Question

PASSAGE

Post-liberalization, public sector banks have diversified into non- traditional activities such as mutual funds, merchant banking, venture capital funding etc. There is also growth in parabanking activities such as leasing, hire-purchase and factoring services.

Merchant banking includes issue management, project counselling, working capital financing, foreign currency loans, portfolio management etc.

Retail banking offers financial services to individuals for personal consumption such as housing loans, loans for purchase of consumer durables, auto loans, educational loans, credit cards etc.

Banks have been permitted to enter into the life insurance business.

1. Identify the areas of diversification undertaken by public sector banks post-liberalization (1 mark)
2. Mention the financial services offered under retail banking. (1mark)
3. Give your personal opinion based on the above passage. (2 marks)

Answer 1

1. Post liberalization, public sector banks have diversified into areas like mutual funds, merchant banking, venture capital funding and also parabanking activities such as leasing, hire-purchase and factoring services.
2. The financial services offered by retail banking include housing loans, loans for purchase of consumer durables, auto loans, educational loans, credit cards etc.
3. The primary function of commercial banks is accepting deposits and providing loans & advances. This leads to creation of credit. However, post 1991, banks have diversified into various ancillary or nontraditional activities such as mutual funds, merchant banking, venture capital funding etc. There are also multiple value-added services like portfolio management, credit cards, foreign exchange services etc. that banks now offer to their retail or individual customers. Over the years, banks have diversified from their traditional role for the benefit of their customers and have played an important role in economic development.