Role of Banks in an Economy -- Article/Essay

In: Other Topics

Submitted By pujasinha88
Words 1265
Pages 6
Money lending in one form or the other has evolved along with the history of the mankind. Even in the ancient times there are references to the moneylenders. Shakespeare also referred to ‘Shylocks’ who made unreasonable demands in case the loans were not repaid in time along with interest. Indian history is also replete with the instances referring to indigenous money lenders, Sahukars and Zamindars involved in the business of money lending by mortgaging the landed property of the borrowers.
Towards the beginning of the twentieth century, with the onset of modern industry in the country, the need for government regulated banking system was felt. The British government began to pay attention towards the need for an organised banking sector in the country and Reserve Bank of India was set up to regulate the formal banking sector in the country. But the growth of modern banking remained slow mainly due to lack of surplus capital in the Indian economic system at that point of time. Modern banking institutions came up only in big cities and industrial centres. The rural areas, representing vast majority of Indian society, remained dependent on the indigenous money lenders for their credit needs.

source: http://www.competitionmaster.com/ArticleDetail.aspx?ID=41e9ef66-3271-418d-b344-09f76d6f59a1
Independence of the country heralded a new era in the growth of modern banking. Many new commercial banks came up in various parts of the country. As the modern banking network grew, the government began to realise that the banking sector was catering only to the needs of the well-to-do and the capitalists. The interests of the poorer sections as well as those of the common man were being ignored.
In 1969, Indian government took a historic decision to nationalise 14 biggest private commercial banks. A few more were nationalised after a couple of years. This resulted in…...

Similar Documents

Roles of Entreprenurship in the Nigeria Economy

...industries are firms employing 10-99 person in which manager personally performs all the management functions without taking part in actual production. In Nigeria, many definition exist for small scale industries. The industrial research unit of Obafemi Awolowo University, Ife, defines a small scale industry as one whose total assets in capital, equipment, plant and working capital are less than N250,000 and employing less than 50 full timer workers. In Enugu state, the ministry of finance and Economic Development, defines Small scale industries and industries employing not more than 10 person. The Federal Ministry of Industries amended its 1970 definition of SSI as industries with capitalization of N150,000 or less. The Central Bank of Nigeria recognizes small scale industries as ventures with annual sales turnover of not more N500,000. For the purpose of this work, the CBN definition shall be adopted because of its lack of complexity. 2.2 BAKERY It is defined as a bake house. It is a house or place used for baking bread, cake etc. 2.3 QUALITIES OF SUCCESSFUL ENTREPRENEUR A set of character traits has been identified by some authorities and organizations as being unique and constant among successful entrepreneur. One such proponent, Dr. Johnny Eluka, identified some characteristics of success owner/manager among which are, a great sense of independence, a strong sense of enterprise, and domination as much by personal and family considerations as by......

Words: 11129 - Pages: 45

Roles of Enterprenuership in Nigeria Economy

...industries are firms employing 10-99 person in which manager personally performs all the management functions without taking part in actual production. In Nigeria, many definition exist for small scale industries. The industrial research unit of Obafemi Awolowo University, Ife, defines a small scale industry as one whose total assets in capital, equipment, plant and working capital are less than N250,000 and employing less than 50 full timer workers. In Enugu state, the ministry of finance and Economic Development, defines Small scale industries and industries employing not more than 10 person. The Federal Ministry of Industries amended its 1970 definition of SSI as industries with capitalization of N150,000 or less. The Central Bank of Nigeria recognizes small scale industries as ventures with annual sales turnover of not more N500,000. For the purpose of this work, the CBN definition shall be adopted because of its lack of complexity. 2.2 BAKERY It is defined as a bake house. It is a house or place used for baking bread, cake etc. 2.3 QUALITIES OF SUCCESSFUL ENTREPRENEUR A set of character traits has been identified by some authorities and organizations as being unique and constant among successful entrepreneur. One such proponent, Dr. Johnny Eluka, identified some characteristics of success owner/manager among which are, a great sense of independence, a strong sense of enterprise, and domination as much by personal and family considerations as by......

