Role of commercial bank in the economic development?

Commercial bank play very vital role in the economic development of a country. The economic signification of commercial banks given below.

1.                 Bank promote capital formation:

Commercial banks play an important role in rising of the financial resources. They encourage saving by giving various types of incentives to the saver. They expend branches of commercial banks in rural and urban areas. These savings are made available to the businessman. Which make use of them for productive purposes in the Country.

2.                 Balance development:

The commercial banks play an vital role in achieving balanced development in different regions of the country. They help in transpiring surplus capital from developed regions to the less developing regions. The traders, industrialist of less developed region are able to get sufficient capital for meeting their business needs. So in that way it will increase the investment, production in the country.

3.                 Development of agriculture:

The banks in developing countries are now provided credit rural areas. The arrangement of credit to agriculture sector has greatly helped in increasing the agriculture productivity and income of the farmers..

4.                 Investment in new enterprises:

Businessmen normally fear to invest their money in risky enterprises. The commercial banks provide short and medium terms loans to invest in new enterprises and adopt new methods of productions. In that way our productivity capacity will be increase.

5.                 Monitory policy:

The central bank of a country controls and regulates volume of credit through the help of the commercial banks in the country.

6.                 Export promotion cell:

In order to increase the export of the country the banks have established “export promotion cell” they provide information about the general trade and economic conditions both inside and outside the making positive construction in the process of economic development.

7.                 Influencing economic activity:

The banks can also influence the economic activity of the country through following two ways.

a.     Availability of credit.

b.     The rate of interest.

If the commercial banks are able to increase the amount of money in circulation by lowering the rate of interest, at directly effects economic development and vice versa.