Advertisements
Advertisements
Questions
Explain the functions of a commercial bank.
State and explain the functions of commercial banks.
Solution
Commercial banks act as intermediaries in the country’s financial system by bringing savers and investors together. They are profit-seeking financial institutions. Commercial banks play an important role in mobilizing savings and allocating them to various economic sectors. It includes both scheduled commercial banks and non-scheduled commercial banks. Scheduled commercial banks are those included in the second schedule of the Reserve Bank of India Act of 1934. Based on ownership and function, Indian commercial banks can be classified into four categories: Public sector banks, Private sector banks, regional rural banks, and foreign banks.
The functions of Commercial Banks are as follows:
- Acceptance of deposits: Accepting deposits is one of the primary functions of commercial banks. Deposits constitute the main source of funds for these banks. Savings lead to the creation of deposits. The deposits are categorised as:
- Demand Deposits: These deposits are withdrawable on demand. They are in the form of current account and savings account deposits.
- Current accounts are usually opened by business people, corporations, industrial houses, trusts, etc. They are provided with an overdraft facility, i.e. they are allowed to withdraw more than the balance in the account.
- Savings accounts are operated mainly by the salaried class, small traders, etc., who wish to save a part of their income with the bank.
- Time deposits: These deposits are repayable after a certain period of time. In other words, they can be withdrawn only on maturity. They are in the form of Recurring deposits and Fixed deposits.
- Recurring deposit refers to a deposit wherein the customer deposits a fixed amount at regular intervals for a specified period of time.
- Fixed deposits refer to the lump sum amount deposited by a customer for a specified period of time. This deposit carries a high rate of interest compared to all other deposits.
- Demand Deposits: These deposits are withdrawable on demand. They are in the form of current account and savings account deposits.
- Providing loans and advances: Commercial banks mobilize savings and lend these funds to institutions and individuals for various purposes.
- Loans: Based on tenure, loans can be classified as call loans, short-term, medium-term, and long-term loans. The longer the duration, the greater the rate of interest will be.
- Advances: The banks also provide cash credit, overdraft facility, and discount bills of exchange.
- Ancillary functions: Commercial banks provide a range of ancillary services, such as:
- Transfer of funds
- Collection of money
- Making periodic payments on the customer’s behalf
- Merchant banking
- Foreign exchange
- Safe deposit lockers
- Demat facility
- Internet banking
- Mobile banking
- Credit creation: Credit creation is an important function of commercial banks. Commercial banks are the creators of credit. Demand and time deposits constitute the primary deposits of banks. After meeting reserve requirements, the balance amount is used for giving loans. Thus, secondary deposits, or derivate deposits, are created out of the loans provided by the banks.
Notes
Students can refer to the provided solutions based on their preferred marks.
APPEARS IN
RELATED QUESTIONS
Providing safe deposit vault facility is the only general function of commercial banks.
Explain the components of Legal reserve Ratio.
The ratio of total deposits that a commercial bank has to keep with Reserve Bank of India is
called:( choose the correct alternative)
(a) Statutory liquidity ratio
(b) Deposit ratio
(c) Cash reserve ratio
(d) Legal reserve ratio
Explain the process of credit creation by commercial banks.
Explain the various types of deposits.
How do commercial banks create deposits? Explain.
Explain the process of money creation by the commercial banks with the help of a numerical example.
State whether the following statement is true or false :
Credit control is the function of commercial banks.
Answer the following question :
What are the different types of loans provided by commercial banks ?
State with reason. Whether you ‘agree’ or ‘disagree’ with the following statement:
Commercial bank can credit on the basis of primary deposit.
State whether the following statement is true or false.
The Cash Reserve Ratio does not affect the lending capacity of the commercial banks.
Give reason or explain the following statement:
Rate of interest on fixed deposit is high.
Explain with reason, whether you agree or disagree with the following statement:
Commercial banks perform agency functions to earn profit.
Fill in the blank using proper alternatives given in the bracket:
.................consumption cannot be zero.
Fill in the blank using proper alternatives given in the bracket:
The primary function of commercial banks is to ...................
Write short notes (Any Two)
Types of loans of commercial bank.
Fill in the blank with appropriate alternatives given in the bracket :
Commercial banks create __________.
Define of Explain the following concept:
Recurring deposit
Give reasons or explain the following statement:
Every loan creates a deposit.
Write answers in ‘one’ or ‘two’ paras each.
