General Utility Functions Of Commercial Banks

Introduction

Commercial banks are basically profit-making entities that receive deposits and utilize the cash to provide loans. They perform the most significant function in prevailing economic organisations. It is in charge of major macroeconomic structures. They provide a vital economic role by mobilising communal savings and channelling them to productive uses. Commercial banks perform a crucial function in the overall development and advancement of the economy, as well as in the business sector, particularly. The State Bank of India along with its subsidiaries, nationalised banks, foreign banks, as well as other commercial banks, and regional rural banks are all part of the Indian commercial banking system. Approximately 50,000 commercial bank branches exist in the nation, with around 8,000 RRBs serving 280 districts. With the advancement of banking industry, latest introductions such as what is e-banking have given a major boost to the whole commercial banking scenario. 

What are Commercial Banks?

• Commercial banks with the authority to provide credit result in additional demand deposits. 
• Since commercial banks are only obligated to maintain a portion of their funds as reserves, they can utilise a portion of the cash on deposit to make loans. 
• Whenever a borrower accepts a credit, the loan balance is transferred to his bank account; aggregate demand deposits are therefore raised until the debt is returned. 
• Commercial banks, as a unit, can thereby extend or decrease the cash flow by issuing additional demand deposits.
• Commercial banks’ holdings are generally more liquid as well as less risky than those of other monetary intermediaries. Often these commercial banks provide a wide range of general utility services to their users, including savings accounts, trust services, and safe-deposit boxes.
• With the advancement of the era, commercial banks have also extended their services to a whole new level. Emerging topics such as what is e-banking has become the talk of the town. 

Utility Functions of Commercial Banks

• The primary function of bank consists of a wide variety of services such as accepting deposits, investment of funds, and lending money. 
• A commercial bank accepts deposits in numerous forms including demand or current deposits, time or fixed deposits, savings deposits, and recurring deposits. 
• Commercial banks lend money to its customers in the form of loans, overdrafts, cash credit, and so on. 

Despite these primary functions, it also performs several utility functions. General utility services are provided to the public as well as its customers. A commercial bank provides the following vital general utility services.

• It allows for the simple and rapid movement of payments from one location to other using drafts, cheques, TT, MT, and other methods.
• It issues letters of credit, gift cheques, traveller’s cheques, and other similar documents.
• It handles foreign exchange transfers, assisting exporters and importers alike.
• It is in charge of storing assets in a secure location. Safe deposit boxes are kept on hand for this function. The vaults are a secure place where treasures can be kept.
• The bank arranges commodities transportation, insurance, and storage.
• It underwrites the recently launched joint-stock firms’ debentures and shares.
• Several commercial banks offer merchant banking technology leasing services.
• It offers tax consulting services. It provides tax guidance on income as well as other personal income tax. It creates yearly statements for consumers, files appeals, and so on.
• It offers technical, managerial, financial and economic consulting services to various small and micro-businesses.

The primary function of bank along with these general utility functions prove to be the major backbone of the banking industry.

Modern Utility Functions of a Bank

With the progress observed in the banking sector, queries such as what is e-banking and what additional functions it performs revolve around everyone’s mind. 

• Cash is being exchanged for bank deposits, and vice-versa.
• Bank deposits are transferred between people and/or businesses.
• Deposits are exchanged for government bonds, bills of exchange, unsecured and secured trade as well as industrial units and trade commitments.
• Capital issue underwriting.
• Payments may be made at ATMs round the clock.
• It is in charge of issuing smart cards, credit cards, and other similar products.
• With the introduction of e-banking, customers can access their bank accounts and perform a variety of functions with just a single click. 

Conclusion

A well-functioning banking system is especially important for emerging and underdeveloped nations’ economic progress. For the developing dynamics of an emerging nation, the commercial banking industry, which constitutes one of the major backbone networks of the banking industry, should be highly structured and competent. No developing nation can grow without first establishing a competent commercial banking structure. The general utility services offered by commercial banks include the issuance of cheques and drafts, project reports, locker facility, underwriting services, locker facility, and so on. These utility services prove to be of immense help to the customers as well as to the public, in general.