Which one of the following is not the fund based business of commercial banks?

Fund based business of commercial banks:

• The fund based finance in banks is in different forms.
• The facilities like Overdrafts, Cash Credit A/c, Bills Finance, Demand Loans, Term Loans, etc, wherein the immediate flow of funds available to borrowers, are called funds based facility.
• The non-fund based facilities like issuance of letter of guarantee, letter of credit wherein banks get fee income and there is no immediate outflow of funds from the bank.

The types of fund based finances available at banks are as under.

1. Overdrafts:

• Overdraft means allowing the customer to draw cheques over and above the credit balance in his account. 
• Overdraft is normally allowed to Current Account Customers and in exceptional cases, SB A/c holders are also allowed to overdraw their account. 
• The high rate of interest is charged but only on the daily debit balance.
• An overdraft is repayable on demand.

2. Accepting Deposits

• Accepting deposits is one of the oldest functions of a commercial bank.
• When banks started, they charged a commission for keeping money on behalf of the public.
• With the changes in the banking industry over the years and the profitability of the business, banks now pay a small amount of interest to the depositors who keep money with them.
• However, depositors also incur administrative fees to maintain their accounts.

3. RTGS/NEFT transactions:

• The real-time gross settlement (RTGS) system is meant for large-value instantaneous fund transfers, while the national electronic funds transfer (NEFT) system is used for fund transfers of up to Rs 2 lakh.
• Currently, the RBI "levies minimum charges" on banks for transactions routed through its RTGS and NEFT system.

• A letter of credit is a document that guarantees the buyer's payment to the sellers.
• It is issued by a bank and ensures the timely and full payment to the seller.
• If the buyer is unable to make such a payment, the bank covers the full or the remaining amount on behalf of the buyer.
• So it is a credit-based activity of commercial banks.

Therefore, Issuance of Letters of Credit is not the fund based business of commercial banks.