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• A godown is a place for storing large amount of products before sending them to the market for selling. The service of storing the products is called godown service or ware house service.
• Generally, after production a product is not immediately sold or consumed. On many occasions raw material or partly produced products also need to be stored for further processes.
• Some food items may be produced only during a specific season of the year but would require its storage.
• Some goods may be produced and stored in godowns but would be sold when the demand arises.
• Perishable goods like fruits, ice-cream, etc. need proper storage so that they can be distributed and sold as and when needed. Thus, godowns create time utility.

• As the civilization grows and world develops risks associated with the growth and development also rises.
  Risk of life, health, property, machinery, raw material, finished good, etc. are several types of risks that insurance covers.
• The risks that we face may be either man-made or natural. It is not in the hands of insurance companies to stop these risks. Their sole objective is to safeguard a person in case he faces any such risks.
• So, by taking insurance one cannot say he can stop the risks but he can surely say he can safeguard himself against the financial loss that might occur due to such risks.

(i) Mr. Amit can take whole life policy or term insurance policy for his wife and child insurance policy or money back policy for his daughters.

(ii) Mr. Amit cannot take marine insurance policy for his factories.

(iii) Mr. Amit can take Floating Fire Insurance Policy for protecting his factories at Pune and Nashik.

The term ‘communication’ means any exchange of Ideas, facts, information, messages. feelings and emotions among two or more persons in a way that they share common understanding about it.

(i) Warehousing’ is the service that helps Mr. Sharan to safeguard his goods from any damage.

(ii) Transport service will help Mr. Sharan to remove the difficulty of place.

(iii) Mr. Sharan will get financial support from Banking sector.

The mode of transport which is operated above the surface of the earth and carries goods and passengers through airways by using different aircrafts Is called air transport.

A multiple unit (MU) train is a train where in there are multiple units that drive the train rather than one engine for the entire train.

The agency functions of commercial banks can be defined as the functions in which these banks act as an agent to their customers. 

The following are the agency functions of commercial banks: 

a. They collect cheques, dividends and interest on behalf of the customers and credit the amount in their accounts. 

b. They pay rent, insurance, premium, etc., on behalf of customers and deduct the amount from their accounts 

c. They buy and sell foreign exchange. 

d. They buy and sell different securities like shares and debentures. 

e. They receive travel tickets and letters and book vehicles on behalf of their customers. 

f. They act as a trustee, executor of will, attorney, etc. 

g. They help the customers in filing tax returns. 

h. They provide the facility of bank draft that helps in remitting money from place to another. 

i. They act as an underwriter on behalf of a company. 

j. They provide the facility of dematerialised accounts to people dealing in shares and debentures.

According to this definition, baking means the acceptance of deposits from the public, allowing of withdrawals of such deposits by cheques, drafts, and orders or otherwise, and utilisation of deposits in hand, for the purpose of lending on investment, and also performance of a number of the other activates called subsidiary services.

The warehouses which are owned. managed and controlled by the Central and State Governments or public authorities to assist small farmers, businessmen, traders in storing goods at nominal charges are called government Warehouses.

A godown is a place for storing large amount of products before sending them the market for selling. The service of storing the products is called godown service or warehouse service.

According to J. Lethinen defined services as “an activity or series of activities which take place in interactions with a contact person or a physical machine and which provides consumer satisfaction”.

(1) ATM is the abbreviation of Automated Teller Machine. It is popularly known as All Time Money or Any Time Money. ATM is an electronic cash dispensing machine. It is free standing self service terminal. There is no specific time limit for withdrawals of cash from ATM.

(2) ATM is one of important facilities provided by the bank to its savings accountholder. To avail of this facility, bank installs ATM terminals at the places of public utility such as railway stations, shopping malls, airports, post offices, busy streets, etc.

(3) For withdrawal of cash from ATM, every accountholder is given specific code number. By operating this system, the accountholder can withdraw the cash up to a specific limit or the quantum of amount available in the account whichever is less. ATM also provides other information like cash deposits, withdrawals, balance in the account, etc.

