Today the banking system in India is categorized mainly into commercial banks, regional rural bank and cooperative banks. Commercial banks constitute a significant part of Indian financial institution system. These are the profit-seeking institution which accepts deposit from the public in general and sends money to individuals like household entrepreneurs, and businessmen, etc. The main objective of this operation is to earn profit in the form of interest and commissions etc. the main source of the profit of any commercial bank is the difference of interest between the rates of interest which they pay to the depositors and the rate which they charge from the borrowers. The operation of commercial banks is regulated by the Reserve Bank of India which is the supreme financial authority in India.
- Primary functions of Commercial Banks
a) Acceptance of deposit – They accept the deposits in the form of the following ways.
- Fixed termed deposit A/C
- Current A/C
- Recurring deposit A/C
- Savings Bank A/C
- Tax Saving Deposit A/C
- Deposit of NRI A/C (NRE, NRO, FNR)
This is another primary function of a commercial bank which is performed by granting secured loans against some land of security and unsecured loans like overdraft and guarantees. The other methods of lending are bile discounting where the money is advanced against bills of exchange and cash credit facilities where a certain amount of money can be withdrawn against the given tangible security.
2. Secondary Functions – The secondary functions are agency functions which commercial banks perform as an agent on behalf of their customers, such function may include.
- Payment of taxes and bills
- Collection of funds through bills and cheque
- Transfer of funds
- Sale and purchase of shares/ debentures/ securities
- Collection and payment of interest or dividends
- Acts as a trustee or executors
- Foreign exchange sale/ Purchase/ Export / Import
- A general utility like lockers, safe custody, etc.
The first commercial bank in India having limited liability was Sindh Commercial Bank or Avadh Commercial Bank. It was established in 1881. It had no branches and served an only local customer. The area of operation was limited to its place of establishment in Faizabad. Later on, after 1887 Avadh Commercial Bank acquired the Bank of Rohilkhand which was promoted by the Nawab of Rampur Sir Yusuf Ali Khan.