Commercial Bank and its Functions

Commercial bank is a bank whose activities are directed at
making a profit by borrowing from customers at an interest rate lower than that
at which it lends.
Commercial banks perform a wide range of functions that include accepting of
deposits, advancing of loans, financing of trade, creation of credit, remittance of
money, guarantee services, provide financial advice, etc.
Nepal Bank Ltd. is the first commercial bank in Nepal, which was established in
1994 B.S. RastriyaBanijya Bank, Nabil Bank Ltd., Himalayan Bank Ltd., Mega Bank,
Nepal Investment Bank, Sanima Bank Ltd. etc. are few examples of commercial
banks in Nepal.
All the ‘A’ class bank in the list of NRB are commercial bank.

Functions of Commercial Banks
· Nepal Bank Ltd. is the first commercial bank in Nepal, which was established
in 1994 B.S. Now all together there are 32 commercial banks in Nepal. The
function of commercial banks can be explained as follows:
1. Deposit collection: Commercial banks collect deposits from individuals,
businesses and other institutions. People deposit their money in banks for
safety, convenience and interest income. Commercial banks offer
current/demand deposit account, saving deposit account and fixed deposit
account to their depositors.
2. Advancing loans: Commercial banks offer various types of loan to their
customers. Commercial banks earn interest income and service charges from
the loans. The main types of loans provided by central banks include cash
credit, overdraft, working capital, term loan, consumer credit, etc.
3. Credit creation: Credit creation is the unique and original function of the
commercial banks. Commercial banks create credit every time they advance
loans.
4. Trade finance: Commercial banks provide various facilities like letter of credit
(LC), bank guarantee, etc. to help internal and external trade.
5. Remittance: Commercial bank help people by transferring their money from
one place to another.
6. Agency function: Commercial banks perform various agency functions on
behalf of their customers. They pay insurance premium, income tax, rent,
telephone bill, etc. on behalf of their customers. They also receive dividends and interest on debentures on behalf of the clients. Similarly, they do
payments of cheques, bills of exchange, promissory notes, etc.
7. General utility functions: Commercial banks also provide safe deposit locker
facilities, guarantee services, merchant banking, ATM services, e-banking,
traveler’s cheques etc. to their customers.