Fundamentals of Banking
The commercial banks serve as the king pin of the financial system of the country. They render many valuable services. The important functions of the Commercial banks can be explained with the help of the following chart.
Primary Functions
The primary functions of the commercial banks include the following:
A. Acceptance of Deposits
1. Time Deposits:
These are deposits repayable after a certain fixed period. These deposits are not withdrawn able by cheque, draft or by other means. It includes the following.
(a) Fixed Deposits:
The deposits can be withdrawn only after expiry of certain period say 3 years, 5 years or 10 years. The banker allows a higher rate of interest depending upon the amount and period of time. Previously the rates of interest payable on fixed deposits were determined by Reserve Bank.
Presently banks are permitted to offer interest as deter¬mined by each bank. However, banks are not permitted to offer different interest rates to different customers for deposits of same maturity period, except in the case of deposits of Rs. 15 lakhs and above.
These days the banks accept deposits even for 15 days or one month etc. In times of urgent need for money, the bank allows premature closure of fixed deposits by paying interest at reduced rate. Depositors can also avail of loans against Fixed Depos¬its. The Fixed Deposit Receipt cannot be transferred to other persons.
(b) Recurring Deposits:
In recurring deposit, the customer opens an account and de¬posit a certain sum of money every month. After a certain period, say 1 year or 3 years or 5 years, the accumulated amount along with interest is paid to the customer. It is very helpful to the middle and poor sections of the people. The interest paid on such deposits is gener¬ally on cumulative basis. This deposit system is a useful mechanism for regular savers of money.
(c) Cash Certificates:
Cash certificates are issued to the public for a longer period of time. It attracts the people
Primary Functions
The primary functions of the commercial banks include the following:
A. Acceptance of Deposits
1. Time Deposits:
These are deposits repayable after a certain fixed period. These deposits are not withdrawn able by cheque, draft or by other means. It includes the following.
(a) Fixed Deposits:
The deposits can be withdrawn only after expiry of certain period say 3 years, 5 years or 10 years. The banker allows a higher rate of interest depending upon the amount and period of time. Previously the rates of interest payable on fixed deposits were determined by Reserve Bank.
Presently banks are permitted to offer interest as deter¬mined by each bank. However, banks are not permitted to offer different interest rates to different customers for deposits of same maturity period, except in the case of deposits of Rs. 15 lakhs and above.
These days the banks accept deposits even for 15 days or one month etc. In times of urgent need for money, the bank allows premature closure of fixed deposits by paying interest at reduced rate. Depositors can also avail of loans against Fixed Depos¬its. The Fixed Deposit Receipt cannot be transferred to other persons.
(b) Recurring Deposits:
In recurring deposit, the customer opens an account and de¬posit a certain sum of money every month. After a certain period, say 1 year or 3 years or 5 years, the accumulated amount along with interest is paid to the customer. It is very helpful to the middle and poor sections of the people. The interest paid on such deposits is gener¬ally on cumulative basis. This deposit system is a useful mechanism for regular savers of money.
(c) Cash Certificates:
Cash certificates are issued to the public for a longer period of time. It attracts the people