AMITY LAW SCHOOL, KOLATA

SUBMITTED TO DR. MADHUMITA

Submitted by Rohini Sen(026), Aakanksh(003), Sulagna

Mohanti(018), MD Rizwan(004)
BBALLB (Hons)
2nd Semester

2022-2027

ROLE OF COMMERCIAL BANKS IN

DEVELOMENT OF INDIAN ECONOMY
 ACKNOWLEDGEMENT

I would like to express my special thanks of gratitude to my professor

DR. Madhumita Dasgupta maam as well as our university Amity
University Kolkata who gave us this golden opportunity to do this
wonderful project on the topic remedies for breach of contract which
also help me in doing a lot of research and we came to know about so
many new things , we are really greatfull that we got this project to
work together with
 CONTRIBUTION

• SULAGNA MOHANTI- Cover page+ Acknowledgement + Features +

Objective
• AAKANKSH GUPTA- Functions + Role of Commercial Bank in Indian
Economy + SCB
• ROHINI SEN- Data Analysis+ Contents + Conclusion + Bibliography
• RIZWAN- Statement of problem & Research Objective + Introduction +
Meaning and Definition
 TABLE OF CONTENT
1. introduction
2. meaning and definition
3. features
4. objectives
5. function
6. role in the economy
7. schedule commercial banks
8. data analysis
9. conclusion
10. bibliography
1.

STATEMENT OF PROMBLEM

The main role of commercial bank in development of Indian

economy.

RESEARCH OBJECTIVE

The goal of the project is to clarify the exact role played by the
commercial banks in development of Indian economy.

RESEARCH METHODOLOGY
The project's research technique and design content describe the strategy used to successfully
address the problem statement and meet the specified research objectives. All of the
alternatives for the topic are explained in this project. It also includes a focus on the
possibilities that were deemed to be the most suitable for the study topic and those that
appeared likely to produce the best results. Additionally, a description of the research's
concept and the numerous methods used are provided
 INTRODUCTION

Banks have always played an important position in the country’s economy. They play a
decisive role in the development of the industry and trade. They are acting not only as the
custodian of the wealth of the country but also as resources of the country, which are
necessary for the economic development of a nation. The general role of commercial banks is
to provide financial services to general public and business, ensuring economic and social
stability and sustainable growth of the economy. Commercial Bank in India comprises the
State Bank of India (SBI) and its subsidiaries, nationalized banks, foreign banks and other
scheduled commercial banks, regional rural banks and non-scheduled commercial banks. The
total numbers of branches of commercial banks are more than 50,000 and the regional rural
banks are approximately 8,000 covering 280 districts in the country. Commercial banks
mostly provide short term loans and in some cases medium term financial assistance also to
small scale units. Most of the commercial banks have got specialized units in their
administrative structure to take care of the financial needs of the small scale industrial units.
As we know that the Agriculture is the backbone of economy of any country like India.
Research is based upon the secondary data. which provide the findings on commercial banks
and how it helpful in economic development . The main objective of the study is to critically
examine and analyse the role of commercial banks on economic growth in India. The study
portrays how loans and credit affects the GDP and consequently the level of economic
growth in India . the study portrays how loans and credit affect the GDP and consequently the
level of economic growth of India Activities of the commercial banks in India are expanding
at a rapid space during the period after Independence. There is territorial as well as
functional. Expansion of the activities of the bank. Banks which are conservative and
conventional in their approach have come out from their shell and face the challenges of
planned economic growth. In recent years non-conventional sectors are receiving
the attention of commercial banks in India. A better understanding of the implications of
financing non- conventional sector by commercial banks is possible only if one looks back
the position of commercial banks during the pre-nationalization era. Banking in India before
nationalization

Commercial Banks are is the institutions that ordinarily accept deposits from the people and
advances loans. Commercial Banks also create in India; such banks alone are called
Commercial Banks which have been established in accordance with the provisions of the
Banking Regulation Act, 1949. Commercial Banks may be Scheduled Banks of Non-
Scheduled Banks.

Banking Regulation Act, (BR Act), 1949. According to Section 5(c) of the BR Act, 'a
banking company is a company which transacts the business of banking in India.

According to Reserve Banks of India Act 1934, ‘A Scheduled Bank is that bank which has
been included in the second schedule of the Reserve Bank
 MEANING AND DEFINITION

A commercial bank is a financial institution that provides services like loans,

certificates of deposits, savings bank accounts bank overdrafts, etc. to its
customers. These institutions make money by lending loans to individuals and
earning interest on loans. Various types of loans given by a commercial bank
are business loans, car loans, house loans, personal loans, and education loans.

