Banking

A central bank is the primary source of money supply in an economy through circulation of currency.However, for this purpose, the central bank needs to depend upon the reserves of commercial banks. These reserves of commercial banks are the secondary source of money supply in an economy. The most important function of a commercial bank is the creation of credit. Let us learn the process of credit creation by commercial banks with the help of an example. Suppose you deposit Rs. 10,000 in a bank A, which is the primary deposit of the bank. The cash reserve requirement of the central bank is 10%. In such a case, bank A would keep Rs. 1000 as reserve with the central bank and would use remaining Rs. 9000 for lending purposes. The bank lends Rs. 9000 to Mr. X by opening an account in his name, known as demand deposit account. However, this is not actually paid out to Mr. X. The bank has issued a check-book to Mr. X to withdraw money. Now, Mr. X writes a check of Rs. 9000 in favor o...

A Commercial bank is a type of bank or financial institution that provides services such as accepting deposits, making business loans and offering basic investment products. According to Prof. Kinley," A bank is an establishment which makes individuals such advances of money as may be required and safely made, and to which individuals entrust money when not required by them for use." FUNCTIONS The modern bank performs a large variety of functions and services. Some of the fundamental functions performed by the bank are discussed below:- 1) ACCEPTING DEPOSITS:-   Generally, the banks accept four types of deposits from the public which are as follows: (a)  Current Account or Demand Deposit: Under this account the depositor can withdraw the money whenever he requires it. Normally no interest is paid by the bank because the bank cannot utilise this money in earning and he must keep himself ready to meet the demand of the customer. He must keep cent per cent reserve ...