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 the general utility functions of a commercial bank? ›
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 the functions of the commercial banks? ›
The two primary characteristics of a commercial bank are lending and borrowing. The bank receives the deposits and gives money to various projects to earn interest (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.
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 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 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.
What is the primary functions of commercial banks definition? ›
A "primary function" is a major activity for which the facility is intended.
Which of the following is not a function of a commercial bank? ›
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.
What is a bank and its functions? ›
A bank is a financial institution that is licensed to accept checking and savings deposits and make loans. Banks also provide related services such as individual retirement accounts (IRAs), certificates of deposit (CDs), currency exchange, and safe deposit boxes.
Becoming an agent of a bank in the United States is a substantial undertaking that involves acting on behalf of the bank in various capacities. This role typically includes tasks such as opening and closing accounts, accepting deposits, cashing checks, issuing bank drafts, and managing other financial transactions.
What is Agent Banking Services? ›
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 are the 5 functions of a commercial bank? ›
Commercial banks perform various functions that are as follows:
- Accepting deposits. The basic function of commercial banks is to accept deposits of the customers. ...
- Granting loans and advances. ...
- Agency functions. ...
- Discounting bills of exchange. ...
- Credit creation. ...
- Other functions.
Role. The general role of commercial banks is to provide financial services to the general public and business, ensuring economic and social stability and sustainable growth of the economy. In this respect, credit creation is the most significant function of commercial banks.
What are three ways banks make money? ›
They earn interest on the securities they hold. They earn fees for customer services, such as checking accounts, financial counseling, loan servicing and the sales of other financial products (e.g., insurance and mutual funds).
What are three core key pieces of utility that are provided by banks? ›
A value store, money movement and access to credit. What are three core key pieces of utility that are provided by banks?
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.
What are the functions of a central bank? ›
Central banks are responsible for overseeing the monetary system for a nation (or group of nations), along with a wide range of other responsibilities, from overseeing monetary policy to implementing specific goals such as currency stability, low inflation, and full employment.
What are the operations of a bank account? ›
Deposits and Withdrawals: You can put money into your current account and take it out whenever you need it. This account is all about easy access to your funds. No Interest: Unlike savings accounts, current accounts usually don't pay any interest. They are primarily for managing your everyday expenses.
