Secondary Functions Of Banks

Secondary Functions Of Banks:- Besides the Primary functions, banks perform various secondary functions also such as agency functions and general utility functions.

(A) Agency Functions: A bank performs various agency functions for its customers:


(i)  Collection and Payment of Various Items: A bank collects cheque, rent, interest, etc. on behalf of its customers and pays taxes, insurance premium etc. as per their instructions.




(ii)  Purchase and Sale of Securities: A bank performs the function of selling and purchasing securities on behalf of its customers. 

(iii) Trustee and Executor: As per the instruction of their customers, banks perform the function of a trustee and an executor for their assets.

(iv)  Remittance of Money: Remitting money from one place to another is also done by the banks. This is done through bank drafts.

(v)   Purchase and Sale of Foreign Exchange: Banks encourage foreign trade by selling and Purchasing the foreign exchange. Generally, this function is performed by the foreign commercial banks and some authorised branches of the public sector Indian commercial banks.

(vi)  Letter of Reference: Banks provide information about the financial conditions of their customers to traders of the same or other countries. In the same manner, banks collect the same information about traders of the same or other countries for their customers.

(vii) Bank Draft: A bank draft is a financial instrument with the help of which money can be remitted from one place to another. Anyone can obtain a bank draft after depositing the money in the bank. The bank charges some commission in lieu of issuing a bank draft. The amount of commission varies from bank to bank. A bank may issue a bank draft even free of cost depending on the customer's relationship with the bank. The bank issues a draft for the amount on its own branch at other places or on other banks (only in case of a tie-up with those banks ) at those places. The payee can present the draft on the drawee bank at his place and collect the money. As bank draft funds are withdrawn directly from a bank's fund, not from an individual's account, it is less risk for a creditor. It will be honoured by the drawee bank unless the draft is forged.


     Features of a Bank Draft: The following are the main features of a bank draft:
(a)  Through the bank, draft money can be remitted from one place to another.
(b)  The issuing bank charges some commission for it.
(c)  It is less risky for the creditor as it has no danger of being dishonoured.

(viii) Banker's Cheque or Pay Order: A banker's cheque or pay order is almost like a bank draft. It can be termed as a local bank draft. Banks issue pay order for local purpose and issue bank draft for outstations. The commission on pay orders is slightly lesser than the bank draft. Like a bank draft, it will be honoured by the drawee bank unless it is forged. Hence, it has no danger of being dishonoured.

Features of Banker's cheque or Pay Order: The following are the main features of it:
(a) It is almost like a bank draft
(b) It is payable within the town.
(c) The issuing bank charges commission on it.
(d) It has no risk of being dishonoured.



(B) General Utility Services: Commercial banks perform the type of functions which are helpful to the general public. These functions are as follows:


(i)  Locker Facilities: Banks provide locker facilities to their customers where customers keep their gold and silver ornaments and other important papers safely. The annual rent for the use of these lockers is very low.



(ii) Traveller's Cheques and Letter of Credit: Banks provide the facility of traveller's cheque to their customers who are travelling. With this facility, the customer need not carry with him the cash and he can travel freely. Further, the bank's issue Letter of Credit to their customers who are importing goods and help them a lot.

(iii) Business Information and Statistics: As the banks are aware of the economic condition, they can advise their customers on financial matters by collecting business information and statistics. 

READ MORE - https://www.healthytipgo.com/


Previous
Next Post »