Functions of Banks – A Look on Function of Bank

For general knowledge pont of view, the following points emphasize the banks ‘ top functions. The features are:

1. Collection of Community Savings

2. Lending and Investment

3. Wealth creation.

Community Savings Collection:

People are not keeping their savings at home nowadays. They are depositing them into banks. This avoids the risk of loss (from theft, etc.). In addition, some interest has been earned. There are different deposit types. Some are deposits currently in existence.

Either very small or nil is the interest paid on such deposits. Some deposits may be withdrawn after a fixed period (one year, two years, etc.) or subject to some fraction of the deposited amounts, etc. Such deposits are referred to as time deposits. The different varieties of time deposits, such as fixed deposits, savings deposits, etc., have different names. Time deposits are earning higher interest rates.

Lending and Investment

Banks lend money to traders, businessmen and others. The loan is made using a number of methods. In the borrower’s name, an account is sometimes opened and checks may be drawn. A person with an account may be allowed to collect more money than he has on the account. This is called an exhaust system.

It is also possible to lend money to a bank by discounting a bill or a Hundi. Banks invest money on corporate shares and debentures and on public bills. They provide industry with money against government security Promissory Notes, shares, debenture, gold, manufacturing goods, etc.

Wealth creation

In former times, banks were able to print and issue notes on request. The notes have been used as an exchange medium. Currently, only the country’s central bank can issue notes. However, banks can give loans that exceed the amount that they deposit. Checks against these loans can be drawn and checks can be used as an exchange medium. Banks can therefore create money.

Function of Bank on exam Point Of View:

Student when go to the interview of Bank, Bank asked the student tell me the Function of Bank. Let’s learn the Function of Bank for exam:

Function of Bank

Acceptance of deposits:

A bank’s most important role is to mobilize public funds. Bank provides the depositors with safe custody and interest.

Save deposit:

Save deposit account for those individuals who want to save for future needs and uncertainties. Number and quantity of withdrawals are not restricted. Bank offers check books, ATM cum debit cards and Internet banking facilities. Depositors must maintain a minimum balance that varies across banks.

Fixed deposit or term deposit Money is deposited for a fixed tenure on a fixed deposit account. Banks issue a certificate of deposit containing name, address, deposit amount, date of withdrawal, signatures of the depositor and other important information.

During this period, depositors can not withdraw money. In the event that depositors wish to withdraw before maturity, banks will charge the penalty for premature withdrawal. Current account Companies normally open current accounts. For these accounts, banks provide overdraft facility whereby account holder can withdraw more money than the bank balance available.

To meet urgent needs, this acts as a short-term loan. Bank charges high interest rates and overdrawn charges.

Recurring deposit:

In this type of account depositors, certain sums of money are deposited at regular time. Recurrent account benefit is that it benefits from compounded interest rates and allows depositors to collect large sums of money.

Granting Loans and Advances Cash Credit:

It is a short-term loan facility under which banks allow their customers to borrow up to a certain limit, normally banks grant this loan against certain property’s mortgage. Bank overdraft bank provides this facility to current account holders

. Account holder may withdraw money up to the provided limit at any time. He only has to pay interest on the amount borrowed for the period he borrowed. Loans banks provide loans for different types of short-term and long-term needs. In installments, the borrower pays back the loan.

Discounting bills

Sellers send bills to buyers in normal day-to-day business whenever they sell their products and payment in stipulated time is mentioned in the bill. Let’s take it for 30 days. Seller may discount the bank bill for certain fees under such conditions. Bill discounting acts as a short-term loan in such a situation. In the event that the buyer or drawer defaults, bank sends the bill back to the drawer seller so that he can take legal action against the drawee or buyer.

Agency functions

  • Funds transfer
  • Cheques collection
  • Periodic payments/collection
  • Portfolio management

Utility functions

  • Issue of draft, letter of credit etc :-Letter of credit acts as an assurance that the bank will make the payment up to the amount specified in the letter of credit if the borrower fails to make the payment.
  • Locker facility
  • Underwriting of shares
  • Dealing in foreign exchanges
  • Project reports
  • Social welfare programs