They give out these loans from the money deposited by their customers in
different types of accounts. They use the deposits as capital for providing loans.
Commercial banks are essential for the economy of a country because they help
in creating capital, credit as well as liquidity in the market. These banks are
generally physically located in cities but these days there are online banks are
growing in numbers.
Commercial banks offer basic services of banking to the public including
individual customers as well as small and medium-sized businesses. Money is
made by banks by charging for services and fees. The fees depend on the
products given such as overdraft fees, fees for safe deposit boxes, late fees, etc.
Various loans also consist of fees other than interest on loans.

Banks earn money by giving out loans and for that purpose they use funds from
customer deposits. They charge higher interest rates on loans they give out and
comparatively less rate of interest on the amount they get as deposits from their
customers. For e.g., a bank may provide a 0.30 per cent rate of interest on
savings account to its customers but charges a 4.8 per cent rate of interest
annually for home loans.

Generally, commercial banks are situated in buildings where their customers

come for using ATM machines and other banker window facilities. As internet
technology has risen in recent years, most banks allow customers to do most
services online. People can now make money transfers, deposits or make
payments for bills online.
 FEATURES OF COMMERCIAL BANKS
Commercial banks are financial institutions that offer various services to their customers. Here
are some of the features of commercial banks in detail:

1. Deposits: One of the primary functions of commercial banks is to accept deposits from
their customers. Customers can deposit their money in different types of accounts, such
as savings accounts, checking accounts, time deposits, and money market accounts.
Banks pay interest on the deposits to the customers, which is one of the ways banks
earn revenue.
2. Loans: Commercial banks provide loans to individuals, businesses, and governments.
These loans can be for different purposes, such as buying a home, purchasing a car,
starting a business, or funding a government project. Banks charge interest on the loans,
which is how they make money from lending.
3. Credit Cards: Commercial banks issue credit cards to their customers, which allow them
to make purchases and borrow money. Banks charge interest on the amount borrowed
and also earn fees from merchants when customers use their credit cards to make
purchases.
4. Investment Services: Many commercial banks offer investment services, such as
brokerage services, investment advice, and portfolio management. Banks have
specialized investment professionals who can help customers make informed
investment decisions.
5. Foreign Exchange Services: Commercial banks facilitate international trade and
finance by offering foreign exchange services. Banks can help customers exchange one
currency for another, make international wire transfers, and issue letters of credit, which
are used in international trade transactions.
6. ATM and Online Banking: Commercial banks provide convenient banking services to
their customers through ATMs, online banking, mobile banking, and other electronic
channels. Customers can access their accounts, transfer money, pay bills, and perform
other banking transactions without visiting a physical branch.
7. Safekeeping: Commercial banks offer safekeeping services for valuable items, such as
jewelry, documents, and other assets. Banks have secure vaults where customers can
store their valuables.
8. Money Transfer: Commercial banks facilitate money transfer services, such as wire
transfers, electronic fund transfers, and other types of payment services. Customers can
transfer money from one account to another or send money to someone else through a
bank.
9. Insurance Services: Some commercial banks offer insurance services, such as life
insurance, health insurance, and property insurance. Banks partner with insurance
companies to offer these services to their customers.
10. Overall, commercial banks offer a range of services to their customers, which help them
manage their finances efficiently. Commercial banks play a crucial role in the economy
by providing funding to individuals, businesses, and governments, which helps
stimulate economic growth.
 OBJECTIVE OF COMMERCIAL BANKS

