Wednesday, December 8, 2010

function of commercial bank

1. Receiving Deposits:
This is the main function of commercial banks to collect savings of individuals and firms. They offer different types of deposits for the facility of the customers.

i. Current Account or Demand Deposits:
Any amount can be withdrawn from this account any time without any notice. No interest is allowed on this type of account.
ii. Saving Account:
This type of deposit account which is usually held by the middle class group. The
saving account carries lower rate of interest.
iii. Fixed Deposit:
Amount cannot be withdrawn before the fixed future date in this type of deposit. High interest is allowed in fixed deposit which is different according to period.

2. Advancing Loans:
This is the important function of the commercial bank. Credit is given to the people in different ways.
(a.): Making Loans:
There are three types of loans given to borrowers.
i. Short Term Loans:
These loans are advanced for the period of six months to one year. High Interest rate
Is charged on this type of accounts.
ii. Medium Term Loans:
Loans from one to five years are called medium term loans.
iii: Long Term Loans:
Loans which are advanced for the period, more than ten years are long term loans.
(b.): Bank Overdraft:
Banks allows their trustful customers to draw more than the deposit they have in the
Bank. Bank charges interest on overdraft.
(c.): Cash Credit:
Bank also gives credit against immovable property and interest is charged by the
(d.): Discounting of Bills:
This is income source of bank to discount bills of exchange. They charge nominal
Interest and discount only reputed and clear bills of exchange

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