this project will serve as a reference to 12th class students for doing their economics project.

1. Economics
Project – 2
Submitted by:
A. Lauhityaa

2. PROJECT REPORT ON
COMMERCIAL BANKS AND IT’S FUNCTIONS
UNDER THE GUIDANCE OF
Mrs. Lalitha
SUBMITTED BY
A. LAUHITYAA

3. Certificate
This is to certify that the project titled “ COMMERCIAL BANKS AND IT’S
FUNCTIONS” is a work done by A. LAUHITYAA of grade XII - C in
Economics during the academic year 2023 - 2024 and has been carried out
under direct supervision and guidelines of Mrs. Lalitha
Signature of the External Examiner Signature of the Teacher
Signature of the Principal

4. Acknowledgement
I would like to express my heartfelt gratitude and appreciation to all those who have
contributed to the successful completion of this Economics Project titled
“COMMERCIAL BANKS AND IT’S FUNCTIONS” for the academic year 2023-2024.
First and foremost, I would like to extend my deepest thanks to my mentor Mrs. Lalitha,
whose unwavering guidance, support, and invaluable insights were instrumental in shaping
this project. Your mentorship has been a source of inspiration, and I am profoundly
grateful for your time and expertise.
I am indebted to the faculty of AKLAVYA INTERNATIONAL SCHOOL for providing
me with the knowledge and resources necessary to undertake this project. Your
commitment in my academic journey.
My friends and family deserve a special mention for their unwavering support and
encouragement throughout this endeavour. Your belief in me has been my driving force,
and I am grateful for your patience and encouragement.
NAME:
ROLL NO:
UNIQUE ID:

5. Index
S.no Topic Pg.no
1
2
3
4
5
6
7
8
Introduction
Statement of Purpose
Concept of Bank
Introduction to Commercial
Banks
Functions of Commercial Banks
Difference between different
banks
Types of Bank Credits explained
What is Credit Creation by
Commercial Banks
1-2
3-4
5-7
8-11
12-16
17-22
23-29
30-35

6. S.no Topic Pg.no
9
10
11
12
13
Limitations of Credit Creation
Challenges faced by Commercial
Banks
Role of Commercial Banks in our
Economy
Conclusion
Bibliography
36-39
40-44
45-50
51-52
53

7. Introduction
In the vast landscape of money matters, we're taking a
closer look at a specific kind of bank – commercial
banks. This project is all about understanding what these
banks are, how they work, and why they matter in our
economic story.
Why Focus on Commercial Banks: Our spotlight is on
commercial banks, the ones you see around your
neighbourhood. We want to unravel the mystery behind
their operations and see how they contribute to keeping
our money world in motion.
Diving into Commercial Banks: Instead of looking at
all kinds of banks, we're zooming in on commercial
banks. They're not just places to store money; they do a
bunch of interesting things every day. From accepting
your piggy bank savings to using fancy tech, we'll
explore what makes commercial banks tick.
1

8. Getting to Know Their Role: Commercial banks aren't
just about money – they play a big role in making our
country's economy grow. We'll chat about how they help
gather money for big projects, offer loans to create
opportunities, and basically, make our country move
forward.
Facing Challenges Together: Of course, like everything,
commercial banks have their challenges. We'll talk about
common problems they face, like bad loans and
competition. Plus, we'll peek into the rules and laws that
keep everything fair and square.
This project is your guide to understanding commercial
banks – the ones you see in your town. By the end, you'll
have a clearer picture of how these banks work and why
they're so important in making sure our money system
runs smoothly. Let's jump into the world of commercial
banks and discover the interesting things that keep our
money going strong.
2

9. Statement of Purpose
Our project sets out to make the world of commercial
banks more understandable for everyone. We want to
explore what commercial banks are, how they work, and
why they matter in our lives.
Our main goal is to dig into the everyday operations of
commercial banks, going beyond just storing money. We
aim to highlight the important roles they play, from
taking our deposits to using technology and helping
create opportunities through loans.
We also want to show how commercial banks contribute
to making our country's economy grow. By looking at
their part in forming capital and making credit available,
we aim to paint a picture of their impact on our economic
progress.
Along the way, we'll talk about the challenges
commercial banks face, like dealing with bad loans and
competition. We'll also touch on the rules and regulations
that keep everything in check.
3

