In this article we will discuss about the functions and role of commercial banks.
Answer 1. Functions of Commercial Banks:
In the modern world, the banks perform a large variety of functions.
These functions may be discussed as under:
A commercial bank accepts deposits from the people for making investments and granting loans to various economic investors. The money is deposited in banks for the sake of safety as well as to earn interest. Actually, the deposits are the basis of bank’s ‘lending business’.
The money is deposited in different types of accounts with the bank which are described as below:
1. Fixed Deposit Account:
In such accounts, the deposited amount can be withdrawn only after the period of time agreed upon by the bank and the depositor. The interest rates are higher in case of such deposits. The longer the period, higher is the interest rate.
However, in practice banks allow the depositors to withdraw funds from such deposits even before the maturity period but at a low interest.
2. Current Account:
A depositor can withdraw their money from such accounts at any time. Usually no interest is paid by the bank on such deposits, but in fact, the bank charges some amount for the services rendered on maintaining such deposits. On this account the bank provides overdraft facility also to the depositor against certain securities or personal guarantee.
Such deposits are mainly kept by traders and industrialists who are required to make regular deposits and payments through banks.
3. Savings Deposit Account:
This kind of account is opened by banks with the objective of collecting small savings from the people who have small earnings and deposit in small amounts as they like but the withdrawals are also allowed as per the policy of bank. However, the rate of interest is less than that on fixed deposits.
4. Recurring Deposit Account:
In case of such deposits, an account holder has to deposit certain fixed amount every month for a specified period. The amount accumulated along with interest is paid to the depositor after the specified period. Rate of interest paid by the bank is higher than the savings account but less than the fixed deposit account.
2. Lending of Money:
This is the second basic function of the bank. The commercial banks lend out money to traders and businessmen. They get this money as deposits from the public.
Various types or methods and procedures to lend money are described as below:
1. Cash Credit:
In cash credit, the bank advances a ‘cash loan’ upto a specified limit to the customer against a bond or any other security. A borrower is required to open a current account and bank allows the borrower to withdraw upto the full amount of the loan. The interest is charged only on the amount actually utilized by the borrower and not on the loan sanctioned.
A loan is a specified amount sanctioned to the borrower for a fixed period. However, before sanctioning the loan, the bank is required to ascertain and satisfy itself about the ability of the borrower to repay according to the soundness of his scheme or business and the genuineness of his purpose.
Invariably, a loan is granted against some kind of security of assets or personal security of the borrower and the interest is charged on the full amount sanctioned as loan, irrespective of the fact whether full amount or part of it has been used. In case of loans, the borrower is provided with the facility to repay the loan in installments or as a lump-sum.
The overdraft facility is allowed to the depositor maintaining a current account with the bank. According to this facility, a borrower is allowed to withdraw more amount than what he has deposited. The excess amount so withdrawn has to be repaid to the bank in a short period and that too with interest.
The rate of interest usually charged is more than that is charged in case of loans. However, the overdraft facility is given only against security of some assets or on personal security of the customer.
4. Discounting of Bills of Exchange:
The banks provide financial help to the merchants and exporters by way of discounting their bills of exchange. However, these merchants and exporters must be the customers of that bank. In such facility, the bank pays the amount of bill presented by the customer after deducting the usual bank discount.
In this way, the customer gets the amount of the bill before the date of its maturity. As such the bank assists its customers to a great extent by accepting their bills and providing them with liquid assets (money). Usually a bill matures after 90 days or so and then the bank presents it to the acceptor and receives full amount of the bill.
Thus, we see that a bill of exchange is of great help both to exporters and importers. The exporter gets the amount from the bank immediately for his use, whereas the importer needs not to pay immediately. The importer may pay after he has sold the goods and has funds in his hand (after the period of maturity of bill).
3. Agency Functions:
The commercial banks also render add on services to their customers and act as agents of the customers in such functions.
