The bank which deals with money and money’s worth with a view to earning a profit is known as a commercial bank. A commercial bank is a dealer in capital or more properly a dealer in money. This bank gives minimum interest to depositors and demand maximum interest from the borrower. By these processes, commercial banks earn a profit and continue their business.
Activities of a commercial bank: Commercial banks are a business enterprise to make a profit through banking business, but the institutions also provide some unique services to the economy. An economy is regulated or economic development is ensured through banks. Thus commercial bank performs a number of activities for the government and the nation. Usually, commercial banks perform the following functions:
Mobilization of savings and creation of capital: Commercial bank collects the drift of savings from the hands of scattered individuals accumulate funds in one place and provides capital for investment and, thus create capital in the economy by mobilizing idle savings.
Acceptance of deposits of savings: Banks especially commercial banks are institutions for safe custody or deposit of public money. Banks are also a risk-free investment for public money. Banks provide facilities of different types of deposits, such as fixed current savings and certificate of deposits. These deposits provide safety to the client’s money and also ensure earning some returns on deposited money.
Provision of short term credit or financing: Credit is the lifeblood of the modern economy. Credit enhances the briskness of economic activities. A commercial bank provides short-term financing to the borrower or businessman and, thus, helps the business development.
Creation of medium of exchange: In our modern monetary economy, money is the medium of exchange. But banks also create a parallel medium of exchange through check. Documents like commercial bank check, bank draft, bill of exchange travelers check etc. are also used as a medium of exchange to some extent and are known as bank money.
Acceptance and discounting of the bill of exchange: Credit transaction is the usual feature of the modern business, to keep documentary evidence, bill of exchange is created. Sometimes, commercial banks accept this bill and also provide discounting to time bill. By discounting time bill, commercial banks provide finances to the client, make an investment of own funds and earn returns.
Assistance and financing to foreign trade: Foreign trade is very important in the economy of any country in the recent time. Transaction in foreign trade is impossible without the help of a commercial bank. By providing finance and guarantee through ‘Letter of Credit (L.C)’, accepting the foreign bill and discounting, and repaying and collecting those, commercial banks help foreign trade immensely.
Assistance of remittance of money: Money transfer is risky in the face of increased terrorism. Banks provide valuable service in this respect. Banks help the client to transfer money from one place to another through check, bank draft, pay order, money order transfer (MT) and telegraphic transfer (IT) and, thus, provide safety and swiftness to remittances.
Provision of safety to valuables: Banks provide safety to the valuable things like ornaments, deeds o9f lands, etc., by keeping those in its safe custody through locker service.
Personal services to a client: Commercial provides some personal services to the clients. Banks on behalf of the client repay house to rent, income tax, insurance premium, telephone bill, electricity bill etc. to the related authority or collect school fees for the client.
Investment counseling: Commercial banks provide valuable investment counseling and Information to the clients. That helps to take right decision allow investing fund of clients.
Assistance in the investment activities: Banks sell and purchase shares, debentures and other investment securities of the client and provide counseling for portfolio management.
Trusteeship functions: Sometimes banks take care of the assets of the clients and stand as Guarantee for the client to some other parties.
Introducing the clients: Commercial bank introduces the client to the outsiders. If any client’s financial to do business with a new client, he wants to know information about the solvency and repayment behavior. Banks provide this information about the client.
From this above discussion, we can say that commercial bank performs various activities to earn a profit and which is very important for a sound economy.