Commercial banks perform several important functions in the economy. They act as financial intermediaries between individuals or firms with excess funds and those who need funds. People with excess funds can keep their money as deposits in banks, while those who need funds can borrow through home loans, crop loans, etc.

The primary function of commercial banks is accepting deposits from the public. People prefer to keep money in banks because banks offer interest on deposits and provide safety. It is safer to keep excess funds in a bank rather than at home. Additionally, having a demand deposit makes transactions more convenient and safer through cheques and debit cards.

Another key function is lending. Banks lend out part of the deposited funds to borrowers at interest. The interest rate charged from borrowers is higher than the rate paid to depositors. This difference, called the 'spread', is the profit appropriated by the bank. Banks must balance lending to ensure sufficient funds are available to repay depositors on demand.

Commercial banks also perform money creation. When banks lend to any person, a new deposit is opened in that person's name. This increases the money supply in the economy. Banks can lend because they do not expect all depositors to withdraw their funds at the same time.

Thus, commercial banks are an essential part of the money-creating system of the economy.