Economic Growth: The Banking Aspects
As we know that commercial bank are financial institutions which perform a lot of different kinds of functions but its main function is to accept the deposits of one person and give to another person. These banks can also perform various sorts of function which helps a lot to the people of the country in the daily routine of life. Commercial banks are supervised and performed their functions according to the State Bank of their country. Commercial banks follow the policies and instructions of states bank and it must adopt the rules and regulation of states bank. Finance is a very important aspect of trade commerce and industry so, nowadays’ commercial bank provide finance to these sectors for their development purpose. The trader’s industrialist and businessman can take a loan for business purpose and develop their business. Commercial banks are the backbone of many economies.
Though the banks cannot create the wealth, but their functions and activities, exchange and distribution of wealth, facilitates the process of production can be helped in creating the wealth.So, due to these activities, these commercial banks are playing a vital role in the process of economic growth and development. In the other words “Banks are the custodians and distribution of liquid capital, which is the life-blood of our commercial and industrial activities and upon the prudence of their administration depends on the economic well-being of the nation”. Capital formation is the very important function of commercial banks. If bank provide the capital to the public and it also encourages the habits of saving the people. When saving is more than it will very helpful for the credit creation and also in capital formation. Commercial banks are also helpful for the country trade by providing credit facility to the traders.
The developing economies like Pakistan can uplift by strengthening the banking sector because these banks provide the loans to regressive areas and community can take advantage from the commercial banks by taking monetary help.Innovation& Entrepreneurship area also very important for the economy development and it cannot be possible with the help of banks. If the economies have the strong and effective monetary policies, then these economies can be a boost in the whole world. Generally, banks grant the loans to those sectors those have the need and have a chance of development and helpful for the economic growth. If any industry has a high demand in the world, then these banks also promote the industry and also give the guidelines and new ideas to make for the development in a particular industry.It gives the finance to industrial sector for the purpose of their growth alike for the purpose of purchasing machinery, land etc. It can help also a lot in different ways to promote the industrial sector. Commercial banks also issued debentures to promote the industrial growth. Commercial banks also work as guarantor if the businessman dealing in foreign affairs. If can also work as the third party for the purpose of growth of industrial development.
In a recent scenario of the business world, a businessman is afraid when he deals with the foreign businessman for the sake of trading or commerce. He has an afraid that other person may fraud him and this is a very common practise. So, in this case, commercial banks are performing a vital role by involved itself in trade dealings resultantly the chances of fraud have been minimized.
In a nutshell, it is safely concluded that from above described discussion that finance is life-blood for the production process and these banks are the departmental stores of finance. In the present economic scenario, these commercial banks enjoy a very strong and valuable position. Lastly, the banking system is the main source of the development of any economy, without an effective banking system, the development is almost impossible.
Manan Aslam is a lecturer at University of Management and Technology (UMT) Sialkot Campus however, Zain-ul-Abideen and Awais Javed are studying at the same institute.