Economics

Project – 2

Submitted by:
A. Lauhityaa
 PROJECT REPORT ON
COMMERCIAL BANKS AND IT’S FUNCTIONS

UNDER THE GUIDANCE OF

Mrs. Lalitha

SUBMITTED BY
A. LAUHITYAA
 Certificate

This is to certify that the project titled “ COMMERCIAL BANKS AND IT’S
FUNCTIONS” is a work done by A. LAUHITYAA of grade XII - C in
Economics during the academic year 2023 - 2024 and has been carried out
under direct supervision and guidelines of Mrs. Lalitha

Signature of the External Examiner Signature of the Teacher

Signature of the Principal

 Acknowledgement

I would like to express my heartfelt gratitude and appreciation to all those who have
contributed to the successful completion of this Economics Project titled
“COMMERCIAL BANKS AND IT’S FUNCTIONS” for the academic year 2023-2024.

First and foremost, I would like to extend my deepest thanks to my mentor Mrs. Lalitha,
whose unwavering guidance, support, and invaluable insights were instrumental in shaping
this project. Your mentorship has been a source of inspiration, and I am profoundly
grateful for your time and expertise.

I am indebted to the faculty of AKLAVYA INTERNATIONAL SCHOOL for providing

me with the knowledge and resources necessary to undertake this project. Your
commitment in my academic journey.

My friends and family deserve a special mention for their unwavering support and
encouragement throughout this endeavour. Your belief in me has been my driving force,
and I am grateful for your patience and encouragement.

NAME:
ROLL NO:
UNIQUE
ID:
 Index

S.no Topic Pg.no

1 Introduction 1-2

2 Statement of Purpose 3-4

3 Concept of Bank 5-7

4 Introduction to Commercial 8-11

Banks

5 Functions of Commercial Banks 12-16

6 Difference between different 17-22

banks

7 Types of Bank Credits explained 23-29

8 What is Credit Creation by 30-35

Commercial Banks
S.no Topic Pg.no
9 Limitations of Credit Creation 36-39

10 Challenges faced by Commercial 40-44

Banks

11 Role of Commercial Banks in our 45-50

Economy

12 Conclusion 51-52

13 Bibliography 53
 Introduction

In the vast landscape of money matters, we're taking a

closer look at a specific kind of bank – commercial
banks. This project is all about understanding what these
banks are, how they work, and why they matter in our
economic story.

Why Focus on Commercial Banks: Our spotlight is on

commercial banks, the ones you see around your
neighbourhood. We want to unravel the mystery behind
their operations and see how they contribute to keeping
our money world in motion.

Diving into Commercial Banks: Instead of looking at

all kinds of banks, we're zooming in on commercial
banks. They're not just places to store money; they do a
bunch of interesting things every day. From accepting
your piggy bank savings to using fancy tech, we'll
explore what makes commercial banks tick.

1
Getting to Know Their Role: Commercial banks
aren't just about money – they play a big role in making
our
country's economy grow. We'll chat about how they help
gather money for big projects, offer loans to create
opportunities, and basically, make our country move
forward.

Facing Challenges Together: Of course, like everything,

commercial banks have their challenges. We'll talk about
common problems they face, like bad loans and
competition. Plus, we'll peek into the rules and laws that
keep everything fair and square.

This project is your guide to understanding commercial

banks – the ones you see in your town. By the end, you'll
have a clearer picture of how these banks work and why
they're so important in making sure our money system
runs smoothly. Let's jump into the world of commercial
banks and discover the interesting things that keep our
money going strong.

2
 Statement of Purpose

Our project sets out to make the world of commercial

banks more understandable for everyone. We want to
explore what commercial banks are, how they work, and
why they matter in our lives.

Our main goal is to dig into the everyday operations of

commercial banks, going beyond just storing money. We
aim to highlight the important roles they play, from
taking our deposits to using technology and helping
create opportunities through loans.

We also want to show how commercial banks

contribute to making our country's economy grow. By
looking at
their part in forming capital and making credit available,
we aim to paint a picture of their impact on our economic
progress.

