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Banking Awareness
Brief History of Banking in India:-
The origin of western type commercial Banking in India dates back to the 18th century.
The story of banking starts from Bank of Hindusthan established in 1770 and it was first bank at Calcutta under European management.
In 1786 General Bank of India was set up.
Since Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, it became a banking center.
Three Presidency banks were set up under charters from the British East India Company- Bank of Calcutta, Bank of Bombay and the Bank of Madras. These worked as quasi central banks in India for many years.
The Bank of Calcutta established in 1806 immediately became Bank of Bengal.
In 1921 these 3 banks merged with each other and Imperial Bank of India got birth. It is today's State Bank of India.
The name was changed after India's Independence in 1955. So State bank of India is the oldest Bank of India.
In 1839, there was a fruitless effort by Indian merchants to establish a Bank called Union Bank. It failed within a decade.
Next came Allahabad Bank which was established in 1865 and working even today.
The oldest Public Sector Bank in India having branches all over India and serving the customers for the last 145 years is Allahabad Bank. Allahabad bank is also known as one of India's Oldest Joint Stock Bank.
The Oldest Joint Stock bank of India was Bank of Upper India established in 1863 and failed in 1913.
Four banks started operation during the period of Swadeshi Movement and so this was known as "Cradle of Indian Banking.
The above discussion was of the first phase of Indian banking which was a very slow in development. This era saw many ups and downs in the banking scenario of the country.
The Second Phase starts from 1935 when Reserve bank of India was established. Between the period of 1911-1948, there were more than 1000 banks in India, almost all small banks. The Reserve Bank of India was constituted in 1934 as an apex Bank, however without major government ownership. Government of India came up with the Banking Companies Act 1949. This act was later changed to Banking Regulation (Amendment) Act 1949. The Banking Regulation (Amendment) Act of 1965 gave extensive powers to the Reserve Bank of India. The Reserve Bank of India was made the Central Banking Authority.
The banking sector reforms started immediately after the independence. These reforms were basically aimed at improving the confidence level of the public as most banks were not trusted by the majority of the people. Instead, the deposits with the Postal department were considered safe.
The first major step was Nationalization of the Imperial Bank of India in 1955 via State Bank of India Act.
State Bank of India was made to act as the principal agent of RBI and handle banking transactions of the Union and State Governments.
In a major process of nationalization, 7 subsidiaries of the State Bank of India were nationalized by the Indira Gandhi regime. In 1969, 14 major private commercial banks were nationalized.
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These 14 banks Nationalized in 1969 are as follows:
?Central Bank of India
?Bank of Maharastra
?Dena Bank Punjab
?National Bank
?Syndicate Bank
?Canara Bank
?Indian Bank
?Indian Overseas
?Bank Bank of Baroda
?Union Bank
?Allahabad Bank
?Union Bank of India
?UCO Bank Bank of India.
The above was followed by a second phase of nationalization in 1980, when Government of India acquired the ownership of 6 more banks, thus bringing the total number of Nationalised Banks to 20. The private banks at that time were allowed to function side by side with nationalized banks and the foreign banks were allowed to work under strict regulation.
After the two major phases of nationalization in India, the 80% of the banking sector came under the public sector / government ownership.
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Please note the following sequence of events:
Creation of Reserve bank of India: 1935
Nationalization of Reserve Bank of India : 1949 (January )
Enactment of Banking Regulation Act : 1949 (March)
Nationalization of State Bank of India : 1955
Nationalization of SBI Subsidiaries : 1959
Nationalization of 14 major Banks : 1969
Creation of Credit Guarantee Corporation: 1971
Creation of Regional Rural Banks : 1975
Nationalization of 7 more banks with deposits over Rs. 200 Crore: 1980
The result was outstanding. The public deposits in these banks increased by 800% , as the government ownership gave the public faith and trust. The third phase of development of banking in India started in the early 1990s when India started its economic liberalization.
First Narasimham Committee:-
The most important committee was Narasimham Committee on banking Sector Reforms. It was set up in 1991.
Please note that there were two Narasimham Committees. Narasimham Committee –I was formed in 1991 and Narasimham Committee –II was formed in 1998 and both were related to Banking Sector Reforms.
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First Narasimham committee submitted its report in November 1991. It recommended the following:
Reduction in the Statutory Liquidity Ratio
Reduction in the Cash Reserve Ratio
Interest rate in CRR Balances
Redefining the priority sector
Deregulation of the Interest Rates.
Asset Classification and defining the Non Performing Assets.
Improve transparency in the banking system
Tribunals for recovery of Loans.
Tackling doubtful debts
Restructuring the banks
Allow entry of the new private Banks
Please note these memorable Points:
The Narasimham Committee had recommended that the SLR should be reduced to 25% over the period of time.
The Narasimham Committee recommended that CRR should be reduced to 10% over the period of time.
The impact of reducing the CRR and SLR was that now more funds of the banks could be deployed to some more remunerative loan assets.
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?The Narasimham Committee recommended that the Priority sector should be redefined and it should include the following:
?Marginal farmers
?Tiny sector
?Small business and transport operators
?Village and Cottage Industries
?Narasimham Committee recommended that there should be a target of 10% of the aggregate credit fixed for the Priority Sector at least. (discussed later)
?The result of the Narasimham committee led to some milestones in the banking sector reforms in India.
Banking history of India is divided into Two major categories -
?? Pre-Independence Banking History ?? Post-Independence Banking History
Pre-Independence Banking :-?? The origin of modern Banking in India dates back to the 18th
century.
