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Roles of RBB in Economic and Banking Development of Nepal – Rastriya Banijya Bank (RBB) | Management Notes

Roles of RBB in Economic and Banking Development of Nepal

Modern economies require a developed banking system to develop economically. The banking system needs structural and functional reforms to enable the bank to perform its developmental role in underdeveloped countries. Banks play a crucial role in a country’s development. Today’s economic progress depends greatly on the development of sound banking systems in developing economies.

The following are ways in which commercial banks can contribute to a country’s economic development.

a) Capital Formation

Economic development is primarily determined by capital formation, which is promoted by banks. There are three stages in which the bank plays a crucial role: generalization of savings, mobilization of savings, and canalization of savings into productive uses.

b) Encouragement to Entrepreneurial Innovations

Lack of funds is a major reason why entrepreneurs in underdeveloped countries hesitate to invest in new ventures and innovate. As a result of the bank loans, entrepreneurs can increase their investment and innovation activities, adopt new production methods, and increase their economy’s productive capacity.

c) Monetization of Economy :

Trade and economic activity are accelerated by the monetization of the economy. Money plays an active role in the economy through the banks, which are creditors and distributors of money.

d) Influencing Economic Activity :

Economic activity and thus the pace of economic development can be directly affected by the bank’s influence on (a) interest rates and (b) credit availability.

e) Implementation of Monetary :

An appropriate monetary policy is essential for economic development. But, a well-developed banking system is a necessary pre-condition for the effective implementation of the monetary policy. A country’s banking system cannot actively cooperate with the monetary authority to control and regulate credit.

f) Promotion of Trade and Industry :

Industrial advancement in the industrially advanced countries has been primarily driven by the expansion of trade and industrialization, which would not have been possible without the development of banking systems.

g) Encouragement to Right Type of Industries: 

Banks can provide financial resources to the right industries by granting loans to ensure they have access to materials, machines, and other inputs.

h) Regional Development:

An important role can also be played by banks in achieving balanced development in different regions of the economy. Capital can be transferred from developed to less developed regions where it is scarce and most needed.

i) Development of Agricultural and Other Neglected Sectors: 

The majority of the population in underdeveloped economies lives in rural areas. Agriculture and small scale industries in rural areas are therefore essential for economic development in these economies. So far, underdeveloped countries’ banks have almost forgotten agriculture and industries in favor of trade and commerce.

In order to encourage the banks to play a role in the economic development of the underdeveloped countries, necessary structural and functional reforms need to be made to the banking systems.


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