Monday, February 2, 2009

Secondary Functions of Commercial Banks

Secondary functions are two types:
1. Public utility services
2. Agency services

Public Utility Services: The commercial bank renders money services for the general utility of the community. These services may be enumerated as follows:

• Bank drafts and cheques issued on banks are freely used for receipts and payments in the society. These cheques and drafts economies the use of currency notes and coins for transacting business.
• Commercial banks play a significant role in transferring money. This service is reliable, quick, safe, and inexpensive.
• Commercial banks also issue Letter of credit. It is an open latter from a bank requesting the sellers to send the goods to the buyer and promises to pay the sum by itself.
• Banks offer lockers for the safe custody of precious items. The bank also charges some amount.

Agency Services: Commercial banks also perform the duty of an agent. It collects and pays on behalf of their customers in respect of the following:

• Businessman receives cheques in payment from other parties. These cheques may be drawn on other banks than theirs. They deposit these cheques and with their banks and get the payment. The bank also receives payments against electricity, gas, phone bills from customers. It also receives and pays premiums, dividends, interests, and rents on behalf of its clients. This is most valuable service that the bank performs for its clients.
• On the instructions of its clients the bank buys and sells shares and bonds on the stock exchange.

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