The services so rendered are termed as ‘agency functions’ of the bank, some of which are as below:
1. Collection and Making Payments for Credit Instruments:
The bank collects the payment of the bills of exchange, promissory notes, cheques, etc., on behalf of its customers.
2. Collection of Dividend:
The bank collects the dividends and interests on shares and debentures as per the instructions of its customers.
3. Sale and Purchase of Securities:
The bank also buy and sell shares and debentures on behalf of their customers (as per the instructions from the customers).
4. Income Tax and Premium Collection:
The bank on behalf of the customers, arrange for the payment of loan installments, interests, insurance premium, taxes, etc., in accordance with the requirements of the customers.
5. Remittance of Funds:
The banks also transfer funds from one branch of the bank to another according to the instructions of the customers.
6. Trustee or Executor:
The bank also performs the work of a trustee and an executor for its customers in respect of financial matters related to other institutions.
The function of advancing loans to their customers by the banks is also a very important function and has a special significance role in the modern economy.
This can be understood clearly by the following description of this activity:
It is a general practice that whenever a bank grants a loan to their customers, it does not lend the money in cash but opens an account in the name of the customer and credits (transfers) that amount of loan to his account.
In other words, whenever a loan is granted by a bank, the bank creates a deposit or liability against itself. As the deposits of the bank circulate as money in the economic system, such creation of deposit or liability leads to a net increase in the money-stock of the economic system. This act of bank is known as Creation of Credit.
In modern economic activities, the Creation of Credit has far reaching impact.
Even though this function of bank has no direct effect on routine activities of trading matters yet its indirect effect has very significant importance in modern economic systems which have been described below in detail:
1. Promotion of Cheque System, ATMs, Internet Banking and Core Banking Services, etc.: The commercial banks render a very useful service of exchange like cheques, ATMs and internet banking. According to prevailing circumstances, people find that cheque is a more convenient method to settle their debts than through cash. In fact, it is the most developed credit instrument in the money market.
Now, because of ATMs (Automated Teller Machines), a customer can withdraw cash from any part of the country and that too at any time. Through internet banking services, a person can operate his account from his home.
2. Purchase and Sale of Foreign Exchange:
The commercial banks sell and purchase the foreign currencies. Ordinarily, this is done by the Foreign Exchange Banks while in our country, some commercial banks also deal in foreign exchange.
Besides providing the above mentioned functions, the banks perform several other functions of utility and miscellaneous services for their customers as well as for the society.
Some of the functions are mentioned below:
1. Banks provide safety vaults and lockers to their customers for safe custody of their valuable articles and documents.
2. Banks also issue letters of credit like circular notes and travellers’ cheque, etc., to be used by the customers in distant places.
3. The banks also provide various kinds of business and trade information which may be beneficial to their customers.
4. The banks give correct information to their customers about the credit of other customers and also about the financial position and status of their customers whenever it is necessary.
5. The transactions made between two customers through bank act as a third party guarantee and a proof, in case of disputes arising out subsequently.
Answer 2. Functions of Commercial Banks:
Now-a-day, just the use of the term ‘Bank’ signifies the commercial banks and commercial banks are specially known by their functions.
The functions of commercial banks can be classified under these categories:
(A) Primary Functions:
Banks perform two main primary functions:
(1) Receiving Deposits:
The first and foremost work of commercial banks is receiving money from people in the form of deposits. People deposits big and small savings in various accounts with banks.
Various deposit accounts are as follows:
(i) Fixed Deposit Account:
Just as the name suggest this account has a nature of performance. The depositor deposits his money with the bank for a fixed period. The bank gives the depositor a receipt at the time of depositing money. This receipt contains information regarding the rate of interest, the maturity period and the deposited amount. This receipt is non-transferable.
This amount is not allowed to be withdrawn before maturity. But the depositor can take loan on the basis of this receipt as collateral guarantee. Otherwise, he can get his deposit with interest after depositing the receipt on maturity. The bank gives maximum interest on this account in comparison to any other account. Money can be deposited for the minimum period of 46 days. This account is also called ‘Time Deposit’.
