9.4 FUNCTIONS OF SCHEDULED COMMERCIAL BANKS

FUNCTIONS OF SCHEDULED COMMERCIAL BANKS

The primary business of any commercial bank is to accept deposits and give short term loans. Apart from this, a scheduled commercial bank performs a number of other useful functions to the society such as:
a. Collection of Deposits
b. Advancing Loans
c. Utility Services
d. Agency Services

Collection of Deposits: Most important function of commercial bank. These deposits can be of various forms:

• Fixed Deposits: These are the deposits for a fixed period to earn interest by the customers of a bank. Such deposits have high interest rate than the other types of deposits. In case the customer withdraws money before the end of stipulated term of deposit, s/he has to pay penalty.

• Saving Bank Deposit: These are deposits made by persons out of their expenditure. These banks function with the intention to culminate saving habits among people, especially those who belong to low income groups or those who are salaried.

• The money these people deposit in the banks are invested in securities, bonds etc. These days, many commercial banks perform the dual functions of savings bank. The postal department is also in a way a saving bank.

• Current Account Deposits: Also known as demand deposit. The bank opens this account on an initial deposit of Rs. 100 but certain conditions have to be met to prove credit worthiness of the customer. There are no limitations on the amount of deposit and number of withdrawals. Generally, no interest is paid on current deposits.

Advancing loans: Commercial banks also play an important role in the economy by providing loans to industries, individuals, businesses, agriculture etc. They also provide loans for export and import trade.

Utility services: Commercial banks perform various services useful to the customer. Some of them have been listed below:

• Locker facility: Banks provide locker facility to customers to keep their valuables, such as securities, jewellery, documents etc.

• Draft facilities: Banks issue drafts to customers and enable them to transfer funds from place to place.

• Letters of credit: Banks issue letters of credit to their customers. These are useful to traders to buy goods from foreign countries on credit.

Agency Services: Commercial banks also perform several activities on behalf of their customers.

• Collections: Commercial banks take up collection of promissory notes, cheques, bills, dividends, subscriptions, rents, etc., on behalf of their customers as agents. The bank charges ‘service charges’ for rendering these services to its customers.

• Payments: Banks also accept the responsibility to pay insurance premium, rents, taxes, electricity bills, etc. periodically on behalf of its customers for whom they charge commission.

• Sale and purchase of securities: Customers sometimes approach the bankers for sale and purchase of their securities. For these services the banks charge commission.