Agency function and General Utility Functions
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The document outlines the various functions and services provided by banks, including acting as agents for payment and collection of cheques, executing standing instructions for payments, and serving as trustees for managing property transfers after death. Additionally, it discusses general utility functions such as providing safe custody for valuables, issuing letters of credit to ensure payments, and offering 24-hour ATM facilities for cash withdrawal. These services highlight the crucial role banks play in facilitating financial transactions and managing customer assets.
Agency function and General Utility Functions
- 1. Agency function: In which banks act as an agent/negotiator between the two parties. 1. Payment and Collection of Cheques Apart from transferring the money, banks also collect the cheques from other banks. For example if you are an employee and get the salary cheque from other bank and you want to deposit it in another bank, in your account. What you will do, you will go to your bank and request for the clearance. Bank will collect the cheque from you and sent it to the clearing house. It normally takes 5 working days for clearance. After the clearance, bank will pay you the whole amount. That’s how a bank collects and pays the cheques. 2. Execution of Standing Instructions : In which the instructions are executed from the payer to the payee to pay a specific amount at regular intervals. For example you got the loan in the past and now you have to pay fix amount every month. What you will do, you will make a standing order with your bank and allow it to pay that person on behalf of you. The money is however deducted from your account of course. What’s the benefit of standing instructions? You don’t have to go anywhere specially; instead of it the bank is making the payments on behalf of you. 3. Trustee or Executor: Bank also acts as a trustee or executor. How? For example a person is going to die and may wish that after his death, a part of his property will be given to another person. What he will do he request the bank to be act as a trustee. He will write his will with the beneficiaries names and percentage of property shares on it and permit the bank to transfer the property rights to that person. That’s how a bank acts as a trustee/executor. General Utility Functions: What other additional benefits banks provide to its customers, these are: 4. Safe Custody ofvaluable: Bankers do not provide security to our money only but it provides security to our valuables also by providing safe deposit vaults in the form of lockers so the customers can keep their valuables such as jewellery or other important documents there and charge a small fee for it. 5. Issuing Letter ofCredit : Suppose if the buyer is unable to make payments for any reason on the time of purchase,so in this situation bank will issue the letter of credit which guarantees that a buyer will pay the amount
- 2. to the seller after the purchase. LOC is like a promise by a bank on behalf of the buyer to pay the seller. 6. Providing ATM facilities Under this facility, customers can withdraw money 24 hours a day. Banks issue magnetic card, which we called credit/debit cards through which we can avail this opportunity.