10. In a nutshell, our project is about making commercial
banks less mysterious. We hope that by the end, everyone
will have a clearer picture of why these banks are so
important in keeping our money world running smoothly.
Our purpose is not just to understand commercial banks
for our project but to gain knowledge that helps us make
smarter financial choices in the future.
4

11. Concept of bank
A bank is like a financial storehouse where we put our
money and take care of our financial needs. It's a place
that helps us manage our money in different ways like:
Safekeeping our Money: One main thing banks do is
keep our money safe. When we have extra money, we can
deposit it in the bank. They make sure it's secure, and
sometimes, they even give us a bit more money called
interest as a thanks.
5

12. Making Transactions Easy: Banks make it easy for us
to buy things and pay others. Instead of carrying cash, we
can use tools like checks or debit cards that the bank
provides. It's safer and more convenient.
Borrowing When Needed: Sometimes we need more
money than we have. Banks can help by giving us a loan.
Whether it's for a house, starting a business, or education,
banks can lend us money. Of course, we must pay it back,
but it allows us to do things even when we don't have all
the money right away.
Growing our Money: Banks also use our money to
invest. It's like planting a seed that grows into a tree with
more fruits. This helps our money grow over time, and
we might get a little extra in return.
Rules to Keep Things Fair: Banks follow rules to keep
everything fair and safe. There are regulations in place to
make sure our money is protected, even if something
unexpected happens.
6

13. In simple terms, a bank is a place that looks after our
money, helps us with transactions, lends us money when
needed, and even helps our money grow. Understanding
the basics of how a bank works can empower us to make
smart decisions with our money.
7

14. Introduction to Commercial
Banks
A commercial bank is like the heartbeat of a country's
financial system. It's not just a physical place; it's a
crucial institution woven into the fabric of our daily lives.
Here's a closer look at what makes a bank a significant
part of our economic landscape:
A Trusted Guardian: A commercial bank is a trusted
guardian of our hard-earned money. When we entrust our
savings to a bank, there's a sense of security. It's a place
where we can safely store our money, knowing that it's
protected by layers of security and regulations.
8

15. A Source of Stability: Commercial Banks contribute to
the stability of our financial world. By offering a secure
environment for deposits, banks play a pivotal role in
maintaining confidence in the economy. This stability is
essential for businesses to flourish and individuals to plan
for their future.
The Lender and Borrower Connection: Banks act as
the bridge between those who have extra money and
those who need it. When you're ready to buy a home,
start a business, or pursue education, the bank steps in as
a financial partner, providing the necessary funds.
Similarly, for those looking to grow their money, banks
offer various investment opportunities.
Catalyst for Economic Growth: Banks are catalysts for
economic growth. Through loans and investments, they
inject capital into various sectors, fostering
entrepreneurship and innovation. This, in turn,
contributes to job creation and an overall flourishing
economy.
9

16. Custodian of Dreams: Think of a bank as a custodian of
dreams. Whether it's saving for a house, funding
education, or starting a business, a bank is there to
support your financial aspirations. It provides the tools
and resources needed to turn dreams into reality.
Adaptability and Innovation: Banks are not stagnant
entities. They evolve and innovate to meet the changing
needs of their customers. The advent of technology has
transformed banking, with online platforms, mobile apps,
and electronic transactions becoming integral parts of the
banking experience.
Regulatory Pillar: Banks operate within a regulatory
framework that ensures fair practices, transparency, and
the protection of customers. This regulatory oversight is
essential for maintaining the integrity of the financial
system.
10

17. In essence, a bank is more than a building with vaults and
tellers; it's a cornerstone of economic activity. It's where
financial dreams take root, stability finds a home, and
communities thrive. It's a dynamic entity that not only
adapts to change but also shapes the financial landscape
for the betterment of individuals and society as a whole.
11

