Banking Roles In Economic Development

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Banking institutions play one of the very crucial roles in the economy. A developed financial system paves way for attaining the economic development in a country. It is central to a nation’s economy as it caters to the needs of credit for all the sections of the society.
Banks offer various services to its personal customers like Insurance services, online banking, ATM cards and Laser cards, Mortgages, Current/Savings account, online banking, etc.
Following are some of the important roles that the banks play in the development of a country:
1. Banks promote capital formation:
• Commercial banks accept deposits from individuals and businesses. These deposits are then made available to the businesses that use the money to produce products …show more content…

They comprise of investment banks, Insurance companies, mutual funds, leasing companies, specialized credit institutions, Development financial institutions (DFIs), etc. NBFCs have shown tremendous growth contributing hugely to the Indian economy.
Over the past few years, NBFCs have recorded a CAGR (Compound annual growth rate) of 19 percent. Some of the significant functions performed by NBFCs in the economic development of the country are mentioned below:
8. Provision of long-term credit: Banks hold short-term repayable deposits due to which they are reluctant in giving out long-term credit for industrial use. The companies that manufacture on a large scale and undertake mega infrastructure projects are substantially dependent on the NBFCs for the finances aiding in economic development.
9. Mobilization of resources: NBFCs are mostly development oriented rather than profit oriented. They convert savings into investments in turn mobilizing resources for productive …show more content…

RECAPITALIZATION OF PSUs: The most recent development that has taken place is that of recapitalizing the banks by Rs. 2.11 lakh crore. The banks have been flooded with the NPAs. As of June 2017, public sector banks had a piled up bad loan of Rs. 7 trillion. With the non-performing assets coming into the picture, the financial institution ability to lend money is getting eroded. So to help the government owned banks get back on their feet, the government decided to recapitalize the banks with Rs. 2.11 lakh crore spread over the next two years of which 1.35 lakh crores will be provided through recap bonds involving zero cash flow. This move by the government will help improve the capital position of the banks by helping it mitigate losses and infuse it with sufficient capital to lend and grow [

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