Functions of Commercial Bank

Functions of bank

There are two kinds of functions.

(1). Primary Functions of bank

The main function of banks accepting and lending loans.

(A) Accepting deposits

1) Fixed deposits: These deposits mature after a considerable long period like 1 year or more than that rate of interest is fixed.

2) Current  A/C deposit: These are mainly maintained by the business community to facilitate frequent transactions which big amounts.

3) Saving bank A/C: It is kind of demand deposits which is generally kept for the sake of safety.

4) Recurring deposits A/C: In case of a recurring deposit, the fixed amount is deposited in a bank every month for a fixed period of time.

(B). Lending loans :

1) Call loans: These loans are called back at any time. Normally, this loan is taken by bill brokers or stockbrokers.

2) Short-term loans: These are sanctioned for a period of up to 1 year.

3) Medium-term loans: These are sanctioned for the period varying between 1 and 5 years.

(C).  Long term loans :

These loans are sanctioned for a period of more than 5 years it includes.

1) Overdraft: The bank grants overdraft facility to its reliable and respectable depositors.

2) Cash credit: Under this facility, the bank allows the borrower to withdraw cash against certain security.

3) Bills of exchange: The bank provides funds to its customers by purchasing or discounting bills of exchange.

(2). Secondary functions of bank

Apart from the main functions, the banks also provide financial services to the corporate sector and business and society. They are as follow:

1) Merchant banking: Merchant banking is an organization which underwrites securities for companies, advances in various activities.

2) Leasing : Banks have started funding the fixed assets through leasing. It refers to the renting out of the immovable property by the bank to the businessmen.

3) Mutual fund: The main function of the mutual fund is to mobilize the savings of the general public and invest them in the stock market and money market.

4) Venture capital: Venture capital is financial capital provided to early-stage, high potential, high risk, growth startup companies. The venture capital fund makes money by owning equity in the companies it invests in, which usually have a novel technology or business.

5) ATM: An atm is also known as a cash point. The banks nowadays provide atm facilities. The customers can withdraw money easily and quickly 24 hours a day.

6) Telebanking: Telebanking is a throwback to the days when people would call into a central number their bank/financial institution in order to get balance.

7) Credit cards: Credit cards allow a person to buy goods and services up to a certain limit without immediate payment. The amount is paid to the shops, hotel, etc. by the commercial banks.

8) Locker service: Under this service, lockers are provided to the public in various sizes on payment of fixed rent.

9) Underwriting: This facility is provided to the joint-stock companies and to the government. The banks guarantee the purchase of a certain proportion of shares, it not sold in the market.

10) BCSBI : The banking codes standards board of India is an independent banking industry watchdog that protects consumers of banking services in India.