Generally, the bank which is organized and directed for commercial purposes then it is called the commercial bank. The commercial bank collects fund as deposit and gives fund as loan and advance. This bank gives minimum interest to depositors and demand maximum interest from the borrower. By these processes, commercial banks earn a profit and continue their business.
Money is the main component of commercial banking business. It collects deposit by different kinds of accounts and gives a loan to different sectors. A commercial bank is said to be the trader of credit. This bank is compelled to pay the demand. For this, it has to keep a certain amount of money as the liquid asset. Some definitions of scholars on the commercial bank are given below:
- S. Sayers: “Banks are not merely traders in money, but also important manufacturer of money”.
- Ashutosh Nuth, “Commercial bank is an intermediary profit-making institution”.
- Gilbert, “Commercial bank is a dealer in capital or more properly a dealer in money. He is intermediate party between the borrower and the lender. He borrows from one party and lends to another and the differences between the terms at which he borrows and those at which he lends from the sources of his profit.”
From the above discussion, we can say commercial bank is-
- The intermediary between capital and money business,
- The collector and lender of credit,
- Established to earn profit etc.
So, commercial banks are the main circulator of money in an economy. It plays a vital role in the economic development of a country.