COMMERCIAL BANKING

DEFINITION
FUNCTIONS OF COMMERCIAL
BANKING
 DEFINITION
• THE INDIAN COMPANIES ACT , 1949,
DEFINED THE BANK, “THE
ACCEPTING FOR THE PURPOSE OF
LENDING OR INVESTMENT OF
DEPOSITS OF MONEY FROM THE
PUBLIC REPAYABLE ON DEMAND OR
OTHERWISE AND WITHDRAWABLE
BY CHEQUE, DRAFT, ORDER OR
OTHERWISE.”
 FUNCTIONS OF COMMERCIAL BANKS
1. ACCEPTANCE OF DEPOSITS:-
a) FIXED DEPOSIT ACCOUNT: MONEY IN THIS
ACCOUNT IS ACCEPTED FOR A FIXED PERIOD.THE
MONEY SO DIPOSITED CAN BE WITHDROWN BEFORE
THE EXPIRY OF THE FIED PERIOD.THE RATE OF
INTEREST ON THIS ACCOUNT IS HIGHER THAT ON
OTHER ACCOUNT.
b) CURRENT ACCOUNT: THE DEPOSITOR CAN
WITHDRAW THE MONEY FROM HIS CURRENT
ACCOUNT WHENEVER HE REQUIRES IT.THIS
ACCOUNT IS GEERALY OPENED BY BUSINESSMEN
WHP MAY HAVE TO WITHROW MONEY SEVERAL
TIMES A DAY.
c) SAVINGS BANK ACCOUNT: SOME RESTRCTIONS ARE
IMPOSED ON THE DEPOSITOR HE CAN WITHDRAW
ONLY A SPECIFIED SUM OF MONEY IN A WEEK.
 2.ADVANCING LOANS
a) MAKING ORDINARY LOANS:- BANK GIVES A
SPECIFIED SUM OF MONEY TO A PERSON
AGAINST SOME SECURITY.THE LOAN MONEY IS
CREDITED TO THE ACCOUNT OF THE BORROWER
AND THE BORROWER CAN WITHDRAW THE
MONEY FROM THE ACCOUNT ACCORDING TO HIS
REQUIRMENTS
b) CASH CREDIT:- ENTIRE LOAN IS NOT GIVEN AT
ONE PARTICULAR TIME.THE BANK OPENS THE
ACCOUNT IN THE NAME OF THE DEBTOR AND
ALLOWS HIM TO WITHDRAW THE MONEY FROM
TIME TO TIME UP TO A CERTAIN LIMIT
DETERMINED BY THE VALUE OF THE STOCKS
KEPT IN THE DEBTOR’S GODOWN.
 ADVANCING LOANS

c) OVERDRAFT:- THE BANK GRANTS OVERDRAFT

FACILITIES TO ITS RELIABLE CUSTOMERS.THE
CUSTOMERS PAY INTEREST TO THE BANK
ON THE AMOUNT OVERDRAWN BY THEM.
• DISCOUNTING OF BILLS OF EXCHANGE.
 INVESTMENT OF FUNDS
• COMMERCIAL BANKS INVESTS A
PART OF ITS SURPLUS FUNDS IN
GOVT SECURITIES AND EARNS
INTEREST ON THEM
• PROMOTE THE USE OF CHEQUES:-
COMMERCIAL BANKS RENDER AN
IMPORTANT SERVICE BY MEDIUM
OF EXCHANGE LIKE CHEQUES.
 AGENCY FUNCTIONS OF THE
BANKS:-
• TRANSFER OF FUNDS
• COLLECTING CUSTOMER’S FUNDS.
• PURCHASE AND SALE OF SHARES
AND SECURITIES
• COLLECTING DIVIDENDS ON THE
SHARES OF THE CUSTOMERS
• INCOME TAX CONSULTANT
 PURCHASE AND SALE OF
FOREIGN EXCHANGE
• THE SALE AND PURCHASE OF
FOREIGN CURRENCY IS DONE BY
THE FOREIGN BANKS.
• FINANCING INTERNAL AND FOREIGN
TRADE
 OTHER FUNCTIONS:-
• SAFE CUSTODY OF VALUABLE GOODS.
• ISSUING OF TRAVELLER’S CHEQUES.
• GIVING INFORMATION ABOUT ITS
CUSTOMER.
• COLLECTION OF STATISTICS
• UNDERWRITING OF COMPANY
DEBENTURES.
• ACCEPTING BILLS OF EXCHANGE ON
BEHALF OF CUSTOMERS.
• GIVING ADVICE ON FINANCIAL MATTERS.
 CREATION OF CREDIT
• GRANTING OF LOANS AND ADVANCES IS AN
IMPORTANT FUNCTION OF THE BANK. THE
PROCESS WHICH THE BANK GRANTS LOANS AND
ADVANCES HAS SPECIAL SIGNICANCE FOR THE
MODERN ECONOMY. WHEN THA GRANTS A LOAN
TO ITS CUSTOMERS, IT DOES NOT LEND OUT
CASH, EQUAL TO THE AMOUNT OF THE LOAN TO
THE CUSTOMER AS AN INDIVIDUAL MONEY
LENDER DOES, BUT ON THE CONTRARY, OPENS
AN ACCOUNT IN HIS (BORROWER’S) NAME AND
CREDITS THE AMOUNT OF THE LOAN TO HIS
ACCOUNT. (CONT ON NEXT SLIDE)
 (CONT)
• THUS WHEN EVER A BANK GRANTS
A LOAN, IT CREATES A DEPOSITS OR
A LIABILITY AGAINST ITSELF. SINCE
THE DEPOSITS OF THE BANK
CIRCULATE TO A NET INCREASE IN
THE MONEY STOCK OF THE
ECONOMY. YHIS IS KNOWN AS
CREATION OF MONEY OR CREATION
OF CREDIT BY THE BANK.