Role of Commercial Bank in Economic Development in India

1737 Words May 6th, 2013 7 Pages
INTRODUCTION:- Every country needs the services of financial institutions for accelerating the pace of development. Commercial banks have played a critical role in the economic development of a country. Now a day’s commercial banks are important not just from the point of view of economic growth, but also financial stability. In emerging economies, commercial banks are special for three important reasons. First, they take a leading role in developing other financial intermediaries and markets. Second, due to the absence of well-developed equity and bond markets, the corporate sector depends heavily on banks to meet its financing needs. Finally, in emerging markets such as India, commercial banks cater to the needs of a …show more content…
 One of the most important problems of a developing economy is that of capital formation. The commercial banks play an important role in accelerating the rate of capital formation by rising of the financial resources. They encourage savings by giving various types of incentives to the savers. They expand branches of the banks in rural and urban areas and mobilize savings even at far of places. They mobilise idle resources for production purposes. Economic development depends upon the diversion of economic resources from consumption to capital formation. Banks help in this direction by encouraging saving and mobilising them for productive uses and promoting attractive deposit schemes. Commercial banks offer facilities of deposits and that too on lucrative terms. This stimulates thrift as well as attracts idle savings into organised capital market of the country. By extending credit facility to the investors and entrepreneurs, banks convert savings into capital formation which is an instrumental variable of growth and development of less developed countries.
 Innovations are an essential prerequisite for economic development. Commercial banks are helpful in innovations, yet another vital parameter of growth and development. Innovations stimulate the process of growth through new technology, discovery of new markets for the existing products as well as new products for the existing
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