Functions of Commercial Banks: Bank as Agent, General Utility Services (2024)

Money and Banking

Commercial banks are authorized to provide a variety of financial services which includes loans, savings accounts, etc. In this article, we will talk about various functions that a commercial bank performs.

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Broadly speaking, the functions are of two categories – primary and secondary.

Commercial banks accept deposits from people, businesses, and other entities in the form of:

Another important activity is lending funds to customers in the form of loans and advances, cash credit, overdraft and discounting of bills, etc.

Loans are advances that a bank extends to his customers with or without security for a specified time and at an agreed rate of interest. Further, the bank credits the loan amount in the customers’ account which he withdraws as per his needs.

Under the cash credit facility, the bank offers its customers a facility to borrow cash up to a certain limit against the security of goods. Further, an overdraft is an arrangement that a bank offers to customers wherein a temporary facility is offered to overdraw from the current account without any security.

The limit is pre-specified. Additionally, banks also discount and purchase bills. In both of these cases, a bank credits the amount of the bill in the customer’s accountafter deducting discounts and commissions. Subsequently, this amount is recovered from the debtors on thematurity of the instrument.

Q1. What are the primary functions of a commercial bank?

Answer: The primary functions of a commercial bank are accepting deposits and also lending funds. Deposits are savings, current, or time deposits. Also, a commercial bank lends funds to its customersin the form of loans and advances, cash credit, overdraft and discounting of bills, etc.

Q2. What are the secondary functions of a commercial bank?

Answer: The secondary functions of a commercial bank are acting as an agent to its customers and also providing general utility services.

Functions of Commercial Banks: Bank as Agent, General Utility Services (2024)


Functions of Commercial Banks: Bank as Agent, General Utility Services? ›

Answer: The primary functions of a commercial bank are accepting deposits and also lending funds. Deposits are savings, current, or time deposits. Also, a commercial bank lends funds to its customers in the form of loans and advances, cash credit, overdraft and discounting of bills, etc.

What are the functions of commercial banks? ›

Answer: The primary functions of a commercial bank are accepting deposits and also lending funds. Deposits are savings, current, or time deposits. Also, a commercial bank lends funds to its customers in the form of loans and advances, cash credit, overdraft and discounting of bills, etc.

What are the functions of bank as an agent? ›

Agency functions of commercial banks are like collecting interest, dividends, payment of rent or insurance, the conduct of stock exchange, transactions, and acting as executor trustees, and attorneys; these banks also advise their customers about investment.

Which of the following is the main function of commercial banks? ›

Commercial banks offer basic banking services, including deposit accounts and loans, to consumers and businesses. These financial institutions make money from a variety of fees and by earning interest income from loans.

What are the two basic functions of commercial banks are to accept and make? ›

Banks are privately-owned institutions that, generally, accept deposits and make loans. Deposits are money people leave in an institution with the understanding that they can get it back at any time or at an agreed-upon future time. A loan is money let out to a borrower to be generally paid back with interest.

What is the commercial bank answer? ›

A commercial bank is a financial institution that provides services like loans, certificates of deposits, savings bank accounts bank overdrafts, etc. to its customers. These institutions make money by lending loans to individuals and earning interest on loans.

What is the function of commercial banks in our economy? ›

Although banks do many things, their primary role is to take in funds—called deposits—from those with money, pool them, and lend them to those who need funds. Banks are intermediaries between depositors (who lend money to the bank) and borrowers (to whom the bank lends money).

What is the general utility function? ›

The General Utility Functions are also called as Social development functions. In some areas, the banks will help you with all the transactions that you will have to do during a course of time. For example, you will be able to pay your phone, electricity and other utility bills from a center that is run by the banks.

What are the examples of banking agents? ›

Generally, the small shops, grocery stores, gas stations, or postal services in these areas become the banking agents with a bank to provide various banking services like cash deposits, withdrawals, balance inquiries, and many more.

What is the meaning of agency services? ›

All such activities done on behalf of others are included in agency services. Under agency service, an agent works as a link between the principal and the other parties. An agent is fully authorised to work on behalf of the principal.

How do commercial banks act as agents of payment? ›

Acting as Agents

In addition to accepting deposits and lending credit, commercial banks act as mediators between individuals, businesses, and government entities. They do so by collecting bills and fees, helping manage digital banking services, and facilitating stock market trading for their users.

What is the high power money? ›

High-powered money is the sum of commercial bank reserves and currency (notes and coins) held by the Public. High-powered money is the base for the expansion of Bank deposits and creation of money supply. The supply of money varies directly with changes in the monetary.

What are three ways banks make money? ›

How Do Banks Make Money?
  • Interest income.
  • Capital markets income.
  • Fee-based income.

What is the relationship between banker and customer? ›

The customer-banker relationship is built on trust and mutual understanding, and both parties have certain rights and obligations that they must adhere to. Banks have a duciary duty to act in the best interests of the customer and to use reasonable care, skill, and diligence in managing the customer's assets.

How does a commercial bank create money? ›

FIRST, banks create money when doing their normal business of accepting deposits and making loans. When banks make loans they create money. remember from chapter 12 that money (M1) is currency (coins and bills) AND checkable deposits.

Which of the following is not a function of a commercial bank? ›

Solution: Issuing currency is not the function of commercial banks. The main function of the Reserve Bank of India is to issue currency. A commercial bank is a financial institution that carries out all the operations regarding deposits, withdrawal of money, loans, and other activities.

What are the functions of banks and their structure? ›

Banks are financial institutions authorized to receive deposits and provide credit. Other functions of banks may include financial services like wealth management, safe deposit boxes, and currency exchanges. There are several types of banks that are designated to perform all of the above-mentioned functions.

Which of the following is a function of commercial bank loans? ›

{"text":"The correct answer is: Provide short-term financial capital to businesses.

What are the two essential functions of a bank? ›

All banks have to perform two major primary functions namely:
  • Accepting of deposits.
  • Granting of loans and advances.

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