The commercial banks play an important role in accelerating the development of an economy. The commercial bank is the great institution that conducts the payment mechanism of country. The individuals and institutions make payments to each other through the mechanism of commercial bank. The commercial bank plays a leading role in the smooth operation of an economy .it makes available all financial services to individuals and institutions.
Commercial banks are those which collect the immobilized capital from public, organizations etc as deposits and invest these capitals in different sectors like business, industries, and services etc, which fulfill the demands of capital in these sectors. The development of an economy in fact depends upon the development of commercial banks to some extent. the role commercial bank is significant not only in mobilizing saving but also in making investment for the development of different sectors of the economy. Their role is also important for the poverty reduction, raising employment opportunities between the richer and poorer section of the society. These are also called financial intermediator. Therefore it is called an engine economic growth. Development of the commercial banks has become the basis for measuring the level of economic growth of a nation.
Functions of commercial banks
Major functions of commercial banks are :
ü To accept deposit from the Nepalese people government as well as from the foreigners with or without the interest form.
ü To provide advance loans on sufficient securities of gold,silver,ornaments,government securities and promissory notes ,movable properties or documents of little connected therewith,share and debentures of the companies registered in the Nepalese companies act , bill of exchange to the reliable person or clients. Besides,they are bound to provide advance loans in certain minimum percentage of their total deposit in the priority sector of which are fixed on the direction of Nepal Rastra bank.
ü On joint security of two or more reliable persons accepted by board, they act to provide loan to reliable persons. These are repayable on demand and for periods not exceeding six months.
ü For the purpose of import and export business or other commercial purpose they issue letter of credit to the entrepreneurs.
ü They act as agents of commission on behalf of clients in selling, purchasing, transferring and receiving in safe custody shares and debentures of companies with limited liabilities and also in sending remittance to any part of country and other countries. Thus they transfer money from one place to another through cheques, T.T., draft, fax etc and charge certain commission instead of this act.
ü Although the transactions of foreign exchange are handled by the central bank, in general yet in certain circumstances, the commercial banks act to transact foreign exchange. But all the statement relating to foreign exchange transaction that have done by the commercial banks should point out to the central banks.
ü In the places, where central banks services are absent, the commercial banks act as a government’s bank. Continue reading