(ii) Saving Bank Account:
Banks manage a special kind of account for the common people. This is called ‘Saving Account’. This account helps in the capital formation .for the people with low income. This account can be opened with a small amount. A depositor can deposit money in this account on any working day of the week. Account holders deposit their money through pay-in-slip.
They can withdraw their amount according to their needs through cheque or withdrawal form. But commercial banks authorise their customer to withdraw money from their accounts only on two or three days of the week. Banks give interest on the money deposited in this account, but the rate of interest is low as compared to fixed deposit. Account holders are also given a passbook by the bank.
(iii) Current Account:
Banks maintain a special account for industrials, traders and other commercial institutions. This is called current account. Depositors may deposit in and withdraw from these accounts as many times as they wish. Bank can’t invest money deposited in these accounts according to their choice.
That is why banks give no or nominal interest on deposits in these accounts. Some reputed banks charge some amount from their account holders for running such account. Banks also grant the facility of ‘Overdraft’ to customers with good credit.
(iv) Recurring Deposit Account:
It is the speciality of this account that the same amount has to be deposited in it every month. It means once the account is opened, it takes the form of a compulsion. A Recurring Deposit Account is operated for a period of 6 months, 1 year, 2 years, 3 years or 5 years. The account holder gets his deposit along with interest on maturity. The interest given on this account is equal or equivalent to that of Fixed Deposit Account.
Besides these accounts there is also a Domestic Saving Account or Home Safe Account which is now not in use.
2. Advancing Loans:
The second important task of commercial bank is advancing loans. A part of money deposited with the bank has to be kept with the Reserve Bank of India and the remaining is retained by banks as liquid money. Banks distribute the maximum part of their deposits as loans on getting proper collateral/guarantee. The difference in interest charged on loans and interest paid on deposits is the profit of the bank.
Commercial banks advance loans in the following ways:
(i) Loans and Advances:
Banks give a definite sum for a definite (very often long) period to their customers on getting proper collateral. Such a sum is called loans or advances. In this kind of loan banks don’t pay their customers the granted sum as a lump sum, but open loan accounts in their name and make entry of the loan amount given from time to time in these accounts. The customers are allowed to withdraw money through cheques according to their needs. But customers have to pay interest on the whole sum right from the beginning even if they withdrew just a small part of the loan.
(ii) Cash Credit:
Commercial banks give this facility of credit to business persons. In this system banks grant loans on the basis of collaterals such as commercial goods, bonds or accepted securities. Instead of paying a lump sum amount, bank fixes a limit. The business person can take his/her cash credit up to that limit on the basis of the trade stock as collateral.
Banks often take care of it that the business person has the stock of goods in his godown equivalent to the amount withdrawn from the bank. If the stock is less, the bank should get the amount which back. In this kind of loans banks charge interest only that much amount which the customer owes and not on the whole loan granted.
This is a facility that the banks grant only to those customers who have current accounts with banks. Considering the credit of account holder’s banks grant them the concession of withdrawing an amount bigger than their actual deposits. Excess of withdrawal over deposit is called ‘Overdraft’. But this is a short-term facility. Bank charges interest on overdraft amount. However, bank grants the facility of overdraft to some special customers even on their savings accounts.
(iv) Discounting of Bills:
Commercial banks grant some short-term loans to traders by discounting bills too. Bills of exchange are a kind of credit instrument. A bill can generally be discounted when the drawer of the bill has an account with the bank. While discounting the bill the bank credits the account with the face value of the bill less discounting charge. The discount deducted by the bank is the amount of interest charged by the bank. The amount of discount depends upon the rate of interest.
(v) Money at Call and Short Notice:
When banks grant loans to traders for a period ranging from 1 day to 10 days, it is called ‘Money at Call and Short Notice’. In such a loan, the banks’ reserve the right to ask for the loans to be repaid on short notices. Such loans are mostly taken by speculators and share brokers.
(vi) Educational Loan:
Banks grant loans to students for higher education on the guarantee of their parents/guardians. Owing to this facility granted by the banks, the meritorious students of common households become able to get higher education.
