Modern Functions of a Commercial Banks

Commercial banks perform numerous function on a daily basis to satisfy the needs of their customers. During the course of providing their services, they make profit in order to meet its obligations and other expenses. To make sure they remain in the business, they keep sufficient amount of funds in hand as cash reserve.

Modern Functions of a Commercial Banks

1. Receiving Deposits

Commercial banks receive deposit from the public against various accounts maintained by them. In order to promote the deposit from customers/ public, commercial  banks offers current accounts, saving accounts and fixed deposit accounts to the public. On current account, no interest is paid to the cusotmers. However, saving accounts are subject to lower interest payments while fixed deposits offers high rate of interest.

2. Investing Funds

The deposit that commercial banks obtain from the public is not kept idle. Instead, it is invested in various securities, trading and loan to other customers at a higher interest rates. Banks use funds to discount bill of exchange of their customers in order to earn a good amount of revenue on the date of maturity of the bill.

3. Financing Trade

Function and role of commercial banks cannot be ignored in international trade where the need of letter of credit (LC) is mandatory to conduct the transaction safety and risk free. Without the services of a commercial bank, the exporters would be at the mercy of the importer.

4. Custodian of Valuables

Commercial banks also offers locker facilities to the public in order to provide them a secure and risk free facility to keep their jewellery, securities and documents. For this,  they charge a monthly fees from the cutomers.

5. Transfer of Funds

Commercial banks provide fund transfer facility to its customers within the national border as well as at the international level. Within the national borders, cusotomers can transfer funds to other parties either via ATM or online net banking facility. For international fund transfer, SWIFT and telegraphic transfer TT are mostly used.

6. Foreign Exchange Dealing

Commercial banks also performs the role of buying and selling foreign currencies such a s dollars, pound sterling etc. Banks always make profit on foreign currency transactions because they buy at lower rate and sell at higher rate.