Commercial Bank
As per the commercial bank definition, it is a financial institution whose purpose is to accept deposits from people and provide loans and other facilities. Commercial banks provide basic services of banking to their customers and small to medium-sized businesses.
What is Commercial bank?
A commercial bank is a financial institution that provides services like loans, certificates of deposits, savings bank accounts bank overdrafts, etc. to its customers. These institutions make money by lending loans to individuals and earning interest on loans. Various types of loans given by a commercial bank are business loans, car loans, house loans, personal loans, and education loans.
They give out these loans from the money deposited by their customers in different types of accounts. They use the deposits as capital for providing loans. Commercial banks are essential for the economy of a country because they help in creating capital, credit as well as liquidity in the market. These banks are generally physically located in cities but these days there are online banks are growing in numbers.
How commercial bank works?
Commercial banks offer basic services of banking to the public including individual customers as well as small and medium-sized businesses. Money is made by banks by charging for services and fees. The fees depend on the products given such as overdraft fees, fees for safe deposit boxes, late fees, etc. Various loans also consist of fees other than interest on loans.
Banks earn money by giving out loans and for that purpose they use funds from customer deposits. They charge higher interest rates on loans they give out and comparatively less rate of interest on the amount they get as deposits from their customers. For e.g., a bank may provide a 0.30 per cent rate of interest on savings account to its customers but charges a 4.8 per cent rate of interest annually for home loans.
Generally, commercial banks are situated in buildings where their customers come for using ATM machines and other banker window facilities. As internet technology has risen in recent years, most banks allow customers to do most services online. People can now make money transfers, deposits or make payments for bills online.
Importance of commercial banks
Commercial banks are essential for the economy because they create liquidity in the market and create capital besides providing their customers with essential services. Banks make sure liquidity in the market by lending out loans from the deposits of their customers.
What is commercial bank?
According to the commercial bank definition, it is a financial institution whose purpose is to accept deposits from customers and lend out loans.
What is commercial bank types?
Public sector banks, private sector banks, and regional rural banks are the types of commercial banks.
What is commercial bank functions?
The basic functions are accepting deposits, lending out loans, transfer of money, and discounting bills of exchange.
Why are commercial banks important? Disclaimer: This content is authored by an external agency. The views expressed here are that of the respective authors/ entities and do not represent the views of Economic Times (ET). ET does not guarantee, vouch for or endorse any of its contents nor is responsible for them in any manner whatsoever. Please take all steps necessary to ascertain that any information and content provided is correct, updated and verified. ET hereby disclaims any and all warranties, express or implied, relating to the report and any content therein.
Commercial banks are important because they help in creating liquidity in the market.