?? Bank of Hindusthan was established in 1770 and it was the first bank at Calcutta under European management.
?? Banking Concept in India was brought by Europeans.
?? In 1786 General Bank of India was set up.
?? On June 2, 1806 the Bank of Calcutta established in Calcutta. ? It was the first Presidency Bank during the British Raj.
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?Bank of Calcutta was established mainly to fund General Wellesley's wars against Tipu Sultan and the Marathas.
?On January 2, 1809 the Bank of Calcutta renamed as the Bank of Bengal.
?In 1839, there was a fruitless effort by Indian merchants to establish a Bank called Union Bank but it failed within a decade.
?On 15th April, 1840 the second presidency Bank was established in
Bombay – Bank of Bombay.
?On 1 July 1843 the Bank of Madras was established in Madras, now Chennai. It was the third Presidency Bank during the British Raj.
?Allahabad Bank which was established in 1865 and working even today.
?The oldest Public Sector Bank in India having branches all over India and serving the customers for the last 145 years is Allahabad Bank. Allahabad bank is also known as one of India's Oldest Joint Stock Bank.
?These Presidency banks worked as quasi central banks in India for many years under British Rule.
?The Comptoire d'Escompte de Paris opened a branch in Calcutta in 1860.
?HSBC established itself in Bengal in 1869
?Calcutta was the most active trading port in India, mainly due to the trade of the British Empire, and so became a banking center.
?The Oldest Joint Stock bank of India was Bank of Upper India established in 1863 but this bank was become defunct in 1913.
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?In 1881, Oudh Commercial Bank was established at Faizabad it was the first Bank of India with Limited Liability to be managed by Indian Board. After Independence, In 1958 this bank failed.
?In 1895 Punjab National Bank was established in Lahore in Punjab province of Undivided India. It was the first bank purely managed by Indian. PNB has not only survive but also become the second largest public sector bank in India.
?The first Indian commercial bank which was wholly owned and managed by Indians was Central Bank of India which was established in 1911.
?Central bank of India was also called India's First Truly Swadeshi bank.
?The Swadeshi movement inspired local businessmen and political figures to found banks of and for the Indian community. The period between 1906 and 1911 thousands of Banks were established in India. Many of those banks established then have survived to the present such as Bank of India, Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.
?At least 94 banks in India failed between 1913 and 1918 due to economic crisis during World War I.
?In 27th January, 1921 Bank of Calcutta, Bank of Madras and Bank of Bombay were amalgamated to form Imperial Bank of India.
?In 1926 Hilton-Young Commission submitted it's report.
?In 1934 Reserve Bank of India act was passed.
?On the recommendation of Hilton-Young Commission, On 1st April 1935 Reserve Bank of India was established.
?RBI was established with initial share capital worth Rs. 5 crore with 5 Lakh Rs. 100 share dividend.
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Basel banking norms:-(Basel-III, Basel-II, Basel- I)The Basel Committee on Banking Supervision (BCBS) Basel-IIIprovides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.Currently there are 27 member nations in the committee. Basel guidelines refer to broad supervisory standards formulated by this group of central banks- called the Basel Committee on Banking Supervision (BCBS).What are Basel norms?Basel is a set of standards and practices developed for global banks to ensure that they maintain adequate capital to withstand periods of economic strain. It is a comprehensive set of reform measures designed to improve the regulation, disclosures and risk management within the banking sector.
Basel IIn 1988, BCBS introduced capital measurement system called Basel capital accord, also called as Basel 1. It focused almost entirely on credit risk. It defined capital and structure of risk weights for banks. The minimum capital requirement was fixed at 8% of risk weighted assets (RWA). RWA means assets with different risk profiles. For example, an asset backed by collateral would carry lesser risks as compared to personal loans, which have no collateral. India adopted Basel 1 guidelines in 1999.
Basel IIIn 2004, Basel II guidelines were published by BCBS, which were considered to be the refined and reformed versions of Basel I accord. The guidelines were based on three parameters. Banks should maintain a minimum capital adequacy requirement of 8% of risk assets, banks were needed to develop and use better risk management techniques in monitoring and managing all the three types of risks that is credit and increased disclosure requirements. Banks need to mandatorily disclose their risk exposure, etc to the central bank. Basel II norms in India and overseas are yet to be fully implemented.
Basel IIIIn 2010, Basel III guidelines were released. These guidelines were introduced in response to the financial crisis of 2008. A need was felt to further strengthen the system as banks in the developed economies were under-capitalized, over-leveraged and had a greater reliance on short-term funding.
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Also the quantity and quality of capital under Basel II were deemed insufficient to contain any further risk. Basel III norms aim at making most banking activities such as their trading book activities more capital-intensive. The guidelines aim to promote a more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and liquidity.
Bank Licensing in India: History and Brief Timeline:-1947-1969: Following a spate of mergers and amalgamations, the number of commercial banks in the country decreased from 640 in 1947 to 85 in 1969.
RBI-Reserve-Bank-of-IndiaState Bank of India Act 1955: Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India, which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 1 July 1955, the Imperial Bank of India became the State Bank of India. Later Government of India acquired the Reserve Bank of India's stake in SBI.State Bank of India (Subsidiary Banks) Act 1959: In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which made eight state banks associates of SBI.
