Primary Functions

Accepting Deposits – Accepting deposits is the most important function of a commercial bank.
The bank borrows money from the public by way of accepting different kinds of deposits. They
are repayable on demand. Generally banks accept the following types of deposits:

 Saving Deposits – Savings deposit accounts are maintained by commercial banks to

mobilize the savings of the salaried, middle and low-income group. They encourage
thrift among the persons who earn fixed income every month. Only individuals and non-
profit organizations can open this type of accounts. Any person who wants to open a
savings bank account in any commercial bank has to deposit a prescribed amount as
deposit initially say Rs.500.
 Fixed Deposits – Fixed deposits are also called as time deposits. Here the customer
deposits a certain sum of money for a fixed period, which is not withdrawable before
the maturity date. He gets interest on the deposit for the period. The rate of interest
charged on these deposits is normally higher than that allowed on current and savings
deposits.
 Current Deposits – Current deposits are also called as current accounts. Businessmen
generally operate current account for carrying out their banking transactions more
conveniently. A customer can open a current account in a bank by making an initial
deposit prescribed by the bank time to time.
 Recurring Deposits – In recurring deposits, customers remit certain sum of money on
monthly installments for a period ranging from 12 months to 120 months on a uniform
pattern. The entire amount along with interest is payable after the payment of last
installment. This type of deposits is much useful to the middle and low-income group of
the people. It works on the principle of “little drops of water make a big ocean”.

Granting Advances – Advances are the funds provided by the banks to the business to fulfill
working capital requirement which are to be payable within one year.

 Overdraft – An overdraft is an extension of credit from a lending institution that is

granted when an account reaches zero. The overdraft allows the account holder to
continue withdrawing money even when the account has no funds in it or has
insufficient funds to cover the amount of the withdrawal.
 Cash Credit – Cash credit is a facility to withdraw money from a current bank account
without having credit balance but limited to the extent of borrowing limit which is fixed
by the commercial bank. The interest on this facility is charged on the running balance
and not the borrowing limit which is given by bank.
 Loans – A loan is when you receive money from a friend, bank or financial institution in
exchange for future repayment of the principal, plus interest. The principal is the
 amount you borrowed, and the interest is the amount charged for receiving the loan.
Since lenders are taking a risk that you may not repay the loan, they have to offset that
risk by charging a fee - known as interest.
 Discounting of Bills – Bill Discounting is a discount/fee which a bank takes from a seller
to release funds before the credit period ends. This bill is then presented to seller's
customer and full amount is collected. Bill Discounting is mostly applicable in scenarios
when a buyer buys goods from the seller and the payment is to be made through letter
of credit.