Importance Of Commercial Banks

Commercial banks are the most important components of the whole banking system. A commercial bank is a profit-based financial institution that grants loans, accepts deposits, and offers other financial services, such as overdraft facilities and electronic transfer of funds.

According to Culbertson,

“Commercial Banks are the institutions that make short make short term loans to business and in the process create money.”

In other words, commercial banks are financial institutions that accept demand deposits from the public, transfer funds from the bank to another, and earn profit.

Commercial banks play a significant role in fulfilling the short-term and medium- term financial requirements of industries. They do not provide, long-term credit,

more than 50%). The shares of these banks are listed on stock exchanges. There are 26 PSBs in India. State Bank of Saurashtra and State Bank of Indore merged with SBI.

The objectives behind nationalization were:

• To break the ownership and control of banks by a few business families,

• To prevent the concentration of wealth and economic power,

• To mobilize savings from masses from all parts of the country,

• To cater to the needs of the priority sectors

The Central Government entered the banking business with the nationalization of the Imperial Bank of India in 1955. A 60% stake was taken by the Reserve Bank of India and the new bank was named as the State Bank of India. The seven other state banks became the subsidiaries of the new bank when nationalized on 19 July 1960. The next major nationalization of banks took place in 1969 when the government of India, under Prime Minister Indira Gandhi, nationalized an additional 14 major banks. The next round of nationalization took place in April 1980. The government nationalized six banks. Some of the Indian public sector banks are State Bank of India (SBI), Corporation Bank, Bank of Baroda, Dena Bank, and Punjab National

These are the major players in the banking sector as well as in expansion of the business activities India. The present private sector banks equipped with all kinds of contemporary innovations, monetary tools and techniques to handle the complexities are a result of the evolutionary process over two centuries. These banks have a highly developed organizational structure and are managed professionally. Thus, they have grown faster and stronger since the past few years. Some of the Indian private sector banks are Vysya Bank, Industrial Credit and Investment Corporation of India (ICICI) Bank, and Housing Development Finance Corporation (HDFC)