Basics Of Commercial Banks

Basics Of Commercial Banks

Banks have been in existence for 200 years. However, the nature of banks changed over the passage of time.   Bank can be explained as a financial establishment that uses the funds deposited by its customer for varied investment purpose and it pays out whenever required.

Commercial banks are those organizations which basically performs specific financial transactions.  These banks perform the task of accepting funds in form of deposits from the public and offers advances in form of loans to the worthy and needy people of the society.  Whatever you earn from trading and another work source could be deposited in these banks so that it earns interest. Trading is one of the best options to earn additional money.  Read through this BTC profit review to understand all about the software’s that are used in the trading of cryptocurrencies. The transactions conducted by the banks are legally and socially approved.

Functions of commercial banks

The commercial banks perform different kinds of functions. It helps in satisfying the financial requirements of different sectors like industry, agriculture, communication, trade, etc.  The functions are generally classified into two categories:

  • Primary function
  • Secondary function

Primary function

Accepting deposits- The commercial banks accept different kinds of deposits from the public. It comprises of recurring deposits, savings account deposits, fixed deposits, etc. All these deposits have to be paid back after a stipulated time.

Making advances- They offer various forms of loans and advances. It includes cash credit, over the draft facility, bill discounting and so on. Also, they provide demand and term loans to the clients against a proper security.

Credit creation- The credit creation is one of the important functions of commercial banks. While the loan is sanctioned to the customer, the banks open up a deposit account instead of offering cash. The clients can withdraw from this account.

Secondary functions

They are divided into utility functions and agency functions

Utility functions

  • Offers safety locker facility
  • Issues traveler’s cheque
  • Offers money transfer facility
  • Offers merchant banking facility
  • Accept different bills for payment like water bills, gas bills, phone bills, etc
  • Offer the service of various cards like debit cards, credit cards, smart cards, etc

Agency functions

  • Make payment of insurance premium, rent, etc
  • Collect and clear the cheques, interest warrant, and dividends
  • Male payment of insurance premium, rent, etc
  • Deals in various foreign exchange transactions
  • Sell and purchase securities
  • Act as attorney, correspondent, trusty and executor
  • Accepts tax returns and tax proceeds

 

 

 

 

 

 

 

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