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(ii) Fixed Deposits: These are the deposits which are deposited for a definite period of time. This
period is generally not less than one year and, therefore, these are called as long term deposits.
These deposits cannot be withdrawn before the expiry of the stipulated time and, therefore, these
are also called as time deposits.
These deposits generally carry a higher rate of interest because banks can use these deposits for a
definite time without having the fear of being withdrawn.
(iii) Saving Deposits: In such deposits, money up to a certain limit can be deposited and
withdrawn once or twice in a week. On such deposits, the rate of interest is very less. As is
evident from the name of such deposits their main objective is to mobilise small savings in the
form of deposits. These deposits are generally done by salaried people and the people who have
fixed and less income.
2. Giving Loans: The second important function of Commercial Banks is to advance loans to its
customers. Banks charge interest from the borrowers and this is the main source of their income.
Banks advance loans not only on the basis of the deposits of the public rather they also advance
loans on the basis of depositing the money in the accounts of borrowers. In other words, they
create loans out of deposits and deposits out of loans. This is called as credit creation by
Commercial Banks.
Modern banks give mostly secured loans for productive purposes. In other words, at the time of
advancing loans, they demand proper security or collateral. Generally, the value of security or
collateral is equal to the amount of loan. This is done mainly with a view to recover the loan
money by selling the security in the event of non-refund of the loan. At times, banks give loan on
the basis of personal security also. Therefore, such loans are called unsecured loan. Banks
generally give following types of loans and advances:
(i) Cash Credit: In this type of credit scheme, banks advance loans to its customers on the basis
of bonds, inventories and other approved securities. Under this scheme, banks enter into an
agreement with its customers to which money can be withdrawn many times during a year.
Under this set lip banks open accounts of their customers and deposit the loan money. With this
type of loan, credit is created.
(ii) Demand Loans: These are such loans that can be recalled on demand by the banks. The entire
loan amount is paid in lump sum by crediting it to the loan account of the borrower, and thus
entire loan becomes chargeable to interest with immediate effect.
(iii) Short-term Loan: These loans may be given as personal loans, loans to finance working
capital or as priority sector advances. These are made against some security and entire loan
amount is transferred to the loan account of the borrower.
3. Over-Draft:
Banks advance loans to its customer’s up to a certain amount through over-drafts, if there are no
deposits in the current account. For this, banks demand a security from the customers and charge
very high rate of interest.
4. Discounting of Bills of Exchange: