Primary and Secondary Functions of Commercial Banks

Primary and Secondary Functions of Commercial Banks

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Banks are the lifeblood of a country's economy and give a forecast of how the economy and financial sector will develop. According to the fundamental framework outlined in the Reserve Bank of India Act of 1934, all large banks are regarded as commercial institutions. However, there are more banking types, such as scheduled banks for small finance, payments, and cooperatives. Public sector banks, private sector banks, foreign banks, and regional rural banks are additional categories for commercial banks. Commercial banks are governed by the Banking Regulation Act of 1949, which gives them the authority to conduct business activities like holding money in deposits and extending loans to individuals, businesses, and the government.

Importance and Roles of Commercial banks - In India, commercial banks form the foundation of all significant economic activity, whether it be for residents to safely store their hard-earned money or to obtain loans anytime they require money for significant purchases like a home, wedding, automobile, or business. Saying that, banks and businesses go hand in hand will not be an analogy because both struggle to thrive without proper credit assistance.

Primary functions of Commercial banks - A commercial bank's main duty is to provide the public with the best possible service. The main responsibilities would be:

1. Acceptance of deposits

1. Acceptance of loans

The secondary functions of the commercial banks in India are described as:

1. Facility of Overdraft

2. Discounting bills pertaining to exchange

3. Agency operations and functions

4. General effectiveness functions

In conclusion, Commercial banks are crucial in helping an economy meet its short- and medium-term credit needs. However, they do not offer long-term credit for more than 15 years or more, allowing for the simple maintenance of asset liquidity. Commercial banks prefer to offer credit for a brief length of time supported by physical and easily marketable securities because the cash parked at them belong to the general public and can be retrieved at short notice.