Bank Nationalization:On July 19, 1969: The Government of India promulgated Banking Companies (Acquisition and Transfer of Undertakings) ordinance 1969 to acquire 14 bigger commercial banks with with deposits over 50 crores with the basic objective of ensuring credit flow to priority sectors of the economy.April, 1980: The next round of nationalization took place in April 1980. The government nationalised six banks with deposit over 200 crores. This move led to a further increase in the number of branches in the market, increasing to 91% of the total branch network of the country.
Bank Liberalization:January, 1993: Reserve Bank of India (RBI) released guidelines for licensing of new banks in the private sector. 10 new banks were formed on the basis of these guidelines. These were Global Trust Bank, ICICI Bank, HDFC Bank, Axis Bank, Bank of Punjab, IndusInd Bank, Centurion Bank, IDBI Bank, Times Bank and Development Credit Bank.
January, 2001: RBI revised the guidelines for new bank licences. Two new banks — Kotak Mahindra Bank and YES Bank — were formed.
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Current procedure for Bank Licenses
February 26, 2010: Former finance minister and now president Pranab Mukherjee announced in his budget speech (for 2010-11) that companies and business houses will be allowed to set up new banks.
August 11, 2010: RBI released discussion paper on entry of new banks in the private sector.
December 23, 2010: RBI released gist of comments from the feedback on the discussion paper.
August 29, 2011: RBI released draft guidelines for licensing of new banks in the private sector.
July 10, 2012: RBI released gist of comments from the feedback on the draft guidelines.
February 22, 2013: RBI released guidelines for licensing of new banks.
July 1, 2013: Last date for submitting applications for new banking licence. RBI disclosed names of 26 applicants for new banking licence — two of them drop out while one new player gets added to the list later.
September 4, 2013: RBI governor Raghuram Rajan announced setting up of a committee headed by Bimal Jalan to screen the applications.
November 1, 2013: Bimal Jalan committee held its first meeting.
February 25, 2014: Bimal Jalan committee submitted its report to RBI.
March 12, 2014: RBI sought Election Commission's permission to issue in-principle approvals for banking licence.
April 1, 2014: Election Commission allowed RBI to issue new bank licences.
April 2, 2014: RBI granted in-principle approval to IDFC and Bandhan Financial Services to set up banks. The in-principle approval will be valid for 18 months.
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Differentiated bank licence:
May 29, 2014: The Reserve Bank of India (RBI) will finalize the guidelin for issuing differentiated banking licences within the next four months after which such licences will be issued on tap, financial services secretary Gurdial Singh Sandhu said on May 29, 2014. The financial services department briefed new finance minister Arun Jaitley on the working agenda for the department.
Reserve Bank of India (RBI) – Important PointsName of Central Bank of India: Reserve Bank of India (RBI)
?No of Central Bank in India: One (1)
?Reserve Bank of India Act passed in 1934.
?Reserve Bank of India (RBI) established on 1 April 1935.
?Reserve Bank of India (RBI) established on the recommendation of Hilton-Young Commission.
?Hilton-Young Commission submitted its report in the year 1926.
?Initially RBI was constructed as a Private Share holders' bank with fully paid-up capital of Rs 5 Crores.
?RBI was nationalize in the year of 1st January,1949.
?RBI is a statutory body.
?RBI is the sole authority in India to issue Bank notes in India.
?RBI can issue currency notes as much as the country requires, provided it has to make a security deposit of Rs. 200 crores, out of which Rs. 115 crores must be in gold and Rs. 85 crores must be FOREX Reserves.
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?Emblem of RBI: Panther and Palm Tree.
?Initially the headquarter of RBI was in Calcutta (Now Kolkata) but in 1937 it was permanently moved to Mumbai, Maharastra.
?The Reserve Bank of India has 19 regional offices, most of them in state capitals and 9 Sub-offices
?The Executive head of RBI is known as Governor.
?The governor is associated by Four Deputy Governors.
?The bank has also two training colleges for its officers, viz.
?Reserve Bank Staff College at Chennai and College of Agricultural Banking at Pune.
?RBI is a member bank of the Asian Clearing Union.
?Chintaman Dwarkanath Deshmukh (C D Deshmukh) was the governor of RBI at the Time of nationalization of RBI in 1949.
?C D Deshmukh, then Governor of RBI, represented India at the Bretton Woods negotiations in 1944.
?1st women Deputy Governor of RBI -K.J.Udeshi.
?RBI is not a Commercial Bank.
?RBI prints currency in 15 Languages.
?RBI is a member of IMF (International Monetary Fund).
?At present there are total 90 bank in the second schedule of Reserve Bank of India Act, 1934. [Latest inclusion - Bhartiya Mahila Bank]
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Present Governor of RBI and Deputy Governor of RBI:-The executive head of Reserve Bank of India (RBI) is known as the Governor, the governor is assist by four deputy Governor.
Governor:Newly Appointed Governor of Reserve Bank of India (RBI) is Raghuram Rajan who replaced Duvvuri Subbarao on September 4, 2013.
?Name: Raghuram Rajan (New Appointment, Replaced D. Subbarao)
?Appointed on: On 4 September 2013.
List of Deputy Governor:1.Name: Shri H.R.Khan 2.Name: Urijit Patel (New Appointment, Replaced Subir Gokarn.) 3.Name: Shri R. Gandhi (Appointed on April 3, 2014.) 4.Name: Post Vacant. [Dr.K.C.Chakrabarty depart early from his post
on April 25, 2014).
