INTRODUCTION Commercial Banks are one of the central pillars of the Indian financial system. The banking sector is called the lifeline of all commercial activities in an economy as all monetary transactions in the form of cash deposits & withdrawals, cheques, drafts, bills of exchange, and funds transfer through the RIGS/NEFT system of banking are routed through banking channel all over the world. The banking sector has become the backbone of our economy today, especially after the current Indian Govt. policy of digitalisation and financial inclusion for making the Indian economy a cashless economy in the future. Modern Commercial banking has transformed into universal banking, providing all types offinancial instruments and services under one roof, starting from traditional banking like deposits, withdrawals, and lending to modern banking, which includes broking services in the area stock market, selling of mutual funds, insurance, and gold coins, accepting utility bills payments, demat services, wealth advisory & portfoliomanagementservices, online payments, e-wallets, mobile banking, telebanking, ATM services, issuing debit cards, credit cards, giftcards and travel cards, salary disbursements, maintaining pension funds and provident funds accounts, factoring & leasing services and project consulting services. Hence, banks playa significant role in mobilizing savings and channeling credit to various productive sectors of the economy, like industry, trade, and agriculture, which is essential for the sound economic health of our country. In India, commercial banks are monitored and regulated by the Reserve Bank of India (RBI). Scheduled Commercial banks and Scheduled Cooperative banks are under the supervision of the Reserve Bank of India. DEFINITION OF COMMERCIAL BANKING The Banking Companies Act of 1949 under section 5(1)(b) defines a banking company as “accepting for lending or investment of deposit money from the public, repayable on demand or otherwise and withdrawable by cheque, drafts, and order or otherwise.”FUNCTIONS OF COMMERCIAL BANKS Today, Banks are called universal banks, providing all types of financial services and products for all financial needs under one roof. The principal functions of commercial banks are accepting deposits from the public and granting loans to all sectors of the economy after making provisionsfor reserves as per the RBI regulations, Apart fr functions, commercial banks undertake vario S functions such as agency services and general utility services. The functions of commercial banks are explained below: primary functions Collection of deposits: The primary function of commercial banks is to collect deposits from the public. Such deposits are of three main ‘types: current, saving, fixed Deposit, and Recurring Deposit. Currentand Savings accounts are demand liabilities for the bank as the bank need to pay money to the customer from these accounts on demand, and bank pays interest on savings account deposits, but no interest is paid on current account deposits. Fixed Deposit and Recurring Deposit accounts are time liabilities for banks as bank need to pay amount of these accounts to customers after specific maturity period with accumulated interest. Loans and Advances: Commercial banks have to retain a defined portion of their deposits as legal reserves. The balance is.used to grant loans and advances to the borrowers. Individuals and firms can borrow this money and banks make profits by charging interest on these loans. Commercial banks make various types of loans such as: 1, Loan to a person or to a firm against some collateral security; 2. Cash credit 3. Overdraft facilities 4. Loan by discounting bills of exchange. Secondary Functions Secondary functions can be sub-divided further into agency and utility functions. Agency functions: 2 Agency functions include the following: (i) Collection of cheques, dividends, and interests: Asanagent the bank collects cheques, drafts, bills of exchange, interes and dividends etc. on behalf of its clients and credits the money t« their accounts. Clients may provide their bank details to companies where investment is done in shares, debentures, etc. As and wher dividend, interest, is due, the companies directly send the cheques tc the bank for credit to client account.Gi) (v’ Wi) (vii) Utility Functions The General utility functions contain the following: (i) (ii) . ¥ a Payment of rent, insurance premiums: The bank makes the payments such as rent, insurance Premiuins utility bills and standing instructions in favour of third parties for their clients. Till the order is cancelled, the bank will carry on making such payments regularly by debiting the client's account. Dealing in foreign exchange: The commercial banks buy and sell foreign exchange for clients as per RBI FEMA rules. Purchase and sale of securities: Commercial banks take on the repurchase and sale of various securi. ties such as shares, debentures, bonds etc. on behalf of their clients, Some of the banks also run a special ‘Portfolio Management Scheme for their high net worth clients. Act as trustee, executor, and attorney: The banks play role of executors of Will, trustees and attorneys. Itis prudent to appoint a bank as a trustee than to appoint a non-banking entity. Working as attorneys of their clients, they collect payments and sign transfer deeds of the properties of their clients. Act as correspondent: The commercial banks play role of correspondent of their clients. Small banks even