Commercial Bank || Commercial Bank of Nepal || Function of commercial bank
Commercial Bank
The term bank normally indicates a commercial bank. It is the oldest of all the bank. It accepts public deposits and grants loan to the needy people.
Commercial banks are the general banks whose primary operations are related to accepting public deposit and providing loans to the needy people or
organizations against securities for the purpose of earning interest of a certain percent.
Commercial banks in Nepal fall under Class A Financial Institutions which enjoy the right to operate their activities through out the country.
Commercial banks in Nepal fall under Class A Financial Institutions which enjoy the right to operate their activities through out the country.
Nepal Bank Ltd. was the first commercial bank in Nepal, which was established in 30th Kartik 1994 B.S. ( November 15, 1937 A.D)
According to Commercial Bank Act 2031 B.S., "Commercial banks are those banks which are established under this act to perform commercial functions except those which are established for specific purpose like development banks and co-operative banks etc."
In conclusion, the commercial banks are the general banks whose primary functions are related to acceptance of public deposits and providing individual and corporate loans at a certain rate of interest.
Q1) What is commercial bank? Explain its any six functions.
Ans: A bank established with the objectives to promote and help in the operation of trade, commerce and industries in the country is known as commercial bank. It is established with a motive to earn profit.
Commercial banks are the general banks whose primary operations are related to accepting public deposit and providing loans to the needy people or organizations against securities for the purpose of earning interest of a certain percent.
According to Commercial Bank Act 2031 B.S., "Commercial banks are those banks which are established under this act to perform commercial functions except those which are established for specific purpose like development banks and co-operative banks etc."
In conclusion, the commercial banks are the general banks whose primary functions are related to acceptance of public deposits and providing individual and corporate loans at a certain rate of interest.
The following are the six functions of commercial bank;
a) Accept Deposit: The main function of commercial bank is to accept deposit from people under three different types of accounts such as Saving Account, Current Account and Fixed Deposit Account. Normally, they will not provide interest on current accounts.
b) Provides loan: The second important function of commercial bank is to provide loan to the needy persons or organizations. They will provide short-term, mid-term and long-term loan to the borrower against the securities placed. It charges interest on the loan granted.
c) Creation of credit: Credit creation is a unique function of commercial bank. Commercial bank creates credit based on deposit. When a commercial bank grants loan to its customer, it does not pay cash. It simply credits the account of the borrower. The borrower can withdraw the amount by cheques whenever required. In this case commercial bank creates deposit without receiving cash.
d) Exchanges foreign currencies: Earlier the function of exchanging foreign currencies was performed by the central bank only, but it has been entrusted even to commercial banks. It provide foreignexchange service according to the direction of the central bank.
e) Open Letter of Credit (L.C): For the purpose of importing goods from the foreign countries, it opens L.C. Commercial bank has also been given the right to issue and accept travelers' cheques.
f) Remittance of Funds: Commercial bank transfer money through the means of bank draft, T.T., etc to other places of the country or to foreign countries. In additions it transfer funds to its other branches.
g) Agency function: Banks function in the form of agents and representatives of their customers. Customers give their consent for performing such functions.
The important functions of these types are as follows:
(i) Banks collect cheques, drafts, bills of exchange and dividends of the shares for their customers. (ii) Banks make payment for their clients and at times accept the bills of exchange: of their customers for which payment is made at the fixed time.
(iii) Banks pay insurance premium of their customers. Besides this, they also deposit loan installments, income-tax, interest etc. as per directions.
(iv) Banks purchase and sell securities, shares and debentures on behalf of their customers.
h) Miscellaneous Functions: Besides the functions mentioned above, banks perform many other functions of general utility which are as follows:
(i) Banks make arrangement of lockers for the safe custody of valuable assets of their customers such as gold, silver, legal documents etc.
a) Accept Deposit: The main function of commercial bank is to accept deposit from people under three different types of accounts such as Saving Account, Current Account and Fixed Deposit Account. Normally, they will not provide interest on current accounts.
b) Provides loan: The second important function of commercial bank is to provide loan to the needy persons or organizations. They will provide short-term, mid-term and long-term loan to the borrower against the securities placed. It charges interest on the loan granted.
c) Creation of credit: Credit creation is a unique function of commercial bank. Commercial bank creates credit based on deposit. When a commercial bank grants loan to its customer, it does not pay cash. It simply credits the account of the borrower. The borrower can withdraw the amount by cheques whenever required. In this case commercial bank creates deposit without receiving cash.
d) Exchanges foreign currencies: Earlier the function of exchanging foreign currencies was performed by the central bank only, but it has been entrusted even to commercial banks. It provide foreignexchange service according to the direction of the central bank.
e) Open Letter of Credit (L.C): For the purpose of importing goods from the foreign countries, it opens L.C. Commercial bank has also been given the right to issue and accept travelers' cheques.
f) Remittance of Funds: Commercial bank transfer money through the means of bank draft, T.T., etc to other places of the country or to foreign countries. In additions it transfer funds to its other branches.
g) Agency function: Banks function in the form of agents and representatives of their customers. Customers give their consent for performing such functions.
The important functions of these types are as follows:
(i) Banks collect cheques, drafts, bills of exchange and dividends of the shares for their customers. (ii) Banks make payment for their clients and at times accept the bills of exchange: of their customers for which payment is made at the fixed time.
(iii) Banks pay insurance premium of their customers. Besides this, they also deposit loan installments, income-tax, interest etc. as per directions.
(iv) Banks purchase and sell securities, shares and debentures on behalf of their customers.
h) Miscellaneous Functions: Besides the functions mentioned above, banks perform many other functions of general utility which are as follows:
(i) Banks make arrangement of lockers for the safe custody of valuable assets of their customers such as gold, silver, legal documents etc.