Banking- Role of Commercial Banks, Issue of NPA, Financial Inclusion:- For RAS RTS EXAMINATION

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[su_heading size=”21″]Role of Commercial Banks[/su_heading]

A Commercial bank is a type of financial institution that provides Services such as accepting deposits, making business loans, and offering basic Investment products

There is acute shortage of capital. People lack initiative and enterprise. Means of transport are undeveloped. Industry is depressed. The commercial banks help in overcoming these obstacles and promoting Economic Development. The role of a commercial bank in a developing country is discussed as under.

Mobilising Saving for Capital Formation:

The commercial banks help in mobilising Savings through Network of branch Banking. People in developing countries have low incomes but the banks induce them to save by introducing variety of deposit schemes to suit the needs of individual depositors. They also mobilise idle savings of the few rich. By mobilising savings, the banks channelize them into productive investments. Thus they help in the capital formation of a developing country.

Financing Industry:

The commercial banks finance the Industrial Sector in a number of ways. They provide short-term, medium-term and long-term loans to industry.

Financing Trade:

The commercial banks help in financing both internal and external trade. The banks provide loans to retailers and wholesalers to stock goods in which they deal. They also help in the movement of goods from one place to another by providing all types of facilities such as discounting and accepting bills of exchange, providing overdraft facilities, issuing drafts, etc. Moreover, they finance both exports and imports of developing countries by providing Foreign Exchange facilities to importers and exporters of goods.

Financing agriculture:

The commercial banks help the large agricultural sector in developing countries in a number of ways. They provide loans to traders in agricultural commodities. They open a network of branches in rural areas to provide Agricultural credit. They provide finance directly to agriculturists for the Marketing of their produce, for the modernisation and mechanisation of their farms, for providing Irrigation facilities, for developing land, etc.

They also provide financial assistance for Animal Husbandry, Dairy farming, sheep breeding, Poultry farming, pisciculture and Horticulture-2/”>Horticulture. The small and marginal farmers and landless agricultural workers, artisans and petty shopkeepers in rural areas are provided financial assistance through the Regional Rural Banks in India. These regional rural banks operate under a commercial bank. Thus the commercial banks meet the credit requirements of all types of rural people. In India agricultural loans are kept in priority sector landing.

Financing Consumer Activities:

People in underdeveloped countries being poor and having low incomes do not possess sufficient financial Resources to buy durable consumer goods. The commercial banks advance loans to consumers for the purchase of such items as houses, scooters, fans, refrigerators, etc. In this way, they also help in raising the standard of living of the people in developing countries by providing loans for consumptive activities and also increase the demand in the economy.

Financing EMPLOYMENT Generating Activities:

The commercial banks finance employment generating activities in developing countries. They provide loans for the Education of young person’s studying in engineering, medical and other vocational institutes of higher Learning. They advance loans to young entrepreneurs, medical and engineering graduates, and other technically trained persons in establishing their own business. Such loan facilities are being provided by a number of commercial banks in India. Thus the banks not only help inhuman capital formation but also in increasing entrepreneurial activities in developing countries.

Help in Monetary Policy:

The commercial banks help the economic development of a country by faithfully following the monetary policy of the central bank. In fact, the central bank depends upon the commercial banks for the success of its policy of monetary management in keeping with requirements of a developing economy.

[su_heading size=”21″]Issue of NPA[/su_heading]

A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.According to RBI, terms loans on which interest or installment of principal remain overdue for a period of more than 90 days from the end of a particular quarter is called a Non-performing Asset.

However, in terms of Agriculture / Farm Loans; the NPA is defined as under:

For short duration crop agriculture loans such as paddy, Jowar, Bajra etc. if the loan (installment / interest) is not paid for 2 crop seasons , it would be termed as a NPA.
For Long Duration Crops, the above would be 1 Crop season from the due date.

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act has provisions for the banks to take legal recourse to recover their dues. When a borrower makes any default in repayment and his account is classified as NPA; the secured creditor has to issue notice to the borrower giving him 60 days to pay his dues. If the dues are not paid, the bank can take possession of the assets and can also give it on lease or sell it; as per provisions of the SAFAESI Act.

Reselling of NPAs :- If a bad loan remains NPA for at least two years, the bank can also resale the same to the Asset Reconstruction Companies such as Asset Reconstruction Company (India) (ARCIL). These sales are only on Cash Basis and the purchasing bank/ company would have to keep the accounts for at least 15 months before it sells to other bank. They purchase such loans on low amounts and try to recover as much as possible from the defaulters. Their revenue is difference between the purchased amount and recovered amount.

