Role of Banks in Modern Society

Banks play a major role in all the economic and financial activities in modern society. All trade and commerce would slow down badly if the banks were not there to handle their financial transactions. The economic development of a modern society depends on industrial growth and modernization of agriculture. The banks promote both these activities; they mobilize small deposits from the public and provide financial resource to big industries. Thus the banks perform the major task of capital formation. They motivate and lure the common people to save money and earn interest. This money otherwise would be wasted in marriages or hoarded and lie unused in iron safes. Banks mop up the funds lying idle in every home.

In the post Independence period, the banks have played a substantial role in the development of rural economy and small-scale industries. Almost all the banks are fanning out in rural areas with new branches, attracting term deposits from the farmers and financing them also when necessary. They are also helping the artisans and small farmers. Banks combat unemployment and poverty by sanctioning small loans for self-employment. They are thus the instruments to disburse social justice. They help the educated and technically trained unemployed persons to set their own production units or shops. These loans are recovered in easy installments. Banks mop up foreign exchange and finance exports as well. In this way they play a major role in the economic reconstruction of a developing country.

It is not very sensible or true to say that those who keep their money in the banks are fools. The small depositors invest their money in building houses, celebrating festivals and solemnizing marriages. Whatever is left with them, they put in banks for safety and future use. There was a time when banks used to charge commission for providing safe custody of deposits. Today they pay handsome or at least reasonable interest on the deposits. But for the banks, the people would either stop saving or lose it to thieves and robbers. Millions of people both in active service and when retired, deposit their life’s savings in the banks in order to get regular interest income. As for obtaining loans, the bank is certainly not a charitable trust. It demands security and surety for every loan that it sanctions and charges high rate or interest from the loaners. They are not free to settle the rate of interest on term deposits. The banks have to follow the guidelines received from the Reserve Bank of India.

Banks are believed to be rendering a valuable service to the country. Hundreds of banks are doing this job through several thousand branches all over the country. Banks, nobody can deny, are the lifeline of trade and commerce. They have eliminated the Sahukars and moneylenders who used to fleece all the big and small, the farmers and workers until just three decades ago. But it pains me to note that the quality of service rendered by nationalized banks has deteriorated considerably. Banking is an industry as well as an institution for social enlistment. Since nationalization it has been badly abused and misused by politicians and trade unions. The clerical staff is defiant because they are in majority and they have the support of the union. Security of service and a handsome pay packet have made them defiant and rude. They not only shirk work but also talk discourteously with the bank customers.

The need of the hour is to tone up the efficiency of the bank employees and to improve the quality of service in banks. There are two ways to achieve these ends. Banking industry should be liberated from the vicious hold of politicians and the government. The banks may be privatized first, then the trade union activities should be banned at least for five years. This will instill work culture and the fear of punishment in the employees. The employers who indulge in cheating the banks or who misbehave with the general public should be taken to task. The government seems to be inclined to put banking into private hands.