Secondary Function of Commercial Bank?

Introduction: -In addition to the primary functions of accepting deposits and granting loans and advances, banks performs a number of other functions which are called secondary functions. They are the following two types.

A.      Agency Functions: - Agency functions includes the following:

1.       Collection of Cheques, dividends and Interests: -As an agent the bank collects cheques, drafts, promissory notes, interests, dividend, etc., on behalf of its customers and credits the amount to their accounts.

2.       Payment of rent, insurance premiums, etc: -The bank makes the payment such as rent, insurance premiums, subscriptions, etc on standing instructions until further notice. Till the order is revoked the bank will continue to make payments regularly by debiting the consumer's account.

3.       Dealing in foreign exchange: -As an agent, the commercial bank purchases and sells foreign exchange for customers as per RBI Exchange Control Regulations.

4.       Purchase and Sales of Securities: -Commercial banks undertake the purchase and sale of different securities such as shares, debentures, bonds, etc on behalf of their customer. They run a separate 'Portfolio Management Scheme' for their big customers.

5.       Acts as trustee, executor of will, attorney, etc: -The bank acts as executives of will, trustees and attorneys. It is safe to appoint a bank as a trustee than to appoint an individual. Acting as attorneys of their customers, they receive payments and sign transfer deeds for the properties of the customers.

6.       Acts as Correspondent: -The commercial banks act as a correspondent of their customers. Small bank even get travel tickets, book vehicles, receive letters, etc., on behalf of their customers.

7.       Preparation of Income Tax Returns: -They prepare income tax returns and provide advises on tax matters for their customers. For this purpose, they employ (use) tax experts and make their services available to their customers.

8.       Bank Drafts: -A Bank draft is a financial instrument with the help of which money can be remitted from one place to another. Anyone can obtain a bank draft after depositing the amount in the bank. It is less risky for a creditor.

9.        Underwriting of Shares: -Underwriting services include guarantee by the bank to the company. In case the company shares are not sold, the bank will take the responsibility of the unsold shares. Bank charges commission for this service.

10. Demat Account: -Demat account facility has been introduced by commercial banks to facilitate the customers who are shareholders

B.      Utility Functions: - Utility functions of the bank includes the following:

1.       Safe deposit vault/lockers: -Safety of valuables like jewels, documents, etc is provided by commercial banks by way of safe deposit vaults or lockers. 'Lockers' are small receptacles (cabinets) which are fitted in steel racks and kept inside "strong rooms' known as vaults.

2.       Traveler's Cheques: -Traveler's Cheques are used by domestic travelers as well as by international travelers. Bank issues travelers cheques to help carry money safely while travelling within India or abroad. Thus, the customers can travel without fear, theft or loss of money.

3.       Letter of Credit (L/C): -Letter of Credit is a payment document provided by the buyer's banker in favour of the seller. This document guarantees payment to the seller upon presentation of documents mentioned in the Letter of Credit evidencing dispatch of goods to the buyer.

4.       Provides Trade Information: -The commercial bank collects information on business and financial conditions etc for their customers which help them to plan their strategy. Trade information service is very useful for those customers going for business with companies outside the country.

5.       Gift Cheques: - The commercial banks offer Gift cheque facilities to the general public. These cheques receive a wider acceptance in India. Under this system by paying equivalent amount one can buy gift cheque for presentation on occasions like wedding, birthday, etc.