What is the primary function of a commercial bank?
- A.Issuing currency notes and coins
- B.Conducting monetary policy
- C.Granting loans and accepting deposits
- D.Regulating the money supply
Correct answer
Explanation
The correct answer is C, granting loans and accepting deposits. A commercial bank exists to gather savings from those who have a surplus and lend them to those who need funds, and it earns from the gap between the interest it pays depositors and the interest it charges borrowers. Every other service it offers, such as remittances, lockers or card facilities, is secondary to these two.
Options A, B and D all describe work of the central bank. Issuing currency notes is the Reserve Bank's monopoly, with the one rupee note and coins issued by the Government. Conducting monetary policy is done by the RBI through its Monetary Policy Committee. Regulating the money supply is again the RBI's task, exercised through the repo rate, the cash reserve ratio and the statutory liquidity ratio. The line to fix is that a commercial bank deals with the public while the central bank deals with the banks.
Read the full article: Types of Banks in India: Classification, Functions and MCQs
Practice Questions
View allWhich among the following is a public sector bank?
- A.Axis Bank
- B.ICICI Bank
- C.Bank of Baroda
- D.Yes Bank
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It was founded in 1908 by Maharaja Sayajirao Gaekwad III, nationalised in the first round of July 1969, and the Government of India still holds the majority of its shares, which is what makes a bank a public sector bank.
Read the full explanation →SEWA (Self-Employed Women's Association) Bank, a cooperative bank in Gujarat, was launched in India in ______.
- A.1974
- B.1894
- C.1994
- D.1874
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Women of the Self-Employed Women's Association at Ahmedabad, who worked as vendors, headloaders and home-based workers, pooled their own share capital and registered a cooperative bank of their own in 1974 because ordinary banks would not deal with borrowers who had no collateral and no paperwork.
Read the full explanation →Which of the following functions of Reserve Bank of India are correct? I. Banker to Banks II. Currency Issuer
- A.Only I
- B.Neither I nor II
- C.Both I and II
- D.Only II
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The Reserve Bank is banker to banks: every scheduled bank keeps an account with it, holds its cash reserve ratio there, settles payments with other banks through those accounts and can borrow from it when short of funds.
Read the full explanation →Scheduled banks in India are those banks which are included in which schedule of which Act?
- A.First Schedule of the Banking Regulation Act, 1949
- B.Second Schedule of the Reserve Bank of India Act, 1934
- C.Second Schedule of the Banking Regulation Act, 1949
- D.Seventh Schedule of the Constitution
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A bank is placed in that Schedule once it has the prescribed paid-up capital and reserves and satisfies the Reserve Bank that its affairs are not conducted in a manner harmful to depositors.
Read the full explanation →Which of the following is a payments bank NOT permitted to do?
- A.Accept demand deposits up to a prescribed ceiling
- B.Issue debit cards
- C.Grant loans and issue credit cards
- D.Remit money and make payments
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A payments bank is a differentiated bank licensed on the lines suggested by the Nachiket Mor Committee to carry payments and small savings to people the branch network had not reached.
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