Meaning: -The
commercial bank is that bank which accepts deposits from public for the purpose
of lending. It also performs secondary functions.
PRIMARY FUNCTIONS OF COMMERCIAL BANK Accepting deposits Granting Advances
The primary functions of a commercial bank also known as banking
functions
1.
Accepting Deposits: - The bank collects deposits
form the public the deposits can be of different types –such as: (a)
Saving Deposits (b) Fixed Deposits (C) Current Deposits (d)
Recurring Deposits.
(a)
Saving Deposits:-
·
It encourages saving habit
among the people.
·
The rate of interest is
low. At present it is about 3.5% p.a.
·
Withdrawals are allowed
subject to certain restrictions.
·
It is suitable to salary
and wage earners.
(b)
Fixed Deposits: -
·
Lumpsum amount is
deposited for a specific period.
·
Higher rate of interest is
paid, which varies with the deposit period.
·
Withdrawals (or renewals)
take place on maturity.
·
The account holder can
close the account before the maturity.
(c)
Current Deposits: -
·
This type of account is operated by business man
·
Withdrawals are freely allowed
·
No interest is paid, in fact, there are service charges.
·
The account holders can get the benefit of overdraft facility.
(d)
Recurring Deposits: -
·
It is operated by salaried
persons and small traders.
·
A Certain sum of money is
periodically deposited into the bank
·
Withdrawals are permitted
only after the expiry of certain period.
·
A higher rate of interest
is paid.
2.
Granting of Loans and
Advances: -The
bank advances loans to the business community and other members of the public.
The rate charged is higher than what it pays on deposits. The difference in the
interest rates (lending rate and the deposit rate) is its profit.(a)
Over draft (b) Cash Credits (C) Loans (d) Discounting of
Bills of Exchange.
(a)
Over draft:-
·
A specify limit is sanctioned for a period say one
to three months.
·
Separate account is not maintained. It is included
in current account.
·
It is provided only to current account holders.
·
It is charged on amount withdrawn.
·
Bank may not ask for security, if amount is less
(b)
Cash Credits: -
·
A specific limit is provided by a bank for a period
say 6 months to one year.
·
Separate cash credit is to be maintained by bank
·
It is given to any party who fulfils certain
conditions
·
It is charged on amount withdrawn
·
Bank demands security of tangible assets to sanction
cash credit.
(c) Loans: -
·
A lumpsum amount is
advanced for a period of one year or more
·
Separate loan account is
to be maintained by bank
·
It is given to any party
who fulfils certain conditions.
·
It is charged on amount
sanctioned whether utilised or not.
·
Bank demands security for
sanctioning loan