Along the way, we'll talk about the challenges

commercial banks face, like dealing with bad loans and
competition. We'll also touch on the rules and regulations
3
that keep everything in check.

4
In a nutshell, our project is about making commercial
banks less mysterious. We hope that by the end,
everyone will have a clearer picture of why these banks
are so important in keeping our money world running
smoothly. Our purpose is not just to understand
commercial banks for our project but to gain knowledge
that helps us make smarter financial choices in the future.

5
 Concept of bank

A bank is like a financial storehouse where we put our

money and take care of our financial needs. It's a place
that helps us manage our money in different ways
like:

Safekeeping our Money: One main thing banks do is

keep our money safe. When we have extra money, we can
deposit it in the bank. They make sure it's secure, and
sometimes, they even give us a bit more money called
interest as a thanks.
6
Making Transactions Easy: Banks make it easy for us
to buy things and pay others. Instead of carrying cash, we
can use tools like checks or debit cards that the bank
provides. It's safer and more convenient.

Borrowing When Needed: Sometimes we need more

money than we have. Banks can help by giving us a loan.
Whether it's for a house, starting a business, or education,
banks can lend us money. Of course, we must pay it back,
but it allows us to do things even when we don't have all
the money right away.

Growing our Money: Banks also use our money to

invest. It's like planting a seed that grows into a tree with
more fruits. This helps our money grow over time, and
we might get a little extra in return.

Rules to Keep Things Fair: Banks follow rules to keep

everything fair and safe. There are regulations in place to
make sure our money is protected, even if something
unexpected happens.

7
In simple terms, a bank is a place that looks after our
money, helps us with transactions, lends us money when
needed, and even helps our money grow. Understanding
the basics of how a bank works can empower us to make
smart decisions with our money.

8
 Introduction to
Commercial
Banks

A commercial bank is like the heartbeat of a country's

financial system. It's not just a physical place; it's a
crucial institution woven into the fabric of our daily lives.
Here's a closer look at what makes a bank a significant
part of our economic landscape:

A Trusted Guardian: A commercial bank is a trusted

guardian of our hard-earned money. When we entrust
our savings to a bank, there's a sense of security. It's a

9
place where we can safely store our money, knowing
that it's protected by layers of security and regulations.

1
A Source of Stability: Commercial Banks contribute
to the stability of our financial world. By offering a
secure environment for deposits, banks play a pivotal
role in
maintaining confidence in the economy. This stability is
essential for businesses to flourish and individuals to
plan for their future.

The Lender and Borrower Connection: Banks act as

the bridge between those who have extra money and
those who need it. When you're ready to buy a home,
start a business, or pursue education, the bank steps in as
a financial partner, providing the necessary funds.
Similarly, for those looking to grow their money, banks
offer various investment opportunities.

Catalyst for Economic Growth: Banks are catalysts for

economic growth. Through loans and investments, they
inject capital into various sectors, fostering
entrepreneurship and innovation. This, in turn,
contributes to job creation and an overall flourishing

1
economy.

1
Custodian of Dreams: Think of a bank as a custodian of
dreams. Whether it's saving for a house, funding
education, or starting a business, a bank is there to
support your financial aspirations. It provides the tools
and resources needed to turn dreams into reality.

Adaptability and Innovation: Banks are not stagnant

entities. They evolve and innovate to meet the changing
needs of their customers. The advent of technology has
transformed banking, with online platforms, mobile
apps, and electronic transactions becoming integral parts
of the banking experience.

Regulatory Pillar: Banks operate within a regulatory

framework that ensures fair practices, transparency, and
the protection of customers. This regulatory oversight
is essential for maintaining the integrity of the financial
system.

1
In essence, a bank is more than a building with vaults and
tellers; it's a cornerstone of economic activity. It's where
financial dreams take root, stability finds a home, and
communities thrive. It's a dynamic entity that not only
adapts to change but also shapes the financial landscape
for the betterment of individuals and society as a whole.

