Specialised Banks Part 3

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There are some banks, which cater to the requirements and provide overall support for setting up business in specific areas of activity. EXIM Bank, SIDBI and NABARD are examples of such banks. Specialised bank engages themselves in some specific area or activity and thus, are called specialised banks.

Export Import Bank of India (EXIM Bank)

If business set up for exporting products abroad or importing products from foreign countries for sale in our country, EXIM bank can provide you the required support and assistance. The bank grants loans to exporters and importers and also provides information about the international market.

Small Industries Development Bank of India (SIDBI):

SIDBI is made available to establish a small-scale business unit or industry, loan on easy terms can be available through SIDBI. It finances modernisation of small-scale industrial units, use of new technology and market activities. The aim and focus of SIDBI is to promote, finance and develop small-scale industries.

National Bank for Agricultural and Rural Development (NABARD)

NABARD is a central or apex institution for financing agricultural and rural sectors. If a person is engaged in agriculture or other activities like handloom weaving, fishing, etc. NABARD can provide credit, both short-term and long-term, through regional rural banks. It provides financial assistance, especially, to co-operative credit, in the field of agriculture, small-scale industries, cottage and village industries handicrafts and allied economic activities in rural areas.

Functions of Commercial Banks

The functions of commercial Banks can be classified into two type.

Which explain in details as follow as,

Primary Functions

This is the main function which is performed compulsorily by every Bank or we can say that the organisation which performs these functions is known as a Banks. The primary functions of a commercial bank include

Accepting Deposits

The most important activity of a commercial Bank is to mobilise deposits from the public. People who have surplus income and savings find it convenient to deposit the same with Banks. Depending upon the nature of deposits, funds deposited with Bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher, public are motivated to deposit more funds with the bank. There is also safety of funds deposited with the bank.

Grant of Loans and Advances

The second important function of a commercial bank is to grant loans and advances. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans and advances varies according to the purpose and period of loan and also the mode of repayment.

Loans

A loan is granted for a specific time period. Generally commercial banks provide short-term loans. But term loans, i.e., loans for more than a year may also be granted. The borrower may be given the entire amount in lump sum or in instalments. Loans are generally granted against the security of certain assets. A loan is normally repaid in instalments. However, it may also be repaid in lump sum.

Advances

An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally granted for a short period of time. Further the purpose of granting advances is to meet the day-to-day requirements of business. The rate of interest charged on advances varies from bank to bank. Interest is charged only on the amount withdrawn and not on the sanctioned amount.

Types of Advances

Banks grant short-term financial assistance by way of cash credit, overdraft and bill discounting bills of exchange. Let us learn about these.

Cash Credit

Cash credit is an arrangement whereby the bank allows the borrower to draw amount up to a specified limit. The amount is credited to the account of the customer. The customer can withdraw this amount as and when he requires. Interest is charged on the amount actually withdrawn. Cash Credit is granted as per terms and conditions agreed with the customers.

Overdraft

Over draft is also a credit facility granted by bank. A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in his account. It is a temporary arrangement. Overdraft facility with a specified limit may be allowed either on the security of assets, or on personal security, or both.

Discounting Bills of Exchange

Banks provide short-term finance by discounting bills, i.e., making payment of the amount before the due date of the bills after deducting a certain rate of discount. The party gets the funds without waiting for the date of maturity of the bills. In case any bill is dishonoured on the due date, the bank can recover the amount from the customer.

Secondary Functions

In addition to the primary functions of accepting deposits and lending money, banks perform a number of other functions, which are called secondary functions. These are as follows:

  • Issuing letters of credit, travellers’ cheque, etc.

  • Undertaking safe custody of valuables, important document and securities by providing safe deposit vaults or lockers.

  • Providing customers with facilities of foreign exchange dealings.

  • Transferring money from one account to another; and from one branch to another branch of the bank through cheque, pay order, demand draft.

  • Standing guarantee on behalf of its customers, for making payment for purchase of goods, machinery, vehicles etc.