Hello Dear Friends, Welcome to KhanStudy.in. In today’s article we are going to know the various functions of commercial bank. So let’s discuss in details.
What is Commercial Bank?
Commercial banks are those banks which offer short run and medium term loan to its customers for conducting’s internal trade and commercial in a smooth manner.
Explain the Functions of Commercial Bank
The following are the main important functions of commercial banks –
- Mobilization of Saving – The most important function of commercial bank is to mobilize of the savings of the community. There are collecting three types of deposits like –
- Current or demand deposits – Demand or current deposits can be withdraw at any time and no interest is paid on such deposits.
- Fixed or time deposits – Time or fixed deposits are deposited for a fixed period and earns a high rate of interest.
- Saving deposits – Saving deposits are withdrawable subject to certain restrictions and earn some interest.
- Advancing of Loan – The second important function of commercial bank is advancing of loans to its customers for industrial, commercial and other purpose. Loans may be advancing by the commercial banks as cash credit, over draft, facilities, discounting, commercial bills like- bill change, commercial banks normally advances short run loan against reliable securities like- Gold, bills or exchange, etc.
- Discounting of Bills – Discounting of bills of exchange is one of the important function of commercial bank. Normally commercial banks discount trade bills of three month duration. Producers or sellers their commodity to the buyers by sending bills of exchange through commercial banks.
The commercial banks in their term pay to the producers and seller the amount mentioned in the bill in advance and those collect required amount of the bill from the buyers with in three month and changes certain amount as commission for the discounting bills.
- Creation of credit money – Commercial bank can create credit in the market by advancing of loans and also by investing their deposits on securities. When the commercial bank advancing loan to a person, the bank simply credit the amount to the debtor to draw cheque up to that amount of loan. Thus, loan creates deposits and these are known as created deposits.
- Miscellaneous services of bank – Commercial bank are performing various other function for their costumers. Commercial banks are providing facilities for transferring a huge amount of money from one place to another with full security through bank drafts.
It also issues letter of credit and cheques to the travelers. Some commercial bank also deals with one exchange asper foreign exchange regulation of the country. It also works as agents for their customers for purchasing shorts securities and also for collection and payments of bills.
