Bank:

• A bank is a lawful organisation that accepts deposits that can be withdrawn on demand. Banks are institutions that help the public in the management of their finances, public deposit their savings in banks with the assurance to withdraw money from the deposits whenever required.
• Banks accept deposits from the general public and from the business community as well and give two assurances to the depositors –
• Safety of deposit
• Withdrawal of deposit, whenever needed

Functions of Banks:

All banks have to perform two major primary functions namely:

• Accepting of deposits
• Granting of loans and advances

Like Primary Functions of Bank, the secondary functions are also classified into two parts:

• Agency functions
• Utility Functions

Agency Functions of Bank

Banks are the agents for their customers, hence it has to perform various agency functions as mentioned below:

• Transfer of Funds: Transfering of funds from one branch/place to another.
• Periodic Collections: Collecting dividend, salary, pension, and similar periodic collections on the clients’ behalf.
• Periodic Payments: Making periodic payments of rents, electricity bills, etc on behalf of the client.
• Collection of Cheques: Like collecting money from the bills of exchanges, the bank collects the money of the cheques through the clearing section of its customers.
• Portfolio Management: Banks manage the portfolio of their clients. It undertakes the activity to purchase and sell the shares and debentures of the clients and debits or credits the account.
• Other Agency Functions: Under this bank act as a representative of its clients for other institutions. It acts as an executor, trustee, administrators, advisers, etc. of the client.

Utility Functions of Bank

• Issuing letters of credit, traveller’s cheque, etc.
• Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers.
• Providing customers with facilities of foreign exchange dealings
• Underwriting of shares and debentures
• Dealing in foreign exchanges
• Social Welfare programmes
• Project reports
• Standing guarantee on behalf of its customers, etc.

Source: ForumIAS