18. Functions of Commercial Banks
Commercial banks perform various functions that can be
categorized into primary and secondary functions.
Additionally, there are some other functions that are
integral to their operations. Let's break down each
category in the following paragraphs.
Primary Functions of Commercial Banks:
1.Accepting Deposits:
 Commercial banks provide a safe place for
individuals and businesses to deposit their
money. This includes savings accounts, current
accounts, and fixed deposits.
12

19. 2.Providing Loans and Advances:
 Banks offer loans and advances to individuals
and businesses for various purposes, such as
buying a home, starting a business, or meeting
short-term financial needs.
Secondary Functions of Commercial Banks:
1.Agency Services:
 Commercial banks often act as agents for their
customers. This includes services like collecting
cheques, making payments on behalf of
customers, and buying/selling securities.
2.Credit Creation:
 When banks lend money, they create credit. This
is a significant secondary function as it
contributes to the overall money supply in the
economy.
13

20. 3.Transfer of Money:
 Banks facilitate the transfer of money from one
place to another through services like electronic
fund transfers, wire transfers, and online banking.
4.Investment of Funds:
 Banks invest their funds in various financial
instruments, such as government securities,
bonds, and other assets, to earn interest and
maximize returns.
5.Foreign Exchange Services:
 Commercial banks provide services related to
foreign exchange, including currency exchange,
issuance of traveller’s cheques, and handling
international transactions.
14

21. Other Functions of Commercial Banks:
1.Safety Deposit Boxes:
 Some commercial banks offer safety deposit
boxes for customers to store valuable items,
documents, or possessions securely.
2.Educational and Advisory Services:
 Banks may offer educational programs to
promote financial literacy. Additionally, they
provide advisory services on investments,
financial planning, and other related matters.
3.Underwriting of Shares and Debentures:
 Commercial banks may participate in
underwriting activities, helping companies raise
capital by buying unsold shares or debentures
during public issues.
15

22. 4.Government Business:
 Banks often conduct financial transactions on
behalf of the government, including the
collection of taxes, payment of pensions, and
handling other government-related financial
activities.
These functions collectively define the role of
commercial banks in the financial system. They not only
serve as custodians of money but also actively contribute
to the economic development of a country.
16

23. Difference between different
banks
Commercial banks, central banks, and other specialized
banks serve distinct roles in the financial system. Let's
explore the key differences among them:
1.Commercial Banks:
 Primary Focus: Commercial banks are primarily
concerned with providing financial services to
individuals, businesses, and other entities.
17

24.  Functions: They accept deposits, offer loans,
facilitate transactions, and provide various
financial products and services.
 Ownership: Commercial banks are typically
owned by private shareholders or are publicly
traded entities.
 Profit Motive: Operate with a profit motive and
generate revenue through interest on loans, fees,
and other financial services.
2.Central Banks:
 Primary Focus: Central banks are the monetary
authorities of a country and are responsible for
managing the nation's money supply and
formulating monetary policy.
 Functions: They issue and regulate currency, set
interest rates, control inflation, and act as a
lender of last resort to commercial banks.
18

25.  Ownership: Central banks are usually
government-owned or have a significant degree
of government involvement.
 Profit Motive: While central banks may hold
assets and generate income, their primary goal is
often economic stability rather than profit.
3.Other Specialized Banks:
 There are various types of specialized banks that
cater to specific functions or sectors, such as
development banks, cooperative banks, and
investment banks.
 Development Banks: Focus on financing
projects that contribute to economic
development.
 Cooperative Banks: Operate on a cooperative
basis, often serving specific communities or
groups.
19

26.  Investment Banks: Primarily involved in
underwriting and facilitating the issuance of
securities, mergers and acquisitions, and other
investment-related activities.
Key Differences:
 Purpose:
 Commercial banks focus on offering a broad
range of financial services to the public and
businesses.
 Central banks are responsible for managing a
country's money supply, implementing monetary
policy, and ensuring financial stability.
 Specialized banks have specific functions
tailored to their designated roles, such as
development or investment activities.
20

