A study on the contribution of Banks in Capital Formation through Small and Medium- Term Credits in the Indian Economy

This study examines the role of banks in capital formation and economic growth for the period 2001-2016. All market-oriented countries economies depend on the effective functioning of complex and carefully adjusted financial and credit frameworks. In these organizations, banks are a fundamental part. The research used linear and multiple linear regression in this study. The independent variables include Commercial Bank Deposit, Fund-based Lending Rate (MCLR) marginal cost, Credit, NPA and Investment by India's planned commercial banks. The dependent variables are Gross Domestic Product (GDP) and Gross Fixed Capital Formation (GFCF), which in this case is a measure of the country's economic performance–economic growth. In addition, the regression result shows that Commercial Bank Credits have a positive impact on the GFCF. It is therefore recommended that the financial authorities make efforts to manage the maximum lending of the banks effectively. This policy thrust will most likely result into increased investment activities which will enhance capital formation in India needed for its real sector investments and industrial growth.