Describe any six functions of commercial banks in detail. OR
Describe any six methods adopted by the central bank for credit control.
Answers
The primary functions of a commercial bank are as follows:
1. Accepting Deposits
Commercial banks accept deposits from people, businesses, and other entities in the form of:
Savings deposits – The commercial bank accepts small deposits, from households or persons, in order to encourage savings in the economy.
Time deposits – The bank accepts deposits for a fixed time and carries a higher rate of interest as compared to savings deposits.
Current deposits – These accounts do not offer any. Lending of Funds
Another important activity is lending funds to customers in the form of loans and advances, cash credit, overdraft and discounting of bills, etc.
2. Lending of Funds
Another important activity is lending funds to customers in the form of loans and advances, cash credit, overdraft and discounting of bills, etc.
Loans are advances that a bank extends to his customers with or without security for a specified time and at an agreed rate of interest. Further, the bank credits the loan amount in the customers’ account which he withdraws as per his needs.
The secondary functions of a commercial bank are as follows:
Bank as an Agent
A bank acts as an agent to its customers for various services like:
Collecting bills, draft, cheques, etc.
Paying the insurance premium, rent, loan installments, etc.
Working as a representative of a customer for purchasing or redeeming securities, etc. in the stock exchange.
Acting as an executor, administrator, or trustee of the estate of a customer
Also, preparing income tax returns, claiming tax refunds, etc.
General Utility Services
There are several general utility services that commercial banks offer like:
Issuing traveler cheques
Offering locker facilities for keeping valuables in safe custody
Also, issuing debit cards and credit cards, etc.