Commercial Bank
UmaShankar Patel (MBA-0901120527)
Sibbu Kumar Tyagi (MBA-0901120526)
Is Bank like mediator?
A bank is a financial intermediary that accepts
deposits and channels those deposits into lending
activities, either directly or through capital markets. A
bank connects customers with capital deficits to
customers with capital surpluses.
Commercial Bank
A commercial bank is a type of financial
intermediary and a type of bank. Commercial banking
is also known as business banking. It is a bank that
provides checking accounts, savings accounts, and
money market accounts and that accepts time deposits
some have used the term "commercial bank" to refer to
banks that focus mainly on companies. In some
English-speaking countries outside North America,
the term "trading bank" was and is used to denote a
commercial bank
Objectives
The main objective of commercial banks is to maintain higher profitability
by maintaining circular and efficient flow of amount of money deposited
by the customers and the lenders.
Commercial banks contribute to the economic cycle by keeping the money
circulation among households, government and corporate businesses.
The commercial banks lend money to the economic agents through their
various products and services by earning interest income on the borrowed
money.
Commercial banks design their short term and long term loans and other
products to cater to the need of customers while enhancing their own
returns.
Their objective is to attract more customers and build profitable
relationships with the new and existing customers.
Funtions of commercial banks
The functions of a commercial banks are divided into
two categories
1. Primary functions.
2. Secondary functions including agency functions.
Primary Functions
The primary functions of a commercial bank include:
a) Accepting deposits
b) Granting loans and advances
Accepting deposits-: The most important activity of a
commercial bank is to mobilize deposits from the public. People
who have surplus income and savings find it convenient to deposit
the amounts with banks. Depending upon the nature of deposits,
funds deposited with bank also earn interest. Thus, deposits with
the bank grow along with the interest earned. If the rate of
interest is higher, public are motivated to deposit more funds with
the bank. There is also safety of funds deposited with the bank.
Granting loans and advances-
The second important function of a commercial bank is
to grant loans and advances. Such loans and advances
are given to members of the public and to the business
community at a higher rate of interest than allowed by
banks on various deposit accounts. The rate of interest
charged on loans and advances varies depending upon
the purpose, period and the mode of repayment. The
difference between the rate of interest allowed on
deposits and the rate charged on the Loans is the main
source of a bank’s income.
Secondary functions
Issuing letters of credit, travelers cheques, circular notes etc.
Undertaking safe custody of valuables, important documents,
and securities by providing safe deposit vaults or lockers;
Providing customers with facilities of foreign exchange.
Transferring money from one place to another; and from one
branch to another branch of the bank.
Standing guarantee on behalf of its customers, for making
payments for purchase of goods, machinery, vehicles etc.
Collecting and supplying business information;
Issuing demand drafts and pay orders.
Providing reports on the credit worthiness of customers.
Different modes of Acceptance of
Deposits
Banks receive money from the public by way of deposits.
The following types of deposits are usually received by
banks:
1. Current deposit
2. Saving deposit
3. Fixed deposit
4. Recurring deposit
5. Miscellaneous deposits
Different methods of Granting Loans
by Bank
The basic function of a commercial bank is to make loans and
advances out of the money which is received from the public by
way of deposits. The loans are particularly granted to
businessmen and members of the public against personal
security, gold and silver and other movable and immovable assets.
Commercial bank generally lend money in the following form:
1. Cash credit
2. Loans--: The loan can be granted as:
a) Demand loan
b)Term loan
3. Bank overdraft
4. Discounting of Bills
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