Accepting Deposits and granting loans functions of a bank

Describe the deposits’ of the banks. What are the granting loans functions of a bank?

Contents

Accepting Deposits

The main function of commercial banks is to accept deposits and grant loan. A commercial bank accepts it through the following ways:

(i) Savings Bank Account Savings bank account is suitable to – middle income groups who can save certain amount during a certain period. In this account the depositor can withdraw money about thrice a week, but can deposit money at any time.

(ii) Fixed Deposit Account – Fixed deposits means deposits repayable after the expiry of certain fixed period which may be of 30 days to 5-6 years.

(iii) Current Account – Current accounts are beneficial to those who withdraw money several times from the account of deposits. The depositor can withdraw or deposit money as many times as he can.

Granting Loans

The second important function of the commercial banks is to grant loans in the following manner:

(a) Granting Simple Loans – Banks keep a certain amount of security or mortgage from the customer and only then advances its loan to him. The loan is deposited in the customers saving account or current account, which could be withdrawn gradually under different instalments.

(b) Cash Credit In cash credits banker allows his customer to borrow money upto a certain limit against the security of certain bonds, promissory notes, shares, jute, rice, oilseeds, cotton etc. Sometimes goods on which security advances are made are kept in possession of the bank in its godowns.

(c) Bank Overdraft Bank overdraft is allowed on the current account. The customers having current accounts may be allowed to overdraw more amount then the deposited money itself, it is more advantageous to the customers, because interest is charged only on the amount withdrawn and no collateral security is required for the purpose.

(d) Discounting of Bills – Money can be obtained by discounting bills of exchange. The bank discount only clear and repeated bills.