Banking- Role of Commercial Banks, Issue of NPA, Financial Inclusion:- PSC Exams

<–2/”>a >Table of Content:-

[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.

Commercial banks play a vital role in the economy by providing a number of essential services. These services include accepting deposits from the public, providing loans to businesses and individuals, investing in securities, and providing other financial services, such as checking and savings accounts, credit cards, and mortgages.

Banks play a key role in the financial system by acting as intermediaries between savers and borrowers. When people deposit Money in a bank, the bank uses that money to make loans to businesses and individuals. This process helps to stimulate economic Growth by providing businesses with the capital they need to invest and grow, and by providing individuals with the funds they need to purchase goods and services.

Banks also play a role in the payments system by providing a safe and efficient way to transfer money. When you write a check or use a debit card, the bank is responsible for processing the transaction and ensuring that the funds are transferred to the correct recipient.

Banks are regulated by the government to ensure that they are safe and Sound. The Federal Reserve System, which is the central bank of the United States, is responsible for regulating banks and ensuring that they have adequate capital to cover potential losses.

In recent years, banks have come under scrutiny for their role in the financial crisis of 2008. Some banks were found to have engaged in risky lending practices that contributed to the crisis. As a result, the government has taken steps to tighten regulations on banks in an effort to prevent another crisis from occurring.

Despite the challenges they face, banks continue to play a vital role in the economy. By providing essential financial services, banks help to stimulate economic growth and promote financial stability.

Non-performing assets (NPAs) are loans that are not being repaid by borrowers. NPAs can be a major problem for banks, as they can lead to losses and even bankruptcy. There are a number of factors that can contribute to NPAs, such as economic downturns, bad lending practices, and fraud.

When a loan becomes an NPA, the bank must take steps to recover the loan. This may involve selling the loan to another institution, or taking legal action against the borrower. In some cases, the bank may simply write off the loan as a loss.

NPAs can have a significant impact on a bank’s financial performance. When a loan becomes an NPA, the bank must set aside money to cover potential losses. This can reduce the bank’s profits and make it more difficult to attract new customers.

NPAs can also damage a bank’s reputation. When customers see that a bank has a high number of NPAs, they may be less likely to do business with that bank. This can make it difficult for the bank to attract new deposits and loans.

Banks have a number of strategies for managing NPAs. One strategy is to improve their lending practices. This may involve tightening credit standards, or requiring borrowers to provide more collateral. Banks can also try to sell their NPAs to other institutions.

In some cases, banks may need to take legal action against borrowers who have defaulted on their loans. This can be a costly and time-consuming process, but it may be necessary to recover the loan.

Banks can also try to prevent NPAs from occurring in the first place. This may involve educating borrowers about the risks of debt, or providing them with financial counseling. Banks can also work to improve the economy, which can help to reduce the number of borrowers who default on their loans.

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, such as POVERTY, lack of education, and discrimination. Poverty can make it difficult for people to afford financial services, such as bank accounts and loans. Lack of education can make it difficult for people to understand the benefits of financial services and how to use them effectively. Discrimination can prevent people from accessing financial services, such as mortgages and credit cards.

There are a number of things that can be done to promote financial inclusion. Governments can provide subsidies to make financial services more affordable. They can also provide financial education to help people understand the benefits of financial services. Banks and other financial institutions can also make it easier for people to access financial services, such as by opening branches in low-income areas.

Financial inclusion is important because it can help people to improve their lives. By providing people with access to capital, savings, and other financial products, financial inclusion can help people to start businesses, invest in their education, and build a better future for themselves and their families.

Banking:

What is a bank?
A bank is a financial institution that provides a variety of financial services to its customers, including checking and savings accounts, loans, and investments.
What are the roles of commercial banks?
Commercial banks play a vital role in the economy by providing a safe place for people to store their money, by lending money to businesses and individuals, and by providing financial services such as checking and savings accounts.
What is an NPA?
An NPA, or non-performing asset, is a loan that is not being repaid by the borrower. NPAs can have a significant impact on a bank’s financial Health, as they can lead to losses and reduce the bank’s ability to lend money.
What is financial inclusion?
Financial inclusion is the process of ensuring that everyone has access to affordable and reliable financial services. This includes access to checking and savings accounts, loans, and other financial products and services.

