Functions of Bank- Relationships, Norms & Others

The primary role of the bank is to keep people’s money safe and to make loans to those who need them. People deposit money with banks, which the banks then use to provide loans to other people. Aside from these primary duties, banks also conduct a variety of other activities. Increased competition in the banking industry, technical developments, and a variety of other factors all led to the rise of products and services. As a professional banker you will be expected to know the functions of banks and other basics. So in this blog you will learn about Functions of bank- Relationships, Norms & Others. You can download Functions of Bank- Relationships, Norms & Others free e-book.


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Functions of Bank

The primary role of the bank is to keep people’s money safe and to make loans to those who need them. People deposit money with banks, which the banks then use to provide loans to other people. Aside from these primary duties, banks also conduct a variety of other activities. Increased competition in the banking industry, technical developments, and a variety of other factors all led to the rise of products and services.

The concept of money’s temporal value is well-known among the public at large; they are now aware of their money’s future potential. Individuals today have a variety of alternative investment possibilities in addition to having a savings account in the name of investing. This is one of the main reasons why banks can no longer rely on client deposits and must look for new financial services to benefit from.

The following are the various topics covered in the module on the Functions of Banks. These have been discussed one by one below-

Banker Customer Relationship

As a result, creating a client account connection is critical. Contractual agreements govern account interactions. Banking is a trust-based relationship. There are numerous forms of relationships between the bank and the consumer. The type of transaction has an impact on the relationship between a banker and a customer. As a result, the relationship is based on a contract with clear terms and conditions. Both the banker and the consumer have certain rights and responsibilities as a result of these interactions. The bank’s human touch with its customers, on the other hand, is ongoing. Certain banks even claim to have ties with their clients that span generations.

The lender-consumer connection is extremely important. The relationship between a bank and its customers may be classified into two categories: general and special relationships.

General Relationship

The bank’s business, according to Section 5(b) of the Banking Regulation Act, is to accept deposits for lending. As a result, the relationship produced by these two basic actions is referred to as the General Relationship.

  • Debtor and Creditor
  • Creditor and Debtor

Special Relationship

Banks also participate in other activities outlined in Section 6 of the Banking Regulation Act in addition to these two. In addition to opening a deposit/loan account, banks offer a variety of services, which broadens and complicates the connection. The banker may serve as a bailee, agent, lessor, custodian, trustee, principal, and so on, depending on the nature of the transaction and the services offered.

  • Advisor and Client (Bank-Advisor and Customer-Client)
  • Trustee and Beneficiary( Bank as a trustee and customer as a beneficiary)
  • Mortgagor and Mortgagee (Bank-Mortgagee and Customer-Mortgagor)
  • Bailee and Bailor (Bank-Bailee and Customer-Bailor)
  • Agent and Principal (Bank-Agent and Customer-Principal)
  • Lessor and Lessee (Bank-Lessor and Customer-Lessee)
  • Pledger and Pledgee (Bank-Pledgee or Pawnee and Customer-Pledger or Pawnor)
  • Hypothecator and Hypothecatee (Bank-Hypothecatee and Customer-Hypothecator)
  • Indemnity holder and Indemnifier (Bank-Indemnity Holder and Customer-Indemnifier)
  • As a Guarantor
  • As a Custodian


  1. KYC criteria were implemented to ensure combating terrorist financing (CTF), anti-money laundering (AML), and risk management.
  2. Customer Identification Procedures, Risk Management, Customer Acceptance Policy, and Transaction Monitoring are the four important features that banks must incorporate into their KYC policies.
  3. Banks are required to collect the client’s identity and address at the moment the consumer opens a bank account.
  4. Consumers are divided into three groups: high-risk customers, medium-risk customers, and low-risk customers.
  5. Pensioners, government departments, salaried individuals, and no-frills accounts are examples of low-risk consumers.
  6. High-risk consumers include HNWIs, trusts, NGOs, politically exposed individuals, and so on.
  7. Banks should examine their clients’ risk profiles at least once every six months.
  8. Customer identifying data and entire KYC exercises should be updated regularly as follows:
  • Low Risk – Every 10 years
  • Medium Risk- Every 8 years
  • High Risk- Every 2 years

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Q. What is Agricultural Finance?

A. A farmer’s credit requirements are addressed by two types of agricultural advances: direct and indirect financing. Direct finance is classified into two types: short-term loans and medium- to long-term loans. Farmers can get direct agricultural finance for short-term demands like crop production as well as medium- and long-term needs like land expansion and water resource enhancement.

Q. What is a Cheque?

A. A cheque is a bill of exchange that is always payable on demand and always has a banker as the drawee. It also incorporates truncated and electronic cheques.

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