




































 

 

                  ISSN : 2693 6356 

2022 | Vol 5 | Issue 6 

 

The Function of Commercial Banks in 

Promoting Financial Inclusion in India 
DR. V L. RAJU, 
Associate Professor  

 Vathsalya Institute of Science&Technology  
 

 

 

ABSTRACT: 

A commercial bank is a type of bank that provides services such as accepting deposits, loans, and offering basic 

investment products that is operated as a business for profit. It can also refer to a bank, or a division of a large 

bank, which deals with large /middle-sized business to differentiate it from a retail bank and an investment bank. 

A Bank is a financial institution that provides banking and other financial services to their customers. A bank is 

generally understood as an institution which provides fundamental banking services such as accepting deposits 

and providing loans.Indian Banking Regulation act 1949 section of the Banking Regulation Act 1949 Banking is 

defined as: “Accepting for the purpose of the landing of investment of deposits of money from public repayable 

on demand or other wise and withdraw able by cheques, draft, order or otherwise.”A bank is an institution whose 

debts are widely accepted in settlement of other people's debts to each other." In this definition Sayers has 

emphasized the transactions from debts which are raised by a financial institution.Commercial bank being the 

financial institution performs diverse types of functions. It satisfies the financial needs of the sectors such as 

agriculture, industry, trade, communication, etc. That means they play very significant role in a process of 

economic social needs.The functions performed by banks are changing according to change in time and recently 

they are becoming customer centric and widening their functions. Generally the functions of commercial banks 

are divided into two categories viz. primary functions and the secondary functions. 

KeyWords: Savings, Customers,Loans, Sustainable ,Financial Serv 

 

 

 

 
 

 

PREAMBLE: 

 

A commercial bank is a financial institution that 

grants loans, accepts deposits, and offers basic 

financial products like savings accounts and 

certificates of deposit to individuals and 

businesses. It makes money primarily by 

providing different types of loans to customers 

and charging interest.The bank’s funds come 

from money deposited by the bank customers in 

saving accounts, checking accounts, money 

market accounts and certificates of deposit 

(CDs). The depositors earn interest on their 

deposits with the bank.However, the interest 

paid to depositors is less than the interest rate 

charged to borrowers. Some of the loans 

offered by a commercial bank include motor 

vehicle loans, mortgages, business loans, and 

personal loans.The commercial banks help in 

mobilising savings through network of branch 

banking. People in developing countries have 

low incomes but the banks induce them to save 

by introducing variety of deposit schemes to 

suit the needs of individual depositors.They also 

mobilise idle savings of the few rich. By 

mobilising savings, the banks channelise them 

into productive investments. Thus they help in 

the capital formation of a developing country.  

 Deposits which can be withdrawn on demand by 

depositors are called demand deposits, e.g., 

current 

account deposits are called demand deposits 

because they are payable on demand but saving 

account deposits do not qualify because of certain 

conditions on withdrawal.No interest is paid on 

them. Term deposits, also called time deposits, are 

deposits which are payable only after the expiry 

of the specified period. The most important 

activity of a commercial bank is to mobilise 

deposits from the public.People who have surplus 

income and savings find it convenient to deposit 

the amounts with banks. Depending upon the 

nature of deposits, funds deposited with bank also 

earn interest. Thus, deposits with the bank grow 

along with the interest earned.If the rate of interest 

is higher, public are motivated to deposit more 

funds with the bank. There is also safety of funds 

deposited with the bank. An advance is a credit 

facility provided by the bank to its customers.It 

differs from loan in the sense that loans may be 

granted for longer period, but advances are 

normally granted for a short period of time. 

Further the purpose of granting advances is to 



 

 

meet the day to day requirements of business.The 

rate of interest charged on advances varies from 

bank to bank. Interest is charged only on the 

amount withdrawn and not on the sanctioned 

amount. 

 

HISTORY OF COMMERCIAL BANKS: 

 

Ancient India: 

 

The Vedas are the earliest Indian texts to mention 

the concept of usury, with the word kusidin 

translated as "usurer". The Sutras and the Jatakas 

also mention usury. Texts of this period also 

condemned usury: Vasishtha forbade Brahmin and 

Kshatriya varnas from participating in usury. By 

the 2nd century CE, usury became more 

acceptable. 

 

The Manusmriti considered usury an acceptable 

means of acquiring wealth or leading a 

livelihood.It also considered money lending above 

a certain rate and different ceiling rates for 

different castes a grave sin.The Jatakas, 

Dharmashastras and Kautilya also mention the 

existence of loan deeds, called rnapatra, rnapanna, 

or rnalekhaya. 

 

Later during the Mauryan period, an instrument 

called adesha was in use, which was an order on a 

banker directing him to pay the sum on the note to 

a third person, which corresponds to the definition 

of a modern bill of exchange. The considerable 

use of these instruments has been recorded[citation 

needed]. In large towns, merchants also gave 

letters of credit to one another. 

 

Medieval India: 
 

The use of loan deeds continued into the Mughal 

era and were called dastawez. Two types of loans 

deeds have been recorded. The dastawez-e- 

indultalab was payable on demand and dastawez- 

e-miadi was payable after a stipulated time. 

