36

Other Banking Services

36.1 Introduction
In previous lessons, you have learnt that commercial banks play an
important role in the field of trade, commerce and industry. They
promote and mobilize savings by providing safety, confidentiality and
attractive rate of interest. Banks inspire confidence in people and help
in creating banking habits in them. This promotes saving. Savings by
individuals are made available to those who wish to invest them in
developmental activities.

The primary functions of commercial banks may be summarized as

‘borrowing’ and ‘lending’ of money. Besides these two main functions,
a commercial bank also undertakes a variety of other activities. These
activities involve services offered by banks to help the customers
(account holders). Such activities include collection of cheques, dividend,
warrants, etc. on behalf of customers as well as effecting transfer of
funds, remittances by mail and telegram. In order to attract customers
and make banking services effective, banks always make efforts to
diversify their activities. Such diversification takes place by way of
new service activities and schemes. These services offered by banks
are generally known as agency services. These are also termed as non-
banking, general utility, and miscellaneous services.

The relationship between a customer and a bank is that of a ‘Principal’

and ‘Agent’. The bank acts as an agent on behalf of the customer as
principal. When any bank acts as an agent, the services rendered by it
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are known as agency services. Under agency services, the bank

undertakes payment of subscriptions, premium on insurance, collection
of cheques, dividents, etc. It acts as a trustee, executor or administrator
and an ‘agent’ for buying and selling shares, stocks, debentures on
behalf of the customer.

General utility services refer to those non-bank services which are in

the interest of general public, i.e. the society at large. Such services are
called ‘non-banking services’ because they are not directly concerned
with the main banking activities. These services include issue of
traveller’s cheques, credit cards, drafts, circular notes, gift cheques and
safe custody of valuables, like negotiable securities, jewellery, documents
of title to goods, etc.

The range of services offered differs from bank to bank, depending

mainly on the size and type of bank, but the acceptance of deposits
from the public and lending operations form the main stay of the
banking business.

In this lesson we shall describe the supplementary functions of banks

and discuss the significance of non-banking services.

36.2 Objectives
After studying this lesson, you will be able to :–

l describe the supplementary functions performed by commercial

banks;

l classify and enumerate the non-banking services of a modern

bank; and

l discuss the significance and utility of non-banking services.

36.3 Supplementary Functions/Services of a Bank

Beside performing the two main banking functions of accepting deposits
and lending funds, a commercial bank renders a number of ancillary
services also. These services are known as supplementary functions.
They supplement the main functions of the bank. They are essentially
non-banking in nature and broadly fall under two categories:
 Other Banking Services :: 79

(i) Services rendered by bank to its own customers.

(ii) Services that are available to the public in general.

Services of bank to its customers

Some of functions in this category are enumerated below:

(a) Dealing in Bills of Exchange, Promissory Notes, Hundies and

Drafts.

(b) Issuing letter of credit, Traveller’s cheques and Circular notes.

(c) Buying, selling and dealing in bullion as well as foreign exchange

and foreign bank notes.

(d) Acting as ‘agent’ for clients, buying and selling shares and
debentures, and acting as underwriter.

(e) Collection and remittance of money and extending guarantee

against loans raised by customers.

Services to the General Public

Some of the services in this category may be enumerated as follows:–

(i) Providing lockers for safe custody of valuables.

(ii) Undertaking and executing trusts, supporting and helping

associations by way of advances for social welfare activities etc.

(iii) Performing such activities/services which are incidental or

conducive to the promotion or advancement of general well-
being of the society.

(vi) Extending loans at concessional rate of interest to socially

neglected people such as rickshaw pullers, as well as small-
traders, transport operators, talented professionals, self-employed
persons, and students.

(v) Promoting thrift and saving habits among people for their own
benefit as well as investment for the development of rural areas,
and financing trade and industrial activities.
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(vi) Banks also provide ‘Customer Service’ in different ways, like

adjusting banking hours to suit the convenience of depositors,
installing Automatic Teller Machines (ATM) to enable withdrawal
of money at any time, etc.

Intext Questions 36.1

I Write ‘True’ or ‘False’ as may be appropriate against the
following statements:

(i) Accepting deposit from customers is a major function of

modern banks.

(ii) Granting loans to trading firms is not the main function of

a bank.

(iii) Ancillary Services are also known as Supplementary

functions of a Bank.

(iv) Supplementary functions are also called non-banking

functions.

(v) Services rendered to the general public may be regarded

as the main function of banks.

(vi) Banks charge fees for the services rendered.

(vii) Banks cannot buy and sell shares and debentures on behalf
of customers.