The main objective of a commercial bank is to provide financial services to its customers while
earning a profit. Here are some of the specific objectives of commercial banks:
1. Accept deposits: One of the primary objectives of a commercial bank is to accept
deposits from its customers. Banks offer different types of deposit accounts, such as
savings accounts, checking accounts, and time deposits, to attract customers and
encourage them to save their money.
2. Provide loans: Another objective of commercial banks is to provide loans to
individuals, businesses, and governments. Banks earn interest on the loans they
provide, which is one of the primary sources of revenue for them.
3. Earn a profit: Commercial banks are for-profit institutions, and their primary objective
is to earn a profit. Banks make money by charging interest on loans, earning fees on
services, and investing in financial instruments, such as stocks and bonds.
4. Facilitate payments: Commercial banks also facilitate payments by providing services
such as check processing, wire transfers, and electronic funds transfers. Banks play a
crucial role in the payment system, which helps individuals and businesses conduct
transactions efficiently.
5. Provide investment services: Many commercial banks also offer investment services,
such as brokerage services, portfolio management, and investment advice. Banks earn
fees for these services and help customers make informed investment decisions.
6. Facilitate foreign exchange: Commercial banks facilitate foreign exchange
transactions, such as currency exchange, international wire transfers, and letters of
credit. Banks play a critical role in international trade and finance.
7. Overall, the primary objective of commercial banks is to provide a range of financial
services to their customers while earning a profit. Banks aim to attract customers by
offering competitive interest rates on deposits and loans and providing convenient
banking services.
 FUNCTION OF COMMERCIAL BANK
Primary Functions
1. Accepting Deposits-The bank will accept savings, current, and fixed deposits as forms
of deposits. For short-term business needs, loans are made from corporate and
individual surplus balances.
2. Savings Deposits- Customers can make savings deposits up to a certain amount and
credit money to their accounts. Since these deposits can amass money over time, people
on fixed incomes favour them.
3. Providing Loans - This bank's primary function is to provide loans and advances to
entrepreneurs and business people while also obtaining interest. For any bank, it is their
main source of income. In this strategy, a bank retains a small fraction of the deposits
as a reserve and offers (lends) the remaining deposits to the borrowers in the form of
demand loans, overdrafts, cash credits, short-term loans, and other comparable loans.
4. Credit Creation: When customers are provided credit or a loan, they are not given cash
in a liquid form. The money is transferred to the customer's bank account after it has
been opened. This method enables the bank to generate revenue.
Secondary Functions
1. Providing locker facilities - Commercial banks offer lockers for use by customers
looking for a secure location to store their possessions. The continual threat of loss or
theft that comes with storing things at home is eliminated by locker facilities.
2. Exchange of Securities-Trading in bonds and other securities is another responsibility
of commercial banks. Customers can buy or sell the units directly from the financial
institution, which is more practical than alternative possibilities.
3. Bank as agent: In addition to carrying out their agent responsibilities, commercial
banks are required by their function to provide their clients with financial services.
These services frequently include-
• The administrator, trustee, or executor of a client-owned estate.
• Assisting clients with filing tax forms, receiving tax refunds, and other
associated duties.
• Giving customers a way to pay for expenses like premiums and loans.
• Establishing a framework for the electronic processing of checks, draughts,
bills, and other financial transactions
4. Discounting Bills of Exchange A commercial bank's primary responsibility in today's
world is discounting business invoices. It is believed that bank investments in bill
discounting bring in profits. Because they are regarded as negotiable instruments, bills
produce a consistent flow of money while avoiding risky situations during payment.
Additionally, they avoid bringing any legal action against the financial institution.
5. Dealing in Foreign Currency: Commercial banks help people and businesses that
export or import goods from other countries get foreign currency. However, such
transactions can only be carried out by a small number of authorized foreign
exchange-dealing banks.
 ROLE OF COMMERCIAL BANK IN
ECONOMY

1. Growth of entrepreneurship – Capital is a major factor in all companies and economic

sectors. It is necessary to keep a business operating. In this case, commercial banks
intervene by giving loans to save businesses. They include entrepreneurs, farmers, and
small and medium-sized businesses. By providing loans to company owners and
making investments with positive goals, banks help people become self-sufficient, fight
unemployment, and progress the right industries.

2. Wealth creation: By providing counselling and advisory services, bank employees can
point consumers towards mutual funds or direct investments. The bank can act as
trustee for wills and investment funds, custodian for all investment securities, and
provider of safety deposit boxes and letters of credit for possible investments.

3. Implementation and execution of monetary policies: The Reserve Bank of India's

monetary policy has produced a variety of rules and regulations that support free and
transparent financial transactions all over the country. This is only possible, though, if
commercial banks agree to adhere to these rules and help in their implementation. A
robust and sound monetary policy is the foundation for an economy's future and growth.

4. Trading functions- Market makers for corporate, government and municipal bonds may
be commercial banks. Banks are able to provide issuers with technical direction,
counselling, and assistance through their market-making activities.

5. Credit creation is essentially the act of leveraging domestic operations and

developments. Credit creation also refers to the production of liquidity in the economy.
The banks of a country serve as its financial engine, supplying the system with capital
to foster economic expansion on a variety of fronts.A more flexible credit influx that
leads to increased productivity, more employment, sales, and services is responsible for
greater economic development.

