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Functions Of Commercial Banks

Functions Of Commercial Banks

A bank is a financial institution that works to collect money from the public and give loans to the public. in this article, we are going to know about the functions of commercial banks. 

People deposit their savings in these institutions for safety or to earn interest and withdraw from time to time as needed.

Banks thus earn interest by loaning the amount received from deposits to traders and businessmen.

Functions Of Commercial Banks

The functions and services of the bank can be divided into four categories:

  • To collect a deposit from the public
  • To give loan and advance money to the public
  • Working as an agent for customers
  • Providing miscellaneous services

Collect A Deposit From The Public

Banks often open three types of accounts for depositing funds:

  • Current Accounts
  • Fixed Accounts
  • Savings Accounts

The bank deposits have to be paid at any time on the demand of the depositor. Hence, it is also called ‘demand liability of the bank.

Fixed accounts are credited for a fixed period which cannot be withdrawn before the expiry of the period.

If a depositor wants to withdraw his deposit in fixed accounts before the completion of the period, then he does not get interested in the amount. This type of deposit is called ‘call liability’.

The third type of deposit is made in the savings account. No amount can be deposited beyond the limit prescribed in Savings Account.

Such accounts are opened to encourage the savings of low-income people.

Sometimes special types of accounts are also opened for special works.

For example, marriage accounts for the collection of funds for marriage, education accounts for collecting funds for education, etc.

Loan And Advance

Banks give loans to their customers and other trusted persons and institutions for business and production related purposes.

While giving loan, banks open an article in the name of the borrower and deposit the loan amount in it, due to which the borrower keeps writing the amount from time to time.

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