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Micro Economy Essay

834 Words4 Pages

MICRO ECONOMIC ASPECT OF COMMERCIAL BANKS: Micro economics is the study of an individual or small part of the economy. According to Maurice Dobb, micro economics is the microscopic study of the economy. Professor Kenneth boulding stated that, “micro economics is the study of particular firms, particular households, individual prices, wages, incomes, individual industries, particular commodities. Further in this research, we see the various functions of the commercial banks and how it affects an individual and benefits him, hence, conducting a micro economic analysis about the commercial banking sector. Commercial banks are profit making, business organizations, dealing in claims to money, i.e. borrowing and lending of money. These banks promote savings among common men and channelize them into investments. The RBI is a banker to the government, and regulates all commercial banks, whereas the commercial banks …show more content…

Some of them are as follows: CASH RESERVE RATIO: The main source of funds available in commercial banks is through the deposits made by the public. The funds deposited in cash, by the public in the bank is withdraw able. These funds are used to meet the demands of other customers, seeking loans from the bank. Out of the total funds that the banks have, they are supposed to keep a certain % of it with the reserve bank in the form of cash reserves. This % is decided by the reserve bank, according to the RBI act of 1935. This is the concept of cash reserve ratio. This ratio is changed from time to time to regulate the flow of cash in the economy. An increase in the ratio leads to contraction of credit, and thus reduces inflationary pressures, and a decrease in the ratio results in expansion of credit, and helps increase money supply in the economy. STATUTORY LIQUIDITY

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