Social Science: Money and Credit - Formal Institution - Nationalized Commercial Bank

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How do banks play an important role in the economy of India? Explain.

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Solution

Role of banks in India:
i. Accepting deposits from the public is the primary function of a commercial bank. They accept deposits from the people who have surplus amount and provide loans to investors who are in need. Thus, they encourage savings and promote production activities by investing them.
ii. Banks advance loans to business persons, farmers and consumers against approved securities. Cash credit, overdraft, short-term loans, discounting of bill of exchange, money at call etc. are the loans advanced by banks.
iii. They also help in the distribution of surplus capital from regions where it is abundant to those places which have a scarcity of funds.
iv. Banks provide concessional loans to priority sectors like agriculture, small scale industry, retail trade, export, etc.
v. Banks provide services such as collection and making payments on behalf of their customers such as insurance premium, dividends etc.

Concept: Formal Institution - Nationalized Commercial Bank
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2014-2015 (March) All India Set 2
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