Commercial banks are authorized to provide a variety of financial services which includes loans, savings accounts, etc. In this article, we will talk about various functions that a commercial bank performs.
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Commercial banks accept deposits from people, businesses, and other entities in the form of:
Another important activity is lending funds to customers in the form of loans and advances, cash credit, overdraft and discounting of bills, etc.
Loans are advances that a bank extends to his customers with or without security for a specified time and at an agreed rate of interest. Further, the bank credits the loan amount in the customers’ account which he withdraws as per his needs.
Under the cash credit facility, the bank offers its customers a facility to borrow cash up to a certain limit against the security of goods. Further, an overdraft is an arrangement that a bank offers to customers wherein a temporary facility is offered to overdraw from the current account without any security.
The limit is pre-specified. Additionally, banks also discount and purchase bills. In both of these cases, a bank credits the amount of the bill in the customer’s accountafter deducting discounts and commissions. Subsequently, this amount is recovered from the debtors on thematurity of the instrument.
Q1. What are the primary functions of a commercial bank?
Answer: The primary functions of a commercial bank are accepting deposits and also lending funds. Deposits are savings, current, or time deposits. Also, a commercial bank lends funds to its customersin the form of loans and advances, cash credit, overdraft and discounting of bills, etc.
Q2. What are the secondary functions of a commercial bank?
Answer: The secondary functions of a commercial bank are acting as an agent to its customers and also providing general utility services.
FAQs
The general utility services offered by commercial banks include the issuance of cheques and drafts, project reports, locker facility, underwriting services, and locker facility.
What are commercial banks general utility functions? ›
The general utility services offered by commercial banks include the issuance of cheques and drafts, project reports, locker facility, underwriting services, and locker facility.
What is the function of a commercial bank? ›
A commercial bank is a kind of financial institution that carries all the operations related to deposit and withdrawal of money for the general public, providing loans for investment, and other such activities. These banks are profit-making institutions and do business only to make a profit.
What are the functions of bank as an agent? ›
Agency functions of commercial banks are like collecting interest, dividends, payment of rent or insurance, the conduct of stock exchange, transactions, and acting as executor trustees, and attorneys; these banks also advise their customers about investment.
What is the utility function of the bank? ›
It comprises of actions, such as undertaking foreign exchange transactions, providing safe custody of valuables, issuing letter of credit to promote the foreign trade, etc.
What is the utility function? ›
In economics, utility function is an important concept that measures preferences over a set of goods and services. Utility represents the satisfaction that consumers receive for choosing and consuming a product or service.
What are the roles or utilities of the bank? ›
The function of a Bank is to collect deposits from the public and lend those deposits for the development of Agriculture, Industry, Trade and Commerce. Bank pays interest at lower rates to the depositors and receives interests on loans and advances from them at higher rates.
What is the primary functions of commercial banks definition? ›
Primary function means a major activity for which a building or facility is intended. ...
What are the primary functions of banks? ›
Functions of Commercial Banks: - Primary functions include accepting deposits, granting loans, advances, cash, credit, overdraft and discounting of bills. - Secondary functions include issuing letter of credit, undertaking safe custody of valuables, providing consumer finance, educational loans, etc.
Which of the following is not a function of commercial banks? ›
Solution: Issuing currency is not the function of commercial banks. The main function of the Reserve Bank of India is to issue currency. A commercial bank is a financial institution that carries out all the operations regarding deposits, withdrawal of money, loans, and other activities.
An agent bank is a bank that performs services in some capacity on behalf of an entity. An agent bank, also known as agency bank, can offer a wide variety of services for businesses looking to expand internationally.
What are the duties of a bank agent? ›
Their primary responsibilities include handling bank transfers, assisting with online accounts, completing transactions, accepting deposits, and answering banking or financial related questions. A banking representative may assist clients going through identity theft or fraud by reviewing account charges.
What is the main function and roles of the bank? ›
Although banks do many things, their primary role is to take in funds—called deposits—from those with money, pool them, and lend them to those who need funds.
What are the functions of a commercial bank? ›
Providing Loans – One of the main functions of commercial banks is providing credit to organizations and individuals, and profit from the earned interest. Usually, banks retain a small reserve for their expenses while offering the remaining amount to customers as various types of short and long-term credits.
What are the general utility functions of a commercial bank? ›
Some of the most important utility functions of the banks may include the issue of drafts, letter of credits, etc., locker facility, underwriting of shares, dealing in foreign exchange, project reports, social welfare programs, other utility functions.
What are the 4 utility functions? ›
Utility functions are a special type of functions that connect or map the amount of utility gained from preferences or bundles of goods. There are four common types of utility functions: linear, perfect substitutes, perfect complements, and Cobb-Douglas.
What are the 3 core key pieces of utility that banks traditionally provided? ›
A value store, money movement and access to credit. What are three core key pieces of utility that are provided by banks?
Which of these is one of the main functions of commercial banks? ›
Commercial banks ensure liquidity by taking the funds that their customers deposit in their accounts and lending them out to others. Commercial banks play a role in the creation of credit, which leads to an increase in production, employment, and consumer spending, thereby boosting the economy.
What are the advantages of ECS? ›
Benefits to a Corporate Body
Elimination of fraudulent encashment due to loss in transit of instruments. Reconciliation of transactions is made automatic. By the time the ECS cycle is completed, the user institution gets an electronic data file from its bank with the date of payment and banker's confirmation thereon.
What is the ECS form? ›
The Electronic Clearance Service (ECS) scheme provides an alternative method of effecting bulk payment transactions like periodic (monthly/ quarterly/ half-yearly/ yearly) payments of interest/ salary/ pension/ commission/ dividend/ refund by Banks/Companies /Corporations /Government Departments.
