What is the role of commercial banks in the economy

what is the role of commercial banks in the economy

Role Of Commercial Banks In Economic Development

Aug 05,  · Role of commercial bank / function of commercial bank in developing economy. Capital formation. Capital formation is the most important determinant of economic development and banks promote capital formation. Commercial banks are one of the three primary agents which help circulating funds in the market. Commercial banks provide loans and corporate bonds to the households, new start ups and small medium enterprises to run their businesses. It also obtains money from the households and invests that money to other profitable investments.

They play a decisive role in the development of the industry and trade. They are what degree is a 5 wood not only as econnomy custodian of the wealth of the country but also as resources of the thw, which are necessary for the economic development of a nation. Role of Commercial Banks in economic development of country. We shall now discuss the contributions made by the banks for the economic development of the nation. Banks play an important role in capital formation, which is essential for the economic development of a country.

They mobilize the small savings of the people scattered over a wide area through their network of branches all over the country and make it available for productive purposes. Now-a-days, banks offer very attractive schemes to attract the people to save their money with them and bring the savings mobilized to the organized money market. If the banks do not perform this function, savings either remains idle or used in creating assets, which are low in scale of plan priorities.

Banks create credit for the purpose of providing more funds for development projects. Credit creation leads to increased production, employment, sales and prices and thereby they cause faster economic development. Banks invest the savings mobilized by them for productive purposes. Capital formation is not the only function of commercial banks. Pooled savings should be distributed to various sectors of the economy with a view to increase the productivity of the nation. Then only it can be said to have performed an important role in the economic development of the nation.

Commercial Banks aid the economic development of the nation through the capital formed by them. In India, loan lending operation of commercial banks subject to the control of the RBI. So our banks cannot lend loan, as they like. Savings pooled by banks ban,s utilized to a greater extent for development purposes of various regions o the country. It ensures fuller utilization rol resources. The banks help in the development of the right type of industries by extending loan to right type of persons.

In this way, they help not only for industrialization of the country but also for the economic development of the country. They grant loans and advances to manufacturers whose ia are in great demand. How to get mifepristone and misoprostol over the counter manufacturers in commefcial increase their products by introducing new methods of production and assist in raising the national income of the country.

Economists are of the view that by changing the bank rates, changes can be made in the money supply of a country. In our country, the RBI regulates the rate of interest to be paid by banks for the deposits accepted by them and also the rate of interest to dhat charged by them on the loans granted by them.

Commercial banks transform the loan to be repaid after a certain period into cash, which can be immediately used for business activities. Manufacturers and wholesale traders cannot increase their sales without selling goods on credit basis. But credit sales may lead to locking up of capital. As a result, production may also be reduced. As banks are lending money by discounting bills of exchangebusiness concerns are able to carryout the economic activities without any interruption.

Government is acting as the promoter of industries in underdeveloped countries for which finance is bankd for it. Banks provide long-term credit to Government by investing their funds in Government securities and short-term cmomercial by purchasing Treasury Bills. After the nationalization of big banks, banking industry has grown to a great extent. Banks are also improving people for occupying various posts in their office. In recent days, banks have assumed the role of developing entrepreneurship particularly in developing countries like Rlle.

Developing of entrepreneurship is te complex process. Bankw includes the formation of project ideas, identification of specific projects suitable to local conditions, inducing new entrepreneurs to take up these well-formulated projects and provision of counseling services like technical and managerial guidance. Thus commercial banks help for bankx development of entrepreneurship in the country. Bank Management. Table of Contents Role of Commercial banks in economic development of a country 1.

Capital Formation 2. Creation of Credit 3. Channelizing the Funds to Productive Investment 4. Fuller Utilization of Resources 5. Encouraging Right Type of Industries 6. Bank Rate Policy 7. Bank Monetize Debt 8. Finance to Government 9. Bankers bank Employers Banks are Entrepreneurs Infographic on Role of Commercial banks in economic development of a country. Related Posts. Tags: commercial banks. One Response Gabosky.

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V. FUNCTIONS OF COMMERCIAL BANKS The commercial banks serve as the king pin of the financial system of the country. They render many valuable services. Commercial banks provide banking services to businesses and consumers through a network of branches. These banks are in business to make a.

Posted by Md. Harun Ar Rashid Dec 11, Classification 0. The banking sector has one of the pillars of economic prosperity for many centuries. In fact, history provides some basic information about how the banks in our newly acquired colonies financed imperialist enterprises.

Overtime banks have formed an important part in providing an avenue for both savings and investment. Land, labor, capital, and entrepreneurs are the primary economic resources available for business. However, to use these resources a business needs money to purchase land, hire labor, pay for capital goods, and pay for individuals with skilled people. Your email address will not be published.

Save my name, email, and website in this browser for the next time I comment. Role of Commercial Banks in Economic Development: The Detail Role of Commercial Banks in Economic Development is given below: Trade Development: Commercial banks provide capital, technical assistance, and other facilities to traders as per their need which leads to growth in trade.

Agriculture Development: Commercial banks finance the most crucial sectors of the developing economy, such as agriculture, short, medium, and long-term loans for seeds and fertilizers, tube wells installation, warehouse construction, purchase of tractors and threshers. Industrial Development: Countries that have focused on the industrial sectors have developed rapidly. South Korea, Malaysia, Taiwan, Hong Kong, and Indonesia have recently developed their industrial sectors with the help of commercial banks.

Capital Formation: Commercial banks help to increase the rate of capital formation in a country. Capital formation means increasing the number of production units, technologies, plants, and equipment. They fund projects responsible for increasing the rate of capital formation. Development of Foreign Trade: Commercial banks assist businessmen in conducting business in two different countries.

Banks also provide foreign exchange. Transfer to money: Commercial banks make it possible to transfer funds from one place to another which leads to the growth of trade. More production: A good banking system ensures greater productivity in all areas of the economy.

It increases the productive capacity of the economy by strengthening the capital structure and the division of labor. Harun Ar Rashid. Studying at the University of Rajshahi. Previous Microprocessor is a programmable device How does Microprocessor work?

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