[su_heading size=”21″]Financial Inclusion[/su_heading]

Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of Society, in contrast to financial exclusion where those services are not available or affordable.

Government of India has launched an innovative scheme of Jan Dhan Yojna for Financial Inclusion to provide the financial services to millions out of the regulated banking sector.

Various program’s for financial inclusion are:-

Swabhimaan Scheme: under the Swabhimaan campaign, the Banks were advised to provide appropriate banking facilities to habitations having a Population in excess of 2000 (as per 2001 census) by March 2012.
Extention of the banking network in unbanked areas,
Expansion of Business Correspondent Agent (BCA) Network
Direct Benefit Transfer (DBT) and Direct Benefit Transfer for LPG (DBTL)
RuPay, a new card payment scheme has been conceived by NPCI to offer a domestic, open-loop, multilateral card payment system which will allow all Indian banks and financial Institutions in India to participate in electronic payments.
Pradhan Mantri Jan-Dhan Yojana (PMJDY) was formally launched on 28th August, 2014. The Yojana envisages universal access to banking facilities with at least one basic banking account for every household, financial Literacy, access to credit, insurance and pension. The beneficiaries would get a RuPay Debit Card having inbuilt accident insurance cover of Rs.1.00 lakh. In addition there is a life insurance cover of Rs.30000/- to those people who opened their bank accounts for the first time between 15.08.2014 to 26.01.2015 and meet other eligibility conditions of the Yojana.

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Banking is the business of accepting deposits from the public and lending them out at interest. Banks play a vital role in the economy by providing a safe place to store Money and by making loans available to businesses and individuals.

Commercial banks are the most common type of bank. They offer a variety of services, including checking and savings accounts, loans, and investment products. Commercial banks are regulated by the government to ensure that they are safe and Sound.

Non-performing assets (NPAs) are loans that are not being repaid on time. NPAs can be a major problem for banks, as they can lead to losses and even bankruptcy. There are a number of reasons why loans can become NPAs, including economic downturns, fraud, and poor lending practices.

Financial inclusion is the process of ensuring that everyone has access to financial services, such as banking, credit, and insurance. Financial inclusion is important because it can help people to improve their lives by providing them with access to capital, savings, and other financial products.

There are a number of challenges to financial inclusion, including POVERTY, lack of education, and discrimination. Poverty can make it difficult for people to save money or access credit. Lack of education can make it difficult for people to understand financial products and services. Discrimination can prevent people from accessing financial services, even if they have the means to do so.

There are a number of measures that can be taken to promote financial inclusion, including:

Expanding access to banking services: This can be done by opening more branches in rural areas and by offering mobile banking services.
Providing financial education: This can help people to understand financial products and services and to make informed decisions about their finances.
Removing barriers to access: This can include addressing issues such as discrimination and lack of identification.

Financial inclusion is important because it can help people to improve their lives by providing them with access to capital, savings, and other financial products. There are a number of challenges to financial inclusion, but there are also a number of measures that can be taken to promote it.

One of the most important ways to promote financial inclusion is to expand access to banking services. This can be done by opening more branches in rural areas and by offering mobile banking services. Mobile banking services allow people to access their bank accounts and perform transactions using their mobile phones. This can be a very effective way to reach people who live in remote areas or who do not have easy access to traditional banking services.

Another important way to promote financial inclusion is to provide financial education. This can help people to understand financial products and services and to make informed decisions about their finances. Financial education can be provided through schools, community organizations, and banks. It is important to make financial education accessible to people of all ages and backgrounds.

Finally, it is important to remove barriers to access. This can include addressing issues such as discrimination and lack of identification. Discrimination can prevent people from accessing financial services, even if they have the means to do so. It is important to ensure that everyone has equal access to financial services, regardless of their race, gender, or income.

Financial inclusion is an important goal that can help to improve the lives of millions of people. By expanding access to banking services, providing financial education, and removing barriers to access, we can make financial inclusion a reality for everyone.

Banking- Role of Commercial Banks

What is a commercial bank?
A commercial bank is a financial institution that accepts deposits from the public and uses those funds to make loans. Commercial banks also provide other financial services, such as checking and savings accounts, and investment products.
What is the role of commercial banks in the economy?
Commercial banks play a vital role in the economy by providing a safe place for people to store their money and by making loans to businesses and individuals. Loans from commercial banks help businesses to grow and create jobs, and they help individuals to buy homes, cars, and other goods and services.
What are the different types of commercial banks?
There are two main types of commercial banks: retail banks and Investment Banks. Retail banks provide services to individuals and small businesses, while investment banks provide services to large corporations and governments.
What are the benefits of using a commercial bank?
There are many benefits to using a commercial bank. Commercial banks offer a safe place to store your money, and they provide a variety of financial services, such as checking and savings accounts, loans, and investment products. Commercial banks also offer convenient access to your money through ATMs and online banking.
What are the risks of using a commercial bank?
There are some risks associated with using a commercial bank. The most common risk is that the bank could fail. If a bank fails, you may lose some or all of your money. However, the Federal Deposit Insurance Corporation (FDIC) insures all deposits up to $250,000, so you are unlikely to lose all of your money if a bank fails.

