Role of Commercial Banks in the Economic Development of a Country:

Topics: Bank, Money, Monetary policy Pages: 4 (1100 words) Published: June 6, 2011
Role of Commercial Banks in the Economic Development of a Country:

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. The money held as customer account then accrues interest which is given to the customer in the form of periodic payments. The commercial banks play an important part of economy when they are involved in bidding process of government securities. Various services and products provided by commercial banks such as car leasing, mortgage financing, credit cards etc provide easy accessibility of funds to the customers. Hence great deal of money circulated in the economy is contributed by the commercial banks. Commercial banks are also an important element in implementing the monetary and fiscal policy by the central bank. When a central bank decides to introduce concretionary monetary policy, commercial banks have to increase their interest rates to comply with the central bank. Therefore commercial banks play an important in bringing economic development in a country. 1. Commercial banks play an important and active role in the economic development of a country. If the banking system in a country is effective, efficient and disciplined it brings about a rapid growth in the various sectors of the economy. o 1. Banks promote capital formation

o 2. Investment in new enterprises
o 3. Promotion of trade and industry
o 4. Development of agriculture
o 5. Balanced development of different regions
o 6. Influencing economy activity
o 7. Implementation of Monetary policy
o 8. Monetization of the economy
o 9. Export promotion cells
2. Role of Commercial Banks in the Economic Development of a Country 1. Banks promote capital formation:
Commercial banks accept deposits from...
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