Principles of Commercial Bank
Commercial banks follow certain principles to serve the maintain some principles which are very important for banks to remain in the competition in modem days.
The bank which deals with money and money worth to earn prom is known as the commercial bank.
Commercial banks must maintain some principles which are very important for banks to remain in the competition in modem days.
9 principles that commercial banks follow;
- Principle of Liquidity
- Principle of Solvency
- Principle of Profitability
- Principle of Loan and Investment
- Principle of Saving
- Principle of services
- Principle of Secrecy
- Principle of Efficiency
- Principle of Location
Principle of Liquidity
A commercial bank offers two types of deposits
- Demand deposit which the bank has to repay on demand like a Savings Account and
- Time deposits which the bank has to repay after the expiry of a certain period
Further, on a daily basis, customers withdraw as well as deposit cash. therefore, all commercial banks have to keep a certain amount of cash in their custody to meet the cash Deposit of customers.
Liquidity means the ability of an asset to convert into cash within the short period.Paying the deposited money on demand of Customer is called liquidity in case of banking business.
Principle of Solvency
Solvency means the financial capability or stability or Sufficient in capital of the bank.
To stay in these competitive market commercial banks must have sufficient capital. If the funds are not sufficient the bank cannot run his business.
The main source of funds of the commercial bank is the deposited money by the depositors through the different types of accounts.
Depositors keep cash in the bank, especially for safety. So commercial banks must ensure the safety of deposited funds.
Principle of Profitability
The main objective of the commercial bank is to earn a profit.
To make the profit commercial bank have to invest by providing short-term loans, long -term loans ,housing loan .business loan etc.before providing loan commercial banks have to compensate a certain amount of money as liquidity.
Principle of Loan and Investment
The main source of profit of bank is granting loan to any individual or organization. Investment is a profitable and sound source of income. Commercial banks invest in the business and investment sectors.
Principle of Saving
Commercial banks collect fund by creating savings facilities. Commercial banks try to collect savings from society surplus. Commercial bank makes investment from this savings to generate profit. So, more savings, more investment and more profit.
Principle of services
The commercial bank ensures the best services to their customers. The success of a bank depends on the services provided by the bank. The customer chooses those banks that provide improved services. services play an important role to attract the new customers and to retain the existing customers in today’s competitive world.
Principle of Secrecy
Customers want to keep secret about their valuable assets and money. So banks must have to keep secret about their customers account. If commercial bank does not maintain secrecy the customer will be dissatisfied.
Principle of Efficiency
Commercial bank should operate their business efficiently. So that they can be succeed at the objective. In this competitive market there is no alternative way without efficiency in management. So commercial bank must train their employees to increase the efficiency in management.
Principle of Location
Commercial banks must have to locate their branches in the commercial area where many customers are available. The location must be safe for the customers and easy communication system must exist.
Other principles;
- The principle of goodwill.
- The principle of the economy.
- The principle of technology.
- The principle of publicity.
These are the basic principles of the commercial bank. The commercial bank must follow these principles.
Thanks for taking out your time to read this blog.I hope you all must have gained some knowledge .
Thanks again.