An Idea on Primary Function Of Commercial Bank

Bank is defined as a financial institution that can give loans , deposit money and withdrawal of money can take place .It  earns money in the mid process of giving loans and deposits by the customers.

Meaning / origin

 The word bank is derived from the Middle French word ‘banque’ or from the Italian word ‘banca’ meaning table or from the old high German banc .

History 

The banking system finds its roots in ancient Babylonia where merchants used to offer loans with grains as collateral.The current banking system though has traces in mediaeval era in places like Florence ,Venice etc where rich families of Bardi and Peruzzi established many branches across Europe. Various famous banks were established in the fourteenth century like the Medici Bank in Italy.

Further the issues related to bank notes ,reserve banking ,promissory notes were seen in the modern era.

Activities involved 

Bank perform a range of activities these are listed as follows :-

• Insurance

• Trade Finance

• Private banking

• Investment banking

• Corporate Banking

• Personal Banking

• Transaction banking

• Consumer finance

Banking channels

Bank offers a wide variety of channels via which the banking and other services can be accessed.These are mentioned as follows -:

• Branch – that offers in person banking .

• ATM – automated teller machine 

• Bank by mail

• Online banking

• Mobile banking

• Telephone banking

• Video banking

• Relationship manager

• Direct selling agent

Functions of commercial bank

Bank is a place where we deposit , withdraw or take loans . The bank is under obligation to pay the depositor’s money back whenever he wants to. The main ways through which money can be withdrawn are via cheques and drafts and so on.

The functions can be divided into the following main categories -:

1. Accepting Deposit

2. Giving loans 

3. Overdraft

4. Investment of funds

5. Discounting of Bills of exchanges

6. Agency Functions

7. Miscellaneous Functions

Accepting Deposits

Accepting Deposits is one of the basic functions of a bank there are two types of deposits -current deposit and fixed deposit.

Giving loans

The second most important function is to give loans to the customers .By giving loans it charges interest from the borrowers for the interest .This interest is the main source of income of the banks .

Overdraft

Bank gives advance loans to its customers through overdraft facility .For this a very high interest is charged from the customer.

Discounting of Bills of Exchange 

This is an important method wherein the loans are advanced traders for short term.So banks give loans to traders and business firms on discounting before the time of maturity by discounting the bills of exchange.

Investment of funds 

Banks invest their funds in three main areas-:

• Government securities- These basically include central and state governments treasury bills , national Saving certificates etc.

• Approved securities

• Other securities- these include securities of state associated bodies like the housing boards ,debentures and land development boards,shares of regional rural banks .

Agency Functions

Bank Functions as an agent of its customers as sometimes customers gives consent to the bank to perform a variety of functions like – collection of cheque,drafts ,dividends etc;payment of insurance premium;Sell securities and debentures;accept bills of exchange ;deposit loan instalment ,income tax and interest as per the customer;transfer of money from one place to another.

Miscellaneous Functions

Some other functions of bank are as follows -:

• Safe custody of valuable assets in lockers.

• Collection of statistics on trade and industry

• Facilitate Foreign trade.

• Sell and purchase foreign currency

• Investment suggestions to clients

• Underwriting of shares and debentures

• Issues letter of credit

• Useful in calamities to mobilise funds

Cash credit 

Meaning

It is a short term loan that banks offer to businesses and other financial institutions for meeting the working capital.It thus a source of a short term finance.

They are also known as working capital loans .They fund the instant cash needs of the business firm

Cash credit account advantages

• It meets the working capital requirements.

• Interest only on the amount utilised.

• Easy arrangement.

• Flexibility

• Interest is tax deductible

Cash credit account Disadvantages 

• Restricted use 

• Interest is tax deductible

• Minimum commitment charges 

• High rate of interest

• More checks and balances

• Greater compliances

Conclusion 

Bank is an institution that has an origin in French as Banque and Italian origin as banca. This institution is used to deposit , withdraw and take loans at the time of emergency.Banks have a variety of functions from giving loans , overdraft, facilitate Foreign trade , investment of funds, accepting Deposits, discounting on bills of Exchanges.Cash credit is a type of facility that banks provide to business groups and firms .cash credit is a type of short term loan which is given to meet the working capital requirements. It is also called a working capital loan. The main advantages of the Cash credit is that it is flexible,easy arrangement and the interest is made on the money that is utilised but the fact that it charges high interest and offers greater compliances and checks and balances and the restrictions are the demerits of this account.