Role of Bank in Indian Economy

by Finway FSC Empowering People Financially

Role of banks is very important in the modern economic system of a country like India. An effective banking system has a vital contribution in the development of a country’s economy. The banks are the financial institutes whose major functions are to accept deposits from its customers and lending loans to individuals or entities.

Achieving new benchmarks in the banking system for past few decades has contributed hugely in making India as one of the rising economic giants. The supreme financial authority lies with the RBI (Reserve Bank of India). It was established in 1935 under the Reserve Bank of India Act, 1934. The whole banking sector follows the guidelines of the Reserve Bank of India. The banking system in India is divided into scheduled and non–scheduled banks. Scheduled banks are further divided into commercial banks which include public sector, regional rural banks, State Bank of India and its associates, private sector banks, foreign banks, urban and rural co–operative banks. Nearly 80 % of the Indian market is controlled by the public sector banks.

Apart from the primary activities like accepting deposits, lending loan against property and unsecured business loans, the banks have diversified their functions into several directions with new schemes and services. This includes general and life insurance, investment banking, mutual funds, opportunities in credit cards, consumer finance and pension fund regulation services to name a few. New technologies like ATM service, internet banking, telebanking and electronic payment have been initiated for customer retention.

Some of the major roles of Banks inIndia’s economic growth are briefly discussed below:

Firstly, banks help in removing the serious capital deficiency of the country. The savings of the individuals are mobilized which may have been kept idle. These are invested in the productive industries through loans.The growths of the industries strengthen the economy of the country.

Secondly, every year banking sector generates millions of employment for the youths. Providing financial resources to the industries eventually create employment opportunities.

Thirdly, banks provide financial assistance to consumer activities as well as industries and different sectors. One can apply for home loans in delhi and other cities of the country to purchase new house or renovate an existing one. Cars loans or educational loans are also available for the consumers. Financial assistance is provided to industries that are unable to obtain enough funds for expansion, renovation or diversification. Banks also provide loans to promote new entrepreneurs.