27.  Ownership:
 Commercial banks are typically privately owned
or publicly traded entities.
 Central banks are often government-owned or
have a significant government influence.
 Specialized banks may vary in ownership
structure based on their specific functions.
 Operations:
 Commercial banks operate with a profit motive
and engage in various profit-oriented activities.
 Central banks focus on macroeconomic stability
and implement policies to control inflation and
support economic growth.
21

28.  Specialized banks have specific objectives
aligned with their designated roles, such as
fostering development or managing investments.
In summary, commercial banks serve the general
financial needs of individuals and businesses, central
banks manage a country's monetary policy and financial
stability, and specialized banks have distinct roles based
on their designated functions. Each plays a unique and
vital role within the broader financial system.
22

29. Types of Bank Credits explained
There are various types of bank credits, each serving
different purposes based on the needs of individuals,
businesses, and the overall economy. Here's an
explanation of some common types of bank credits:
23

30. 1.Personal Loans:
 Purpose: Personal loans are unsecured loans
provided by banks to individuals for personal
expenses such as medical bills, education, travel,
or debt consolidation.
 Collateral: Typically unsecured, meaning no
collateral is required, and approval is based on
the borrower's creditworthiness.
24

31. 2.Home Loans or Mortgages:
 Purpose: Home loans or mortgages are used to
purchase or refinance real estate properties.
 Collateral: The property itself serves as
collateral, and the loan is repaid in instalments
over an extended period.
3.Auto Loans:
 Purpose: Auto loans are used to finance the
purchase of vehicles.
 Collateral: The vehicle serves as collateral, and
the loan is repaid over a fixed term.
25

32. 4.Credit Cards:
 Purpose: Credit cards provide a revolving line of
credit for individuals to make purchases.
 Collateral: Generally unsecured, and approval is
based on the cardholder's creditworthiness.
5.Business Loans:
 Purpose: Business loans are extended to
businesses for various purposes, such as
expansion, working capital, equipment purchase,
or project financing.
 Collateral: May be secured by business assets,
and approval may also depend on the business's
financial health.
26

33. 6.Overdraft Facility:
 Purpose: An overdraft allows account holders to
withdraw more money from their bank account
than is available, up to a predetermined limit.
 Collateral: Typically unsecured for smaller
limits, but larger overdrafts may require
collateral.
7.Working Capital Loans:
 Purpose: Working capital loans provide funds to
cover day-to-day operational expenses for
businesses.
 Collateral: May be secured by current assets like
inventory or accounts receivable.
27

34. 8.Term Loans:
 Purpose: Term loans are medium to long-term
loans used for specific purposes like business
expansion, equipment purchase, or real estate
acquisition.
 Collateral: Can be secured or unsecured based
on the loan terms and amount.
9.Student Loans:
 Purpose: Student loans are designed to finance
education expenses for students.
 Collateral: Typically unsecured, and repayment
usually begins after the completion of studies.
28

35. 10.Microfinance Loans:
 Purpose: Microfinance loans are small loans
provided to entrepreneurs, often in developing
economies, to support small businesses and
income-generating activities.
 Collateral: Collateral requirements may vary,
and some microfinance institutions operate with
a focus on collateral-free lending.
Understanding these various types of bank credits helps
individuals and businesses choose the most suitable
financing option based on their specific needs and
financial circumstances. Each type of credit has its terms,
conditions, and purposes, providing flexibility for
borrowers in managing their financial requirements.
29

36. What is Credit Creation by
Commercial Banks
Credit creation by commercial banks refers to the process
where banks generate additional money and credit in the
economy beyond the actual cash deposits they hold. This
occurs when banks use a portion of their deposits to
extend loans and create new deposits in the process. In
essence, the act of lending by commercial banks results
in the creation of credit, contributing to the expansion of
the overall money supply in the economy.
30

37. Process of Credit Creation
The process of credit creation by commercial banks
involves several steps. Here's a detailed explanation of
how credit creation occurs:
1.Initial Deposit:
 The process begins with individuals, businesses,
or other entities depositing money into their bank
accounts. This initial deposit forms the base for
credit creation.
2.Reserve Requirement:
 Central banks set reserve requirements,
specifying the fraction of deposits that banks
must hold in reserve. This requirement is in place
to ensure that banks maintain a certain level of
liquidity and stability.
31

