• A bank is said to be a financial intermediary.
• It stands midway between the savers and the users of fund.
• There are different types of bank having some common and some special functions.
• Banks may be of various types such Central Bank, commercial banks, development banks, cooperative banks, rural banks etc.
• The Central Bank, the commercial banks and the development banks are of primary importance.
Commercial Banks
Ø A commercial bank is a financial intermediary.
Ø Its central objective is commercial that is, profit making.
Ø It takes money from a surplus unit by paying a low rate of interest and lends the same fund to a deficit unit at a higher rate of interest and thus makes profit. • It is said to be a dealer in credit.
Ø It may be organized privately or by the Government.
Ø The two primary functions of such a bank are Deposit function and Loan function.
Ø Deposits may be of three types: Demand or current, Savings and Fixed or Time deposit.
Ø The funds thus obtained from various classes of people are pooled together and lend to users of capital.
Ø Banks do not lend the entire sum of deposit. But a portion is kept in the form of cash. This is called Cash Reserve Ratio (CRR) in order to meet the unforeseen demand of some depositors.
Ø In its loans and advances, banks maintain a diversified portfolio in order to seek a balance between liquidity and profitability.
Ø Banks perform some other functions that enhance their yield. They keep valuables in their custody, collect chequable amounts, the purchase and sell of shares, debenture, they act as agents of their customers. Besides they act as trustee and executors of wills, pay bills of customers.
