CONCEPTS By Tavinder Singh: BANKING I: COMMERCIAL BANK AND ITS FUNCTIONS

BANKING I:COMMERCIAL BANK ITS FUNCTIONS

QUESTION1)What is Commercial Bank?

Answer) Commercial Bank are the financial institutions which accepts deposits from the public and advance loans to the public for the sake of earning profit and mobilization of savings in the economy.

Question2) What are the functions of Commercial Bank?

Answer- PRIMARY FUNCTIONS

*Accepting Deposit-It means getting money from the public and providing the interest on that amount to the public.

There are 4 Types of Deposit

These accounts are classified on the basis of no. of transactions.

#1 FIXED DEPOSIT- This is an account for fixed time or for a particular duration in which customer agrees to deposit for a fixed duration say for a year. Money can be withdrawn after the completion of a particular time period. This account provides highest rate of interest as it involves only two transaction one at the time of deposit and other at the time of withdrawl.

#2 RECURRING DEPOSIT ACCOUNT

-In this type of deposit the amount is deposited at regular intervals in multiples of hundred according to customer convenience, it gets matured after the completion of that pre-decided period. In this account it provides interest rate less than fixed deposit amount but higher than saving deposit as it more transactions as compared to fixed deposit.

#3 Savings Deposit-

In this type of account , Deposit and Withdrawal can be be made anytime and of any amount up to a certain limit of transaction. In this type of account the Rate of Interest is lowest then any other account as it involves more transactions from recurring deposit account.

#4 Current Account Deposit- In this type of account is generally made for businessmen, companies or firms who do a number of transaction everyday. The bank provides maximum service everyday. That’s why there is no interest rate of interest is given on these type of account as there is no limit of transactions.

ADVANCING LOANS

#CASH CREDIT- The entire loan amount is disbursed at one time. It is disbursed as per the requirement of the customer. The bank provides loans by keeping security as a collateral and the loan is provided according to the amount of security.

#OVERDRAFT FACILITY- This facility is for the companies, firm or Business in which the amount can be withdrawn from account when it falls below the zero balance upto a certain limit. This Limit is decided on the basis of goodwill of the customer and his business history. The interest is charged on daily basis on the amount withdrawn, Not on the whole amount.

#TERM LOAN/OUTRIGHT LOAN- In this type of loan the amount is sanctioned and credited to the borrowers account. This type of loan is generally given for a particular type of project or new projects. The interest is charged on the whole amount sanctioned not on the amount withdrawn.

#DISCOUNTING BILL OF EXCHANGE- In this when a seller sells the commodity on the credit period draw a bill on the purchaser or drawee for a particular credit period. Suppose if the seller needs the amount before the maturity period, then he will go to bank and get it discounted. Discount is charged on per day basis on the period left before the maturity.

SECONDARY FUNCTIONS

#AGENCY FUNCTION

1. Bank make payment on behalf of their customer. For Example- Realization of Cheques, Telephone Bills,etc.

2. Bank also collect various types of payments on behalf of their customer. For Example)Payment of Dividend by the MNCs or Company, Payment received after sale of share securities, etc.

3. Bank also act as an agent of their customer for purchase and sale of securities. For Example) Using DEMAT ACCOUNT, sale of securities are processed.

4. Bank also act as an executor of the standing order given by the customer to their respective Bank. For Example)Execution of Will in behalf of their customer after their death.

#GENERAL UTILITY SERVICES

1. Locker Facility