(viii) Banks stand guarantee for loans raised by customers from

other financial institutions.

36.4 Classifying and Enumerating the Non-Banking

Services of a Modern Bank
As mentioned earlier, commercial banking functions include accepting
deposits and lending money for investment purposes and these two
functions are considered to be essential activities (main functions) of
banks. In addition, commercial banks render a number of other services,
 Other Banking Services :: 81

called non-banking services which may be divided into two categories:-

a) Services rendered by banks to their customers. These services

are functions performed by a bank as the agent of customers.
Hence, these functions are also knwon as ‘Agency functions’ of
banks.

b) Services rendered to the general public/society. These functions

are essentially non-banking in nature and in addition to the main
functions of a bank.

Let us enumerate the agency and non-banking functions

undertaken by banks on behalf of customers and for the benefit
of the general public.

(a) Services to Customers

(i) Accepting and discounting bills of exchange.

(ii) Collecting cheques, bills, salaries, pension, dividends,

interest on investments, etc. on behalf of clients.

(iii) Undertaking payment of subscriptions to clubs or other

associations, insurance premium, rents, taxes, etc

(iv) Acting as an agent of customers for buying and selling

shares and debentures, National Saving Certificates (NSCs),
and dealing in government securities.

(v) Acting as a Correspondent or authorised representative of

customers in dealing with other banks and financial
institutions.

(vi) Acting as an ‘executor’ or ‘administrator’ under power of

auttorney and carrying out the instructions of a deseased
as expressed in his will.

(vii) Acting as attorney. When the bank acts as an attorney, it

is generally authorised to receive dividends, interests on
securities, and to sign on behalf of customers on transfer
forms etc. for sale and purchase of securities.
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(viii) Arranging remittance of funds from one place to another

on behalf of customers.

(ix) Issuing letter of credit.

(x) Issuing credit cards, circular notes and traveller’s cheque

for the convenience of customers.

(xi) Giving guarantee against loans raised by customers.

(b) Services to the General Public

(i) Providing facility of lockers for the safe custody of

valuables.

(ii) Financial assistance for the establishment of trusts,

association, clubs and charitable institutions.

(iii) Performing such functions as are incidental or conducive

to the promotion and advancement of trade and commerce.

(iv) extending financial help to the weaker sections of society

for self-employment.

(v) Issue of bank drafts, gift-cheques, banker's cheques, etc.

(vi) Providing financial assistance to the physically handicaped

to engage in gainful occupation and earn their livelihood.

Intext Questions 36.2

Fill in the blanks with suitable word/s.

(1) Services rendered by a bank, other than its essential functions

are called ___________ Services.

(2) Two main function performed by a modern bank are _______

and __________ .

(3) When the bank acts as an ‘Agent’ of its customers, the services
rendered are called _______ functions.

(4) Services rendered by bank to the general public are called

 Other Banking Services :: 83

_____________ functions. These functions are ___________ in

nature.

(5) A bank acts as an ______ of the customer when it buys and

sells shares and debentures on his behalf.

(6) A bank acts as __________ or ___________ of the customer

when it deals with other banks and Financial Institutions on
behalf of the customer.

(7) Bank plays the role of ________ or __________ under power of

attorney when it carries out the instructions of a deseased as
expressed by him/her in his/her will.

(8) When the bank is authorized to receive dividends, interest on

securities, and to sign on behalf of his customer on transfer
forms for sale and purchase of securities, it is said to act as
__________ .

(9) Locker facility is given by bank for the safe custody of

_________ .

(10) Cheques printed with attractive colours and designs, which are
issued by bank to the members of public to enable them to
present a specific amount to a friend or relative on special
occasion are called __________ .

36.5 Significance and Utility of Non-banking Services

(i) Banks undertake collection of book debts, bills of exchange,
promissory notes, dividend warrants, etc. which greatly facilitate
business activities. The collection charges payable to the bank
far outweigh the advantages to the users of the service.

(ii) Foreign trade activities are also greatly facilitated by banks

undertaking issue of letter of credit, acceptance and payment of
documentary bills, and providing financial assitance by way of
pre-shipment and post-shipment credit, etc.
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(iii) Safe custody of valuable articles and documents can be arranged

by hiring lockers in banks. This facility provided by banks is
highly useful to business firm as well as individuals.

(iv) Those who wish to subscribe to shares and debentures floated

by companies can do so through designated banks. Also, banks
may be authorised to buy and sell shares, debentures and
government securities to the advantage of investors.

(v) Banks may and do undertake payment of subscription to clubs,

insurance premium, income tax and sales tax, etc. These services
save time and effort of people.

