The role of commercial banks of on economic developement of an economy???? State y??
Commercial banks play an important role in the economic development. The following are some of the major functions of the commercial banks.
1. Acceptance of Deposits- Accepting deposits from the general public is the basic function of a commercial bank. The public deposits are three types- Saving account deposits, fixed account deposits and current account deposits.
2. Granting Loans and Advances- Granting loans and advances to the investors is the second most important function performed by the commercial banks. The commercial banks keep only a fraction of the deposits received with themselves as reserves and extend the rest as loans and advances to the borrowers for various productive purposes.
3. Agency Functions- Besides performing the major functions of acceptance of deposits and granting of loans, the commercial banks also perform various agency functions as well such as transfer of funds, collection and payment of funds, purchase and sale of securities and foreign exchange, provision of underwritting facilities, etc.
4. Discounting Bills of Exchange- By discounting bills of exchange a commercial bank provides easy means of finance to the business community as and when required.
5. Credit Creation- The commercial banks create credit in the economy through demand deposits. Credit creation paves the path for the growth of the economy.
6. Other Functions- Apart from the above mentioned functions, the commercial banks also perform various other functions as well such as providing locker facility, issuing traveller's cheque and letters of credit and providing useful business and statistical information.