Role of Commercial Banks

A Commercial bank is a type of financial institution that provides Services such as accepting deposits, making business loans, and offering basic Investment products

There is acute shortage of capital. People lack initiative and enterprise. Means of transport are undeveloped. Industry is depressed. The commercial banks help in overcoming these obstacles and promoting Economic Development. The role of a commercial bank in a developing country is discussed as under.

Mobilising Saving for Capital Formation:

The commercial banks help in mobilising Savings through Network of branch Banking. People in developing countries have low incomes but the banks induce them to save by introducing variety of deposit schemes to suit the needs of individual depositors. They also mobilise idle savings of the few rich. By mobilising savings, the banks channelize them into productive investments. Thus they help in the capital formation of a developing country.

Financing Industry:

The commercial banks finance the Industrial Sector in a number of ways. They provide short-term, medium-term and long-term loans to industry.

Financing Trade:

The commercial banks help in financing both internal and external trade. The banks provide loans to retailers and wholesalers to stock goods in which they deal. They also help in the movement of goods from one place to another by providing all types of facilities such as discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc. Moreover, they finance both exports and imports of developing countries by providing Foreign Exchange facilities to importers and exporters of goods.

Financing agriculture:

The commercial banks help the large agricultural sector in developing countries in a number of ways. They provide loans to traders in agricultural commodities. They open a network of branches in rural areas to provide Agricultural credit. They provide finance directly to agriculturists for the Marketing of their produce, for the modernisation and mechanisation of their farms, for providing Irrigation facilities, for developing land, etc.

They also provide financial assistance for Animal Husbandry, Dairy farming, sheep breeding, Poultry farming, pisciculture and Horticulture-2/”>Horticulture. The small and marginal farmers and landless agricultural workers, artisans and petty shopkeepers in rural areas are provided financial assistance through the Regional Rural Banks in India. These regional rural banks operate under a commercial bank. Thus the commercial banks meet the credit requirements of all types of rural people. In India agricultural loans are kept in priority sector landing.

Financing Consumer Activities:

People in underdeveloped countries being poor and having low incomes do not possess sufficient financial Resources to buy durable consumer goods. The commercial banks advance loans to consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc. In this way, they also help in raising the standard of living of the people in developing countries by providing loans for consumptive activities and also increase the demand in the economy.

Financing EMPLOYMENT Generating Activities:

The commercial banks finance employment generating activities in developing countries. They provide loans for the Education of young person’s studying in engineering, medical and other vocational institutes of higher Learning. They advance loans to young entrepreneurs, medical and engineering graduates, and other technically trained persons in establishing their own business. Such loan facilities are being provided by a number of commercial banks in India. Thus the banks not only help inhuman capital formation but also in increasing entrepreneurial activities in developing countries.

Help in Monetary Policy:

The commercial banks help the economic development of a country by faithfully following the monetary policy of the central bank. In fact, the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy.

Issue of NPA

A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.According to RBI, terms loans on which interest or installment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.

However, in terms of Agriculture / Farm Loans; the NPA is defined as under:

For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment / interest) is not paid for 2 crop seasons , it would be termed as a NPA.
For Long Duration Crops, the above would be 1 Crop season from the due date.

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act has provisions for the banks to take legal recourse to recover their dues. When a borrower makes any default in repayment and his account is classified as NPA; the secured creditor has to issue notice to the borrower giving him 60 days to pay his dues. If the dues are not paid, the bank can take possession of the assets and can also give it on lease or sell it; as per provisions of the SAFAESI Act.

Reselling of NPAs :- If a bad loan remains NPA for at least two years, the bank can also resale the same to the Asset Reconstruction Companies such as Asset Reconstruction Company (India) (ARCIL). These sales are only on Cash Basis and the purchasing bank/ company would have to keep the accounts for at least 15 months before it sells to other bank. They purchase such loans on low amounts and try to recover as much as possible from the defaulters. Their revenue is difference between the purchased amount and recovered amount

Commodity Exchanges in India

Though there are about 25 commodity exchanges in India, the following are the major ones:

Multi Commodity Exchange (MCX) – 2003 – Mumbai – MCX COMDEX index

National Commodity and Derivatives Exchange (NCDEX) – 2003 – Mumbai

National Multi-commodity Exchange (NCME) – 2001 – Ahmedabad – first,

Commercial banks are financial institutions that accept deposits from individuals and businesses, and use those deposits to make loans. They also provide a variety of other financial services, such as checking and savings accounts, investment advice, and financial planning.

