Meaning of Commercial Bank - Indian Banking System, Indian Financial system Video Lecture | Indian Financial System - B Com

commercial banks now as we know there
are two major sectors of the economy one
are the households that are the
consumers and the other other reducers
that produce now households have income
which they spent and a part of it they
save also producers need money for
producing they need money now we have
extra money we are ready to give out the
money producers need money now how do
the money that we save reaches the
producers this is when banks come into
play they take the money from us give us
some interest on the money that they
take from us and they lend it to
producers and take interest on the money
that they lend this is the basic
function of commercial banks they
facilitate in transfer of savings into
investment from the households to the
producers now let us study that let us
talk about how these commercial banks
perform this function so we are going to
talk about commercial banks what is
their role in Indian economy what are
the functions basic functions of a bank
how has commercial banking grown in
India in the past sixty years they were
nationalized why and when progress of
commercial banks after nationalization
how they have progressed and still what
are the shortcomings that they have and
that we need to look into let us take
them up one by one now what is a
commercial bank as I had explained it to
you
it adds as a bridge between user of
capital that is the producer with needs
money and those who say that's it that
is the households
but say but do not know how to use the
funds that is when banks help them with
the using of their funds and directing
them into a proper channel so that the
economy grows and it helps and it
uplifts the society as a large it also
adds total noise does not only invest it
does not only invest the money that it
gets from the households or the savings
it also creates credit creates credit in
which way suppose 100 rupees are given
by mr. a to a bank
Z so the banks maintain a reserve of 10
percent with themselves so the money
left
they 90 rupees is left which they lend
to mr. B mr. B takes that 90 rupees and
invests it or puts it into his bank
where he has to make his payments again
that bank keeps 10% and lends the rest
81 rupees and similarly this process
continues so you can see from 100 rupees
how much money is being generated this
is the main function of Bank
it creates credit now the next thing is
that it adds as a tool of monetary
policy this is very important how does
the bank how does the bank influence the
economic activities they influence the
economic activities by being a part of
the monetary policy that RBI formulates
RBI which is a Epic's bank and controls
all the other commercial banks it
influences the economic activity through
the means of monetary policy and
obviously all these banks are played
also a very important part of it and
they play a very important role in
influencing the economy so a commercial
bank is a
bridge between the producers and the
households the money that the households
say saves is goes to the producers
through the banks it adds to the total
supply of money by means of this the
procedure of transferring the funds from
households to the producers and other
than that it also creates credit and it
is a very important part of the monetary
policy