Issue of NPA:

What are the causes of NPAs?
There are a number of factors that can contribute to NPAs, including economic downturns, changes in interest rates, and poor lending practices.
What are the effects of NPAs?
NPAs can have a significant impact on a bank’s financial health, as they can lead to losses and reduce the bank’s ability to lend money. NPAs can also have a negative impact on the economy, as they can reduce investment and economic growth.
What are the solutions to NPAs?
There are a number of solutions to NPAs, including:
Resolving the underlying issues that led to the NPAs, such as economic downturns or changes in interest rates.
Selling the NPAs to another bank or investor.
Writing off the NPAs.

Financial Inclusion:

What are the benefits of financial inclusion?
Financial inclusion has a number of benefits, including:
Increased economic growth: Financial inclusion can lead to increased economic growth by providing businesses and individuals with access to capital.
Reduced poverty: Financial inclusion can help to reduce poverty by providing people with access to financial services that can help them to save money, start businesses, and invest in their education and health.
Increased financial stability: Financial inclusion can help to increase financial stability by providing people with access to safe and affordable financial services.
What are the challenges of financial inclusion?
There are a number of challenges to financial inclusion, including:
Lack of access to financial services: Many people around the world do not have access to basic financial services, such as checking and savings accounts.
High costs of financial services: The costs of financial services can be high, which can make them inaccessible to low-income people.
Lack of financial literacy: Many people do not have the knowledge and skills they need to use financial services effectively.
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 services: Governments and financial institutions can work to expand access to financial services by opening branches in underserved areas and offering products and services that are affordable and accessible to low-income people.
Reducing the costs of financial services: Governments and financial institutions can work to reduce the costs of financial services by providing subsidies and by offering products and services that are more efficient.
Increasing financial literacy: Governments and financial institutions can work to increase financial literacy by providing education and training programs.

Which of the following is not a role of commercial banks?
(a) Accepting deposits from the public
(b) Providing loans to businesses and individuals
(c) Investing in securities
(d) Regulating the financial system
What is the main issue with non-performing assets (NPAs)?
(a) They reduce the profitability of banks
(b) They can lead to bank failures
(c) They can make it difficult for businesses to get loans
(d) All of the above
What is financial inclusion?
(a) The process of ensuring that everyone has access to financial services
(b) The process of making financial services more affordable
(c) The process of making financial services more accessible
(d) All of the above
Which of the following is not a benefit of financial inclusion?
(a) It can help to reduce poverty
(b) It can help to promote economic growth
(c) It can help to improve financial stability
(d) It can help to increase government revenue
Which of the following is a challenge to financial inclusion?
(a) The lack of access to financial services in rural areas
(b) The high cost of financial services
(c) The lack of financial literacy
(d) All of the above
Which of the following is a government program that aims to promote financial inclusion?
(a) The Pradhan Mantri Jan Dhan Yojana (PMJDY)
(b) The Pradhan Mantri Kaushal Vikas Yojana (PMKVY)
(c) The Pradhan Mantri Awas Yojana (PMAY)
(d) The Pradhan Mantri Jan Arogya Yojana (PMJAY)
Which of the following is a non-governmental organization (NGO) that works to promote financial inclusion?
(a) The Self-Employed Women‘s Association (SEWA)
(b) The National Association of Micro and Small Enterprises (NAMSME)
(c) The Microfinance Institutions Network (MFIN)
(d) All of the above
Which of the following is a technology that can be used to promote financial inclusion?
(a) Mobile banking
(b) Internet banking
(c) Point-of-sale (POS) terminals
(d) All of the above
Which of the following is a risk associated with financial inclusion?
(a) The risk of fraud
(b) The risk of money laundering
(c) The risk of financial instability
(d) All of the above
Which of the following is a regulation that aims to protect consumers in the financial sector?
(a) The Reserve Bank of India (RBI) Act, 1934
(b) The Banking Regulation Act, 1949
(c) The Securities and Exchange Board of India (SEBI) Act, 1992
(d) All of the above