What is a Commercial Bank?
An institution that provides its customers with services like accepting deposits, providing loans, and making investments, with the objective of earning profits is known as a Commercial Bank. The two main characteristics of commercial banks are lending and borrowing. They make money from a variety of fees and by earning interest income from loans. For this, the bank charges interest on lending and borrowing. The two main types of rates are the Borrowing Rate and Lending Rate. The rate offered by commercial banks to depositors for depositing money is called the borrowing rate. The rate charged by commercial banks for lending money to investors is known as the lending rate. The difference between the borrowing rate and the lending rate is known as Spread. It is the profit earned by commercial banks.
Commercial Banks are important for an economy because they create capital, credit, and liquidity in the market. Commercial banks have traditionally been located in physical locations, but nowadays a number of banks also operate online.
Table of Content
- Functions of Commercial Bank
- A. Primary Functions
- B. Secondary Functions
- Importance of Commercial Banks
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