What are the primary functions of commercial banks?
Define or Explain the concept
Current deposit
State whether the following statements are True or False with reason:
Interest rate is more for fixed deposits.
Answer with reasons whether you agree or disagree with the following statement:
The commercial banks perform many useful works for the people.
Fill in the blank with appropriate alternatives given below
Deposits from __________ account can be withdrawn without any notice.
State whether the following statement is True or False.
Credit money is created by the central bank of a country.
State whether the following statement is True or False.
There is no difference between primary deposit and secondary deposit of a commercial bank.
Define explain the following concept.
Fixed deposits
Define explain the following concept.
Cash credit
Define explain the following concept.
Safe deposit vault
Define explain the following concept.
Discounting of bills
Give reason or explain the following statement:
Commercial banks provide agency functions to earn profits.
Give reason or explain the following statement:
Overdraft facility is provided to current account holders.
Give reason or explain the following statement:
Rate of interest on fixed deposit is high.
Distinguish between:
Call loans and long term loans
Distinguish between:
Cash credit and overdraft facility
Write short note on:
E-banking facility
Write short note on:
D-mat account
Answer the following question:
Explain various types of deposits.
Answer the following question:
What are the different types of loans provided by commercial banks?
State with reason whether you agree or disagree with the following statement.
A commercial bank create credit on the basis of primary deposit.
State with reason whether you agree or disagree with the following statement.
Commercial banks perform many general utility services.
Answer in detail:
Explain the process of credit creation.
State whether the following statement is True or False :
Loans given by banks for a period of less than five years is known as long - term loan.
State with reason whether you 'agree' or 'disagree' with the following statement.
Credit creation of commercial banks is based on primary deposits.
A Commercial Bank is an institution that provides services ______.
The Functions of commercial banks are broadly classified into ______.
Credit creation means.
What is credit creation?
Write the mechanism of credit creation by commercial banks.
State any two components of ‘Net Factor Income from Abroad’.
CRR is ______
Which of the following points indicates that RBI is controlling the commercial banks?
The process of money creation or credit creation is done by ______
Which of the following points states that the open market operation helps in controlling credit creation?
M3 and M4 are known as ______ money.
If reserve ratio is 10% and primary deposit is ₹1,250 crores, the total deposit created by commercial banks will be ______
Demand deposits include ______
High Powered Money includes ______
The word 'net' implies that ______ is to be included in the money supply.
If the total deposits created by commercial banks is 10,000 crores and legal reserve requirements are 10%, the number of initial deposits will be ______
In the present COVID-19 situation, many economists have raised their concerns that the Indian economy may have to face a deflationary situation due to reduced economic activities in the country. Suppose you are a member of the high-powered committee constituted by the Reserve Bank of India (RBl). You have suggested that as the supervisor of commercial banks, ______ (restriction/release) of the money supply be ensured by the Reserve Bank of India (RBI).
Saving deposit in the Post office is a part of ______
In the case of Gross Domestic Capital Formation, which one will be the part of it?
Read the following hypothetical case study carefully and answer the questions follow on the basis of the same.
Agricultural Developmental Bank of Pakistan uses the production function approach for measuring bank outputs and costs. A translog cost function is estimated to provide an assessment of the bank's scale and scope efficiency, and to quantify the extent to which its production costs are sensitive to the size and output mix. Results show that the bank enjoys both overall and product-specific economies of scale and, therefore, there exists scope for the bank to expand its operations at a declining average cost. Even though bank branches in all size categories enjoy economies of scale, the extent of such economies is larger for branches operating at a smaller scale of production. This implies that as the bank branches grow larger in size in terms of both loan and deposit accounts, they move closer to attaining increasing returns to a factor. It is also shown that the marginal costs of servicing both loan and deposit accounts decline as bank branches grow larger in size in terms of either the number of loans or the number of deposits. This confirms that branches operating at a larger scale of production have attained greater cost-efficiency in terms of servicing the loan and deposit accounts.
The increasing returns to scale in larger branches is due to ______
Commercial Bank was facing a financial crisis due to the crisis of non-performing assets. It went to the RBI for help. What role will RBI play in such a case?
Railways is an example of:
M3 = ______
The Narrow concept of money includes ______
It takes Rohan 30 minutes to do an economics assignment and one hour to do a finance assignment. What is the opportunity cost of you doing two economics assignments?
Explain the functions of commercial bank.
