Banking Principles,

Procedures and Practices

Commercial Banks
Lecture One 11. March.23
 An Overview of Banks and Their
Function
Topics to be Covered
 Meaning Of Commercial Banking  Secondary Functions
 Functions Of Commercial Banks  Agency Services
 Primary Functions  General Utility Services
 Acceptance Of Deposits:  Balance sheet of the banks
 Advancing Loans:
 Promote The Use Of Cheque:
 Remittance Of Funds:
 MEANING OF COMMERCIAL
BANKING
• A commercial bank is a profit-seeking business firm, dealing with money and
credit.
• It is a financial institution dealing with money in the sense that it accepts deposits
of money from the public to keep them in its custody for safety.
• It also deals with credit, i.e., it creates credit by making advances out of the funds
Received as deposits to needy people.
• It functions as a mobiliser of saving in the economy. Meaning that the idle surplus
of money of households and from which loans are given on interest to
businessmen and others who need them for investment or productive uses.
 FUNCTIONS OF COMMERCIAL
BANKS
• Commercial banks perform a variety of functions which are common to
both developed and developing countries.
• These are known as ‘General Banking’ functions of the commercial banks.
• The modern commercial banks perform a variety of functions. These can
be broadly divided into two categories:
• Primary functions
• Secondary functions.
Primary Functions Secondary Functions

Acceptance of deposits
Agency Services
Advancing loans

Promote cheques facilities General Utility Services

Remittance of funds
Primary Functions
Acceptance of deposits Advancing loans

Current Deposits Overdraft Facilities

Cash Credit

Savings Deposits Discounting Bills of Exchange

Money at Call
Term Loans
Fixed Deposits.
 Primary Functions …………
Promote the Use of Cheque:
• The commercial banks render an important service by providing to their customers
a cheap medium of exchange like cheques. It is found much more convenient to
settle debts through cheques rather than through the use of cash. The cheque is the
most developed type of credit instrument in the money market.
Remittance of Funds:
• Commercial banks, on account of their network of branches throughout the country,
also provide facilities to remit funds from one place to another for their customers
Secondary Functions
Agency Services General Utility Services

Collection and Payment of Credit

Instruments Locker Facility

Traveler’s Cheques and Credit

Purchase and Sale of Securities Cards

Collection of Dividends on Letter of Credit

Shares
Collection of Statistics
Execution of Standing Orders
 The First Class-work
Group Presentation:
What is Legal Reserve Ratio and How
does it work?
Questions