COMERCIAL BANK

It is a financial institution which performs the function of receiving deposits

from the general public and providing loan for the aim of earning profit.
 These banks generally finance trade and commerce with short term loans.
 These banks charge high rate of interest to the borrower but pay much less
rate of interest to the depositor.
 The difference between these two interest rates is the main source of profit
for the bank.
 The two most distinctive features of the commercial bank is borrowing and
lending
 The rate of interest offered by the bank to the depositor is called borrowing
rate.
 While the rate at which the bank lend out is called lending rate.
FUNCTIONS OF COMERCIAL BANKS
PRIMARY FUNCTIONS
1. ACCEPT DEPOSITS
 A commercial bank accepts deposits in the form of current, saving and
fixed deposits.
 It collects the surplus balance of the individuals and firms and finance the
temporary needs of the commercial transactions.
 The first task is therefore the collection of saving of public.

Current account deposits

 These deposits are payable on demand and therefore called demand
deposits.
 The deposits can be withdrawn with the depositors any number of times
depending on the balance of account.
 The bank does not pay any interest on these deposits
Fixed Deposits
 These have a fixed period of maturity and are referred to as a time deposits.
 These deposits are for a fix term that is period of time ranging between days
to years.
 These deposits can be withdrawn only after the maturity of the specified
fixed periods.
 These carry high rate of interest.
Saving account
 These deposits combine the features of current account deposit and fixed
deposit .
 These deposits are payable on demand and interest paid on saving account is
like fixed account deposit but less then that of fixed deposit.

2. ADVANCING LOANS
 The second most important function of the commercial bank is to provide
loans and their by earn interests.
 This is in fact the main source of income of the bank.
 A bank saves certain amount of the deposit to itself as a reserve and lend
the balance to the borrower as loan and advances in the form cash credit,
demand loans and short-term loans.
Cash Credit
 The eligible borrower is first sanctioned a credit card limit and within that
limit he is allowed to withdraw a certain amount on the given security.
 The withdrawing power depends upon the borrower current assets.
 The stock statement which is submitted by him to the bank as the basis of
security.
Demand loans
 It is the loan which can be recalled on demand.
 There is no stated maturity
 The entire amount of loan is paid in whole sum by crediting it to the loan
account of the borrower.
 These types of loans are usually taken by security brokers on personal
security and financial assets whose cr needs fluctuate generally.