FUNCTIONS OF COMMERCIAL BANKS

Commercial bank being the fnancial

institution performs diverse types of
functions. It satisfes the fnancial needs
of the sectors such as agriculture,
industry, trade, communication, etc.
That means they play very signifcant
role in a process of economic social
needs. The functions performed by
banks are changing according to change
in time and recently they are becoming
customer centric and widening their
functions. Generally the functions of
commercial banks are divided into two
categories viz. primary functions and the
secondary functions. The following
simplifes the functions of banks.
1. Receiving Deposits:
This is the main function of commercial
banks to collect savings of individuals
and frms. They oer dierent types of
deposits for the facility of the
customers.
I. Cuent Account o De!"n# Deposits:
!ny amount can be withdrawn from this
account any time without any notice. "o
interest is allowed on this type of
account.
Ii. #aving !ccount$
This type of deposit account which is
usually held by the middle class group.
The
saving account carries lower rate of
interest.
Iii. %i&ed 'eposit$
!mount cannot be withdrawn before the
f&ed future date in this type of deposit.
(igh interest is allowed in f&ed deposit
which is dierent.

$. A#v"ncing Lo"ns:
This is the important function of the
commercial bank. Credit is given to the
people in dierent ways.
)a.*$ +aking ,oans$
There are three types of loans given
to borrowers.
I. S%ot Te! Lo"ns:
These loans are advanced for the
period of si& months to one year. (igh
Interest rate
Is charged on this type of accounts.
Ii. +edium Term ,oans$
,oans from one to fve years are
called medium term loans.
Iii: Long Te! Lo"ns:
,oans which are advanced for the
period, more than ten years are long
term loans.
)b.*$ -ank .verdraft$
-anks allows their trustful
customers to draw more than the
deposit they have in the
-ank. -ank charges interest on
overdraft.
)c.*$ Cash Credit$
-ank also gives credit against
immovable property and interest is
charged by the
bank.
)d.*$ 'iscounting of -ills$
This is income source of bank to
discount bills of e&change. They charge
nominal

Ii) Secon#"& 'unctions
-esides the primary functions of accepting
deposits and lending money,
banks perform a number of other functions
which are called secondary
functions. These are as follows /
a* 0ndertaking safe custody of valuables,
important documents, and
securities by providing safe deposit
vaults or lockers1
b* 2roviding customers with facilities of
foreign e&change.
c* Transferring money from one place to
another1 and from one
branch to another branch of the bank.
d* #tanding guarantee on behalf of its
customers, for making
payments for purchase of goods,
machinery, vehicles etc.
e* Collecting and supplying business
information1
f* Issuing demand drafts and pay orders1
and,
g* 2roviding reports on the credit worthiness
of customers.