6. Inculcation Savings Habits- The predictable returns that banks provide as interest
income are one of the main draws for people who have bank accounts. Through a
number of interest- and price-linked deposit plans, people make deposits into banks.
This encourages the formation of thrifty behaviours, which is advantageous to the
economy.
 SCHEDULE COMMERCIAL BANKS
Scheduled banks are those banks that are listed under Schedule II of the Reserve Bank of India
Act, 1934. The bank's paid-up capital and raised funds must be at least Rs. 5 lakh to qualify as
a scheduled bank. These banks are liable for low interest loans from the RBI.

SCHEDULED BANK LIST

 DATA ANALYSIS

Scheduled Commercial Banks Covered

155
150
150

145
141
140 137
136
135
131
130

125

120
Dec,18 Dec,19 Dec,20 Dec,21 Dec,22

From this graph we can see how SCBs decreased gradually from 150 in Dec, 2018 to 137
Dec,2022. Lowest being 131 in Dec,2020 and average being 139. These values are taken from
official RBI website.

No. of Reporting Offices

154087

150180 151004
148137

141200

Dec,18 Dec,19 Dec,20 Dec,21 Dec,22

Here number of Reporting Offices increases in increasing rate. Highest being 154087 in Dec,
2022 and lowest being 141200 in Dec,2018 and average being 148921. These values are taken
from official RBI website.
Financial Ratio: Credit-Deposit data was reported at 72.100 % in 2022. This records an increase
from the previous number of 71.700 % for 2021. Credit Deposit data is updated yearly,
averaging 75.800% from Mar 2011 to 2022. The data reached an all-time high of 78.400 % in
2016. Commercial Banks: Financial Ratio: Credit Deposit data remains active status in CEIC
and is reported by Reserve Bank of India

Deposits data was reported at 170,087,950.750 INR mn1 in 2022. This records an increase from
the previous number of 154,435,099.651 INR mn for 2021. Deposits data is updated yearly,
averaging 104,556,379.26 INR mn from Mar 2011 to 2022. The data reached an all-time high
of 170,087,950.750 INR mn in 2022 and a record low of 52,079,690.000 INR mn in 2011.
Commercial Banks: Scheduled: Deposits data remains active status in CEIC and is reported by
Reserve Bank of India.

1
Millions abbreviation
Credit data was reported at 122,587,479.959 INR mn in 2022. This records an increase from
the previous number of 110,780,497.904 INR mn for 2021. Credit data is updated yearly,
averaging 78,788,880.289 INR mn from Mar 2012 to 2022. The data reached an all-time high
of 122,587,479.959 INR mn in 2022 and a record low of 39,420,820.000 INR in 2011.
Commercial Banks: Scheduled: Credit data remains active status in CEIC and is reported by
Reserve Bank of India.
 Conclusion
Commercial banks play a significant role in the Indian economy as they are an important source
of funds for individuals and businesses. They provide various types of loans and other financial
services that help to facilitate economic growth and development.

One of the key roles of commercial banks in India is to mobilize savings from individuals and
channel them towards productive investments. They also provide a range of services such as
deposit accounts, loans, and credit cards, which enable individuals and businesses to carry out
their financial transactions efficiently.

Commercial banks also contribute to the development of various sectors of the economy,
including agriculture, manufacturing, and infrastructure. They provide loans and other forms
of financial assistance to these sectors, which help to create employment opportunities and
boost economic growth.

Furthermore, commercial banks in India have also been instrumental in the implementation of
various government initiatives, such as the Pradhan Mantri Jan Dhan Yojana and the Pradhan
Mantri Mudra Yojana, which aim to increase financial inclusion and provide access to credit
for the underserved sections of society.

In conclusion, commercial banks are an essential part of the Indian economy, and their role in
mobilizing savings, providing financial services, and facilitating economic growth and
development cannot be overstated
 Bibliography
1. https://www.ceicdata.com/en/india/commercial-banks-statistics
2. https://sjvnindia.com/UploadFiles/TenderUploadedFile/15823/15.%20list%20of%20b
ank(NEW).PDF
3. https://m.rbi.org.in//Scripts/QuarterlyPublications.aspx?head=Quarterly%20Statistics
%20on%20Deposits%20and%20Credit%20of%20Scheduled%20Commercial%20Ba
nks
4. https://www.bbalectures.com/role-of-commercial-banks-in-economic-development/
5. https://proschoolonline.com/blog/functions-commercial-banks-role-indian-economy