What is Para in Banking?
By Balaji
Updated on: February 23rd, 2023
PARA in banking is an independent firm that identifies the largest and most troublesome NPA accounts held by banks and then purchases them. The Public Sector Asset Rehabilitation Agency is known as (PARA). Another moniker for it is the “Bad Bank.”. Toxic assets can be transferred to the Bad Bank, which exists specifically to assist in recovering risky assets and subsequently removed from the bank’s books. The development of a government-owned asset reconstruction corporation, PARA, was supported in the Economic Survey 2016-17.
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PARA in Banking
Today, most well-known banks have affiliates that provide various financial services, including mutual fund trading, equipment leasing, and venture capital funds (VCFs) investments.
- These services are referred to as “para-banking services.”
- Para-banking activities are those a bank engages in that are not part of its regular business operations (such as deposits, withdrawals, etc).
- Banking activities include serving as trustees of pension funds, providing portfolio management services, operating money market mutual funds, underwriting PSU bonds, investing in venture capital funds, and so on.
- Banks are expected to follow the RBI’s entire set of regulations.
Activities of banks under Para Banking
The activities of banks that come under Para Banking are as follows:
- Retail sale of government securities
- Money market mutual funds (MMMF)
- Review the writing tool for money market fund investors
- Insurance business
- Pension fund management (PFM) by banks
- Membership in SEBI-approved stock exchanges
- Portfolio management services
- Investment by banks in venture capital funds (VCFs)
- Banks as sponsors of infrastructure debt funds
- Underwriting company shares and bonds
- Underwriting of bonds of public sector enterprises
- Disclosure of commissions/rewards
Summary:
What is Para in Banking?
PARA in banking is an acronym for Public Asset Rehabilitation Agency. The bank’s function is to remove toxic assets from its books and reclaim dangerous assets. They must also adhere to a set of guidelines issued by the RBI.
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