functions of commercial bank

Through a cheque, the depositor directs the bankers to make payment to the payee. The second important function of the commercial bank is to provide loans against suitable mortgages to the public to fulfill their needs of money. These deposits are generally done by salaried people and the people who have fixed and less income. on behalf of their customers. Therefore, such loans are called as unsecured loan. Banks also deal in the business of foreign currencies. People consider it more rational to deposit their savings in a bank because by doing so they, on the one hand, earn interest, and on the other, avoid the danger of theft. The agency services include, transfer of customer’s funds, collection of funds on behalf of the customers, transactions in the shares and securities for their customers, collection of dividends on shares and interest on debentures for their customers, payments of subscriptions, dues, bills, premia on behalf of the customers, acting as the Trustees and Executor of the customers, offering financial and other consultancy services, acting as correspondents of the customers, etc. The bank opens the account in the name of the borrowers and allows him to withdraw borrowed money from time to time up to a certain limit as determined by the value of his current assets. Short-term loans (like car loans, housing loans etc.) However, some basic functions performed by the banks are discussed below. They get passports, travelers tickets, book vehicles, plots for their customers and receive letters on their behalf. These two types of deposits earn very low rate of interest as they can be withdrawn any time. (vi) Bank does the under-writing of shares and debentures also. Required fields are marked *. The process involves the following mechanism; whenever the banks lend loans, they do not pay cash to the be borrowers; instead they credit the accounts of the borrowers and allow them to withdraw from their accounts. Creation of such deposits is called credit creation which results in a net increase in the money stock of the economy. The first two functions of commercial banks are known as primary functions of commercial banks and last two known as secondary functions of commercial banks. is a free service that lets you to preserve your original articles for eternity. The main functions of commercial banks are accepting deposits from the public and advancing them loans. 2. The banks have also started advancing medium-term and long-term loans. This is an unique function performed by the commercial banks. Banks play an important role in a Country, its People, and its Industries to grow. In the case of savings deposit, the depositor is not allowed to withdraw more than a fixed number of times or amount over a period of time. For example, Bank of Baroda, State Bank of India (SBI), Dena Bank, Corporation Bank and Punjab National Bank. on behalf of their customers. These loans may be given as personal loans, loans to finance working capital or as priority sector advances. This is done mainly with a view to recover the loan money by selling the security in the event of non-refund of the loan. The rate of interest that a bank offers to the depositors are known as the borrowing rate, while the rate at which banks lends the money is called the lending rate. Privacy Policy They also lend on the basis of commercial bills, warehouse receipts, etc., which help the traders to expand their business.

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