Discuss the function of commercial bank. Top 6 Functions of Commercial Banks 2022-10-05
Discuss the function of commercial bank Rating:
A commercial bank is a financial institution that provides a range of services to its customers, including accepting deposits, making loans, and facilitating the transfer of funds. The main function of a commercial bank is to act as a mediator between those who have excess money to lend (such as individuals or companies) and those who need to borrow money (such as individuals or businesses).
One of the primary functions of a commercial bank is to accept deposits from its customers. These deposits can take the form of checking or savings accounts, certificates of deposit (CDs), or money market accounts. By accepting deposits, a commercial bank is able to use these funds to make loans to other customers, which is a key source of the bank's income.
In addition to accepting deposits, commercial banks also make loans to their customers. These loans can be in the form of mortgages, auto loans, personal loans, or business loans. When a customer takes out a loan, they agree to pay back the principal amount plus interest over a predetermined period of time. The interest rate that a commercial bank charges on its loans is determined by a variety of factors, including the bank's cost of funds, the risk involved in lending to a particular borrower, and the overall level of interest rates in the economy.
Another important function of a commercial bank is to facilitate the transfer of funds between individuals and businesses. This can be done through the use of checks, electronic fund transfers (EFTs), and other payment systems. For example, if a customer writes a check to pay a bill, the commercial bank will transfer the funds from the customer's account to the payee's account. Similarly, if a business wants to send money to a supplier, it can use an EFT to transfer the funds electronically.
In addition to these core functions, commercial banks also offer a variety of other services to their customers. These can include providing access to ATMs, debit and credit cards, online and mobile banking, and investment and wealth management services.
Overall, the main function of a commercial bank is to act as a financial intermediary, connecting those with excess funds to lend with those who need to borrow money. Through its core functions of accepting deposits, making loans, and facilitating the transfer of funds, a commercial bank plays a vital role in the economy by helping to allocate capital to where it is needed and supporting the flow of financial transactions.
The Role of Commercial Banks in the Economy
Cheque facility is provided to the depositors. The rate of interest on this account is higher than on other accounts. The commercial bank definition describes a financial institution tasked with accepting customer deposits for safekeeping purposes, granting loans to individuals and businesses at an interest rate, and providing basic financial products and services like certificates of deposits and savings accounts. The loans they grant their borrowers are a fraction of the money that customers deposit in the bank. This receipt contains information regarding the rate of interest, the maturity period and the deposited amount.
Periodically, the safe is taken to the bank where the amount of safe is credited to his account. Home Safe Account: Home safe account is another scheme aiming at promoting saving habits among the people. In medical colleges, students work out to automatism the skills of introducing medicines into a vein. A commercial bank is almost certainly the type of bank you think of when you think about a bank because it is the type of bank that most people regularly use. In fact, it is the most developed credit instrument in the money market. In this system banks grant loans on the basis of collaterals such as commercial goods, bonds or accepted securities.
This gives the common people proper information regarding the economic fields. This amount is not allowed to be withdrawn before maturity. Products and services offered by commercial banks 1. But there are certain restrictions imposed on the depositors of this account. They pay subscriptions, rents, insurance premium, etc. Through this method, a holder of a bill of exchange can get it discounted by the bank. A borrower is required to open a current account and bank allows the borrower to withdraw upto the full amount of the loan.
Commercial banks are also geared towards generating profits by providing financial services to individuals and businesses. ADVERTISEMENTS: iv Discounting of Bills of Exchange: This is another popular type of lending by the modern banks. In other words, a commercial bank receives capital from individuals or companies seeking to save. A commercial bank takes deposits from the public, directing those resources to the granting of loans, with the objective of making a profit. Mainly there are two functions, primary and secondary. Savings account is most suitable for individual households.
Commercial Banks Examples: What Are They and Their Role
ADVERTISEMENTS: The following points highlight the top six functions of commercial banks. Commercial banks perform a variety of functions, which are as follows: Receiving Deposits: The most important function of a commercial bank is to accept deposits from the public. There is no restriction on the number and amount of withdrawals from a current account. Collection and Making Payments for Credit Instruments: The bank collects the payment of the bills of exchange, promissory notes, cheques, etc. Letters of credit are very useful in foreign trade.
Besides this, banks also issue travellers cheque. The interest at which the borrowers repay the short and medium-term loans is the means under which banks make money. In medical universities this is taught more theoretically. Banks have the ability to create credit many times more than their deposits and this ability of multiple credit creation depends upon the cash-reserve ratio of the banks. This account helps in the capital formation.
In this kind of loans banks charge interest only that much amount which the customer owes and not on the whole loan granted. Here, the interest is payable on the entire sum of demand loans granted. A part of money deposited with the bank has to be kept with the Reserve Bank of India and the remaining is retained by banks as liquid money. Cheque is the most developed credit instrument in the money market. ADVERTISEMENTS: Usually no interest is paid on them, because the bank cannot utilise these short-term deposits.
What is the function of commercial Banks or Modern banks
The bank will deduct the commission and pay to B the present value of the bill. The maturity period for such loans is more than one year. The commercial banks lend out money to traders and businessmen. In such facility, the bank pays the amount of bill presented by the customer after deducting the usual bank discount. Under this scheme, a safe is supplied to the depositor to keep it at home and to put his small savings in it. The interest is charged on the entire amount of the loan and the loan is repaid either on maturity or in installments. This is how it earns profits and carries on its business.