(vi) An important service provided by banks to individuals and

business firms is that of acting as a reference. Thus, suppliers
can confidentially ascertain the financial status and credit-
worthiness of customers.

(vii) Accepting bills of exchange and guaranteeing loans of clients

are two other services of banks which are availed of by business
firms and individuals to their advantage.

(viii) Remittance of money is required for business purpose as also to

meet individual needs. Banks provide remittance facilities by
way of mail transfer or telegraphic transfer of funds from one
branch office to another located elsewhere.

(ix) Transfer of money from one place to another is also possible by

means of bank draft, which is an order issued by a bank on any
branch of the same bank to pay the specified amount to the
person named in it. For transfer of money in the same city banks
also issue Bankers’ Cheque or Pay order.

(x) Banks issue traveller’s cheques mainly for the convenience of

travelling executive or individuals. These cheques can be encashed
from the branch office of the bank at the place of visit, and also
used to pay for airlines booking, settling hotel bills, etc.

(xi) Credit cards issued by banks serve the purpose of availing instant
credit facility by the holder for purchase of goods and availing
services. The card is made of stiff plastic and hence popularly
 Other Banking Services :: 85

known as ‘plastic money’. These cards are issued to persons

having income above a certain limit, and include the name of the
issuing bank and the card-holder along with the latter’s specimen
signature.

Intext Questions 36.3

A Match the following terms with their meaning and characteristics.

Column- I Column -II

(a) Bank acting as (i) are issued mainly for the convenience
a ‘Referee’ of travelling public.

(b) Credit Card (ii) is an instrument which provides

instant credit facility to its holder to
buy of goods and services at the
merchant’s outlet.

(c) Safe-custody of (iii) is an order issued by a bank to its

valuables branch to pay a certain sum of
money to the person named therein.

(d) Bank acting as agent (iv) means a locker facility provided by

bank to the public to keep the
important documents and articles.
(e) Traveller’s cheque (v) means that the Bank reports on the
financial Status of a person/customer.

(f) Bank draft (vi) is a service rendered by bank to

purchase and sale shares and
debentures on behalf of its customers.

36.6 What You Have Learnt

Commercial Banks promote saving habit among people and inspire
confidence in the general public. Banks performa variety of functions.
Apart from the two main functions of mobilising deposits and ‘lending’,
a bank renders various services to the business community and general
public. These services offered by bank to customers are generally known
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as agency services. These are termed ‘non-banking’ services, when

rendered to the general public.

l Agency Services include payment of subscription, insurance

premium, collection of cheques and dividends, buying and selling
shares and debentures on behalf of customers.

l Non-banking services are rendered in the interest of general

public. Some of these services are: issue of Traveller’s cheques,
gift-cheques, Bank drafts, circular notes and safe custody of
valuable articles and documents in bank lockers, etc.

Commercial banks have proved to be very useful to the society in

general and to trade and industry in particular.

The usefulness of the service functions of banks to trade and industry

and their significance to the general public are wide-ranging in nature
and variety. Banks offer attractive rates of interest on savings of
customers and thus create the habit of thrift and savings in many
people. They are very useful in facilitating foreign trade activities.
Besides acting as ‘agent’, referee, trustee, ‘executor’ and administrator
banks render numerous other services like providing locker facilities,
payment of taxes, insurance premium, issuing drafts, arranging
remittances, etc..

36.7 Terminal Exercise

1. What type of services do banks provide as ‘Agent’ of customers?
Mention any five services.

2. Does a bank provide services other than accepting deposits and

lending money ?

3. Explain in what ways a bank may be helpful to (a) a retired

pensioner, (b) a traveller, and (c) a house-wife

4. What is the meaning of :–

(i) Non-banking services

(ii) Agency services

 Other Banking Services :: 87

5. Explain how commercial banks serve the business community in

our country.

6. Ennumerate various services rendered by a modern bank to the

business community and general public.

Practical Activity
Visit a bank and enquire about the types of deposit accounts operated
there, see the locker facility available, observe the procedure of
withdrawal by cheque and how the bank issues Bank-draft/Gift cheque
etc.

36.8 Answers to Intext Questions

36.1 True (i), (iii), (iv), (vi), (viii)

False (ii), (v), (vii)

36.2 1. Supplementary

2. Borrowing and Lending

3. Agency

4. Miscellaneous, Non-banking

5. Agent

6. Correspondent, Authorized representative

7. Executor, Administrator

8. Attorney

9. Valuables/Important documents

10. Gift Cheques

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36.3 (a) (v)

(b) (ii)

(c) (iv)

(d) (vi)

(e) (i)

(f) (iii)