Banks create instruments of credit, a suitable substitute for money. It takes money from one person and lends to another. To deal in foreign exchange transactions To purchase and sell securities To act as trustee, attorney, correspondent and executor To accept tax proceeds and tax returns.
Generation of savings Channelization of savings in productive uses Investment in New Enterprises The commercial banks provide capital to the entrepreneurs to take risk and invest in new enterprises.
As public has full faith in the creditworthiness of banks, public do not hesitate in buying the securities underwritten by banks. The bank purchases and sells the securities on behalf of his customers. It is a profit making concern. Banks also act as trustees and executors of the property of their customers on their advice.
Thus it results more investment in the country and reduces relying on foreign capital. It is a financial establishment which uses, money deposited by customers for investment, pays it out when required, makes loans at interest exchanges currency etc.
To act as trusty, attorney, correspondent and executor. Many economists have tried to give different meanings of the term bank. Commercial Banks are those institutes which deal with the money and engaged in performing the routine activities of banking business. It refers to a facility in which a customer is allowed to overdraw his current account upto an agreed limit.
Banks provide locker facilities to their customers. Various agency functions of commercial banks are To collect and clear cheque, dividends and interest warrant. In short, a modern bank performs several functions which are of great significance to the economic growth of a country.
The depositors are given cheque facility to withdraw money from their account. Banks collect and publish statistics relating to trade, commerce and industry. Some of the famous definitions are given below: Commercial banks also provide certain services of general utility to the society: These deposits combine features of both current account deposits and fixed deposits: The natures of banks have changed as the time has changed.
Commercial banks receive deposits from the public and use these deposits to give loans. First, the lowering of interest rate makes the investment more profitable and increases in the interest rate discourages investment.
They purchase securities and allow money to play an active role in the economy. The borrower may withdraw any amount within his credit limit and interest is charged on the amount actually withdrawn.
The commercial banks thus help in increasing the productive capacity of the economy.
Banks also remit money from one place to the other through bank drafts. It refers to a facility in which holder of a bill of exchange can get the bill discounted with bank before the maturity.
For these services, banks charge some commission from their clients. The commercial banks either of their own or through their subsidiaries perform several financial functions.
The retailers get this Receipt from the bank on payment of the value of the consignment to it. The entire sum of demand loan is credited to the account and interest is payable on the entire sum. So, after keeping certain cash reserves, the balance is given to needy borrowers and interest is charged from them, which is the main source of income for these banks.
Commercial banks also perform certain agency functions for their customers.
Economic Significance The economic significance of commercial banks is as given below; Capital Formation Capital formation is the basic requirement of country.Strange question, but on the basis that the primary functions of a bank is to borrow deposits and lend money at interest,the main secondary function would be that it acts as part of the nation’s payments system.
The commercial banks either of their own or through their subsidiaries perform several financial functions. These include mutual funds, Merchant banking, Housing Finance, Factory Leasing factoring, Stock Investment etc.
Secondary functions of Commercial Banks Besides the primary functions of Accepting deposits and Lending money, banks perform a number of other functions which are called secondary functions. Those functions are.
The secondary functions of commercial banks can be divided into agency functions and utility functions. Agency functions include: To collect and. The first two functions of commercial banks are known as primary functions of commercial banks and last two known as secondary functions of commercial banks.
Accept Deposits The most important function of commercial banks is that it collects the surplus money or saving of the people on accepting deposits.
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