What are the methods adopted by commercial banks to mobilise funds from public?
Answers
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a. Liquid Funds
A bank has kept a volume of amount in liquid funds. The funds have so many responsibilities in banking activities liquid funds has covered following transactions.
Cash in hand
Balance with NRB
Balance with domestic bank
Call money
b. Investment
Bank invests its fund in different banking activities and different fields. Many types of fields are shown in market for investment. But banks invest its funds in profitable and safety activities. Bank invests its fund in the following titles:
Share and debenture
Government securities
Joint-venture
c. Loan and Advances
Banks mobilize its funds or deposits by providing different types of loan and advances to customers, by charging fixed interest. Different types of loan and advances are
To government enterprises
To provide enterprises
Bank manages the different types of loans i.e. providing loan, business loan, and traditional loan to priority area.
d. Fixed Assets
Land and buildings are essential for the establishment of bank. Bank’s funds are used in buying of furniture, vehicle, computer, and other concerned instrument, which are related to banking activities. Bank cannot take direct gain from these assets, but bank should buy it. A bank has a need of fund to purchase fixed assets for the new branches of the bank.
e. Administrative and Miscellaneous Expenses
Bank should manage funds for administrative and other miscellaneous expenses. The administrative expenses are:
Salary of Employee
Allowances
Pension
Advertisement
Stationery
Provident Fund
Rent
Income tax
Donation
Insurance
Tour expenses
Commission
The miscellaneous expenses are
*To distribute the dividend to shareholders
* To bear the loss on sale and purchase of banking assets
* Maintenance expenses
*To pay the interest on borrowed amount
* Reserve fund
The methods adopted by commercial banks for mobilizing funds from public are accepting saving deposits, grating loans, making payments, creating credit facilities and other kinds of funds needs for purpose of development
Explanation:
- Commercial banks organizes deposits for people who wish to save money with the bank. The bank in turn gives them interest on the deposits and mobilizes their savings money through various forms of deposits in the bank.
- The banks provides credit facilities to the people who must repay them back with interest in a certain time period. They help in financing a number of economic activities for the people and the society
- The development of the country is dependent on these banks for providing loans for various industrial projects which helps with economic growth of the country. The banks also provide loans for agricultural project to the farmers for various farming activities
To know more about Commercial banks
What are the differences between commercial bank and non commercial bank
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