CHAPTER: - 9 MONEY MARKET AND CAPITAL MARKET OF INDIA Q.7. Answer the following 2. Explain the functions of commercial banks

Balbharati solutions for Economics HSC 12th Standard Maharashtra State Board

CHAPTER: - 9 MONEY MARKET AND CAPITAL MARKET OF INDIA

Q.7. Answer the following

2. Explain the functions of commercial banks.

The functions of commercial banks are classified into two main divisions.

(a) Primary functions:

Accepts deposit – The bank takes deposits in the form of saving, current, and fixed deposits. The surplus balances collected from the firm and individuals are lent to the temporary requirements of commercial transactions.

Provides Loan and Advances – Another critical function of this bank is to offer loans and advances to the entrepreneurs and business people and collect interest. For every bank, it is the primary source of making profits. In this process, a bank retains a small number of deposits as a reserve and offers (lends) the remaining amount to the borrowers in demand loans, overdraft, cash credit, and short-run loans, etc.

Credit Cash – When a customer is provided with credit or loan, they are not provided with liquid cash. First, a bank account is opened for the customer, and then the money is transferred to the account. This process allows a bank to create money.

(b) Secondary functions:

Discounting bills of exchange – It is a written agreement acknowledging the amount of money to be paid against the goods purchased at a given point of time in the future. The amount can also be cleared before the quoted time through a discounting method of a commercial bank.

Overdraft Facility – It is an advance given to a customer by keeping the current account to overdraw up to the given limit.

Purchasing and Selling of the Securities – The bank offers you the facility of selling and buying the securities.

Locker Facilities – Bank provides lockers facility to the customers to keep their valuable belongings or documents safely. Banks charge a minimum of an annual fee for this service.

Paying and Gathering the Credit – It uses different instruments like a promissory note, cheques, and bill of exchange.

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