Question

List four functions banks perform. Give a detailed response for each function

Answer 1

Banks are the major financial institutions in our economy which provide financial assistance to all the economic units. The primary functions of all banks are accepting deposits and lending of money.
1. Accepting deposits; bank will increase their profits through increasing the number of deposits. These deposits can be divided into saving deposits, fixed deposits, current deposits and recurring deposits. Saving deposits will encourage the people to save more through giving a certain amount as interest over their money. Fixed deposits only demanded after a certain period of time. Most of the business people were deal with current deposits. Petty traders and salaried persons were operated through recurring deposits.
2. Lending of money; bank provide loans and advances to the public to diversify their business operations. Overdraft, cash credits, loans and discounting of bill of exchanges are the major forma of loans and advances.
3. Agency functions; banks were cat as the agents between central monetary authority and the customers. Transfer of funds, periodic payments and collections, portfolio management and collection of cheques are the major agency function come under banks.
4. General utility functions; Issuing of drafts and letter of credits, providing locker facilities, project reports, social welfare programmes, underwriting of shares, dealing with foreign exchange reserves are the other major functions of the banks.
Efficient management of the funds between borrowers and savers were considered as the main aim of banks and other financial institutions. The banks will provide more specialised services and reduce the cost of information regarding savings and borrowings. Banks will provide capital for economic development and mobilize the savings which scattered all over the economy.