As a monetary organization, banks provide various kinds of services in the industrial, commercial, social, and economic development of a country. We can divide the functions of banks into two categories:
A) Main Functions
B) Special and Other Functions.
A) Main Functions
1. Receiving Deposits and Payment of Interest: One of the main functions of commercial banks is to accept the savings of the holders in various types of deposits, such as current, savings, and fixed deposits. A bank pays interest to the holders of fixed and savings accounts on their deposited amounts at certain rates. No interest is allowed for current accounts, but various other facilities are offered to them.
2. Creation of Capital: Banks create capital by accumulating all separate savings of people through different accounts.
3. Granting Loans and Charging Interest: Banks offer loans to borrowers from the deposited money of their clients on various terms. Granting loans is an important function of a bank. Because by providing loans, a bank facilitates productive economic activities on the one hand, and on the other hand, the amount of interest received from the borrowers is its main source of income. A bank charges a higher rate of interest to its borrowers than the rate of interest it offers to the clients. It is the real interest that is a part of the bank’s operational income.
4) Creation of Loan Deposit: When a bank sanctions a loan to the customers, a deposit account is opened in their name, and the amount is credited to their account. Then, the amount of money withdrawn by the borrower is debited from that account. In this way, banks create deposits by sanctioning loans.
5) Creating Medium of Exchange: Banks use cheques, bills of exchange, certificates, bank drafts, pay orders, debit cards, credit cards, etc. as payment mechanisms and a medium of financial transaction.
6) Issue Notes: Notes are not usually issued by commercial banks but by the central bank. But commercial banks issue notes in indirect forms. For example, if you have a deposit of taka 1 lac in a savings account of Sonali Bank and if you buy a computer costing taka 60 thousand, you can make the payment through a cheque from your account. Thus, sometimes bank cheques serve as a medium of exchange as an alternative to notes issued by the government and thus make currency usage easier.
7) Service as Trustee: Commercial banks serve as trustees of properties of their customers and issue solvency certificates to them.
8) Assistance in Import and Export: An importer needs to convert local currency into foreign currency while an exporter needs to convert foreign currency to local currency, which is one of the functions of banks. Moreover, banks arrange for payment to the exporters on behalf of the importers through letters of credit (LC) in international business. Letter of Credit plays an important role in international trade by creating financial and business connections between importers and exporters. Providing operative assistance and suggestions in import- and export-related functions is a representative job of commercial banks.
9) Service as a Government Treasury: The central bank or any other selected bank services as the treasury of the Government.
10) Change Bill Exchange: Banks change bills of exchange by barter in favour of their clients to support business and commerce.
B. Special and Other Functions
1) Investment of Capital: Besides disbursing loans, banks invest capital in industrial plants and commercial organizations, which help increase gross national production and capital mobilization.
2) Role in Economic Growth: Banks help a country’s overall economic growth, especially development of trade, commerce, transportation, communication, housing, and education, etc.
