1. ACCEPTING DEPOSITS
The main function of commercial banks is to accept deposits from the public. The banks accept following types of deposits:
(a) DEMAND DEPOSIT (Current Account Deposits):
When a depositors deposits money in demand deposits, he can withdraw all his money without prior notice. Usually, this type of deposits does not earn interest. The banks cannot utilize such types of deposits for landing purpose because the deposits can demand their money at any time they need. The banks have to maintain cent percent reserve against such deposit because bank should compulsorily make payments to the depositors at the time of their demand deposits for meeting their daily transaction requirements.
(b) SAVING DEPOSITS:
In saving deposits, the depositors cannot withdraw their all money at once. They have to make prior notice or request to bank before they withdraw more then a minimum specified amount. These types of deposits accounts are usually kept by the depositors with small income for holding their short term savings. The depositors are paid interest against saving deposits.
(c) FIXED OR TIME DEPOSITS:
Fixed deposits are made for a fixed period of time that varies from few days to many years. The deposits cannot withdraw their money before the expiry of the special period. However, the depositors can request banks to makes payments of such deposits with certain charge. As the banks can make investment or provide loans based on the timeframe the depositors can withdraw their money, they offer higher rate of interest against fixed deposits than in saving deposits.
2. PROVIDING LOANS
The next important function of the commercial bank is to advance loans. Out of the money deposited by the public, the banks provide loans to others keeping a certain percentage of deposits in their cash value for meeting daily withdrawal requirements. By advancing loans banks create credit. The banks charge higher interest rate on loans than they offer interest to the depositors, known as interest spread, is the bank’s main sources of income.
3. DISCOUNTING BILLS OF EXCHANGE
The commercial banks discount the bills of exchange which are widely used in the modern business. The seller of the goods draws a bill of exchange which the buyers is asked to sign. The buyer is ordered to pay the certain amount after the period maintained in the bills. When the seller requires money, he submits the bills in the bank. Then he will get the present worth of bills leaving the banks to realize them when they are matured. This action of banks is known as discounting bills of exchange. The commercial banks can rediscount the bill of exchange with the central banks, if necessary.
(4) TRANSFER OF MONEY
The banks are the safest and the fastest and the fastest means of transferring funds from one place to another. The banks send money by means of draft, Telegraphic Transfer (TT), etc. The banks remit a large amount of money earned by the workers abroad in the form of foreign remittance which has become one of the mains sources of income of developing countries like Nepal.
(5) OTHER FUNCTIONS
In addition to the primary font boons mentioned above, the banks also perform several secondary functions. They include various customer services such as payments of customers’ utility bills (e.g. telephone, electricity, and water bills), sale and purchase of securities (shares & debentures) on behalf of customers, collection of bills(cheques, exchange bills, promissory notes), exchange of foreign currency, issuance of credit instruments (letter of credit, travelers’ cheques, debit & credit cards), provision of locker for the safety of valuable goods (gold, silver, diamond and other precious jewels), etc.]
The main function of commercial banks is to accept deposits from the public. The banks accept following types of deposits:
(a) DEMAND DEPOSIT (Current Account Deposits):
When a depositors deposits money in demand deposits, he can withdraw all his money without prior notice. Usually, this type of deposits does not earn interest. The banks cannot utilize such types of deposits for landing purpose because the deposits can demand their money at any time they need. The banks have to maintain cent percent reserve against such deposit because bank should compulsorily make payments to the depositors at the time of their demand deposits for meeting their daily transaction requirements.
(b) SAVING DEPOSITS:
In saving deposits, the depositors cannot withdraw their all money at once. They have to make prior notice or request to bank before they withdraw more then a minimum specified amount. These types of deposits accounts are usually kept by the depositors with small income for holding their short term savings. The depositors are paid interest against saving deposits.
(c) FIXED OR TIME DEPOSITS:
Fixed deposits are made for a fixed period of time that varies from few days to many years. The deposits cannot withdraw their money before the expiry of the special period. However, the depositors can request banks to makes payments of such deposits with certain charge. As the banks can make investment or provide loans based on the timeframe the depositors can withdraw their money, they offer higher rate of interest against fixed deposits than in saving deposits.
2. PROVIDING LOANS
The next important function of the commercial bank is to advance loans. Out of the money deposited by the public, the banks provide loans to others keeping a certain percentage of deposits in their cash value for meeting daily withdrawal requirements. By advancing loans banks create credit. The banks charge higher interest rate on loans than they offer interest to the depositors, known as interest spread, is the bank’s main sources of income.
3. DISCOUNTING BILLS OF EXCHANGE
The commercial banks discount the bills of exchange which are widely used in the modern business. The seller of the goods draws a bill of exchange which the buyers is asked to sign. The buyer is ordered to pay the certain amount after the period maintained in the bills. When the seller requires money, he submits the bills in the bank. Then he will get the present worth of bills leaving the banks to realize them when they are matured. This action of banks is known as discounting bills of exchange. The commercial banks can rediscount the bill of exchange with the central banks, if necessary.
(4) TRANSFER OF MONEY
The banks are the safest and the fastest and the fastest means of transferring funds from one place to another. The banks send money by means of draft, Telegraphic Transfer (TT), etc. The banks remit a large amount of money earned by the workers abroad in the form of foreign remittance which has become one of the mains sources of income of developing countries like Nepal.
(5) OTHER FUNCTIONS
In addition to the primary font boons mentioned above, the banks also perform several secondary functions. They include various customer services such as payments of customers’ utility bills (e.g. telephone, electricity, and water bills), sale and purchase of securities (shares & debentures) on behalf of customers, collection of bills(cheques, exchange bills, promissory notes), exchange of foreign currency, issuance of credit instruments (letter of credit, travelers’ cheques, debit & credit cards), provision of locker for the safety of valuable goods (gold, silver, diamond and other precious jewels), etc.]
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