View of ROLE OF COMMERCIAL BANKS IN GROWTH OF A COUNTRY

(1)

ACCENT JOURNAL OF ECONOMICS ECOLOGY & ENGINEERING

Peer Reviewed and Refereed Journal IMPACT FACTOR: 2.104 (INTERNATIONAL JOURNAL) UGC APPROVED NO. 48767

Vol.03, Issue 04, April 2018, Available Online: www.ajeee.co.in/index.php/AJEEE

Paper Id /Ajeee-1220

ROLE OF COMMERCIAL BANKS IN GROWTH OF A COUNTRY

SAKSHI TEWARI, MANSI GARG

Scholars, Department of Management & Commerce Jayoti Vidyapeeth Women’s University, Jaipur

Abstract:- Now a day’s banking sector acts as a backbone of the growing economy and a well-organized banking system is very important for the expansion of the country. Banks play a substantial role in the growth of Indian economy. They play a vital role in the expansion of trade and industry as well. If the banking system of a country is efficient and effective it brings about a fast pace of growth in different sectors of the economy. The basic function of commercial bank in Indian economy is to provide financial assistance to general public and the business enterprises. Commercial banks in India include SBI and its subsidiaries, regional rural banks, foreign banks and nationalized banks. In this research we provide findings on commercial banks and the main aim of the research is to critically examine the role of commercial banks in growth India.

Key Words: Economic growth, GDP (Gross Domestic Product), National Income.

INTRODUCTION

Commercial Banks are the institutions that provide sort term and medium term loans to business enterprises, institutions and individuals as well or we can say that they are the financial institutions that grant loans and advances accepts deposits and provide other financial services to their customer. They accept the demand deposits from the general public and channelize these savings in a diversified manner to needy people and earn profits in form of interest on loan, interest on investments etc. Apart from this commercial banks also provides the facility of discounting of bills and for this purpose it charges certain percentage of commission and then discounts the bill.

They also provide the facility of cash credit and bank overdraft to its customers.Commercial Banks also provides services like issuing traveler’s cheques, electronic banking, providing locker facility, collection of cheques, making payment on behalf of customers etc. Further commercial banks can be divided into three parts they are as follows:

TYPES OF COMMERCIAL BANKS

1. PUBLIC SECTOR BANKS: They are those banks which are nationalized by the government of a country. In public sector banks majority of sharesi.e.

51% or more of the shares are in the hands of government and work under the guidelines of Reserve Bank of India which is the central bank of India example: State Bank of India,

Bank of Baroda, Punjab National Bank.

2. PRIVATE SECTOR BANKS: They are the banks whose major part of share i.e. 51% or more of the shares are in the hands of private individuals.

These banks are registered as companies with limited liability examples Industrial Credit and Investment Corporation of India (ICICI) Bank, and Housing Development Finance Corporation (HDFC) Bank.

3. FOREIGN BANKS: They are the

commercial banks whose

headquarters in a foreign country but operates branches in different countries examples HSBC.

LITRETURE REVIEW:

The role of commercial banks in growth of Indian economy are as follows:

1. Capital Formulation: Capital formation means increase in the existing capital goods in our country.

Commercial banks tends to remove capital deficiency by encouraging savings. They channelize the savings into profitable and productive institutions in a diversified manner so as to minimize the risk. Through this they also help in the development of the economy.

2. Development of Agriculture: As it is said India is an agro based country, focus is also on providing credit to agriculture sector which helps in raising agriculture productivity, income of farmers, gross domestic

(2)

product and national income as well.

Commercial banks provide loans to rural areas and all small scale industries. They sanction loan for the purpose of purchase agricultural land, purchase farming and irrigation equipment, cover operating expenses, purchase cattle and livestock, cover storage/ warehouse expenses, help with the marketing expenses.

3. Implementation of Modern Technology: Economic development without developing the technology is not possible. Every now and then commercial banks introduces new banking techniques which promotes technology example: Atm machines, online banking, net banking, mobile banking etc. Except this commercial banks tries to advance loans to those institutions which are making best possible use of technology in their working.

4. Optimum Utilization of Resources:

Commercial banks helps in optimum allocation of resources by investing in such projects which are productive in nature. There are people who have great ideas, plans and projects, but lack in financial resources and without financial resources these projects cannot be started.

Commercial banks have given credit to such projects and helps to increase income, employment opportunities, GDP and national income as well.

They utilize their tangible resources with care so as to make sure that they have them for long duration. They also analyze how the resources should be used in a proper manner.

5. Provide Financial Assistance to Government: Banks also acts as the banker to the government. Nowadays government acts as the promoter of industries in underdeveloped areas.

Commercial banks helps the government by giving long term and short term loans to government according to their requirement by investing their funds in purchasing government securities, purchasing treasury bills or commercial papers etc. They give loans for the purpose of new projects, 5 years plan,

developmental projects started by government. Except this commercial banks also accepts deposits from government.

6. Export Promotion Cell: In order to enhance the exports of the country commercial banks have established export promotion cell which provide information about the general trade and economic conditions of the country to its potential customers and enhance the chances of investment.

This cell was established with the view of making positive contribution in the process of economic development.

7. Monetization of the Country:

commercial banks have done monetization in the country by opening its branches in rural areas so that use of money can be increased and the non-monetized sector i.e.

barter economy can be converted into monetized sector as well. This will help in reducing the exchange of goods through barter and make the backward areas more developed. It also intends to remove malpractices and frauds done by moneylenders and develop the rural areas.

8. Implementation of Monetary Policies; The Central Bank i.e.

Reserve Bank of India has the power to make new monetary policies which include bimonthly policies, quarterly policies etc. but the implementation of these policies is in hands of commercial banks. If these policies are not properly implemented they have a reverse effect on the banking system and would lead to inflation or deflation both the situations are very harmful for the growth of an economy.

9. Promotion of Trade and Industry:

Commercial Banks also work for making trading practices i.e.

enhancing exports and imports by providing convenient payment system for this purpose commercial paper’s, letter of credit, trade bills, accommodation bill, time bill, demand bill, etc. have been launched in the market to make the payment system more easier and convenient. This credit facility makes trading more-

(3)

easier manner and makes favorable balance of payment.

CONCLUSION

The major conclusion drawn by this research is that banks play a vital role in the growth and development of the economyand without the help of the bank it would not be possible for an economy to flourish at a faster pace. Thus, banks can be said as the life line of a country growth.

REFRENCES

1. Misra & puri, “Indian Economy”, Himalaya Publishing House Mumbai 2010

2. Garhwali, S. (1993). Commercial Banking and Economic Development.

Jaipur: Point Publishers

3. 3. Panda, Jaganath and Dash, R. K.

(1991). Development Banking in India.

New Delhi: Discovery Publishing House.

4. Srivastava R M., Management of Indian Financial Institutions, Himalaya Publishing House, Mumbai

5. Khan M Y., Indian Financial System, Tata Mc Graw Hill, Delhi

6. Avadhani V A., "Investments and Securities Markets in India", Himalaya Publishing House, Mumbai, 2004