Commercial Banks - Definitions, Principal Secondary Functions

Introduction To Banks

Banks get got developed merely about 200 years ago. The natures of banks get got changed equally the fourth dimension has changed. The term banking concern is related to fiscal transactions. It is a fiscal establishment which uses, coin deposited past times customers for investment, pays it out when required, makes loans at involvement exchanges currency etc. yet to empathize the concept inward particular nosotros necessitate to run into some of its definitions. Many economists get got tried to laissez passer dissimilar meanings of the term bank.

Nature of Commercial Banks

Commercial banks are an scheme which usually performs for certain fiscal transactions. It performs the twin chore of accepting deposits from members of world in addition to brand advances to needy in addition to worthy people shape the society. When banks get got deposits its liabilities increment in addition to it becomes a debtor, but when it makes advances its assets increases in addition to it becomes a creditor. Banking transactions are socially in addition to legally approved. It is responsible inward maintaining the deposits of its trouble organisation human relationship holders.

Definitions of Commercial Banks

While defining the term banks it is taken into trouble organisation human relationship that what type of chore is performed past times the banks. Some of the famous definitions are given below:

According to Prof. Sayers, "A banking concern is an establishment whose debts are widely accepted inward short town of other people's debts to each other." In this definition Sayers has emphasized the transactions from debts which are raised past times a fiscal institution.

According to the Indian Banking Company Act 1949, "A banking companionship agency whatsoever companionship which transacts the trouble organisation of banking . Banking agency accepting for the purpose of lending of investment of deposits of coin from the public, payable on demand or other wise in addition to withdraw able past times cheque, draft or otherwise."

Functions of Commercial Banks

Commercial banking concern beingness the fiscal establishment performs various types of functions. It satisfies the fiscal needs of the sectors such equally agriculture, industry, trade, communication, etc. That agency they play real important role inward a procedure of economical social needs. The functions performed past times banks are changing according to alter inward fourth dimension in addition to lately they are becoming client centric in addition to widening their functions. Generally the functions of commercial banks are divided into 2 categories viz. primary functions in addition to the secondary functions. The next nautical chart simplifies the functions of banks.

Primary Functions of Commercial Banks

Commercial Banks performs various primary functions some of them are given below

1. Accepting Deposits : Commercial banking concern accepts various types of deposits from world specially from its clients. It includes saving trouble organisation human relationship deposits, recurring trouble organisation human relationship deposits, fixed deposits, etc. These deposits are payable afterwards a for certain fourth dimension period.
2. Making Advances : The commercial banks supply loans in addition to advances of various forms. It includes an over draft facility, cash credit, nib discounting, etc. They also laissez passer demand in addition to demand in addition to term loans to all types of clients against proper security.
3. Credit creation : It is well-nigh important business office of the commercial banks. While sanctioning a loan to a customer, a banking concern does non supply cash to the borrower Instead it opens a deposit trouble organisation human relationship from where the borrower tin withdraw. In other words spell sanctioning a loan a banking concern automatically creates deposits. This is known equally a credit creation from commercial bank.

Secondary Functions of Commercial Banks

Along amongst the primary functions each commercial banking concern has to perform several secondary functions too. It includes many agency functions or full general utility functions. The secondary functions of commercial banks tin hold upwards divided into agency functions in addition to utility functions.

1. Agency Functions : Various agency functions of commercial banks are
   • To collect in addition to clear cheque, dividends in addition to involvement warrant.
   • To brand payment of rent, insurance premium, etc.
   • To bargain inward unusual central transactions.
   • To buy in addition to sell securities.
   • To human activity equally trusty, attorney, correspondent in addition to executor.
   • To get got revenue enhancement proceeds in addition to revenue enhancement returns.
2. General Utility Functions : The full general utility functions of the commercial banks include
   • To supply security locker facility to customers.
   • To supply coin transfer facility.
   • To effect traveller's cheque.
   • To human activity equally referees.
   • To get got various bills for payment e.g telephone bills, gas bills, H2O bills, etc.
   • To supply merchant banking facility.
   • To supply various cards such equally credit cards, debit cards, Smart cards, etc.