Function of commercial banks

The commercial banks are those that pool together the saving of the community & arrange for their productive uses. They supply the financial needs of the modern business by various means. They accept deposit from the public on the condition that they are repayable on demand or on short notice. Commercial banks are restricted to invest their funds in corporate securities. Their business is confined to financing the short term needs of trade & industries such as working capital financing. They cannot finance in fixed asset. They grants loan in form of cash credit & cheques, security of valuables goods, financial advising to their customers. Thus commercial bank works for overall development of industries, trade & commerce, service and also agriculture. Major functions of commercial banks of Nepal are as follow-:

1. Accepting deposits

Bank accepts deposit in different types of accounts:

a) current account

A current account is running account with amounts being paid into & drawn out the A/C continuously. Bank doesn't pay interest on credit balance & there must be some minimum balance, which is predetermined by bank and informed to A/C holders.

b) Saving account

Banks accept saving deposit from individual and non-profit making organization under this account. A normal rate of interest is provided in saving account & clients are restricted to freely operate their A/C by some rule such as maintaining balance. Any balance below minimum will be subject to incidental charge as fixed by the bank time to time.

c) Fixed deposit account

Fixed deposit account is also known as term of time A/C. under this account bank pays interest at regular intervals but principal only at maturity. Unlike other account, where funds can be added or deducted it is always for fixed account.

2. Advance loan

Bank performs the function of advancing loan to the needy parties it may be an individual or institution. It provides short term, mid term & long term loan under certain condition and for this it charge interest & can also ask for security guarantee.

3. Agency service

Banks perform various types of function as an agent on behalf of its clients. Under agency service, it performs following functions.

• collection of cheque
• fund transfer
• payment of cheque, bills & promissory notes
• security brokerage service
• issuance of letter of credit & guarantee
• Receipt of payment of certain dividend, interest etc.

4. Miscellaneous

Under this heading we can categorize the following functions.

• Issuance of traveler's cheque
• Safe deposit locker service
• Financial advisory service
• Collection of trade information & statistics
• Credit creation
• Credit cash