1
Functions of Commercial Banks

Commercial banks perform various functions that can be

categorized into primary and secondary functions.
Additionally, there are some other functions that are
integral to their operations. Let's break down each
category in the following paragraphs.

Primary Functions of Commercial Banks:

1.Accepting Deposits:
 Commercial banks provide a safe place
for individuals and businesses to deposit
their
money. This includes savings accounts, current
accounts, and fixed deposits.

1
 2.Providing Loans and Advances:
 Banks offer loans and advances to individuals
and businesses for various purposes, such as
buying a home, starting a business, or
meeting short-term financial needs.

Secondary Functions of Commercial Banks:

1.Agency Services:
 Commercial banks often act as agents for their
customers. This includes services like
collecting cheques, making payments on behalf
of
customers, and buying/selling securities.

2.Credit Creation:
 When banks lend money, they create credit.
This is a significant secondary function as it
contributes to the overall money supply in the
economy.

1
3.Transfer of Money:
 Banks facilitate the transfer of money from one
place to another through services like electronic
fund transfers, wire transfers, and online
banking.

4.Investment of Funds:
 Banks invest their funds in various financial
instruments, such as government securities,
bonds, and other assets, to earn interest and
maximize returns.

5.Foreign Exchange Services:

 Commercial banks provide services related to
foreign exchange, including currency exchange,
issuance of traveller’s cheques, and handling
international transactions.

1
Other Functions of Commercial Banks:
1.Safety Deposit Boxes:
 Some commercial banks offer safety
deposit boxes for customers to store
valuable items, documents, or possessions
securely.

2.Educational and Advisory Services:

 Banks may offer educational programs to
promote financial literacy. Additionally, they
provide advisory services on investments,
financial planning, and other related matters.

3.Underwriting of Shares and Debentures:

 Commercial banks may participate in
underwriting activities, helping companies
raise capital by buying unsold shares or
debentures during public issues.

1
 4.Government Business:
 Banks often conduct financial transactions
on behalf of the government, including the
collection of taxes, payment of pensions, and
handling other government-related financial
activities.

These functions collectively define the role of

commercial banks in the financial system. They not only
serve as custodians of money but also actively contribute
to the economic development of a country.

1
 Difference between different
banks

Commercial banks, central banks, and other

specialized banks serve distinct roles in the financial
system. Let's explore the key differences among them:

1.Commercial Banks:

 Primary Focus: Commercial banks are

primarily concerned with providing financial
services to
individuals, businesses, and other entities.

1
  Functions: They accept deposits, offer
loans, facilitate transactions, and provide
various financial products and services.

 Ownership: Commercial banks are typically

owned by private shareholders or are
publicly traded entities.

 Profit Motive: Operate with a profit motive

and generate revenue through interest on loans,
fees, and other financial services.

2.Central Banks:

 Primary Focus: Central banks are the

monetary authorities of a country and are
responsible for managing the nation's money
supply and formulating monetary policy.

 Functions: They issue and regulate currency,

set interest rates, control inflation, and act as a
lender of last resort to commercial banks.

1
  Ownership: Central banks are usually
government-owned or have a significant degree
of government involvement.

 Profit Motive: While central banks may hold

assets and generate income, their primary goal is
often economic stability rather than profit.

3.Other Specialized Banks:

 There are various types of specialized banks

that cater to specific functions or sectors, such
as development banks, cooperative banks, and
investment banks.

 Development Banks: Focus on financing

projects that contribute to economic
development.

 Cooperative Banks: Operate on a cooperative

basis, often serving specific communities or
groups.
1
  Investment Banks: Primarily involved in
underwriting and facilitating the issuance of
securities, mergers and acquisitions, and
other investment-related activities.

Key Differences:

 Purpose:

 Commercial banks focus on offering a

broad range of financial services to the
public and businesses.

 Central banks are responsible for managing a

country's money supply, implementing monetary
policy, and ensuring financial stability.

 Specialized banks have specific functions

tailored to their designated roles, such as
development or investment activities.

2
 Ownership:

 Commercial banks are typically privately owned

or publicly traded entities.