38. 3.Creation of Excess Reserves:
 The bank, after satisfying the reserve
requirement, is left with excess reserves. These
excess reserves are funds that can be used for
lending and are a crucial element in the credit
creation process.
4.Lending Decision:
 Banks have the authority to use a significant
portion of their excess reserves to extend loans.
When an individual or a business applies for a
loan, the bank assesses the creditworthiness of
the borrower, considers the purpose of the loan,
and makes a lending decision.
5.Loan Disbursement:
 If the loan is approved, the bank disburses the
loan amount to the borrower. This money is
typically deposited into the borrower's account.
32

39. 6.Creation of New Deposits:
 The loan amount, once deposited into the
borrower's account, effectively becomes a new
deposit. This new deposit is additional money in
the banking system, and it coexists with the
original deposit that initiated the lending process.
7.Multiplier Effect:
 The process doesn't stop with the creation of one
new deposit. The borrower, having received the
loan, may spend it. If the money is spent and
ends up in another bank, that bank can use a
fraction of it to extend another loan, creating
another deposit. This chain reaction continues,
leading to a multiplier effect on the initial
deposit.
33

40. 8.Repeat Process:
 The new deposits created through the lending
process can be used by other banks to extend
more loans. As this process repeats throughout
the banking system, it contributes to the overall
expansion of the money supply.
9.Regulatory Oversight:
 Central banks play a crucial role in overseeing
and regulating this process. They set reserve
requirements, adjust interest rates, and implement
other monetary policy tools to control the pace of
credit creation, aiming to maintain financial
stability and control inflation.
34

41. Example:
 Suppose a bank receives a deposit of ₹1,000. If the
reserve requirement is 10%, the bank keeps ₹100 as
required reserves and can lend out the remaining
₹900. This ₹900 is then spent and deposited into
another bank, potentially leading to the creation of a
new deposit and the cycle continues.
In essence, credit creation is a dynamic process initiated
by an initial deposit, and it involves lending, spending,
and the multiplication of deposits throughout the banking
system, contributing to the expansion of the money
supply in the economy. Regulatory measures help
manage this process to maintain stability in the financial
system.
35

42. Limitations of Credit Creation
While credit creation by commercial banks is a vital
component of the modern banking system, it is not
without limitations. Here are some key limitations to
credit creation:
1.Reserve Requirements:
 Banks are required to maintain a certain
percentage of their deposits as reserves, as
mandated by central banks. This limits the
amount of money they can create through
lending.
2.Central Bank Regulations:
 Central banks regulate credit creation by
implementing monetary policies. They may
adjust interest rates, reserve requirements, and
other tools to control the pace of credit creation
and maintain financial stability.
36

43. 3.Customer Demand for Loans:
 The willingness of customers to borrow also
influences credit creation. If there is low demand
for loans, banks may not utilize their full lending
capacity, limiting the extent of credit creation.
4.Creditworthiness of Borrowers:
 Banks assess the creditworthiness of borrowers
before approving loans. If potential borrowers
pose a high credit risk, banks may limit lending,
affecting the overall credit creation process.
5.Economic Conditions:
 Economic conditions, including inflation,
recession, and uncertainty, can impact credit
creation. During economic downturns, banks
may be more cautious in extending credit,
limiting the overall expansion of the money
supply.
37

44. 6.Public Confidence:
 Public confidence in the banking system plays a
crucial role. If there is a lack of trust in banks,
individuals may withdraw deposits or avoid
taking loans, affecting the capacity of banks to
create credit.
7.External Factors:
 Factors such as changes in international financial
markets, geopolitical events, or sudden shifts in
global economic conditions can also influence
credit creation by commercial banks.
8.Liquidity Concerns:
 Banks need to maintain a balance between
lending and maintaining liquidity. If banks
become overly aggressive in lending without
ensuring sufficient liquidity, it can lead to
financial instability.
38

