What are the Functions of Banks? Diagram ↓
The functions of banks are briefly highlighted inward next Diagram or Chart.
These functions of banks are explained inward next paragraphs of this article.
A. Primary Functions of Banks ↓
The primary functions of a depository fiscal establishment are too known every bit banking functions. They are the primary functions of a bank.
These primary functions of banks are explained below.
1. Accepting Deposits
The depository fiscal establishment collects deposits from the public. These deposits tin hold out of dissimilar types, such every bit :-
- Saving Deposits
- Fixed Deposits
- Current Deposits
- Recurring Deposits
a. Saving Deposits
This type of deposits encourages saving habit amid the public. The charge per unit of measurement of involvement is low. At introduce it is nearly 4% p.a. Withdrawals of deposits are allowed discipline to for sure restrictions. This concern human relationship is suitable to salary in addition to wage earners. This concern human relationship tin hold out opened inward unmarried lift or inward 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 alongside the menstruum of deposit. Withdrawals are non allowed earlier the go of the period. Those who get got surplus funds larn 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, in that location are service charges. The concern human relationship holders tin larn the exercise goodness of overdraft facility.
d. Recurring Deposits
This type of concern human relationship is operated past times salaried persons in addition to niggling traders. H5N1 for sure amount of coin is periodically deposited into the bank. Withdrawals are permitted solely after the go of for sure period. H5N1 higher charge per unit of measurement of involvement is paid.
2. Granting of Loans in addition to Advances
The depository fiscal establishment advances loans to the 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 deviation inward the involvement rates (lending charge per unit of measurement in addition to the deposit rate) is its profit.
The types of depository fiscal establishment 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 concern human relationship holders. No separate concern human relationship is maintained. All entries are made inward the electrical flow account. H5N1 for sure amount is sanctioned every bit overdraft which tin hold out withdrawn inside a for sure menstruum of fourth dimension state 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 inward advance. It tin hold out given to electrical flow concern human relationship holders every bit good every bit to others who exercise non get got an concern human relationship alongside bank. Separate cash credit concern human relationship is maintained. Interest is charged on the amount withdrawn inward 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 menstruum in addition to a larger amount of loan is sanctioned than that of overdraft.
c. Loans
It is usually for curt term state a menstruum of 1 twelvemonth or medium term state a menstruum of v years. Now-a-days, banks exercise lend coin for long term. Repayment of coin tin hold out inward the shape of installments spread over a menstruum of fourth dimension or inward a lumpsum amount. Interest is charged on the actual amount sanctioned, whether withdrawn or not. The charge per unit of measurement of involvement may hold out slightly lower than what is charged on overdrafts in addition to cash credits. Loans are usually secured against tangible assets of the company.
d. Discounting of Bill of Exchange
The depository fiscal establishment tin advance coin past times discounting or past times purchasing bills of central both domestic in addition to unusual bills. The depository fiscal establishment pays the mouth amount to the drawer or the beneficiary of the mouth past times deducting green discount charges. On maturity, the mouth is presented to the drawee or acceptor of the mouth in addition to the amount is collected.
B. Secondary Functions of Banks ↓
The depository fiscal establishment performs a number of secondary functions, too called every bit non-banking functions.
These of import secondary functions of banks are explained below.
1. Agency Functions
The depository fiscal establishment acts every bit an agent of its customers. The depository fiscal establishment 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 depository fiscal establishment transfer funds from 1 branch to to a greater extent than or less other or from 1 house to another.
b. Collection of Cheques
The depository fiscal establishment collects the coin of the cheques through clearing department of its customers. The depository fiscal establishment too collects coin of the bills of exchange.
c. Periodic Payments
On standing instructions of the client, the depository fiscal establishment makes periodic payments inward honour of electricity bills, rent, etc.
d. Portfolio Management
The banks too 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 depository fiscal establishment 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 alongside other banks in addition to institutions.
2. General Utility Functions
The depository fiscal establishment too performs full general utility functions, such every bit :-
- Issue of Drafts, Letter of Credits, etc.
- Locker Facility
- Underwriting of Shares
- Dealing inward Foreign Exchange
- Project Reports
- Social Welfare Programmes
- Other Utility Functions
a. Issue of Drafts in addition to Letter of Credits
Banks termination drafts for transferring coin from 1 house to another. It too issues alphabetic quality of credit, peculiarly inward example of, import trade. It too issues travellers' cheques.
b. Locker Facility
The depository fiscal establishment provides a locker facility for the rubber custody of valuable documents, gilded ornaments in addition to other valuables.
c. Underwriting of Shares
The depository fiscal establishment underwrites shares in addition to debentures through its merchant banking division.
d. Dealing inward Foreign Exchange
The commercial banks are allowed past times RBI to bargain inward unusual exchange.
e. Project Reports
The depository fiscal establishment may too undertake to educate projection reports on behalf of its clients.
f. Social Welfare Programmes
It undertakes social welfare programmes, such every bit adult literacy programmes, world welfare campaigns, etc.
g. Other Utility Functions
It acts every bit a referee to fiscal standing of customers. It collects creditworthiness data nearly clients of its customers. It provides marketplace data to its customers, etc. It provides travellers' depository fiscal establishment check facility.
