Introduction.

Banks have existed since at least the 14th century. They provide a safe place for consumers and
business owners to stow their cash and a source of loans for personal purchases and business
ventures. In turn, the banks use the cash that is deposited to make loans and collect interest on
them.

A bank is a financial institution licensed to receive deposits and make loans. There are several
types of banks including retail, commercial, and investment banks. In most countries, banks are
regulated by the national government or central bank. When you think of a bank, the first thing
that comes to mind might be the institution that holds your checking or savings account. There
are several different types of banks, all serving different needs.

You might not have heard of all of these banks, but each example probably plays some part in
your everyday life. Different banks specialize in distinct areas, which makes sense—you want
your local bank to put everything they can into serving you and your community.
Likewise, online banks can do their thing without the overhead of managing multiple branch
locations.

Types of Banks

Some of the most common banks are listed below, but the dividing lines are not always
clear. Some banks provide services in multiple areas. For example, a bank might offer personal
accounts to consumers, merchant accounts for businesses, and even help large enterprises raise
money in the financial markets.

 Retail banks are probably the banks you’re most familiar with. Your checking and savings
accounts are often kept with a retail bank, which focuses on consumers (or the general public) as
customers. These banks offer loans and may provide credit cards, and they’re the ones with
numerous branch locations in populated areas.

 Commercial banks focus on business customers. Businesses need checking accounts just like

individuals do. They also need complex services, and the dollar amounts (and the number of
transactions) can be substantial. Commercial banks, which are also called "business banks" or
"corporate banks," manage payments for customers, provide lines of credit to manage cash flow,
and offer foreign exchange services for companies that do business overseas.

 Investment banks help businesses raise capital in financial markets. If a company wants to go

public or sell debt to investors, it often uses an investment bank. This kind of bank also may
advise corporations on mergers and acquisitions.

 Private banks provide services exclusively to wealthy clients, usually those with at least $1
million of net worth. They help clients manage their wealth, provide tax advice, and set up trusts
to avoid taxes when leaving money to descendants.

 Central banks manage the monetary system for a government. For example, the Federal
Reserve is the U.S. central bank responsible for supervising banks and setting monetary policy to
control inflation, reduce unemployment, and provide for moderate lending rates.
 Credit unions are similar to banks, but they are not-for-profit organizations owned by their
customers. (Investors own most banks.) Credit unions offer products and services more or less
identical to retail banks. The main difference is that credit union members share some
characteristics in common where they live, their occupation, or an organization they belong to,
for example.

 Online banks operate entirely online; there are no physical branch locations available to visit
with a teller or personal banker. Many brick-and-mortar banks also offer online services, such as
the ability to view accounts and pay bills online, but internet-only banks are different. Internet
banks often offer competitive rates on savings accounts, and they’re especially likely to offer
free checking.

 Mutual banks are similar to credit unions because they are owned by members (or customers)
instead of outside investors. Also like credit unions, they tend to be active in only a single
community.

 Savings and loans are less prevalent than they used to be, but they are still important. This type
of bank helped make homeownership mainstream, using savings deposits from customers to fund
home loans.The name savings and loan is derived from that core activity. 

Purpose of Banks

A bank is a financial institution which is involved in borrowing and lending money. Banks take
customer deposits in return for paying customers an annual interest payment. The bank then uses
the majority of these deposits to lend to other customers for a variety of loans. The difference
between the two interest rates is effectively the profit margin for banks. Banks play an important
role in the economy for offering a service for people wishing to save. Banks also play an
important role in offering finance to businesses who wish to invest and expand.  These loans and
business investment are important for enabling economic growth. Some are listed below:-

 Maintain the value of the currency in the interest of sustainable growth and development
 The Bank is there to serve the public interest
 Co-responsible for stable macro-economic environment of country
 International and national obligations
 Responsibilities include currency, payment systems, bank regulation, financial markets, banker
to Government, managing country reserves, exchange controls and monetary policy
 Not suitable to be done by privately owned company
 Purpose is not to maximize profits for shareholders

1. However, the amount allowed tends to be quite small.

2. Other features

Banks can also give other features to consumers, such as:

 Instant access to cash (hole in the wall cash machines)

 Advice on financial matters

 Methods to make international payments. Increasingly banks offer electronic transfer of money
through systems such as BACS

 Offering special offers to customers, including arranging travel insurance. Increasingly many
current accounts come with a range of extras, such as free travel insurance, free membership of
the AA

Function of bank :

The primary functions of a bank are two:

1. Accepting Deposits: Deposits are the amount of money that a customer hands over to the bank.
This is known as making a deposit. The deposits are of a few types namely: Saving Deposit,
Fixed Deposit, Current Deposit, and the Recurrent Deposit. The various deposit schemes are
based on the type of deposit and the frequency of depositing. For example, in a fixed deposit a
definite sum is handed over to the bank for a few years. The interest is only compounded if the
deposit term is complete. Providing these services of the deposit is one of the primary functions of
a bank. So what happens if you need money? Shouldn’t that also be a primary function of the
bank? Well, let us see further.

Saving/ Fixed/ Current Deposit

In a saving deposit, the amount and the rate of interest are low. Withdrawals are also allowed but
only in a limited number. The account is suitable for people who want to save on salaries and
similar sources of income.

Similarly, the fixed deposit is a fixed sum that one gives to the bank for a certain agreed time. The
withdrawals are not allowed before the completion of the time of the fixed deposit. On the other
hand, the current account or deposit, there is no interest paid by the bank and the customer can
withdraw or deposit any number of times.

Now let us see the other secondary function:

2. Granting Loans and Advances: The bank lends people money on a time-interest basis. Each
loan amount is passed by the bank after due consideration and securing the bank’s profit. The
bank also gives advances to its customers. These are also the primary functions of the banks. The
bank provides the services of an overdraft, cash credits, loans, and discounting of the bill of
exchange.

The banks also take part in what we call the secondary functions of the bank.
Secondary Functions Of The Bank

The secondary functions of the Bank are either selling gold coins to the public or selling insurance
products and selling mutual fund products etc. Let us make a more formal study. Following are
the important secondary functions of the Banks:

1. Agency Functions: The bank is an agent for its customers in a way that it invests on behalf of
its customers. Acting as the agent of the customer the bank may transfer funds, the collection
of cheques, periodic payments, portfolio management, periodic collections, and several other
agency functions. All of these functions are the secondary functions of the bank.

2. General Utility Functions: The bank also performs several utility functions. Some of the most
important utility functions of the banks may include the issue of drafts, letter of credits, etc.,
locker facility, underwriting of shares, dealing in foreign exchange, project reports, social
welfare programs, other utility functions. The banks also provide several services like the
safe deposit locker facilities, safe custody facilities, and Demat accounts. The opening of
Demat accounts allows the account holder to trade in the stock exchange or the money
market directly. The customer that holds a Demat account can directly buy or sell shares
from the capital market.
The General Utility Functions are also called as Social development functions. In some areas, the
banks will help you with all the transactions that you will have to do during a course of time. For
example, you will be able to pay your phone, electricity and other utility bills from a center that is
run by the banks. This sums up the functions of the banks.

Reference:
Major Functions Of Banks: Concepts and Practice Questions (toppr.com)
Microsoft PowerPoint - SARB AMENDMENT BILL COUNCIL OF PROVINCES.ppt [Compatibility Mode]
(pmg.org.za)