Commercial Banks Introduction: Meaning,Types and Functions

The Word 'Bank' is used in the sense of a commercial bank. Here we give a brief commercial Banks introduction. The word 'Bank' is of Germanic origin though some persons trace its origin to the French word 'Banqui' and the Italian word 'Banca'.


It referred to a bench for keeping ,lending and exchanging of money or coins in the Market place by money lenders and money changers.

Commercial Banks Introduction:-  

Commercial banks are those banks which perform all kinds of banking function such as accepting deposits, advancing loans, credit creation and agency functions. They are also called joint stock Bank because they are organized in the same manner as joint stock companies. They usually advance shorty term loans to customers. They have started giving medium term and long term loans also. After a short commercial banks introduction we know about the types and primary function of commercial banks.

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Types of Commercial Banks:-

Commercial Banks are of various types which are explained as under:-

Exchange banks:-  

Exchange banks are those banks which deal in foreign exchange and specialize in financing foreign trade. They are also called foreign exchange banks. In India, these banks have their head office located outside India. the Chartered Bank and the Brindlays bank have their head offices in England,  whereas  the American Express bank and Citibank have their head office in the USA .These banks also render other services such as collecting and supplying information about the foreign customer,  providing remittance facility etc

Industrial banks:- 

Industrial banks are those banks which provide medium term and long term finance to industries for the purchase of land, machinery etc. They underwrite the debentures and share of industries and also subscribe to them. In India, there are a number of Financial institute which perform the function of Industrial Bank such as Industrial Development Bank of India, industrial Finance Corporation of India, industrial credit and Investment Corporation of India etc. Each state in India have its own state financial corporation these industries are also known as Development Banks.

Agriculture banks:- 

Agriculture banks are those banks with provide credit to farmers for short term,  medium term and long term need. In India, commercial bank, regional rural banks and Agriculture cooperative banks provide short term loans to farmers. Land Development Banks give medium term and long term loans to farmers on the mortgage of their land. the National bank for Agriculture and Rural Development (NABARD) provides refinance  facility to all types of banks which give loans to agriculturists.

Cooperative banks:- 

cooperative banks are those Financial institutions which are organized on the principle of cooperation. They provides short term and medium term loans to their members. In rural areas, these are agriculture cooperative banks which accept deposit and give loans to agriculturist, rural artisans, etc . In urban areas, they are also cooperative banks which perform the function of ordinary commercial banks but give loans to their members only.

Savings Bank:- 

Savings bank help promote small Savings and mobilized them . They have been very successful in Japan and Germany. In India , post offices act as saving banks.

Central Bank:-  

The central bank is the apex Bank in a country which control its monetary and banking structure. It is known by the government of the country and operate in National interest.

Primary function of Commercial Banks:-

Commercial Banks have various functions which are explained as under:-

Accepting deposits:-

This is the oldest function of a commercial bank and the banker used to charge a Commission for keeping the money in its custody when banking was developing and as an institution. Nowadays Bank accept three kinds of deposit for it customers i.e. saving deposit ,fixed deposit and current deposit.

Advancing loans:-

One of the primary functions of a commercial banks is to advance loan to its customers. A bank lends a certain percentage of the cash lying in deposits on a higher interest rate than it pay on such deposits. This is how its earn profit and carries on its business.

Credit creation:-

When a commercial bank advances a loan, it opens and account in the name of the customer and does not pay him in case but allow him to draw the money by cheque according to his need. By granting a lone,the bank creates credit on deposit.

Financing foreign trade:-

A commercial bank finance  foreign trade of its customer by accepting foreign bills of exchange and collecting them for foreign banks. It also transacts other foreign exchange business and buy and sell foreign currency.

Agency services:-

A commercial bank act as an agent of its customer in collecting and paying cheques, bills of exchange drafts, dividends etc.

Miscellaneous services:-

Besides the above noted services, the commercial bank performs a number of other services like lockers facility etc