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According to the Commercial Bank Act, 2031, “Commercial banks are those banks which are
established under this Act to perform commercial functions except those which are established for
specific purposes like development bank, cooperatives or other.”
In conclusion, commercial bank accepts the deposits from the customers, grants loan and
provides other banking services to the ordinary people for earning profit or profit motive.
It is established for the development of trade industry and commerce. Commercial bank
grants loans to the individuals and corporations and charges interest.

Key Point Commercial bank refers to the bank which accepts deposits of the public
and organisations and grants loan to them against securities and provides
financial services such as agency service, transfer of money, exchanging
foreign currency, issuing capital, etc.

10. Functions of Commercial Bank
The following are the important functions of the commercial banks:

i. Accepting Deposits
Commercial banks accept deposits of money made by different persons and
institutions mainly under three accounts viz. current account, saving account and fixed
deposit account. Each of them is described below:

a. Current Account
A current account is a running account between a customer and his banker. A
customer can deposit and withdraw money to or from a current account whenever he
likes. There are no restrictions to the number of withdrawal subject to the minimum credit
balance to be kept as per the rules of the bank. There is no provision of interest under this
account. This only provides security for the money.

b Saving Account
It is such an account, which provides limited withdrawal facility and carries a
moderate of interest on such deposits. Interest is allowed on this account on the lowest
credit balance remained in particular month. Since, it is meant to encourage savings of the
people, some restrictions are made on withdrawals.

c. Fixed Deposit Account
A fixed deposit account is the one, in which a customer deposits his/her money in
the bank for certain fixed period of time and, thus, cannot be withdrawn before the expiry
of the specified period. Banks offer a high rate of interest on this account because the
deposit or fund is kept for a specified period. If the depositor is in need of money before
the expiry of the period, he/she can borrow 75% or as the rules of bank of the deposit
from the bank at 2% higher rate of interest than the one allowed on his/her deposit.

68 Aakar’s Office Practice and Accountancy - 10 Financial Institutions 69