Question

With reference to the secondary functions of a Commercial Bank, explain the general utility function.

Answer 1

General Utility Functions: Commercial banks also perform several general utility functions which are given below.

1. Issuing Credit Instruments: Banks issue letters of credit, drafts and travellers' cheques to their customers. People can transfer funds from one place to another without carrying currency notes with them.
2. Underwriting Capital Issues: Banks underwrite the shares and debentures issued by companies.
3. Safe Custody of Valuables: Banks accept jewellery, documents and other valuables for safekeeping. They provide safe deposit vaults (lockers) for storing these valuables.
4. Advice and Information: Banks offer advice on financial matters. They provide information about the creditworthiness of customers to enable them to obtain credit facilities from suppliers. Banks also collect and provide information about trade and industry. They also give guarantees on behalf of their customers.