Secondary Functions of Bank: In addition to their primary role as intermediaries between savers and producers, banks engage in secondary functions that enhance the utility for their customers and contribute to society. While the main functions involve collecting deposits and providing loans for productive purposes, these secondary functions play a complementary role in the overall functioning of banks
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Secondary Functions of Bank
Evolution of banking is intricately linked to the demands of a society engaged in modern commerce. Banking, as a business, operates on profit-seeking principles, and at its core, involves borrowing and lending—two fundamental functions of a bank. The origin of banking lies in the necessity for people to have a secure place for their deposits.
As banks evolved, they recognized the profitability of lending out the funds they received. Consequently, banks expanded their services to encompass various other functions to better serve the needs of the public. These additional functions are collectively categorized as primary and secondary functions.
Among the secondary functions, we find:
- Payment and Collection of Cheques
- Bills and Promissory Notes
- Execution of Standing Instructions
- Acting as a Trustee
- Executor OR Attorney
These services are performed by banks for a fee, enhancing their income. Additionally, this engagement allows banks to gain insights into the financial standing of their customers, facilitating a more accurate assessment of creditworthiness and fostering strong relationships.
General Utility Functions
- Safe Custody
- Safe Deposit Vaults
- Remittances of Funds
- Pension Payments
- Acting as a Dealer in Foreign Exchange
Apart from agency functions, banks undertake general utility functions that provide valuable services to customers. These functions contribute to the overall convenience and well-being of the public.
Secondary Functions of Bank FAQ
The primary functions of banks involve acting as intermediaries between savers and producers. They collect savings from individuals and lend them for productive purposes, facilitating economic activities.
Banking originated from the need for people to have a secure place to deposit their savings. Over time, banks realized the profitability of lending out the funds they received, leading to the evolution of banking.
Like any other business, banks are profit-seeking organizations. Borrowing and lending constitute the basic functions of a bank, forming the foundation of their business operations.
Agency functions are services provided by banks to their customers for a fee. These functions not only contribute to the banks’ income but also establish close relationships with customers by gaining insights into their financial positions.
Examples of agency functions include the payment and collection of cheques, handling bills and promissory notes, executing standing instructions, and acting as a trustee, executor, or attorney on behalf of customers.