There are two primary functions of commercial banks i.e. (1) receiving deposits (2) advancing loans. All the other functions are well connected with these primary functions. Banks collect fund from different sources to make their profitable use. The main sources of bank funds are as under:
(Sources of Bank Funds)
A commercial bank manages its funds through following sources.
Bank’s Own Capital:
At the time of formation of the bank, capital is collected by selling its shares to the general public. It is also known as share capital or paid-up capital of the bank. The people who purchase shares of the bank are known as shareholders/owners of the bank.
Receiving deposits form the customers or account holders is the second important source of bank funds. Normally the banks have three kinds of accounts i.e. saving account, fixed deposit account and current account and the customers deposit their surplus money in these bank accounts.
Loan form Other Bank:
Banks get loans and grants from other banks and financial institutions at the time of need. Central bank is a major source of these loans.
It is a part of profit yearly earned by the bank. Normally, the profit is divided into two parts i.e. (1) dividend (2) Reserve. Dividend is divided among the shareholders and the bank with view to meet any deficiency in the future withholds other part. The accumulated reserve fund becomes a huge amount and a good source of further investment.
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