Conventional Commercial Banking

The main functions of modern conventional commercial banks as they exist today include providing what is called current account facilities, money transfer services, accepting funds into savings accounts, granting loans and advances, facilitating import-export transactions, and buying and selling foreign currency.

Current account facilities include accepting cash deposits into your account and allowing you to withdraw from it as when you require the whole of it or a portion. You can also use a cheque to instruct the bank to pay another person or entity a stated amount of money and debit the same from your deposit in the bank. Similarly, you can receive payments made by others into your account. This ability to pay and receive without having to personally carry notes and coins is a great boon to transacting business — personal and institutional. Private individuals use the current account to receive their salaries and wages and to pay their bills. Businesses and institutions use the current account to make payments for the goods and services received and to receive payments for the goods and services provided. It saves time, and is safe and less expensive. The transactions through cheques can be made whether the payer and the receiver use the same bank or different banks, and whether the concerned banks are miles away in the same country or continents away in different countries.

Money can also be transferred from one person to another, even without having a current account with a bank, through the banks’ money transfer arrangements — money orders, pay orders, bank drafts, mail and telegraphic transfers, electronic transfers, etc. — both within and outside the country. There are also other bank guaranteed payment facilities, especially the letters of credit and bills of exchange, which greatly facilitate import-export trade. In fact such trade is practically impossible without this facility.

Banks also accept funds from the public and institutions into savings accounts, keep them safe, and pay interest on such funds. In turn, they use these funds to grant loans and advances to borrowers, to whom the bank charges an interest. This service provides the savers with a known income, while their capital remains intact. On the other side, it provides the borrowers access to funds, which they would otherwise not have. The borrowed funds may be used for setting up a new business, to expand existing business, to provide working capital for a running business, or for consumption purposes including buying consumer durables, to rtide over through a difficult period and to meet an unexpected expenditure.

They also provide many other services including agency services, business introduc­tions and , credit reports, etc. Another important service is in the foreign currency field — buying and selling foreign currency, issuing travellers cheques and credit cards.

Some of the above are paid services, others are not.; Ssome involve paying or receiving interest, others not. But the commercial banks (henceforth the ‘banks’) and banking their services have become an integral part of the present-day world.

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