Commercial banks are an important financial organization, authorizedby law, for accepting the deposit and give credit to its costumer.
Bank plays crucial role as a loan provider as well as borrower also.
Banks accepts the deposit of costumers and then invest them in
overdraft, loans, and many more. From the profit earned from the
investment, banks offer interest to the users.
In simple terms, banks accept the deposits, earn profit by investing
the deposited amount in different kind of funds, or by lending money
to the needy users, repay the principle amount as well as the interest
amount as per the users’ demand.
The services of the bank includes deposit the consumer’s money and
keep them safe along with offering the additional interest as well.
Also, bank uses the deposited money in lending money to the other
needy users and earns money in the form of interest rates from the
A bank spurs economic activities in market by dealing in cash. The
major work of bank is sustaining liquidity in market. It mobilises the
savings of people and makes funds available to business, financing
them for operating of business. There are several distinctive kinds of
banks, we will discuss briefly.
Type of banks
Different banks provide distinct services and are having different
working procedures as well. Following are the major classification of
the bank based on their functionality and procedure:
These bank organizations are governed under Banking Regulation Act. As
per their functionality, banking means accepting the deposits of money
from the public and then further uses the deposited money for the
lending or investment purpose. Commercial banks are further classified
in two types:
Private sector banks.
Public sector bank:
Public sector banks are those that are having the major stake from the
government in order to emphasize more on social objective rather than
Private sectors banks
Private sectors banks are owned, managed and controlled by the private
promoters and they are free to operate as per market forces. The main
motive of the private commercial banks are to make money rather than
for the social services.
Commercial banks are performing a variety of functions. Following are
some major functions of the commercial banks:
Deposit facilities: The major function of banks is to accept the money
deposit from the public. The commercial bank accepts money from the
public, keep them safe, along with offering the additional interest
amount over the principle amount.
There are several types of accounts in the commercial bank including
current account, saving account, fixed account.
Current account is the account where the user can withdraw total
deposit at any time without any prior notice.
Saving account encourages users for more saving.
Fixed account provides time based deposit with higher rate of interest
as compared to the other deposit facilities. But a premature
withdrawal is allowable with a term of some percent of interest
forfeited by bank.
The interest rates given by the bank are decided by the central bank
and the amount of interest further depends on the amount of principle
Providing loans: deposits are primary and foremost for the loan
performance as banks play both roles of borrowers as well lenders of
money. Bank uses the deposited money of public for lending money to
the borrowers. And, then they earn money in the form of interest from
the borrowers. From the earned money, bank offers comparatively lower
interest amount to the depositors.
Banks plays crucial role in offering the loan for the commercial uses,
business purposes, home loans for building own dream home, educational
loans , and other kind of emergency loans.
Cheque facility: Bank also offers the cheque facility where the user
will be allowed to withdraw their money or pay via the cheque.
Remittance of fund: another most important function of commercial
banks is making transfer easily. Banks facilitates transferring fund
from one place to another without any interconnectivity of branches.
Allied services: there many allied services render by commercial banks
including locker facilities, bill payment, demat account and many
Internet banking: with the internet banking services, any one can use
banking services right in their smart device from the convenience of
Cooperative banks are those that offer services to small scale
business in rural as well urban areas. Cooperative banks provisions
falls under state cooperative societies act and they offers loan for
the commercial as well as economical development as cheap interest
Cooperative banks contribute vastly in stimulating small scale
business in underdeveloped regions of the nation and thus contribute
in the development of the country. Following are the services provided
by cooperative banks.
These banks provide financial assistance to small business and protect
them from being exploited by the money lenders.
Cooperative banks supports rural small scale businesses including the
hatching, cattle and many more financially.
These banks offer loans for the commercial and economical development
of the rural areas at lower interest rates.
Cooperative banks provide loans in urban area as well that includes
personal loans, housing loans and many more.
Specialised banks provide services for the foreign trade exchange.
Specialised banks play important role in enhancing the international
trade of any nation. Following are major services by the specialized
Specialised banks financially support in export and import trading.
These banks provide financial assistance to foreign trade and help
traders for investing in foreign market.
Specialised banks are developed for development of particular areas by
encouraging setting up businesses there.
The central bank is the primary bank of any nation that functions for
supervising, controlling, and regulating the activities of all other
types of banks. They are the one for controlling and coordinating the
currency of nation. They also regulate the loan policies along with
deciding the one interest rate for all the national, public, and
private bank. Following are the major services of central bank:
Only the central bank has authority to issue currency in the nation.
The central bank act as a banker, agent and financial adviser to
government of nation.
The major function of central bank is to supervise the commercial
banks and other banks
The central bank is custodian of foreign exchange reserves and gold
reserves of nation.
The central bank issues the guideline to banks regarding borrow and
lend loans limits and appropriate reserves maintain in banks.
So this is complete information regarding banks and their functions. I
hope, all this information help you understand the performance of
different kind of banks.