(4) Under this system, the accountholder has cent per cent liquidity of banking funds. ATM avails twenty four hours service. Hence, the accountholder can withdraw cash any time, i.e. even after banking hours, on holidays, Sundays or in the case of emergency by operating ATM. This facility is available in different parts of the country as well as outside the country.

It is very difficult to define the term ‘Bank’ precisely on account of the numerous activities performed by a bank. Yet several authorities have defined this term.

The following are the primary functions of commercial banks: 

a. Accepting deposits - Banks accept various types of deposits from the public such as savings account deposits, current account deposits and fixed account deposits and pay interest on them. They are indebted to repay the depositor the amount deposited by him or her. The following are some of the types of deposits accepted by these banks: 

i. Savings account deposits - This type of account promotes the habit of saving in people having a fixed income. These deposits are chequeable deposits. 

ii. Fixed account deposits - Fixed account deposits (also known as time deposits) refer to the deposits that are held for a fixed (specific) period of time (called maturity). 

iii. Current account deposits - Current account deposits (also known as demand deposits) refer to the deposits that provide the depositor the liberty to withdraw money at any point in time. 

b. Granting loans and advances - Banks grant loans and advances on the basis of the total deposits available with them. The interests charged on these loans are a major source of profits for banks. The following are the different types of loans and advances offered by commercial banks: 

i. Cash credit - Under this system, the bank first estimates the value of the assets held by the borrower. Based on this estimation, the bank decides the credit limit of the borrower. The borrower is liable to pay interest on the amount he/she actually withdraws. 

ii. Overdraft - This facility is provided to current account holders wherein they can withdraw amount in excess of the credit balance in the account. The bank charges interest on the amount overdrawn. 

iii. Discounted bills - A bill of discount is a negotiable instrument where the payment is made by the bank on behalf of the customer to the vendor before the due date.

(A) Meaning : A warehouse can be defined as, “an establishment for the storage or accumulation of goods.” The term ‘warehousing’ is generally used to denote storage of goods and consists of all those activities which are connected with the storage and preservation of goods in a godown or warehouse. One of the group activity or functions is to hold the goods in stock from the time of production till the time of consumption is called storage of goods. When storage of goods is required to be arranged on a large scale in a specified manner, it is called ‘warehousing’.

(B) Functions : 

The functions of warehouses are explained as follows :

unction of Warehouses

1. Storage 

2. Price Stabilisation

3. Risk-Bearing 

4. Financing 

5. Grading and Packing 

6. Transportation 

7. Time and Place Utility 

8. Processing

1. Storage : Storage of goods is the basic function of warehousing. Warehouses provide space for storage of goods in large quantity and in good condition. The commodities which are not required immediately are stored in the warehouses. Stored goods are supplied as and when they are required by the customers.

2. Price stabilisation : Warehousing facilitates price stabilisation by maintaining proper balance between demand for and supply of commodities. It is achieved by creation of time utility by warehousing. Usually, large stock of goods is kept in the warehouse. Wherever, there is shortage of goods in the market, goods are released from the warehouse which increases supply and facilitates price stabilisation. Thus, it helps to avoid any rise in prices.

3. Risk-bearing : While the goods are stored in the warehouse, the warehouse-keeper takes reasonable care to protect the goods from risks of loss or damage due to heat, cold, moisture, dryness, insects, fire and thefts. This is because he has to return the goods in the same condition. For any loss or damage of goods during storage, warehouse-keeper will be held liable to the owner of the goods. Thus, the risk is transferred from the owner to the warehouse-keeper.

4. Financing : On the basis of goods stored in the warehouse, loans can be raised from the financial institutions or warehouse-keeper. The goods act as a security for financial institution. This loan can be used to meet other operations of business by the owners of goods.

