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Role of commercial banks in economic development of India

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skpvilayil
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Published on Nov 10, 2013

Role of commercial banks in economic development of India

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Published in: Business, Economy & Finance
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Role of commercial banks in economic development of India

1.1. ROLE OF COMMERCIAL BANK IN ECONOMIC DEVELOPMENT OF INDAIA
By: Shameer Abdul Shukoor. K.P Financial stability is one of the major
factors for accelerating the rapid development of country, and there for
commercial banks are playing an important and active role in the
economic development of a country. If the banking system in a country
is effective, efficient and disciplined; we can ensure the economic
prosperity which is the base stone to brings a rapid growth in the various
sectors of the economy. In an emerging country like India, our economic
development depends more on real factors like the industrial
development, modernization of agriculture, organization of internal trade

and expansion of foreign trade, especially exports. Land, Labor and

entrepreneurs are the basic economic resources available with us.
However, to make the use of these resources, a business requires
finance to purchase of the land, hire labor, pay for capital goods and pay
for individuals with specialized skills. Here the commercial banks are
playing an active role by accumulating the temporarily idle savings of
the general public and make them available for others for investment.
Detail role of commercial banks in economic development of our country
is given below:
2. A. Banks promote Capital Formation One of the most important
problems of a developing economy is that of capital formation. There is
a good deal of difference between hoarding and saving and the people
in the countryside have to be made to realize the difference. Banks are
playing an active role over here to educate the rural people and thus
mobilize their temporarily idle savings. They are accepting deposits from
general public and businesses and these deposits are made available for
others for investment and thereby make use of them for productive
purpose of the country. The banks are therefore, not only the
storehouses of countries wealth but also provide financial resources
necessary for economic development

3.. B. Promotion of Trade and Industry Commercial banks are playing an

active role in development of trade and industrial sector which is
resulting in the rapid economic development. The commercial banks
Catch me @ : skpvilayil@gmail.com
4.2. ROLE OF COMMERCIAL BANK IN ECONOMIC DEVELOPMENT OF INDAIA
By: Shameer Abdul Shukoor. K.P provide capital, technical assistance and
other facilities to businessmen according to their need. They finance the
projects to move forward with modernization to improve the efficiency
by means increase in number of production units, technology, plant and
machinery.
5. C. Development of Agriculture Sector In India, the agriculture sector and
its allied activities were the largest contributor to the national income.
Commercial banks are helping this most important sector by providing
short, medium and long-term loans for the purchase of seeds and
fertilizer, installation of tube wells, construction of warehouses, purchase
of tractor etc. The provision of credit to agriculture sector has greatly
helped in rising agricultural productivity and income of the people.
6. D. Development of Foreign Trade Commercial banks help the traders of
two different countries to undertake business. The use of check, bank
draft, bill of exchange, credit card letter of credit has revolutionized both
national and international trade. Normally the process of a Letter of

credit is issued by the importers bank to the exporters to ensure the

payment. The banks are also arranging foreign exchange which boosted
the fund transfer between two countries.
7. E. Balanced development of different region In a country like India
where we have an urban-rural divide; The commercial banks are playing
an important role in ensuring balanced development of these different
region of our country. They helped to transfer the surplus fund from
developed region to less developed regions. Banks helped to increase
the mobility of capital in various ways like starting their operations in
rural areas, and there for the trades and industries in less developed
region are able to get fund for their development and in turn, it
increased the investment, trade and production in the country
8.. F. Influencing economic Activity Catch me @ : skpvilayil@gmail.com
9.3. ROLE OF COMMERCIAL BANK IN ECONOMIC DEVELOPMENT OF INDAIA
By: Shameer Abdul Shukoor. K.P The commercial banks are influencing
the economic activity of our country through its influence on, i.
Availability of credit ii. Rate of interest. The banks are able to control the
money circulation in the market when ever needed. By credit creation or
decreasing/ decreasing the interest rare they can control the money
circulation which directly affects the economic development. A low rate
of inters increase the investment while the high interest rate will attract

the savings and investment in the bank. The credit creation activity can
raise the aggregate demand which increase more production in the
economy. G. Implementation of Monetary Policy Central bank of our
country in support with the commercial banks, make effort for the
success and objectives of monetary policy. Central bank of country
control and regulate the volume of credit which helps in bringing the
price stability and promote economic growth within the shortest possible
period of time. H. Promoting Export. In order to promote the export,
commercial banks has established export promotion cell. They provide
information about general trade and economic condition both inside and
outside of the country to its customers. The banks are therefore making
positive contribution in the economic development. Catch me @ :
skpvilayil@gmail.com
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