RBI Monetary Policy,RBI Functions and RBI Rates:-
RBI Monetary Policy,RBI Functions and RBI Rates:-Reserve Bank of India (RBI) is the central banking institution of India. RBI control the monetary policy Rupee as a sole controller. RBI also controls the liquidity (flow of money) in Indian Market by Changing its Policy rates and Reserve ratios. RBI have three rates: Bank Rate, CRR,SLR. Different RBI Rates:
Bank Rate (9%) Cash Reserve Ratio (4%) Statutory Liquidity Ratio (22%) Marginal Standing Facility ( MSF) -9%
What are Repo rate and Reverse Repo rate?
Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money,
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it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of interest. As a result, banks would prefer to keep their money with the RBI.
Current Repo Rate: 8% Current Reserve Repo Rate: 7%
Statutory Liquidity Ratio:-
What is SLR?
Apart from the Cash Reserve Ratio, scheduled banks in India are required to maintain, at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities,liquid assets in the form of gold, cash and approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). Reserve Bank of India is empowered to increase Statutory Liquidity Ratio (SLR) up to 40%. An increase in SLR also reduces their (Bank's) capacity to grant loans and advances, thus it is an anti-inflationary impact.RBI-Reserve Bank of India
What is SLR (Non Bankers Point of View)?
SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, it is ratio of cash and some other approved to liabilities (deposits) It regulates the credit growth in India.
Current SLR Rates: The present SLR is 22%.
Bank Rate:-What is Bank rate?Bank Rate is the rate at which central bank of the country, in India it is the Reserve Bank of India (RBI), al lows f inance/l iquidity to commercial/scheduled banks within the territory of India. RBI uses Bank Rate as a tool for short-term measures. Any upward revision in Bank Rate is an indication that banks should also increase the deposit rates as well as the Prime Lending Rate.
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Any revision in the Bank rate indicates more or less interest on your deposits and also an increase or decrease in your EMI.
What is Bank Rate (Non Bankers Point of View) ?This is the rate at which RBI lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and If the bank rate goes down, long-term interest rates also tend to move down. Thus, it can said that in case bank rate is hiked, in all likelihood banks will hikes their own lending rates to ensure and they continue to make a profit.Present Bank Rate of RBI: 9%
Cash Reserve Ratio(CRR):-Every commercial/Scheduled bank in India has to keep certain minimum amount of cash reserves with Reserve Bank of India (RBI). Reserve Bank of India uses CRR as a tool to increase or decrease the reserve requirement depending on whether RBI wants to increase or decrease in the money supply. RBI can vary Cash Reserve Ratio (CRR) rate between 3% and 15%. An increase in CRR will make it mandatory for the banks to hold a large proportion of their deposits in the form of deposits with the RBI. This will reduce the amount of Bank deposits and they will lend less as they have less amount as their reserve. This will in turn decrease the money supply. If RBI wants to increase Money supply it may reduce the rate of CRR and it will allow the banks to keep large amount of their deposit with themselves and they will lend more money. It will increase the money supply. For example: When someone deposits Rs.100 in a bank, it increase the deposit of banks by Rs100, and if the cash reserve ratio is 9%, the banks will have to hold additional Rs 9 with RBI and Bank will be able to use only Rs 91 for investments and lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for lending and investment. RBI uses CRR to control liquidity in the banking system.
The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate.
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[Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities].
Present Cash Reserve Ratio (CRR) is 4%
Banks in India:-Nationalised banks dominate the banking system in India. The history of nationalised banks in India dates back to mid-20th century, when Imperial Bank of India was nationalised (under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955. Then on 19th July 1960, its seven subsidiaries were also nationalised with deposits over 200 crores.However, the major nationalisation of banks happened in 1969 by the then-Prime Minister Indira Gandhi. Mainly Banks were nationaised in India to spread banking infrastructure in remote areas and make cheap finance available to Indian farmers. The nationalised 14 major commercial banks were Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, Indian Bank, Indian Overseas Bank, Oriental Bank of Commerce (OBC), Punjab and Sind Bank, Punjab National Bank (PNB), Syndicate Bank, UCO Bank, Union Bank of India, United Bank of India (UBI), and Vijaya Bank.
The second phase of Bank nationalisation took place in the year 1980 by Indira Gandhi in which 7 more banks were nationalised with deposits over 200 crores. With this, the Government of India held a control over 91% of the banking industry in India. After the nationalisation of banks there was a huge jump in the deposits and advances with the banks. At present, the State Bank of India is the largest commercial bank of India and is ranked one of the top five banks worldwide. It serves 90 million customers through a network of 9,000 branches.
Nationalised Banks in India –
In India, the Banking Sector has been dominated by Government or Public Sector Banks (PSBs) for last 64 years. In 1954 the All India Rural Credit Survey Committee submitted its report recommending creation of a strong, integrated, state-sponsored, state-partnered commercial banking institution with an effective machinery of branches spread all over the country.
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The recommendation of this committee led to establishment of first Public Sector Bank in the name of State bank of India on July 01, 1955 by acquiring the substantial part of share capital by Reserve Bank of India, of then Imperial Bank of India. Similarly during 1956-59, as a result of reorganization of princely states, the State Bank of India associate Bank came into fold of Public sector banking.On July 19, 1969, the Govt. promulgated Banking Companies (Acquisition and Transfer of Undertakings) ordinance 1969 to acquire 14 bigger commercial banks with with deposits over 50 crores. The main objective behind this bank nationalisation was to spread banking infrastructure in rural India and make cheap finance available to Indian farmers.The second phase of bank nationalisation took place in 1980 during the prime ministerial tenure of Indira Gandhi, in which 6 more banks were nationalised with deposits over 200 crores.
