The different types of bank accounts have been discussed at length in this article. The details and benefits of each type of bank account constitute an important part of the General Awareness syllabus for major Government exams conducted in the country.
One major aspect of the banking industry is the provision of bank accounts. There are various types of bank accounts which can be opened in any Public or Private sector banks.
This topic essentially forms a very important part of the financial and banking awareness section of the various bank exams.
In competitive exams, the topic functions of the bank form an important part of the question paper and its knowledge is crucial to score good marks.
Especially, candidates appearing for various bank exams such as IBPS Exam, SBI Exam or RBI exam definitely encounter questions related to important banking functions in the paper or at the time of interview.
For other graduate-level government examinations such as the SSC exam, the questions related to bank functions are asked under professional knowledge heading. Therefore, this article will walk you through important banking functions, their categories and more.
Candidates preparing for any competitive or government exams can check the following links for their preparation:
A bank is a lawful organisation that accepts deposits which can be withdrawn on demand. Banks are institutions that help the public in the management of their finances, public deposit their savings in banks with the assurance to withdraw money from the deposits whenever required.
Banks accept deposits from the general public and from the business community as well and give two assurances to the depositors –
Banks give interest on deposits which adds to the original deposit amount and is a great incentive to the depositor. This promotes saving habits among the public. Bank also grants loans based on the deposits thereby adding to the economic development of the country and well being of the general public. With this stature, it becomes important to understand the major functions of a bank.
There are two types of functions of banks:
Both the types of functions of bank are explained below in detail:
All banks have to perform two major primary functions namely:
Accepting of Deposits
A very basic yet important function of all the commercial banks is mobilising public funds, providing safe custody of savings and interest on the savings to depositors. Bank accepts different types of deposits from the public such as:
Granting of Loans & Advances
The deposits accepted from the public are utilised by the banks to advance loans to the businesses and individuals to meet their uncertainties. Bank charges a higher rate of interest on loans and advances than what it pays on deposits. The difference between the lending interest rate and interest rate for deposits is bank profit.
Bank offers the following types of Loans and Advances:
Like Primary Functions of Bank, the secondary functions are also classified into two parts:
Agency Functions of Bank
Banks are the agents for its customers, hence it has to perform various agency functions as mentioned below:
Transfer of Funds: Transfering of funds from one branch/place to another.
Periodic Collections: collecting dividend, salary, pension, and similar periodic collections on the clients’ behalf.
Periodic Payments: making periodic payments of rents, electricity bills, etc on behalf of the client.
Collection of Cheques: Like collecting money from the bills of exchanges, the bank collects the money of the cheques through the clearing section of its customers.
Portfolio Management: banks manage the portfolio of their clients. It undertakes the activity to purchase and sell the shares and debentures of the clients and debits or credits the account.
Other Agency Functions: under this bank act as a representative of its clients for other institutions. It acts as an executor, trustee, administrators, advisers etc. of the client.
Utility Functions of Bank
A part of the General Awareness section is also dedicated to Banking Awareness, especially for banking sector exams. So preparing topics like this are important from the competitive examination point of view as well.
Thus, to help aspirants understand the type of questions which may be asked or the pattern in which they may be asked, given below are a few sample questions based on the functions of the bank.
Q 1. What is the ratio between the total assets maintained by the bank to the total cash in hand called?
Answer: (1) Statutory Liquid Ratio
Q 2. Which of these is not a function of Public Sector Banks?
Answer: (5) Issuing Currency
Solution: Only the Reserve Bank of India controls the issue and flow of currency
Q 3. Which among the following is not a function of Regional Rural Banks?
Answer: None of the above
Q 4. Which body is responsible to regulate the functioning of all Banks in India?
Answer: (3) Reserve Bank of India
Q 5. Which was the first bank to be established in India?
Answer: (5) Bank of Hindustan