Commerce · Ch 5 — Banking Services
Primary Functions of Commercial Banks
Primary Functions of Commercial Banks
A commercial bank's activities are traditionally divided into primary functions — the core activities without which it would not be a bank at all — and secondary functions, additional services layered on top. This section covers the primary side: accepting deposits and advancing loans.
Accepting deposits
| Account type | Who it mainly suits | Interest & withdrawal |
|---|---|---|
| Current account | Businesses needing frequent deposits/withdrawals | Little or no interest; usually unrestricted withdrawals |
| Savings account | Individuals saving part of their income | Modest interest; some withdrawal restriction |
| Fixed deposit account | Savers who can lock in a lump sum for a fixed period | Highest interest among these; penalty on early withdrawal |
| Recurring deposit account | Savers who want to deposit a fixed sum regularly | Interest close to a fixed deposit; builds savings in instalments |
Advancing loans
- Cash credit — the bank sanctions a credit limit against security (such as stock or receivables), and the borrower withdraws only as needed, paying interest on the amount actually drawn rather than the full limit.
- Overdraft — allowed mainly on current accounts, permitting a customer to withdraw more than the account balance, up to an agreed limit, for a short period — a convenient facility for a temporary cash shortfall.
- Term loans — a specific sum sanctioned and paid in one lump sum (or occasionally in instalments) for a stated purpose and period, repayable with interest. …
A deposit of a lump sum for a fixed period at a comparatively high, pre-agreed rate of interest, not normally withdrawable before m …
A credit arrangement in which the bank sanctions a limit against security and the borrower pays interest only on the a …
A short-term facility allowing a current-account holder to withdraw more than the account balance, up …
A bank purchasing a bill of exchange before its due date at less than face value and collecting the full amount from the par …