commercial banks Flashcards
what are the three functions of central banks
- -> primary functions
- -> agency functions
- -> general utility functions
what are the primary functions
- -> accepting deposits
- -> advancing loans
what are the types of deposits?
–> demand deposit / current deposits
–> savings deposit
- -> fixed deposit
- -> recurring deposit
demand deposit features
–> can be withdrawn anytime by the depositor
–> cheque facility is provided
–> no interest on deposits
–> held by businessmen and industrialists who receive and make large payments. Businessmen pay the bank for its services
–> stored in the current account
savings deposits features
–> restrictions are placed on withdrawal of deposits
–> cheque facility provided
–> low rate of interest on deposits
–> held by households who have idle or surplus money with them for short term
fixed deposits features
also called time deposits
–> withdrawn after a certain period of time
–> no cheque facility provided
–> longer the period higher the interest
–> many people opt for it due to its high rate of interest
the recurring deposit also called
also called cumulative deposits
the recurring deposit features
–> money is deposited in monthly installments for a fixed period of time
–> rate of interest is same as of fixed deposits
–> purpose of such accounts is to encourage savings among people
–> accepted by banks in regular intervals unlike fixed deposit accounts which are accepted at a particular point in time
why do people deposit their money with commercial banks
–> keeps their idle money safe
–> money can be withdrawn any time by writing a cheque
–> People begin to earn interest on surplus funds they deposit in the bank
types of loans
- -> cash credit
- -> overdraft facility
- -> short term loans
- -> discounting of the bills of exchange
what are the features of a cash credit
–> borrower is allowed to withdraw up to a certain amount against given security (stocks of goods and bills)
–> interest is charged on the amount actually withdrawn
what are the features of short term loans
–> loans of a fixed amount are sanctioned into the debtor’s account
–> bank charges interest 0n the whole amount from the day it was sanctioned
what are the features of the overdraft facility
–> advance given to customer keeping current account to overdraw his current account to an agreed limit
–> extension of credit from a lending institution when an account reaches zero
–> overdrafts are given without security
–> interest is paid on the amount actually used
what is the feature of the discounting bill of exchange
–> debtor accepts bill drawn upon him by the creditor and agrees to pay the amount mentioned on maturity
–> if the creditor of a bill of exchange wants the money immediately the bank provides him money by discounting the bill of exchange. Bank deducts interest for this loan which is not more than 90 days
–> when the bill of exchange matures, the bank gets its payment from the banker of the debtor who accepted the bill
what are the agency functions of the commercial banks
–> transfer of funds
–> trustee and executor
–> purchase and sale of securities on behalf of the customers
–> collection and making payments for credit instruments