45. 9.Legal and Regulatory Constraints:
 Legal and regulatory frameworks may impose
constraints on certain types of lending or set
limits on the overall credit exposure a bank can
have, impacting credit creation.
10. Market Conditions:
 Market conditions, including interest rate
fluctuations and changes in asset prices, can
affect the profitability of lending. Banks may
adjust their lending practices based on these
market dynamics.
Understanding these limitations is crucial for
policymakers and central banks to effectively manage
credit creation, ensuring a balance between supporting
economic growth and maintaining financial stability.
While credit creation is a powerful tool, its responsible
and regulated use is essential to prevent potential risks
and negative consequences.
39

46. Challenges faced by Commercial
Banks
Commercial banks face various problems and challenges
that can impact their operations and financial health. Here
are some common issues:
1.Interest Rate Risk:
 Commercial banks often face interest rate risk,
where fluctuations in interest rates can affect
their profitability. A sudden increase in interest
rates can lead to higher borrowing costs,
potentially impacting the bank's net interest
margin.
40

47. 2.Credit Risk:
 Credit risk arises when borrowers fail to repay
their loans. Economic downturns, changes in
market conditions, or adverse events affecting
borrowers can result in increased non-performing
loans, affecting the bank's asset quality.
3.Liquidity Risk:
 Liquidity risk occurs when a bank cannot meet
its short-term financial obligations. Sudden and
unexpected withdrawals by depositors or a lack
of market liquidity can pose challenges for banks
in maintaining adequate cash reserves.
4.Regulatory Compliance:
 Banks must comply with a myriad of regulations,
and changes in regulatory requirements can pose
challenges. Ensuring compliance with anti-
money laundering (AML) laws, Basel III
requirements, and other regulations requires
significant resources.
41

48. 5.Technological Disruptions:
 The rapid evolution of technology poses both
opportunities and challenges for banks. While
adopting new technologies can enhance
efficiency, it also requires significant investments
and the need to adapt to changing customer
preferences.
6.Cybersecurity Threats:
 The increasing reliance on digital platforms
exposes banks to cybersecurity threats.
Cyberattacks, data breaches, and fraud can have
severe consequences, affecting customer trust
and financial stability.
7.Competition:
 Banks operate in a highly competitive
environment. The rise of fintech companies, non-
banking financial institutions, and other
alternative financial service providers intensifies
competition, challenging traditional banking
models.
42

49. 8.Economic Conditions:
 Banks are sensitive to economic conditions.
Economic downturns, recessions, or financial
crises can lead to a decline in loan demand,
increased defaults, and a deterioration of asset
quality.
9.Global Economic Uncertainty:
 Events such as geopolitical tensions, trade
disputes, or global economic uncertainties can
impact financial markets and affect the overall
stability of commercial banks, especially those
with international exposure.
10. Market Risk:
 Market risk arises from fluctuations in interest
rates, exchange rates, and other market variables.
Banks with exposure to various financial markets
may face challenges in managing and mitigating
market risks.
43

50. 11. Operational Risk:
 Operational risk encompasses risks related to
internal processes, systems, and human factors. It
includes the risk of errors, fraud, and disruptions
in day-to-day operations.
12. Changing Customer Expectations:
 Customers' expectations are evolving, with a
demand for more personalized, convenient, and
technologically advanced banking services.
Adapting to these changing preferences requires
ongoing innovation and investment.
Navigating these challenges requires effective risk
management, strategic planning, and a commitment to
regulatory compliance. Successful banks continually
assess and adapt their strategies to address emerging
issues and maintain resilience in a dynamic financial
landscape.
44

51. Role of Commercial Banks in
our Economy
Commercial banks play a crucial role in the economy by
performing various functions that contribute to economic
development and financial stability. Here are the key
roles of commercial banks:
1.Financial Intermediation:
 Commercial banks act as intermediaries between
savers and borrowers. They collect deposits from
individuals and businesses and provide loans to
those in need of funds. This financial
intermediation facilitates the efficient allocation
of capital in the economy.
45

