What Are The Basic Functions Of Commercial Banks?

21 Answers

Sajid Majeed Profile
Sajid Majeed answered
1. Receiving Deposits:
This is the main function of commercial banks to collect savings  of individuals and firms. They offer different types of deposits for the facility of the customers.

I. Current Account or Demand Deposits:
Any amount can be withdrawn from this account any time without any notice. No interest is allowed on this type of account.
Ii. Saving Account:
    This type of deposit account which is usually held by the middle class group. The
    saving account carries lower rate of interest.
Iii. Fixed Deposit:
Amount cannot be withdrawn before the fixed future date in this type of deposit.  High interest is allowed in fixed deposit which is different according to period.

2.  Advancing Loans:
This is the important function of the commercial bank. Credit is given to the people in different ways.
(a.): Making Loans:
      There are three types of loans given to borrowers.
I.    Short Term Loans:
      These loans are advanced for the period of six months to one year. High Interest rate
      Is charged on this type of accounts.
Ii.    Medium Term Loans:
      Loans from one to five years are called medium term loans.
Iii:  Long Term Loans:
        Loans which are advanced for the period, more than ten years are long term loans.
(b.): Bank Overdraft:
        Banks allows their trustful customers to draw more than the deposit they have in the
      Bank. Bank charges interest on overdraft.
(c.): Cash Credit:
        Bank also gives credit against immovable property and interest is charged by the
(d.): Discounting of Bills:
        This is income source of bank to discount bills of exchange. They charge nominal
        Interest and discount only reputed and clear bills of exchange.
Haider Imtiaz Profile
Haider Imtiaz answered
The banks play very important role for the economic development of the country. The importance can be examined as under:
1. Increase in saving: The people deposit there savings into the banks and the bank pays reasonable profit on these savings.

2. Increase in investment: The money which is collected by the bank is lent to businessman and industrialist. The increase in the investment increases the level of employment.
3. Increase in employment: The banks advance loan to the investors. As a result; the industrial units are setup in different parts of the country. Hence the level of employment is increased.

4. Transfer of Money: When the people want to transfer their money from one place to another place, they get traveller cheque and the bank draft from the bank.
5. Loan to Govt.: When the govt. needs funds to complete the public works programs, the banks provide loans to it.

6. Capital formation: the process of the capital formation is completed with the financial of commercial banks. So banks increase capital formation.
7. Balanced development: when the banks provide loans to the less developed areas, the chances of progress and development are increased in the areas.
8. Saving in metals when the payments are made through currency notes and credit instruments, the precious metals are saved.
9. Conclusion: banks are back bone for the economic development of any country. A planned banking system is indispensable for economic growth and development of the country.
Lily James Profile
Lily James answered

Commercial Bank is basically a type of financial intermediary. It is also sometimes called as business banking. This kind of a bank deals with deposits and loans from corporations or large businesses. It is also different than retail banking as it does not provide direct financial services to consumers. The functions of Commercial Banks are as follows:

- Raise funds by collecting deposits from businesses and consumers.

- Accepting checkable deposits, saving deposits and term deposits etc both from business and individual consumers.

- Providing loans to businesses and consumers.

- Buying and selling of corporate bonds and government bonds.

Anonymous Profile
Anonymous answered
Ii) Secondary functions
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.
Anonymous Profile
Anonymous answered
The basic function of commercial bank is accepting of credit and leading of loan to their customer.
Anonymous Profile
Anonymous answered
A commercial bank is a financial institution which receives deposits of people and lend it to needy peoples as loan for the purpose of earning profit by charging interest.So,on the basis of this definition its main functions are the Acceptance of Deposits in form of Current Deposits , Saving Deposits and Term deposits where with the help of theses deposits it issues the loans to needy people  in different forms like by opening loan account , discounting bills of exchange , overdraft,long, short and medium term loan on the basis of different securities after fulfillment of all satisfactory documents to its trust worthy customers and general public .For the advancement of loans it use the basic criteria of 3C,s by checking it customer character , customer capacity,and customer capital.So,as a conclusion we can say the main function of commercial bank are the "acceptance of deposits"(its liability and external capital) and "advancement of loans"(its assets) where it can also use these deposits to invest them in different financial projects for example it can invest them in buying of securities etc.
Anonymous Profile
Anonymous answered
Modern Functions Of Commercial Bank?
Katie Harry Profile
Katie Harry answered
Commercial banks are known to perform a number of functions that include extended short time loans, issuance of bank notes, letters of credit, and acceptance of bills. They receive deposits as it is the main function of a commercial bank as to collect savings from the firms as well as the individuals. They offer many deposit facilities to the individuals as well. These deposits can be in the form of Current or demand deposits, savings account or a fixed deposit.

Another function of commercial banks is that they provide credit t people. These loans can be short term as well as long term loans. Banks also provide customers the option to draw more money then they have in their accounts and charge interest on it. This facility is known as bank Overdraft.

Provision of cash credit and discounting of bills is another function performed by commercial banks.
Anonymous Profile
Anonymous answered
Issuing letter of credit,travellers' cheques,undertaking safe custody of valuable,important documents,transferring money from one place to another,issuing demand drafts and pay orders.
Ammar Irfan Profile
Ammar Irfan answered
A commercial bank can be found in all countries on this planet and provides services that range a lot. The services provided by banks are so many that it is hard to think a life with out them.

