ROLES AND RESPONSIBILITIES

Definition of Commercial Banks A financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit. The traditional commercial bank is a brick and mortar institution with tellers, safe deposit boxes, vaults and ATMs. However, some commercial banks do not have any physical branches and require consumers to complete all transactions by phone or Internet. In exchange, they generally pay higher interest rates on investments and deposits, and charge lower fees.

Investopedia explains Commercial Bank Commercial banking activities are different than those of investment banking, which include underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients. Some commercial banks, such as Citibank and JPMorgan Chase, also have investment banking divisions, while others, such as Ally, operate strictly on the commercial side of the business.

Banking Business a) The business of : Receiving deposits on current account, deposit account, savings account or other similar similar account. Paying or collecting cheques drawn by or paid in by customers Provision of finance

b) Such other business as the Central Bank with the approval from the Minister of Finance mya prescribe. The Provision of Finance under BAFIA includes

The lending of money Leasing business Factoring business The purchase of bills of exchange, promissory notes, certificates of deposits, debentures or other negotiable instruments The acceptance of any liability, obligation or duty of any person

Commercial Banks have a paramount roles and responsibilities a) To actively promote and inculcate the saving habits, especially among the younger generation. It is also an important strategy to fight unnecessary inflationary pressures on the economy of the country. b) Commercial banks should also make their interest rates reasonable enough to make it worthwhile for the average people to save for the financial well-being of the populace in the country. c) Services and facilities that have been offered by the commercial banks should be readily available at reasonable costs. d) Banks should educate the users on making the most out of the services and facilities by giving simple pep talks and publishing pamphlets and brochures, clarifying on the procedures and advantages of the various types of services and facilities available. e) As the financial intermediaries between the depositors and borrowers, banks have to ensure that such funds lent our are for productive and economically viable purpose and activities for the betterment of the country as a whole.

The main functions of commercial banks a) Cash Credit In this type of credit scheme, banks advance loans to its customers on the basis of bonds, inventories and other approved securities. Under this scheme, banks enter into an agreement with its customers to which money can be withdrawn many times during a year. Under this set up banks open accounts of their customers and deposit the loan money. With this type of loan, credit is created.

b) Giving Loans The second important function of commercial banks is to advance loans to its customers. Banks charge interest from the borrowers and this is the main source of their income. Banks advance loans not only on the basis of the deposits of the public rather they also advance loans on the basis of depositing the money in the accounts of borrowers. In other words, they create loans out of deposits and deposits out of loans. This is called as credit creation by commercial banks. Modern banks give mostly secured loans for productive purposes. In other words, at the time of advancing loans, they demand proper security or collateral. Generally, the value of security or collateral is equal to the amount of loan. This is done mainly with a view to recover the loan money by selling the security in the event of nonrefund of the loan. c) Demand loans These are such loans that can be recalled on demand by the banks. The entire loan amount is paid in lump sum by crediting it to the loan account of the borrower, and thus entire loan becomes chargeable to interest with immediate effect. d) Short-term loan hese loans may be given as personal loans, loans to finance working capital or as priority sector advances. These are made against some security and entire loan amount is transferred to the loan account of the borrower. e) Over-Draft Banks advance loans to its customers upto a certain amount through over-drafts, if there are no deposits in the current account. For this banks demand a security from the customers and charge very high rate of interest. f) Discounting of Bills of Exchange This is the most prevalent and important method of advancing loans to the traders for short-term purposes. Under this system, banks advance loans to the traders and business firms by discounting their bills. In this way, businessmen get loans on the basis of their bills of exchange before the time of their maturity.

 Commercial banks are also authorized to deal in foreign exchange for example to buy or sell Borrow and lend in foreign currencies and are also the only financial institutions allowed to provide current account facilities. BANKING SERVICES AND FACILITIES Deposits a) Current Account A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the bank, and represent the amount owed by the bank to the customer. Some banks charge a fee for this service, while others may pay the customer interest on the funds deposited. b) Savings Account Savings accounts are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money (for example, by writing a check). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. For the bank, money in a savings account may not be callable immediately and therefore often does not incur a reserve requirement freeing up cash from the bank's vault to be lent out with interest. The other major types of deposit account are transactional (checking) account, money market account, and time deposit. The following types of savings account may be opened individual, joint, clubs, societies, trustee. c) Fixed Deposit Account In deposit terminology, the term Fixed Deposit refers to a savings account or certificate of deposit that pays a fixed rate of interest until a given maturity date. Funds placed in a Fixed Deposit usually cannot be withdrawn prior to maturity or they can perhaps only be withdrawn with advanced notice and/or by having a penalty assessed. For example, a Fixed Deposit will often be used by individuals, businesses and financial institutions around the world as a means of storing their liquid funds for a fixed period of time for future use. In the