Issue of NPA

What is an NPA?
An NPA, or non-performing asset, is a loan that is not being repaid according to the terms of the loan agreement. NPAs can be a major problem for banks, as they can lead to losses and even bankruptcy.
What are the causes of NPAs?
There are many factors that can contribute to NPAs, including:
Economic downturns: When the economy is in a downturn, businesses may have difficulty making their loan payments.
Poor lending practices: Banks may make loans to borrowers who are not creditworthy, which can lead to NPAs.
Fraud: Banks may be the victims of fraud, which can lead to NPAs.
What are the consequences of NPAs?
NPAs can have a number of negative consequences for banks, including:
Losses: Banks may lose money on NPAs if they are not able to collect the full amount of the loan.
Bankruptcy: If a bank has too many NPAs, it may go bankrupt.
Reduced lending: Banks may be less willing to lend money to borrowers if they have a lot of NPAs.
Higher interest rates: Banks may charge higher interest rates on loans to borrowers with a history of NPAs.

Financial Inclusion

What is financial inclusion?
Financial inclusion is the process of ensuring that everyone has access to financial services, such as checking and savings accounts, loans, and insurance.
Why is financial inclusion important?
Financial inclusion is important for a number of reasons, including:
It can help people to save money and build wealth.
It can help people to manage their finances more effectively.
It can help people to access credit, which can be used to start a business or invest in education.
It can help people to protect themselves from financial fraud.
What are the challenges to financial inclusion?
There are a number of challenges to financial inclusion, including:
Poverty: Many people around the world do not have enough money to save or invest.
Lack of access to financial institutions: Many people do not live near a bank or other financial institution.
Lack of financial literacy: Many people do not understand how to use financial services effectively.
Discrimination: Some people may be discriminated against by financial institutions, which can make it difficult for them to access financial services.
What are the solutions to the challenges of financial inclusion?
There are a number of solutions to the challenges of financial inclusion, including:
Expanding access to financial institutions: Governments and financial institutions can work to expand access to financial institutions, such as by opening branches in rural areas.
Promoting financial literacy: Governments and financial institutions can promote financial literacy, so that people understand how to use financial services effectively.
Addressing discrimination: Governments and financial institutions can address discrimination, so that everyone has equal access to financial services.

Which of the following is not a function of commercial banks?
(A) Accepting deposits
(B) Providing loans
(C) Investing in securities
(D) Managing the Money Supply
What is the main reason for the rise in non-performing assets (NPAs) in India?
(A) Economic slowdown
(B) Rise in bad loans
(C) Increase in frauds
(D) All of the above
Which of the following is not a measure to address the issue of NPAs?
(A) Recapitalization of banks
(B) Asset Quality review
(C) Insolvency and Bankruptcy Code
(D) All of the above
What is financial inclusion?
(A) The process of ensuring that all sections of the population have access to financial services
(B) The process of making financial services affordable and accessible to all
(C) The process of increasing the number of people who have access to financial services
(D) All of the above
Which of the following is not a benefit of financial inclusion?
(A) Increased economic activity
(B) Reduced poverty
(C) Increased financial stability
(D) All of the above
Which of the following is the most important factor for promoting financial inclusion?
(A) Government policies
(B) Financial literacy
(C) Infrastructure-2/”>INFRASTRUCTURE-development/”>Infrastructure Development
(D) All of the above
Which of the following is not a challenge to financial inclusion?
(A) Lack of awareness
(B) High cost of financial services
(C) Lack of infrastructure
(D) All of the above
Which of the following is the most effective way to address the challenge of high cost of financial services?
(A) Government subsidies
(B) Competition among banks
(C) Development of new technologies
(D) All of the above
Which of the following is the most effective way to address the challenge of lack of infrastructure?
(A) Government investment
(B) Public-private partnerships
(C) Development of new technologies
(D) All of the above
Which of the following is the most effective way to address the challenge of lack of awareness?
(A) Financial education campaigns
(B) Development of new technologies
(C) Government subsidies
(D) All of the above