Functions of Commercial Banks - Teachoo.JPG

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They can be withdrawn by cheque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


  1. Transfer of Funds
  2. Purchase and Sale of Foreign Exchange
  3. Income Tax Consultancy
  4. Purchase and Sale of securities
  5. Letters of Reference

NCERT Questions

Question 7

Explain the functions of a commercial bank.

View Answer

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 Answer


Functions of Commercial Banks Accepting Deposits Advancing Loans Agency Function Example Saving Account Current Account Fixed Deposit Example Housing loan Car Loan Overdraft Example Purchase Sale of Foreign Currency Collection of Tax Purchase Sale of Shares On this Bank Pays Interest Expense On this Bank Receives Interest Income On this Bank Receives Commission Income

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Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years and a teacher from the past 18 years. He teaches Science, Economics, Accounting and English at Teachoo