Functions of Commercial Bank

Commercial banks perform many functions. They satisfy the financial needs of the sectors such as agriculture, industry, trade, communication, so they play very significant role in a process of economic social needs. The functions performed by banks, since recently, are becoming customer-centred and are widening their functions. 

Generally, the functions of commercial banks are divided into two categories:

A. primary functions.

B. Secondary functions.

Commercial banks perform various  

primary functions:

------------------------------------

Commercial banks accept various types of deposits from public especially from its clients, including saving account deposits, recurring account deposits, and fixed deposits. These deposits are payable after a certain time period. 

Commercial banks provide loans and advances of various forms, including an overdraft facility, cash credit, bill discounting, money at call etc. They also give demand and demand and term loans to all types of clients against proper security.

Credit creation is most significant function of commercial banks. While sanctioning a loan to a customer, they do not provide cash to the borrower. Instead, they open a deposit account from which the borrower can withdraw. In other words, while sanctioning a loan, they automatically create deposits, known as a credit creation from commercial banks.

So, the secondary functions may be divided into five categories, such as- 

(1) General functions, 

(2) Functions related to foreign trade and foreign exchange, 

(3) Agency functions, 

(4) Welfare functions and 

(5) Other functions.

General functions are:

---------------------------------------

a) Maintain account of the clients, 

b) To receive deposits of various types, 

c) To make advance/investment against with or without securities, 

d) To create deposits, 

e) To create medium of exchange through cheque, Draft, Pay order etc.  

f) To issue guarantees (local) g) To discount Bills.

Functions related to Foreign trade & Foreign exchange:

---------------------------------------------------------------------------------

a)  To make correspondent banking with overseas banks, 

b)  To place foreign currency funds with correspondents abroad, 

c)  To issue Letter of Credit (LC), 

d)  To issue Back to Back Letter of Credit (BTB L/C), 

e)  To amend L/Cs, 

f)  To extend investment/credit facilities to the importers through creating PAD/MIB, MTR/LTR, LIM/LAM/MP etc, 

g) To extend credit/investment facilities to the exporters through the modes of Musharaka Pre-shipment/PC/ECC, LDBP, FDBP etc, 

h)  Acceptance of Bill of Exchange and make payment, 

i) Make forward booking of foreign exchange on behalf of importer for preventing them from exchange loss, 

j)  Sale and purchase of Foreign currency, TC, Credit Cards, 

k)  Maintaining Foreign Currency accounts, 

l)  Outward foreign remittance for import, foreign tour, travel, education, treatment, pilgrims, training etc., 

m) Inward foreign remittance – export proceeds, wage earners remittance etc., 

n) Issuing guarantees (foreign).

Agency functions:

--------------------------

a) To transfer money, 

b) To collect funds and makes payment for the clients, 

c) To maintain confidentiality of customers, 

d) To sale and purchase of shares and securities, 

e) To make payments for utility charges and insurance premium on behalf of the client, 

f) To receive rent, dividend, premium etc.

g) To work as trustee, 

h) To work as representative of Central Bank.

Welfare functions:

----------------------------------

a) Social welfare functions/Corporate Social Responsibility, 

b) Functions related to the welfare of the employees/retired employees such as 

• Establishment of institution, 

• Establishment of Trust, 

• Pensions and allowance.

Other functions:

------------------------------

a) Underwriting, 

b) Work as safe custody through Locker service, 

c) Advises the clients on business matters, 

d) Repo, 

e) Customer financing, 

f) Leasing, 

g) Income sharing, 

h) Syndication, arrangement of funds, 

i) Issuance of Sanchay Patra, ICB Unit Certificate, Bond, 

j) Sale of Prize Bond, 

k) Any other functions approved by the Government / Bangladesh Bank. 

l) Merchant banking.

At last it is said that, commercial banks can play a very useful roles in the economy of every modern state.