Written cp 5

Habib Bank Limited is one of the leading full-service commercial banks. Their commercial Banking is
targeted at medium-sized businesses with annual sales ranging from PKR 800 million to PKR 6.0 billion.
Following are the general functions of the commercial bank:

1. Receiving Deposits: The first and foremost function of this commercial bank is to receive or collect
deposits from the public in different forms of accounts e.g. current, savings, term deposits. No interest is
charged in the current account, a lower rate of interest is charged in the savings account and
comparatively higher interest rates are charged in fixed deposits. Thus, commercial bank builds up
customer network.

2. Accommodation of loans and advances: The Bank attaches much importance to providing loans and
advances at higher rates than the deposit rates and thus earns profits on it. It lends money for industrial,
commercial and other purposes. Loans may be given in a variety of ways, viz., cash credit, overdraft
facilities and the discounting of commercial papers like bills of exchange, hundis, etc. Commercial banks
generally confine themselves to short-term lending against readily realizable securities like gold,
government promissory notes, bills of exchange and hundis. Working capital is accommodated to the
borrower for expansion and smooth running of the business. In a similar manner, the bank extends
financial accommodation for the development of agriculture and industry. Credit accommodation is
provided to the entrepreneurs for reviving sick and old industries as per Govt. directives. Thus, the
commercial bank also extends welfare services to the people at large.

3. Creation of Loan Deposits and medium of exchange: the Bank not only receives deposits from the
public and accommodates loans to the public but also creates loan deposits. For example: while
disbursing loans as per sanction stipulation, the amount of loan is credited to the borrower’s account.
The borrower may not withdraw the full amount at a time. The residual amount i.e. balance left in the
account creates loan deposits. Furthermore, the central bank has got exclusive right to issue notes. On
the other hand, Commercial Bank like the one mentioned creates a medium of exchange by issuing
cheques. Like notes, the cheque is transferrable being popularly used in banking transactions.

4. Contribution to foreign trade and growth of the economy: Commercial Bank plays a vital role in
expediting foreign exchange and foreign trade business e.g. import, export etc. It contributes greatly to
the economy through import finance and export finance and thus, earns foreign exchange for the
country. It also extends financial assistance for the formation of capital in trade, commerce, and creates
an investment environment in the country which expedites its economic development.