Commercial banks play a vital role in the economy. They provide a safe place for people to store their Money, and they make it possible for businesses to get the loans they need to grow. Commercial banks also help to regulate the Money Supply, which helps to keep the economy stable.

There are many different types of commercial banks, including retail banks, Investment Banks, and commercial finance companies. Retail banks are the most common type of commercial bank. They offer a variety of financial services to individuals and small businesses. Investment banks help companies raise money by issuing stocks and Bonds. Commercial finance companies provide loans to businesses, often for large projects or equipment purchases.

Commercial banks are regulated by the government. The Federal Reserve System is the central bank of the United States, and it is responsible for regulating commercial banks. The Federal Reserve sets interest rates, which affects the cost of borrowing money. It also supervises commercial banks to make sure they are safe and Sound.

Commercial banks are important to the economy because they provide a safe place to store money, make loans to businesses, and help to regulate the money supply. They also offer a variety of other financial services that are essential to the functioning of the economy.

Here are some additional details about the role of commercial banks:

Accepting deposits: Commercial banks accept deposits from individuals and businesses. These deposits are then used to make loans.
Making loans: Commercial banks make loans to individuals and businesses. These loans can be used for a variety of purposes, such as buying a car, starting a business, or paying for college.
Providing checking and savings accounts: Commercial banks provide checking and savings accounts to individuals and businesses. Checking accounts allow customers to write checks and make electronic payments. Savings accounts allow customers to save money and earn interest.
Investing in securities: Commercial banks invest in securities, such as stocks and bonds. This helps to provide a return on investment for their customers.
Providing financial advice: Commercial banks provide financial advice to their customers. This can include help with BUDGETING, retirement planning, and investment management.
Offering other financial services: Commercial banks offer a variety of other financial services, such as credit cards, mortgages, and insurance.
Acting as a financial intermediary: Commercial banks act as a financial intermediary between savers and borrowers. They take deposits from savers and use those deposits to make loans to borrowers.
Regulating the money supply: Commercial banks play a role in regulating the money supply. They do this by lending money and by accepting deposits.
Promoting economic Growth: Commercial banks promote economic growth by making loans to businesses. These loans help businesses to grow and create jobs.
Stabilizing the financial system: Commercial banks help to stabilize the financial system by providing liquidity. This means that they are able to provide loans to businesses and individuals even during times of economic uncertainty.
Providing liquidity to the market: Commercial banks provide liquidity to the market by making loans. This helps to keep the market functioning smoothly.
Facilitating Trade and Commerce: Commercial banks facilitate trade and commerce by providing financial services, such as letters of credit and trade finance.
Promoting Financial Inclusion: Commercial banks promote financial inclusion by providing financial services to people who might not otherwise have access to them. This can include people who are low-income, unbanked, or underbanked.
Supporting economic development: Commercial banks support economic development by making loans to businesses and individuals. These loans help businesses to grow and create jobs.
Ensuring financial stability: Commercial banks help to ensure financial stability by following sound lending practices and by maintaining adequate capital levels.
Protecting consumers: Commercial banks are regulated by the government to protect consumers from fraud and other financial abuses.
Promoting competition: Commercial banks are subject to competition from other banks, as well as from non-bank financial institutions. This competition helps to keep prices low and to improve the quality of service.
Supporting innovation: Commercial banks are constantly innovating to provide new and better financial services to their customers.
Contributing to the public good: Commercial banks contribute to the public good by providing financial services that are essential to the functioning of the economy. They also support a variety of charitable and community organizations.

What are commercial banks?

Commercial banks are financial institutions that provide a variety of services to individuals and businesses, including checking and savings accounts, loans, and investment products.

What is the role of commercial banks in the economy?

