QS Study

Role of Commercial Bank in Economic Development

A commercial bank is a dealer in capital or more properly a dealer in money. This bank gives minimum interest to depositors and demand maximum interest from the borrower. By these processes, commercial banks earn a profit and continue their business.

The commercial bank plays a dynamic role in the economic development of the nation. The role of a commercial bank in economic development explained below:

Collecting savings: The main function of a commercial bank is to collect fund as savings from the surplus of the society through various account such as; savings, fixed, current and other accounts. This bank invests these funds to various sectors and generates revenue.

Capital formation: Commercial bank receives the deposits of the society through a different account. It forms capital by collecting these funds and invest them. That helps to develop our economic growth.

Providing loan: The main objective of a commercial bank is to earn a profit. This bank provides a loan from the collected deposits and generates revenue as interest. It is the main source of income of commercial bank.

Investment: Commercial banks invest their deposits collected from the society surplus in the industrial and business sector. So the industrial and business sector can be developed. That helps to develop-our economical growth.

Money transfer: Commercial bank transfer money from one place to another, from one account to another, one country to another country within a short time via online banking. It makes our business easier and faster. It consumes business time and time is money.

Assistance in business development: National, as well as foreign business, is assisted by commercial banks. Commercial bank issue LC for foreign trade and act as an agent of the clients.

Representation: Commercial banks act as a representation of the client in various transactions such as foreign trade and other business. This bank provides LC facilities to the customer and increases foreign trade.

Creating an exchange of medium: Now a day’s cash transaction is riskier because of terrorism. A commercial bank creates a different medium of exchange like cheque, pay order, LC, note etc. these are alternative to cash.

Agricultural development: Agriculture site plays a vital role in our economic development. Now a day’s commercial bank provides a loan to the farmer for buying seeds, fertilizer, machinery etc. That helps to develop our economic growth.

Industrialization: Industrial sector has a very important impact on our economy. As the industrial is more costly to the investor may not have sufficient capital. This bank provides a loan in this sector to run a business. That helps to develop our economic growth.

Employment: By developing industrial and business sector commercial bank extend employment facilities so that many unemployed people can be employed. Commercial bank also creates employment facilities by establishing new branches.

Developing living standard: As commercial bank invests in the industrial and business sector, that creates the employment facilities and income increased. So that living standard improved. That helps to develop our economic growth. At last, we can say that these are the basic roles played by the commercial bank in economic development.

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