Functions of a bank or a Commercial bank

A commercial bank can undertake activities as defined and indicated in objective clause of its memorandum of association. Normally it performs the following important functions-

General functions:

1. Receiving deposits: The first and foremost function of commercial bank is to receive or collect deposit from the public. Generally deposits are collected from the public in different forms of accounts e.g. current, savings, term deposit accounts. No interest is charged in the current accounts, lower rate of interest charged in the savings account and comparatively higher interest rates given in fixed deposits. Thus commercial bank builds up customer network.
2. Accommodate loans and advances: Commercial bank attaches much importance providing loans and advances at higher rates than the deposit rates and thus earns profits on it. For expansion and smooth running of business working capital finance is given to the borrower. In the similar manner, commercial bank extends financial accommodation for the development of agriculture and industry. Credit accommodation is provided to the entrepreneurs and also reviving sick and old industries as per government directives. Thus commercial bank extends welfare service to people at large.
3. Create loan deposits: Commercial bank not only receives deposits from public and accommodates loans to public but also creates loan deposits. Example- While paying money in the form of loan is deposited to the borrower’s account. The borrower does not withdraw the full amount at a time. The balance left in the account creates loan deposits.
4. Create medium of exchange: Sometime in the past, commercial bank used to issue notes. At present central bank has got its exclusive right to issue notes. Of late, Commercial bank creates medium of exchange by issuing cheque-like notes, cheque is transferable and cheque is popularly used in the banking transactions.
5. Contribute in foreign trades: commercial bank plays a vital role in enhancing imports and exports business in the country. It contributes much in the economy by financing both import and export and thus earns foreign exchange for the country.
6. Form capital: commercial bank extends financial assistance for the formation of capital in the trade, commerce and industry in the country which ultimately expedites its economic development.
7. Create investment environment: Commercial bank plays a significant role in creating investment environment in the country.

Public utility function:

1. Remit money: Remittance of money to the public from one place to another is one of the functions of commercial bank. Remittance of money is affected in the form of demand draft, mail transfer, telegraphic transfer through different branches and correspondents home and abroad.
2. Help in trade and commerce: Commercial bank helps in expanding trade and commerce. In inland and foreign trade customers are allowed credit accommodation in the form of letter of credit, bills purchased and discounted etc.
3. Safe custody of valuables: Commercial bank introduces ‘lockers’ service to the customers for safe custody of valuables documents, shares & securities etc.
4. Help in foreign exchange business: While opening letter of credit commercial bank obtains credit report of the suppliers and thus help in expediting import and export business.
5.Act as a referee: Commercial bank act as a referee for and on behalf of the customers.
6. Act as an adviser: Commercial bank provides valuable advice to the customers on the feasibility of business and industry.
7. Collect utility service bills: As a social commitment, commercial bank collects utility service bills e.g. electricity, gas phone etc from the public.
8. Purchase and sale of prize bond and sanchaya patra: Commercial bank undertakes to purchase and sale of sanchaya patra and prize bonds as part of social commitments.
9. Help people traveling abroad: Commercial bank helps customers in traveling abroad through issuance of travelers cheque, draft etc.

Agency functions:

Besides above stated functions commercial bank acts as a representative of the customers.

1. Collection and payment: Commercial bank collects and pays values of cheque, bill of exchange, promissory notes, pension, dividends, subscription, insurance premium, interest etc on behalf of the clients.
2. Purchase and sale of shares and securities: Commercial bank is entrusted with the responsibility of purchase and sale of shares and securities on behalf of the customers.
3. Maintenance of secrecy: Maintenance of secrecy is one of the most important functions of commercial bank.
4. Act as a trustee: Commercial bank acts as a trustee on behalf of the customers.
5. Economic development and welfare activities: Commercial bank contributes much for the welfare and economic development of the country.

Others function:

1. Take part in the formation, management supervision or control in the banking business.
2. Appoint officers, staff, experts, advisors
3. Publish yearly annual report.
4. Involves in research work

Importance or role of modern bank or commercial bank

The importance of commercial bank is as follows:
1. Capital formation: Capital and its supply is one of the most important factors in economic development. It is well known that banks by acting as financial intermediaries between the savers and the borrowers play a very important role in its formation. People having surplus cash or savings generally do no know how to invest it. Here the banks step in and collect the surplus from them which in turn encourage them to save more.
2. Providing loan: Commercial bank provide short term loan to the businessman. It also provides mid term and long term loan in safe and profitable sector. This loan plays an important role in the economic development of the country.
3. Investment: In any country for the economic development investment is an important thing. Commercial bank invests money in the profitable sector or business which develops the new business.
4. Creating medium of exchange: Commercial bank does not issue notes but as the medium of exchange it also issue cheque, draft, bill of exchange etc. For this reason the economic transaction are increasing & development also increases.

Principles of modern bank or commercial bank

A successful and ideal modern bank follows some principles in order to ensure smooth running of banking business. To cope up with the prevailing competition, to provide better services to the clients and to gain competitive advantages commercial banks or modern banks have to be careful about their services. These are referred as principles.