ROLE OF BANKING

Importance of Banking : Banks play the role of

Circulatory System in the economy & perform various
types of functions. They satisfy the financial needs of the
vital sectors including agriculture, industry, trade,
communication etc. Their functions can be classified as:

Primary Functions
Secondary Functions
Primary Functions of Commercial Banks: Primary functions
of the banking are described as below:

Accepting Deposits
Making Advances
Accepting Deposits: Commercial bank accepts various types of deposits from
public. These deposits are payable on demand or after a certain time
period. The most important activity of a commercial bank is to mobilise
deposits from the individuals who have surplus income and savings
Depending upon the nature of deposits, funds deposited with bank also earn
interest. Thus, deposits with the bank grow along with the interest earned.
If the rate of interest is higher, public are motivated to deposit more funds
with the bank.
Various types of deposits accounts are as below:
Current Deposits
Fixed Deposits
Saving Deposits
Flexi deposits
Recurring deposit
Miscellaneous deposits like Home Construction deposit scheme, Children
Gift plan, Old age pension scheme, Gold saving scheme, etc.
Making Advances: The commercial banks provide loans and advances of
various forms. It includes an overdraft facility, cash credit, bill discounting,
etc. They give demand and term loans to all types of clients after due
assessment. Lending by banks can be classified as:
Secondary Functions of Commercial Banks: Along with the primary functions,
each commercial bank has to perform several secondary functions. These
functions are either derived from their primary functions or may be
independent. These functions can be broadly classified as:
Agency Functions
General Utility Functions
Miscellaneous Functions
Agency Functions:
Collecting & paying cheques, drafts, bills of exchange for their customers.
Paying insurance premium, loan installments, income-tax, rent, interest,
taxes, utility bills, of their customers as per directions.
Purchasing and selling securities, shares and debentures on behalf of their
customers.
Sending remittances on behalf of their customers.
 Acting as trustee, executor of the will (of their customers after their
deaths) or administrator of estates, attorney, as guardian of a minor heir
etc.
Acting as correspondents on behalf of customers for other banks.
Acting as trustee and business manager for passive investors (Portfolio
Management Services)
To accept various payment of dividends, interest, rent or collection of
utility bills & other regular/ occasional payments etc. for their customers.
General Utility Functions: General utility services are those services which
are rendered by commercial banks not only to the customers but also to the
general public. These are available to the public on payment of a fee or
charge. They include:
Issuing bank drafts, bank cheques, gift cheques, travellers cheques etc.
Processing of payments by way of telegraphic transfer, EFT, POS, Internet
banking etc.
Acting as a referee regarding the financial status of customers.
Undertaking foreign exchange business.
Providing letter of credit, guarantees, performance bonds and other forms
of off-balance sheet exposures.
 Issuing letter of credit, guarantees, performance bonds and taking other
off-balance sheet exposures.
Distribution or brokerage of insurance, unit trusts etc.
Cash Management and Treasury.
Undertaking safe custody/ safe deposit of valuables, important documents
and securities.
Providing alternative money transfer modes to the customer by way of
online banking, ATM, Mobile Banking etc.
 To provide various cards such as credit cards, debit cards, Smart cards,
Prepaid cards etc.
Underwriting of shares, debentures or loans, Merchant banking and
private equity financing.
To advise their clients relating to investment decisions as specialist.
Miscellaneous functions:
During natural calamities or national exigencies, undertaking activity of
mobilizing funds and donations.
Collecting necessary and useful statistics relating to trade and industry.
Supplying trade information and statistical data useful to customers.
Collecting and supplying business information.
Sharing information amongst banks.
Role of Bank in Financial System

Delegated Monitoring
Risk Sharing
Economic Growth
Completing transactions of other institutions.
Corporate Governance
Saving mobilization
Economic development
Capital formation
Thank You.