Question

Which of the following are the functions of a commercial bank? 

Options

• Accepting deposits 

• Granting loans and advances 

• Discounting bills of exchange 

• All of the above 

Answer 1

All of the above

Explanation:

Accepting deposits
The primary role of commercial banks is to receive customer deposits. These deposits are classified as follows:

1. Saving Accounts
   Individuals who want to save a portion of their income and earn interest on their savings can open a savings account. Savings account customers can deposit checks, draughts, and other similar documents. Withdrawal is, however, subject to a cap.
2. Fixed deposit accounts
   Fixed deposit accounts, as the name suggests, require deposits to be held for a set amount of time, such as Rs.500 every month for five years. When opening the account, the duration must be selected in advance. These accounts do not have the ability to write checks. The interest rate, which is determined by RBI, will be higher the longer the time period.
3. Current deposits accounts
   Deposit accounts are sometimes known as 'demand deposits,' because the depositor can withdraw money at any moment using checks. Businesspeople utilise this account to conduct numerous transactions in a single day, but they do not receive interest on their deposits. At regular periods, banks send account statements to current account holders.

Granting loans and advances

The provision of loans and advances is the second most significant function of commercial banks. The interest rate that banks charge on loans is higher than the interest rate that banks pay on demand deposits and savings deposits. Commercial bank loans are typically for a lengthy period of time and are secured by assets. A bank will only grant you an advance for a certain time.

Discounting bills of exchange

Discounting bills of exchange is a service provided by commercial banks to the business community. Banks purchase these1bills, which are produced by consumers, by deducting interest from the face value of the bill, so giving convenient finances to the business community when needed.