 Central banks are often government-owned or

have a significant government influence.

 Specialized banks may vary in ownership

structure based on their specific
functions.

 Operations:

 Commercial banks operate with a profit motive

and engage in various profit-oriented activities.

 Central banks focus on macroeconomic

stability and implement policies to control
inflation and support economic growth.

2
  Specialized banks have specific objectives
aligned with their designated roles, such
as
fostering development or managing investments.

In summary, commercial banks serve the general

financial needs of individuals and businesses,
central
banks manage a country's monetary policy and financial
stability, and specialized banks have distinct roles based
on their designated functions. Each plays a unique and
vital role within the broader financial system.

2
Types of Bank Credits explained

There are various types of bank credits, each

serving different purposes based on the needs of
individuals, businesses, and the overall economy.
Here's an
explanation of some common types of bank credits:

2
1.Personal Loans:

 Purpose: Personal loans are unsecured loans

provided by banks to individuals for
personal
expenses such as medical bills, education, travel,
or debt consolidation.

 Collateral: Typically unsecured, meaning no

collateral is required, and approval is based
on the borrower's creditworthiness.

2
2.Home Loans or Mortgages:

 Purpose: Home loans or mortgages are used

to purchase or refinance real estate properties.

 Collateral: The property itself serves as

collateral, and the loan is repaid in instalments
over an extended period.

3.Auto Loans:

 Purpose: Auto loans are used to finance

the purchase of vehicles.

 Collateral: The vehicle serves as collateral,

and the loan is repaid over a fixed term.

2
4.Credit Cards:

 Purpose: Credit cards provide a revolving line of

credit for individuals to make purchases.

 Collateral: Generally unsecured, and approval

is based on the cardholder's creditworthiness.

5.Business Loans:
 Purpose: Business loans are extended to
businesses for various purposes, such as
expansion, working capital, equipment
purchase, or project financing.

 Collateral: May be secured by business assets,

and approval may also depend on the
business's financial health.

2
6.Overdraft Facility:

 Purpose: An overdraft allows account holders

to withdraw more money from their bank
account
than is available, up to a predetermined limit.

 Collateral: Typically unsecured for

smaller limits, but larger overdrafts may
require
collateral.

7.Working Capital Loans:

 Purpose: Working capital loans provide funds

to cover day-to-day operational expenses for
businesses.

 Collateral: May be secured by current assets like

inventory or accounts receivable.

2
8.Term Loans:

 Purpose: Term loans are medium to long-

term loans used for specific purposes like
business expansion, equipment purchase, or
real estate acquisition.

 Collateral: Can be secured or unsecured

based on the loan terms and amount.

9.Student Loans:

 Purpose: Student loans are designed to finance

education expenses for students.

 Collateral: Typically unsecured, and

repayment usually begins after the completion
of studies.

2
 10. Microfinance Loans:

 Purpose: Microfinance loans are small loans

provided to entrepreneurs, often in
developing economies, to support small
businesses and
income-generating activities.

 Collateral: Collateral requirements may vary,

and some microfinance institutions operate with
a focus on collateral-free lending.

Understanding these various types of bank credits helps

individuals and businesses choose the most suitable
financing option based on their specific needs and
financial circumstances. Each type of credit has its terms,
conditions, and purposes, providing flexibility for
borrowers in managing their financial requirements.

2
 What is Credit Creation
by Commercial Banks

Credit creation by commercial banks refers to the

process where banks generate additional money and
credit in the economy beyond the actual cash deposits
they hold. This occurs when banks use a portion of their
deposits to
extend loans and create new deposits in the process. In
essence, the act of lending by commercial banks results
in the creation of credit, contributing to the expansion of
the overall money supply in the economy.

3
 Process of Credit Creation

The process of credit creation by commercial banks

involves several steps. Here's a detailed explanation of
how credit creation occurs:

1.Initial Deposit:

 The process begins with individuals, businesses,

or other entities depositing money into their
bank accounts. This initial deposit forms the
base for
credit creation.

