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Functions of Banks | SBI PO Prelims & Mains Preparation - Bank Exams PDF Download
Primary Functions
Accepting Deposits
Most important function of a bank is to mobilize public funds. Bank provides safe custody as well as interest to the depositors.
- Saving deposit: Saving deposit account meant for those people who wants to save for future needs and uncertainties. There is no restriction on number and amount of withdrawals. Bank provides cheque book, ATM cum debit card and Internet banking facility. Depositors need to maintain minimum balance which varies across different banks.
- Fixed deposit or Term deposit: In fixed deposit account, money is deposited for a fixed tenure. Banks issues a deposit certificate which contains name, address, deposit amount, withdrawal date, depositor signatures and other important information.
Depositor can't withdraw money during this period. In case depositor want to withdraw before maturity, banks levy pre-mature withdrawal penalty. - Current account: Current accounts are normally opened by businesses. Banks provide overdraft facility for these accounts by which account holder can withdraw more money than available bank balance. This act as a short term loan to meet urgent needs. Bank charges high rate on interest and charges for overdraft facility because bank need to maintain a reserve for unknown demands for overdraft.
Recurring deposit
In this type of account depositors deposits certain sum of money at regular period of time. Benefit of recurring account is that it provides benefit of compounded rate of interest and enables depositors to collect big sum of money.Granting Loans and advances
- Cash credit : It is a short term loan facility under which banks allows its customers to take loan up to a certain limit, normally bank grants this loan against mortgage of certain property.
- Bank overdraft: Bank provides this facility to current account holders.Account holder can withdraw money anytime up to the provided limit. He need to pay interest only on borrowed amount for the period for which he took loan.
- Loans: Banks providing loans for various kinds of short term as well as long term needs. Borrower pay back the loan in installments.
- Discounting bills: In normal day to day business, sellers sends bills to buyer whenever they sell their products and it is mentioned in bill to make payment in stipulated time. Lets take it 30 days. In such conditions seller may discount the bill from bank for some fees. In such situation bill discounting acts as short term loan. In case the buyer or the drawer defaults, bank send the bill back to seller to drawer so that he may take legal action against drawee or buyer.
Secondary Functions
Agency functions
- Funds transfer
- Cheques collection
- Periodic payments/collection
- Portfolio management
Utility functions
- Issue of draft, letter of credit etc :- Letter of credit acts as an assurance that in case the borrower defaults in making the payment, bank will make the payment up to the amount mentioned in letter of credit
- Locker facility
- Underwriting of shares
- Dealing in foreign exchanges
- Project reports
- Social welfare programs
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FAQs on Functions of Banks - SBI PO Prelims & Mains Preparation - Bank Exams
| 1. What are the primary functions of banks? |  |
Ans. The primary functions of banks include accepting deposits from customers, granting loans and advances, facilitating payment and settlement systems, and providing various financial services such as issuing credit cards and providing investment advice.
| 2. What are the secondary functions of banks? | |
Ans. The secondary functions of banks include providing locker facilities to customers for safekeeping of valuables, offering remittance services for transferring funds, issuing traveler's cheques and demand drafts, providing foreign exchange services, and acting as trustees and executors for customers.
| 3. What are the functions of banks in relation to banking exams? | |
Ans. In the context of banking exams, banks play a crucial role in providing the necessary infrastructure for conducting exams, such as setting up examination centers, ensuring the security and confidentiality of exam materials, and facilitating the smooth conduct of the examination process.
| 4. What are some frequently asked questions (FAQs) related to the functions of banks in banking exams? | |
Ans. Some frequently asked questions related to the functions of banks in banking exams include:
- How can I apply for a banking exam conducted by a bank?
- What is the eligibility criteria for appearing in a banking exam?
- What is the syllabus and exam pattern for banking exams?
- How can I prepare for banking exams effectively?
- What are the career prospects after clearing a banking exam?
| 5. How can banks help individuals prepare for banking exams? | |
Ans. Banks can assist individuals in their preparation for banking exams by providing study materials, conducting mock tests and practice sessions, organizing coaching programs and workshops, and offering guidance and counseling to aspiring candidates. Additionally, banks may also provide financial assistance or scholarships to deserving candidates to support their exam preparation journey.
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