Objectives & Functions of Banking Institutions

Introduction

The primary objective of a bank is to mediate between those who have surplus funds and those who need funds.

1. Primary Functions

A. Accepting Deposits

The bank gathers savings from the public via:

1. Savings Deposit: For common people (interest ~3-4%).
2. Current Deposit: For businesses (No interest, unlimited transactions).
3. Fixed Deposit (Term Deposit): Money locked for a fixed period (Higher interest).
4. Recurring Deposit (RD): Small fixed amount deposited monthly.

B. Granting Loans & Advances

The bank lends the money collected:

1. Overdraft: Allowing a customer to withdraw more than their balance (For Current A/c).
2. Cash Credit (CC): Running account limit for businesses.
3. Loans: Term loans for Car, Home, Education.
4. Discounting of Bills: Paying the seller before the bill maturity date.

2. Secondary Functions

A. Agency Functions

Acting as an agent for the customer:

• Collecting Cheques/Bills.
• Buying/Selling Shares.
• Paying Insurance Premium/Rent.

B. General Utility Functions

Services for general public:

• Locker Facility: Safe custody of valuables.
• Letter of Credit (LC): Guarantee for import/export.
• Underwriting: Subscribing to shares if IPO fails.
• Forex Services: Currency exchange.

Summary

• Primary: Deposits + Loans.
• Secondary: Agency + Utility.
• Deposits: Savings, Current, FD, RD.

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