2.Reserve Requirement:

 Central banks set reserve requirements,

specifying the fraction of deposits that
banks

3
must hold in reserve. This requirement is in
place to ensure that banks maintain a certain
level of
liquidity and stability.

3
3.Creation of Excess Reserves:

 The bank, after satisfying the reserve

requirement, is left with excess reserves.
These excess reserves are funds that can be
used for
lending and are a crucial element in the credit
creation process.

4.Lending Decision:

 Banks have the authority to use a significant

portion of their excess reserves to extend loans.
When an individual or a business applies for a
loan, the bank assesses the creditworthiness of
the borrower, considers the purpose of the loan,
and makes a lending decision.

5.Loan Disbursement:

 If the loan is approved, the bank disburses

the loan amount to the borrower. This money
3
is
typically deposited into the borrower's account.

3
6.Creation of New Deposits:

 The loan amount, once deposited into the

borrower's account, effectively becomes a new
deposit. This new deposit is additional money
in the banking system, and it coexists with the
original deposit that initiated the lending process.

7.Multiplier Effect:

 The process doesn't stop with the creation of

one new deposit. The borrower, having received
the loan, may spend it. If the money is spent and
ends up in another bank, that bank can use a
fraction of it to extend another loan, creating
another deposit. This chain reaction
continues, leading to a multiplier effect on the
initial deposit.

3
8.Repeat Process:

 The new deposits created through the lending

process can be used by other banks to extend
more loans. As this process repeats throughout
the banking system, it contributes to the overall
expansion of the money supply.

9.Regulatory Oversight:

 Central banks play a crucial role in

overseeing and regulating this process. They
set reserve
requirements, adjust interest rates, and
implement other monetary policy tools to control
the pace of credit creation, aiming to maintain
financial stability and control inflation.

3
Example:

 Suppose a bank receives a deposit of ₹1,000. If the

reserve requirement is 10%, the bank keeps ₹100
as required reserves and can lend out the remaining
₹900. This ₹900 is then spent and deposited into
another bank, potentially leading to the creation of
a new deposit and the cycle continues.

In essence, credit creation is a dynamic process initiated

by an initial deposit, and it involves lending, spending,
and the multiplication of deposits throughout the banking
system, contributing to the expansion of the money
supply in the economy. Regulatory measures help
manage this process to maintain stability in the financial
system.
3
 Limitations of Credit Creation

While credit creation by commercial banks is a vital

component of the modern banking system, it is not
without limitations. Here are some key limitations to
credit creation:

1.Reserve Requirements:

 Banks are required to maintain a certain

percentage of their deposits as reserves,
as mandated by central banks. This limits
the amount of money they can create
through lending.

2.Central Bank Regulations:

 Central banks regulate credit creation by

implementing monetary policies. They
may
adjust interest rates, reserve requirements, and
other tools to control the pace of credit
3
creation and maintain financial stability.

3
3.Customer Demand for Loans:

 The willingness of customers to borrow also

influences credit creation. If there is low demand
for loans, banks may not utilize their full lending
capacity, limiting the extent of credit creation.

4.Creditworthiness of Borrowers:

 Banks assess the creditworthiness of

borrowers before approving loans. If potential
borrowers
pose a high credit risk, banks may limit lending,
affecting the overall credit creation process.

5.Economic Conditions:

 Economic conditions, including inflation,

recession, and uncertainty, can impact credit
creation. During economic downturns,
banks may be more cautious in extending
credit,
3
limiting the overall expansion of the money
supply.

3
6.Public Confidence:

 Public confidence in the banking system plays a

crucial role. If there is a lack of trust in banks,
individuals may withdraw deposits or avoid
taking loans, affecting the capacity of banks
to create credit.

7.External Factors:

 Factors such as changes in international

financial markets, geopolitical events, or sudden
shifts in global economic conditions can also
influence
credit creation by commercial banks.

8.Liquidity Concerns:

 Banks need to maintain a balance between

lending and maintaining liquidity. If
banks
become overly aggressive in lending without
3
ensuring sufficient liquidity, it can lead to
financial instability.

