Banking- Role of Commercial Banks, Issue of NPA, Financial Inclusion

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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. Financial-inclusion

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 are financial institutions that provide a variety of services to their customers, including checking and savings accounts, loans, and investments. They also play a vital role in the economy by providing liquidity and credit to businesses and consumers.

Commercial banks are regulated by the government to ensure that they are safe and Sound. They are also subject to a number of laws and regulations, including the Bank Secrecy Act, the Patriot Act, and the Dodd-Frank Wall Street Reform and Consumer protection Act.

Commercial banks are important because they provide a number of essential services to the economy. They help businesses to grow by providing them with loans and other financial services. They also help consumers to save Money and manage their finances.

In recent years, commercial banks have come under increasing scrutiny due to the financial crisis of 2008. The crisis was caused by a number of factors, including risky lending practices by banks. As a result of the crisis, the government has taken steps to regulate banks more closely.

Despite the challenges that they face, commercial banks continue to play an important role in the economy. They provide a vital source of credit and liquidity to businesses and consumers. They also help to promote economic Growth and stability.

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Issue of NPA

Non-performing assets (NPAs) are loans that are not being repaid by borrowers. They 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, including economic downturns, bad lending practices, and fraud.

When a loan becomes an NPA, the bank has to take steps to recover the money that is owed. This can be a difficult and time-consuming process. In some cases, the bank may have to write off the loan as a loss.

NPAs can have a number of negative consequences for banks. They can reduce the bank’s profits and make it more difficult to attract new customers. They can also lead to a decrease in the bank’s share price.

Banks have a number of strategies for dealing with NPAs. They can try to work with borrowers to restructure the loans. They can also sell the loans to other banks or investors. In some cases, banks may have to write off the loans as a loss.

Financial Inclusion

Financial inclusion is the process of ensuring that everyone has access to financial services, such as banking, credit, and insurance. It is important because it can help people to improve their financial security and well-being.

There are a number of challenges to financial inclusion, including POVERTY, lack of education, and discrimination. However, there are also a number of initiatives that are working to promote financial inclusion.

One of the most important initiatives is the creation of digital financial services. Digital financial services can help people to access financial services even if they do not have a bank account or a credit card.

Another important initiative is the development of financial education programs. Financial education programs can help people to understand the importance of financial planning and management.

Financial inclusion is important because it can help people to improve their financial security and well-being. It can also help to promote economic growth and stability.

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.
What are the functions of commercial banks?
The functions of commercial banks include accepting deposits, making loans, providing checking and savings accounts, and offering other financial services.
What are the benefits of using a commercial bank?
The benefits of using a commercial bank include convenience, security, and access to a wide range of financial services.
What are the risks of using a commercial bank?
The risks of using a commercial bank include the risk of fraud, the risk of loss, and the risk of interest rate fluctuations.

Issue of NPA

What is an NPA?
An NPA, or non-performing asset, is a loan that is not being repaid as agreed.
What are the causes of NPAs?
The causes of NPAs can include economic downturns, changes in interest rates, and borrower default.
What are the effects of NPAs?
The effects of NPAs can include losses for banks, higher interest rates for borrowers, and a decrease in lending.
What are the solutions to NPAs?
The solutions to NPAs can include debt restructuring, loan write-offs, and asset sales.

Financial Inclusion

What is financial inclusion?
Financial inclusion is the process of ensuring that everyone has access to affordable and reliable financial services.
What are the benefits of financial inclusion?
The benefits of financial inclusion include increased economic growth, reduced poverty, and improved financial stability.
What are the challenges of financial inclusion?
The challenges of financial inclusion include the high cost of providing financial services to low-income populations, the lack of financial literacy, and the lack of trust in financial institutions.
What are the solutions to the challenges of financial inclusion?
The solutions to the challenges of financial inclusion include government policies, technological innovation, and the development of new financial products and services.

Commercial banks are important because they:
(a) Provide a safe place to store money.
(b) Offer a variety of financial products and services.
(c) Help businesses grow and create jobs.
(d) All of the above.
Non-performing assets (NPAs) are loans that are not being repaid on time. This can be a problem for banks because it means that they are not earning interest on the money that they have loaned out. NPAs can also lead to banks losing money if they have to write off the loans.
Financial inclusion is the process of ensuring that everyone has access to financial services, such as banking, credit, and insurance. This is important because it helps people to improve their lives by providing them with the opportunity to save money, borrow money, and invest in their businesses.
Which of the following is not a role of commercial banks?
(a) Accepting deposits from customers.
(b) Making loans to businesses and individuals.
(c) Providing investment advice.
(d) Selling insurance products.
Which of the following is a problem that can be caused by non-performing assets?
(a) Banks may lose money.
(b) Businesses may not be able to get loans.
(c) The economy may slow down.
(d) All of the above.
Which of the following is a goal of financial inclusion?
(a) To help people save money.
(b) To help people borrow money.
(c) To help people invest in their businesses.
(d) All of the above.
Which of the following is a type of financial product that commercial banks offer?
(a) Checking accounts.
(b) Savings accounts.
(c) Loans.
(d) All of the above.
Which of the following is a type of financial service that commercial banks offer?
(a) Money transfers.
(b) Bill payments.
(c) Investment advice.
(d) All of the above.
Which of the following is a reason why financial inclusion is important?
(a) It helps people to save money.
(b) It helps people to borrow money.
(c) It helps people to invest in their businesses.
(d) All of the above.
Which of the following is a way to promote financial inclusion?
(a) Provide financial education.
(b) Offer financial products and services that are affordable and accessible.
(c) Remove barriers to financial access.
(d) All of the above.