List of Nationalised Banks in India:
? Allahabad Bank? Andhra Bank? Bank of Baroda? Bank of India? Bank of Maharashtra? Canara Bank? Central Bank of India? Corporation Bank? Dena Bank? Indian Bank? Indian Overseas Bank? Oriental Bank of Commerce? Punjab and Sind Bank? Punjab National Bank? Syndicate Bank? UCO Bank? Union Bank of India? United Bank of India? Vijaya Bank
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List of Private Banks in India:-
Indian Private Banks:-
? Bank of Rajasthan Ltd.? Bharat Overseas Bank Ltd.? Catholic Syrian Bank Ltd.? Federal Bank Ltd? Dhanalakshmi Bank Ltd.? Jammu and Kashmir Bank Ltd.? Karnataka Bank Ltd.? Karur Vysya Bank Ltd.? City Union Bank Ltd.? Lakshmi Vilas Bank Ltd.? Nainital Bank Ltd.? Ratnakar Bank Ltd.? South Indian Bank Ltd.? Tamilnad Mercantile Bank Ltd.? ING Vysya Bank Ltd.? ICICI Bank Ltd.? Axis Bank Ltd.? IndusInd Bank Ltd.? Yes Bank Ltd.? SBI Commercial and International Bank Ltd.? HDFC Bank Ltd.? Development Credit Bank Ltd.? Kotak Mahindra Bank Ltd.
Foreign Private Banks in India:-
? The Royal Bank of Scotland? Abu Dhabi Commercial Bank? American Express Bank Ltd.? Bank of America, NA? Bank of Bahrain & Kuwait BSC? Mashreq Bank PSC? Bank of Nova Scotia? Bank of Tokyo Mitsubishi UFJ Ltd.? Citi Bank N.A.? Deutsche Bank
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? HSBC Ltd.? Societe Generale? Sonali Bank? BNP Paribas Bank? Barclays Bank p.l.c.? DBS Bank Ltd.? Bank International Indonesia? Arab Bangladesh Bank Ltd.? Standard Chartered Bank? State Bank of Mauritius Ltd.? Bank of Ceylon? Cho Hung Bank? China Trust Commercial Bank? Krung Thai Bank plc.? Antwerp Diamond Bank N.V.? J P Morgan Chase Bank? Mizuho Corporate Bank Ltd.? Oman International Bank SAOG? Credit Agricole Corporate and Investment Bank
List of Co-operative Banks in India:-
Scheduled Urban Co-Operative Banks:-In India, at present, there are total 53 scheduled Urban Co-Operative banks in India.? Ahmedabad Mercantile Co-Op Bank Ltd.? Kalupur Commercial Coop.Bank Ltd.? Madhavpura Mercantile Co-Op Bank Ltd.? Mehsana Urban Co-Op Bank Ltd.? Nutan Nagarik Sahakari Bank Ltd.,? Rajkot Nagrik Sahakari Bank Ltd.? Sardar Bhiladwala Pardi Peoples Coop Bank Ltd.? Surat Peoples Coop Bank Ltd.? Amanath Co-operative Bank Ltd.? Andhra Pradesh Mahesh Co-Op Urban Bank Ltd.? Charminar Co-operative Urban Bank Ltd.? Vasavi Coop Urban Bank LImited.? Indian Mercantile Co-operative Bank Ltd.? Abhyudaya Co-operative Bank Ltd.,? Bassein Catholic Co-operative Bank Ltd.
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? Bharat Co-operative Bank (Mumbai) Ltd.? Bharati Sahakari Bank Limited.? Bombay Mercantile Co-operative Bank Limited? Citizen Credit Co-operative Bank Ltd.,? Cosmos Co-operative Urban Bank Ltd.? Dombivli Nagari Sahakari Bank Ltd.? Goa Urban Co-operative Bank Limited.? Gopinath Patil Parsik Janata Sahakari Bank Ltd.,? Greater Bombay Co-operative Bank Limited? Jalgaon Janata Sahakari Bank Ltd.? Janakalyan Sahakari Bank Ltd.,? Janalaxmi Co-operative Bank Ltd.,? Janata Sahakari Bank Ltd.,? Kallappanna Awade Ichalkaranji Janata Sahakari Bank Ltd.? Kalyan Janata Sahakari Bank Ltd.,? Karad Urban Co-operative Bank Ltd.? Mahanagar Co-operative Bank Ltd.,? Mapusa Urban Co-operative Bank of Goa Ltd.,? Nagar Urban Co-operative Bank Ltd.? Nasik Merchant's Co-operative Bank Ltd.? New India Co-operative Bank Ltd.,? NKGSB Co-operative Bank Ltd.,? Pravara Sahakari Bank Ltd.? Punjab & Maharashtra Co-operative Bank Ltd.? Rupee Co-operative Bank Ltd.? Sangli Urban Co-operative Bank Ltd.,? Saraswat Co-operative Bank Ltd.,? Shamrao Vithal Co-operative Bank Ltd.? Solapur Janata Sahakari Bank Ltd.? Thane Bharat Sahakari Bank Ltd.? Thane Janata Sahakari Bank Ltd.? The Kapol Co-operative Bank Ltd.,? Zoroastrian Co-operative Bank Ltd.,? Nagpur Nagrik Sahakari Bank Ltd.? Shikshak Sahakari Bank Ltd.,? The Akola Janata Commercial Co-operative Bank Ltd.,? The Akola Urban Co-operative Bank Ltd.,? The Khamgaon Urban Co-operative Bank Ltd.
