Functions of Commercial Banks

Supriyo Sir
Functions of Commercial Banks

Discuss the functions of Commercial Banks.

The functions of Commercial Banks are –

1. Accepting deposits:

One of the functions of a commercial bank is to collect cash deposits from the public and from individual and commercial establishments. According to nature, deposits are of three types, namely – (i) Current deposit, (ii) Savings deposit, (iii) Term or Fixed deposit.

2. Lending money:

Bank authorities know from past experience that not all depositors will withdraw money together. So, keeping some money in cash, they give the rest as loans.

3. Providing general services:

Commercial banks provide various services to the people by expanding their branches in rural and semi-urban areas apart from cities. For example – It helps in economic development by providing loans to small and marginal farmers, small traders, artisans, self-employment schemes.

4. Acting as agents:

Commercial banks act as agents for depositors to encash cheques, promissory notes or commercial bills, commercial banks buy shares, debentures as representatives of customers. Collects dividends, and interest on shares or debentures depositors have bought. Collects pensions of retired depositors, insurance premiums, income tax, etc.

5. Credit/ Deposit creation:

Commercial banks create money by simultaneously multiplying credit or deposit creation. Commercial banks have no right to print cash but credit creation based on deposits or loans is an important function of the commercial banking system.

6. Other functions:

Commercial banks also play an important role in international trade outside the country. Commercial banks manage foreign currency purchases and sales, foreign bills, insurance papers, bill of lading etc., and provide loans by depositing all these documents.

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