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Chapter: 11th Commerce : Chapter 12 : Functions of Commercial Banks

Secondary Functions of Commercial Banks

These services can be broadly classified into agency services and general utility services.

Secondary Functions of Commercial Banks


Apart from the basic or primary functions commercial banks render various other services which are known as secondary functions. These services can be broadly classified into agency services and general utility services.


I. Agency Functions

Banks act as agents of customers and provide certain services. They are called Agency Functions which are as follows:


1. Transfer of Funds

Banksissuedemanddrafts, bankers’ cheques, travelers’ cheques, etc. and help in transfer of funds from one place to another. Customers need not carry cash. They can just forward the draft issued by the bank to the receiving institution. A small commission is collected by banks for this service.


2. Periodic Payment of Premiums, Rent, etc.

After instruction from the customers, banks undertake the monthly payment of insurance premium, rent, telephone bill, etc. from the accounts of customers. Now a days these payments are made through electronic clearing system facility offered by the banks.


3. Collection and Payment of Cheques

On behalf of customers bank collect the cheques deposited into the  accounts of customers from other banks and deposit cash in the customers’ accounts. Similarly cheques issued by a customer is honoured and the amount paid as directed by the customer.


4. Acting as Executors, Trustees and Attorneys

Banks act as executors of will of the customers and implement their will after their death. As a trustee a bank takes care of the funds of the customers. Banker signs transfer deed of the properties of the customers in the capacity of attorney to customers.


5. Conduct Share Market Transactions

A Demat account should be opened with Depository Participant and that demat account should be linked with savings bank account by the customer. Then the customer can ask the bank to conduct online purchase or sale of securities, on behalf him.


6. Preparation of Income Tax Return

Banks prepare the annual income tax return on behalf of the customers and provide income tax related advices to them.


7. Dealing in Foreign Exchange

Banks buy and sell foreign currencies on behalf o customers.


8. Acting as Correspondent

Banks act as correspondent of customers and receive travel ticket, passport, etc.


II. General utility functions


In addition to primary, secondary and agency functions, commercial banks offer some services for the  general welfare of the customers. They are called general utility services. They are as follows.


1. Issue of demand drafts and bankers’ cheques

Demand  drafts  and  Bankers  Cheques  are issued to public and  customers  as  well. Instead of sending money they can attach these instruments for payment of educational fees, etc.


2. Accepting Bills of Exchange on behalf of Customers

Banks accept bills on behalf of customers and make payments to the foreign exporter. Afterwards, the banks collect from the customers.


3. Safety lockers

Valuable documents, jewels, etc. can be kept safely in a vault provided by bank for a rent. These vaults room is called ‘Strong Room”.


4. Letters of credit

This document is given by bank on behalf of importing customer to the exporter guaranteeing payment for the imported goods. It is a very important document in international trade.


5. Travellers cheques

Customers need not carry cash during travel in India or abroad. The denomination and words are printed in the cheque. It is accepted as money in shops, hotels, travel agencies, etc.


6. Gift cheques

These denomination printed cheques are available in attractive design so that it can be presented during wedding, birthday functions, etc.


7. Reference service

Business firms can give their bank’s name as reference to the new business institution with which they want to establish commercial relationship. Banks willingly act as referees and provide information about the financial standing of their customers.


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11th Commerce : Chapter 12 : Functions of Commercial Banks : Secondary Functions of Commercial Banks |

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