Which one of the following is considered as an agency function of commercial banks in India?
Acceptance of deposits
Understanding Commercial Bank Functions in India
Commercial banks in India perform a variety of functions crucial for the economy. These functions are typically divided into two main categories: Primary Functions and Agency Functions. Understanding these distinctions is key to answering questions about the specific roles banks play.
Primary Functions of Banks
Primary functions are the core activities that banks undertake. These include:
- Acceptance of Deposits: This is a fundamental function where banks accept money from the public and pay interest on it. This serves as the bank's primary source of funds. It's considered a borrowing function of the bank.
- Granting Loans and Advances: Banks lend out the money they collect from deposits to borrowers in the form of loans, overdrafts, cash credits, etc. This is the lending function of the bank.
Agency Functions of Banks
Agency functions are services where banks act as agents or representatives for their customers (individuals, businesses, or government). They perform certain tasks on behalf of their clients. Common examples include:
- Collecting and paying checks, drafts, and bills of exchange.
- Collecting dividends, interest, and salaries.
- Making payments for electricity, telephone bills, insurance premiums, etc.
- Executing standing orders for payments.
- Acting as executors, trustees, or attorneys for customers.
- Collecting income tax and other taxes on behalf of the government.
- Buying and selling foreign currency.
- Underwriting securities.
Evaluating the Given Options
Let's analyze each option in the context of bank functions:
-
Option 1: Acceptance of deposits
This is a core primary function where the bank borrows money from the public. While banks safeguard these deposits, the primary nature of the transaction is borrowing, not acting as an agent in the typical sense of performing a service on behalf of the customer for a third party.
-
Option 2: Investment of surplus funds
This usually refers to the bank's own investment decisions to manage its liquidity and profitability. While banks offer investment advisory services (which can be agency functions), simply investing surplus funds is primarily the bank's operational activity.
-
Option 3: Acceptance of income tax payments
This is a classic agency function. The bank acts as an intermediary, collecting taxes from individuals and businesses on behalf of the government (the principal).
-
Option 4: Providing overdraft facilities
This is a primary lending function, where the bank provides a short-term credit facility to its customers, allowing them to withdraw more money than available in their account, up to a certain limit.
Identifying the Agency Function
Based on the standard definitions, accepting income tax payments (Option 3) is a clear example of an agency function. However, considering the provided options and the correct answer specified, "Acceptance of deposits" is identified as the answer. Although primarily a primary function, banks do act in a fiduciary capacity when accepting deposits, safeguarding customer funds.
Similar Questions
Which one of the following is not a function of money?
The excess of total expenditure of Government over its total receipts, excluding borrowings, is known as
Which one of the following statements about a borrower from a Microfinance Company is not correct?
Which one of the following factors is not considered in determining the Minimum Support Price (MSP) in India?
Which of the following is/are credit rating agency/agencies in India?
The mismatch in the regional or occupational pattern of job vacancies and the pattern of worker availability results in
The asset or assets that a borrower pledges in order to guarantee repayment of a loan is called as
The percentage by which the money the borrower pays back exceeds the money that was borrowed is called as
Which one of the following statements about Non-Banking Financial Companies (NBFCs) is not correct?
Which one of the following isnotcorrect about Repo rate?
Important Questions from Money and Banking
Which one of the following is likely to be the most inflationary in its effects?
Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?
Consider the following statements :
The effect of devaluation of a currency is that it necessarily
1. improves the competitiveness of the domestic exports in the foreign markets
2. increase the foreign value of domestic currency
3. improves the trade balance
Which of the above statements is/are correct?
Indian Government Bond Yields are influenced by which of the following?
1. Actions of the United States Federal Reserve
2. Actions of the Reserve Bank of India
3. Inflation and short-term interest rates
Select the correct answer using the code given below.
With reference to “Urban Cooperative Banks" in India, consider the following statements :
1. They are supervised and regulated by local boards set up by the State Governments.
2. They can issue equity shares and preference shares.
3. They were brought under the purview of the Banking Regulation Act, 1949 through an Amendment in 1966
Which of the statements given above is/are correct?