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State Co-operative Banks:-In India,at present, there are total 31 State Co-Operative banks.
? The Andaman and Nicobar State Co-operative Bank Ltd.? The Andhra Pradesh State Co-operative Bank Ltd.? The Arunachal Pradesh State co-operative Apex Bank Ltd.? The Assam Co-operative Apex Bank Ltd.? The Bihar State Co-operative Bank Ltd.? The Chandigarh State Co-operative Bank Ltd.? The Delhi State Co-operative Bank Ltd.? The Goa State Co-operative Bank Ltd.? The Gujarat State Co-operative Bank Ltd.? The Haryana State Co-opertive Apex Bank Ltd.? The Himachal Pradesh State Co-operative Bank Ltd.? The Jammu and Kashmir State Co-operative Bank Ltd.? The Karnataka State Co-operative Apex Bank Ltd.? The Kerala State Co-operative Bank Ltd.? The Madhya Pradesh Rajya Sahakari Bank Maryadit? The Maharashtra State Co-operative Bank Ltd.? The Manipur State Co-operative Bank Ltd.? The Meghalaya Co-operative Apex Bank Ltd.? The Mizoram Co-operative Apex Bank Ltd.? The Nagaland State Co-operative Bank Ltd.? The Orissa State Co-operative Bank Ltd.? The Pondichery State Co-opertive Bank Ltd.? The Punjab State Co-operative Bank Ltd.? The Rajasthan State Co-operative Bank Ltd.? The Sikkim State Co-operative Bank Ltd.? The Tamil Nadu State Apex Co-operative Bank Ltd.? The Tripura State Co-operative Bank Ltd.? The Uttar Pradesh Co-operative Bank Ltd.? The West Bengal State Co-operative Bank Ltd.? The Chhattisgarh RajyaSahakari Bank Maryadit? The Uttaranchal Rajya Sahakari Bank Ltd.
Biometric ATMs in India:-
First Bank to launch Solar Power,Voice enabled Biometric ATM in India – Union bank of India
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First District to get Solar Power,Voice enabled Biometric ATM in India – Ghawaddi village.
First District to get Solar Power,Voice enabled Biometric ATM in India – Ludhiana district.
First State to get Solar Power,Voice enabled Biometric ATM in India – Punjab
Biometric ATM first launched in Goutam Buddha nagar in U.P by – PNB In case of Normal ATM we need to enter our secrete PIN to withdraw cash bu for Biomertic ATMs what is necessary to withdraw cash – Finger Print Scan
India's 10th Biometric ATMs was launched by which bank? – Canara Bank (Canara Bank's 1st biometric ATM).
Bank for International Settlements (BIS):-Bank for International Settlements is an International organization.
BIS was established by the Hague agreements.
BIS was established in 1930.
First General Manager of BIS was Pierre Quesnay of France.
The purpose of is to increase the cooperation between the Central banks.
Number of member – 58 central banks
Location of Bank for International Settlements (BIS) – Basel, Switzerland
present General manager of – Jaime Caruana of Spain.
Bank for International Settlements (BIS) also provides banking services, but only to central banks, or to international organizations like itself.
BIS has representative offices in Hong Kong and Mexico City.
In 2004 Bank for International Settlements (BIS) has published its accounts in terms of Special Drawing Rights, or SDRs, replacing the Gold Franc as the bank's unit of account.
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First Bank in India:-
First Bank in India was Bank of Hindusthan established in 1779.
Banking Concept was brought in India by – European.
First Presidency Bank of India – Bank of Calcutta established in 1806 and immediately became Bank of Bengal
The first bank of India with limited liability to be managed by Indian board was Oudh Commercial Bank. It was established in 1881.
The first bank purely managed by Indian was Punjab National Bank. PNB was established in Lahore in 1895.
First Indian Commercial Bank wholly managed and owned by Indian was – Central Bank of India, established in 1911.
India's first truly Swadeshi bank was – Central bank of India
First Indian bank to open a branch outside India is – Bank of India
First Indian bank to open a branch in Continental Europe at Paris is Bank of India
Which of the following was the first public sector commercial bank which had launched a mutual fund? – State Bank of India
Which of the following bank became the first in India to be fully computerized? – Bank of India
First cooperative bank in Asia? – Anyonya Co-operative Bank.
First Indian Bank to get ISO certification – Canara Bank
First bank in India to introduce ATM – HSBC
First Foreign Bank in India – HSBC
First Universal Bank in India- ICICI Bank.
First Indian bank to Introduce internet banking – ICICI bank.
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First bank in India listed in New York Stock Exchange (NYSE) – ICICI Bank.
First bank in India to facilitate payment of Income tax using ATM recently? - Union Bank of India
First Bank in India to launch Talking ATMs for differently-able person? – Union Bank of India.
First Bank in India to launch it's own Payment Aggregators – State Bank of India. (SBIePay).
Country's first all woman bank – Bhartiya Mahila Bank.
International Monetary Fund (IMF) – Functions, Important Points:-
IMF is an intergovernmental organization that promotes international economic cooperation. International Monetary Fund (IMF) was set up by 44 nation under the Bretton Woods Agreement of July 1944. This institute was established on 27th December 1945, But it started it's function on 1st march 1947.
