What are the Functions of Banks? Diagram ↓
The functions of banks are briefly highlighted inwards next Diagram or Chart.
These functions of banks are explained inwards next paragraphs of this article.
A. Primary Functions of Banks ↓
The primary functions of a banking concern are every bit good known every bit banking functions. They are the original functions of a bank.
These primary functions of banks are explained below.
1. Accepting Deposits
The banking concern collects deposits from the public. These deposits tin last of dissimilar types, such every bit :-
- Saving Deposits
- Fixed Deposits
- Current Deposits
- Recurring Deposits
a. Saving Deposits
This type of deposits encourages saving habit alongside the public. The charge per unit of measurement of involvement is low. At acquaint it is close 4% p.a. Withdrawals of deposits are allowed dependent land to sure enough restrictions. This employment concern human relationship is suitable to salary in addition to wage earners. This employment concern human relationship tin last opened inwards unmarried elevate or inwards articulation names.
b. Fixed Deposits
Lump amount amount is deposited at 1 fourth dimension for a specific period. Higher charge per unit of measurement of involvement is paid, which varies with the menses of deposit. Withdrawals are non allowed earlier the death of the period. Those who guide hold surplus funds larn for fixed deposit.
c. Current Deposits
This type of employment concern human relationship is operated past times businessmen. Withdrawals are freely allowed. No involvement is paid. In fact, at that spot are service charges. The employment concern human relationship holders tin larn the exercise goodness of overdraft facility.
d. Recurring Deposits
This type of employment concern human relationship is operated past times salaried persons in addition to piffling traders. Influenza A virus subtype H5N1 sure enough amount of coin is periodically deposited into the bank. Withdrawals are permitted exclusively after the death of sure enough period. Influenza A virus subtype H5N1 higher charge per unit of measurement of involvement is paid.
2. Granting of Loans in addition to Advances
The banking concern advances loans to the employment concern community in addition to other members of the public. The charge per unit of measurement charged is higher than what it pays on deposits. The departure inwards the involvement rates (lending charge per unit of measurement in addition to the deposit rate) is its profit.
The types of banking concern loans in addition to advances are :-
- Overdraft
- Cash Credits
- Loans
- Discounting of Bill of Exchange
a. Overdraft
This type of advances are given to electrical flow employment concern human relationship holders. No separate employment concern human relationship is maintained. All entries are made inwards the electrical flow account. Influenza A virus subtype H5N1 sure enough amount is sanctioned every bit overdraft which tin last withdrawn inside a sure enough menses of fourth dimension nation 3 months or so. Interest is charged on actual amount withdrawn. An overdraft facility is granted against a collateral security. It is sanctioned to human of affairs in addition to firms.
b. Cash Credits
The client is allowed cash credit upto a specific boundary fixed inwards advance. It tin last given to electrical flow employment concern human relationship holders every bit good every bit to others who exercise non guide hold an employment concern human relationship with bank. Separate cash credit employment concern human relationship is maintained. Interest is charged on the amount withdrawn inwards excess of limit. The cash credit is given against the safety of tangible assets in addition to / or guarantees. The advance is given for a longer menses in addition to a larger amount of loan is sanctioned than that of overdraft.
c. Loans
It is commonly for brusque term nation a menses of 1 twelvemonth or medium term nation a menses of v years. Now-a-days, banks exercise lend coin for long term. Repayment of coin tin last inwards the shape of installments spread over a menses of fourth dimension or inwards a lumpsum amount. Interest is charged on the actual amount sanctioned, whether withdrawn or not. The charge per unit of measurement of involvement may last slightly lower than what is charged on overdrafts in addition to cash credits. Loans are commonly secured against tangible assets of the company.
d. Discounting of Bill of Exchange
The banking concern tin advance coin past times discounting or past times purchasing bills of telephone substitution both domestic in addition to unusual bills. The banking concern pays the neb amount to the drawer or the beneficiary of the neb past times deducting park discount charges. On maturity, the neb is presented to the drawee or acceptor of the neb in addition to the amount is collected.
B. Secondary Functions of Banks ↓
The banking concern performs a number of secondary functions, every bit good called every bit non-banking functions.
These of import secondary functions of banks are explained below.
1. Agency Functions
The banking concern acts every bit an agent of its customers. The banking concern performs a number of means functions which includes :-
- Transfer of Funds
- Collection of Cheques
- Periodic Payments
- Portfolio Management
- Periodic Collections
- Other Agency Functions
a. Transfer of Funds
The banking concern transfer funds from 1 branch to closed to other or from 1 house to another.
b. Collection of Cheques
The banking concern collects the coin of the cheques through clearing department of its customers. The banking concern every bit good collects coin of the bills of exchange.
c. Periodic Payments
On standing instructions of the client, the banking concern makes periodic payments inwards observe of electricity bills, rent, etc.
d. Portfolio Management
The banks every bit good undertakes to buy in addition to sell the shares in addition to debentures on behalf of the clients in addition to accordingly debits or credits the account. This facility is called portfolio management.
e. Periodic Collections
The banking concern collects salary, pension, dividend in addition to such other periodic collections on behalf of the client.
f. Other Agency Functions
They deed every bit trustees, executors, advisers in addition to administrators on behalf of its clients. They deed every bit representatives of clients to bargain with other banks in addition to institutions.
2. General Utility Functions
The banking concern every bit good performs full general utility functions, such every bit :-
- Issue of Drafts, Letter of Credits, etc.
- Locker Facility
- Underwriting of Shares
- Dealing inwards Foreign Exchange
- Project Reports
- Social Welfare Programmes
- Other Utility Functions
a. Issue of Drafts in addition to Letter of Credits
Banks resultant drafts for transferring coin from 1 house to another. It every bit good issues alphabetic lineament of credit, particularly inwards example of, import trade. It every bit good issues travellers' cheques.
b. Locker Facility
The banking concern provides a locker facility for the rubber custody of valuable documents, golden ornaments in addition to other valuables.
c. Underwriting of Shares
The banking concern underwrites shares in addition to debentures through its merchant banking division.
d. Dealing inwards Foreign Exchange
The commercial banks are allowed past times RBI to bargain inwards unusual exchange.
e. Project Reports
The banking concern may every bit good undertake to railroad train projection reports on behalf of its clients.
f. Social Welfare Programmes
It undertakes social welfare programmes, such every bit adult literacy programmes, populace welfare campaigns, etc.
g. Other Utility Functions
It acts every bit a referee to fiscal standing of customers. It collects creditworthiness data close clients of its customers. It provides marketplace data to its customers, etc. It provides travellers' banking concern check facility.
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