(B) Agency Functions:
Banks are also agents of their customers. Thus, banks perform many agency functions for their customers on their demand. Banks take some commission in return for these functions. This commission serves as a source of bank’s income. Though, banks perform some tasks without any charge also.
The main agency functions of banks are:
(1) To Make Payments on Behalf of Customers:
Banks pay their customers, insurance-premium, rents and installments of loan-repayment etc. from their accounts on their orders. Banks charge some commission for such services.
(2) To Collect Payments on Behalf of Customers:
Banks collect interest on investment, dividend, rents and other receipts on behalf of their customers and deposit these in the accounts of customer.
(3) Purchase and Sale of Securities:
Banks sell and purchase shares, debentures and other government and non-government securities on the demand of their customer.
(4) Transfer of Fund:
Banks also perform the job of transferring money from one place to another.
Banks adopt following methods for these:
(a) Issuing Bank Draft:
A Bank Draft is a paper through which a bank orders the other bank or any other branch of the same bank to pay the mentioned amount to the person or organisation in whose name the draft has been issued.
(b) CBS—Core Banking Solution:
Most of banks have associated themselves with electronic system now-a-days. This enables a customer to deposit an amount in the bank and withdraw the same from some other branch. Besides this, the customer have also been given the facility that they can transfer money from their account.
In other words, core banking solution is a process that is conducted as a centralised environment, which means that all the information’s are stored at the central server of the bank, which is connected to branches through networking system. This makes withdrawal of funds or deposit of funds or transaction of business anywhere in the country from a branch connected under CBS possible. So, it is called anywhere banking or 24 × 7 Banking.
(c) RTGS—Real Time Gross Settlement:
This system facilitates customers to send a sum of one lakh rupees or more to some other person’s account within a short time and at a small commission.
(d) NEFT—National Electronic Fund Transfer:
This method is very useful for sending sum less them one lakh rupees. This system transfers money four times a day at a fixed times viz., 9:30 am, 10:30 am, 12 p.m. and 4 p.m. Banks transfers money through some other ways besides these also.
(e) Payment of Cheques, Bills etc.:
Banks pay cheques and bills of their customers. With this, banks also accept bills of exchange.
(f) Underwriting of Securities:
Underwriting is also a work of commercial banks. They take up the task of selling shares issued by company customer’s securities. Banks get underwriting commission for it.
(C) General Utility Functions:
Banks perform following jobs under the category of general utility functions:
(1) State Custody of Valuables:
Commercial banks provide their customers locker facility for the safety of gold and other precious metals, important documents etc. The customer keeps the key of locker and he/she can put or take out his/her assets in the locker according to his/her convenience during the banking hours. Banks charge an annual rent for this useful facility.
(2) To Issue Letter of Credit:
Banks issue letters of credit to help in their trade activities. The customers get help in dealing with foreign trade and strangers. Besides this, banks also issue travellers cheque. But after the coming of the core banking, the use of travellers cheque has been marginalised.
(3) To Give Information about Credit:
Commercial banks keep information about the credit of their customers. They tan give this information to other customers on request to help in transaction. The traders get the help in trading at the minimum risk.
(4) Financial Advice:
Commercial banks also give financial advice to their customers. Such advice from banks turns out to be helpful in establishing industries, safe investment of money, sale and purchase of shares and debentures etc.
(5) Collection and Publication of Electronic Statistics:
Like the Central Bank, big commercial banks, too, collect statistics about trade and commerce, industries, banking etc., and publish these. This gives the common people proper information regarding the economic fields.
(6) Provision of Foreign Exchange:
Banks manage foreign exchange for traders associated to imports and exports.
(7) ATM (Automated Teller Machine) Facility:
Banks have installed ATMs at various places to facilitate their customers to withdraw money. This helps customers a great deal.