5. Grading and Packing : Warehousing provides enough space for undertaking various marketing functions like grading, processing and packing of goods. Goods can be packed in suitable sizes as per the instructions of the owner. Thus, services of warehousing are very useful to manufacturers, wholesalers and the importers of goods.

6. Transportation : Some warehouses also provide transport facility to the traders who store large quantity of goods in the warehouse. It brings the goods from the places of production and also sends them to the places of delivery on behalf of depositors.

7. Time and Place Utility: Warehousing creates time utility by storing goods and releasing the same at the time when they are demanded. It also creates place utility by transporting goods at the far away places, where they are required.

8. Processing : For certain commodities processing is necessary to make them consumable or useable. This is because those commodities cannot be consumed in the form they are produced in the nature, e.g. paddy, raw fruits, etc. The activities such as polishing the paddy, ripening the fruits, etc. are undertaken by the warehouses on behalf of the owners.

An automated teller machine or automatic teller machine, popularly called the cash machine or any time money, is an electronic machine installed by a commercial bank and operated by the customer himself, to withdraw money and to make other financial transactions.

It is very difficult to define the term ‘Bank’ precisely on account of the numerous activities performed by a bank. Yet several authorities have defined this term.

(A) Definition : Bank is a dealer in money and credit. It is a financial institution whose basic activities are to accept deposits and advance, lend money and provide other related services, According to The Indian Banking Regulation Act, 1949, “any company which transacts the business of banking in India.” The term banking is further defined as, “accepting for the purpose of lending or investment of deposits from the public, repayable on demand or otherwise and withdrawable by cheque, draft and order or otherwise.”

Types of Bank:

1. Central Bank 

2. Commercial Bank 

3. Co-operative Bank 

4. Industrial Development Bank 

5. Exchange Bank 

6. Regional Rural Bank 

7. Savings Bank 

8. Investment Bank 

9. Specialised Bank

The different types of banks are explained below:

1. Central Bank: The central bank in a country is the financial institution at the top (apex) of all the banking institutions operating in the country. In India, The Reserve Bank of India was established in 1945 under a special statute called the Reserve Bank of India Act, 1944. It performs the functions like framing monetary policy, issuing currency notes, acting as a banker to the Government and acting as the banker’s bank to commercial and other banks in India.

2. Commercial Bank : The Commercial bank plays key role in the economic, industrial and social development of a country. It performs broadly two functions such as 

(i) Primary functions which include accepting deposits and lending money in different forms and 

(ii) Secondary function which include agency functions and utility functions. 

The different types of commercial banks in India are as follows:

(i) Public Sector Banks : The banks in which majority of the share capital or stake (interest) is held by the Government of India are called Public Sector Bank, e.g. State Bank of India, Bank of India, etc.

(ii) Private Sector Banks : The banks in which majority of the share capital or stake is held by private individuals are called Private Sector Banks, e.g. Axis Bank, HDFC Bank, etc.

(iii) Foreign Banks : The banks which are registered and have their headquarters in foreign country but operate in different countries including India through their branches established there, are called Foreign banks e.g. Standard Chartered Bank, American Express Bank, HSBC, etc.

3. Co-operative Banks : Co-operative banks are formed, registered and organised under the Indian Co-operative Societies Act and regulated under Banking Regulation Act. These banks are more popular in rural and semi-urban areas. These banks are primarily meant for catering to the financial needs of economically backward people, farmers and small scale units. 

They operate at three different levels:

(a) Primary Credit Societies : The primary credit societies work at village level. These credit societies collect the savings and surplus money in the form of deposits from members and common people. They are also financed by the State Co-operative Banks and District Co-operative Banks for the purpose of lending to needy people for productive purpose.

(b) District Central Co-operative Banks : The District Central Co-operative Banks operating at district level and financed by the State Co-operative Bank for the purpose of providing finance to primary credit societies.

(c) State Co-operative Banks : The State Co-operative Banks Eire working at state level. These banks provide funds to District Central Co-operative Banks and Primary Credit Societies to enable them to provide finance to rural and semi urban areas. Apart from this, they also supervise the working of district banks and credit co-operative societies.

