Main functions of Commercial Bank

Although profit maximization is a major objective of commercial bank, to achieve this objective commercial bank performs various functions under the mandatory rules and registrations and directives of NRB and the Commercial Bank Act 2031 (1974) which are:

Primary Functions

a)    Accepting Deposits: Accepting a deposit is the most important functions of commercial banks. Commercial banks collect money from those who want to deposit in different types of deposits accounts such as:

Ø      Fixed Deposit Account

Ø      Current Deposit Account

Ø      Saving Deposit Account

b)    Advancing of Loans: Commercial banks provide the required loan or credit to various sectors of economy such as industry, trade, agriculture, business deprived sector etc. In this way bank creates facilities. It provides loans from various procedures in different form such as:

Ø      Overdraft

Ø      Cash credit

Ø      Direct loan with collateral

Ø      Discounting bill of exchange

Ø      Loans of money at call and short notice.

       

·        General Utility Functions

        Commercial banks also perform general utility functions such as:

Ø      Issuing of letters of credit to its customers.

Ø      Issuing of bank drafts and traveler’s cheque etc for transfer of funds from one place to another.

Ø      Dealing in foreign exchange and financing foreign trade by accepting or collecting foreign bills of exchange.

Ø      Servicing as refereed to the financial standing and credit worthiness of its customers.

Ø      Underwriting loans to be raised by public bodies and corporations.

Ø      Providing safety vaults or lockers for the safe custody of valuables and securities of the customers.

Ø      Acting as a trustee and executing the will of the decreased.

Ø      Remittance of money.

·        Agency Functions

  Apart from the above functions, commercial banks also perform agency functions for which they act as agent and claim commission on some facilities such as:

Ø      Collection of customer’s money from other banks

Ø      Receipt and payment of dividend, interest

Ø      Security brokerage service

Ø      Financial advisory service

Ø      To underwrite the government and private securities.