role of a middleman. They act as a linking
pin by making the borrowers and the lenders of money meet. People who have excess of funds
over income can deposit in the banks. Those who are in need of funds can approach to a bank
and can get the funds.

6. CATER TO NEEDS OF VARIOUS SEGMENTS OF THE SOCIETY: Banks not only cater to needs of
urban areas but also cater to the banking needs of the rural areas. RRBs set up in various parts
of the country. They provide banking and other credit facilities to the weaker sections of the
society.

7. CATALYTIC AGENT: Banks act as a catalytic agent by bringing about a change in the economy.
IDBI, SIDBI etc. provide funds for investment and development purposes. They help in the
development of the economy and bring about a change in the economy too.