Functions of IMF:To remove short term deficit in Balance of Payment (BOP).To maintain the stability in Exchange rate system.To Focusing in particular on policies that have an impact on the exchange rate.
Important Points to Remember about IMF:Headquarter at- Washington, D.C. ,United States
Membership- 185 Nations (Founding); 187 Nations (To Date)
The financial year of IMF - 1st May-30th April
The Head of IMF is known as Managing Director.
The head of IMF elected for 5 years. But can be removed earlier.
Present head of IMF - Christine Lagarde [Former finance minister of France]
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Latest/ Last Member of IMF- Tuvalu
Quotas and Voting Ranking- India occupy 9th Place in IMF General quotas where USA in 1st, Japan in 2nd, Germany in 3rd Place.
Special Drawing Rights (SDR) - It was created by IMF in 1971. It is also known as Paper Gold.
Cuba left IMF in 1964. Cuba is not a Member of IMF. SEBI- Securities and Exchange Board of India:-
Securities and Exchange Board of India (SEBI) was established by Government of India through an executive resolution in the year 1988. SEBI was subsequently upgraded as a fully autonomous body in 1992 with the passing of the Securities and Exchange Board of India Act (SEBI Act) on 30th January 1992. In the year 1995, the SEBI was given additional statutory power by the Government of India through an amendment to the securities and Exchange Board of India Act 1992.
The headquarter of SEBI is located in the business district of Bandra-Kurla complex in Mumbai.
The Chairman of SEBI – Upendra Kumar Sinha (UK Sinha)
The Whole Time Member of SEBI- Prashant Saran
The first chairman of SEBI was – Dr. S. A. Dave
SEBI deals with – the issuers of securities,the investors and the market intermediaries.
Basic Objective of SEBI-
To Promote the interests of investors in securities
To promote the development of Securities Market
To regulate the securities market
For matters connected therewith or incidental thereto.
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National Housing Bank – Important points to remember:-
The National Housing Bank (NHB) is a state owned bank. ?National Housing Bank is a regulation authority in India. ?National Housing Bank was established on July 8, 1988. ?National Housing Bank was established under section 6 of the
National Housing Bank Act (1987). ?The headquarters of National Housing Bank (NHB) is in New
Delhi. ?The National Housing Bank (NHB) owned by the Reserve Bank of
India. ?The National Housing Bank (NHB) was established to promote
private real estate acquisition in India. ?The The National Housing Bank (NHB) is regulating and re-
financing social housing programs and other activities.
Bank Liberalisation in India:-
Liberalisation in banking sector in India noticed in early 1990s' when India adopted a new economic policy for the development of the nation. Narasimha Rao government embarked on a policy of liberalization, licensing a small number of private banks.For the first time in India new private banks got license for providing banking service. These banks came to be known as the New Generation tech-savvy banks.
The first bank in India set up after the adaptation of new liberalization policy in banking sector was Global Trust Bank. It was later amalgamated with Oriental Bank of Commerce. The list of banks set up after new liberalization policy includes Global Trust Bank, UTI Bank (Now known as Axis Bank), ICICI Bank and HDFC Bank.
This move towards the Liberalisation along with the rapid economic growth in India, re-energize the banking sector in India. Indian banking sector has noticed rapid growth with strong contribution from all sector of banks – government banks, private banks and foreign banks.The next stage for the Indian banking sector has been set up with the proposed relaxation in the norms for Foreign Direct Investment (FDI). All Foreign Investors in banks can holds up to 74% with some restrictions of the company.
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Stock Market India – Important Points:-
Stock Market refers to a market place where investors cab buy and sell stocks. The price at which each buying and selling transaction takes i determined by the market forces. Here market forces are demand and supply for a particular stock.In earlier times, stock brokers assembles at a stock exchange to purchase and sale stock or in one word to make transactions. But now stock market became paperless. Almost all transaction are done electronically.
Presently there are total 23 stock exchange in India.
?Bombay Stock Exchange (BSE)?National Stock Exchange (NSE)?Ahmedabad Stock Exchange?Bangalore Stock Exchange?Bhubaneshwar Stock Exchange?Calcutta Stock Exchange?Cochin Stock Exchange?Coimbatore Stock Exchange?Delhi Stock Exchange?Guwahati Stock Exchange?Hyderabad Stock Exchange?Jaipur Stock Exchange?Ludhiana Stock Exchange?Madhyapradesh Stock Exchange?Madras Stock Exchange?Magadh Stock Exchange?Mangalore Stock Exchange?Meerut Stock Exchange?OTC Exchange of India?Pune Stock Exchange?Saurashtra Stock Exchange?Uttar Pradesh Stock Exchange?Vadodara Stock Exchange
Important Points-
Oldest Stock Exchange in India – Bombay Stock Exchange
Largest Stock Exchange in India – National Stock Exchange
Regulatory Authority of Stock Market – SEBI
Youngest stock exchange in India – Coimbatore Stock Exchange
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Bombay Stock Exchange (BSE):-
Bombay Stock Exchange (BSE) is a stock exchange located on Dalal Street, Mumbai. Bombay Stock Exchange is the oldest Stock Exchange in Asia. This stock exchange was initially started by five stock broker outside Mumbai Town hall Under a banyan tree in 1850. In 1875 it become an official organization known as 'The Native Share & Stock Brokers Association'.After Independence, In 1956 Bombay Stock Exchange became the first stock exchange to be recognized by the Indian Government under the Securities Contracts Regulation Act.
