Explain the utility function of banks?
Solution:
Utility Functions:
A commercial bank performs utility functions for the benefits of its clients. It provides certain facilities or products to its clients as follow:
1) Issue of Drafts and Cheques:
A draft /cheque is an order to pay money from one branch of bank to another branch of the same bank or another bank. A bank issue drafts to its account holders as well as non-account holders whereas cheques are issued only to the account holders. Bank charges commission for issuing a bank draft.
2) Locker Facility:
This is a common utility function of any commercial bank. The bank provides locker facilities for the safe custody of valuables, documents, gold ornaments, etc.
3) Project Reports:
A bank may prepare project reports and feasibility studies on behalf of the clients. Project reports enable the business firm to obtain funds from the market and to obtain clearance from government authorities.
4) Gift Cheques:
Banks issue gift cheques and gold coins to account holders as well as to non-account holders.
The gift cheques/ coins can be used by the clients for the purpose of gifting on occasions like weddings, birthdays, etc.
5) Underwriting Services:
A commercial bank may underwrite the issue of securities issued by companies. If the shares are not fully subscribed, the underwriting bank agrees to take up the unsubscribed portion of the securities.
6) Gold related Services:
Nowadays many banks are providing gold services to their customers. Banks are commercially buying and selling gold or gold ornaments from customers on a large scale basis. Some bank also provides advisory services to its customers in terms of gold funds, gold ETF, etc.
