Page 71 - Account 10

viii. Provides Locker Facilities
If we keep valuable good properties like gold, ornaments, diamonds, silver,
documents like share certificate, land certificate, etc. at home, it is risky. Commercial
bank provides locker facilities to its clients to preserve the valuable assets by paying
service charge to the bank.

ix. Purchases and Sells Securities
The commercial bank purchases and sells securities, shares and debentures on behalf
of its customers through stock exchange and capital markets. It helps to promote trade
and industries.

x. Creates Credit
Credit creation is a unique function of commercial bank. Commercial banks supply
money as loan to traders and industrialists. Bank deposits are regarded as money. When
bank grants loan to its customer, it does not pay cash. It simply credits the account of the
borrower. The borrower can withdraw the amount by cheques whenever required. In this
situation, the commercial bank creates deposit without receiving cash.

xi. Other Functions
Commercial banks manage to keep gold, silver and other valuable property safely,
avail money by purchasing/accepting bills (specially of 90 days terms) and provide
commercial services like financing for transportation carriage, storage, etc. These banks
also activate all the economic sectors by collecting savings and mobilising capital for
strengthening national economy.

Points to Remember

i. Accepting deposits ii. Providing loan iii. Serving with agency functions
iv. Exchanging foreign currencies v. Transfer of money vi Opens letter of credit
vii. Issuing capital viii. Provides locker facilities ix. Purchases and sells securities
x. Creates credit xi. Other functions

Differences Between Central Bank and Commercial Bank

Central Bank Commercial Bank
1. Central bank is the main bank of the 1. Commercial banks are established with the
country. permission of the central bank.
2. It is fully owned and managed by the 2. They are either owned and managed by
government. government or by general public.
3. It has monopoly right to issue note. 3. They do not have right to issue notes.
4. It controls credit. 4. They create credit.

70 Aakar’s Office Practice and Accountancy - 10 Financial Institutions 71