What is commercial bank? Role of commercial bank in the development of economy?

Commercial banks:

 Commercial banks collect surplus money from the people. They make loans and advances. These banks collect the money on low rate of interest from the people and use this money to make loans to the businessmen on high rate of interest and the difference in the ration of interest is the project or main resource of income of commercial banks.

Role of commercial bank:

            Commercial banks play an important and active role on the economic development of a country.

The economic signification of commercial banks is given in brief.

1.                 Capital formation:

The commercial banks play an important role inn rising of the financial resources. They encourage savings by giving various types of advances to the savers for business.

2.                 Increase the savings:

The banks encourage savings by giving various types of encourage to the savers. They expend branches of the banks in rural and urban areas. These savings are then mode available to the business.

3.                 Investment in new enterprises:

The commercial banks generally provide medium and short term loans to investors to invest in new enterprises and adopt new methods of production.

4.                 Influencing economic activity:

The banks can also influence the economic activity through its influence on

a.     Availability of cash.

b.     The rate of interest.

If commercial banks are able to increase the amount of money in circulation through “credit creation” or by lowering the rate of interest, it directly effects economic development.

5.                 Implementation of monitory policy:

The central bank of the country controls and regulates the volume of credit through the active co-operation of the banking system in the country. It helps in bringing system in the country. It helps in bringing price stability and promotes economic growth within shortest possible period to time.

6.                 Balanced development:

The commercial banks play an important role in achieving balanced development in country. They help in transferring surplus capital from developed regions to the; less developed regions. This in turn, increases investment, trade and production in the economy.

7.                 Export promotion cell:

In order to increase the export of the country the banks have established export promotion cell, they provide information about general trade and economic conditions both inside and outside the country to its customers.

8.                 Development of agricultural and industrial sector:

The commercial banks now providing credit for the development of agriculture and small size of industries in rural areas. Which helps the businessmen and farmers to increase the product.