BANKING (PART 1): COMMERCIAL BANK AND ITS FUNCTIONS

COMMERCIAL BANKS

Commercial bank is an institution which performs the functions of accepting deposits, granting loans and making investments, with the aim of earning profits.

Functions of a Commercial Bank

# Primary Functions include (1) Accepting Deposits (2) Advancing Loans

# Secondary Functions include (1) Overdraft Facility (2) Discounting Bills of Exchange (3) Agency Functions (4) General Utility Functions

- Unlike the Central Bank (RBI), commercial banks do not have the authority of issuing currency, but they create money by way of demand deposits

- Primary Deposits are cash deposits with the commercial banks by the people

- Secondary Deposits are those deposits which arise on account of loans by the banks to the people (these are also called Derivative Deposits)

- Total Demand Deposits of the Commercial Banks = (Primary Deposits + Secondary Deposits) of the Commercial Banks