Functions of Banks 7

Introduction to Functions of Banks

Banks play a pivotal role in the economic development of a country by providing a range of financial services. The functions of banks are broadly classified into primary and secondary functions. Primary functions include accepting deposits and granting loans, while secondary functions encompass agency and utility services. The chapter begins by highlighting the importance of banks in mobilizing savings, facilitating payments, and extending credit to various sectors. Banks act as intermediaries between savers and borrowers, ensuring efficient allocation of resources. Their functions have evolved over time, adapting to technological advancements and changing customer needs. The introduction sets the stage for understanding the detailed mechanisms through which banks operate and contribute to the financial system.

• Banks are financial institutions that accept deposits and provide loans.
• Functions of banks are divided into primary and secondary categories.
• Banks facilitate economic growth by mobilizing savings and extending credit.
• They act as intermediaries between savers and borrowers.
• Technological advancements have expanded the functions of banks.
• Understanding bank functions is essential for grasping their role in the economy.
• 📌 Bank: A financial institution that accepts deposits and lends money.
• 📌 Deposit: Money placed in a bank for safekeeping.
• 📌 Loan: Money lent by a bank to individuals or businesses.

Primary Functions of Banks

The primary functions of banks are fundamental to their existence. These include accepting deposits and granting loans and advances. Accepting deposits involves collecting money from the public in various forms such as savings, current, and fixed deposits. Savings deposits encourage individuals to save money, current deposits are used by businesses for frequent transactions, and fixed deposits are kept for a specified period earning higher interest. Granting loans and advances is the second primary function, where banks lend money to individuals, businesses, and government entities. Loans are provided for various purposes like purchasing a house, starting a business, or meeting personal needs. Advances are short-term loans given to customers, often against securities. The process of lending involves assessing the creditworthiness of borrowers and charging interest on the amount lent.

• Primary functions include accepting deposits and granting loans.
• Deposits can be savings, current, or fixed.
• Loans are provided for personal, business, or government needs.
• Advances are short-term loans often given against securities.
• Banks assess creditworthiness before lending.
• Interest is charged on loans and advances.
• 📌 Savings Deposit: A deposit for saving money with moderate interest.
• 📌 Current Deposit: A deposit used for frequent transactions with no interest.
• 📌 Fixed Deposit: A deposit kept for a fixed period earning higher interest.