Commercial Banks Essay

Banks have developed around 200 years ago. The natures of banks have changed as the time has changed. The term bank is related to monetary trans comeions. It is a financial establishment which uses, money deposited by customers for investment, pays it out when required, commits adds at interest exchanges capital etc. however to understand the concept in detail we aim to see some of its definitions. Many economists have tried to give polar meanings of the term bank.Nature of mercenary BanksCommercial banks are an organisation which unremarkably behaves certain financial transactions. It performs the twin task of evaluate deposits from members of public and make advances to needy and worthy people form the society. When banks accept deposits its liabilities increase and it becomes a debtor, but when it makes advances its assets increases and it becomes a creditor. Banking transactions are socially and legally approved. It is answerable in maintaining the deposits of its cir cular holders.While defining the term banks it is taken into account that what type of task is performed by the banks. Some of the famous definitions are habituated belowAccording to Prof. Sayers, A bank is an institution whose debts are wide accepted in settlement of other peoples debts to distributively other. In this definition Sayers has emphasized the transactions from debts which are raised by a financial institution.According to the Indian Banking Company Act 1949, A banking company means any company which transacts the business of banking . Banking means accepting for the purpose of lending of investment of deposits of money from the public, payable on ask or other wise and withdraw able by cheque, write or otherwise. Commercial bank being the financial institution performs motley(a) types of functions. It satisfies the financial needs of the sectors much(prenominal) as agriculture, industry, trade, communication, etc. That means they happen very significant role in a process of economical social needs. Thefunctions performed by banks are changing according to change in time and recently they are becoming customer centric and rig their functions. Generally the functions of commercial banks are divided into two categories viz. primeval functions and the secondary functions. The following chart simplifies the functions of banks.Primary Functions of Commercial BanksCommercial Banks performs various primary functions some of them are given below 1. Accepting Deposits Commercial bank accepts various types of deposits from public especially from its clients. It includes saving account deposits, revenant account deposits, fixed deposits, etc. These deposits are payable after a certain time period. 2. Making Advances The commercial banks provide loans and advances of various forms. It includes an oer draft installing, cash credit, bill discounting, etc.They also give conduct and demand and term loans to all types of clients against proper securi ty. 3. Credit creation It is near significant function of the commercial banks. While sanctioning a loan to a customer, a bank does not provide cash to the borrower alternatively it opens a deposit account from where the borrower can withdraw. In other quarrel while sanctioning a loan a bank automatically creates deposits. This is known as a credit creation from commercial bank. secondary Functions of Commercial BanksAlong with the primary functions each commercial bank has to perform several secondary functions too. It includes many agency functions or widely distributed good functions. The secondary functions of commercial banks can be divided into agency functions and utility functions. A. Agency Functions Various agency functions of commercial banks are* To collect and defecate cheque, dividends and interest warrant.* To make payment of rent, insurance premium, etc.* To deal in foreign exchange transactions.* To purchase and sell securities.* To act as trusty, attorney, newswriter and executor.* To accept tax proceeds and tax returns.B. General Utility Functions The general utility functions of the commercial banks include* To provide safety locker facility to customers.* To provide money transfer facility.* To issue travellers cheque.* To act as referees.* To accept various bills for payment e.g phone bills, gas bills, weewee bills, etc.* To provide merchant banking facility.* To provide various cards such as credit cards, debit cards, Smart cards, etc.