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What Is Commercial Bank? Discuss The Different Product and Services Provided by Commercial Banks?
What Is Commercial Bank? Discuss The Different Product and Services Provided by Commercial Banks?
Reg.no. - 200415140051
They give out these loans from the money deposited by their customers in
different types of accounts. They use the deposits as capital for providing
loans. Commercial banks are essential for the economy of a country because
they help in creating capital, credit as well as liquidity in the market. These
banks are generally physically located in cities but these days there are online
banks are growing in numbers.
Banks earn money by giving out loans and for that purpose they use funds
from customer deposits. They charge higher interest rates on loans they give
out and comparatively less rate of interest on the amount they get as deposits
from their customers. For e.g., a bank may provide a 0.30 per cent rate of
interest on savings account to its customers but charges a 4.8 per cent rate of
interest annually for home loans.
Overdraft
Sometimes, the bank provides overdraft facilities to its customers through
which they are allowed to withdraw more than their deposits. Interest is
charged from the customers on the overdrawn amount. Bank Overdraft is
different from cash credit.
Check/Cheque Payment
Banks provide cheque pads to the account holders. Account-holders can draw
cheques upon the bank to pay money. Banks pay for cheques of customers
after formal verification and official procedures.
Bank Guarantee
Customers are provided the facility of bank guarantee by modern commercial
banks. When customers have to deposit certain funds in governmental offices
or courts for a specific purpose, a bank can present itself as the guarantee for
the customer instead of depositing funds by customers.
Credit cards
A credit card is a card that allows its holders to make purchases of goods and
services in exchange for the credit card’s provider immediately paying for the
goods or service. The cardholder promises to pay back the purchase amount to
the card provider over some time and with interest.
ATMs Services
ATMs replace human bank tellers in performing giving banking functions such
as deposits, withdrawals, account inquiries. Key advantages of ATMs include:
24-hour availability
Elimination of labour cost
Convenience of location
Debit cards
Debit cards are used to withdraw funds directly from the cardholders’ accounts
electronically. Most debit cards require a Personal Identification Number (PIN)
to be used to verify the transaction.
Products in Commercial banks:-
Industrial Loans
Project Finance
Project finance is one type of loan for which mega corporations largely rely on
banks till date. In case of project finance, the banker finances the project as an
individual entity. The parent company that is sponsoring the project has a
limited liability in case the loan goes bad. For instance, if bank funds DEF
project that was initiated by ABC Corporation and the project goes bankrupt
over time.
Syndicated Loans
Leasing
With the advent of off-balance sheet financing, a lot of companies have started
using leasing as a financing method. This is because it provides control of the
said asset without leveraging the balance sheet of the given corporation. Banks
have become heavily involved in the business of such financial leases. Financial
leases are being signed by companies for acquiring real estate, automobiles,
factory equipment or such other major fixed assets. It needs to be noted that
banks usually only fund financial leases and not pure play operational leases.
Foreign Trade Financing
A lot of the corporations in the world today are multi-nationals. Thus their
business interests cross national borders. This means that foreign trade in
rampant and has become the norm. Now, foreign trade has some special
financing needs. Banks have traditionally specialized in such financing. In the
modern world too, banks provide letters of credit, export financing, bank
guarantees and other such services to corporations which help them conduct
foreign trade in an efficient manner.
Bills of Exchange
Companies often use bills of exchange for accounts receivables and accounts
payables purposes. For instance, if company A agrees to pay company B at a
later date, they could sign a bill of exchange for the same. Company A can then
take this bill of exchange to the bank at get the bill discounted.
This means that the bank will take over the right to collect receivables from B.
They will do so by purchasing the bill at a discount. This means that they will
pay company A, a discounted amount for the bill. The difference between the
face value of the bill and the discounted price for which the bank bought it is
considered to be the interest earned by the bank.
RBI is India’s Central Bank. Every country has its own Central Bank. The US has
Federal Reserve Bank (FED) and England has Bank of England (BOE) while the
whole of Europe has European Central Bank (ECB). Simply put the role of a
Central Bank is to monitor a country’s economy and stabilize it by using its
various policies. A Central Bank acts like an adviser to the Government on
issues related to the economy. As opposed to popular belief, the RBI is NOT
controlled by the Government but instead it works as an independent
institution.
Reserve Bank of India (RBI) is the Central Bank of India. RBI was established on
1 April 1935 by the RBI Act 1934. Key functions of RBI are, banker’s bank, the
custodian of foreign reserve, controller of credit and to manage printing and
supply of currency notes in the country.
Role Of RBI:-
Issuer of Currency
The RBI has the sole right to issue new currency notes and coins, exchanges or
destroy currency not fit for circulation.
Monetary Authority
RBI formulates, implements and monitors the monetary policy. This policy is
the most important tool that the RBI has. Using this policy RBI manages the
interest rates offered by banks on loans and deposits and which affects the
inflation and deflation in the country. In simple words, lower rates give rise to
higher inflation and vice versa.
Related Functions
Banker to the Government: performs merchant banking function for the
central and the state governments; also acts as their banker. This includes
dealing with financial securities issued by the Government like treasury bills,
infrastructure bonds, etc.
Developmental Role
Performs a wide range of promotional functions to support national objectives.
This includes work like providing timely credit to the productive sectors of the
economy, creating institutions to build financial infrastructure like UPI, NEFT,
etc., expanding access to affordable financial services and working on financial
inclusion of all classes of the society.
Functions of RBI:-
Issue of Notes
The Reserve Bank has a monopoly for printing the currency notes in the
country. It has the sole right to issue currency notes of various denominations
except one rupee note (which is issued by the Ministry of Finance).
The second important function of the Reserve Bank is to act as the Banker,
Agent and Adviser to the Government of India and states. It performs all the
banking functions of the State and Central Government and it also tenders
useful advice to the government on matters related to economic and monetary
policy. It also manages the public debt of the government.
Banker’s Bank
The Reserve Bank performs the same functions for the other commercial
banks as the other banks ordinarily perform for their customers. RBI lends
money to all the commercial banks of the country.