(8) Debit Card:
This is a facility that banks provide to their customers in return for their deposits. Customers can purchase goods and services with the help of this card, provided the sufficient amount is deposited in their account. The sellers can get payment for the goods and services if they have terminals. This card is made of plastic and contains information like the bank’s name, card number etc. printed on it.
(9) Credit Card:
This is also called ‘Plastic Money’. Good and services can be purchased with this card. It is not mandatory that the customers must have sufficient deposit in their accounts. The card holder can use these cards to pay for goods and services they use. In a way, credit cards give the facility of overdraft, but its limit is already fixed. The card holders have to pay an annual charge for this facility. The users of this card become a debtor of banks.
Banks give facility of knowing the account balance and other information by making a call any time.
Answer 3. Functions of the Indian Commercial Banks:
Indian commercial banks perform all usual functions of commercial banks.
They also perform the following additional functions:
1. Deposit Mobilisation:
Commercial banks in India mobilise deposits of the people in both urban and rural areas.
Such deposits are utilised for two purposes:
(i) Investments in the Government of India’s securities and other approved securities in fulfilment of liquidity stipulation and
(ii) Loans and advances to borrowers.
2. Branch Expansion:
Commercial banks have expanded their branches since nationalisation (June 1969). As a result of this more and more people are now enjoying banking facilities (particularly in rural areas).
3. Coverage of Rural Areas:
The most notable achievement of India’s commercial banks in recent years lies in improving the availability of banking facilities in rural areas.
4. Advances to Priority Sectors:
The extension of credit to small borrowers is one of the major functions of India’s commercial banks. Indian commercial banks have drawn up schemes to extend credit to small borrowers in sectors like agriculture, small-scale industries, road and water transport, retail trade and small business, which traditionally had very little share in credit extended by banks.
5. Credit to Weaker Sections:
To increase the flow of bank credit to poorer sections comprising small and marginal farmers, landless labourers, tenant farmers and share-croppers, artisans, owners of village and cottage industries and small transport operators, various new credit schemes have been introduced. Similarly, commercial banks also make small housing loans to the weaker sections of society.
Answer 4. Functions of Commercial Banks:
Though borrowing and lending constitute the main business of banks, these are not the only functions of a commercial bank.
Commercial banks perform a variety of functions, which are as follows:
The most important function of a commercial bank is to accept deposits from the public.
Deposits can be of three forms:
(i) Savings Bank Deposits:
These deposits come from the people belonging to the lower and middle classes, who wish to save a part of their current income to meet their future needs, and also intend to earn an income from their savings. Deposits in this account earn interest at nominal rates. Banks impose restrictions on the number and amounts of withdrawals during a period of time. The banks, however, may relax these rules depending upon the merits of the case. A variant of the savings bank account is ‘cumulative deposit’ or ‘recurring account’. This account has been introduced by banks to mobilise regular savings.
(ii) Current Account Deposits:
These are also known as demand deposits. There is no restriction on the number and amount of withdrawals from a current account. A current account is generally maintained by businessmen. Banks do not pay any interest on the deposits in the current account. On the other hand, banks charge incidental commission on such accounts.
(iii) Fixed Deposit Accounts:
These are also known as time deposits or term deposits. Deposits in this account cannot be withdrawn before the maturity period for which they have been contracted. These deposits carry interest at high rates, rate varying with the length of time for which the deposit has been contracted. In case a depositor wants to withdraw money before the maturity date, he will have to lose some interest.
Extending Loans and Advances:
The second important function of a commercial bank is to extend loans and advances.
This may take any of the following four forms:
(i) Cash Credit:
The debtor is allowed to withdraw a certain amount on a given security. The debtor withdraws the amount within this limit. Interest is charged by the bank on the amount actually withdrawn. An important point in this regard is that withdrawal of cash by the borrower is determined by the bank on the basis of his stock statement and volume of production activity.
Clients who have current account with the bank are granted the facility of withdrawing more money than actually lying in their accounts. It is called overdraft. This facility is available for short-term to reliable persons. Supposing a person has Rs.10,000 lying in current account. If the bank allows him to issue cheques up to Rs.12,000, then the amount of Rs.2,000 will be called overdraft.
