Tuesday, September 1, 2009

Commercial Bank

It is difficult to give concise and accurate definition of bank. It is so because a modern bank renders various functions. It is difficult to include all these functions in a single and concise definition. Even though, it can be said that a bank is an institution whose business is to trade in money. Trading in money relates to activities such as taking deposit, granting loans, discounting bills, issuing cheque to be drawn upon itself and other various functions on behalf of customers. Any institution will be known as bank if it renders all or some of these functions. It is quite impossible to discharge all these functions by a single bank. So they specialize in certain set of functions. Banks are classified on the basis of their functions, which are as follows;
1. Central Bank
2. Commercial Bank
3. Agriculture Bank
4. Industrial Bank
5. Exchange Bank
6. Saving Bank etc.
American Institute of Banking defines commercial bank, as "Commercial Bank is a corporation which accepts demand deposits subject to cheques and makes short term loans to business enterprises, regardless of the scope of its other services". The institution also laid down the four functions of commercial bank as receiving and handling deposits (Deposit Function), handling payments of money (Payment Function), making loans and investments (Loan Function) and creating money by extension of credit (Money Function). (American Institute of Banking, 1972:345)

In today's concern the operating function of the commercial banks are, (a) to collect working capital (b) to utilize the working capital in various purposes (c) by utilizing the working capital, it earns profit and (d) part of the profit is distributed as dividend and part of the profit is retained for the expansion of banking transactions.(Garg, 1977:271)

Commercial Bank Act, 2031 B.S. of Nepal has defined it as a commercial bank is one which exchanges money, deposits money, accepts deposits, grants loans and performs commercial banking functions and which is not a bank meant for co-operative agriculture, industries or for such specific purpose. The Commercial Bank Act 2031 also pointed the functions of commercial banks commercial banks provide short term debts necessary for trade and commerce. They take deposits from the public and grants loans in different forms. They purchase and discount bills of exchange, promissory note, and exchange foreign currency. They discharge various functions on behalf of their customers provided that they are paid for their services.

No comments:

Post a Comment

Letter of credit

 A letter of credit is a document that guarantees the payment from a buyer to a seller in international trade. It is issued by a bank on beh...