Function of Commercial Banking

The functions of commercial bank is to broader in scope, size and magnitudes. Commercial Banks are one of the major financial intermediaries whose primary function is the transfer of monetary resources from the savers to users. The transfer are made at certain places and condition governed by the broad policy parameters stimulated by the central bank authorities. The spread between the prices received by the banks on the funds lent and the prices paid by them
on the funds mobilized is one of the crucial factors which determine the viability of banking operations. The major functions of commercial bank are:

Accepting Deposits

Commercial banks accept deposits from individuals, partnership and also from the central bank and the local government. In the context of commercial banks in Nepal, there are interest bearing deposits and non-interest bearing deposits. Basically, saving deposit, fixed deposit is interest bearing deposits and current deposit is non-interest bearing deposit.

Providing loans

The second important function of the commercial bank is to provide different types of loans. The principal business of commercial bank is to give loan to the qualifying borrowers.

Investments

Commercial banks also extend credit when they purchase securities; and this category of assets may be especially attractive when loan demand is slack, as a way of employing loanable fund. A very high percentage of securities represent the obligation of government units. Nepalese commercial bank has invested in shares and debentures, insurance and Transportation Company, national insurance company and so on.

Besides primary functions, commercial banks also perform a number of other functions which are called secondary functions. These are given below:

·       Providing demand drafts and pay orders.

·       Issuing letters of credit, traveller’s cheques, circulars notes etc.

·       Providing reports on the credit worthiness of customers.

·       Collecting and supplying business information.

·       Providing customers with facilities of foreign exchange.

·       Transferring money from one place to another; and from one branch to another branch of the bank.

·       Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers.

·       Standing guarantee on behalf of its customers, for making payment for purchase of goods, machinery, vehicles etc.

·       Standing guarantee on behalf of its customer, for making payment for making.