Question

Explain the various secondary functions of commercial banks.

Answer 1

These services can be broadly classified into agency services and general utility services.

I. Agency Functions:
Banks act as agents of customers and provide certain services. They are called Agency Functions which are as follows:

1. Transfer of Funds: Banks issue demand drafts, bankers' cheques, travelers’ cheques, etc. and help in the transfer of funds from one place to another.

2. Periodic Payment of Premiums, Rent, etc.: After instruction from the customers, banks undertake the monthly payment of insurance premium, rent, telephone bills, etc. from the accounts of customers.

3. Collection and Payment of Cheques: On behalf of customers bank collect the cheques deposited into the accounts of customers from other banks and deposit cash in the customers’ accounts.

4. Acting as Executors, Trustees, and Attorneys: Banks act as executors of the will of the customers and implement their will after their death.

5. Conduct Share Market transactions: A Demat account should be opened with Depository Participant and that Demat account should be linked with savings bank account by the customer.

6. Preparation of Income Tax Return: Banks prepare the annual income tax return on behalf of the customers and provide income tax-related advice to them.

7. Dealing in Foreign Exchange: Banks buy and sell foreign currencies on behalf of customers.

8. Acting as Correspondent: Banks act as correspondent of customers and receive travel tickets, passports, etc.

II. General Utility Functions:

1. Issue of Demand Drafts and Bankers’ Cheques
2. Accepting Bills of Exchange on behalf of Customers
3. Safety Lockers
4. Letters of Credit
5. Travelers Cheques
6. Gift Cheques
7. Reference Service