Maharashtra State BoardHSC Commerce 12th Board Exam
Advertisement Remove all ads

Function of Commercial Bank? Only Primary Function? - Organisation of Commerce and Management

Answer in Brief

Function of Commercial Bank? Only Primary Function?

Advertisement Remove all ads


Introduction: - Commercial bank performs diverse types of functions. It satisfies the financial needs of the sectors such as agriculture, industry, trade, etc. it plays a very significant role in a process of satisfying economic and social needs. The functions performed by banks are changing according to change in time and recently they are becoming customer centric and widening their functions.

Functions of commercial banks are divided into two categories/types.

  1. Primary Functions    2. Secondary Functions
  2. Primary Functions: - 
  3. Accepting Deposits: -The most important activity of commercial bank is to mobilize deposits from the public. People who have surplus income and savings, find it convenient to deposit the amounts with banks in different types of deposits accounts which are as follows:
  4. Fixed Deposits: -A fixed amount is deposited for a fixed period and it is called fixed deposit account. It is also known as term deposit. The fixed period of time may be from 30 days to 5years and above. The rate of interest on this account is highest because the amount accepted is invested elsewhere for a long term by the bank. The depositor can get a loan against the deposit.
  5. Saving Account: -This account, as the name suggests, is meant for promotion of savings. Persons having fixed and regular income can deposit their savings in this account. A saving account holder is not permitted to have frequent withdrawals from this account as it is meant for saving. The interest on this account is credited to the account once in every 6 months.
  6. Current Account: -In this account, a depositor can deposit money any number of time and can withdraw it as and when he requires it. In this account, generally business class deposits the money. Generally, the bank does pay any interest on this deposit. Money is withdrawn from this account by cheque. A current account holder enjoys overdraft facility.
  7. Recurring Deposit Account: -In this type of account, a depositors deposits a fixed amount of money every month for a fixed period. The money is deposited on monthly basis. This money cannot be withdrawn before the expiry of a fixed term except in certain conditions. This account attracts higher interest in comparison to other accounts except Fixed Deposit account.
  8. Multiple Option Deposit Accounts: -It is a type of Saving Bank Account in which deposit in excess of a particular limit gets automatically transferred into Fixed Deposit. On the other hand, in case adequate fund is not available in our Saving Bank Account so as to honour a cheque that we have issued, the required amount gets automatically transferred from Fixed Deposit toSaving Bank Account.
  9. Granting Loans and Advances: -A banker receives money through its deposits at lower rates out of these deposits commercial bank grant loans and advances to the members of the public and to the business community at a higher rate of interest.
  10. Loans: -A loan is granted for a specific time period. The loans are particularly granted to businessman ad members of the public against personal security, gold and silver and other movable and immovable assets. Generally commercial banks grant short term loans. But term loans, i.e. loans for more than a year may also be granted. However, interest is charged on the amount withdrawn or used.
  11. Advances-An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally given for a short period of time. The purpose of granting advances is to meet day-to-day requirement of a business. However, interest is charged only on the amount withdrawn and not on the sanctioned amount. Types of Advances are:---------
  12. Cash Credit: - Under Cash credit system, bank allows the borrower to draw amount upto a specific limit. A limit of certain amount is sanctioned to the customer. The customer can withdraw this amount as and when required. Interest is charged on the amount actually withdrawn.
  13. Overdraft: -Overdraft is a credit facility granted by bank to current account holders. A current account holder is allowed to withdraw more than amount of credit balance in his account. It is temporary arrangement. Overdraft facility with a specific limit may be allowed either on the security of assets or on personal security or both. Bank charges interest on this facility.
  14. Discounting of Bills: -A bill of exchange is a negotiable instrument. Banks provide short term finance by discounting bills i.e. making payment of the amount before the die date of the bulls after deducting certain amount of discount. The party gets the funds without waiting for the date of maturity of the bills. 
Concept: Function of Commercial Banks
  Is there an error in this question or solution?
Advertisement Remove all ads


Advertisement Remove all ads
Advertisement Remove all ads

View all notifications

      Forgot password?
View in app×