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BANKING
Q. #: What is Commercial Bank? Also mention its relativefunctions?
1. COMMERCIAL BANK:  A bank is a financial institute which gives money and credit. It accepts deposits from individuals, firms and companies at a lower rate of interest and gives at higher rateof interest to those who need them. A bank thus is a profitearning institute.
 According to Crowther, “A bank is a firm which collects money from those who have it spare. It lends money tothose who require it.”In the word of Mr. Parking, “A bank is a firm that takesdeposits from households and firms and makes loans toother households and firms.”
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FUNCTIONS OF COMMERCIAL BANK:  A commercial bank performs a variety of functions. Thesefunctions are classified under two main heads, (1) Primaryfunctions (2) Secondary functions1) Primary Functions: The primary functions of commercial bankare as under:(a) Accepting of deposits (b) Advancing of money/Makingloans.(a) Accepting of deposits:The first important function of commercial bank is toaccept deposits from those who can save but can’t make profitable use of their saving themselves. In order to attractthe saving from different persons and institutions, the bank maintaining the three types of accounts.(i) Current Account: A current account is one which can beoperated continuously without any restrictions. The customercan draw cheques against the account. Therefore the bankusually doesn’t pay the interest on the current accountdeposits. The current account holder receive cheque book and regular statement containing details of money paid in and paid out.(ii) Saving Account: The aim of this account is to encourageand mobilize savings of the people. Saving account isgenerally opened by persons of small income. The banks payinterest on this type of deposits. However, the banks normally place restrictions on their frequent withdrawal.
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(iii) Fixed Deposit Account: Fixed deposits are kept with the banks for a specified period of time. The rate of interest onfixed also called “term deposit” are fairly high. The longer period of deposit, the high is the rate of interest.(b) Advancing of money/Making loans:The second major function of commercial bank is to makeloan to businessman, traders, exporters, householders etc.These loans are made against documents of title of goods, marketable securities and personal securities of the borrowersetc. The loaning of money may be in any of the followingforms.(i) Cash Credit: It is very common form of borrowing by business concerns. The bank advances loan to the commercialand industrial units against the security of goods. The borrower if permitted to draw within the cash credit limitsanctioned by the bank. The interest is charged only on theamount of money withdrawn by the borrower.(ii) Loans: The commercial bank grant short and long term loanto individual, firms, and companies mostly against securities.The amount of loan is credited to the borrowers’ account whowithdraws it as per his requirement.2) Secondary Functions: Secondary functions of commercial bankare classified as under: (a) Agency Functions (b)Utility Functions(a) Agency Functions:The agency function bank act as agent of there customerin various ways as:(i) Collection of Cheques: It acts as agents to its customersin the collection and payment of cheques and bills.(ii) Collection of dividends: The bank provides a very usefulservice in the collection of dividends or interest earned onshares held by its customers.(iii) Purchase or Sale of securities: The bank, if authorized  by customers, purchases or sells securities on his behalf and adds another benefit to its portfolio.(b) Utility Functions: A bank performs a number of othergeneral utility services to its clients which are given below:(i) Issue of Traveler’s Cheque: The bank also issuestraveler’s cheques for the convenience of the travelers and charges a nominal commission.(ii) Export Promotion Cell: In order to boost (push) theexports of the country, the banks have established export promotion cells. These cells provide information and guidanceto the exporters at no extra cost.
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(iii) Advice on Financial Matters: Sometimes the banks give valuable advices on various financial matters to theircustomers.(iv) Safe Custody of Valuable: The banks keep valuableornaments, documents etc, for safe custody.Q. #: What are the different types of Commercial Bank?
2. KINDS OF COMMERCIAL BANK: Following are the main kinds of commercial bank, whichare given below.(i) State Bank: Every civilized country now has its owncentral bank or state bank. The primary functions of state bank are to arrange the flow of money and credit in order to promote efficiency and stability in the country. In PakistanState Bank of Pakistan is the country’s central bank.(ii) Commercial Bank: Commercial Banks are those banks whichare engaged in performing the routing duties of banking business. They collect surplus money from the people. They make loans and advances in the form of O/D (overdraft) cashcredit. Commercial Banks are also providing agency service and utility services. The banks in short are considered the life blood of economic society. In Pakistan, the NBP, UBL, HBL, MCB, etc. are performing the functions of commercial banks.(iii) Foreign Exchange Bank: The Foreign Exchange Bank mainlydeals with international trade. These banks take theresponsibility of settlement of foreign exchange and arrangethe foreign business in Pakistan. All the nationalized commercial banks have been allowed to do the business ofexchange banks.(iv) Saving Center Bank: Saving Banks are those banks whichcollect and keep small saving of people. The saving banksinvest the funds in the safe way government security. Postoffices and saving centers perform the business of saving banks of Pakistan.(v) Agriculture Development Bank: Agriculture Banks are setupto provide the financial assistance to the agriculture. Theagriculture banks provide short term credit to the farmers forthe purchasing of seeds. They also make medium term advancesfor buying Tracters and modern technology. ADBP (AgricultureDevelopment Bank of Pakistan) was setup in 1981, to meetfinancial requirement of agriculture.
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