Explain the functions of commercial bank.

Commercial banks play a pivotal role in the economic development of a country by performing various functions that facilitate economic transactions and financial stability. Their functions can be broadly categorized into primary functions, secondary functions, and modern functions.

Primary Functions

1. Accepting Deposits Commercial banks accept deposits from the public in various forms such as:

   • Current Deposits (Demand Deposits): No interest is paid, and deposits can be withdrawn anytime.
   • Savings Deposits (Time Deposits): Interest is paid, and withdrawals are subject to restrictions.
   • Fixed Deposits (Term Deposits): Higher interest rates are offered for a fixed period.

2. Advancing Loans Banks provide financial assistance to individuals, businesses, and industries in the form of loans and advances. These include:

   • Short-term loans (e.g., overdraft facilities, discounting bills of exchange).
   • Medium-term loans (e.g., loans against hypothecation or mortgage).
   • Long-term loans (e.g., industrial loans, housing loans).

Secondary Functions

3. Agency Functions Banks act as agents for their customers by performing services such as:

   • Collecting cheques, bills, and dividends.
   • Paying taxes, insurance premiums, and utility bills.
   • Issuing bank drafts, letters of credit, and traveler’s cheques.

4. Utility Functions Banks provide additional services like:

   • Safe deposit vaults for valuables.
   • Foreign exchange services (buying/selling foreign currencies).
   • Remittance services (transferring money domestically and internationally).
   • Investment advisory services.

Modern Functions

5. Electronic Banking With technological advancements, banks now offer:

   • Online banking and mobile banking services.
   • ATM services, debit/credit cards, and digital wallets.

6. Financial Services Modern banks engage in:

   • Mutual funds, insurance, and forex trading.
   • Treasury operations (investing in government securities).
   • Merchant banking and underwriting services.

These functions ensure that commercial banks not only facilitate economic transactions but also contribute to financial inclusion, economic growth, and stability.