The important types of Secondary Functions performed by the commercial bank are given below:
1. Agency Functions:
Banks act as agents to their customers in different ways:
Image Source: c2.staticflickr.com
ADVERTISEMENTS:
(i) Collection and Payment of Various Items:
Banks collect cheques, rent, interest etc. on behalf of their customers and also make payment of taxes, insurance premia etc. on their behalf.
(ii) Purchase and Sale of Securities:
Banks normally are more knowledgeable with regard to stock and share business. As such they buy, sell and keep in safe custody the securities on behalf of their customers.
ADVERTISEMENTS:
(iii) Trustee and Executor:
Banks also act as trustees and executors of the property of their customers on their advice.
(iv) Remitting of Money:
Banks also remit money from one place to the other through bank drafts.
ADVERTISEMENTS:
(v) Purchase and Sale of Foreign Exchange:
Banks buy and sell foreign exchange and thus promote international trade. This function is mainly discharged by Foreign Exchange Banks.
(vi) Letter of References:
Banks also give information about economic position of their customers to domestic and foreign traders and likewise provide information about economic position of domestic and foreign traders to their customers.
2. General Utility Services:
Commercial banks also provide certain services of general utility to the society:
(i) Locker Facilities:
Banks provide locker facilities to their customers. People can keep their gold or silver jewellery or other important documents in these lockers. Their annual rent is very nominal.
(ii) Traveller’s Cheque and Letters of Credit:
Banks issue traveller’s cheque and letters of credit to their customers so that they may be spared from the risk of carrying cash during their journey.
(iii) Business Information and Statistics:
Being familiar with the economic situation of the country, the banks give advice to their customers on financial matters on the basis of business information and statistical data collected by them.
(iv) Help in Transportation of Goods:
Big businessmen or industrialists after consigning goods to their retailers send the Railway Receipt (Consignment Note) to the bank. The retailers get this Receipt from the bank on payment of the value of the consignment to it. Having obtained the Railway Receipt from the bank they get delivery of the consignment from the Railway Goods Office. In this way banks help in the transportation of goods from the production centres to the consumption centres.
3. Developmental Functions:
In modern times, banks also perform following significant functions relating to economic development and social welfare of the country.
1. Banks collect idle savings of the people and invest the same in productive activities. Thus, they help in accelerating the rate of capital formation.
2. Banks are also taking part in capital market. They have been giving long-term advances to industry, agriculture, small-scale industry, traders, transporters etc. They also finance export trade.
3. Banks give loans to weaker sections of the society on low rate of interest. Small artisans, landless agricultural labourers and poor classes get cheap loans from the banks.
4. Commercial banks have opened their branches in rural areas and small towns to provide banking facilities to the people living therein.
5. Since banks do not give loans for speculative and unproductive activities, bank credit can be used productively.
6. Banks also give credit at low rate of interest to finance such programmes as are meant for rural development and removal of unemployment.
7. The commercial banks either of their own or through their subsidiaries perform several financial functions. These include mutual funds, Merchant banking, Housing Finance, Factory Leasing factoring, Stock Investment etc.
In short, a modern bank performs several functions which are of great significance to the economic growth of a country. A bank is no longer an institution required to accept deposits and advance loans. It plays a significant role in the economic development and social welfare of a country.