4. Industrial Development Banks : The banks which provide medium and long term equipment, latest technology, expansion and modernisation of business, etc. are called Industrial Development Banks. Industrial Finance Corporation of India (IFCI), State Financial Corporations (SFCs), Maharashtra State Finance Corporation (MSFC), etc. are the examples of Industrial Development Banks.

These banks perform the following functions:

1. Provide medium and long term finance to business organisations for expansion and modernisation.

2. Underwriting i.e. giving guarantee to buy shares issued by public limited companies.

3. Purchase debentures and bonds.

5. Exchange Banks : An exchange bank specialises in financing import and export trade and in foreign exchange transactions. The American Express Bank, Bank of Tokyo, Barclays Bank, etc. are the examples of Exchange Banks functioning in India. 

The Exchange Banks perform the following functions:

1. Finance foreign trade transactions, 

2. Issue letter of credit on behalf of importer, 

3. Discount foreign bills of exchange, 

4. Remit dividend, interests and profits.

6. Regional Rural Banks : These banks were constituted (established) in 1975 and are sponsored by large public sector banks. 50%, 35% and 15% of the capital of these banks are provided by the Central Government, sponsored banks and State Government respectively. These banks collect (mobilise) funds in the form of deposits from rural and semi-urban areas. They provide loans and advances to small and marginal farmers, agricultural workers, rural artisans for productive purpose.

7. Savings Bank : A savings bank is one which has the main object of inculcating the habit of saving among the community. It collects scattered savings of the community especially from rural areas and invests the same in good securities. In India, Postal Savings Bank is an example of such a bank. Commercial Banks and Co-operative Banks act as savings banks as they have separate savings accounts departments.

8. Investment Bank : Investment banks offer financial and advisory assistance to their customers which usually include business firms and government organisations. These banks provide advice on investment decisions and facilitate mergers and acquisitions by undertaking research. These Banks do not directly deal with the common people.

9. Specialised Banks: The banks which make available to the requirements of the business and provide possible support to set up business activities in specific area are called Specialised Banks.

The different types of specialised banks are:

(a) Export Import Bank of India (EXIM Bank) : These banks provide the needed financial assistance and support to the exporters and importers in setting up business for exporting and importing products respectively. They work to expand and promote country’s international trade.

(b) Small Industries Development Bank of India (SIDBI) : SIDBI was established on 2nd April, 1990 under the Act of Parliament of India. Its main function is to act as the main institution for financing, promoting and developing the Micro, Small and Medium Enterprises (MSMEs) as well as co-ordinator of the institutions engaged in similar activities.

(c) National Bank for Agricultural and Rural Development (NABARD) : NABARD has been established to work as an apex institution to finance agricultural and rural sector. It provides long term and short term loans through regional rural banks. It provides loans to financial institutions and not individuals. It is also concerned with the function of policy planning and operations relating to agricultural credit and credit for other activities in rural areas.

The following are the different types of banks: 

i. Commercial banks - These banks are governed by the Indian Banking Regulation Act (1949). They provide credit to the general public. 

ii. Co-operative banks - These banks are governed by the provisions of the State Cooperative Societies Act. They provide cheap credit to their members only. 

iii. Specialised banks - These banks provide credit to industrial units and export–import units. 

iv. Central bank - This is the apex financial institution that regulates and controls the activities of all banks and financial institutions in the country. 

v. Development banks - These banks provide financial assistance to business houses so that they can meet their capital requirements. 

vi. Regional rural banks - These banks were established in 1975 to extend banking facilities to the rural areas and to provide credit to small traders, farmers, etc. 

vii. Exchange banks - These banks remit money from one country to another, discount foreign bills, finance export and import of goods, etc. 

viii. Indigenous banks - These are domestic banks carrying out banking activities in the country through generations. These banks mainly deal in “Hundis” (i.e., native bill of exchange) and promissory notes. 

ix. Savings banks - These banks accept small deposits from the public having a fixed income. The main objective of these banks is to inculcate the habit of saving in people.

