Banks are the most necessary part of running the economy of a country in a smooth way. The commercial banks have become the lifeline of the entire economy, it is a financial institution which has a legal identification, thus, it receives the money which different individuals and businesses lend to them. These banks are open for businesses, institutions, public and individuals. A commercial bank is not an especial kind of bank, but a common bank, which we use for regular transactions.
All the commercial banks are affiliated with the state and federal laws, depending on the services they provide and how they are organized, these banks are also monitored by the Federal Reserve System. These banks provide a huge range of functions such as issuing cheques, demand deposits, fixed deposits, loans and buying and selling of foreign exchange. All the commercial Bank branches has unique IFSC code for processing inter and intra bank transaction.
What are the functions of a Commercial bank?
- Savings account: This bank account is used for the purpose of saving money though the account has to maintain a minimum balance in his account to avail the services if cheque facilities.
- Current account: This kind of account is used for the purpose of making payments. A customer can withdraw and deposit money from this account which is subject to a minimum required balance. If a customer wants to close his current account, then he has to pay the interest to the respective bank. The facility of cash credit is also allowed in current accounts.
- Loans and Advances: All the commercial banks are required to keep a certain portion of the deposits as legal reserves and this amount is used to provide loans and advances to people. Individuals and firms can easily borrow this money from banks who charge an interest amount on the loan
Commercial bank provides different kinds of loans, such as:
- Loan to a firm or a person against some collateral security.
- Loan in installments (against some security)
- Overdraft facility.
The customers can ask the bank to accept the payments on their behalf, the relation between the customer and banker is same as of a principal and agent. The services provided by the banks are:
The bank collects drafts, cheques and bills on the behalf of the customer.
They can exchange the domestic currency with foreign currency as per the rules and regulations. Such as in the case of the death of a customer, the bank can execute the will.
They can act as executors/trustees to their customer.
General utility services:
The commercial banks also provide some other services to their customers, such as:
- Transferring money
- Merchant banking
- Credit cards
- Safeguarding valuables and money
- Automatic teller machines.
This is the reason why commercial bank holds a great importance in keeping the economy stable and active at the same time.