How do commercial banks generate profit?

Expert Solution

A commerical bank is a financial entity that provides loans and takes deposits from its customers. Other than this, a commercial bank also lends money to the Reserve Bank and other commercial banks who are in need of cash.

Lending - The main source of earnings for a commercial bank is by giving loans to its customers and charging interest on them.

Agency service - Commercial bank also act as an agent for its customers by clearing that checks, paying their insurance premium, paying utility bills, etc. They charge a nominal fee for providing these services.

Foreign exchange - Other than this main function commercial banks also provide foreign exchange and keep a margin between the bid and ask price. This is their profit.

Locker facility - Locker facility is provided by charging a nominal fee to help its customers to store their valuables in a safe.

Hence, these are a few ways in which a commerical banks make profit.

Let me know in the comment section in case of any doubt.

jeff jeffy answered 1 year ago

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