The four types of banks are: 

1. Commercial Banks 

2. Agricultural Banks 

3. Exchange Banks 

4. Industrial Banks

Banks are classified into six categories. They are: 

1. Commercial Banks or Deposit Banks 

2. Industrial Banks or investment Banks 

3. Agricultural Banks 

4. Exchange Banks. 

5. Saving Banks 

6. Central Bank

A central bank is the highest baking and monetary institution of a country. In other words, it is the leader of all other banking and monetary institutions found in a country. As it occupies a central position in the banking structure of a county, it is called the Central Bank.

Discounting bill is a financial accommodation, in which bank purchase the bill of exchange that matured in short period from .a known customer and pays him or credits his account with the amount equal to the value of bill minus the discount for unexpired period for bill.

The concept and terms of e-banking are: 

1. Provision of round -the clock access to banking facilities is an essential feature of e-banking. 

2. E-banking is conduct of banking operation globally. In other words, e-banking is anywhere banking.

3. E-banking is essentially performance of banking operations through electronic means or tools. 

4. E-banking ensures large number of satisfied customers for a bank, and thereby, contributes to higher rate of retention of existing customers for a bank. 

5. E-banking is provision of banking products and services by banks through the extensive use of information technology without direct recourse to the bank by customers.

Functions of Insurance:

a. Diffusion of risk: Insurance may not be able to avoid uncertainties associated with life in general and business in particular.

b. Encouragement of savings: Insurance not only provides protection against risks but also a number of other incentives which encourage people to insure.

c. Prevention of losses: Insurance companies’ help in prevention of losses, as they join hands with those institutions with are engaged in loss-prevention measures.

d. Taking care of social problems: One of the important functions of insurance is to provide solution to social problems.

e. Providing capital or funds for investment: Insurance provides not only protection but also capital to the society. Usually, accumulated funds through savings in the form of insurance premium are invested in economic development plans or productivity projects.

f. Providing protection: The main function of insurcen is to provides protection against the risk of loss. The insurance policy covers the risk of loss.

g. Promotion efficiency and motivation: Insurance has contributed a greatly in the advancement of industry and trade. The largescale industrial and commercial orgaisations that exist today are the result of various services provided by insurance companies.

The importance of insurance are: 

1. It is a contract for compensation losses. 

2. Payment is made to the insured, as per the terms of the agreement, in the event of loss. 

3. It is contract of utmost good faith. 

4. The occurrence of the loss is accidental. 

5. It helps in shifting and sharing risk.

The most important types of Insurance:

1. Life Insurance: Insurance is a provision which a prudent man makes against fortuitous or inevitable contingencies, loss or misfortunes. It is a form of spreading risks

Types of life insurance policies: 

1. Whole life policy or ordinary life policy 

2. Endowment policy

2. Fire insurance: Fire insurance is a contact under which the insurer undertakes to indemnify or compensate the insured for actual loss caused to him by the destruction or damage of the insured property by fire in return for a consideration called the premium.

3. Marine insurance: Marine insurance is a contract between two parties under which one party agrees to compensate the other party against the loss arising from certain Marin risks in consideration of a certain payment.

4. Health insurance: Health insurance is a type of insurance which provides insurance cover for financial loss associated with illness and injuries.

(1) The mode of transport which is operated above the surface of the earth i.e. in the sky through airways is called air transport. For carrying passengers and goods, air transport uses different aircrafts such as passengers aircrafts, cargo aircraft, helicopters, etc.

(2) Among the means of transport available at present, air transport is the fastest and the quickest means of transport. It uses natural ways and no separate construction of routes is required. It is also due to use of modern and advanced technology and highly qualified and professional technicians. Thick forests, high mountains, vast deserts and oceans cannot obstruct its speed and air routes.

