Functions Of Banks - Of Import Banking Functions As Well As Services

What are the Functions of Banks? Diagram ↓

The functions of banks are briefly highlighted inwards next Diagram or Chart.

These functions of banks are explained inwards next paragraphs of this article.

A. Primary Functions of Banks ↓

The primary functions of a depository fiscal establishment are besides known equally 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 unlike types, such equally :-

1. Saving Deposits
2. Fixed Deposits
3. Current Deposits
4. Recurring Deposits

a. Saving Deposits

This type of deposits encourages saving habit amidst the public. The charge per unit of measurement of involvement is low. At acquaint it is close 4% p.a. Withdrawals of deposits are allowed discipline to surely restrictions. This trouble organization human relationship is suitable to salary together with wage earners. This trouble organization human relationship tin hold out opened inwards unmarried get upward or inwards 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 amongst the menses of deposit. Withdrawals are non allowed earlier the conk of the period. Those who lead hold surplus funds larn for fixed deposit.

c. Current Deposits

This type of trouble organization human relationship is operated past times businessmen. Withdrawals are freely allowed. No involvement is paid. In fact, at that spot are service charges. The trouble organization human relationship holders tin larn the practise goodness of overdraft facility.

d. Recurring Deposits

This type of trouble organization human relationship is operated past times salaried persons together with short traders. Influenza A virus subtype H5N1 surely amount of coin is periodically deposited into the bank. Withdrawals are permitted solely after the conk of surely period. Influenza A virus subtype H5N1 higher charge per unit of measurement of involvement is paid.

2. Granting of Loans together with Advances

The depository fiscal establishment advances loans to the trouble organization community together with other members of the public. The charge per unit of measurement charged is higher than what it pays on deposits. The departure inwards the involvement rates (lending charge per unit of measurement together with the deposit rate) is its profit.

The types of depository fiscal establishment loans together with advances are :-

1. Overdraft
2. Cash Credits
3. Loans
4. Discounting of Bill of Exchange

a. Overdraft

This type of advances are given to electrical current trouble organization human relationship holders. No separate trouble organization human relationship is maintained. All entries are made inwards the electrical current account. Influenza A virus subtype H5N1 surely amount is sanctioned equally overdraft which tin hold out withdrawn inside a surely menses of fourth dimension tell 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 being of affairs together with firms.

b. Cash Credits

The client is allowed cash credit upto a specific bound fixed inwards advance. It tin hold out given to electrical current trouble organization human relationship holders equally good equally to others who practise non lead hold an trouble organization human relationship amongst bank. Separate cash credit trouble organization human relationship is maintained. Interest is charged on the amount withdrawn inwards excess of limit. The cash credit is given against the safety of tangible assets together with / or guarantees. The advance is given for a longer menses together with a larger amount of loan is sanctioned than that of overdraft.

c. Loans

It is unremarkably for curt term tell a menses of 1 yr or medium term tell a menses of 5 years. Now-a-days, banks practise lend coin for long term. Repayment of coin tin hold out inwards the cast of installments spread over a menses of fourth dimension or inwards 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 together with cash credits. Loans are unremarkably 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 telephone substitution both domestic together with unusual bills. The depository fiscal establishment pays the nib amount to the drawer or the beneficiary of the nib past times deducting commons discount charges. On maturity, the nib is presented to the drawee or acceptor of the nib together with the amount is collected.

B. Secondary Functions of Banks ↓

The depository fiscal establishment performs a number of secondary functions, besides called equally non-banking functions.

These of import secondary functions of banks are explained below.

1. Agency Functions

The depository fiscal establishment acts equally an agent of its customers. The depository fiscal establishment performs a number of way functions which includes :-

1. Transfer of Funds
2. Collection of Cheques
3. Periodic Payments
4. Portfolio Management
5. Periodic Collections
6. 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 besides collects coin of the bills of exchange.

c. Periodic Payments

On standing instructions of the client, the depository fiscal establishment makes periodic payments inwards honour of electricity bills, rent, etc.

d. Portfolio Management

The banks besides undertakes to buy together with sell the shares together with debentures on behalf of the clients together with accordingly debits or credits the account. This facility is called portfolio management.

e. Periodic Collections

The depository fiscal establishment collects salary, pension, dividend together with such other periodic collections on behalf of the client.

f. Other Agency Functions

They deed equally trustees, executors, advisers together with administrators on behalf of its clients. They deed equally representatives of clients to bargain amongst other banks together with institutions.

2. General Utility Functions

The depository fiscal establishment besides performs full general utility functions, such equally :-

1. Issue of Drafts, Letter of Credits, etc.
2. Locker Facility
3. Underwriting of Shares
4. Dealing inwards Foreign Exchange
5. Project Reports
6. Social Welfare Programmes
7. Other Utility Functions

a. Issue of Drafts together with Letter of Credits

Banks resultant drafts for transferring coin from 1 house to another. It besides issues missive of the alphabet of credit, peculiarly inwards illustration of, import trade. It besides issues travellers' cheques.

b. Locker Facility

The depository fiscal establishment provides a locker facility for the prophylactic custody of valuable documents, gilded ornaments together with other valuables.

c. Underwriting of Shares

The depository fiscal establishment underwrites shares together with debentures through its merchant banking division.

d. Dealing inwards Foreign Exchange

The commercial banks are allowed past times RBI to bargain inwards unusual exchange.

e. Project Reports

The depository fiscal establishment may besides undertake to develop projection reports on behalf of its clients.

f. Social Welfare Programmes

It undertakes social welfare programmes, such equally adult literacy programmes, populace welfare campaigns, etc.

g. Other Utility Functions

It acts equally a referee to fiscal standing of customers. It collects creditworthiness data close clients of its customers. It provides marketplace data to its customers, etc. It provides travellers' depository fiscal establishment check facility.