 

The use of payment orders by royal treasuries, 

called barattes, have been also recorded. There are 

also records of Indian bankers using issuing bills 

of exchange on foreign countries. The evolution of 

hundis, a type of credit instrument, also occurred 

during this period and remain in use. 

 

Modern India: 

 

During the period of British rule merchants 

established the Union Bank of Calcutta in first as a 

private joint stock association, then partnership. Its 

proprietors were the owners of the earlier 

Commercial Bank and the Calcutta Bank, who by 

mutual consent created Union Bank to replace 

these two banks. 

 

Commercial banks are financial institutions that 

accept demand deposits from the general 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, so that 

liquidity of assets should be maintained. The funds 

of commercial banks belong to the general public 

and are withdrawn at a short notice; therefore, 

commercial banks prefers to provide credit for a 

short period of time backed by tangible and easily 

marketable securities. 
 

OBJECTIVE OF COMMERCIAL BANKS: 
 

1. Earning savings through demand and 

term deposit accounts. 

2. Advancing the loans loans and investing 

the amount which is deposited by the 

customers. 

3. provide custody services. 
4. Discounting of bills. 
5. Securitization of loans 

6. Dealing in Foreign exchange. 

 

7. Bancassurance. 

 

8. Acts as trustee,executor , attorney etc. 

 

9. provide trade information. 

 

10. Factoring services. 

 

11. As per the the banking Regulation act 
banking Accepting Deposits for the 
purpose of lending 

 

12. All commercial banks does the same. As 

to the objectives they primarily provide 

banking 

 

13. financial services of accepting 

deposits/Investment products and offer 

loans to public 

 

14. Banks also extend such other products 

like remmittaces, Insurance etc. 
 

SCOPE OF THE COMMERCIAL BANKS: 

 

A professional money lender is one who is 

exclusively engaged in money lending activity. He 

may occasionally accept deposits and provide 

agency services to his customers. A non– 

professional money lender, on the other hand, is 

either a merchant, or a trader, or a member of the 

business community, whose main activity is not 

money lending. Such money lenders engage in 

money lending as a side activity.A money lender 

normally meets the cash requirements of the 

public. He gives loans for consumption purposes 

such as marriages and other social functions. The 

rate of interest charged by him is generally very 

high. 



 

 

 

INVESTMENT POLICY OF THE BANKS: 
 

The commercial banks have to follow the 

guidelines issued by RBI for investments. The 

following are the motives of investment policy of 

RBI.1. Safety and security. Safety and security of 

the funds which are deposited by the customers of 

the bank is very important in banks. The money 

which is deposited by the customers in banks 

should be safe and they should get back whenever 

they require. 

 

The banks should see that the money which is 

deposited in commercial banks should not be 

misused by the banks through its unscrupulous 

management or mismanagement and lead to loss 

and consequently lead to bankruptcy. Hence the 

RBI will guide the commercial banks through its 

monetary policies and issues guidelines to follow in 

their investment policies 

 

RESEARCH METHODOLOGY: 

 

Methodology concerns the territory of proposed 

study and gives information to the readers about 

adopted process of analysis for the respective 

study. This includes aims for which the study is 

undertaken. This also clarify time, scope, data 

sources etc. of proposed study. Another significant 

aspect is tools and techniques which are used for 

the study. In brief this chapter helps to the 

researcher to decide his path of research work. 

 

Banking sector acts as a backbone of modern 

business. A well organized banking system is 

necessity for the economic development of a 

country. In India all commercial banks excluding 

Regional Rural Banks. 
 

HYPOTHESIS OF THE BANKS: 

 

1. The reforms in banking sector transformed the 

regulated environment into a market-oriented one 

and induced competitiveness in banking industry. 

 

2. The reform measures brought a paradigm shift 

in the banking industry and enhanced the overall 

performance of the banks. 

 

3. Information technology in banking business has 

a visible impact on the quality of customer 

service. 

 

CONCLUSION: 

 

Banking systems have been with us for as long as 

people have been using money. Banks and other 

financial institutions provide security for 

individuals, businesses and governments, alike. 

Let's recap what has been learned with this tutorial. 

 

In general, what banks do is pretty easy to figure 

out. For the average person banks accept 

deposits, make loans, provide a safe place for 

money and valuables, and act as payment agents 

between merchants and banks. 

Banks are quite important to the economy and 

are involved in such economic activities as 

issuing money, settling payments, credit 

intermediation, maturity transformation and 

money creation in the form of fractional reserve 

banking. 

 

SUGGESTIONS: 
 

Indian Banking, especially the Public Sector 

Banks, has performed impressively in achieving 

social goals, extending the geographical reach 

and functional spread of financial services, 

especially for the rural poor. 

 

REFERENCES: 
 

Katuri, N. R.. Indian Banking: Managing 

Transformation. Professional Banker. 

 
Gresternberg, C. W. Financial Organisation and 

Management of Business, New Delhi: 

 
Fitriani, P. Faktor-faktor yang Mempengaruhi 

Profitabilitas Perbankan. Studi pada Bank Umum Go 

Public yang Listed di Bursa 
 

Branscomb, L.M .The changing global economy. 

Washington, D.C.: National Academy of Engineering 

 
Angeela, M. K. (2010). Credit risk management and 

profitability of Commercial banks in Kenya. Nairobi: 

University of Nairob 


