Commercial Banking and Economic Development

Vocabulary flashcards covering the mechanisms of credit creation, the role of commercial banks in economic development, and non-banking financial institutions based on the lecture notes.

Bank Deposits (Bank Money)

Money created when a bank creates a deposit (e.g., $1,000$), which is initially offset by the cash deposited, resulting in no immediate increase in the total money supply with the public.

Cash Reserve

The percentage of deposits (e.g., $20 \%$) that a bank is required to keep in its custody, while the remainder is considered excess cash reserve that can be lent out.

Money Multiplier

A formula used to determine total credit creation, calculated as $\frac{1}{\text{Cash Reserve Ratio}}$. For a $20 \%$ reserve, the multiplier is $\frac{1}{20/100} = 5$.

Credit Creation

The process where total deposits grow as excess cash is lent out and redeposited across banks (Bank A to Bank B to Bank C); in the provided example, an initial $1,000$ deposit leads to a total of $5,000$.

Capital Formation

The process where banks mobilize small savings from people scattered over a wide area through a network of branches to make them productive for the country's economic development.

Human Resource Management

The process of managing, training, and organizing people of different backgrounds to achieve personal and organizational objectives.

Banks Monetize Debt

The transformation of a loan to be repaid after a certain period into cash that can be immediately used for business activities, such as by discounting bills of exchange.

Finance to Government

Provision of long-term credit through government securities and short-term finance through the purchase of Treasury Bills.

Treasury Bills

Short-term financial instruments purchased by banks to provide finance to the government.

Employment Generation

The creation of new jobs resulting from the growth of the banking industry and the frequent opening of new bank branches after nationalization.

Entrepreneurship Promotion

The role of banks in inducing entrepreneurs to take up well-formulated projects by providing counseling, technical guidance, managerial guidance, and sometimes $100 \%$ credit.

Non-Banking Financial Institution (NBFI)

A financial institution or company (NBFC) that does not have a full banking license and is not supervised by the central bank, but carries out financial transactions like receiving deposits and giving loans.