Savings and investments are the most important ingredients of capital formation for an economy; therefore, the promotion of domestic savings is a must to boost the process of capital formation and development. The commercial banks are in the nature of a catalyst, converting savings into capital for productive investment. It is needless to say that capital formation largely depends on the effectiveness of these institutions. Thus, the commercial banks play stupendous role in converting potential investments into real and can make a significant contribution in eradicating poverty, unemployment and in bringing about progressive reduction in inter-regional and inter-sector disparities through rapid expansion of banking services. The commercial banks help in developing both internal and external trade of a country. Banks provide loans to retailers, traders, wholesalers for their inventory and also help in transporting of goods from one place to another by providing all types of facilities, such as discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc. The industrial sector is also not away from the help of the commercial banks. Banks finance the industrial sector in many ways. They provide short term, medium term and long-term loans to the industry. Export promotion requires adequate pre-shipment packing credit, which is also, made available by these banks in the form of loans, cash credit and overdraft facilities.Banks by providing loans to the investors and consumers, are not only helping in increasing the standards of living of the people, but also help in reducing the recession in the economy through enhancing the demand for raw material and finished goods that ultimately leads to increase in the employment opportunities. Apart from the basic banking services such as deposits, loans and advances, banks have been traditionally rendering certain ancillary services also to their customers, such as: remittances, demand drafts, mail transfers, and telegraphic transfers, sale and purchase of exchange, locker facilities, safe custody and safe deposit vaults, guarantee facilities, sale of traveler’s cheques, trustier and executor services etc. Among the services introduced by modern commercial banks during the last quarter of the century, the bank designed a system by which a bank’s customer with many payments to make, instead of drawing a cheque for each item, may simply instruct the bank to transfer to the accounts of his creditors the sum due from him and he writes one cheque debiting his account with the total amount; By providing these diversified services, banks help in the growth of trade and industry to great extent. Modern commercial banks in order to diversify their activities, entered into new non-traditional areas of business, such as mutual funds, merchant-banking activities, portfolio management, corporate counselling, and hire purchase finance, equipment leasing, venture capital and factoring service. These new activities result in the development of industry and trade in the country. In brief, it can be said that banks constitute the very lifeblood of economic society.
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