Role of Commercial Banks in Developing Countries: Commercial banks play vital role in developing countries. Share Your Word File A bank keeps a certain portion of the deposits with itself as reserve and gives (lends) the balance to the borrowers as loans and advances in the form of cash credit, demand loans, short-run loans, overdraft as explained under. The banking sector, being the largest component of the financial system should take care to immunise itself from the macro economic shocks. Opening an account is a smart move - it means that you can access a service that helps you control your money, and which may help you borrow at some time in the future, if you need to do so. Capital formation is more important for economic development and banks helps in formation. Commercial bank fulfills investment requirements of savers and credit needs of both the investors and consumers. Are you looking for an essay on ‘Commercial Banks’? In the process of lending money, banks are able to create credit through secondary deposits many times more than initial deposits (primary deposits). In this way, they help in raising the standard of living of the people in developing countries by providing loans for consumptive activities. 53 conclusion credit risk management in the School Universiti Teknologi Mara; Course Title FINANCE 320; Uploaded By PrivateDugongMaster615. It works like this. It can also refer to a bank, or a division of a large bank, which deals with corporations or large/middle-sized business to differentiate it from a retail bank and an investment bank. (iii) Demand deposits are highly liquid whereas time deposits are less liquid. The withdrawing power depends upon the borrower’s current assets, the stock statement of which is submitted by him to the bank as the basis of security. In commercial banks, there are two types of banks, public banks, and private banks. It can also be encashed earlier through discounting process of a commercial bank. NPA is a double- edged weapon. 4. For example post offices are not bank because they do not give loans. They can be withdrawn only after the maturity of the specified fixed period. After the nationalisation of commercial banks (1969 and 1980) loans distribute in those areas increased. Privacy Policy3. CONCLUSION. A bank lends a certain percentage of the cash lying in deposits on a higher interest rate than it pay on such deposits. The commercial banks can play a vital role in the process of economic development and achievement of social justice. A bank creates credit on the basis of its primary deposits. 1.1 background of the study. Founded in 1920, the NBER is a private, non-profit, non-partisan organization dedicated to conducting economic research and to disseminating research findings among academics, public policy makers, and business professionals. Industrial Banks provide finance to industrial concerns by subscribing (buying) shares and debentures of companies and also give long-term loans to acquire machinery, plants, etc. title page. It needs no emphasis that the financial system plays a crucial role in achieving the objectives of the reforms program or globalisation, as popularly known. Do Like Me on Facebook. The banks have to satisfy the requirements of different customers belonging to different social group. The rate of interest offered by the banks to depositors is called the borrowing rate while the rate at which banks lend out is called lending rate. (ii) Demand deposits do not carry interest whereas time deposits carry a fixed rate of interest. Help achieve this objective by means of its customers health of the commercial banks and non-scheduled commercial,! Country needs the services of financial institutions for accelerating the pace of development policy! 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