Commercial banks accept deposits and provide loans to earn a profit. They collect idle money and lend it to borrowers. Central banks regulate the money supply and banking system of a country. They act as lenders of last resort to commercial banks and oversee functions like issuing currency, managing reserves and implementing monetary policy. Inflation is a sustained rise in the general price level over time that reduces the purchasing power of money. There are different types of inflation like demand-pull, cost-push, disinflation and creeping/moderate/running inflation depending on factors like economic growth, material costs, taxes and rate of price increases.

1. UNIT –V ENGINEARING ECONOMICS
Presented By
Vikash Barnwal
Assistant Professor

2.  A commercial bank is a financial institution which
performs the functions of accepting deposits from
the general public and giving loans for investment
with the aim of earning profit.

3. According to R.P Kent,” Bank is an institution
which collect idle money temporarily from the
public and lends to others people as per
needs.”
According to W. Hock,” Bank is such an
institution which creates money by money only”
According to P.A Samuelsons,” Bank provides
service to its client and in turns received
perquisites in different forms.

4. CHARACTERISTICS OF A COMMERCIAL BANK
 It may be an individual /firm/company
 It is profit and service oriented institution
 It deals with money
 Its accept deposit from public.
 Its acts as a connecting link between borrower and
lenders
 It provides advances/Loans/ credit to customer
 It provides payment and withdrawal facilities
 It provides agency and utility services.

5. FUNCTION OF COMMERCIAL BANK

6. PRIMARY FUNCTION
Accepting Deposits: Commercial bank accepts various types
of deposits from public especially from its clients. It includes
saving account deposits, recurring account deposits, fixed
deposits, etc. These deposits are payable after a certain time
period.
Making Advances : The commercial banks provide loans and
advances of various forms. It includes an over draft facility, cash
credit, bill discounting, etc. They also give demand and demand
and term loans to all types of clients against proper security
Credit creation : It is most significant function of the
commercial banks. While sanctioning a loan to a customer, a
bank does not provide cash to the borrower Instead it opens a
deposit account from where the borrower can withdraw. In other
words while sanctioning a loan a bank automatically creates
deposits. This is known as a credit creation from commercial
bank

7. SECONDARY FUNCTIONS OF COMMERCIAL BANKS
Agency Functions : Various agency functions of
commercial banks are
a. To collect and clear cheque, dividends and
interest warrant.
b. To make payment of rent, insurance premium,
etc.
c. To deal in foreign exchange transactions.
d. To purchase and sell securities.
e. To act as trusty, attorney, correspondent and
executor.
f. To accept tax proceeds and tax returns.

8. General Utility Functions : The general utility
functions of the commercial banks include
a. To provide safety locker facility to customers.
b. To provide money transfer facility.
c. To issue traveller's cheque.
d. To act as referees.
e. To accept various bills for payment e.g phone
bills, gas bills, water bills, etc.
f. To provide merchant banking facility.
g. To provide various cards such as credit cards,
debit cards, Smart cards, etc.

9. CENTRAL BANK
 A central bank is a financial institution given
privileged control over the production and
distribution of money and credit for a nation or a
group of nations. In modern economies, the central
bank is usually responsible for the formulation of
monetary policy and the regulation of member
banks.

10. Central bank of a country supervises control and manages all the
banking system of that country
Lender of the last resort is the essential function of central
Bank.(Hawtrey)
Primary function of central banking is a banking system in which a
central bank has either a complete or residuary monopoly in note
issue. ---(Vera Smith)

11. A Central Bank is the bank in any country to
which has been entrusted the duty of regulating
the volume of currency and credit in that
country”-Bank of International Settlement.
According to Kent ,“Central Bank may be defined
as an institution which is charged with the
responsibility of managing the expansion and
contraction of the volume of money in the interest of
general public welfare.”

12. FUNCTION OF CENTRAL BANK
There are two type of function of central bank
1. Monetary Function
2. Non-Monetary Function
Monetary Function
Bank of issue or currency function :RBI in
our country has been given sole right of
issue of currency notes except one rupees
note. This function gets such importance that
central bank has come to be known as bank
of issue.

13. Banker , Agent and advisor to the Government:
a) It helps the Goverment with short-term loans and
advance in times of difficulty .
b) GOI borrows money from RBI to finance its
budget deficit.
c) As government agent, the central bank conduct
sell and purchase of government securities also
manage national debt and foreign debt.

14. Custodian of the Cash reserve of commercial
Bank:
 All commercial bank keep part of their cash balance
as deposit with central bank.
 The central bank act as the custodian of these
reserve. It is because of this function that a CB is
called a bank of bankers

15. Lenders of Last Resort:
 The central bank lends to the commercial bank in
times of emergencies.
 The central bank assume responsibility of meeting
directly or indirectly all the reasonable demand for
funds by commercial bank in time of difficulty or
crisis.

16.  Control of money supply and credit: Central bank
can control inflationary and deflationary situation in
the economics through various control measures.
Credit control measures are also as instrument of
monetary policy.
 There are two methods of credit control measure-
 (1) Quantitative credit control
 (2) Qualitative credit control

17. NON MONETARY FUNCTION
1. Supervision of bank- The central bank supervises
and monitors the working of commercial bank. The
RBI is given power to supervise and monitor the
working of commercial bank under the banking
regulation act 1949.
2. Promotional and development function-It performs
promotion and development function also such as
RBI set up NABARD to promote agriculture and
rural development. It has also set up EXIM bank of
India to promote foreign trade.

18. 3. Data collection and publication- The central
bank collect data on various economic matters such
as foreign trade, foreign investment in India,
inflation and so on.
4. Clearance- Central bank also gives clearance
to various proposal or projects involving financial
consideration. for instance it clears proposal from
Indian firms to invest in foreign country

19. INFLATION
Inflation :it is a situation when the price of the
product is increases and value of money is
decreases with in specific period .in other word it is
defined as a sustain increase in the general level of
price for goods and services .it is measured as an
annual percentage increase . As inflation rises,
every dollar you own buys a smaller percentage of
goods and services.

20. According to prof. Crowther,” As a state in which
the value of money is falling i.e prices are rising”.
According to Coulborn ,”Inflation is too much
money chasing too few goods.”

21. TYPES OF INFLATION

22.  Demand-pull inflation – this occurs when the
economy grows quickly and starts to ‘overheat’ –
Aggregate demand (AD) will be increasing faster
than aggregate supply
 Cost-push inflation – this occurs when there is a
rise in the price of raw materials, higher taxes, e.t.c
 Disinflation – a falling rate of inflation
 Creeping inflation – low, but consistently creeping
up.
 Walking/moderate inflation – (2-10%)
 Running inflation (10-20%)