Commercial Banks

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Commercial Banks

A commercial bank is a type of financial intermediary and a type of bank. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds.

For Eg: - Bank of Baroda, Canara Bank, Dena Bank etc.Commercial banks work with short term funds. Their working capital consists mainly of moneys deposited by customers and withdrawable by them on demand or on short notice. If a bank lends such moneys for long periods or keeps them blocked in any other way, it will be unable to meet the demands of its depositors for withdrawal of cash, and will be forced to go into liquidation. Commercial banks are the most important source of institutional credit in the money market. A commercial bank is a profit seeking business firm, dealing in money or rather dealing in claims to money. Commercial banks are the most important bank in India. The commercial banks account for over 80% of the total bank credit.

Functions of Commercial Banks

The commercial banks perform a number of vital functions. The functions of a commercial bank can be broadly classified into the followings:

(1) Accepting Deposits: -The bank collects deposits from the public. The deposits can be of different types – such as:

 Savings Deposits: -

This type of deposits encourages saving habit among the public.

The rate of interest is low. At present it is about 5% p.a.

Withdrawals of deposits are allowed subject to certain restrictions.

This account is suitable to salary and wage earners.

This account can be opened in single name or in joint names.

 Fixed Deposits : -

Lump sum amount is deposited at one time for a specific period.

Higher rate of interest is paid, which varies with the period of deposits.

Withdrawals are not allowed before the expiry of the period.

 Current Deposits : -

This type of account is operated by businessmen.

Withdrawals are freely allowed.

No interest is paid. In fact, there are services charges.

The account holders can get the benefit of overdraft facility.

 Recurring Deposits : -

This type of account is operated by salaried persons and pettytraders.

A certain sum of money is periodically deposited into the bank.

Withdrawals are permitted only after the expiry of certainperiod.

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