3
 9.Legal and Regulatory Constraints:

 Legal and regulatory frameworks may

impose constraints on certain types of lending
or set
limits on the overall credit exposure a bank can
have, impacting credit creation.

10. Market Conditions:

 Market conditions, including interest rate

fluctuations and changes in asset prices, can
affect the profitability of lending. Banks
may adjust their lending practices based on
these market dynamics.

Understanding these limitations is crucial for

policymakers and central banks to effectively manage
credit creation, ensuring a balance between
supporting economic growth and maintaining
financial stability.
While credit creation is a powerful tool, its responsible
and regulated use is essential to prevent potential risks

3
and negative consequences.

3
Challenges faced by Commercial
Banks

Commercial banks face various problems and challenges

that can impact their operations and financial health. Here
are some common issues:

1.Interest Rate Risk:

 Commercial banks often face interest rate
risk, where fluctuations in interest rates can
affect
their profitability. A sudden increase in interest
rates can lead to higher borrowing costs,
potentially impacting the bank's net interest
4
margin.

4
2.Credit Risk:
 Credit risk arises when borrowers fail to
repay their loans. Economic downturns,
changes in market conditions, or adverse
events affecting
borrowers can result in increased non-performing
loans, affecting the bank's asset quality.

3.Liquidity Risk:
 Liquidity risk occurs when a bank cannot meet
its short-term financial obligations. Sudden
and unexpected withdrawals by depositors or a
lack
of market liquidity can pose challenges for banks
in maintaining adequate cash reserves.

4.Regulatory Compliance:
 Banks must comply with a myriad of
regulations, and changes in regulatory
requirements can pose challenges. Ensuring
compliance with anti- money laundering (AML)
laws, Basel III

4
requirements, and other regulations requires
significant resources.

4
5.Technological Disruptions:
 The rapid evolution of technology poses both
opportunities and challenges for banks.
While adopting new technologies can
enhance
efficiency, it also requires significant
investments and the need to adapt to changing
customer
preferences.

6.Cybersecurity Threats:
 The increasing reliance on digital platforms
exposes banks to cybersecurity threats.
Cyberattacks, data breaches, and fraud can have
severe consequences, affecting customer trust
and financial stability.

7.Competition:
 Banks operate in a highly competitive
environment. The rise of fintech companies,
non- banking financial institutions, and other
alternative financial service providers intensifies
competition, challenging traditional banking

4
models.

4
8.Economic Conditions:
 Banks are sensitive to economic conditions.
Economic downturns, recessions, or financial
crises can lead to a decline in loan demand,
increased defaults, and a deterioration of
asset quality.

9.Global Economic Uncertainty:

 Events such as geopolitical tensions, trade
disputes, or global economic uncertainties can
impact financial markets and affect the overall
stability of commercial banks, especially those
with international exposure.

10. Market Risk:

 Market risk arises from fluctuations in interest
rates, exchange rates, and other market variables.
Banks with exposure to various financial markets
may face challenges in managing and mitigating
market risks.

4
 11. Operational Risk:
 Operational risk encompasses risks related to
internal processes, systems, and human factors. It
includes the risk of errors, fraud, and disruptions
in day-to-day operations.

12. Changing Customer Expectations:

 Customers' expectations are evolving, with a
demand for more personalized, convenient, and
technologically advanced banking services.
Adapting to these changing preferences
requires ongoing innovation and investment.

Navigating these challenges requires effective risk

management, strategic planning, and a commitment to
regulatory compliance. Successful banks continually
assess and adapt their strategies to address emerging
issues and maintain resilience in a dynamic financial
landscape.

4
 Role of Commercial Banks
in our Economy

Commercial banks play a crucial role in the economy by

performing various functions that contribute to
economic development and financial stability. Here are
the key
roles of commercial banks:
1.Financial Intermediation:
 Commercial banks act as intermediaries between
savers and borrowers. They collect deposits
from individuals and businesses and provide
loans to
those in need of funds. This financial
intermediation facilitates the efficient
allocation of capital in the economy.
45
2.Deposit Mobilization:
 Commercial banks attract deposits from the
public, providing a safe place for individuals
and businesses to keep their money. These
deposits form the basis for lending and
investment
activities.

