Meaning and Classification of Bank Functions

The two previous chapters studied the Reserve Bank of India, the apex regulator, and the different types of banks operating in India. This chapter turns to the actual day-to-day work an ordinary commercial bank does for its customers — the specific functions that make a bank useful to households, traders and industry alike.

A commercial bank's functions are traditionally classified into two broad groups: Primary Functions — accepting deposits and lending money, the core banking activities without which an institution would not be called a bank at all — and Secondary Functions, further divided into Agency Functions (services the bank performs on behalf of, and as an agent for, its customer) and General Utility Functions (services the bank offers as a facility to any customer, not tied to a specific instruction). Together these functions explain why a modern economy could barely function without commercial banks — they safely hold the public's savings, channel those savings into loans that finance trade and industry, and provide a wide range of payment and safekeeping services that individuals and businesses rely on constantly.

This classification of bank functions — primary versus secondary, and agency versus general utility within secondary — is the same standard classification used across Indian commerce and economics syllabi, since it describes the actual, universally recognised working of any commercial bank operating under RBI regulation, whichever board a student studies under.