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Chapter: 11th Commerce : Functions of Commercial Banks

Functions of All Commercial Banks in Totality

All commercial banks put together perform certain functions to the development of the country’s economy.

Functions of All Commercial Banks in Totality

 

All commercial banks put together perform certain functions to the development of the country’s economy.

 

1. More production and economic growth

These banks supply  the  vitamin  money  to all sectors of the economy including manufacturing sector. As a result all the sectors produce more.

 

2. Capital formation

Banks encourage savings habit among people and accumulate their small dormant savings. These funds can be fruitfully channelized for productive purposes of the economy.

 

3. Consortium finance

Thousands of crores required to establish a mega factory is not available from a single source. Banks join together and provide consortium finance in such cases.

 

4. Service coverage to non-monetised sector

Branches of the banks are opened in rural and village areas so that the non-banking areas are provided banking services.

 

5. Balanced regional development

Banks transfer funds from surplus areas and make them available in scarce districts or areas for the  formation  and  operation of business institutions. Even growth of different regions can be achieved through this function.

 

6. Smoothing of trade and commerce

For the efficient functioning of all traders and business institutions in a country, safe keeping of their funds, transfer of funds, payment and collection of funds when and where needed is very much necessary. Banks perform this function.

 

7. Development of industry, agriculture, MSMEs and SHGs

Banks design  methods  and  instruments  of financing each sector differently. They provide finance for small farmers, medium traders as well as industries. For example banks allow micro credit to SHGs, overdraft to traders and issue Certificate of Deposits to finance industries.

 

8. Implementation of monetary policy

Banks have established customer relationship with all public and business institutions through the network of branches. Broad guidelines or rules of the Government for the monetary sector of a country cannot be applied without such banks.

 

9. Encourages export and international trade

Banks open foreign branches or establish correspondent  relationship  with  banks   in foreign countries to help exporters. Instruments like letters of credit and international factoring services are undertaken to help exporters and importers.

 

10. New entrepreneurs and employment opportunities

Entrepreneurs obtain project loans and establish new business houses. By providing the required credit banks generate more economic activities and new employment opportunities.

 

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11th Commerce : Functions of Commercial Banks : Functions of All Commercial Banks in Totality |


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