3.Credit Creation:
 One of the primary functions of commercial
banks is to create credit. Through the process of
lending, banks contribute to the expansion of
the money supply, supporting economic
activities
and investments.

4.Facilitating Payments:
 Commercial banks provide various payment
services, such as checking accounts,
electronic funds transfers, and credit and debit
card
transactions. This facilitates the smooth flow
of money within the economy.
4
5.Investment in Government Securities:
 Banks invest in government securities as part
of their portfolio. This not only provides a
secure avenue for investment but also supports
government funding by participating in bond
markets.

6.Working Capital Finance:

 Commercial banks offer working capital loans to
businesses to support their day-to-day operations.
These loans help businesses manage cash flow,
purchase inventory, and meet short-term
financial needs.

7.Long-Term Financing:
 Banks provide long-term financing for capital-
intensive projects, such as infrastructure
development, manufacturing facilities, and real
estate. This contributes to economic growth
and job creation.

4
8.Trade Finance:
 Commercial banks facilitate international
trade by providing trade finance services, such
as
letters of credit, export and import financing, and
currency exchange. This helps businesses
engage in cross-border transactions.

9.Risk Diversification:
 Banks play a role in risk diversification by
managing a diversified portfolio of loans and
investments. This helps mitigate risks associated
with individual borrowers or economic sectors.

10. Financial Advisory Services:

 Many commercial banks offer financial
advisory services to individuals and businesses.
This
includes investment advice, retirement planning,
and assistance in wealth management.

4
11. Promotion of Savings:
 Through savings accounts and other
deposit products, commercial banks
encourage
individuals to save money. This contributes
to capital formation and supports future
investments.

12. Technology Adoption:

 Commercial banks adopt technology to
improve efficiency and enhance customer
experience.
Online banking, mobile apps, and digital
transactions are examples of technology adoption
that makes banking more accessible and
convenient.

13. Contributing to Monetary Policy:

 Central banks often use commercial banks as
instruments to implement monetary policy. By
influencing interest rates, reserve requirements,
and other policy tools, central banks work with
commercial banks to achieve economic

4
objectives.

4
In summary, the role of commercial banks is
multifaceted, encompassing financial intermediation,
credit creation, payment facilitation, and various other
services that contribute to the overall economic well-
being and stability of a country.

5
 Conclusion

In conclusion, commercial banks play an

indispensable role in the economic landscape, serving
as financial
intermediaries that connect savers and borrowers. Their
multifaceted functions, ranging from deposit
mobilization to credit creation, contribute significantly to
the
economic development and stability of a nation. By
facilitating the efficient allocation of capital, providing a
secure haven for savings, and offering diverse financial
services, commercial banks play a pivotal role in shaping
the economic trajectory.

The ability of commercial banks to adapt to

technological advancements, diversify risks, and
contribute to both short-term working capital needs and
long-term
investments underscores their resilience and relevance in
a dynamic financial environment. As engines of credit
creation, commercial banks propel economic growth,
supporting businesses, infrastructure development,
and international trade.

5
Moreover, their role in financial advisory services and
the adoption of technology reflects a commitment to
meeting the evolving needs and expectations of
customers.
Commercial banks, in collaboration with central
banks, also play a crucial part in implementing
monetary
policies, contributing to overall economic stability.

However, commercial banks are not immune to

challenges such as interest rate fluctuations, credit risks,
and regulatory compliance. Navigating these challenges
requires strategic management and adherence to prudent
banking practices.

In essence, commercial banks stand as pillars of the

economy, fostering financial inclusion, promoting
savings, and driving economic prosperity. Their enduring
significance lies in their ability to adapt, innovate, and
effectively balance risk and opportunity in the
ever- changing landscape of the financial world.

5
 Bibliography

1. Frank Economics text book class 12 ISC

2. Wikipedia.org

3. Google.com

4. Livemint.com

5. Youtube.com

53
Thank
you