Knowing the roles played by commercial banks in the national economy

A country’s economic growth is highly dependent on the commercial banks. The commercial banks are known for their operations across the country. One of the significant operations of commercial banks is providing service to different organizations. The growth and development of the various sectors in an economy depends on how well-disciplined and efficient the nation’s banking sector is. The following are some of the important roles of commercial banks as pointed out by banking professionals.

Formation of capital
The commercial banks are also called the ‘storehouses’ of countries. They are responsible for the acceptance of deposits from businesses, individuals and various other sources. These banks lend money to support various business opportunities in the country as well as for other productive purposes. All of this results in a greater economic growth and development in the country.

Investments
Both short term and long term loans are given by commercial banks. These loans prove very helpful to the budding entrepreneurs who have the potential to make quality investments in different companies as well as make profits out of them. This acts as a major source of encouragement for the entrepreneurs as they adapt themselves to the situation and work out newer and better production methods. The capacity of production in an economy is greatly enhanced by the timely availability of credit.

Growth promotion
The commercial banks are major sources of capital and funds in the developing countries. Most of these funds are directed towards the welfare of the agricultural sector and the small scale industries. The productivity of the agricultural sectors has undergone several enhancements with the help of the funds provided by the commercial banks. The per capita revenue earned by farmers has also improved because of this.

Industry development
It is much evident that there has been a regular expansion in the industrial sectors of countries. The industrial sector has been receiving regular support from the commercial banks. The introduction of credit cards, checks, bills of exchange, bank drafts etc. has revolutionized the both the areas of national and international trade.

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Conclusion:The availability of credit and interest rates are subject to changes under the influence of the commercial banks. This affects a nation’s corporate banking services. The customers are hugely encouraged to borrow loans and make investments. Collective demand is another result of credit creation. This enhances the overall economic production. The commercial banks define the performance of a nation in the face of global economic troubles.

About The Author: This article has been contributed by Allen, a financial writer, works in a CA based Law Firm. You can follow him on Twitter, Facebook and Google+

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