Words: 11129 - Pages: 45

Role of Bank

...REGULATED BANKING SYSTEM WAS FELT.SO IN 1969,INDIAN GOVERNMENTR TOOK THE HISTORIC DECISION TO NATIONALISE 14 BIGGEST PRIVATE COMMERCIAL BANKS.THE NEW GENERATION PRIVATE BANKS HAVE NOW ESTABLISHED THEMSELVES IN THE SYSTEM AND HAVE SET NEW STANDARDS OF SERVICES AND EFFICIECY. WHILE IT IS QUITE EVIDENT THAT INCLUSIVE GROWTH IS IMPERATIVE FOR ACHIEVING THE EQUITY OBJECTIVE,WHAT IS PERHAPS,NOT SO OBVIOUS IS WHY INCLUSIVE GROWTH IS NOW CONSIDERED ESSENTIAL EVEN TO SUSTAIN THE GROWTH MOMENTUM. IN MANY OF THE EMERGING MARKET ECONOMICS,THE MAJOR OF THE CHUNK POPULATION IS IN RURAL AREAS.SIGNIFICANT INCREASE IN DEMAND FOR MANUFACTURING AND SERVICESSECTORS HAS TO COME FROM RURAL POPULATION.THE AVERAGE MONTHLY PER CAPITA CONSUMPTION EXPENDITURE IN URBAN AREAS OF COUNTRY IS ALMOST DOUBLE THAN OF ITS RURAL AREAS.THE GROWTH IN AGRICULTURE IS NECESSARY TO KEEP MANUFACTURING PRICES UNDER CHECK,PROVIDE FOOD SECURITY AND KEEP INFLATION UNDER CONTROL. LIMITATIONS ON INCREASING PRODUCTION AND PRODUCTIVITY IN AGRICULTURE ARE DRIVING MIGRATION TO URBAN AREAS,LEADING TO POPULATION PRESSURE IN THESE AREAS AND EXERTING FURTHER STRESS ON EXISTING ON INFRASTRUCTURE. BANKING SYSTEM AND FINANCIAL INSTITUTION PLAY VERY SIGNIFICANT ROLE IN ECONOMY.FIRST AND FOREMOST IS IN THE FORM OF CATERING TO THE NEEDS OF CREDIT FOR ALL THE SECTIONS OF SOCIETY.AN EFFICIENT BANKING SYSTEM MUST CATER TO THE......

Words: 278 - Pages: 2

Economy, Banks, and Goverment

...years, banks have played a major role in the economy. A role big enough that made Americans feel an obligation to own a home. The American dream of home ownership has been greatly affected over the past years because of the financial crisis in regards to the housing market. In 2009, President Obama reopened the issue about the crisis in the housing market aiming specifically for companies that took advantage of the financial crisis. Those companies, better known as Fannie Mae and Freddie Mac made huge profits because it was easy enough for them to risk bets by buying mortgages. When people bought houses they could not afford, banks took those individuals’ situation and gave mortgages out to those individuals. When the amount of mortgages starting increasing, and people starting losing their homes, earning bad credit, and losing their jobs, president Obama decided it was time to take action. The Glass- Steagall Act was built on a firewall between investment and owning. The purpose of it was to prevent commercial banks from interfering with the banking investment business. It was believed that banks were too involved in investments, which risked the costumer’s money. Since banks had a huge amount of money, they would risk it in investments, making those investments not so leverage. It was when banks started giving out more and more loans and shifting money from one place to another, the Glass- Steagall Act went into place. After the Glass- Steagall Act was established, banks......

Words: 658 - Pages: 3

Banks Will Play a Big Role in Transforming India’s Political Economy

...Banks will play a big role in transforming India’s political economy Summary The true strength of India’s banking sector was evident after the global financial crises. India’s financial system withstood the contagion largely because banks were very well regulated at home and because they were lucky that they were not so well integrated with the western financial system. The true strength of India’s banking sector was evident after the global financial crises. India’s financial system withstood the contagion largely because banks were very well regulated at home and because they were lucky that they were not so well integrated with the western financial system. Last month ECB authorities said they were conducting fresh stress tests for banks, especially in EU economies, which are on the brink of a sovereign debt default. Indeed, much of the toxicity is still hidden in the system. In contrast, Indian banks have not only remained stable but have grown impressively since 2008. The banking sector led the stock market recovery after the global markets came in a bear grip late 2008. However, of late, there is some perceived macro risk to India’s banking sector emerging from higher government borrowings, tighter liquidity environment and persistent inflation. The Union budget has sought to address these concerns by keeping a tight control on budgeted expenditure. However, the outcome of such efforts would depend on some critical factors such as benign oil prices, good monsoons, etc,...

