Functions of Bank
Published on Sep 15, 2020
The bank term is derived from the Italian or French word that means a Bench or money exchange table.
It is an institution that deals with financial, deposit, and advance banks and help people to save money in the form of deposit and lends money to those who need it.
Function of banks
The primary function of the bank - Banking Functions
- Accepting deposits-I n this, People can deposit their money into the bank. These deposits can be of different types- Saving Deposit, Fixed Deposit, Recurring Deposit, and Current deposit.
Saving deposit- It is a deposit account in which the people deposit a small amount from their income.
Fixed deposit- it is a financial instrument where a sum of money is fixed in the bank. The interest rate varies from bank to bank.
Recurring deposit- These types of accounts are generally opened for save for the future. People deposit the promised amount every month and after the period is over the total amount is repaid with interest.
Current deposit- It is an amount held at a bank or other financial institution. it depends upon the specific type of savings account, mostly used for the business purpose.
- Granting of loans and advances- Loans are granted for a specific time. Generally, commercial banks provided short term loans and the borrower may be given the entire amount in a lump sum or installments.
Types of bank loans and advances: Overdrafts, Crash credits, Loans, Discounting of bills, and exchange.
Overdraft - It is a facility wherein a current account holds gets access to withdraw money on the excess of the effective credit balance in their current account.
Cash credit- This is a source of finance for the short term under which, customers can take a loan of a certain limit from the bank.
Loan- It is the term in which the people use the money with the promise to repay the amount in the future as per terms and conditions.
Discounting of bills of exchange- the bank can give advance money for purchasing the domestic and foreign bills.
The secondary function of banks
These types of functions are known as non-banking functions
- Transfer of funds- It is defined as the money transfer from one bank to the other bank.
- Collections of cheques- In this, the bank can collect the money from the customer with the help of cheques.
- Periodic payments- In the periodic payments, the bank can make electronic bills for the customers.
- Portfolio management- The banks can purchase and sells the shares on behalf of the client according to their debits and credit account.
- Periodic collection- The bank can collect periodically salary, pension, dividend other periodic collection on the behalf of the client.
General utility function
- Locker facility- The banks can provide the facilities of safe deposit in a locker which ensure the safety of our money, jewelry, and important documents. The locker is present in every size.
- foreign exchange - In this, we can change our money to foreign currency.
- Projects reports – It is a document in which they provide details and overall pictures of the proposed business.
- social welfare programs- It is a program of health care assistance, unemployment compensation, lesser-known as a part of social welfare.
- Under the writing of shares – It is a contract between a company and the other party, called underwriting.