With banks, we think about saving our hard-earned money to help us deal with potential financial challenges in the future. However, as time goes on, we also think about fulfiling our dreams that we cherish forever. At that time, we rely on the token of loan offered by banks. Of course, there’s a loan EMI obligation attached to the same. Something we need to abide by for our good credit history. The loan support extended by the Indian banking system becomes a vital cog in our dreams.
Similarly, if someone wants to trade in stocks, banks open their trading accounts too so that all stock transactions are routed through them to ensure 100% transparency.
Fabulous is the Indian banking system that contributes a significant 7.7% to the country’s Gross Domestic Product (GDP). It employs nearly 1.5 million people across India, which goes to show how important banking is for the country.
Let’s do a deep dive into the role of banking in India’s economy.
Here’s the Contribution of the Indian Banking Industry
The Banking Industry Plays an Active Role in Financial Inclusion
India is a vast country consisting of 25 states and eight union territories with varied languages, cultures and traditions. More so, the variation in educational backgrounds makes financial inclusion extremely challenging. However, banks have bridged the gap by bringing unbanked and underserved sections of the population to mainstream banking through schemes such as Pradhanmantri Jan Dhan Yojana.
Letting Customers Earn Interest on Deposits
Banks also let customers earn interest on savings and fixed deposit accounts. Fixed deposit interest rates range from 3-8% per annum currently. Whereas savings account interest rates will be around 2.50-6% per annum on average.
Current accounts, which are usually offered to businesses for carrying out regular transactions, don’t come with interest earnings for depositors by default.
However, banks allow depositors to earn interest provided the current account balance exceeds a particular threshold as specified by the banks. Usually, the amount above the threshold limit is converted into a tranche/s of fixed deposit, hence earning depositors interest.
Since it’s a current account where transactions happen frequently, the account balance may fall below the threshold. In that case, the FDs will break and come back to the account, offering depositors enhanced flexibility.
Enhanced interest earnings increase depositors’ purchasing power, leading to increased consumption of products and services and a subsequent rise in the country’s GDP.
Generates Employment by Extending Loans to MSMEs and Corporates
Banks are pivotal to generating employment across India courtesy of the loans they extend to Micro, Small and Medium Enterprises (MSMEs) and corporate houses. The loans help these units run various projects across the country, generating employment, driving consumption and lifting the economy. As a matter of fact, MSMEs are second on the list of sectors employing the maximum in India. It contributes a significant 30% to the country’s GDP.
With the emphasis on local manufacturing courtesy of schemes such as Make In India and Production-linked Incentives, industries are making a significant contribution to the Indian economy. However, the reason behind all these is the credit support extended by the banks. Their contribution is immense in the context of the Indian economy.
Wrapping Up
Both public and private sector banks have played a major role in making India a $3.7 trillion economy so far. They will likely play a critical role in making India a developed nation by 2047, the target set by the Union government. We at zarooribaathai.in are intrigued by the massive contribution of Indian banks to the country’s economy in terms of employment generation and business expansion. For more updates on the economy, personal finance, beauty, women empowerment and sports, visit zarooribaathai.in – The Voice of Truth.