Words: 533 - Pages: 3

Role of Globalization in Modern Economy

...THE ROLE OF GLOBALIZATION IN THE MODERN ECONOMY GLOBALIZATION DEFINED Over the past several decades, the economies of the world have become increasingly linked, through expanded international trade in services as well as primary and manufactured goods, through portfolio investments such as international loans and purchases of stock, and through direct foreign investment, especially on the part of large multinational corporations. At the same time, foreign aid has increased much less in real terms and has become dwarfed by the now much larger flows of both private capital, and remittances. These linkages have had a marked effect on the developing world. But developing countries are importing and exporting more from each other, as well as from the developed countries, and in some parts of the developing world, especially East Asia but also notably Latin America, investments have poured in from developed countries such as the United States, the United Kingdom, and Japan. Globalization is one of the most frequently used words in discussions of development, trade, and international political economy. As the form of the word implies, globalization is a process by which the economies of the world become more integrated, leading to a global economy and, increasingly, global economic policymaking, for example, through international agencies such as the World Trade Organization (WTO). Globalization also refers to an emerging “global culture,” in which people consume similar goods......

Words: 5326 - Pages: 22

Essay on the Role of Commercial Banks in Economic Development

...Ombudsman (BO)? * He hears customers’ complaints against banks. * BO was first setup in UK. * In India, RBI started this scheme in 1995. Appointment & Tenure * Earlier RBI used to appoint reputed persons from banking, finance, management, legal etc. sectors as Banking Ombudsmen (BO). * But now RBI has reserved this BO post for its own Chief General Managers and General Managers. * Tenure: 3 years at a time. * Reappointment: yes possible. Jurisdiction * Banking Ombudsman (BO) Scheme applies to whole of India (including Jammu and Kashmir). Banking Ombdusmen have jurisdiction over 1. All commercial banks (scheduled and non scheduled, public and private) 2. Regional rural banks 3. scheduled primary co-operative banks 4. NBFCs (BO’s Jurisdiction limited to “loan” part.) * BO is not a replacement of Consumer forum/courts. He merely supplements them. * BO deals with matters less than or equal to Rs.10 lakhs. * Here are some examples situation where BO can help you: Regular banking 1. Demand draft, cheques, pay orders etc. not issued on time. (or not paid on time) 2. Credit card related complaints (e.g. bank putting hidden charges. Your credit card was stolen but bank did not disable it even after you called them.) 3. You asked the bank to close your account / credit card but they are not doing it. 4. Bank refuses to open your account without giving valid reasons. 5. Bank closes down your account without valid reasons. ......

Words: 12527 - Pages: 51

Roles of Imf and World Bank

...Q5) International Monetary Fund (IMF) role is to stabilize the international exchange rates and promote liberal economic policies. IMF will also provide short-term loan to assist members to overcome short-term imbalance of payment problems. On the other hand, World Bank offers loans to members to finance productive investments as well as assisting developing countries in its economy so as to reduce poverty within the country. Singapore joins both IMF and World Bank under the Bretton Woods Agreements Acts in 1966, 3 August. Before we join to become IMF as a member, during the Singapore-Malaya separation, we had sought for their technical assistance and to act as a broker in the negotiation with Malaysia for a common currency and banking system. In order to so, IMF first conducted a preliminary study to identify the concerns of Singapore and Malaysia regarding the common currency issue. IMF then acts as a broker in the final round of negotiations between 10 June 1966 and 5 July 1966. Before joining World Bank as a member, Singapore had sought for 2 loans where the first loan of US$15 million was used for the construction of the first phase of the Pasir Panjang ‘B’ Power Station and the second loan of US$6.8 million was used to construct Johor River Water Project. As a pre-requisite for the loan, the World Bank then requested our government to set up statutory authority (Public Utilities Board [PUB]) to manage the utilization and repayment of the loan. The advantages...

Words: 1951 - Pages: 8

Role of Banking in Economy

...Essay on the Role of Banking in India's Developing Economy One of the major considerations that led to the nationalization of the fourteen major commercial banks of India in 1969 was the fact that banks, in general, had been negligent of the vital priority sectors of the economy, viz., agriculture and small-scale industries. The commercial banks had remained largely indifferent to the credit needs of the farmers for agricultural operations and land improve¬ment. A handful of people were able to exploit the bank finance to serve their own individual interests and convenience. Very often, they used bank funds for the hoarding of essential articles and for specialization, thus nurturing anti-social elements. Nationalization brought about a major policy shift in the working of these banks. The economic development of our country depends more on real factors like the industrial development, modernization of agri¬culture, organization of internal trade and expansion of foreign trade, especially exports, and less on the monetary factors contri¬buted by banking— Economic planning like laying down of specific targets and allocating particular sums of money that constitute the economic policy of the government also plays a significant role. Still we cannot under-estimate the importance of banking and the monetary mechanism. One of the most important problems of a developing economy is that of capital formation. There is a good deal of difference between hoarding and saving and the......

