Role of commercial banks in economic development of India

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:
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.
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
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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.
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.
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 importer’s bank to the exporters to ensure the
payment. The banks are also arranging foreign exchange which boosted the fund
transfer between two countries.
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.
F. Influencing economic Activity
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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.
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