Gujarat BoardEnglish MediumSTD 12 CommerceEconomicsBANKING AND MONETARY POLICY3 Marks
Question
Define and explain commercial banks.
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Answer
Commercial banks:
A commercial bank is a business unit which provides banking services for profit.
Definition:
According to Banking Company Act, “Commercial bank is one which transacts the business of banking that is, accepting deposits from the people for the purpose of lending or investment, repayable on demand or otherwise and withdrawable by cheque, draft, and pay-order or otherwise.
Meaning:
People give their money to the banks in the form of savings $($deposits$).$ The bank then uses these deposits to invest in various sectors such as agriculture or industry.
The bank may even buy government securities, or give loans to people who want to borrow money from the bank.
The bank then earns profit in the form of interest by all these activities.
The banks keep a part of interest as profit and pass away the rest as interest to the depositors.
The banks lend the money at higher rate of interest compared to the interest they give on the money deposited in the banks. The difference of interest that the banks earn is their profit and hence they are called commercial banks.
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