Discuss the function of commercial bank. Functions of Commercial Banks (5 Answers) 2022-10-13

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A commercial bank is a financial institution that provides a range of financial services to individuals, small and medium-sized businesses, and large corporations. The primary function of a commercial bank is to accept deposits from customers and use those deposits to lend money to borrowers. This lending activity is what generates the majority of a commercial bank's profits.

One of the primary ways that a commercial bank generates income is through the interest it charges on loans. When a bank grants a loan to a borrower, it typically charges an interest rate on the loan amount. This interest rate is determined by a variety of factors, including the creditworthiness of the borrower, the current market conditions, and the bank's own risk tolerance. The interest that a commercial bank charges on loans is how it makes money and is a key source of income for the bank.

In addition to lending, commercial banks also offer a range of other financial services to their customers. These services may include the issuance of credit cards, the underwriting of mortgages, the processing of electronic payments, and the provision of investment and wealth management services.

Another important function of commercial banks is to act as a financial intermediary. This means that they act as a go-between for borrowers and lenders, connecting those who have surplus funds to lend with those who need funds to borrow. By acting as an intermediary, commercial banks help to ensure that the flow of credit and capital within an economy is smooth and efficient.

Finally, commercial banks also play a vital role in facilitating the smooth functioning of the economy by providing a safe and secure place for individuals and businesses to store their money. By offering deposit accounts such as checking and savings accounts, commercial banks allow their customers to easily and conveniently access their funds when needed.

In summary, the main function of a commercial bank is to lend money to borrowers and generate income through the interest it charges on loans. However, commercial banks also offer a range of other financial services to their customers and play a crucial role in facilitating the flow of credit and capital within an economy.

Commercial Bank Functions & Examples

discuss the function of commercial bank

RBI provides special facilities including credit to scheduled banks. The interest is charged on the entire amount of the loan and the loan is repaid either on maturity or in installments. While discounting the bill the bank credits the account with the face value of the bill less discounting charge. Conclusion The commercial banks are focused on providing financial services to individuals to supply their financial needs. Functions of the Indian Commercial Banks : Indian commercial banks perform all usual functions of commercial banks. They combine the features of both current account and fixed deposits. Before advancing loans, the banks satisfy themselves about the credits worthness of the borrowers.

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What are the functions of Commercial Banks?

discuss the function of commercial bank

The third round of credit creation will be 90% of second round of 1620. An important point in this regard is that withdrawal of cash by the borrower is determined by the bank on the basis of his stock statement and volume of production activity. Mind, total deposits of a bank is of two types: i Primary deposits initial cash deposits by the public and ii Secondary deposits deposits that arise due to loans given by the banks which are assumed to be redeposited in the bank. As a result of credit creation, money supply in the economy becomes higher. The organization that monitors commercial banks is the Federal Reserve System, which conducts supervisory tasks on the commercial banks. The interest given on this account is equal or equivalent to that of Fixed Deposit Account.

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The Role of Commercial Banks in the Economy

discuss the function of commercial bank

However, there are also difficulties in this process: classmates in the university are younger, it is more difficult to establish contact with them; During the training in the college, theoretical knowledge is forgotten for some basic subjects that are studied in depth at the first courses of the university chemistry, physics, mathematics, history, etc. Creating the Vision Once the board and management are set, a location is selected and the overall vision for the bank is created. When the borrowers repay, the banks make money through the interest earned, and they pay depositors some interest on their deposited money. Banks that do both jobs will go on to be successes. They get passports, travelers tickets, book vehicles, plots for their customers and receive letters on their behalf.

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Commercial Bank: Definition, Function, Credit Creation and Significances

discuss the function of commercial bank

Credit Money Creation by Commercial Banks A10; D10, 10C, 11, 11C : RBI produces money while commercial banks increase the supply of money by creating credit which is also treated as money creation. People deposits big and small savings in various accounts with banks. Purchasing and sales of Securities: Banks undertake purchase and sale of various securities like shares, stocks, bonds, debentures etc. Banks provide safety vaults and lockers to their customers for safe custody of their valuable articles and documents. Mind, all financial institutions are not commercial banks because only those which perform dual functions of i accepting deposits and ii giving loans are termed as commercial banks. The depositor deposits his money with the bank for a fixed period. Commercial Banks and the Big Picture The process of launching a commercial bank foreshadows the overall role that these banks play in the economy.

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What is the function of commercial Banks or Modern banks

discuss the function of commercial bank

People consider it more rational to deposit their savings in a bank because by doing so they, on the one hand, earn interest, and on the other, avoid the danger of theft. Banks have the ability to create credit many times more than their deposits and this ability of multiple credit creation depends upon the cash-reserve ratio of the banks. Periodically, the safe is taken to the bank where the amount of safe is credited to his account. Commercial banking is a group of entities whose economic activity is financial intermediation. It is well known for its diversity in the provision of comprehensive financial services like corporate and investment banking and consumer banking. The specialist knows what is happening at each level: who, what, and why is engaged in a particular case. B Agency Functions: Banks are also agents of their customers.

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What are the Functions of Commercial Banks?

discuss the function of commercial bank

Commercial Bank Function 3. Recurring Deposits and Fixed Deposits are examples of Time Deposits. It is not mandatory that the customers must have sufficient deposit in their accounts. Income Tax and Premium Collection: The bank on behalf of the customers, arrange for the payment of loan installments, interests, insurance premium, taxes, etc. Commercial banks' most important role in an economy is probably lending money to investors for purchase of capital goods that help grow the economy.


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Discuss the Function of Commercial Bank

discuss the function of commercial bank

Through this method, a holder of a bill of exchange can get it discounted by the bank. A higher rate of interests is paid on the fixed deposits. Banks adopt following methods for these: a Issuing Bank Draft: A Bank Draft is a paper through which a bank orders the other bank or any other branch of the same bank to pay the mentioned amount to the person or organisation in whose name the draft has been issued. Banks earn interest on these securities. This gives the common people proper information regarding the economic fields. Such deposits are mainly kept by traders and indusĀ­trialists who are required to make regular deposits and payments through banks.

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Functions of Commercial Banks: Primary Functions and Questions

discuss the function of commercial bank

Interest is charged by the bank on the drawn or utilised portion of credit loan. This account can be opened with a small amount. This is not the end of story. Promotion of Cheque System, ATMs, Internet Banking and Core Banking Services, etc. The card holders have to pay an annual charge for this facility. At the end of the day, a commercial bank needs to provide good service to its customers and good returns to its investors to continue to be successful. Commercial banks are also monitored through the Federal Reserve System.

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Functions of Commercial Banks (5 Answers)

discuss the function of commercial bank

ADVERTISEMENTS: ii Cash Credit: It is a type of loan, which is given to the borrower against his current assets, such as shares, stocks, bonds, etc. Customers can deposit funds and withdraw on short notice for their own use. While commercial banks have traditionally provided services to individuals and businesses, investment banking offers banking services to large companies and institutional investors. Deposits in this account cannot be withdrawn before the maturity period for which they have been contracted. A cheque book is given to the account holder to with draw his money.

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