Commercial banks play a vital role in the economy by providing a safe place for people to store their money and by lending money to businesses and individuals. They also help to facilitate the flow of money through the economy by providing payment services such as checks and credit cards.

What are the different types of commercial banks?

There are two main types of commercial banks: retail banks and investment banks. Retail banks provide services to individuals and small businesses, while investment banks provide services to large corporations and governments.

What are the benefits of using a commercial bank?

There are many benefits to using a commercial bank, including:

Safety: Commercial banks are insured by the Federal Deposit Insurance Corporation (FDIC), which means that your money is protected up to $250,000 per depositor, per institution.
Convenience: Commercial banks offer a variety of convenient services, such as online banking, mobile banking, and ATMs.
Access to credit: Commercial banks can provide you with loans for a variety of purposes, such as buying a car, a house, or starting a business.
Investment products: Commercial banks offer a variety of investment products, such as savings accounts, CDs, and Mutual Funds.

What are the risks of using a commercial bank?

There are a few risks associated with using a commercial bank, including:

Fraud: There is always the risk that your bank account could be hacked or that you could be the victim of identity theft.
Loss of money: If your bank fails, you could lose some or all of your money.
Interest rates: The interest rates on loans and savings accounts can change, which could affect your financial situation.

How do I choose a commercial bank?

When choosing a commercial bank, you should consider the following factors:

Fees: Banks charge a variety of fees, such as monthly maintenance fees, ATM fees, and overdraft fees. Make sure to compare the fees charged by different banks before you open an account.
Interest rates: Banks offer different interest rates on loans and savings accounts. Compare the interest rates offered by different banks before you open an account.
Services: Banks offer a variety of services, such as online banking, mobile banking, and ATMs. Make sure to choose a bank that offers the services you need.
Reputation: Research the reputation of different banks before you open an account. You can find information about the reputation of a bank by reading online reviews or talking to friends and family.

How do I open a bank account?

To open a bank account, you will need to provide the bank with some basic information, such as your name, address, and Social Security number. You may also need to provide the bank with a deposit. Once you have opened an account, you can start using the services offered by the bank.

How do I deposit money into a bank account?

There are a few ways to deposit money into a bank account:

You can bring cash or a check to a branch of the bank.
You can use an ATM to deposit cash or a check.
You can set up online or mobile banking and deposit money electronically.

How do I withdraw money from a bank account?

There are a few ways to withdraw money from a bank account:

You can go to a branch of the bank and withdraw cash.
You can use an ATM to withdraw cash.
You can use a debit card to withdraw cash from an ATM or at a store.

How do I transfer money between bank accounts?

There are a few ways to transfer money between bank accounts:

You can write a check and mail it to the other bank.
You can use online or mobile banking to transfer money electronically.
You can use a wire transfer to transfer money quickly.

How do I close a bank account?

To close a bank account, you will need to contact the bank and request to close the account. You may also need to provide the bank with a written request to close the account. Once the account is closed, you will no longer be able to access the money in the account.

Commercial banks are financial institutions that provide a variety of services to individuals and businesses, including checking and savings accounts, loans, and investment products.
Commercial banks are regulated by the Federal Reserve System, which is the central bank of the United States.
Commercial banks play an important role in the economy by providing a safe place to store money, by lending money to businesses and individuals, and by helping to facilitate the flow of money through the economy.

Here are some MCQs about commercial banks:

Which of the following is not a service provided by commercial banks?
(A) Checking and savings accounts
(B) Loans
(C) Investment products
(D) Insurance
Which of the following is the central bank of the United States?
(A) The Federal Reserve System
(B) The Treasury Department
(C) The Securities and Exchange Commission
(D) The Federal Deposit Insurance Corporation
Commercial banks play an important role in the economy by:
(A) Providing a safe place to store money
(B) Lending money to businesses and individuals
(C) Helping to facilitate the flow of money through the economy
(D) All of the above
Which of the following is a type of loan that a commercial bank might offer?
(A) A mortgage loan
(B) A car loan
(C) A student loan
(D) All of the above
Which of the following is a type of investment product that a commercial bank might offer?
(A) A savings account
(B) A checking account
(C) A Certificate of Deposit
(D) All of the above