In simple words, Commercial Banks are those which finance the trade and industry of the country by arranging short-term credit facilities. 

According to the Indian Companies Act, 1913, “Commercial Banks are Joint Stock Banks which provide short-term loans for trade and industry of the country.” The main object of these banks is to provide credit to the internal trade of the country, for which they accept deposits from the public. Commercial Banks do not provide fixed or long-term capital for trade or industries.

The functions of Commercial Banks are the following:

1. Acceptance of Deposits: 

Fixed Deposit Account: The term fixed deposit means deposits repayable after the expiry of a certain period which ordinarily varies from one year to five years. The rate of interest is higher in the fixed deposit account in comparison to other deposits. Money can also be borrowed against the security of fixed deposit.

Current Account: This account is generally opened by businessmen. Under this account, the customer can deposit or withdraw money as and when he likes. No Interest is allowed by first-class banks on such accounts.

Saving Bank Account: Such account is meant for the middle class and low-class income group persons. The main objective of such account is to develop the habit of savings. When these small savings are pooled, it forms a large capital which can be used for the economic growth of the country.

Home Safe Deposit Account: Such account is a very good means of encouraging thrift among persons having small income or among children. These accounts carry only a very small rate of interest.

Recurring Deposit Account: Any person can open this account in his personal name or joint names and in case of minor under the guardianship of someone. The term of account depends upon the wish of the account holder, which varies from 1 year to 7 years. The amount to be deposited every month in the account should be Rs. 10 or in multiples thereof but to a maximum limit of Rs. 500 per month.

2. Lending of money: Lending of money in the form of loans and advances is another important function of the banks. 

The various types of loans and advances are as follows: 

• Ordinary loans 
• Overdraft 
• Cash Credits 
• Acceptance of bills 
• Discounting of bills 
• Loans at call and short notice.

The advances made by Indian banks are against the following securities:

Personal credit

Against valuable marketable securities 

Against precious documents.

3. Agency Functions: 

• Collection of payments of cheques, bills of exchange, hundis etc. 
• Payment of insurance premium, income tax, hundis, bills of exchange etc. 
• Collecting dividends, interests etc. of the customers. 
• Sale and purchase of shares and securities for its customers.
• Transfer of funds from place to place. 
• The bank acts as the Trustee and Executor

4. Other Functions: 

Safe custody of valuable goods such as gold and silver ornaments, important papers, shares and debentures. 

• Issuing of traveller’s cheques. 
• Giving information about its customers. 
• Collection of statistics. 
• The bank also provides short-term loans to the farmers. The amount given is meant for purchasing of fertilisers, pesticides, electricity expenses etc.
• Transfer of funds from place to place.
• The bank acts as the Trustee and Executor.

5. Other Functions:

• Safe custody of valuable goods such as gold and silver ornaments, important papers, shares and debentures.
• Issuing of travellers’ cheques. 
• Giving information about its customers.
• Collection of statistics. 
• The bank also provides short-term loans to the farmers. The amount given is meant for purchasing of fertilisers, pesticides, electricity expenses etc.