(3) Air transport adopt shortest route to reach destination. It has faster speed without any disturbance of observing signal system speed. Air transport is useful to provide valuable services in hilly and mountainous areas, in situations like war and areas affected by natural calamities such as floods, cyclones, earthquakes, etc.

Five;

• Human operated
• Animal operated
• Airways
• Surface transport and
• Waterways.

Modes Of Transport: Modes of transport can also be called as means of transport or transport mode or transport modality. It is a general term used to specify the different kinds of transport facilities that are used by people to move from one place to the other and also to shift the goods from one place to other. When more than one mode -of transport is used by a person for transportation then it can be described as a multi-model transport. Generally there are four modes of transport that uses different types of vehicle, infrastructure and operation. Each mode of transport has its own advantages and disadvantages. The person will choose their mode of transport based on the cost, capability, routes and speed. The general modes of transport are as follows: 

1. Human powered transport; 

2. Animal powered transport; 

3. Roadways; 

4. Waterways; 

5. Railways; 

6. Airways; 

7. Other modes like pipe line, sewage, cable cars.

Differences between current accounts and savings bank accounts:

The features of business services are:

1. Business services refer to services used by business enterprises. 

2. Business enterprises for carrying on their activities. 

3. Examples of business services are banking, insurance, transportation, warehousing, communication, and advertising. Etc. 

4. Business services cannot obtain their ownership, as there is no transfer of ownership. 5. Business services are very helpful to peoples.

To lend money:

• Bank accepts deposits from various people. The deposited money remains with bank on which the bank pays some interest to the depositors.
• On the other hand people go to banks to borrow money in forms of loans. The bank lends the money to the borrowers at higher rates of interest. Thus, the bank earns profit from the difference of rate of interests.

The bank lends money in following ways:
(a) Through loans:

• Bank provides short term and long term loans to borrowers. In some cases it asks for hypothecation where as in some it doesn’t.
• Bank provides loan to individuals, businessman, industrialists, etc.
• Bank offers home loans, car loan, education loan, cash credit, machinery loan, gold loan, personal loan, etc.

(b) Through overdraft and cash credit:
Overdraft:
As per rule, one cannot withdraw more than the amount present i.e. deposited in one’s account. When a current account holder is allowed to withdraw more money than present in his account for a short duration it is said that the bank has lent him money through overdraft facility.

Cash credit:

• A cash credit is a drawing account for drawing money within a specific credit limit approved by the bank against some security.
• Overdraft and cash credit are similar except that for withdrawing under cash- credit one needs to provide some security like raw-material, finished goods, etc. as hypothecation.

To accept/collect deposits:

• A person who has some unused money and wishes to deposit it in a bank can go to bank and deposit it.
• The biggest responsibility of the bank is to maintain the trust of the customer i. e. the person who deposits the money.

Bank accepts four types of deposits:

1. Deposits in saving account
2. Deposits in current account
3. Deposits in recurring account
4. Deposits Fixed term account

Banking functions can be classified into two types.
They are:
(A) Main functions,
(B) Optional functions

(A) Main functions:

1. Accept/collect deposits
2. Lend money
3. Invest
4. Carry out inter-banking transactions

(B) Optional functions:

• Look after the financial transactions of the customers
• Carry out foreign exchange (forex) transactions
• Issue letter of credit
• Issue traveller’s cheque
• Provide demand draft service
• Provide information related to financial credit of its customer
• Provide service as an under-writer
• Provide other services such as ATM, Demat, Safe deposit Vault, etc.

When a borrower of a loan pledges to provide an asset as a security to the bank while still having the ownership of the asset and enjoying its benefits is called hypothecation. A bank may ask a person to hypothecate some asset as a security while providing him loan.

1. Look after the financial transactions of the customers.
2. Carry out foreign exchange (forex) transactions,
3. Issue letter of credit,
4. Issue traveller’s cheque.

A person deposits his money in a bank with a trust that his money is safe and that he can get it back from bank when needed. Hence ………..

