Introduction of Para Banking Activities: Para Banking is a kind of banking where money is accepted for the purpose of saving from an individual as in case of a normal banking function. The acceptance of money under Para Banking is scheduled daily, monthly, quarterly, half yearly, yearly and even for fixed period for more than 1 year. Activities like accepting deposits and lending to corporate sell mutual funds demat a/c, gold, insurance etc. Para Banking also provides secured loan and pre-maturity facilities against the amount in the saving scheme. Para – Banking targets all class of individuals for their depositor schemes. Their intension was to encourage all class of individuals towards saving habits since the key success of any economy is the saving structure in the country. Thus the Para Banking launched various schemes considering the daily wage earner to the businessmen. Para banking has been a part of the Indian financial services sector for some time now. There is an increasing need for various financial services at low affordable costs, particularly for the vast sections of disadvantaged and low income group. In Para-Banking majority of population are daily wage earners (i.e.) Small shopkeepers, hawkers, Auto rickshaw and taxi drivers etc. who hardly understand the importance of savings for their future periods. Not only that, their basic earning hardly supports them to save any amount. And over and above to all such problems, they hardly have proper infrastructure and facilities to deposit in banks since there are very few banks in rural areas. History of Para Banking in India: The 1906 Swadeshi Revolution encouraged many cooperative bank to start up. With this unqualified and selfish entrepreneurs started operating such banks with unclear banking regulations of the government. This resulted into unsuccessful banking scenario and difficulties in growth of this banking sector. The major drawback was the bankruptcy of many banks (i.e.) 108 banks during 1913 -1917, 372 banks during 1922 – 36 and 620 banks during 1937 – 48. This resulted in discomfort and insecurity amongst the general citizens and their confidence for banking sector was challenged. In 1929 Central Banking Enquiry Committee investigate the following reasons for the failure for the current banking scenario: 1) Low level of Liquid Assets.
2) Unofficial business relationship between non- banking and banking officials. 3) Long term loans on short term deposits.
4) No proper guidelines from government or banking authorities. 5) Unlimited liabilities / irregular Credit policies / unqualified Directors. After considering the above major drawbacks, the government launched Banking companies’ Regulation Act and Banking Branches Prohibition Act in the year 1946. Para Banking activities are provided by both BFC and NBFC. For e.g.: In BFC ICIC, SBI, HDFC etc are there and for NBFC, Sahara India Parivar ltd is there. Different Para banking activities:
* Merchant banking: merchant banking includes services such as pre-issue, management of public issue etc, and as such dependent on the conditions in the stock market. * Government securities market: The government securities market is an area where banks have been active directly. * Mutual funds: Mutual funds activity has been one of the earlier Para Banking activities which banks have entered. A scheme where pool of money is collected from different investors for the purpose of investing in securities like stock, bonds, money market instruments and similar assets. * Credit Cards: It has been undertaken by banks on their own account. A card issued by a financial company giving the holder an option to borrow funds, usually at point of sale. Credit cards charge interest and are primarily used for short-term financing. * Factoring: Factoring was introduced in India on the basis of the recommendations of the Kalyanasundaram Committee report...