Explain the functions of commercial bank.

Commercial banks play a crucial role in the economic development of a country by performing various functions. These functions can be broadly categorized into primary (basic) functions and secondary (agency) functions.

Primary Functions

1. Accepting Deposits Commercial banks accept deposits from the public and provide a safe place for saving money. Deposits are of three types:

   • Savings Deposits (withdrawable on demand, low interest)
   • Current Deposits (no interest, used for business transactions)
   • Fixed Deposits (for a fixed period, higher interest)

   These deposits form the main source of funds for banks to lend.

2. Advancing Loans Banks provide financial assistance to individuals, businesses, and industries in the form of loans and advances. This helps in the development of trade, commerce, and industry. Loans are given against:

   • Securities (collateral like property, shares)
   • Personal guarantee
   • Overdraft facilities

   Banks charge interest on loans, which is their primary source of income.

Secondary Functions

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

   • Collecting and paying cheques, bills, and dividends.
   • Issuing and encashing drafts, traveler’s cheques, and letters of credit.
   • Acting as trustees, executors, and attorneys.
   • Providing safe deposit vaults for valuables.

4. General Utility Functions Banks provide utility services like:

   • Remittance of funds (transferring money from one place to another).
   • Discounting bills of exchange.
   • Offering foreign exchange services.
   • Providing locker facilities for safekeeping of documents and valuables.

5. Other Functions

   • Credit Creation: Banks create credit by lending a portion of deposits, expanding the money supply.
   • Investment Services: Banks invest in government securities, shares, and bonds.
   • Electronic Banking: Offering internet banking, mobile banking, and ATM services for convenience.

Commercial banks thus facilitate economic growth by mobilizing savings, providing credit, and offering financial services efficiently.