Analyzing the Role of Commercial Banks in the Economic Growth of India

This report delves into the pivotal role of commercial banks in India's economic growth. It highlights how these institutions are indispensable to the economy, especially in promoting trade, technology transfer, and providing crucial financial assistance to businesses. The report explores the historical expansion of commercial banks post-independence, their contributions to capital formation, and their influence on various sectors, including agriculture, industry, and foreign trade. It emphasizes the importance of financial inclusion, the mobilization of savings, and the provision of financial services to both businesses and the public. The analysis covers the diverse landscape of commercial banks in India, including nationalized, state-owned, and foreign banks, and their impact on regional development. The report concludes by summarizing the significant contributions of commercial banks to India's overall economic development and the importance of their role as financial intermediaries.

Running head: THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH OF
INDIA
The role of commercial banks in economic growth of India
Name of the Student
Name of the University
Author Note

THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH OF INDIA
Introduction:
The development pace in any country is accelerated by the services of the financial
institutions and commercial banks is one of the financial institutions serving the financing
needs of economy. In India, there has been the rapid expansion of the commercial banks
activities after independence. Challenges of planned economic growth has been faced by the
commercial banks and this have made them come out of the shell. The commercial banks
attention in India is being received by non-conventional sectors. The implications of the
commercial banks on financial non-conventional sector can be understood in a better way by
looking at the role of commercial banks during the era of pre-nationalization. Commercial
banks have been established according to the provision of banking regulation act, 1949 (Saini
&Sindhu, 2014).
Discussion:
After the era of independence, the commercial banks have been found to expand
rapidly. The commercial play a very significant role in the economic growth and
development in a number of ways. Commercial banks are an indispensable part of an
economy particular in India, these banks play a crucial role in promoting the trade and
exchange of technology transfer throughout the world. The commercial banks in particular
provides assistance to the businessmen by providing them with several needful things like
capital goods, technological, raw materials and many others. Thereby, the commercial banks
can be regarded as a valuable pillar of the economy.A developed financial system of the
country ensures to attain development by imparting the masses with innumerable services and
assistance in the name of trade, technology, capital goods. Commercial banks also provides
assistance to the merchant banking services to the merchants and the form operators
additionally.Commercial banks, in particular are institutions which ordinarily accepts

THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH OF INDIA
deposits from the masses and advance loan. Commercial banks have a remarkable
contribution in helping and developing the foreign trade by assisting the business men of
different countries in carrying out international trading by import or export. The payments
done through various mode including checks, bank draft, credit and debit cards. Additionally,
nowadays the letter of credit has revolutionized in both domestic and foreign trade where the
importers uses the letter of credit to initialize the payment to the exporter’s bank (Kusuma&
Lakshmi, 2019). Apart from this foreign trade have also found to help in international
promotion.
Economic activity of the country is influenced by the commercial banks offering rate
of interest and making credit available. In emerging nation such as India, there are real
factors that helps in influencing the economic growth and these factors include agriculture
modernization, industrial development, foreign trade expansion, internal trade organization
and exports (Siddiqui, 2018). Some of the basic economic resources available in the country
include labor, land and entrepreneurs. Usage of such resources can be done by offering
financial assistance to the business. In this regard, active role is being played by the
commercial banks by enhancing the investment activities for the business done by the
accumulation of the savings of public.
Commercial banks has the general role of offering financial services to the business
and public so that the social and economic stability is ensured along with contributing to the
social and economic security and making the economy to grow in a sustainable manner.
Commercial banks in the Indian economy comprises of nationalized banks, state banks of
India, scheduled commercial banks, nonscheduled commercial banks and regional, regional
rural banks and foreign banks. As on June, 2018, total branches of commercial banks is
recorded at 149891 and this makes India a number one banking branch. Commercial banks
plays a crucial role in the economic development of India in the form of financing industries,

THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH OF INDIA
capital formation by way of mobilization of savings, funding the agriculture sector, financing
trade, financing the employment generating activities, financing the activities of consumption
and offering monetary policy assistance (Begum, 2017).
Particularly, in a developing country like India, where there is a geographical division
of urban and rural areas, the commercial have a crucial contribution in the overall growth and
development of the different regions in the entire India. The lesser developed regions which
includes the rural areas are helped by the urban areas through the transfer of funds which
promotes the penetration of technology transfer to the rural masses. Banks have also
promoted the transfers of capital goods from cities to the towns and villages by starting the
operations in the remote areas. Consequently, it can be said that the lesser developed areas
get an opportunity to trade and do business with the developed portion of the country. So, the
commercial banks are an absolutely necessary part of economy by promoting the trade
relationships both nationally and internationally, thereby resulting in the overall growth and
development of the economy (Malhotra &Bahl, 2020).
Capital formation is an important issue faced by the developing country such as India
and an active role is played by the commercial banks in making the people realize the
difference between savings and hoarding and contribute in generating capital. Many valuable
services are rendered by the commercial banks in India through a network of branches to
consumers and business. Such banks are all purpose banks offering wide range of functions
such as selling and buying of foreign exchange, making consumer loans and short term
business, fixed and savings deposits, issuing cheques and accepting demand deposits. India
being a developing nation faces the most important issue of formation of capital
(Visalakshi&Kasilingam, 2017). In this regard, a valuable contribution is made by the
commercial banks in raising the financial resources so that the rate of capital formation can
be accelerated. In addition to this, expansion of branches in the rural and urban areas helped

THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH OF INDIA
in mobilizing the savings and making the idle resources mobilized for the purpose of
production (Kusuma& Lakshmi, 2019). Idle savings of people is attracted into the organized
capital market of the country by attracting the savings and stimulating thrift.
Development and economic growth of country is ensured by the development of its
financial system. A good financial system helps in supporting the development of country
like India and commercial banks helps in addressing the socio economic matters by
addressing the needs and requirement by way of promoting industry, promoting the capital
formation, employment opportunities generation and inculcating saving habits in the form of
deposits (Ghosh &Sanyal, 2019).
For the small business, commercial banks can be considered as an important source of
financing. The importance of the commercial bank in promoting the economic growth of
India rests on their role of financial intermediaries. Banks in this capacity helps in driving the
investment capital flow throughout the marketplace. The chief mechanism in the economy
that is done by the commercial banks is the allocation of capital that is done by the process of
lending (Prakash, 2017). This is done by helping the small business to grow, arbitrating the
risk, wealth and spending of government. Banks help in gauging the likelihood of default of
borrowers by examining the finances including debt level, credit score and income. The risk
of financial losses is reduced by weeding out the borrowers who are riskier. India is able to
witness a significant proportion of employment generated by the aggregate effect of the
activities of small business. It is due to the forwarding of the loans to the small business that
assist them in initiating the operations and embarking on the loan plans. Furthermore, the
federal government role as an economic development agent is supported by the commercial
banks. Operations of government is financed by issuing short and long term treasury bonds
and supporting deficit financing. Moreover, spending of the government is also funded by

THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH OF INDIA
commercial banks by buying the bonds that are issued by the treasury department
(Gaikwad&Suryawanshi, 2020).
Almost all the sectors of India have received loan for their business funding and
operations from the commercial banks with the objective of providing the capita support in
their growth and development journey. These sectors involved textile, basic metal and metal
product, infrastructure, construction, petroleum, chemical sector and rubber. In developing
countries such as India, commercial bank has lend the support to the agricultural sector by
offering farmers with direct financing for the mechanization and modernization of their farms
and also providing assistance for poultry farming, sheep breeding, animal husbandry and
horticulture (Lenka& Sharma, 2017).
During the last ten years, banking system in India has undergone significant changes
with the economic growth of the country being accelerated by the functioning and the
contribution of the commercial banks. Reforms of the banking sector has been unique as it
combines the ownership and regulation in a cost effective and non-disruptive manner and
competition reorientation (Sofi&Zamir, 2019).
Conclusion:
In light of the above discussion, it is concluded that commercial banks holds an
importance place in making the economy of India grow. It has helped wide range of sectors
to build and develop themselves and this in turn have promoted the economic development of
country. Banks have assisted in setting up the business unit in India as the foreign banks and
multinationals have been encouraged to offer assistance driven by globalization.

THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH OF INDIA
References list:
Begum, E. D. (2017). Initiatives by Indian Commercial Banks towards Financial Inclusion
for Sustainable Growth. International Journal of Engineering and Management
Research (IJEMR), 7(4), 451-456.
http://www.indianjournals.com/ijor.aspx?target=ijor:ijemr&volume=7&issue=4&article=070
Gaikwad, S. B., & Suryawanshi, J. R. (2020). Role of commercial Banks in Agricultural
Finance. Our Heritage, 68(25), 204-212.
https://archives.ourheritagejournal.com/index.php/oh/article/download/2079/1950
Ghosh, S., & Sanyal, B. (2019). Determinants of Operating Efficiency of Commercial Banks
in India: Insights from Panel Regression Model. The Impacts of Monetary Policy in
the 21st Century: Perspectives from Emerging Economies, Emerald Publishing
Limited, 253-263.
https://www.emerald.com/insight/content/doi/10.1108/978-1-78973-319-820191025/full/
www.rbi.og.in
Kusuma, K., & Lakshmi, V. G. (2019). Foreign Exchange Risk Management Practices in
Commercial Banks of India. Currency Risk Management: Selected Research Papers,
101.
https://books.google.co.uk/books?hl=en&lr=&id=Sq-
ZDwAAQBAJ&oi=fnd&pg=PA101&dq=Kusuma,+K.,+%26+Lakshmi,+V.+G.
+(2019).
+Foreign+Exchange+Risk+Management+Practices+in+Commercial+Banks+of+India
.+Currency+Risk+Management:+Selected+Research+Papers,+101.&ots=zI_xvta5w-
&sig=cESIuvuO1rs4cIN_EItbNn61lqM

THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH OF INDIA
Lenka, S. K., & Sharma, R. (2017). Does financial inclusion spur economic growth in
India?. The Journal of Developing Areas, 51(3), 215-228.
https://muse.jhu.edu/article/662349/summary
Malhotra, M., & Bahl, S. (2020). The Role of Commercial Banks, Co-operative Banks and
RRBs in financing agriculture to farmers in India. Studies in Indian Place
Names, 40(3), 972-991.
https://archives.tpnsindia.org/index.php/sipn/article/download/201/184
Prakash, P. (2017). Growth and development of scheduled commercial banks in India and its
contribution towards the economic development. ZENITH International Journal of
Business Economics & Management Research, 7(2), 9-17.
http://www.indianjournals.com/ijor.aspx?
target=ijor:zijbemr&volume=7&issue=2&article=002
Prasad, E. H., & Prasad, G. B. (2017). Non-Performing Assets - A Study of Scheduled
Commercial Banks in India. Review of Professional Management, 15(2), 26-36.
http://www.i-scholar.in/index.php/RPMNDIM/article/view/163911
Saini, P., & Sindhu, J. (2014). Role of commercial bank in the economic development of
India. International Journal of Engineering and Management Research
(IJEMR), 4(1), 27-31.
https://pdfs.semanticscholar.org/4078/6cd6e9cd598e053e7d0e21d9b398e278aa87.pdf
Siddiqui, A. U. (2018). Financial Inclusion in India-“A Catalyst for Sustainable Economic
Growth. International Journal of Management and Applied Science, 4.
http://www.iraj.in/journal/journal_file/journal_pdf/14-440-152301812561-68.pdf

THE ROLE OF COMMERCIAL BANKS IN ECONOMIC GROWTH OF INDIA
Sofi, Z. A., &Zamir, M. N. (2019). THE IMPACT OF FINANCIAL INCLUSION ON THE
ECONOMIC GROWTH OF INDIA: AN EMPIRICAL ANALYSIS. Journal of
Commerce & Accounting Research, 8(3).
Visalakshi, S., &Kasilingam, R. (2017). LEARNING AND GROWTH PERSPECTIVE OF
THE BALANCED SCORECARD IN COMMERCIAL BANKS IN
INDIA. Psychological Researches, 60(1), 28-37.