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Money and banking part 20
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Commercial bank - Definitions and Functions


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  1. MONEY AND BANKING PART 20


  2. BANK A bank is an institution which receives funds from the public and gives loans and advances to those who need them. COMMERCIAL BANK commercial bank is a financial institution which accepts deposit from the general public and gives loans for investment, with the aim of earning profit.


  3. Definition of Commercial Bank by Indian Banking Companies Act 'Banking company is one which transacts the business of banking which means the accepting (for the purpose of lending or investment) of deposits of money from the public repayable on demand or otherwise withdrawal by cheque, draft order or otherwise.


  4. A commercial bank's main aim is to earn profit. They charge a higher rate of interest to the borrowers but pay a lesser rate of interest to the depositors. The difference between the two rates of interest is the main source of profit. This is called 'Spread'. The different examples of commercial banks are Bank of Baroda, Allahabad Bank, ICICI bank, Canara bank, HDFC bank, State bank of India etc


  5. FUNCTIONS The 2 main feature of a commercial bank are borrowing and lending or accepting deposits and lending money., with the aim of earning profit. The interest rate offered by bank to depositor is called the borrowing rate.The interest rate at which the banks lend out is called lending rate. All financial institutions are not commercial banks. For example, post offices are not included in this category as they do not perform the 'extending loan' function


  6. The functions of a commercial bank are divided into 2 parts: 1. PRIMARY FUNCTIONS 2. SECONDARY FUNCTIONS Primary functions include 2 functions: 1. Accepting deposits 2. Giving loans


  7. ACCEPTING DEPOSITS A commercial bank accepts deposits through current, saving and fixed deposits. [It collects the surplus balances of the Individuals, firms and finances the temporary needs of commercial transactions. . So, the first step is to colect the savings of the public. Deposits are the bank's lifelines. There are 3 types of deposits. colect public. Deposits are the ban 1. 2. 3. CURRENT ACCOUNT DEPOSITS TIME DEPOSITS OR FIXED DEPOSITS SAVINGS ACCOUNT DEPOSITS


  8. CURRENT ACCOUNT DEPOSITS 1. A current account deposit is a deposit which are payable on demand. These are called demand deposits. They can be withdrawn by the depositors any number of times depending upon the balance in his account. 2. 3. No interest is paid, 4. Cheque facility is provided 5. Maintained by businessmen and industrialists who receive and make payments of a large amount


  9. TIME OR FIXED DEPOSITS 1. Fixed period of maturity 2. Deposited for a fixed term- ranging from a few month to a few years. 3. Not payable on demand. 4. Cheque facility is not provided. 5. Can be withdrawn only on maturity 6. HIgh interest rate. 7. Maintained by businessmen and industrialists who receive and make payments of a large amount


  10. DIFFERENCE S.NO CURRENT A/C DEPOSIT TIME/FIXED DEPOSIT Can be withdrawn on Can be withdrawn only at demand maturity 2 No interest is paid Interest is paid Highly liquid Less liquid 4. Chequable deposits Not chequable deposits