Theme: Passive and active operations of commercial banks

Accepting deposits

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Savings deposits – The commercial bank accepts small deposits, from households or persons, in order to encourage savings in the economy.
Time deposits – The bank accepts deposits for a fixed time and carries a higher rate of interest as compared to savings deposits.
Current deposits – These accounts do not offer any interest. Further, most current accounts offer overdrafts up to a pre-specified limit. The bank, therefore, undertakes the obligation of paying all cheques against deposits subject to the availability of sufficient funds in the account.
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Granting loans and advances

Granting loans and advances

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An advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally granted for a short period of time. Further the purpose of granting advances is to meet the day to day requirements of business.

Infographic Style

Infographic Style

In most countries, commercial banks are heavily regulated and this is typically done by a country's central bank. They will impose a number of conditions on the banks that they regulate such as keeping bank reserves and to maintain minimum capital requirements.

Bank regulation

Passive operations of commercial banks

Passive operations of commercial banks

The role of passive operations in the activities of the commercial banks is to form their own and borrowed resources. These are operations to mobilize funds, namely: attracting loans, deposits from other banks, emissions of their own Central Bank. The funds attracted from such transactions are the basis of the financial institutions.