A bank engaged in multifarious activities like providing working capital, term loans, doing investment business, consumer loans, housing loans, agricultural loans, advisory ser­vices, etc., require maintaining group of knowledgeable persons and experts in each field of activity.

For lack of proper appraisal of loan documents, verification of important informa­tion due to inadequate knowledge, staff or expertise the bank may slip into losing business.

Similarly, having a large number of customers may also result into many defaults in payments and consequently of more bad debts.

In order to obviate such pitfalls, a bank may be concentrating only on collection of deposits and lend or invest the money within a particular region or certain chosen activity like investing the funds only in Government Securities. This type of restricted minimum banking activity is referred to ‘Narrow Banking’.