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FUNCTIONS OF COMMRCIAL BANKS

CONTENT Objectives Introduction Functions Video Cnclusion

OBJECTIVES 1.To familiarized the functions of commercial banks. 2.To provide information regarding various activities of commercial banks. 3.To encourage students to open a bank account.

INTRODUCTION Do you have a bank account? Why we are taking an account in bank? What are the main benefits of starting such an account with a bank? Do you get any idea behind these questions? To get an idea, we shall discuss about the main functions of banking. We all know that banks are the institutions which are primarily pool the money from public by way of deposits and provide them as in the name of loan to the needy. We already studied the definition of banking.From that point of view we can seen that banks carry out a number of functions.

Functions of Commercial Banks: Primary Secondary Accepting deposit Lending money Agency services General utility services * Fixed deposit * Cash Credit *Collection of cheques, * Locker facility bills of exchange … *Savings bank deposit. *Overdraft * Personal services *Acting as referee *Current deposit *Term loan *Purchase and sale * Issue of letter of of securities credit *Recurring deposit * Discounting bill *Acting as trustees *Providing of of exchange or executors credit information ** Primary Secondary Accepting deposit Lending money Agency services General utility services * Fixed deposit * Cash Credit *Collection of cheques, * Locker facility bills of exchange … *Savings bank deposit. *Overdraft * Personal services *Acting as referee *Current deposit *Term loan *Purchase and sale * Issue of letter of of securities credit *Recurring deposit * Discounting bill *Acting as trustees *Providing of of exchange or executors credit information **

PRIMARY FUNCTIONS * ACCEPING DEPOSITS *LENDING MONEY

ACCEPTING DEPOSITS Through this function banks pools together the scattered savings of the society for being used for the productive purpose. * Fixed deposit *Savings bank deposit. *Current deposit *Recurring deposit

Fixed Deposits: Under this amount are deposited for a specific or fixed period of time. Normally it is repayable on the maturity period. It carries a higher rate of interest. Banks issue FDR (Fixed Deposit Receipts) when they accept fixed deposit. It is also known as ‘time deposits’ or ‘term deposits’. Under this amount are deposited for a specific or fixed period of time. Normally it is repayable on the maturity period. It carries a higher rate of interest. Banks issue FDR (Fixed Deposit Receipts) when they accept fixed deposit. It is also known as ‘time deposits’ or ‘term deposits’.

Saving Bank Deposits Saving bank deposits are those deposits which are intended to encourage savings habit among the general public. It carries a lower rate of interest than fixed deposits.

Current Deposits These are those deposits in to which money can be deposited any number of times and can withdrawn many number of times. This type of account is usually operated by businessmen. This deposit does not generally carry any interest.

Recurring Deposits In recurring deposits account a fixed amount is to be deposited at regular intervals for a fixed period of time. The amount deposited is repaid on the date of maturity together with interest. This is mainly focused to encourage the saving habit of fixed income group. The rate of interest on these deposits is almost same as that of fixed deposits. In recurring deposits account a fixed amount is to be deposited at regular intervals for a fixed period of time. The amount deposited is repaid on the date of maturity together with interest. This is mainly focused to encourage the saving habit of fixed income group. The rate of interest on these deposits is almost same as that of fixed deposits.

LENDING MONEY  To advance loans to the public is the second important function of banks. * Cash Credit *Overdraft * Discounting bill of exchange *Term loan 

Cash credit A cash credit is a financial arrangement under which the borrower is allowed an advance account under a seperate account called cash credit account up to cash credit limit called cash credit limit.. Interest is to be paid on the amount actually withdrawn by him. A cash credit is a financial arrangement under which the borrower is allowed an advance account under a seperate account called cash credit account up to cash credit limit called cash credit limit.. Interest is to be paid on the amount actually withdrawn by him.

Overdraft (OD) It is temporary financial arrangement where customers are permitted to withdraw cash up to a level over and above their deposits in the account.

Discounting bill of exchange A bill of exchange is an assurance given by a debtor to his creditor to pay the amount mentioned in the bill on the expiry of the stated period.

Term loan Banks amount of OD. Generally OD is granted to businessmen against their current accounts.Also provide medium term and long term loans to their customers for a period of exceeding 1 year..

