Functions of Banks

                               Bank

                     The bank is a financial institution that keeping, lending and exchanging of money.It collects surplus of money of the people in the form of deposits and gives it to others in the form of loans.It is called lifeblood of money. 

According to W. Hock, "The bank is a financial institution which creates money with money."

From the above of the discussion, we can determine the following features of the bank:

ü   Bank is a financial institution.

ü  It is the trader of money and loan.

ü  It collects money from people in the form of deposits.

ü  It gives money in the form of the loan.

ü  The source of profit of bank is interest.

Functions of bank

There are two types of function of the bank.These are-

1) Primary Functions

2) Secondary Functions

Primary Functions of Bank

The primary function of a bank also known as banking functions.They are the main function of the bank.

These primary functions of banks are described below-

1) Accepting Deposits: The bank accepts deposits from the public whoever has a surplus of money.These deposits can be different types.Such as-

i) Current Deposits

ii) Fixed Deposits

iii) Savings Deposits

iv) Recurring Deposits

2) Lending Money: The Bank advances loans to the business community and other members of the public.The rate charged is higher than what is it pays on deposits.The difference in the interest rate is its profit.

The types of loans and advances are-

i) Loans

ii) Cash Credit

iii) Overdraft

iv) Discounting of bills.

Secondary Functions of Commercial Banks

Secondary functions include agency services and general utility services which are described below :

The bank performs a number of secondary function, also called as non-banking functions.

These important secondary functions are described below-

1)Agency Services: Modern commercial banks render a number of services to its customers.

The following are the important agency services rendered by a commercial bank:

Ø  It collects the cheques, bills on behalf of its customers

Ø It collects income like dividend on shares, interest on securities on behalf of its customers

Ø It undertakes to purchase or sell securities for its clients

Ø It acts as an administrator trustee, executor.

Ø It accepts a bill of exchange

Ø It acts as a referee by supplying information.

2.General utility service: General utility services are rendered not only to its customers but also to the general people following are the important general utility services rendered by a commercial bank:

Ø It issues the letter of credit, traveler's cheques, gift cheques etc.

Ø It undertakes the shares and debentures

Ø It provides tax consultancy services.

Ø It deals with foreign exchange transactions by helping importers and exporters.

Ø Bank makes arrangements for transports, insurance, and warehousing of goods.

Ø It undertakes the safe custody of valuable goods.