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Secondary Functions of Commercial Banks

Commercial Banks is a type of financial institution that accepts deposits; offers to check account services; make business, personal and mortgage loans and offers basic financial products like certificates of deposit and savings accounts to individuals and small businesses. they have some functions as follows.

Secondary Functions of Commercial Banks

Agency Functions 

  • collection of cheques Collecting cheques, drafts, bill of exchange, dividends, interests etc. on behalf of its customers and credit the amount in their account is one of the most important agency services rendered by the banks. 
  • Payment of subscription Banks undertake the payment of subscriptions, rent, insurance premium etc. on behalf of the customers and debit the account with the amount.
  • Acting as executor Banks act as executors of will, trustees, attorneys, and administrators. 
  • Conduct of stock exchange transaction Banks purchases and sell various securities such as shares, debentures, bonds etc. of joint stock companies both private and Government on behalf of their customers.
  • Preparation of Income Tax Returns Banks prepares income tax returns for their customers through their tax service departments.
  • Conducting Foreign Exchange Transactions Commercial banks purchase and sell foreign exchange for their customers.
  • Letter of References Banks also give information about the economic position of their customers to domestic and foreign traders and likewise provide information about the economic position of domestic and foreign traders to their customers.

General Utility Services

  •  Undertake foreign exchange transactions The bank purchases and sells foreign currency at the rate prescribed by RBI.
  • Enables foreign trade by issuing the letter of credit  Letter of credit has been in existence for many years. It is, in fact, the most important single document in international trade.
  • Bankers accept bills on behalf of customers they collect from the customers.
  • promote capital market the banker acts as an underwriter for certain companies.
  •  provides safe custody of valuables by providing safe deposit vaults. The customers can keep their valuables such as jewels, silver ornaments, important documents, and share and debenture certificates safely.
  • help in Transportation of Goods Big businessmen or industrialists after consigning goods to their retailers send the Railway Receipt to the bank. The retailers get this Receipt from the bank on payment of the value of the consignment to it. 

Developmental Functions

  • Accepting Deposits is one of the two major activities of the Banks. Banks are also called custodians of public money. the money is accepted as deposit for safe keeping. But since the Banks use this money to earn interest from people who need money, Banks share a part of this interest with the depositors.
  • Advancing of Loans  Once the advancing period has passed, the loan becomes a typical term loan with pre-defined monthly principal and interest payments due to the life of the loan.
  • Overdraft Facility allows the individual to continue withdrawing money even if the account has no funds in it or not enough to cover the withdrawal. Basically, overdraft means that the bank allows customers to borrow a set amount of money.
  • Discounting Bills of Exchange An accepted draft or bill of exchange sold for early payment to a bank or credit institution at less than face value after the bank deducts fees and applicable interest charges. The bank or credit institution then collects full value on the draft or bill of exchange when payment comes due.
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