Banking Awareness’ is the series which is updated daily, and is intended to help you with your preparation for various bank exams. The following article is about ‘Importance of Banks in India’.
Banks were established primarily for safe-keeping of deposits. Trust was an important factor which grew even more after nationalization of the banks. Today, banks lend money, invest deposits for further growth and development, and repay the customers with interests. The role for banks can be felt among the individual customers and corporate majors. Banks have a role in mobilizing a country’s economy. It can develop foreign trade and help in the economic prosperity of a country. In India, here’s how it works.
Banking Awareness: Role of Banks for Individual Customers
Banks invite individuals to open bank accounts and deposit their earnings. Savings is the fundamental aspect of banks. The savings provide investments that are needed in the economy. Today, savings rate has increased since the pre-reforms age. It is now more than 30 percent of the Gross Domestic Product (GDP).
Increase in GDP indicate that the country’s economy has also grown substantially. GDP, calculated as the value of commodities (in Dollar) over a period of time, is related to the health of the country’s growth and prosperity. In other words, banks help in generating savings of the common man. This in turn helps to generate the income of India and improve the economy of the country. Growth in the economy helps people to get better wages and save even more.
Banking Awareness: Facts about Growth of Capital in India:
- Private Investment – 37 percent (through industrialization)
- Household Investment – 32 percent (mostly through savings in banks)
- Public Investment – 26 percent (through investments by the Indian government)
Role in Supporting Corporate Houses
Banks have a role in supporting industries. The savings generated from the individual customers are given as loans or advances for various types of investments. By doing this, banks provide the required funds and credit for the industry. It promotes…
Domestic Trade: Banks help in domestic trade or commercial transactions within the Indian territories. It does it through retail trading and wholesale trading.
- Retail trading – From groceries to merchandise, India has thousands of retail outlets that employ millions of people. The banks support this trading by funding builders to build the necessary infrastructure, and more.
- Wholesale trading – In this type of trading, there is transaction at different levels – such as interstate or inter district trade and commerce. Banks helps to mobilize such trading by financing industries which legally follow the trade.
Foreign Trade: Banks help in foreign trade or business transaction with other countries.
- It translates foreign trade policies and regulations to easily manageable steps for the entrepreneurs. Businesses can carry on activities that are legally viable.
- It provides financial packages to exporters so that they can carry on their businesses abroad conveniently.
- It provides relationships with the international financial community.
- It bridges gaps between exporters and financial agencies or multilateral investing agencies.
Banks help foreign trade through foreign branch banking system, foreign exchange, and funding exporting businesses.
While providing funds, banks encourage entrepreneurship. Shares are developed, bonds and stocks are issued. Banks assist bankrupt or sick units and fund them to make them viable once again. They fund the Small businesses, Small Office Home Office (SOHO) entrepreneurs and startups as well.
Banking Awareness: Role in Economy
Banks help to build up the capital. As more and more individuals create bank accounts and deposit their money, the banks get a huge amount of capital. The money is invested in various projects through rural and industrial loans. There is growth and prosperity in businesses. Consequently, there is a rise in profit and the economy of the country. In short, the banks form a bridge between the common man and the economy of the country. It helps to mobilize funds so that there is a better yield.
The Apex Bank or RBI formulates monetary policy from time to time. The other commercial banks under it implement the policies and ensure there is enough savings and subsequent loans and investments as well.
Role in Development and Prosperity
Banks provide loans to rural businesses. They assist farmers directly so that they can irrigate the land, use agricultural machinery to grow crops, etc. They help in dairy farming, poultry or pisci-culture. There are many region rural banks which support rural trading. Around 2000, the government formed the National Program for Rural Industrialization (NPRI) which has been monitoring funds for the rural sector. Special banks were established to look into the development of agriculture and industries.
In India, there are Development Banks that provide financial support to industries. They can perform the following tasks:
- Mobilize shares and debentures to generate money from the public.
- Act as a guarantor for later payments.
- Fund financial schemes
- Give an underwriting
One such Developing Bank is Small Industries Development Bank (SIDBI). There are other banks which primarily finance the industrial sector, such as ICICI, National Bank for Agriculture and Rural Development (NABARD), IDBI, etc. The policies are governed as per Micro, Small, & Medium Enterprises (MSME) regulations and policies formulated by the government.
So, banks have been developing the capital market by managing the savings of the common man. In many ways it helps in the growth and prosperity of a civilization.