Functions of Commercial Banks

Commercial banks are essential bank service providers and play a significant economic role. Commercial banks are rapidly evolving with the rise in technology and digital banking. They are the intermediaries between depositors and borrowers, facilitating smooth financial functions. 

This blog will help you understand the essential functions of a commercial bank. 

 

What is a Commercial Bank?

A commercial bank acts as a financial institution that offers essential banking services, such as accepting deposits, granting loans, and ensuring smooth operations. They work under government regulations and contribute to the economy. The United States often used “commercial banking” to differentiate from investment banks.

The role of a commercial bank is to provide financial services to the general public.

 

Key Features of a Commercial Bank

The key features of a commercial bank are listed below:

• A commercial bank offers options in deposit accounts, i.e., savings, fixed and current
• The commercial bank grants loans to the general public for personal or business use
• It facilitates smooth transactions online and offline
• The RBI regulates commercial banks to eliminate fraud. 

 

Examples of a Commercial Bank 

The key examples of a commercial bank are:

• Public Sector banks: State Bank of India, Bank of Baroda 
• Private Sector banks: HDFC, ICICI, Axis Bank 
• Foreign bank: HSBC, Citibank 

 

Functions of a Commercial Bank 

Commercial banks are a vital part of the economy. They provide financial services to individuals, businesses, and the government and fund entrepreneurship ventures. Their functions are categorized into primary, secondary, and modern classes.

 

Primary functions 

The primary functions of a commercial bank are mainly related to deposits and loans:

• Different kinds of deposits are offered to the public based on their needs: Savings, fixed, and current deposits.
• Savings deposit: To save money with interests 
• Fixed deposit: To save money for a fixed time with higher interest rates
• Current deposits: For business-related needs and quick transactions 
• Provide loans and advances for personal needs 
• Allows customers to withdraw more than the account balance present 
• Provides short-term credit against security 

 

Secondary functions 

The secondary functions help in trade, commerce, and investments: 

• Acts on behalf of customers and collects bills, checks, and dividends.
• Manages the investment portfolio for clients 
• Issues credits and debit cards for digital transactions 
• Acts as a locker for valuables 
• Helps in global trade
• Pays taxes and insurance premiums for clients 

 

Modern functions 

The modern functions keep up with the technological advancements: 

• Facilitates online banking access 
• Faster digital payments 
• Provides easy digital access to the rural class 
• Offers several wealth management plans like mutual funds, stock investments, and retirement plans. 

 

Read More

• What is a Demat account?
• What is the Stock Market?
• Liberalization
• 14 Principles of Management 
• Carriage Inward vs Carriage Outward

 

Stay updated with the ever-evolving commerce world! Read our latest Commerce Blogs with informative topics.

 

Frequently Asked Questions (FAQs)

Do commercial banks help in the economic development?

Yes, commercial banks provide loans to businesses for expansion, encourage deposit schemes, and support the rural class through digital advancements.

What are the secondary functions of commercial banks that help individuals and businesses?

The secondary functions help in trade, commerce, and investments: 

• Acts on behalf of customers and collects bills, checks, and dividends.
• Manages the investment portfolio for clients 
• Issues credits and debit cards for digital transactions 
• Acts as a locker for valuables 

Are commercial banks supporting digital banking? If yes, then how?

Yes, commercial banks support financial services by offering online banking options like UPI and digital wallets.