Commercial
bank is an intermediary institution of capital and money, which collects
deposits on small rate of interest and provides short term loan having the
objective of earning profit.
The Principles of
commercial bank
1)Principles
of liquidity: To meet the day to day needs bank keep certain amount of
money in their vaults, it's known as the principles of liquidity
2)Principles
of profitability: Like all kinds of business organization, the main motive
of bank is to earn profit
3)Principles
of safety: This principles states that, bank will not provide loan to those
sectors from which they can't be able to return back the loaned amount.
4)Principles
of solvency: Bank must be in solvent position
5)Principles
of economy: Bank will do almost all its work by the least cost method
6)Principles
of secrecy: Bank will not expose its clients information to other
7)Principles
of location: Bank will do business on those particulars areas, where they
can run their business easily
8)Principles
of modernization: To cope with the modern technology, bank will adopt
various modern technologies.
The
functions/activities of a bank.
The
functions are classified in 3 categories:
A)General functions
1.Collecting
deposits: The first and foremost function of commercial bank is to receive
or collect deposit from the public. Deposits are collected from current, saving
etc. account.
2.Providing
loan: Commercial banks provides loan at higher rate of interest with a view
to earn profit.
3.Creates
loan deposit: Banks not only receives deposits from public but also creates
loan deposits. While lending money to borrowers account, the borrower doesn't
withdraw the full amount at a time. The remaining balance creates loan
deposits.
4.Create
medium of exchange: Banks creates medium of exchange through issuing notes
and cheques.
5.Contribute
in foreign trade: Banks plays a vital role in enhancing imports and exports
business in the country.
B)Public utility function
1.Remit
money: Transferring money from one place to another is one of the functions
of commercial bank
2.Safe
custody of valuables: This function is done by locker services. Customer
can keep their valuables things in those lockers
3.Act as
a referee: Bank act as a referee on behalf of the customers
4.Collect
utility service bills: Commercial bank collects utility service bills like
gas, electricity bills
5.Help
people traveling abroad: Commercial bank helps customers in traveling
abroad through issuing travelers cheque, draft etc.
C)Agency function
1.Collection
and payment: Bank collects and pays values of cheque, bill of exchange,
notes, pension, dividends, etc on behalf of the clients
2.Purchase
and sale of shares and securities: Bank purchase and sale shares and
securities on behalf of the customers
3.Maintenance
of secrecy: Bank keeps its clients information undisclosed
4.Act as
a trustee: Bank act as a trustee on behalf of the customers.
