Commercial bank and its main functions

According to “crowther” bank is define under as. A bank is a firm which collects money from those who have spare. It lends money to those who require it.  

“Function of commercial bank”

                        A commercial bank performs variety of functions. The functions are classified under two main heads.

                           1.     Basic functions.

                           2.     Secondary functions.

1.                 Basic functions:

The basic functions of commercial banks are

                           a.     Accepting the deposits.

                           b.     Advancing of loans.

                           c.      Transfer of money.

                           d.     Issue of media of exchange.

                      a)                 Accepting the deposits:

Some people have an excess of money and they want to deposit it to some institution who also give them. Some profit so first function of the commercial bank is to receive deposit. They open various accounts like saving, current, fixed deposit. Profit and loss sharing and profit and loss term deposit.

                      b)                Advancing loans:

Bank also advances the loan to merchants and charges the interest. It is the major source of its income. It also gives the loan for short term, medium term and long term loan.

                      c)                 Transfer of money:

Bank can transfer the money from one place to another place by means of cheques, bank drafts, standing orders etc.

                      d)                Issue of media of exchange:

The banks issue cheques and bank drafts, which are used to settle the claim. This media is used like currency notes in the business dealing.

2.                 Secondary functions:

The secondary function of banks are classify as

                            a.     Agency functions.

                            b.     Utility functions.

a.                 Agency functions:

Bank act as agent to its customers in various ways. The agency functions are following.

                      i.                        Collection of cheques:

commercial bank also provide facilities to its customers in the collection and payment of cheques, bills and promissory note.

                      ii.                        Collection of dividend:

The bank provides service to its customers in the collection of dividends or interest earned on shares held by its customers. On shares held by its customers.

                      iii.                        Purchase or sale of securities:

The bank if authorized by the customer’s purchases or sales of securities on behalf of the customer thus it gives another benefit to us customers.

b.                 Utility functions:

A bank performs a number of other general utility services to its client which are under below:

                                              i.               Act as referee:

A bank provides a useful service to its customer by acting as a referee for his credit worthiness the information is supplied in utmost secrecy and responsibility of the bank.

                                            ii.            Export promotion cell:

In order to increase the export of the company banks have established “export promotion cell” provide information and guidelines to exporter without any charges.

                                              iii.            Issue of traveler cheques:

                   The bank also issue traveler cheques for the conventions of the traveler and charged a nominal commission.