(iii) Demand Loans:
Loans are given for some fixed amount, but without any specified maturity. The interest is chargeable on the whole amount from the day the loan is sanctioned irrespective of the fact that the debtor withdraws the whole amount or part thereof. These loans are offered against personal security or against the security of financial assets or some durable goods.
(iv) Short-Term Loans:
Short-term loans generally include ― (a) Personal loans, and (b) Loans to finance working capital. Interest is charged on the entire loan amount from the day it is entered in the loan account of the borrower. Generally, these loans are offered against some security. Hence, these are secured loans.
In the modern world, banks perform such a variety of functions that it is not possible to make an all-inclusive list of their functions and services.
However, some basic functions performed by the banks are discussed below:
I. Accepting Deposits:
The first important function of a bank is to accept deposits from those who can save but cannot profitably utilise this saving themselves. People consider it more rational to deposit their savings in a bank because by doing so they, on the one hand, earn interest, and on the other, avoid the danger of theft.
To attract savings from all sorts of individuals, the banks maintain different types of accounts:
(i) Fixed Deposit Account:
Money in these accounts is deposited for fixed period of time (say one, two, or five years) and cannot be withdrawn before the expiry of that period. The rate of interest on this account is higher than that on other types of deposits. The longer the period, the higher will be the rate of interest. Fixed deposits are also called time deposits or time liabilities.
(ii) Current Deposit Account:
These accounts are generally maintained by the traders and businessmen who have to make a number of payments every day. Money from these accounts can be withdrawn in as many times and in as much amount as desired by the depositors. Normally, no interest is paid on these accounts. Rather, the depositors have to pay certain incidental charges to the bank for the services rendered by it. Current deposits are also called demand deposits or demand liabilities.
(iii) Saving Deposit Account:
The aim of these accounts is to encourage and mobilise small savings of the public. Certain restrictions are imposed on the depositors regarding the number of withdrawals and the amount to be withdrawn in a given period. Cheque facility is provided to the depositors. Rate of interest paid on these deposits is low as compared to that on fixed deposits.
(iv) Recurring Deposit Account:
The purpose of these accounts is to encourage regular savings by the public, particularly by the fixed income group. Generally money in these accounts is deposited in monthly installments for a fixed period and is repaid to the depositors along with interest on maturity. The rate of interest on these deposits is nearly the same as on fixed deposits.
(v) Home Safe Account:
Home safe account is another scheme aiming at promoting saving habits among the people. Under this scheme a safe is supplied to the depositor to keep it at home and to put his small savings in it. Periodically, the safe is taken to the bank where the amount of safe is credited to his account.
II. Advancing of Loans:
The second important function of a bank is advancing of loans to the public. After keeping certain cash reserves, the banks lend their deposits to the needy borrowers. Before advancing loans, the banks satisfy themselves about the creditworthiness of the borrowers.
Various types of loans granted by the banks are discussed below:
(i) Money at Call:
Such loans are very short period loans and can be called back by the bank at a very short notice of say one day to fourteen days. These loans are generally made to other banks or financial institutions.
(ii) Cash Credit:
It is a type of loan which is given to the borrower against his current assets, such as shares, stocks, bonds, etc. Such loans are not based on personal security. The bank opens the account in the name of the borrowers and allows him to withdraw borrowed money from time to time upto a certain limit as determined by the value of his current assets. Interest is charged only on the amount actually withdrawn from the account.
Sometimes, the bank provides overdraft facilities to its customers though which they are allowed to withdraw more than their deposits. Interest is charged from the customers on the overdrawn amount.
(iv) Discounting of Bills of Exchange:
This is another popular type of lending by the modern banks. Through this method, a holder of a bill of exchange can get it discounted by the bank. In a bill of exchange the debtor accepts the bill drawn upon him by the creditor (i.e, holder of the bill) and agrees to pay the amount mentioned on maturity.
