Commercial Banks

Commercial Banks

ACCORDING TO KINLEY: A bank is an institution which received deposits and advances loan.

FUNCTION OF COMMERCIAL BANK: The functions of the bank are as under:

(A) Primary Function Secondary Function.

(B) Secondary function.

(1) Agency Function or Demand function.

(2) Various other Utility Function.

(A) Primary Function:

(1) Accepting Deposits:

This is the main function of a commercial bank to collect surplus money from the people and the firms. They open their Branches in different parts of the country and offer different types of deposits for the facility of the customer.

(A) Saving Deposit:

To create the habit of Savings. The bank accepts the saving deposits. These accounts carry a lower rate of interest.

(B) Current deposit or demand deposit:

The deposits are usually held by the businessman. Money can be withdrawn from this account at any time without any notice. No interest is allowed on this type of account.

(C) Fixed deposit:

The amount can be deposit on opening such accounts and can be withdrawn before the fixed future date. High interest is allowed on fixed deposits.

(D) Foreign Currency:

This type of account can be opened in commercial bank Industrial Development Bank of Pakistan and Foreign Exchange Banks. Any Foreign currency Convertable into Pakistan can be deposited in this account This account is exempted from the payment of zakat and income tax.

(2) Advances Loan:

This is the important function of commercial bank to advance loan to businessmen. The loan is advanced on the basis of security of the borrowers etc. it also issues the loan for short medium and long term basis. Following methods are adopted for this purpose.

(A) Overdraft:

Overdraft is a method of advancing very short term loan. This Short period may consist of days. Under this method, the bank allows his trustworthy customers to draw more than the deposit they have in the bank. Bank charges higher interest on overdraft. This loan is provided on current account only.

(B) Cash Credit:

Cash credit is a method of advancing loan short term loan by the bank. This period may consist of day and months. Cash credit is an arrangement by which the bank allows his customer to borrow money up to the certain property, Interest is charged by the bank.

(C) By Opening a loan Account:

Under this method. The bank opens a current account in the name of borrower and credit the amount of loan to his account. The borrow may draw any amount of money by means of cheques, He is required to pay interest on the total amount of loan.

(D) By Mortgage:

Bank also grants loans against the security of different assets like land building and gold etc.

(B) Secondary Function:

These Functions can be divided into the following heading:

(i) Agency Function or services.

(1) Collection and Payment of Cheques:

This is an important function of commercial bank to collect and makes payment of cheques of the customers.

(2) Purchase and Sale of Public Securities:

If the Customer directs his bank to purchase or sell public securities on his behalf. The bank will perform this important function by charging a nominal commission.

(3) Financial Advise:

Sometimes the bank gives valuable advice to the customer on various financial matters.

(4) Haj Application:

The bank collects haj application from general public. This application are handed over to the ministry of religion affairs. The successful applicants are informed by the bank.

(5) Collection Of Zakat:

The bank Collects Zakat from various accounts holders on behalf of the government.

(6) Passport Services:

The bank acts as an agent of his customers for collection of passport and travellers Various other Utility Services.

(ii) Various other Utility Services

(1) Lockers Services:

The people keep their valuables like gold and other special documents in the lockers at the bank. The bank performs the function of supervision and charges nominal commission.

(2) Letter of Credit:

The bank opens letters credit in favour of this exporter, It means of making payments for the import of goods.

(3) Relief Fund:

The bank performs the function of collecting money from the general public for the relief fund. The government may set up flood relief fund for the welfare flood-affected people.

(4) Govt. Loans:

The bank participated in debt management for government. The bank can buy treasury bills and other securities offered by the central bank.

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