1. FUNCTIONS OF COMMERCIAL BANKING

2. Commercial Bank A commercial bank is a type of financial intermediary.
Commercial banking is also known as business banking.
A financial institution that provides services such as a accepting deposits and giving business loans.
Its primary liabilities are deposits and primary assets are loans and bonds.
(Business Studies)

3. Functions of Commercial Bank
The functions of a commercial banks are divided into two categories:
i) Primary functions,
ii) Secondary functions
(Business Studies)

4. Primary Functions a) accepting deposits;
b) granting loans and advances;
(Business Studies)

5. Accepting Deposit People who have surplus income and
savings find it convenient to deposit the amounts with banks.
Depending upon the nature of deposits, funds deposited with bank also earn interest.
If the rate of interest is higher, public are motivated to deposit more funds with the bank.
(Business Studies)

6. Grant of Loans and Advances
Loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts.
The rate of interest charged on loans and advances varies depending upon the purpose, period and the mode of repayment.
The difference between the rate of interest allowed on deposits and the rate charged on the Loans is the main source of a bank’s income.
(Business Studies)

7. Loans
Short term loans as well as long term loans are given by commercial bank.
The borrower may withdraw the entire amount in lumpsum or in installments.
Interest is charged on the full amount of loan.
Loans are generally granted against the security of certain assets.
(Business Studies)

8. Advances
An advance is a credit facility provided by the bank to its customers.
It differs from loan in the sense that loans may be granted for longer period, but advances are normally granted for a short period of time.
The purpose of granting advances is to meet the day to day requirements of business.
(Business Studies)

9. Mode of Short term Financial Assistance
Banks grant short-term financial assistance by way of
cash credit,
overdraft
bill discounting.
(Business Studies)

10. Cash Credit
Cash credit is an arrangement whereby the bank allows the borrower to draw amounts upto a specified limit.
Interest is charged on the amount actually withdrawn.
Cash Credit is granted as per agreed terms and conditions with the customers.
(Business Studies)

11. Overdraft
A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in his account.
Overdraft facility with a specified limit is allowed either on the security of assets, or on personal security,or both.
(Business Studies)

12. Discounting of Bills
It is making payment of the amount before the due date of the bills after deducting a certain rate of discount.
The party gets the funds without waiting for the date of maturity of the bills.
In case any bill is dishonored on the due date, the bank can recover the amount from the customer.
(Business Studies)

13. SECONDARY FUNCTIONS
Issuing letters of credit, travellers cheques, circular notes etc.
Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers;
Providing customers with facilities of foreign exchange.
Transferring money from one place to another; and from one branch to another branch of the bank.
(Business Studies)

14. Collecting and supplying business information;
Standing guarantee on behalf of its customers, for making payments for purchase of goods, machinery, vehicles etc.
Collecting and supplying business information;
Issuing demand drafts and pay orders; and,
Providing reports on the credit worthiness of customers.
(Business Studies)

15. Financial Statements Income Statement Balance Sheet
Statement of Cashflows

16. Financial Management by Van Horne
Income Statement
A summary of a firm’s revenues and expenses over a specified period, ending with net income or loss for the period.
Financial Management by Van Horne

17. Managerial Finance By Lawrence Gitman
Barlett Company Income Statement
Sales Revenue
$3,074
Less:COGS
2088
Gross Profit
$986
Less:Operating Expenses
Selling Expense
$100
General & administrative Expense
194
Lease Expense 35
Depreciation Expense
239
Total Operating Expense
$568
Operating Profit
$418
Less:interest Expense 93
Net profit before taxes
325
Less:Taxes(rate=29%) 94
Net Profit after taxes
231
Less:Preferred Stock dividend 10
Earning Available for Common Shareholders
$221
Managerial Finance By Lawrence Gitman

18. Financial Management by Van Horne
Balance Sheet
A summary of firm’s financial position on a given date that shows that
Total assets = Total liabilities + owner’s equity
Financial Management by Van Horne

19. Managerial Finance by Lawrence Gitman
Barlett Company Balance Sheet
Assets
Liabilities and Stockholders' Equity
Current Assets
Current Liabilities
Cash
$363
Accouts Payable
$382
Marketable securities 68
Notes Payable 79
Accounts receivable
503
Accruals
159
Inventories
289
Total current liabilities
$620
Total Current assets
$1,223
Long term Debt
$1,023
Gross fixed assets
Total Liabilities
$1,643
Land and buildings
$2,072
Machinery and Equiptment
1866
Stockholders' Equity
Furniture and fixtures
$358
Preffered Stock
$200
Vehicles
275
Common Stock
$191
Other(Financial Lease)
$98
Paid in Capital in excess of common stock
$428
Total Gross assets
$4,669
Retained earnings
$1,135
Less:Accumulated depreciation
$2,295
Total Stockholders equity
$1,954
Net fixed assets
$2,374
Total Liabilities & Stockholders Equity
$3,597
Total Assets
Managerial Finance by Lawrence Gitman

20. Financial Management by Van Horne
Cashflow Statement
A summary of the firm’s operating, investment and financing cash flows and reconciles them with changes in its cash and marketable securities during the period.
Financial Management by Van Horne

21. Managerial Finance by Lawrence Gitman
Barlett Company Statement of Cashflows
Cashflow from operating activities
Net Profit after taxes $2 31
Depreciation
239
Increase in A/R
-138
Decrease in Inventories 11
Increase in A/P
112
Increase in Accruals 45
Cash provided by operating activities
$500
Cashflow from Investment Activities
Increase in Gross fixed assets
($347)
Change in business interests
Cash provided by Investment activities
Cashflow from Financing Activities
Decrease in notes payable
($20)
Increase in long term debts 56
Changes in Stockholders' equity
Dividend paid
108
Cash provided by financing activities
-61
Net increase in cash and marketable securities
$92
Managerial Finance by Lawrence Gitman

22. THANKYOU