Business Services-2 — OCM STD 11 Commerce — Question
Gujarat BoardEnglish MediumSTD 11 CommerceOCMBusiness Services-25 Marks
Question
Explain subsidiary functions of bank.
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Answer
Introduction :
Besides major functions, in the current time bank provides various services to its customers.
Account holders also are attracted towards services offered by bank because it is time and expense saving.
Competition also increased in banking sector, hence to attract customers banks try to provide various types of services.
What is Bank ?
According to the Reserve Bank of India "Bank is an institution which collects deposits in order to land them with condition to return it at the end of the fixed term or whenever, it is demanded." $3$. Core Functions of Bank :
Following are the main functions of bank.
To accept deposits.
To lend money
To invest money.
To perform inter-banking (transactions)
To Accept / Collect Deposit :
Bank accepts unused money from public in four different accounts
Saving Account
Current Account,
Recurring Account,
Fixed Deposit Account.
Bank pays interest on the amount deposited in all these accounts.
The rate of interest varies.
The greatest responsibility of bank is to maintain the trust of depositors.
To Lend Money :
The bank accepts deposits from public and these money received through deposit is lended by bank.
Bank pays low interest to the depositors and lends to the borrowers at higher rate of interest. Interest that paid to the depositors is lower than interest charged to the borrowers.
The difference between the two is the profit of the bank. Normally banks lend money through $(A)$ Loan $(B)$ Overdraft $(C)$ Cash Credit.
Explanation about overdraft and Cash Credit is given in short answer to questions Np. $6$ and $7$).
To Invest :
If bank can not invest properly or land amount of deposit received or its capital, it can not get sufficient return.
It is the most important function of bank to invest money properly with safety with calculation.
When critical financial situation arises in bank, then with the purpose of easy liquidity of investment made by bank as per the rule of $RBI$. certain percentage of deposit amount should be invested in government securities of low interest. The remaining amount is invested in financially prosperous units.
To do Inter-banking Transactions :
Every bank has to do inter-banking transactions to remove short- term financial crisis. It may be for $24$ hours only, or less than that. If such situation arises $RBI$ is informed.
Through the appointed agencies by $RBI$, unutilized money is sent to the needy bank by $RBI$. During this transactions money lender and money borrower bank do not come indirect contact.
The borrower bank has to pay interest on the amount received. Rate of interest is determined on the basis of demand and supply of money in the market and it is known as 'Call Money'.
In this transaction money is received before twenty four hours. That is why it is called 'Call Money'.
Subsidiary Functions of Bank :
They are noted as below.
To maintain financial transactions of customers :
Bank, on behalf of its customers pays the amount of cheques drawn by account holder in favour of other party or a person and recovers money of the cheques received by its customers from the party or individual.
Banks handle both these transactions. Besides, this bank provides services of paying electric bills, insurance, premium, telephone bills etc. Bank transfers money from one account to another.
All these services are provided by bank on behalf of its customers.
Transactions related to currency :
In India import-export trading is done through banks.
This requires foreign currency.
The banks whom the Reserve Rank has given permission of foreign currency, maintains the transactions of foreign exchange.
Besides this, these banks provide service to bring and carry documents related to trade with foreign countries.
Issuing Traveller's Cheques :
While travelling in a country or in foreign countries, people bear the tension of cash money being stolen or lost.
Banks issue travelers cheque and they are relieved from tension.
Traveler’s cheque holder puts his signature as the specimen signature and enchases them any where in the country or in the foreign country in any branch of the bank.
These types of cheques are the most reliable and money is easily transferable.
With the facility of ATM the importance of travellers cheque is decreased.
To issue Letter of Credit (LIC) :
Letter of Credit is a letter written by one bank regarding the credit of its account holders to another bank.
This letter shows the amount of credit granted to the account holder.
Before granting the amount of credit the bank collects the same amount from the person or bank asks for securities of the equal amount.
Due to this letter of credit financial transactions run very smooth and become reliable.
This letter shows the name of a person, amount granted as credit and payment period.
Service of Demand Draft :
Demand Draft $(D/D)$ is a cheque written by one bank to the branch of other bank.
The amount is paid to the person whose name is written.
For this the person or institution that wants to send money to any individual or institution fills the prescribed form and requests the bank to issue draft.
On its basis bank prepares draft indicating the details as per filled in the form such as, name of the receiver, amount, etc. Batik gives an order to its branch situated at money receivers place.
This document which indicates the order is called Demand Draft.
Sender has to pay the amount he wants to send along with the amount of commission to the bank, when the bank issues draft which can be enchased in its city only it is called pay-order.
To provide service as Underwriter :
When newly established company wants to raise share capital and collects the amount by share application in specific period equal to minimum subscription.
If the amount is not collected then shares of remaining amount will be purchased from the company for this service bank, receives commission from the company.
To provide information regarding credit of the parties related with bank :
Bank frequently performs financial transactions with clients.
Bank is aware of their credit and financial stand.
The concerned firm or institution which is in business on credit with other party wants to know about reliability and financial stand and contacts bank.
Bank issues solvency certificates of the institution or individual within the limit of law.
It is to be noted that it provides only information but bank does not take any responsibility.
To provide other related services :
Today banks provide other services such as safe Deposit vault, $ATM, DEMAT,$ Credit Card, Debit Card etc.
Conclusion :
Banks provide many types of facilities, as a result customers find relief.
In the present time bank provides the facility of paying electric bill, telephone bill, insurance premium on behalf of
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