Commercial banks play an important role in economic development of developing country.

Economic
development involves investment in various sectors of economy. The banks collect savings from the
people and mobilize saving for investment in industrial project. The investors borrow from banks to
finance the projects. Promote the growth rate through the reorientation of loan policy. Special funds are
provided to the investors for the completion of projects. The banks provide a guarantee for industrial
loan from international agencies. The foreign capital flows to developing countries for investment in
projects.

Besides normal banking the banks perform agency services for the client. The banks buy and sell
securities, make rent payments, receive subscription funds and collect utility bills for the Government
departments. Thus these banks save time and energy of busy peoples. Banks arrange foreign exchange
for the business transaction with other countries. The facility of foreign currency account has resulted in
an increase of foreign exchange reserves. By opening a letter of credit the banks promote foreign trade.

The banks are not simply collecting funds but also serve as a guide to the customer investment of their
funds. The policy of banks is an instrument in wide dispersal of credit in country.

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Role of Banks in Economic Development of a

country?
1: Financing developmental projects
2:Development of industrial and agricultural sectors
3:Transference of money
4:Overcome the problem of unemployment
5:Encouragement to young entrepreneurs

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Shah K

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Commercial banks are the most significant of the financial intermediaries. They play important
role in all the areas listed by you except that in overcoming unemployment and encouragement
to young entrepreneurs their role would depend the policies and programs of their stakeholders.

Loans account for over half of the total bank assets in the U.S. commercial banking system.
Bankers lend to businesses, consumers, and governments (both domestic and foreign). The
second largest category of bank assets is investments, held by banks for both liquidity and
income purposes. These investments include U.S. government and government guaranteed
securities, the bonds of states and municipalities, and private securities. Banks also hold cash
assets, mostly for liquidity purposes, but also because the banking authorities require that a
certain fraction of deposits be held in cash-asset form. Of the banking system's liabilities, about
three-fourths are in the form of deposits, primarily from individuals and companies, but also
from domestic and foreign government agencies. Nondeposit liabilities include borrowings on
the federal funds market.

Role of Central Banking

The foremost monetary institution in a market economy is the central bank. These are usually
government-owned institutions and are responsible to the national interest. Most central banks
perform the following functions: They serve as the government's banker, act as the banker of the
banking system, regulate the monetary system for both domestic and international policy goals,
and issue the nation's currency. As banker to the government, the central bank collects and
disburses government income and receipts, manages the issue and redemption of government
debt, advises the government on all matters pertaining to financial activities, and makes loans to
the government. As banker to the nation's banks, the central bank holds and transfers banks'
deposits, supervises their operations, acts as a lender of last resort, and provides technical and
advisory services. Monetary policy for both domestic and foreign purposes is implemented and,
in many countries, decided by the national banking authorities, using a variety of direct and
indirect controls over the financial institutions. Coins and notes that circulate as the national
currency are usually the liability of the central bank.

Source(s):

The Columbia Encyclopedia