Functions of Commercial Bank

A commercial bank is a financial institution that provides services such as accepting deposits, giving business loans, mortgage lending, and basic investment products such as savings accounts and certificates of deposit.

Primary functions of commercial bank

Following are the main functions of Commercial Bank:

Functions of Commercial Bank

Primary Functions of Commercial Bank

Accepting Deposits

Accepting deposits from the public is the primary function of a commercial bank. A bank accepts deposits from individuals in society. To attract savings, banks accept three types of deposits—demand deposits, savings deposits, and fixed deposits.

Demand Deposits and Fixed Deposits

  • The interest rate on demand deposits is very low, whereas fixed deposits carry a higher interest rate.
  • Demand deposits can be withdrawn at any time, whereas fixed deposits can be withdrawn only after the expiry of a specific period.
  • Demand deposits are chequable and can be withdrawn through cheques, whereas fixed deposits are not chequable.

Advancing Loans

A commercial bank advances loans to business people, farmers, and consumers against approved securities. Cash credit, overdraft, short-term loans, discounting of the bill of exchange, and money at call are loans advanced by commercial banks.

Credit facilities provided by a commercial bank

  • Cash credit: Banks sanction cash credit according to the requirement of the borrower on the basis of the bank credit limit. Interest will be paid by the borrower only on the actual amount withdrawn from the bank.
  • Overdraft facilities: For overdraft facilities, an account holder can withdraw money in excess of the amount deposited with the bank. However, the borrower will pay interest on the excess amount withdrawn from the bank.

Agency Functions of Commercial Bank

  • Commercial banks provide services such as collection and making payments on behalf of their customers such as insurance premiums and dividends.
  • They also help in transferring funds from one place to another in the form of cheques and drafts.

Utility Functions of Commercial Bank

  • To safeguard valuable items, a commercial bank provides a safety locker to its customers.
  • Commercial banks are involved in the foreign exchange business. They finance foreign trading by accepting foreign bills of exchange.

Also, Read

Finished Reading Functions of Commercial Bank? We have more content for you…

Elasticity of Demand

The elasticity of demand measures the responsiveness of the quantity demanded a good to a change in its price, price of other goods and changes in the consumer’s income. Read more

Public Revenue

Public revenue refers to the income or earnings of the government of any country. It is very significant for financing developmental programmes such as the construction of roads, railways, schools and hospitals. Read more

Meaning and Functions of Money

Money is a thing which is commonly accepted as a medium of exchange. Money is an instrument which serves as a medium of exchange, a measure of value, a store of value and a standard for deferred payments. Read more

Central Banking

A Central Bank is the apex bank which controls the entire banking system of a country. It has the sole authority to issue notes in that country. It also acts as a banker to the government and controls the supply of money in the country. Read more

Factors of Production

Factors which are used to carry out the process of production are called factors of production. In the modern economy, economists classified these factors into two categories. Read more

Theory of Supply

The supply of a commodity is the quantity of the commodity that producers desire to sell to consumers. Thus, it is the desired flow. It indicates how much firms are willing to sell per period of time and not how much they actually sell. Read more

Finished Reading Functions of Commercial Bank? Want to Improve your English Grammar? – Improve now

Discover more from Home of learning

Subscribe now to keep reading and get access to the full archive.

Continue reading

Scroll to Top