What is Narrow Banking ?
Narrow banking is a term used to describe a very restricted form of banking, where the institution is not allowed to take risks by giving fresh loans to business. Instead, it uses the incremental funds to invest in zero risk government securities. The idea is that the bank does not build up fresh bad loans. But since the returns on government securities are very low, the bank will either have to compensate by bringing down its operating costs sharply or by getting additional capital to make up for the shortfall.
