Functions of Commercial BanksVariety of functions are performed by a bank. A few are basic or primary functions of a bank while others are agency or general utility services by nature. The important functions are discussed below briefly:
- Acceptance of Deposits: Deposits are the base of loan operations since banks both borrow as well as lend money. They pay interest for borrowed money and they grant loans and get interest by lending money. They are normally taken from current account, savings account and fixed deposits. People can withdraw deposits to the extent of the balance at any point of time without any prior notice in current accounts. Savings accounts basically encourage savings by individuals. All banks have to pay rate of interest as speculated by RBI on these deposits. According to the amount as well as number of times in a given period the account holder is restricted to withdraw. Fixed accounts are time deposits and have a higher rate of interest when compared to that of savings accounts. A premature withdrawal is allowed with some percentage of interest being a penalty.
- Lending of Funds: Commercial banks give loans and advances from the money received through deposits. The advances are made in the form of overdrafts, cash credits, discounting trade bills, term loans, consumer credits and other various advances. The funds given out by banks provide a large deal to trade, industry, transport and other business events.
- Cheque Facility: Banks provide a very significant service to the customers by gathering their cheques drawn on other banks. Cheque, which is the most developed credit instrument has a special feature and function of banks for the withdrawal of deposits. The most comfortable and low-cost medium of exchange is the cheque. The two types of cheques are mainly (a) bearer cheques, which can be encashed right away at the bank counters and (b) crossed cheques which we have to deposit only to the payees account.
- Remittance of Funds: Another prominent feature of commercial banks is to provide the facility of fund transfer from place to place, with the help of interconnectivity of branches. These transfer of funds are administered with the help bank drafts, pay orders or mail transfers, on minor commission charges. The banks can issue a draft for that amount on its own branches at other locations or other banks at those locations. The payee can handover the draft on the drawee bank at his locality and gather the amount.
- Allied Services: Apart from these functions, banks can also present allied services like bill payments, locker facilities, underwriting services. Banks also provide other services like buying and selling of shares and debentures on instructions and other personal services such as insurance premium payment, dividend collection etc.