*AGENCY SERVICES *GENERAL UTILITY SERVISES Secondary functions

TO ACT AS AN AGENT Following are the agency services given by a banker on behalf of their customers: i) Collection of cheques, bills and promissory notes ii) Personal services like payment of insurance premium, telephone charges etc.And collection of dividend, interest etc. iii) Purchase and sale of securities like shares and debentures iv) Acting as trustees or executors v) Providing of credit information Following are the agency services given by a banker on behalf of their customers: i) Collection of cheques, bills and promissory notes ii) Personal services like payment of insurance premium, telephone charges etc.And collection of dividend, interest etc. iii) Purchase and sale of securities like shares and debentures iv) Acting as trustees or executors v) Providing of credit information

GENERAL UTILITY SERVISES a) Issue of traveler’s cheque, letter of credit etc. b) Issuing DD(Demand Draft) c) Provide custodial services like safe deposit of gold, valuables etc. d) Undertaking foreign exchange services ….. F)Electronic banking servises such as a) Issue of traveler’s cheque, letter of credit etc. b) Issuing DD(Demand Draft) c) Provide custodial services like safe deposit of gold, valuables etc. d) Undertaking foreign exchange services ….. F)Electronic banking servises such as

ATM Cards  ATMs (Automated Teller Machines) are known as mini banks. Customers can withdraw cash from the account and get statements on their bank balance using such machines.  The media for accessing such a machine is an ATM Card.  This personalized plastic card bearing a number of each customer.  This card is to be inserted in to the machine and enter the Personal Identification Number (PIN), this open your account and your can withdraw cash or get statements on banks balance.  ATM cards are giving its services for 24 hours a day and 365 days in a year.  ATMs (Automated Teller Machines) are known as mini banks. Customers can withdraw cash from the account and get statements on their bank balance using such machines.  The media for accessing such a machine is an ATM Card.  This personalized plastic card bearing a number of each customer.  This card is to be inserted in to the machine and enter the Personal Identification Number (PIN), this open your account and your can withdraw cash or get statements on banks balance.  ATM cards are giving its services for 24 hours a day and 365 days in a year.

Debit Cards The holder of debit card can buy goods from different approved shops (POS-Point Of Sale) without paying cash but against the balance in his bank account. Every purchase reduces bank balance. The holder of debit card can buy goods from different approved shops (POS-Point Of Sale) without paying cash but against the balance in his bank account. Every purchase reduces bank balance.

Credit Cards Credit card is an instrument issued by a bank in the name of the customerproviding for credit up to a specific period. The person holding a valid credit card uses it for making purchases from approved shops without paying cash. The vendors get payment from the credit card issuing bank and the buyers pay for the purchase amount to the bank with the credit period (normally 30 to n50 days) with interest.

CORE Banking CORE(Centralised Online Real-time Electronic) Banking: In this system a customer by opening a bank account in one branch having CBS (Centralised Banking Solutions) facility can operate the same account in all the CBS branch of the same bank all over the country.

Tele banking & EFTs *EFTs (Electronic Fund Transfer system):Under this system money can be transferred from one account to another account. *Tele banking: Under this facility a customer can get information about the balance in his account or information abut the latest transactions on the telephone. *EFTs (Electronic Fund Transfer system):Under this system money can be transferred from one account to another account. *Tele banking: Under this facility a customer can get information about the balance in his account or information abut the latest transactions on the telephone.

NEFT NEFT ( National Electronic Fund Transfer): It is a nation wide system that facilitates individuals to electronically transfer funds from any bank branch to any other bank branch in the country. NEFT ( National Electronic Fund Transfer): It is a nation wide system that facilitates individuals to electronically transfer funds from any bank branch to any other bank branch in the country.

RTGS RTGS (Real Time Gross Settlement System) It is a specialist funds transfer systems where transfer of money takes place from one bank to another on a "real time" and on"gross" basis. Settlement in "real time" means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. "Gross settlement" means the transaction is settled on one to one basis without bunching ornetting with any other transaction. Once processed, payments are final and irrevocable. RTGS (Real Time Gross Settlement System) It is a specialist funds transfer systems where transfer of money takes place from one bank to another on a "real time" and on"gross" basis. Settlement in "real time" means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. "Gross settlement" means the transaction is settled on one to one basis without bunching ornetting with any other transaction. Once processed, payments are final and irrevocable.

Mobile Banking It is a system that allows customers of a bank to conduct a number of financial transactions through a mobile device such as a mobile phone or tablet.

Advantages of E-Banking *To Customers 1. Provide continuous service to customers 2. To ensure the financial discipline to all 3. Provide greater customer satisfaction 4. Provide greater security to the customers *To the Bank 1.To a Build goodwill 2. To reduce the work load in branches 3.To provide unlimited net work of the bank.

These are the major functions of commercial banks Conclusion

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