Correct option is (C) Recurring account

Traditionally the banks maintained ledgers of each and every account holders in the books of accounts. All the works were done manually. Moreover, records were maintained in books even for vouchers, specimen signatures, etc.

1. Accept/collect deposits,
2. Lend money,
3. Invest,
4. Carry out inter-banking transactions.

• In a business the businessman buys raw material or finished goods and sells it to others. He earns his profit by the difference he gets through selling goods.
• Similarly, bank accepts deposit in various forms and invests it and loans it to others. The difference in interest rate then becomes a bank’s profit.
• The way a trader buys and sells goods and earns profit a bank accepts and invests or lends money to earn profit. Hence, a bank trades money.

The word ‘bank’ is derived from an Italian word; ‘Banco’. This word has emerged from – Roman Empire where in the money lenders known as ‘macella’ used to establish their temporary shops on a long and narrow bench called ‘bancu’ within a fencing.

The banking industry developed in three phases.
They are:

1. Traditional banking processes,
2. Banking through computers connected in a network and
3. Use of internet in banking.

• Trade and commerce are impossible without banking.
• Majority of the world finance works through banks.
• Banking has grown enormously both in their working methods and facilities to customers.
• The financial transactions that used to take place in days are now done within seconds. As a result the speed of trade and commerce has increased drastically. Faster the transactions faster will be the money rotation and which ultimately will boost the economy.
• Hence, banking works as a foundation pillar of a country’s economy.

When computers were introduced each branch of a bank had its own network limited to the branch. All the computers of a branch were connected with each other via. a server through which the bank employees could perform transactions for each account holder.

The word CORE stands for Centralized Online Real-time Exchange. Core banking is a system wherein all the branches of a bank irrespective of their locations across the world are connected to one another through internet for performing banking transactions and other banking activities.

Functions of a bank can be classified into.
(A) Main functions and
(B) Optional functions

(A) Main functions:

1. To accept/collect deposits:

• A person who has some unused money and wishes to deposit it in a bank can go to bank and deposit it.
• The biggest responsibility of the bank is to maintain the trust of the customer i. e. the person who deposits the money.

Bank accepts four types of deposits:

1. Deposits in saving account
2. Deposits in current account
3. Deposits in recurring account
4. Deposits Fixed term account

2. To lend money:

• Bank accepts deposits from various people. The deposited money remains with bank on which the bank pays some interest to the depositors.
• On the other hand people go to banks to borrow money in forms of loans. The bank lends the money to the borrowers at higher rates of interest. Thus, the bank earns profit from the difference of rate of interests.

The bank lends money in following ways:
(a) Through loans:

• Bank provides short term and long term loans to borrowers. In some cases it asks for hypothecation where as in some it doesn’t.
• Bank provides loan to individuals, businessman, industrialists, etc.
• Bank offers home loans, car loan, education loan, cash credit, machinery loan, gold loan, personal loan, etc.

(b) Through overdraft and cash credit:
Overdraft:
As per rule, one cannot withdraw more than the amount present i.e. deposited in one’s account. When a current account holder is allowed to withdraw more money than present in his account for a short duration it is said that the bank has lent him money through overdraft facility.

Cash credit:

• A cash credit is a drawing account for drawing money within a specific credit limit approved by the bank against some security.
• Overdraft and cash credit are similar except that for withdrawing under cash- credit one needs to provide some security like raw-material, finished goods, etc. as hypothecation.

3. To invest:

• A bank cannot make profit if it is unable to lend the deposits and invest its capital in a substantial manner. One of the important tasks of the bank is to thoroughly calculate and invest its money at some secure options.
• As per RBI’s rule a bank need to invest some percentage of its total deposit in government guarantees (securities) on which the bank earns a low interest. The reason for investing in such government guarantees is that bank can easily withdraw its investment in case of emergencies or some unforeseen events. As a result a bank majorly invests in government securities or other capital units.

