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Primary Functions of Commercial Banks

Primary Functions of Commercial banks Accepting Deposits is the primary functions of commercial banks and is the basis of its existence. Without accepting deposits, a bank cannot execute any other functions and as such it is very important to understand the primary functions of commercial banks.

Primary Functions of Commercial banks

Accepting Deposits is the primary functions of commercial banks and is the basis of its existence.

Without accepting deposits, a bank cannot execute any other functions and as such it is very important to understand the primary functions of commercial banks.

Accepting Deposits: Accepting deposits is the main function of a commercial bank. It attracts deposits for the purpose of making loans and investments. People deposit their money in banks for the sake of safety and for earning interest. A commercial bank receives deposits from individuals, firms and other institutions. Banks offer different types of deposit accounts to suit the needs of various depositors. Public deposits constitute the main resources of a bank. Banks receive the following types of deposits.

(a) Fixed Deposits : A lump sum is deposited for a fixed time period. These deposits are repayable on the expiry of the stated period. Generally, the time period varies from three months to five years .The rate of interest on these deposits is higher than that payable on other deposits. The actual rate depends on the period for which the deposit is made.

(b) Savings Deposits: This account is opened for the purpose of depositing small savings. In these deposits money can be withdrawn for a specified number of times in a week. But deposits can be made any number of times. Rate of interest allowed on such deposits is higher than that on current deposits but lower than that allowed on fixed deposits. The depositor has to open an account with the bank and is given a pass book. The main objective of savings deposits is to promote the habit of savings among people.

(c) Current Deposits: Such deposits are made by business firms in current accounts. Money can be deposited and withdrawn as often as the depositor wants. Generally, no interest is allowed on these deposits. A small fee, known as 'bank charge' or 'incidental charge' is often charged for maintaining current deposits. Overdraft facility is available on current accounts.

(d) Recurring Deposits : In these deposits, the deposit holder is required to make a deposit of fixed amount every month for a specified period. The amount goes on accumulating along with interest. At the end of the prescribed period, the depositor can withdraw the deposit or renew the same for another term. No cheque facilities are allowed in fixed deposits and recurring deposits.

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