52. 2.Deposit Mobilization:
 Commercial banks attract deposits from the
public, providing a safe place for individuals and
businesses to keep their money. These deposits
form the basis for lending and investment
activities.
3.Credit Creation:
 One of the primary functions of commercial
banks is to create credit. Through the process of
lending, banks contribute to the expansion of the
money supply, supporting economic activities
and investments.
4.Facilitating Payments:
 Commercial banks provide various payment
services, such as checking accounts, electronic
funds transfers, and credit and debit card
transactions. This facilitates the smooth flow of
money within the economy.
46

53. 5.Investment in Government Securities:
 Banks invest in government securities as part of
their portfolio. This not only provides a secure
avenue for investment but also supports
government funding by participating in bond
markets.
6.Working Capital Finance:
 Commercial banks offer working capital loans to
businesses to support their day-to-day operations.
These loans help businesses manage cash flow,
purchase inventory, and meet short-term financial
needs.
7.Long-Term Financing:
 Banks provide long-term financing for capital-
intensive projects, such as infrastructure
development, manufacturing facilities, and real
estate. This contributes to economic growth and
job creation.
47

54. 8.Trade Finance:
 Commercial banks facilitate international trade
by providing trade finance services, such as
letters of credit, export and import financing, and
currency exchange. This helps businesses engage
in cross-border transactions.
9.Risk Diversification:
 Banks play a role in risk diversification by
managing a diversified portfolio of loans and
investments. This helps mitigate risks associated
with individual borrowers or economic sectors.
10. Financial Advisory Services:
 Many commercial banks offer financial advisory
services to individuals and businesses. This
includes investment advice, retirement planning,
and assistance in wealth management.
48

55. 11. Promotion of Savings:
 Through savings accounts and other deposit
products, commercial banks encourage
individuals to save money. This contributes to
capital formation and supports future
investments.
12. Technology Adoption:
 Commercial banks adopt technology to improve
efficiency and enhance customer experience.
Online banking, mobile apps, and digital
transactions are examples of technology adoption
that makes banking more accessible and
convenient.
13. Contributing to Monetary Policy:
 Central banks often use commercial banks as
instruments to implement monetary policy. By
influencing interest rates, reserve requirements,
and other policy tools, central banks work with
commercial banks to achieve economic
objectives.
49

56. In summary, the role of commercial banks is
multifaceted, encompassing financial intermediation,
credit creation, payment facilitation, and various other
services that contribute to the overall economic well-
being and stability of a country.
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57. Conclusion
In conclusion, commercial banks play an indispensable
role in the economic landscape, serving as financial
intermediaries that connect savers and borrowers. Their
multifaceted functions, ranging from deposit mobilization
to credit creation, contribute significantly to the
economic development and stability of a nation. By
facilitating the efficient allocation of capital, providing a
secure haven for savings, and offering diverse financial
services, commercial banks play a pivotal role in shaping
the economic trajectory.
The ability of commercial banks to adapt to technological
advancements, diversify risks, and contribute to both
short-term working capital needs and long-term
investments underscores their resilience and relevance in
a dynamic financial environment. As engines of credit
creation, commercial banks propel economic growth,
supporting businesses, infrastructure development, and
international trade.
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58. Moreover, their role in financial advisory services and the
adoption of technology reflects a commitment to meeting
the evolving needs and expectations of customers.
Commercial banks, in collaboration with central banks,
also play a crucial part in implementing monetary
policies, contributing to overall economic stability.
However, commercial banks are not immune to
challenges such as interest rate fluctuations, credit risks,
and regulatory compliance. Navigating these challenges
requires strategic management and adherence to prudent
banking practices.
In essence, commercial banks stand as pillars of the
economy, fostering financial inclusion, promoting
savings, and driving economic prosperity. Their enduring
significance lies in their ability to adapt, innovate, and
effectively balance risk and opportunity in the ever-
changing landscape of the financial world.
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59. Bibliography
1. Frank Economics text book class 12 ISC
2. Wikipedia.org
3. Google.com
4. Livemint.com
5. Youtube.com
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60. Thank
you