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Commercial banks render services to the business community, as well as to the general public. The functions of banks are divided into Primary and Secondary ones. Primary functions are the main activities generating the main profit and obligatory on the part of bank to perform while secondary are not the main sources of income of the banks.

The primary functions of a commercial bank include accepting deposits granting loans and advances.

The most important activity of a commercial bank is to mobilise deposits from the public or Accepting deposits. 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. 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. Banks accepts deposits from the public and their customers in the form of Current deposit, Saving, deposit, fixed deposit, and under other deposit schemes.

Current Deposit can be withdrawn by the depositor at any time by cheques. Businessmen generally open current accounts with banks. Current accounts do not carry any interest as the amount deposited in these accounts is repayable on demand without any restriction.

Savings deposit account is meant for individuals who wish to deposit small amounts out of their current income. It helps in safe guarding their future and also earning interest on the savings. A saving account can be opened with or without cheque book facility. There are restrictions on the withdrawls from this account.

The term ‘Fixed deposit’ means deposit repayable after the expiry of a specified period. Fixed deposits are most useful for a commercial bank. Since they are repayable only after a fixed period, the bank may invest these funds more profitably by lending at higher rates of interest and for relatively longer periods. The longer the period, the higher is the rate of interest offered.

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 income.



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.

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.

Besides the primary functions of accepting deposits and lending money, banks perform a number of other functions which are called Secondary functions. They are therefore could be subdivided into agency ( transfer of funds, collection of checks, portfolio management, periodic collection , i.e. collection of salary, pension, dividend etc.) and general utility functions ( issue of drafts and letters of credit, locker facility , i.e. safe custody of valuables, underwriting of shares, dealing in foreign exchange . Agency services are rendered as agent of customers, whereas general utility services are rendered to the general public.



Banks have now installed their own Automated Teller Machine (ATM) throughout the country at convenient locations. By using debit & credit cards, customers can deposit or withdraw money from their own account any time.

Having saving or current account in the banks a customer is provided with Debit cards. The amount paid through the card is automatically debited (deducted) from the customers’ account.

Credit cards are issued by the bank to persons who may or may not have an account in the bank. Just like debit cards, credit cards are used to make payments for purchase, so that the individual does not have to carry cash. Banks allow certain credit period to the credit cardholder to make payment of the credit amount. Interest is charged if a cardholder is not able to pay back the credit extended to him within a stipulated period. This interest rate is generally quite high.

With the extensive use of computer and Internet, banks have now started transactions over Internet or Net- banking. The customer having an account in the bank can log into the bank’s website and access his bank account. He can make payments for bills, give instructions for money transfers, fixed deposits and collection of bill, etc.

In case of Phone banking, a customer of the bank having an account can get information of his account, make banking transactions like, fixed deposits, money transfers, demand draft, collection and payment of bills, etc. by using telephone or mobile phone.

 


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