Role of Commercial Bank in Foreign Trade
Commercial banks are more likely to orient their role in the behavior of their system. Commercial banks have always played a vital role in the country’s budget. They play an important role in the development of industry and commerce.
They function not only as guardians of the prosperity of the country but also as the resources of the country required for the economic development of a bank to play an important role in the formation of capital, which is essential for the economic development of a country.
They mobilize the small savings of scattered people in a wide range across their network of offices across the country and make them available for productive purposes. Nowadays, banks are offering very attractive plans to attract people, save money, and bring mobilized savings to the organized money market.
If banks do not perform this function, the savings will remain inactive or will be used to create assets that are in the order of priority of the plan. Banks create loans with the aim of providing more money for development projects.
Capital formation is not the sole function of commercial banks. The savings collected should be spread across different sectors of the economy to increase the country’s productivity. Only then can it be said that it has played an important role in the economic development of the nation. Commercial banks support the nation’s economic development through the capital they generate.
In India, the operation of loans from commercial banks is under the control of RBI. So our banks cannot borrow as they want. In several regions of the country, the savings grouped by banks are increasingly used for development purposes. Ensures a more comprehensive use of resources. Banks help develop the right industries by extending the loan to the right people.
In this way, they not only help the industrialization of the country, but also the economic development of the country. They lend to manufacturers whose products are in high demand. In turn, manufacturers are increasing their products by introducing new production methods and contributing to increasing the nation’s national income.
In our country, RBI regulates the interest rate that banks pay for the deposits they accept and the interest rate they charge on the loans they grant. Commercial banks convert the loan into cash after a certain period of time, which can be used immediately for business activities.
Manufacturers and wholesalers cannot increase their sales without selling products on credit. However, loan sales can lead to capital closure. As a result, production can also be reduced. As banks lend money by discounting bills, companies can engage in economic activities without interruption.
The government acts as a promoter of the industry in underdeveloped countries that require funding. Banks grant long-term loans to the government by investing their funds in government securities and making short-term financing through the purchase of government bonds.
Bank branches are open in almost all cities, creating new job opportunities. Banks are also improving the number of employees to fill different positions in their office The development of entrepreneurship is a complex process. Banks provide 100% of loans for rewarding projects, which is technically feasible and economically feasible. Thus, commercial banks support the development of entrepreneurship in the country.
For the most part, commercial banks deserve to implement their system. They play a vital role in the development of industry and commerce. Commercial banks play an important role in meeting the short- and medium-term financing needs of the industry. They do not offer long-term loans, so the liquidity of the assets must be maintained.
The money of commercial banks belongs to the public and will be withdrawn in the short term; Therefore, commercial banks prefer to provide short-term loans backed by tangible and easily negotiable securities. Although commercial banks provide loans to companies, they take into account various factors, such as the nature and size of the business, the financial situation, and the profitability of the business, and the ability to repay the loans.
Entrepreneurship is the process of starting your own business that differs from any other economic activity, either in employment or in the exercise of a profession. The person who starts your business is called an entrepreneur.
In the areas where these factors exist, solid and constant business growth is expected. These conditions can have both positive and negative effects on the emergence of entrepreneurship. Positive influences favor the emergence of entrepreneurship, while negative influences create an inhibiting environment for the emergence of entrepreneurship.
Entrepreneurs do not necessarily have a solid financial background. You will always need an initial loan with reasonable interest rates to generate capital to take on your job.
Deposits received from commercial banks only lend to others for a short time. However, medium and long-term loans are also being used today. Banks grant loans in one of the following ways:
Commercial banks provide overdraft facilities to their clients, allowing them to withdraw more than their deposits. However, you will have to pay interest on the additional amount that must be repaid in a short period of time.
When making deposits: in this type of loan, the banks grant the borrower a loan advance on their current assets, such as bonds, stocks, notes, etc., or property, plant and equipment such as gold, silver, land, housing, etc.
The discount of invoices:
It is another way to lend money. The bank buys invoices from the invoice broker and discounts them. These invoices provide a very liquid form of assets that can easily be converted into cash. Banks pay the invoice immediately in cash after deducting the discount (interest) from its face value.
Commercial banks transfer funds to their clients by switching banks from one place to another.
The commercial bank acts as an intermediary for its clients. The bank receives the rent, dividend, interest on stocks and bonds. It also receives and pays insurance premiums, income taxes, electricity charges, etc. on behalf of your customers.
The creation of credit:
This is a unique feature of the commercial bank. When a bank gives loans to its clients, it does not borrow all the cash, but opens an account in the name of the borrower and pays only the amount required. The creation of such a deposit is called credit creation, which increases the stock of money in an economy.