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 company are equally good known equally banking functions. They are the primary functions of a bank.
These primary functions of banks are explained below.
1. Accepting Deposits
The banking company collects deposits from the public. These deposits tin go of dissimilar types, such equally :-
- Saving Deposits
- Fixed Deposits
- Current Deposits
- Recurring Deposits
a. Saving Deposits
This type of deposits encourages saving habit with the public. The charge per unit of measurement of involvement is low. At introduce it is virtually 4% p.a. Withdrawals of deposits are allowed patch of study to certainly restrictions. This concern human relationship is suitable to salary together with wage earners. This concern human relationship tin go opened inwards unmarried lift or inwards articulation names.
b. Fixed Deposits
Lump total amount is deposited at i fourth dimension for a specific period. Higher charge per unit of measurement of involvement is paid, which varies with the flow of deposit. Withdrawals are non allowed earlier the death of the period. Those who conduct hold surplus funds become for fixed deposit.
c. Current Deposits
This type of 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 concern human relationship holders tin larn the practice goodness of overdraft facility.
d. Recurring Deposits
This type of concern human relationship is operated past times salaried persons together with footling traders. Influenza A virus subtype H5N1 certainly total of coin is periodically deposited into the bank. Withdrawals are permitted solely after the death of certainly period. Influenza A virus subtype H5N1 higher charge per unit of measurement of involvement is paid.
2. Granting of Loans together with Advances
The banking company advances loans to the concern community together with other members of the public. The charge per unit of measurement charged is higher than what it pays on deposits. The divergence inwards the involvement rates (lending charge per unit of measurement together with the deposit rate) is its profit.
The types of banking company loans together with advances are :-
- Overdraft
- Cash Credits
- Loans
- Discounting of Bill of Exchange
a. Overdraft
This type of advances are given to electrical flow concern human relationship holders. No separate concern human relationship is maintained. All entries are made inwards the electrical flow account. Influenza A virus subtype H5N1 certainly amount is sanctioned equally overdraft which tin go withdrawn inside a certainly flow of fourth dimension tell 3 months or so. Interest is charged on actual amount withdrawn. An overdraft facility is granted against a collateral security. It is sanctioned to homo of affairs together with firms.
b. Cash Credits
The client is allowed cash credit upto a specific boundary fixed inwards advance. It tin go given to electrical flow concern human relationship holders equally good equally to others who practice non conduct hold an concern human relationship with bank. Separate cash credit 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 together with / or guarantees. The advance is given for a longer flow together with a larger amount of loan is sanctioned than that of overdraft.
c. Loans
It is ordinarily for curt term tell a flow of i twelvemonth or medium term tell a flow of 5 years. Now-a-days, banks practice lend coin for long term. Repayment of coin tin go inwards the cast of installments spread over a flow 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 go slightly lower than what is charged on overdrafts together with cash credits. Loans are ordinarily secured against tangible assets of the company.
d. Discounting of Bill of Exchange
The banking company tin advance coin past times discounting or past times purchasing bills of central both domestic together with unusual bills. The banking company 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 together with the amount is collected.
B. Secondary Functions of Banks ↓
The banking company performs a number of secondary functions, equally good called equally non-banking functions.
These of import secondary functions of banks are explained below.
1. Agency Functions
The banking company acts equally an agent of its customers. The banking company performs a number of way functions which includes :-
- Transfer of Funds
- Collection of Cheques
- Periodic Payments
- Portfolio Management
- Periodic Collections
- Other Agency Functions
a. Transfer of Funds
The banking company transfer funds from i branch to about other or from i house to another.
b. Collection of Cheques
The banking company collects the coin of the cheques through clearing department of its customers. The banking company equally good collects coin of the bills of exchange.
c. Periodic Payments
On standing instructions of the client, the banking company makes periodic payments inwards honour of electricity bills, rent, etc.
d. Portfolio Management
The banks equally good undertakes to buy together with sell the shares together with debentures on behalf of the clients together with accordingly debits or credits the account. This facility is called portfolio management.
e. Periodic Collections
The banking company collects salary, pension, dividend together with such other periodic collections on behalf of the client.
f. Other Agency Functions
They deed equally trustees, executors, advisers together with administrators on behalf of its clients. They deed equally representatives of clients to bargain with other banks together with institutions.
2. General Utility Functions
The banking company equally good performs full general utility functions, such equally :-
- 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 together with Letter of Credits
Banks result drafts for transferring coin from i house to another. It equally good issues missive of the alphabet of credit, specially inwards instance of, import trade. It equally good issues travellers' cheques.
b. Locker Facility
The banking company provides a locker facility for the prophylactic custody of valuable documents, aureate ornaments together with other valuables.
c. Underwriting of Shares
The banking company underwrites shares together with 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 company may equally good undertake to railroad train projection reports on behalf of its clients.
f. Social Welfare Programmes
It undertakes social welfare programmes, such equally adult literacy programmes, populace welfare campaigns, etc.
g. Other Utility Functions
It acts equally a referee to fiscal standing of customers. It collects creditworthiness data virtually clients of its customers. It provides marketplace position data to its customers, etc. It provides travellers' check facility.