After making some marginal deductions (in the form of commission), the bank pays the value of the bill to the holder. When the bill of exchange matures, the bank gets its payment from the party which had accepted the bill. Thus, such a loan is self-liquidating.
(v) Term Loans:
The banks have also started advancing medium-term and long-term loans. The maturity” period for such loans is more than one year. The amount sanctioned is either paid or credited to the account of the borrower. The interest is charged on the entire amount of the loan and the loan is repaid either on maturity or in installments.
III. Credit Creation:
A unique function of the bank is to create credit. In fact, credit creation is the natural outcome of the process of advancing loan as adopted by the banks. When a bank advances a loan to its customer, it does not lend cash but opens an account in the borrower’s name and credits the amount of loan to this account. Thus, whenever a bank grants a loan, it creates an equal amount of bank deposit.
Creation of such deposits is called credit creation which results in a net increase in the money stock of the economy. Banks have the ability to create credit many times more than their deposits and this ability of multiple credit creation depends upon the cash-reserve ratio of the banks.
IV. Promoting Cheque System:
Banks also render a very useful medium of exchange in the form of cheques. Through a cheque, the depositor directs the bankers to make payment to the payee. Cheque is the most developed credit instrument in the money market. In the modern business transactions, cheques have become much more convenient method of settling debts than the use of cash.
Banks also perform certain agency functions for and on behalf of their customers:
(i) Remittance of Funds:
Banks help their customers in transferring funds from one place to another through cheques, drafts, etc.
(ii) Collection and Payment of Credit Instruments:
Banks collect and pay various credit instruments like cheques, bills of exchange, promissory notes, etc.
(iii) Execution of Standing Orders:
Banks execute the standing instructions of their customers for making various periodic payments. They pay subscriptions, rents, insurance premia, etc. on behalf of their customers.
(iv) Purchasing and Sale of Securities:
Banks undertake purchase and sale of various securities like shares, stocks, bonds, debentures etc. on behalf of their customers. Banks neither give any advice to their customers regarding these investments nor levy any charge on them for their service, but simply perform the function of a broker.
(v) Collection of Dividends on Shares:
Banks collect dividends, interest on shares and debentures of their customers.
(vi) Income Tax Consultancy:
Banks may also employ income-tax experts to prepare income-tax returns for their customers and to help them to get refund of income-tax.
(vii) Acting as Trustee and Executor:
Banks preserve the wills of their customers and execute them after their death.
(viii) Acting as Representative and Correspondent:
Sometimes the banks act as representatives and correspondents of their customers. They get passports, traveller’s tickets, book vehicles, plots for their customers and receive letters on their behalf.
VI. General Utility Function:
In addition to agency services, the modern banks provide many general utility services as given below:
(i) Locker Facility:
Banks provide locker facility to their customers. The customers can keep their valuables and important documents in these lockers for safe custody.
(ii) Traveller’s Cheques:
Banks issue traveller’s cheques to help their customers to travel without the fear of theft or loss of money. With this facility, the customers need not take the risk of carrying cash with them during their travels.
(iii) Letter of Credit:
Letters of credit are issued by the banks to their customers certifying their creditworthiness. Letters of credit are very useful in foreign trade.
(iv) Collection of Statistics:
Banks collect statistics giving important information relating to industry, trade and commerce, money and banking. They also publish journals and bulletins containing research articles on economic and financial matters.
(v) Underwriting Securities:
Banks underwrite the securities issued by the government, public or private bodies. Because of its full faith in banks, the public will not hesitate in buying securities carrying the signatures of a bank.
(vi) Gift Cheques:
Some banks issue cheques of various denominations (say of Rs. 11, 21, 31, 51, 101, etc.) to be used on auspicious occasions.
(vii) Acting as Referee:
Banks may be referred for seeking information regarding the financial position, business reputation and respectability of their customers.
(viii) Foreign Exchange Business:
Banks also deal in the business of foreign currencies. Again, they may finance foreign trade by discounting foreign bills of exchange.