Finance

Functions of Commercial Banks

Commercial bank's function can be categorized into two types.

1. Primary or Principal Function
2. Secondary or Ancillary function

1. Primary or Principal Function:

Primary or principal function of commercial banks are three types

A. Acceptance of Deposit

B. Lending

C. Investment

A) Acceptance of Deposit: An important function of commercial banks is to attract deposit from the public. Those people who have cash account and want their safety; they deposit that amount of banks. Commercial banks accept deposits every class and source and take responsibility to repay the deposit in the same currency whenever they are demanded by depositors.

B) Lending: Another function of commercial banks is to make loans and advance out of the deposit receive in various forms. Bank Apply the accumulated public deposits to productive uses by way of loans and advances, overdraft and cash credits against approved securities.
C) Investment: Now a days commercial banks are also involved in Investment. Generally investment means long term and medium term investments.


2. Secondary or Ancillary function:

Secondary or Ancillary functions are two types:

A. Agency Services
1) Collection and Payment of Cheques
2) Standing Instruction
3) Acting as correspondence
4) Collecting of bills- electricity, gas, WASA, telephone etc.
5) Purchase and Sales of stocks/ share-act as a banker to issue

B. Miscellaneous or General Services:
1) Safe Custody- bailee
2) Lockers-trustee
3) Remittance facilities –DD, TT, MT and PO
4) Advisory services
5) Providing Credit reports
6) Opening L/C
7) Demand in ForEx/ Travers Cheque only Authorized Dealer branches
8) Complete service in Foreign Trade
9) Other Services: Debit Card, Credit Card, On-line banking SMS banking
10) Creation of Credit: a multiplier effect, Deposit creates credit and credit creates deposits – derivative deposit.

Beside these activities, commercial bank may perform further tasks, all its activities are guided by its authority for the betterment of the company or for society.

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