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4. Functions of Bank
Accepting deposits and granting loan are the traditional functions of a bank. The
modern banks undertake a wide variety of functions from the issue of paper money to
rendering of utility services. As the difference in bank itself i.e. commercial, development,
and central bank etc., the functions are also different, to some extent. But, commonly the
important functions of banks may be mentioned as below:
i. The central bank of a country issues money throughout the country.
ii. The central bank manages and controls the total banking system of the country for
its rapid economic development.
iii. Commercial banks accept deposits of money from the different persons and
organizations in different accounts, i.e. current A/c, saving A/c and fixed deposit
A/c and provide security and interest to them on such deposit.
iv. Commercial banks also grant loan to the persons and organizations against security
of patents, shares, debentures, gold, silver and other fixed properties.
v. Commercial banks provide agency services to their clients by collecting cheques/
amount for trade values, interest, commission, dividend, etc. and paying subscription,
insurance premiums, trade values and other expenditures on behalf of the clients, on
outstanding instructions.
vi. Commercial banks issue various credit instruments like cheque, bank draft, letter
of credit, credit card, etc. which enable fast and safe remittance of money from one
place/person to another in distant places.
vii. Commercial banks purchase and sell shares and securities on behalf of their clients/
customers.
viii. Commercial banks provide necessary foreign currency to the persons requiring it, on
the permission of the central bank.
ix. The development banks viz. Agricultural Development Bank and Industrial Bank
provide financial, technical and administrative assistance for the development of the
agricultural and industrial sectors respectively.

5. Importance of Bank

A bank is important for all the parties i.e. general public, business organization and
the government. It is rather important for the business organizations. A bank provides
finance, which is the foundation of every business activity. It is thus, regarded as an
indispensable tool of the wheel of commerce. It acts as a middleman or agent between the
savers and borrowers of money. The importance of a bank is highlighted in terms of the
following points:

i. The central bank of a country issues coins and paper notes, which facilitate in the
transfer of properties.
ii. Commercial banks collect capital in terms of the deposit of the general public and
organizations and mobilize to the productive fields to activate the entire economic
sectors.
iii. Banks provide security to the deposits of the general public and organizations, on
one hand and pay interest on such deposits on the other and encourage saving.

64 Aakar’s Office Practice and Accountancy - 10 Financial Institutions 65