Vol. 11, Issue 5, Part G (2025)

Abstract
The Indian banking industry is crucial for socio-economic growth, offering both traditional and new services, including payment systems and small financing institutions. The RBI's recent steps might significantly aid in the reform of the local banking sector. Micro, Small, and Medium Enterprises (MSMEs) need substantial financial support from commercial banks to start and expand their business operations in order to compete globally. The RBI has established many regulations concerning funding for key sectors, notably small companies in the nation. This research examines the function of banks in capital accumulation and economic development. The economy of all market-oriented countries relies on the effective functioning of intricate and finely tuned systems of finance and credit. Banks are an essential component of these systems. The variables that are dependent are Gross Fixed Capital Formation (GFCF) & Gross Domestic Product (GDP), which serve as indicators of a nation's economic performance and growth. in this particular case Various tests conducted revealed that the deposit liabilities of commercial banks are elastic in relation to gross fixed capital formation in India. The positive coefficient of Commercial Banks Deposit Liabilities aligns with the economic a priori hypothesis of a beneficial effect on Gross Fixed Capital Formation. It is therefore advised that monetary authorities undertake measures to efficiently regulate the banks' maximum lending practices. This legislative initiative would likely lead to heightened investment activity, hence facilitating capital creation in India essential for real sector investments & industrial expansion.