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.