Narrow Banking


 
 
Concept Explanation
 

Narrow Banking

Narrow Banking : Narrow banking involves mobilising the large part of the deposits in risk free assets such as Government securities. Please note the following:

  • Banks in India partially implement narrow banking.
  • The RBI prescribes a 25% Statutory Liquidity Ratio (SLR) but banks invest much more than that in Government securities, which provides them a low return.
  • The Government securities have a risk weightage of 0% and the government approved securities have a risk weightage of 2.5%, whereas the loan assets have risk weightage of around 50-75%.
  • Narrow banking, in narrow sense, helps banks reduce the Non-Performing Assets (NPA) as the engagement brings them some returns also.
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