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What is Para Banking Activity?

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Para banking activities are the activities carried out by the bank which are apart from its normal day-to-day activities.

The normal day-to-day activities involve deposits, withdrawals, giving credit, etc.

But this does not mean that bank can go for any type of activity by its own. The Para Banking activities which can be performed by bank have been permitted by RBI. Banks can do these activities either departmentally or by setting up subsidiaries to undertake the type of business.

The Para Banking activities are such as insurance business, portfolio management services, to become pension fund managers, mutual funds business, money market mutual funds, underwriting of bonds of PSUs, investment in venture capital funds, etc.

Banks must follow the whole set of guidelines as given by RBI.

Difference between para and normal banking: The only major difference between a normal banking and Para Banking is that, under Para Banking one cannot opt for current account facility and carry its day-to-day transaction for accepting and withdrawal of funds. Also, a depositor can’t issue any cheque against the amount in its Para banking saving schemes. Rather there is no concept of cheque system in Para banking