GROUP 3

DIFFERENT BANK FUNCTIONS AND

RELATIONSHIP OF BANKS WITH VARIOUS CLIENTS

Bank Functions is divided into two categories, Primary & Secondary Functions.

PRIMARY FUNCTIONS

1. Deposit Function – The most important function of bank. It is the foundation of the
banking industry and provides a safe and secure way for consumers to store and grow
money.

Different Types of Deposit

I. Saving deposits - suitable for liquidity and daily expenses. Funds are available to be
withdrawn at any time.
II. Fixed deposits (Term deposits) - a type of deposit in which a particular sum of money
is locked for a fixed period of time.
III. Current deposits - also known as demand deposit. Account holder can deposit and
withdraw money at any time as the deposit is repayable on demand.
IV. Recurring deposits - a term deposit that allows to make regular deposits and earn returns
on the investment.

2. Loan Function - Banks offer loans and advances to people who need them (borrowers)
out of deposited money. The banks put interest on the loans they provide to the borrowers.

Banks provide loans and advances in the form of:

I. Cash Credit
● Can be given to current account holders as well as others that don't have an
account with a bank.
● Enables a company to withdraw money to meet working capital requirements from
the bank up to a certain limit.

II. Bank Overdraft

● Type of advance given to current account holders
● Bank advances loans to its customers up to a certain amount through overdrafts,
if there are no deposit in the current account.
 III. Discounting Bills of Exchange
● The banks advance money to traders and business firms by discounting or
purchasing bills of exchange.
➢ Bills of Exchange - written order signed by debtor and creditor for a fixed
amount payable on a fixed date.

IV. Loans
● Specified amount that is provided to an individual or firm by a bank for a specified
time at an agreed rate of interest.
○ Security
➢ Secured Loan
➢ Unsecured Loan
○ Purpose
➢ Consumer Loan
➢ Commercial Loan
➢ Agricultural Loan

SECONDARY FUNCTIONS

1. Agency Function

I. Transfer of Funds: Transferring of funds from one branch/place to another.

II. Periodic Collections: Collecting dividends, salary, pension, and similar periodic
collections on the clients’ behalf.
III. Periodic Payments: Making periodic payments of rents, electricity bills, etc on behalf
of the client.
IV. Purchase and sale of shares and securities/Dealing in Foreign Exchange: It buys,
sell, and keeps in safe custody securities and share on behalf of its customers.
V. Collection of Cheques: Like collecting money from the bills of exchanges, the bank
collects the money of the cheques through the clearing section of its customers.
VI. Portfolio Management: Banks manage the portfolio of their clients. It undertakes the
activity to purchase and sell the shares and debentures of the clients and debits or
credits the account.
VII. Other Agency Functions: Other Agency Functions: Under this bank act as a
representative of its clients for other institutions. It acts as an executor, trustee,
administrators, advisers, etc. of the client.

2. Utility Function - also called as Social Development Function

General utility services provided include the following:

 I. Issuance of Drafts and Cheques - A draft/cheque is an order to pay money from one
branch of the bank to another branch of the same bank or another bank. The bank charges
a commission for issuing drafts and cheques.
II. Locker Facility - The bank provides lockers or safe deposit vaults for the safe custody of
valuables, documents, gold ornaments, and any other important belongings.
III. Foreign Exchange -The bank handles foreign exchange transfers, assisting exporters
and importers alike.
IV. Underwriting Services - The bank may underwrite the securities issued by companies,
shares, and debentures.
V. Project Reports - The bank may prepare project reports and feasibility studies on behalf
of clients.
VI. Consultation Services - The bank may offer merchant banking technology leasing
services, tax consulting services, as well as technical, managerial, financial, and economic
consulting services.

Modern Utility Functions

• Exchanging cash for bank deposits, and vice versa.
• Transferring of bank deposits between people and/or businesses.
• Exchanging deposits for government bonds, bills of exchange, unsecured and secured
trade as well as industrial units and trade commitments.
• Capital issue underwriting.
• Payments may be made at ATMs around the clock.
• In charge of issuing smart cards, credit cards, and other similar products.
• Introduction of e-banking: customers can access their bank accounts through their
gadgets and perform a variety of functions with just a single click, whenever and wherever
they are.

RELATIONSHIP OF BANKS WITH VARIOUS CLIENTS

I. Debtor and Creditor

When a customer deposits money, the bank (debtor) owes the customer (creditor) the amount of
money deposited. Conversely, when a bank lends money to a customer, the customer becomes
the debtor, and the bank becomes the creditor.

2. Principal and Agent

An agent is a person who acts as the one who is employed to do any act for another or to represent
another in dealings with a third person. The person for whom the work is done or to whom it is
represented is called the principal.

3. Trustee and Beneficiary

In certain situations, the bank acts as a trustee for its customers. When a customer entrusts
valuable items or assets to the bank for safekeeping, the bank assumes the role of a trustee, and
the customer becomes the beneficiary.
4. Bailor and Bailee
When a customer keeps valuables in a bank locker, the bank acts as the bailee and the customer
is the bailor. The bank has a responsibility to take care of the valuables and return them in their
original condition when demanded by the customer.

5. Advisor and Client

Banks often provide advisory services to their customers regarding investments, financial
planning, and other related matters. In this advisor and client relationship, the bank acts as an
advisor, offering guidance and recommendations based on the customer’s financial goals and risk
tolerance.

6. Lesser and Lessee

When a bank provides safe deposit lockers to its customers, it assumes the role of a lesser, and
the customer becomes the lessee. The bank leases its immovable property, i.e., the safe deposit
locker, to the customer for a specified period. The customer pays rent for the locker, and the bank
is responsible for maintaining the security and integrity of the locker.

IMPORTANCE OF BANKS TO OTHER FINANCIAL INSTITUTIONS

1. Banks offer financial support such as deposits, loans, and securities.

2. Banks supplement fundings to support deficit operations and expansion costs.
3. They help other financial institutions to lessen financial fraud by acting as intermediaries and
having stricter client requirements before granting anything.
4. Banks transact money faster and conveniently with online banking options.

LEADER:
Daiz, Lynnel

MEMBERS:
Cabali, Kim Erish
Caragan, Freila
Danao, Eldia
Escatron, Angeline
Hepanao, Lynsieangel

Date of presentation: APRIL 01, 2024