Monday, February 2, 2009

Primary Functions of Commercial Banks

Functions of commercial banks can be divided in to two categories:
1. Primary functions
2. Secondary functions

Primary functions can further be subdivided into the following:
1. Receiving deposits
2. Advancing Loans

1. Receiving Deposits: This is the function of the formation of capital. A commercial bank receives deposits through different types of accounts. Small savers, salaried people, traders, manufacturers and other deposit their money with the bank under the head of savings, current, or fixed deposit accounts and earn interest income.

2. Advancing Loans: The commercial bank finances the need of businessman in meeting their day to day business requirements. Advances form about sixty percent of investment made by a commercial bank. It is most profitable on the part of the bank.

In our next post, we will describe the secondary functions of Commercial banks.

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