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Besides agency services, commercial banks perform many general utility services also. Banks render these services not only to their customers but also to the general public. The following are some of the important general utility services.
General utility services of Commercial Banks
1. RBI allows certain branches to undertake foreign exchange transactions. They are called authorized dealers. The bank purchases and sells foreign currency at the rate prescribed by RBI.
2. The bank enables foreign trade by issuing letter of credit on behalf of the importer. It is a letter of guarantee and that enables the importer to purchase goods.
Letter of credit has been in existence for many years. It is in fact the most important single document in the international trade. Simply stated, a letter of credit is an undertaking by a banker in the importer’s country to pay or to arrange to pay specified merchandise, provided that the exporter satisfies certain stipulated conditions.
Through the instrument of letter of credit, the promise to pay usually made by the overseas buyer is substituted by the promise to pay by the banker. It is only this feature of the letter of credit, which gives the exporter greater security.
A letter of credit is a written undertaking given by a bank to the seller of the goods at the request of the importer of the goods, to meet the bill of exchange drawn by the seller in accordance with the terms of the undertaking providing the documents of title to goods prescribed by the buyer are tendered on presentment of the bill of exchange for payment.
3. In the case of foreign trade or domestic trade, bankers accept bills on behalf of customers and make payment on the due date on these bills. Later on, they collect from the customers.
4. In order to promote capital market and to encourage issue of shares both in the primary market and secondary market, the banker acts as an underwriter for certain companies. This will enable the companies to sell their shares. Banks underwrite the issue of shares and debentures of joint stock companies. For this service, banks receive commission from the companies. This enables companies to get adequate capital for their business.
5. The bank provides safe custody of valuables by providing safe deposit vaults. The customers can keep their valuables such as jewels, silver ornaments, important documents and share and debenture certificates safely. However, the bank will not give any guarantee for the safety of valuables. The relationship here is only that of a tenant and owner. And the banker as owner, collects rent for the safe deposit vault. Here the banker acts only as the custodian of the valuables belonging to the customers. These lockers are made available on half yearly or annual rental basis.
6. The income tax assessees can pay their income tax through banks notified by RBI.
7. In order to know the credit worthiness of certain customers, the banks may act as referee. Any third party can approach the bank to know about the genuineness of customers.
8. In view of the development of technology, the bank is in a better position to provide various data which are in general interest.
9. The banks help companies to mobilize funds in foreign market through the sale of global deposit receipt.
10. Banks undertake factoring and leasing finance by which trade bills of customers are given finance.
11. Issuing Travelers’ Cheques: Banks issue travellers’ cheques to help their customers by avoiding carrying money while traveling within India and abroad. With this facility, people need not carry cash with them during their travel and travel, in and out of India without the fear of theft or loss of money.
12. Acting as Referees: Banks are also acting as referees and provide information as to the financial standing, business reputation and respectability of their customers on enquiries made by third parties. Banks provide this service only on the acceptance of the customers. This function helps businessmen to obtain prompt and accurate information as to financial standing of the people with whom they are dealing.
13. Giving Trade Information: Commercial banks collect trade information from different places within the country and also from foreign countries and inform customers about the feasibility of entering into such trade.
14. Providing ATM Facility: “ATM” means “Automating Teller Machine”. It is also known as “Any Time Money”. Now-a-days, almost all the banks have ATM facility. Even small banks, which do not have their own ATM entering into tie up with big bankers and provide ATM facility to their customers. Under this facility, customer can withdraw money 24 hours a day. Deposits to accounts can also be made with this facility. Banks issue magnetic card for carrying any banking operation with this machine.
15. Issuing Credit Cards: Banks issue credit cards to their customers to enable them to purchase goods and obtain services on credit basis from certain specified retail and service establishments up to a limit and also to withdraw cash up to a specified limit through ATM, 24 hours a day including Sunday. Banks pay amount for the purchase made by the customers by using credit cards. Before the expiry of the period fixed by the banks for payment by customers for the credit purchases made by them say 30 days, customers should repay the money. Banks normally collect a nominal service charge on the amount of each credit transaction.
If the customer failed to pay the money before the specified period, banker will charge a certain percentage of interest as agreed between the banker and customer. Some banks allow the customers to repay the credit availed in installments also. As per this arrangement, customer need not pay the full amount of credit purchase in a lump sum. They can spread the amount over a fixed period say 20 months and pay in installments also. However, until the amount is fully paid, customer has to pay interest on the balance of amount unpaid.
Besides, customers can also draw cash from ATM up to a certain limit prescribed by the Bank, which can be either repaid in lump sum or in a particular number of installments. Banks charge a prescribed rate of interest on the cash drawn by the customers. Customers are given with secret code numbers to avail this facility by means of ATM.
Secret code number will be informed to the cardholder very secretly and he/she also will be asked not to disclose the.same to others. In other words, the cardholder has to keep it secretly. This is to prevent the unauthorized use of card by anybody. So it is the duty of the customers not to disclose the secret code numbers to anybody. Master Card, Visa Card, BOB Card are some examples of credit card.
16. Issuing Gift Cheques: Some banks issue cheques of various denominations to be used on auspicious occasions. These cheques are known as gift cheques.
17. Advising on Financial Matters: Commercial banks also advice their customers on financial matters as to expansion, modernization, diversification etc.
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