Functions of Commercial Banks: 

a. Acceptance of deposits: 

A commercial bank accepts following types of deposits. 

They are 

1. Current deposit: 

This type of account is usually opened by business men. It carries no interest. There are no restrictions on number of deposits or withdrawals. 

2. Savings deposit: 

Savings accounts are for encouraging savings by individuals. Banks pay rate of interest as decided by RBI on these deposits. Withdrawal from these accounts has some restrictions. 

3. Fixed deposit: 

Fixed accounts are time deposits with higher rate of interest. They cannot be withdrawn before the maturity period.

b. Lending of funds: 

The second important function of a commercial bank is to grant loans and advances out of the money received through deposits. These advances can be made in the form of overdrafts, cash credits, discounting trade bills, term loans, consumer credits and other miscellaneous advances. 

1. Cash Credit: 

Under this arrangement, the bank advances loan up to a specified limit against current assets. The bank opens an account in the name of the borrower and allows him to withdraw the money up to the sanctioned limit. Interest is charged on the amount actually withdraw. 

2. Bank Overdraft: 

Overdraft is an arrangement where customers are allowed to withdraw up to a level over and above their deposits in the current account. Interest is to be paid only on the actual amount of overdraft availed by him. OD is granted to businessmen against their current account.

3. Discounting of bill of exchange: 

Under this, a bank gives money to its customers on the security of a bill of exchange before the expiry of the bill after deducting a small amount of discount.

4. Term Loans: 

These loans are provided by the banks to their customers for a fixed period. Interest will be charged to the entire amount of loan. 

c. Secondary Functions: 

The secondary functions of commercial banks are as under: 

1. Agency Functions:

• Cheque facility: Bank collects customers cheque drawn on other bank. There are two types of cheques mainly 
• Bearer cheques, which are encashable immediately at bank counters Crossed cheques which are to be deposited only in the payees account. 
• Payment of insurance premium, telephone charges, collection of dividend etc 
• Purchase and sale of shares and debentures 
• Acting as trustees or executors
• Providing credit information 

2. General utility services: 

• Providing lockers for safe custody of Jewellery and others valuables of customers 
• Issuing letter of credit, pay orders, bank draft, credit cards, traveller’s cheques to customers. 
• Underwriting issues of shares and debentures 
• Providing foreign exchange to importers and traveller’s going abroad.

Bank Draft: 

It is a financial instrument with the help of which money can be remitted from one place to another. The payee can present the draft on the drawee bank at his place and collect the money. Bank charges some commission for issuing a bank draft.

Pay Order: 

It is almost like a bank draft. Banks issue pay order for local purpose and issue bank draft for outstations.