What are the Functions of Commercial Bank
1 Accepting Deposits
Banks accept deposits in several forms like:
(i) Current Account/ Demand Deposits
These are the deposits that are repayable by bank on demand
They can be withdrawn by cheque
They do not have an interest rate
(ii) Time/ Fixed Deposits
These are the deposits in which the demand is deposited for a fixed period of time
They do not have a chequeable facility
They have a high interest rate
(iii) Savings Deposits
These deposits have combined features of Demand and Fixed Deposits
They have a chequeable facility
Their rate of interest is lower than Fixed deposits
2 Advancing of Loans
Different types of loans and advances made by commercial banks are:
(i) Cash Credit
It refers to the loan given to the borrower against their current assets like shares, stocks etc
(ii) Demand Loans
It refers to those loans which can be recalled on demand by the bank any time
(iii) Short-term Loans
They are given as personal loan against some security
3 Agency Functions
Commercial banks also perform some agency functions
For these services they charge some commission from their clients
Example:
- Transfer of Funds
- Purchase and Sale of Foreign Exchange
- Income Tax Consultancy
- Purchase and Sale of securities
- Letters of Reference
NCERT Questions
Question 7
Explain the functions of a commercial bank.
View AnswerAns
Functions of Commercial Bank:
1 Accepting Deposits
Banks accept deposits in several forms like:
(i) Current Account/ Demand Deposits
These are the deposits that are repayable by bank on demand
They can be withdrawn by cheque
They do not have an interest rate
(ii) Time/ Fixed Deposits
These are the deposits in which the demand is deposited for a fixed period of time
They do not have a chequeable facility
They have a high interest rate
(iii) Savings Deposits
These deposits have combined features of Demand and Fixed Deposits
They have a chequeable facility
Their rate of interest is lower than Fixed deposits
2 Advancing of Loans
Different types of loans and advances made by commercial banks are:
(i) Cash Credit
It refers to the loan given to the borrower against their current assets like shares, stocks etc
(ii) Demand Loans
It refers to those loans which can be recalled on demand by the bank any time
(iii) Short-term Loans
They are given as personal loan against some security
3 Agency Functions
Commercial banks also perform some agency functions
For these services they charge some commision from their clients
Example:
- Transfer of Funds
- Purchase and Sale of Foreign Exchange
- Income Tax Consultancy
- Purchase and Sale of securities
- Letters of Reference
Other Books
Question 1
In the following questions, select the correct answers:
Name the institution which performs the functions of accepting deposits, granting loans
and making investments, with the aim of earning profits.
a. Commercial Bank
b. Central Bank
c. Neither A nor B
d. Both A and B
View AnswerAns
a. Commercial Bank
