Functions of commercial Banks

  • Primary Functions
  • Secondary Functions

 Primary Functions of Commercial Banks 

Commercial Banks performs various primary functions some of them are given below

Accepting Deposits: Commercial bank accepts various types of deposits from public especially from its clients. It includes saving account deposits, current account deposits, recurring account deposits, fixed deposits, etc.

Giving loans: The commercial banks provide loans and advances of various forms. It includes an over draft facility, cash credit, bill discounting, etc. They also give demand and term loans to all types of clients against proper security.

 Secondary Functions of Commercial Banks 

Along with the primary functions each commercial bank has to perform several secondary functions too. It includes many agency functions or general utility functions. The secondary functions of commercial banks can be divided into agency functions and utility functions.

Agency Functions:

  • To collect and clear cheque, dividends and interest warrant.
  • To make payment of rent, insurance premium, etc.
  • To deal in foreign exchange transactions.
  • To purchase and sell securities.
  • To act as trusty, attorney, correspondent and executor.
  • To accept tax proceeds and tax returns.

 General Utility Function: 

  • To provide safety locker facility to customers.
  • To provide money transfer facility.
  • To issue traveller’s cheque.
  • To act as referees.
  • To accept various bills for payment e.g. phone bills, gas bills, water bills, etc.
  • To provide merchant banking facility.
  • To provide various cards such as credit cards, debit cards, Smart cards, etc.

 Relationship Between a Customer and a Banker 

Functions Banker Customers
Deposit Debtor Creditor
Loans Creditor Debtor
Safe Custody Bailee Bailor
Safe custody Trustee Beneficiary
Locker Lessor/ Licensor Lessee/ Licensee
Collection of cheque Agent Principal
Accepting utility Bills Agent Principal
Pledge Pawnee/ Pledgee Pawner/ Pledger
Mortgage Mortgagee Mortgagor
Assignment Assignee Assignor
Hypothecation Hypothecatee Hypothecator
Letter Of Credit Guarantor Guarantee