retail market, Fixed Deposits are relatively safe investments when provided by insured financial institutions such as banks, savings and loan corporations and credit unions that are duly regulated within the country in which they operate. Also, while the term Fixed Deposit is in common usage in India and some other countries, Fixed Deposits are also known as term deposits in countries like Australia, Canada and New Zealand, as time deposits in the United States and as bonds in Great Britain. d) Negotiable Certificates of Deposits (NCDs) A negotiable certificate of deposit is a large denomination certificate of deposit (CD), a savings instrument issued by a bank. Usually bought by institutional investors, a negotiable certificate of deposit is normally issued in amounts ranging from $100,000 to $1 million or more. Investors in a negotiable certificate of deposit want a short term, discounted investment which provides a fixed interest rate return over an agreed period. The negotiable certificate of deposit often comes in bearer form and can trade in the highly liquid secondary market. A negotiable certificate of deposit trades at a discount to the face value, which is repaid on maturity. However, a negotiable certificate of deposit cannot be cashed-in before it matures. The issuing bank guarantees payment of the negotiable certificate of deposit. Investors consider a negotiable certificate of deposit a low-risk, lowinterest security. Another term for a negotiable certificate of deposit is a Jumbo CD. Remittances a) Bankers Cheque A banker's cheque or bankers Draft is a cheque (or check) where the funds are withdrawn directly from a bank's funds, not from an individual's account. Normal banking cheques If an individual or company operates a current account (or checking account), they may draw cheques to transfer funds from their account to an account belonging to a creditor. The creditor passes that cheque to their own bank, which will use a clearing house or similar system to arrange for the funds to be moved from the debtor to the creditor during a clearance period of a few days. Any debt is thus settled.

Banker's draft as a reduction of risk The problem with normal cheques is that they are not as secure as cash. A cheque received in the post could be potentially worthless if there are insufficient funds for the cheque to be honoured. In this instance, the clearance house or bank will return the cheque to the creditor, who will receive no money. Therefore, any cheque carries the risk that it might be returned unpaid (or "bounced", in the vernacular). To reduce this risk, a person can request for a type of cheque where the funds are, in effect, drawn directly against the bank's own funds, rather than that of one of their accounts. This is less risky for a creditor, because the cheque will be honoured unless the cheque has been forged or the issuing bank goes out of business before the draft is cashed. In order that the issuing bank can be sure that its customer has sufficient funds to honour the draft, the bank will withdraw the value of the draft (plus any charges) from the customer account immediately. Note that like a normal cheque, a banker's draft must go through the usual clearing process and therefore may take around 3-5 days to clear.

b) Demand Draft A method used by individuals to make transfer payments from one bank account to another. Demand drafts are marketed as a relatively secure method for cashing checks. The major difference between demand drafts and normal checks is that demand drafts do not require a signature in order to be cashed. Demand draft can be issued in two forms : i. ii. Local draft : which is drawn in Malaysian Ringgit on a branch or local correspondent/agent bank of the issuing bank. Foreign draft : which is usually drawn in a foreign currency on an overseas branch or foreign correspondent/agent bank. c) Telegraphic Transfer If a person needs to transfer funds to a beneficiary who is located in another town in the country or overseas urgently, he can instruct the bank to remit the funds by telegraphic transfer. The bank may instruct its branch or correspondent/agent bank

at the place of the beneficiary by cable, telex, or telephone (tele-transmission) depending on the location and facilities available. Banks would require the following in the application for telegraphic transfer : i. ii. iii. Name, address and telephone number of the beneficiary Currency and amount of the remittance Place of payment

d) Mail Transfer Mail transfer is similar to telegraphic transfer except for the fact that instructions are conveyed in writing in the standard form of the bank. All the remitter has to do is to fill in the application form giving details such as the full name of the beneficiary, full address and contact telephone number. On the part of the bank, it would dispatch, by post, the instructions accordingly. e) Standing Instructions Customer instructs his banker to effect periodic, remittances to the debit of his account. Customer utilizes this services provided by his bank to effect periodic remittances or payments of insurance premiums, installments towards settlement of loans. The bank executes the standing instructions by effecting the remittances or payments by bankers cheque, demand draft, mail transfer, telegraphic transfer or credit to the relevant beneficiary account as instructed, under advice to the customer. The bank is not liable for any consequences arising from delay in executing standing instructions if the customers accounts is not sufficiently funded.