Primary Functions Of Commerical Banking


 
 
Concept Explanation
 

Primary Functions Of Commercial Banking

The primary functions of a commercial bank includes

  • Accepting deposits; and
  • Granting loans and advances.
  • Accepting Deposits

    The most important activity of a commercial bank is to mobilise deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks. Depending upon the nature of deposits. fund deposited with bank also earn interest Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, public gets motivated to deposit more funds with the bank. There is also safety of funds deposited with the bank.

    Grant of Loans and Advances

    The second important function of a commercial bank is to grant loans and advances. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans advances varies according to the purpose and period of lot and also the mode of repayment.

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