Explain the following functions of commercial banks:
(i) Accepting deposits
(ii) Providing Loans
Answers
Answer:
1.Accepting deposits
A commercial bank accepts deposits in the form of current, saving and fixed deposits. It collects the surplus balance of the individuals and firms and finances the temporary needs of commercial transactions. The first task is, therefore, the collecting of the savings of the public.
2.Providing Loans
The primary functions of a commercial bank are accepting deposits and also lending funds. ... Also, a commercial bank lends funds to its customers in the form of loans and advances, cash credit, overdraft and discounting of bills, etc.
1)Providing Loans : A bank retains a small number of deposits as a reserve and offers the remaining amount to the borrowers in demand loans, overdraft, cash credit, and short-run loans etc.
Explanation: Credit Cash: When a customer is provided with credit or loan, they are not provided with liquid cash. First, a bank account is opened for the customer and then the money is transferred to the account. This process allows a bank to create money.
2)Accepting deposits:Accepting deposits is the most important function of a commercial bank. The bank borrows money from the public by way of accepting different kinds of deposits. They are repayable on demand. (Recurring Deposits).
Explanation : primary functions that includes accepting deposits from people by providing them a nominal rate of interest on it and offering secured loan for the purpose of consumption and investment by charging high rate of interest on it.