Question

Explain with reason, whether you agree or disagree with the following statement:

Commercial banks perform agency functions to earn profit.

Answer 1

Yes I strongly agree with statement. This is because while performing agency functions they charge a commission for each activities.

 

Agency Functions /Agency Services :

 

Banks perform certain functions on behalf of their customers. The bank acts as agents while performing these functions for their account holders. Some of these functions are:

 

1)      Collection of money:

The commercial banks accept standing instructions from customers regarding collection of money such as cheques, drafts, interest, dividend, bills, promissory notes, rents, demand drafts, etc. The bank charges a small commission for rendering such services.

 

2)      Payments/Periodical payments:

The banks can also make payments on behalf of their customers, such as payment of insurance premium, rent, electricity bill, telephone bill, taxes etc. A commission is normally charged for such services.

 

3)      Purchase and sale of securities:

The commercial banks can undertake buying and selling of securities, debentures, shares as per the instructions and authority given by the customer. Commercial banks on the basis of its expert knowledge can help its customers in this regard.

 

4)      Acting as Trustee, Executor, Administrator or Attorney:

As a trustee, the bank is the custodian of the customer's fund. The bank also act as the executor of the customers will, in case of death. As an attorney, the banks signs the documents on behalf of the customer's. Commission is normally charged for such services.

 

5)      E-Banking (Electronic Banking):

Through electronic banking, a customer can operate his bank account through internet. He can transfer money from one place to another. He can also make payments of various bills like telephone bills, E-banking helps businessmen, traders, merchants. Banking transactions can be carried out safely and with total confidentiality with the help of E-banking.

 

6)      Dematerialization Account: (D-mat) account Some commercial banks provide D-mat facility to their customers. D-mat account is useful to investors who deal in shares. Each investor has to open a separate de-mat account. The transactions relating to buying and selling of shares are recorded. Periodically statements about buying and selling of shares are given by commercial banks to each investor.

 

7)      Other functions:

Commercial banks can work as an agent for any government or local authority or any other persons i.e. clearing and forwarding of goods.