What are the Functions of Commercial Banks?
The functions of a commercial banks are divided into two categories:
i) Primary functions, and
ii) Secondary functions including agency functions.
The primary functions of a commercial bank include:
a) accepting deposits; and
b) granting loans and advances;
Besides the primary functions of accepting deposits and lending money, banks perform a number of other functions which are called secondary functions. These are as follows -
a) Issuing letters of credit, travellers cheques, circular notes etc.
b) Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers;
c) Providing customers with facilities of foreign exchange.
d) Transferring money from one place to another; and from one branch to another branch of the bank.
e) Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc.
f) Collecting and supplying business information;
g) Issuing demand drafts and pay orders; and,
h) Providing reports on the credit worthiness of customers.
Banks receive money from the public by way of deposits. The following types of deposits are usually received by banks:
i) Current deposit
ii) Saving deposit
iii) Fixed deposit
iv) Recurring deposit
v) Miscellaneous deposits
Commercial bank generally lend money in the following form:
i) Cash credit
iii) Bank overdraft, and
iv) Discounting of Bills