Q. 35.0( 2 Votes )
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Commercial banks make up a significant role for the source of credit. The banks accept deposit from the households who have excess money advance loans to the households who are in need of it. It is one of the easiest ways of getting a loan for the households.
Functions of commercial banks
• Accepting deposit
The commercial bank accepts various types of deposits from the public, especially from its clients. It includes saving account deposits, recurring account deposits, fixed deposits, etc. These deposits are payable after a certain time period. There are different types of deposits that are accepted by the commercial banks; they are namely: savings deposit, current account deposit, permanent deposit.
Savings deposit is the deposit accepted by the commercial banks for inculcating the savings habit among the individuals. They provide interest rate against the deposit, but the interest rate will be lower compared to permanent account deposit.
Current account deposit is the deposit advanced to the people who withdraw the deposit frequently for the business purposes. The interest rate for this deposit is lower than the savings deposit.
Permanent deposit is also known as fixed deposit. The deposit which is deposited in a bank cannot be withdrawn by the account holder frequently without passage of fixed time period. The interest rate is very much higher and cannot be withdrawn within the maturity date.
• Advancing loan
They advance loan to the people who are in need of the money. The commercial banks provide loans and advances of various forms. It includes an overdraft facility, cash credit, bill discounting, etc. They also give demand and demand and term loans to all types of clients against proper security. This is the most important function because this is the function which channelizes the fund into very much ideal way. This contributes to the capital formation in the society.
• Other functions
Credit creation is the other function which is carried in by the commercial banks. One of the main functions of the commercial bank is credit creation. It is the banks that create credit for the producers to invest in the economy. The banks make the credit available by accepting the deposit from the people. The investment of the investors makes the economy better off and investment is made available by the bank.
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