Two Functions of a Bank: Two functions of a bank have been explained below:

(i) Acceptance of Deposits: This is an important primary function of the commercial banks. The commercial banks accept deposits from individuals, business firms and other institutions. This is an economically useful function in the sense that it helps in the mobilization of savings for production purposes. The commercial banks accept deposits in several forms according to the requirements of different sections of the society.

(ii) Advancing Loans: Extending loans is another important primary function of the commercial bank. It gives loans in several ways. Some of the ways of giving loans have been discussed below:

(a) Ordinary Loans: Here, the commercial banks advance loans against some easily marketable tangible securities to safeguard the interest of depositors. The amount of money is, however, not given to the borrowers in cash, rather it is credited to their accounts. The borrowers can withdraw it in the manner they like.

(b) Overdraft: Overdraft facility is given to those customers who maintain a current account with the bank. Under this system banks honour cheques issued by the customers in excess of the balance in accounts. This facility is generally given to respectable and reliable customers for a short period.

(c) Discounting of Bills: In modern business, a few people can wait for the payment of the bills of exchange, until they mature. Banks discount the bills after charging the interest for the period and the collection. Practically, discounting of bills is lending for short periods.