Words: 582 - Pages: 3

Role of Banks in a Market

...The Role of Banks in a Market Economy The presence of banks are crucial for the economy of each country in the world, since no expansion or growth can be obtained unless the savings of money are funneled into investment efficiently. In this aspect, the shortage of a full-fledged banking and investment system has been identified multiple times as a clear cut weakness of the centrally enforced and planned economies. Reforming the banking sector in former countries unlike the United States, that displayed communism and creating a new and improved culture of trust and confidence has been an important task in the process of transition to a market economy. In the financial system that we have as a dominant country, different flow from those people who have extra funds to those who don’t have a lot of funds, either by direct deposit, financing that is market based or by an indirect finance that has a bank based. The financial system brings together and involves all types of financial markets, financial instruments and any other of the institutions involving the financial system. The main issue that everyone wants to know is whether the make up of our financial system exhibits the potential for economic growth? The answer to the million dollar question is yes our system does exhibit economic growth. “According to cross-country comparisons, individual country studies as well as industry and firm level analyses, a positive link exists between the sophistication of the financial......

Words: 1940 - Pages: 8

Role of Banks in Uae Economy

...Role of banks in Economy • Life line of an economy (transfers money from surplus to deficit) • Credit provision (Fuels business, growth and Entrepreneurship) • Liquidity provisioning (Credit in times of urgent need) • Remittance of money, access to foreign exchanges and commodity markets • Risk Diversification Banking sector in UAE • Emirates NBD, Dubai Islamic Bank • ADCB, NBAD, ADIB • RAK Bank, FGB, Noor Bank • Standard Chartered, Barclays, Citibank, HSBC Sector Status (Healthy) • Most of the country’s biggest banks have transformed their business models in the past couple of years to get more money from services that command fees, such as asset management, brokerage and trade finance, rather than relying exclusively on interest from loans which have been compressed • Lenders have also largely cleaned up bad loans dating back from the financial crash of 2008, making them more resilient to any shocks. Total Debt/GDP is around 100% - 10% rise y-o-y. • Banks again anticipate a robust quarter. The provisioning cycle is fully behind and sector is expected to keep continued growth in commercial momentum. • In the first quarter of the year Emirates NBD led the sector with earnings ofDh1.67 billion, a 60 per cent year-on-year gain • Arqaam expects that the UAE banks that it rates will have a consolidated earnings growth of 15.9 % in the second quarter. Another agency expects the growth to be......

Words: 968 - Pages: 4

Different Roles of Banks

...Different roles of banks, government, central banks, in controlling the business cycle. Bank is a financial intermediary that uses liquid assets in the form of bank deposits to finance the illiquid investments of borrowers. Banks can create liquidity because it isn’t necessary for a bank to keep all of the funds deposited with it in the form of highly liquid assets. Except in the case of a bank run—which we’ll get to shortly—all of a bank’s depositors won’t want to withdraw their funds at the same time. So a bank can provide its depositors with liquid assets yet still invest much of the depositors’ funds in illiquid assets, such as mortgages and business loans. 2.How money is created by banks through checking accounts and the role of the money multiplier. Multiplier The expansion of a country's money supply that results from banks being able to lend. The size of the multiplier effect depends on the percentage of deposits that banks are required to hold as reserves. In other words, it is money used to create more money and is calculated by dividing total bank deposits by the reserve requirement. The multiplier effect depends on the set reserve requirement. So, to calculate the impact of the multiplier effect on the money supply, we start with the amount banks initially take in through deposits and divide this by the reserve ratio. If, for example, the reserve requirement is 20%, for every $100 a customer deposits into a bank, $20 must be kept in reserve. However,......