get travel tickets, book vehicles; collect letters etc. on behalf of the clients. Preparations of Income-tax returns: They prepare income-tax returns and give advices on tax matters for their clients. For this objective, they hire tax experts and ensure theit services, available to their clients. Safety Locker facility: Safekeeping of vital documents and valuables like ornaments throts* lockers are one of the traditional services offered by commercial ba™ Payment Mechanism or Money Transfer: Transfer of funds is one of the essential functions executed by mercial banks. Cheques and credit cards are two central PAY methods through banks. Cheques are also cleared through Clery house of RBI. Correspondent banking is other way of trans} em eh money over long distance, normally from one country t anol(iii) (iv) wv (vi) (ii) Banks, now a days use computers to anks, 1 ) n pace up money transfi Ten funds. Electronic Tensiareh hacia dle - ~ eon online transfer where funds are transferred anking system by using IFSC i NEFT and IMPS online fund transfer facility. sede wie BTS, Travellers’cheques: Travellers Cheques are used by domestic travellers as well as by inter- national travellers for carrying the money when they are travelling. However the utility of traveller's cheques is mainly useful for inter- national travellers because of their security and suitability. A bank offering travellers cheques normally have banking tie ups with many of the foreign banks outside, recognized as correspondent banks. The buyers of traveller's cheques can encash the cheques from all foreign banks with whom the issuing bank has such a tie up. Circular Notes or Circular Letters of Credit: Under Circular Letters of Credit, the traveller bargains the drafts with any of the various branches to which they are addressed. Hence the traveller can receive funds from many of the branches of banks instead only from a specific branch. Circular Letters of Credit are then a more convenient method for receiving funds while travelling to different countries. Letters of Credit: Letter of Credit is a payment guarantee offered by the buyer's banker in favour of seller. This letter guarantees payment to the seller upon presenting ofdocument mentioned in the Letter of Credit authenticat- ing delivery of goods to the buyer. The Letter of Credit is an assurance of payment upon meeting conditions specified in the Letter of Credit. The letter of credit is a key method of payment in international trade. Acting as Referees: The banks play role of referees and provide data about the business transactions and financial position of theirclients onenquiries request- ed by third parties. This is done on the recognition of the customers ists to expand the business activity in general. and provides Trade Information: The commercial banks gather data on business and financial condi- tions etc., and make it accessible to their clients to help draw their strategy. Trade information service is most useful for those clients going for overseas business. It will assist merchants to know the accuratebusiness conditions, payment rules and buyers’ financial Posi tion « foreign countries. N in (viii) ATM facilities: (ix) (x) (xi) (xii) The banks today have ATM facilities at every nook and Corner, Un, this facility the clients can withdraw their money effortlessly and f ‘* round the clock through Automated Teller Machine (ATM), This. also called as ‘Any Time Money’. Customers under this system cap withdraw money with help of a Debit card issued by the bank a can also deposit cash or cheque for credit to account through ATM, Credit cards: Credit cards help a customer to buy products/services from certaj defined retail and service outlets up to a limit without need for im, mediate payment. In other words, shopping can be done on credit basis through the credit card. The outlets like Hotels, Malls, Airline Companies and Railways which sell the products on credit send monthly or fortnightly statements to the bank. Visa Card, Rupee Card and Master card are some of examples of credit cards in India. Gift Cheques: The commercial banks offer Gift cheque facilities to the public. These cheques have garnered a wider recognition in India. Under this facility by paying equal amount one can purchase gift cheque for presenting as gift on occasions like marriage and other parties. Accepting Bills: On behalf of their clients, the banks accept bills drawn by third parties on its customers. This is same like the letter of credit. While banks accept bills, they offer a better security for payment to seller of prot ucts or drawer of bills, Merchant Banking: The commercial banks offerimportant facilities through theirmerchatt banking divisions to the traders. Merchant bankers help companies”? raise funds through IPO from public and manage whole public net process. They also underwrite a part of the IPO of shares, Debentur® and Bonds of public companies in India. (xiii) Advice on Financia! Matter sf . « ancial The commercial banks also j advice to their clients on finane. aspects especially on invest uns such as expansion, dive® cation, mergers, acquisition \ising of funds, etc.(xiv) Factoring Service: Now a days the commercial banks offer factoring service to their cli- ents. It is useful in the growth of trade and industry as instant cash flow and handling of debtors’ accounts are taken care by factors. This function is again allowed only by a separate subsidiary as per RBI regulations on factoring services in India.