Question 1) The functions of Commercial Banks

Banks act as intermediaries between those who have surplus money and those who need it.

To receive deposits and to advance loans are thus the two main functions of all commercial banks. In short, they borrow to lend.

They borrow in the form of deposits and lend in various forms of advances. Besides, there are other incidental functions which have developed according to the needs of society. Some of the most essential functions of commercial banks are as follows:

1) Accepting Deposits

The bank takes deposits in the form of saving, current and fixed deposits. The surplus balances collected from the firm and individuals are lent to the temporary required of commercial transactions.

2) Providing Loans

The second important function of the commercial bank is to provide loans against suitable mortgages to the public to fulfill their needs of money. Loans can be granted in the form of cash credit, demand loans, short- term loan, overdraft, discounting of bills etc. Under cash credit system, borrower is sanctioned a credit limit up to which he can borrow from the bank. The interest payable by the borrower is calculated on the amount of credit limit actually drawn. Demand loans granted by a bank are those loans which can be recalled on demand by the bank any time

3) Creating Credit

This is an unique function performed by the commercial banks. A bank has sometimes been called a factory for the manufacture of credit. In the process of acceptance of deposits and granting of loans, commercial banks are able to create credit.

4) Agency Functions

In modern time, commercial banks also act as an agent of the customer. However, banks charge fee or commission for these functions.

These functions include

(a) Collection of cheques, bills and drafts,

(b) Collection of interest, dividend etc.

(c) Payment of interest, installments of loans, insurance premium etc.

(d) Purchase and sale of securities

Question 2)

The Financial Services Act and the Islamic Financial Services Act came into force on 30 June 2013, replacing the repealed Payment System Act 2003 (PSA). The FSA/IFSA incorporates strengthened provisions to regulate payment system operators and payment instrument issuers in order to promote safe, efficient and reliable payment systems and instruments. Operators of systems that enable the transfer of funds from one banking account to another or provide payment instrument network operation will require approval from the Bank to operate such systems. As for those wishing to offer merchant acquiring services, such person is required to be registered with the Bank. These new requirements will replace the existing notification regime under the PSA. For issuers of designated payment instruments, the regulatory approach remains largely unchanged under the FSA/IFSA. The issuers of designated payment instruments are required to obtain approval from the Bank.

The FSA and IFSA contain provisions that enable BNM to effectively perform its oversight role. In general, this includes empowering the Bank to specify standards, as well as, to issue directions, for the purpose of ensuring the safety, integrity, efficiency and reliability of the payment systems and payment instruments