Question

What are the primary and secondary functions of commercial banks

Answer 1

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:

1) Savings deposits – The commercial bank accepts small deposits, from households or persons, in order to encourage savings in the economy.

2) Time deposits – The bank accepts deposits for a fixed time and carries a higher rate of interest as compared to savings deposits.

3) Current deposits – These accounts do not offer any interest. Further, most current accounts offer overdrafts up to a pre-specified limit. The bank, therefore, undertakes the obligation of paying all cheques against deposits subject to the availability of sufficient funds in the account.

The secondary functions of a commercial bank are as follows:

1) Collecting bills, draft, cheques, etc.

2) Paying the insurance premium, rent, loan installments, etc.

3) Working as a representative of a customer for purchasing or redeeming securities, etc. in the stock exchange.

4) Acting as an executor, administrator, or trustee of the estate of a customer

Also, preparing income tax returns, claiming tax refunds, etc.

Answer 2

Functions of commercial banks :-

1) Collection of Deposits - They accept deposits from their clients . The common types of deposits accepted by bank are

• Saving account deposits

• Current account deposits

• Recurring deposits

• Fixed term deposits

2) Lending of Funds - It provide loans and advances out of the money received through deposits . These advances can be made in the form of overdraft cash credit .

3) Cheque Facility - The banks collect the cheques for their customers drawn on other banks . To collect cheques banks have clearing houses .

4) Agency Functions - Bank pay insurance premium on behalf of their clients , Bank also collect divided premium , interest , pension , etc .

5) Allied Services - In addition to above functions bank also provide allied services such as bill payments , locker facilities , etc .