A bank was established at the first place for the purpose of keeping people's money and earning profits on that money by lending them to the needy ones. Since its establishment though, the bank has kept this service but has added dozen more services.

Commercial Banks today provide its users with services of car financing which is another form of a loan; however a user is given more luxury on spending. From the time visa cards have been introduced, the commercial banking has evolved into a totally new industry.

Providing and giving people the power to spend and pay the banks back when they are viable to do. This not only helps the increase in purchasing power but it increases the economy of the country on the whole. With ATM machines all over the place, it is not necessary for people of today to take the risk of carrying money and thus has started the culture of plastic money.

In some countries, commercial banks provide the services of paying utility bills which adds to the convenience that banking sector provides. As technology increases, banks have also enhanced their technique of providing more services, with internet banking being the latest. The role and importance of banks is unquestionable in the world today and it is unthinkable to have a world without them.
Mesfin Ayenew Profile
Mesfin Ayenew answered
Commercial banks are intermediaries in the economy between those who may have excess liquidity or capital and those who need capital to build their business or individuals who may need to monetize their future earnings today. Through this process, the nation facilitates the expansion of capital formation and the production of goods and services. Commercial banking is like a harvesting and distribution machinery of the economy. The finer and the more reliable the machinery the more it facilitates a steady growth of the economy.
Mesfin Ayenew
Sneha Mol Profile
Sneha Mol answered
1.Receiving of deposits from the public
2.Lending of money to commerce,trade and industry.
3.Creation of credits in the society and the economy.
Anonymous Profile
Anonymous answered
The functions of a commercial banks are divided into two categories:
I) Primary functions, and
ii) Secondary functions including agency functions.
I) Primary functions:
The primary functions of a commercial bank include:
A) accepting deposits; and
b) granting loans and advances;
a) Accepting deposits
The most important activity of a commercial bank is to mobilise
deposits from the public. People who have surplus income and
savings find it convenient to deposit the amounts with banks.
Depending upon the nature of deposits, funds deposited with
bank also earn interest. Thus, deposits with the bank grow along
with the interest earned. If the rate of interest is higher, public
are motivated to deposit more funds with the bank. There is also
safety of funds deposited with the bank.
B) Grant of loans and advances
The second important function of a commercial bank is to grant
loans and advances. Such loans and advances are given to
members of the public and to the business community at a higher
rate of interest than allowed by banks on various deposit accounts.
The rate of interest charged on loans and advances varies
depending upon the purpose, period and the mode of repayment.
The difference between the rate of interest allowed on deposits
and the rate charged on the Loans is the main source of a bank's
I) Loans
A loan is granted for a specific time period. Generally,
commercial banks grant short-term loans. But term loans,
Functions of Commercial Banks :: 23
that is, loan for more than a year, may also be granted.
The borrower may withdraw the entire amount in lump-sum
or in instalments. However, interest is charged on the full
amount of loan. Loans are generally granted against the
security of certain assets. A loan may be repaid either in
lump-sum or in instalments.
Ii) Advances
An advance is a credit facility provided by the bank to its
customers. It differs from loan in the sense that loans may
be granted for longer period, but advances are normally
granted for a short period of time. Further the purpose of
granting advances is to meet the day to day requirements
of business. The rate of interest charged on advances varies
from bank to bank. Interest is charged only on the amount
withdrawn and not on the sanctioned amount.
Modes of short-term financial assistance
Banks grant short-term financial assistance by way of cash credit,
overdraft and bill discounting.
A) Cash Credit
Cash credit is an arrangement whereby the bank allows the
borrower to draw amounts up to a specified limit. The amount is
credited to the account of the customer. The customer can
withdraw this amount as and when he requires. Interest is charged
on the amount actually withdrawn. Cash Credit is granted as per
agreed terms and conditions with the customers.
B) Overdraft
Overdraft is also a credit facility granted by bank. A customer
who has a current account with the bank is allowed to withdraw
more than the amount of credit balance in his account. It is a
temporary arrangement. Overdraft facility with a specified limit
is allowed either on the security of assets, or on personal security,
or both.
C) Discounting of Bills
Banks provide short-term finance by discounting bills, that is,
making payment of the amount before the due date of the bills
after deducting a certain rate of discount. The party gets the
funds without waiting for the date of maturity of the bills. In
case any bill is dishonoured on the due date, the bank can recover
the amount from the customer.
Ii) Secondary functions
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.
Anonymous Profile
Anonymous answered
Commercial banks being a very important and essential part of the economy of country are proved to be like a part of body. Without commercial banks a country is like a body without blood.There few important points are given below:
Capital formation: Commercial bank by the process of getting deposits and lending them accumulate the capital and in this way capital is formed.
amber Jhon Profile
amber Jhon answered
There are various roles of banks and some of them are as follows:

First of all commercial banks are responsible to issue banknotes which are the promissory notes and payable to bearer on demand. Secondly, commercial banks process the payments through telegraphic transfer. Thirdly, these banks issue bank cheques and bank drafts. They do not buy risky securities but they can buy riskless securities like T-bills. Commercial banks play an important role in trade by providing Letter of credit and guarantees. They provide services to the consumers to save their deposits in the banks. Commercial banks are also involved in currency exchange therefore, there are many roles of commercial banks in any state.
Anonymous Profile
Anonymous answered
Deposit taking on interest
Lending on interest
Investment with interest
Foreign trade / International trade and finance on interest
Bank Guarantee
Foreign exchange services
Money transmission services
Cash management services

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