The main functions of banks can be study under two broad categories :
(a) Primary functions.
(b) Secondary functions or subsidiary functions.
Primary functions :
1. Acceptance of Deposits : Accepting of deposits from the public is the most important function of bank. It takes the savings and surplus of people. Banks provide a safe custody of the deposited cash. Depositors can easily transfer money and can make the payments through cheques.
Banks provide an attractive rate of interest on their deposits. There are various types of deposits which can be opened in the bank like Fixed Deposit. Savings Deposit and Current Deposit.
2. Making Loans and Advances : It is another equally important functions of bank. Banks accept surplus money of people and provide loans and advances to the needy persons. It is through loans and advances, banks earn profit. Loans and advances are provided through banks in the following forms :
(i) Loan, (ii) Overdraft, (iii) Cash credit, (iv) Discounting of bills and exchange.
(i) Loan : Loan is a lumpsum advance made by a bank against security or otherwise. In it specified amount is either paid to the customer in cash or is credited in his account. The borrower is required to pay a prefixed rate of interest on the amount of loan from the date of the sanction of the loan.
The loan may be refunded in instalment or in lumpsum. Short and medium term loans are provided by commercial banks.
(ii) Overdraft: Under this system a current account holder is allowed to overdraw his bank account i.e., he can draw upto a fixed limit more than the balance in his account withdrawal at any time.
(iii) Cash-credit: In cash credit, a customer is given credit upto a definite limit against a surety bond or against other securities. The interest is charged on the amount overdrawn by customer on the daily balance and not on the entire amount of the limit.
(iv) Discounting of Bills of Exchange : Bill of Exchange is a negotiable instrument. It is drawn by the seller and is accepted by the buyer. The drawer has got a facility to discount the bill of exchange before maturity if money is required immediately. The bank discounts the bill and deducts a certain amount as discounting charges and pays the remaining money to the drawer.
Secondary functions subsidiary functions can be classified as :
(a) Agency functions
(b) Utility functions.
(a) Agency functions : These are the functions which banks perform as an agent of their customers.
1. Collection of cheques and bills : It collects local and outstation cheques, drafts, bills of exchange, and promissory notes of its customers and credit to their account.
2. Collection of Interest and Dividend : It also collects interest and dividend on debentures and securities held by its customers.
3. Purchase and sale of securities : On instructions from its customers banks purchase or sell stock securities, debentures, bonds etc.
(b) Utility functions : Banks provide the following utility or miscellaneous functions :
1. Safe custody of customers' valuable articles and securities : Some banks provide the facilities of lockers where on nominal rent a customer can keep its valuable articles such as ornaments, jewellery etc.
2. Facility of Foreign Exchange : After obtaining a license from the Reserve Bank of India, commercial banks can deal in foreign exchange. The banks can exchange the various foreign currencies and even discount foreign bills of exchange.
3. Provide Trade Informations : Banks provide useful trade information to its customer through publishing various journals.
Gaurav Seth 3 years, 6 months ago
The main functions of banks can be study under two broad categories :
(a) Primary functions.
(b) Secondary functions or subsidiary functions.
Primary functions :
1. Acceptance of Deposits : Accepting of deposits from the public is the most important function of bank. It takes the savings and surplus of people. Banks provide a safe custody of the deposited cash. Depositors can easily transfer money and can make the payments through cheques.
Banks provide an attractive rate of interest on their deposits. There are various types of deposits which can be opened in the bank like Fixed Deposit. Savings Deposit and Current Deposit.
2. Making Loans and Advances : It is another equally important functions of bank. Banks accept surplus money of people and provide loans and advances to the needy persons. It is through loans and advances, banks earn profit. Loans and advances are provided through banks in the following forms :
(i) Loan, (ii) Overdraft, (iii) Cash credit, (iv) Discounting of bills and exchange.
(i) Loan : Loan is a lumpsum advance made by a bank against security or otherwise. In it specified amount is either paid to the customer in cash or is credited in his account. The borrower is required to pay a prefixed rate of interest on the amount of loan from the date of the sanction of the loan.
The loan may be refunded in instalment or in lumpsum. Short and medium term loans are provided by commercial banks.
(ii) Overdraft: Under this system a current account holder is allowed to overdraw his bank account i.e., he can draw upto a fixed limit more than the balance in his account withdrawal at any time.
(iii) Cash-credit: In cash credit, a customer is given credit upto a definite limit against a surety bond or against other securities. The interest is charged on the amount overdrawn by customer on the daily balance and not on the entire amount of the limit.
(iv) Discounting of Bills of Exchange : Bill of Exchange is a negotiable instrument. It is drawn by the seller and is accepted by the buyer. The drawer has got a facility to discount the bill of exchange before maturity if money is required immediately. The bank discounts the bill and deducts a certain amount as discounting charges and pays the remaining money to the drawer.
Secondary functions subsidiary functions can be classified as :
(a) Agency functions
(b) Utility functions.
(a) Agency functions : These are the functions which banks perform as an agent of their customers.
1. Collection of cheques and bills : It collects local and outstation cheques, drafts, bills of exchange, and promissory notes of its customers and credit to their account.
2. Collection of Interest and Dividend : It also collects interest and dividend on debentures and securities held by its customers.
3. Purchase and sale of securities : On instructions from its customers banks purchase or sell stock securities, debentures, bonds etc.
(b) Utility functions : Banks provide the following utility or miscellaneous functions :
1. Safe custody of customers' valuable articles and securities : Some banks provide the facilities of lockers where on nominal rent a customer can keep its valuable articles such as ornaments, jewellery etc.
2. Facility of Foreign Exchange : After obtaining a license from the Reserve Bank of India, commercial banks can deal in foreign exchange. The banks can exchange the various foreign currencies and even discount foreign bills of exchange.
3. Provide Trade Informations : Banks provide useful trade information to its customer through publishing various journals.
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