Functions of Commercial Banks
33
Functions of Commercial Banks
33.1 Introduction
You have studied in the earlier lesson about different types of banks and their nature. It may be of interest to you now to know about the various services/functions performed by commercial banks. In this lesson, you will study about the various services provided by commercial banks to the business community in particular and the public in general.
33.2 Objectives
After studying this lesson, you will be able to describe the various functions of commercial banks; d ifferentiate between primary and secondary functions of commercial banks; classify and discuss the primary functions of modern commercial banks; enumerate the various modes of acceptance of deposits; identify various methods of granting loans; describe agency and general utility services of modern commercial banks. 22 :: Business Studies
33.3 Functions of Commercial Banks
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
Functions of Commercial Banks
33.1 Introduction
You have studied in the earlier lesson about different types of banks and their nature. It may be of interest to you now to know about the various services/functions performed by commercial banks. In this lesson, you will study about the various services provided by commercial banks to the business community in particular and the public in general.
33.2 Objectives
After studying this lesson, you will be able to describe the various functions of commercial banks; d ifferentiate between primary and secondary functions of commercial banks; classify and discuss the primary functions of modern commercial banks; enumerate the various modes of acceptance of deposits; identify various methods of granting loans; describe agency and general utility services of modern commercial banks. 22 :: Business Studies
33.3 Functions of Commercial Banks
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