Introduction:
-
Commercial bank performs diverse types of functions. It satisfies the financial
needs of the sectors such as agriculture, industry, trade, etc. it plays a very
significant role in a process of satisfying economic and 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.
Functions of
commercial banks are divided into two categories/types.
1.
Primary
Functions 2. Secondary Functions
1.
Primary Functions:
-
A.
Accepting Deposits: -The most
important activity of commercial bank is to mobilize deposits from the public.
People who have surplus income and savings, find it convenient to deposit the
amounts with banks in different types of deposits accounts which are as
follows:
1.
Fixed
Deposits:
-A fixed amount is deposited for a fixed period and
it is called fixed deposit account. It is also known as term deposit. The fixed
period of time may be from 30 days to 5
years and above. The rate of interest on this account is highest because the
amount accepted is invested elsewhere for a long term by the bank. The
depositor can get a loan against the deposit.
2.
Saving
Account: -This account, as the name suggests,
is meant for promotion of savings. Persons having fixed and regular income can
deposit their savings in this account. A saving account holder is not permitted
to have frequent withdrawals from this account as it is meant for saving. The
interest on this account is credited to the account once in every 6 months.
3.
Current
Account:
-In this account, a depositor can deposit money any
number of time and can withdraw it as and when he requires it. In this account,
generally business class deposits the money. Generally, the bank does pay any
interest on this deposit. Money is withdrawn from this account by cheque. A
current account holder enjoys overdraft facility.
4.
Recurring
Deposit Account:
-In this type of account, a depositors deposits a
fixed amount of money every month for a fixed period. The money is deposited on
monthly basis. This money cannot be withdrawn before the expiry of a fixed term
except in certain conditions. This account attracts higher interest in
comparison to other accounts except Fixed Deposit account.
5. Multiple
Option Deposit Accounts:
-It is a type of Saving Bank Account in which deposit
in excess of a particular limit gets automatically transferred into Fixed
Deposit. On the other hand, in case adequate fund is not available in our
Saving Bank Account so as to honour a cheque that we have issued, the required
amount gets automatically transferred from Fixed
Deposit to Saving Bank Account.
B.
Granting
Loans and Advances: -A
banker receives money through its deposits at lower rates out of these deposits
commercial bank grant loans and advances to the members of the public and to
the business community at a higher rate of interest.
1. Loans:
-A loan is granted for a specific time period. The
loans are particularly granted to businessman ad members of the public against
personal security, gold and silver and other movable and immovable assets.
Generally commercial banks grant short term loans. But term loans, i.e. loans
for more than a year may also be granted. However, interest is charged on the
amount withdrawn or used.
2.
Advances:
-An advance
is a credit facility provided by the bank to its customers. It differs from
loan in the sense that loans may be granted for longer period, but advances are
normally given for a short period of time. The purpose of granting advances is
to meet day-to-day requirement of a business. However, interest is charged only
on the amount withdrawn and not on the sanctioned amount. Types of Advances are:---------
a.
Cash Credit:
- Under
Cash
credit system, bank allows the borrower to draw amount upto a specific limit. A
limit of certain amount is sanctioned to the customer. The customer can
withdraw this amount as and when required. Interest is charged on the amount
actually withdrawn.
b.
Overdraft: -Overdraft
is a credit facility granted by bank to current account holders. A current
account holder is allowed to withdraw more than amount of credit balance in his
account. It is temporary arrangement. Overdraft facility with a specific limit
may be allowed either on the security of assets or on personal security or
both. Bank charges interest on this facility.
c.
Discounting of Bills:
-A
bill of exchange is a negotiable instrument. Banks provide short term finance by
discounting bills i.e. making payment of the amount before the die date of the
bulls after deducting certain amount of discount. The party gets the funds
without waiting for the date of maturity of the bills.
