ROLE OF INDIAN BANKS AND

FINANCIAL INSTITUTIONS IN
ECONOMIC GROWTH &
MARKET
ROLE OF BANKS :
 CAPITAL FORMATION AND PROMOTE INDUSTRY

Capital is one of the most important parts of any Business or industry. It is the life
blood of business.
Banks increase capital formation by collecting Deposits from depositors and convert
these deposits in to loans advances to industries.
Mobility, creation and investment of savings.

SMOOTHING OF TRADE AND COMMERCE FUNCTIONS

In this modern era trade and commerce plays vital role between any countries. So,
the money transaction should be user friendly. A modern bank helps its customers
to sent funds to anywhere and receive funds from anywhere of the world.

A well developed banking system provides various attractive services like mobile
banking, internet banking, debit cards, credit cards etc. these kinds of services fast
and smooth the transactions. So, bank helps to develop trade and commerce.
 GENERATE EMPLOYMENT OPPORTUNITY

Since a bank promote industry and investment, there automatically generate

employment opportunity. So, a bank enables an economy to generate employment
opportunity.

PROMOTE SAVING HABITS OF

THE PEOPLE:

Bank attracts depositors by introducing attractive deposit schemes and providing

rewards or return in the form of interest. Banks providing different kinds of deposit
schemes to its customers. It enable to create banking habits or saving habits among
people.
 SUPPORT AGRICULTURAL DEVELOPMENT

Agricultural sector is one of the integral part of any economy. Food self sufficiency is the
major challenge and goal of any country. Modern bank promote agricultural sector by
providing loans and advances with low rate of interest compared to other loans and
advances schemes.
Eg : Kisan Credit card, Dairy Loans, Schemes for agricultural vehicles.

APPLYING OF MONETARY POLICY

Monetary policy is a important policy of any government. The major aim of monetary
policy is to stabilize financial system of the country from the dangerous of inflation,
deflation, crisis etc.
• short-term interest rates;
• long-term interest rates;
• velocity of money through the economy;
• exchange rates
Financial Institutions:
Relationship between financial system and economic Development: Economic
growth deals about investment and production and also the extent of Gross Domestic
Product in a country. Only when this grows, the people will experience growth in the
form of improved standard of living, namely economic development.

Financial institutions helps in Infrastructure and Growth

Economic development of any country depends on the infrastructure facility
available in the country. Financial institutions play a crucial role by providing funds for
the growth of infrastructure industries. With the policy of economic liberalization,
more private sector industries have come forward to start infrastructure industry. The
Development Banks and the Merchant banks help in raising capital for these
industries.
 Financial institutions helps in development of Trade
They finance traders and the financial market which helps in discounting
financial instruments such as bills. Foreign trade is promoted due to per-
shipment and post-shipment finance by commercial banks. They also
issue Letter of Credit in favor of the importer.

 Venture Capital
.The economic development of a country will be rapid when more
ventures are promoted which require modern technology and venture
capital. Venture capital cannot be provided by individual companies as it
involves more risks. Financial institutions will contribute a part of their
investable funds for the promotion of new ventures. Thus, financial
institutions enables the creation of venture capital.
 Government Securities market
Financial system enables the state and central governments to raise
both short-term and long-term funds through the issue of bills and
bonds which carry attractive rates of interest along with tax
concessions. Thus, the capital market, money market along with foreign
exchange market and government securities market enable
businessmen, industrialists as well as governments to meet their credit
requirements. In this way, the development of the economy is ensured
by the financial system.
 Role of financial system in attracting foreign capital
Financial system promotes capital market. A dynamic capital market is
capable of attracting funds both from domestic and abroad. With more
capital, investment will expand and this will speed up the economic
development of a country.
 Financial institutions helps in fiscal discipline and control of economy
It is through the financial system, that the government can create a
congenial business atmosphere so that neither too much of inflation nor
depression is experienced. The government on its part, can raise
adequate resources to meet its financial commitments so that economic
development is not hampered. The growth of black money could also be
minimized.
 Financial institutions ensures Balanced growth
The financial institutions in the country will be geared up by the
authorities in such a way that the available funds will be distributed to
all the sectors in such a manner, that there will be a balanced growth in
industries, agriculture and service sectors.