Words: 2241 - Pages: 9

Role of Bank in Growth of Indian Economy

...ROLE OF BANK IN INDIAN ECONOMIC GROWTH TOWARDS THE BEGINNING OF TWENTIETH CENTURY,WITH THE ONSET OF MODERN INDUSTRY IN THE COUNTRY,THE NEED FOR GOVERNMENT REGULATED BANKING SYSTEM WAS FELT.SO IN 1969,INDIAN GOVERNMENTR TOOK THE HISTORIC DECISION TO NATIONALISE 14 BIGGEST PRIVATE COMMERCIAL BANKS.THE NEW GENERATION PRIVATE BANKS HAVE NOW ESTABLISHED THEMSELVES IN THE SYSTEM AND HAVE SET NEW STANDARDS OF SERVICES AND EFFICIECY. WHILE IT IS QUITE EVIDENT THAT INCLUSIVE GROWTH IS IMPERATIVE FOR ACHIEVING THE EQUITY OBJECTIVE,WHAT IS PERHAPS,NOT SO OBVIOUS IS WHY INCLUSIVE GROWTH IS NOW CONSIDERED ESSENTIAL EVEN TO SUSTAIN THE GROWTH MOMENTUM. IN MANY OF THE EMERGING MARKET ECONOMICS,THE MAJOR OF THE CHUNK POPULATION IS IN RURAL AREAS.SIGNIFICANT INCREASE IN DEMAND FOR MANUFACTURING AND SERVICESSECTORS HAS TO COME FROM RURAL POPULATION.THE AVERAGE MONTHLY PER CAPITA CONSUMPTION EXPENDITURE IN URBAN AREAS OF COUNTRY IS ALMOST DOUBLE THAN OF ITS RURAL AREAS.THE GROWTH IN AGRICULTURE IS NECESSARY TO KEEP MANUFACTURING PRICES UNDER CHECK,PROVIDE FOOD SECURITY AND KEEP INFLATION UNDER CONTROL. LIMITATIONS ON INCREASING PRODUCTION AND PRODUCTIVITY IN AGRICULTURE ARE DRIVING MIGRATION TO URBAN AREAS,LEADING TO POPULATION PRESSURE IN THESE AREAS AND EXERTING FURTHER STRESS ON EXISTING ON INFRASTRUCTURE. BANKING SYSTEM AND FINANCIAL......

Words: 549 - Pages: 3

Essays on Economy

...tectonics; Recent views on mountain building; Vulcanicity; Earthquakes and Tsunamis; Concepts of geomorphic cycles and Landscape development ; Denudation chronology; Channel morphology; Erosion surfaces; Slope development ;Appl ied Geomorphology: Geohydrology, economic geology and environment ii) Climatology : Temperature and pressure belts of the world; Heat budget of the earth; Atmospheric circulation; atmospheric stability and instability. Planetary and local winds; Monsoons and jet streams; Air masses and fronto genesis, Temperate and tropical cyclones; Types and distribution of precipitation; Weather and Climate; Koppen’s, Thornthwaite’s and Trewartha’s classification of world climates; Hydrological cycle; Global climatic change and role and response of man in climatic changes, Applied climatology and Urban climate. iii) Oceanography : Bottom topography of the Atlantic, Indian and Pacific Oceans; Temperature and salinity of the oceans; Heat and salt budgets, Ocean deposits; Waves, currents and tides; Marine resources: biotic, mineral and energy resources; Coral reefs, coral bleaching; sealevel changes; law of the sea and marine pollution. iv) Biogeography : : Genesis of soils; Classification and distribution of soils; Soil profile; Soil erosion, Degradation and conservation; Factors influencing world distribution of plants and animals; Problems of deforestation and conservation measures; Social forestry; agro-forestry; Wild life; Major gene pool centres. v)......

Words: 1084 - Pages: 5

Role of Central Bank

...Role of the Central Banks and their involvement with Government Fiscal Policy Introduction: The central bank is the public sector bank of a country which owned by the government and not by the private sector. It is responsible for major financial, economic status of a country. It is also responsible for various policies that control the economic situation of a county which includes the monetary and the fiscal policy which are intended to run a country with at a stable state of economy. The central bank has also has the responsibility for the issue of currency and also holds hold deposit it for other private sector banks. Examples of Central banks: The bank of Canada, Federal reserve, European central bank, the bank of England, The reserve bank of India etc. The Roles: Different central banks have some different goals but most of them have common goals. The major roles are setting up and marinating a monetary policy, fiscal policy and bank notes. These policies are created to maintain stability in an economy. Following the policy will intern takes its responsibility towards the next level by taking responsibility in maintaining price stability in an economy; it acts as the bank for the government. The central bank is the lender of loss resort and it controls the supply of money and taxation policies in an economy. It is responsible to monitor the banking system of the country. It controls the interest rates by buying selling of bonds, it also watches over the cash......

Words: 435 - Pages: 2