It may be extended for further periods. The paying banker will pay the money only when the signature of the traveler tallies with the signature already available on the cheque. It is an arrangement reached between the banker and the credit worthy customers. Money Multiplier: It means the multiple by which total deposit increases due to initial primary deposit. Their important functions are making payment against cheq,advances loans and over drafting,discounting bill of exchange,letter of credit etc.
In other words, they create loans out of deposits and deposits out of loans. At limes, banks give loan on the basis of personal security also. Reserve Bank discourages this type of facility to business firms as it imposes an uncertainty on money supply. Banks issue magnetic card for carrying any banking operation with this machine. These are deposits for a fixed term, i. Government of India also encourages banks to provide adequate housing finance.
. Current Deposits This account is suitable for business institutions. Advances are credit facilities provided for short period within a year to business community. Thus, the process of credit creation goes on continuously and in the end volume of total credit created in this way becomes multiple of initial cash deposit. The main functions of commercial banks are accepting deposits from the public and advancing them loans. The interest paid on such deposits is generally on cumulative basis.
They make also the payment of cheque, bills and hundis of their customers. The letter of credit is an important method of payment in international trade. Requires more security for the approval of cash b. Only customers of safety lockers after entering into a register his name account number and time can enter into the vault. Overdraft Facility: It refers to a facility in which a customer is allowed to overdraw his current account upto an agreed limit. The borrower may withdraw any amount within his credit limit and interest is charged on the amount actually withdrawn. As per this arrangement, customer need not pay the full amount of credit purchase in a lump sum.
Advancing of Loans: The deposits received by banks are not allowed to remain idle. In other words, the traveller first makes payments to the issuing bank before obtaining the Circular Notes. Hence this method of lending is slowly phased out from banks and replaced by loan accounts. Some banks offer overdraft facility. While banks accept bills, they provide a better security for payment to seller of goods or drawer of bills. Before the expiry of the period fixed by the banks for payment by customers for the credit purchases made by them say 30 days, customers should repay the money. Banks underwrite the issue of of joint stock companies.
Under this set up banks open accounts of their customers and deposit the loan money. Commercial banks are also monitored through the Federal Reserve System. Savings account is most suitable for individual households. The cheques are also accepted by hotels, restaurants, shops, airlines companies for respectable persons. A non-scheduled bank has a paid-up capital and reserves of less than Rs 5 lakh. A bank could lend Rs 10 Lakhs and open a demand deposit in the name of the individual. Banks offer this service, often for a small fee.
The bank does not pay any Interest on these deposits but provides cheque facilities. These lockers are made available on half yearly or annual rental basis. Only on the withdrawn amount of credit interest is charged and not on the maximum limit allowed. Commercial banks play a significant role in fulfilling the short-term and medium- term financial requirements of industries. As such they buy, sell and keep in safe custody the securities on behalf of their customers. While sanctioning a loan to a customer, a bank does not provide cash to the borrower Instead it opens a deposit account from where the borrower can withdraw. Commercial banks are the regular banks that provide basic banking facilities to its customers.
Here the banker acts only as the custodian of the valuables belonging to the customers. The cheques also provide blank space for the signature of the traveler to be signed at the time of encashment of each cheque. Grants loan at low rate of interest b. Usually, the bank receives certain service charges for every credit card issued. It includes saving account deposits, recurring account deposits, fixed deposits, etc.
There are various types of bank credit provided by a commercial bank, as shown in Figure-2: Bank Loan : Bank loan may be defined as the amount of money granted by the bank at a specified rate of interest for a fixed period of time. But, some restrictions are imposed on number and amount of withdrawals, in order to discourage frequent use of saving deposits. It is a very useful account for meeting future financial requirements at the occasion of marriage, education of children etc. Encashment of a traveler cheque abroad is tantamount to a foreign exchange transaction as it involves conversion of domestic currency into a foreign currency. The customers can keep their valuables such as jewels, silver ornaments, important documents and share and debenture certificates safely.