B. Secondary Functions

Besides primary functions, commercial banks also perform some secondary functions.

1. Overdraft Facility

A facility that allows the customer to overdraw from the amount of his current account upto an agreed limit is known as an overdraft facility. In general, an overdraft facility is given to respectable and reliable customers for a short period. Besides, the customers have to pay interest on the amount overdrawn by them.

2. Discounting Bills of Exchange

A facility in which the holder of a bill of exchange, before its maturity date can get the bill discounted with the bank. The bank pays the amount to the holder after deducting some amount as commission. Now, on the date of maturity, the party which has accepted the bill pays back the money to the bank.

3. Agency Functions

There are some agency functions performed by commercial banks for which they charge some commission from their clients. Some of these functions are:

• Transfer of Funds: With the help of instruments like mail transfers, demand drafts, etc., commercial banks provide their customers with the facility of easy and economical remittance of funds from one place to another.
• Collection and Payment of Various Items: Commercial banks provide their customers with the service of collecting bills, interest, subscriptions, rents, and other periodical receipts on their behalf. They also make payments for insurance premiums, taxes, etc., on their customer’s standing instructions.
• Purchase and Sale of Foreign Exchange: The central bank gives authority to commercial banks to deal in foreign exchange. Commercial banks, on the behalf of their customers, buy and sell foreign exchange and also helps in promoting international trade.
• Purchase and Sale of the Securities: Commercial banks on behalf of their customers, purchase and sell government securities and stocks and shares of private companies.
• Income Tax Consultancy: Commercial banks provide advice to their customers related to income tax. They also help them in the preparation of their income tax returns.
• Trustee and Executor: Commercial banks play the role of a trustee and preserve the will of their customers and as an executor, execute the will after their death.
• Letters of Reference: Commercial banks provide information about the economic position of their customers to the traders and vice-versa.

4. General Utility Functions

Some of the general utility functions performed by commercial banks are:

• Locker Facility: Commercial banks provide their customers with the facility of lockers or safety vaults so they can keep their valuable things in safe custody.
• Traveller’s Cheques: To avoid the risk of taking cash on their journey, commercial banks provide their customers with the facility of traveller’s cheques.
• Letter of Credit: Sometimes people need to show their creditworthiness for various reasons. Commercial banks certify the creditworthiness of their customers whenever required.
• Underwriting Securities: Commercial banks also performs the function of underwriting securities. And as the public has full faith in the bank’s creditworthiness, they do not hesitate in purchasing the securities which are underwritten by banks.
• Collection of Statistics: Commercial banks advice their customers on financial matters by collecting and publishing statistics related to commerce, trade, and industry.

It can be said that the commercial banks receive deposits from the public and use them in giving loans to the public. However, sometimes the loans offered by the commercial banks are more than the deposits received by them. This function performed by commercial banks is known as Money Creation or Credit Creation.