Which of the following is / are correct statements regarding Narrow Banking?
- In Narrow Banking, Banks just accept deposits and provide loans.
- In Narrow Banking, there is rarely Asset Liability Mismatch.
Select the correct option from the codes given below:
[A] Only 1 is correct
[B] Only 2 is correct
[C] Both 1 & 2 are correct
[D] Neither 1 nor 2 is correct
Show Answer
Correct Answer: B [Only 2 is correct]
Notes:
Narrow Banking involves mobilizing the large part of the deposits in Risk Free assets such as Government Securities. It does not mean that the banks limit their activities to only accepting deposits and providing loans. Thus first statement is incorrect. Since large part of deposits are in government securities, there is rarely asset liability mismatch. Thus, option 2 is correct.