4. To carry out inter-banking transactions (call money):

• In day to day transactions it is quite likely that each bank faces a shortage of money even for as short as 24 hours or even lesser.
• In such cases the bank may borrow money from another bank at an interest rate which is determined by the shortage of money or say demand or supply pattern in the market.
• The borrowing and lending banks do not come is direct contact with each other for this transaction. It is done by an agency appointed by the Central Bank
• This money is known as ‘Call money’ and its rate of interest is called ‘Call money rate’.

(B) Optional functions of bank:

1. Look after the financial transactions of the customers:
A bank mainly has two customers
(a) A depositor and
(b) A borrower.

It is the bank’s duty to see that both of his customers can perform their financial transactions properly.

• When a customer writes a cheque in favor of another person, the bank pays ‘ th’at person the money on behalf of the person who wrote the cheque.
• Similarly, when a person receives a cheque and goes to bank the bank collects money from the account of person who has written the cheque and pays the money to the person who brought the cheque.
• Bank also facilitates payments of electricity bill, telephone bill, insurance premium, transfer of money from one account to another, etc.

2. Carry out foreign exchange (forex) transactions:

• The financial transactions related to import-export business can only be done through banks.
• Those banks that have got permission from central bank to provide Forex services can facilitate people to exchange foreign currencies in bank, send and receive documents related to foreign trade, etc.

3. To issue Letter of Credit (L/C):

• A letter of credit is a document from a bank guaranteeing that the seller will receive full payment at specified time if all the delivery conditions are fulfilled by the seller. These letters are generally needed in international transactions where buyers and sellers are unknown to each other.
• The bank collects certain deposit or some guarantee of similar amount from the person before issuing such letter. The bank earns commission by providing this service.

4. Issuing Traveller’s Cheque (TC):

• A traveller’s cheque is a medium of exchange that can be used instead of currency. It is very useful when a person is travelling within country or even abroad. Since the traveller carries cheques he is safe from the danger of hard cash getting robbed or stolen.
• Before leaving for a tour the person can deposit certain amount at the bank, get his signature verified and receive traveller’s cheques in the amount he asks to the bank. The person can then withdraw money using these cheques from outstation or foreign banks by doing the same sign before the bank as he did in the bank which issued him traveller’s cheques.
• These cheques are very reliable and transferable too. However, their use has decreased after ATM facility became popular worldwide.

5. Issuing demand draft (DD):

• Demand draft (DD) is a cheque written by a bank (issuing bank) to another bank/branch asking it to pay money to the person/organization whose name is mentioned on it. Demand daft is a very secure medium for sending money to a person or an institute.
• The person who wishes to send money fills a form in the bank requesting it to issue the draft for the details mentioned in the form. Based on this the bank prepares a demand draft and mentions the receiver’s name on it and passes the order to its branch or associate bank to make the payment to the receiver. If the bank issues a draft that can be encashed only in the same branch then it is called pay-order.
• The sender of the DD needs to pay certain commission to the banks for this service.

6. Provide information related to the financial credit of its customer:

The bank frequently transacts with its customers and hence is well aware about their financial soundness.

• A firm or an institute who wishes to undergo credit transactions with a person can obtain the information on his financial soundness from his bank. This helps the institute to check the reliability and financial capability of the person.
• The certificate that the bank provides regarding the financial soundness of the customer is called solvency certificate.

7. To provide service as an under-writer (i.e. guarantor):

• When a new company enters the capital market and collects funds through shares it is afraid if it will be able to collect at least a minimum subscription to start the business.
• In such situations it requests the bank to become a guarantor or say under-writer that in case if it cannot raise sufficient money from the market the bank will fulfill the deficit by investing in the company.

8. Providing services like ATM, Demat, safe-deposit vault, etc. Bank provides several services like ATM cards, credit and debit cards, safe deposit vaults, Demat services, etc.

Transferring money from one account to another, paying bills such as telephone, electricity, municipality, etc.