BSE Founded in 1875CEO and MD of BSE – Ashish kumar chauhanNo. of Company listed – 5,085BSE Indexes- BSE SENSEX,BSE Small Cap,BSE Mid-Cap,BSE 500Oldest Stock Exchange in Asia
Structure of Commercial Banking in India:-In this article we have discussed about the Structure of Commercial Banking in India. Bank is an institutions that accepts deposits frm the public,mobilizes their savings and keeps the same under its custody, these deposits can be withdrawn by Cheques or ATMs or any other available methods. Banks lends money to those who need it and also performs diverse agency functions and also create credit.Commercial banks are the institutions that accept deposits from the people and advances loans. Commercial Banks a;sp create credit. In India, such banks alone called commercial banks which are established in accordance with the provision of the Banking Regulation Act, 1949.Commercial banks may be a Scheduled banks or Non-Scheduled banks. Scheduled banks is classified into two big category based on the ownership of the bank.I) Public Sector BanksII) Private Sector banks
Public Sector Banks is again divided into three category and they are:-i) Nationalized Banksii) State Bank of India and It's Associate Group iii) Regional Rural Banks.
Private Sector Banks is also classified into three category:-i) Old Private Banks ii) New Private Banks iii) Foreign Banks
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Banking and Financial System in India:-
The Banking, non-banking and Financial System in India comprises of the following types of institutions -
1. Commercial Banks
There are four types of Commercial Banks in India. a) Public Sector Banks b) Private Sector Banks c) Foreign Sectord) Cooperative Banks/Institutions.
Cooperative Banks/institutions are of three types-
i) Urban Cooperative Banksii) State Cooperative Banksiii) Central Cooperative Banks
2. Financial Institutions
There are three types of Financial Institutions in India and they are a) All-India Financial Institutions (AIFIs) b) State Financial Corporations (SFCs) c) State Industrial Development Corporations (SIDCs)
3. Non-Banking Financial Companies (NBFCs)
Non-Banking Financial Companies are fast emerging as an important segment of Indian financial system. This group performing financial intermediation in many ways. The most important part is that these companies raise funds from public directly or indirectly and lend them to the ultimate spenders.
4.Capital Market Intermediaries
Small Industries Development Bank of India (SIDBI) – Important Points:-
Small Industries Development Bank of India (SIDBI) was established on April 2, 1990.
The Small Industries Development Bank of India Act passed in 1989.
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SIDBI was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of India.
Now SIDBI is owned by several state-owned banks, insurance companies and financial institutions.
SIDBI is an independent financial institution aimed to aid the growth and development of micro, small and medium-scale enterprises in India.
It is an apex body and nodal agency for formulating, coordination and monitoring the policies and programme for promotion and development of small scale industries.
SIDBI is in the list of top 30 Development Banks of the World in the latest ranking of The Banker, London.
Export-Import Bank of India (EXIM Bank) – Important Points:-
Export-Import Bank of India or EXIM Bank of India is the premier export finance institution of India. EXIM Bank was set up in 1982 under the Export-Import Bank of India Act 1981. The main objective behind the formation of EXIM bank is to enhance countries exports from India and to integrate the country's foreign trade and investment with the overall economic growth.
Important Points about EXIM Bank:
Export-Import Bank of India was established on 1982.
Export-Import Bank of India was set up under the Export-Import Bank of India Act 1981.
Headquarters of EXIM Bank is at Mumbai, India
Chairman and Managing Director (CMD) of EXIM bank is Yaduvendra Mathur.
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Industrial Finance Corporation of India(IFCI) – Important Points:-
In 1947, at the of Independence, there was a significant demand for new capital but the Indian Capital Market was relatively under-developed. Merchant bankers and underwriting firms were almost non existence and commercial banks were not quipped to provide long term industrial finance in any significant manner.
The Industrial Finance Corporation of India (IFCI) was established on July 1, 1948.
IFCI was the first Development Financial Institution (DFI) in India.
IFCI was established to cater to the long-term finance needs of the industrial sector.
Until the establishment of ICICI and IDBI, The IFCI remained solely responsible for implementation of the government's industrial policy.
Some of the sector that benefited from IFCI include – Textiles, paper, sugar, hotels, hospitals, iron and steel, fertilizers, basic chemicals, cement, power generation etc.
Non-Banking Financial Companies (NBFCs):-
Non-Banking Financial Companies (NBFCs) are fast emerging as an important segment of Indian Financial System. It is an heterogeneous group of institutions other than commercial and co-operative banks performing financial intermediation in a variety of ways,like accepting deposits, making loans and advances,leasing, hire purchases etc.
NBFCs raise funds from the public directly or indirectly and lend them to the ultimate spenders.They advances loans to the various wholesale and retail traders, small-scale industries and self employed persons.Thus they have broadened and diversified the range of products and services offered by a Financial sector.
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Difference between NBFCs and Banks:
An NBFCs can't accept demand deposits.
An NBFCs is not a part of the payment and settlement system and as such an NBFCs cannot issue cheques drawn on itself.
Deposit insurance facility of deposit insurance and credit, guarantee corporation is not available for NBFC depositors unlike in case of Banks.
Foreign Direct Investment (FDI) Limit in India – All Sector:-
Present Foreign Direct Investment (FDI) Limits in India. Sector-wise FDI ceiling/ limits in India. FDI or Foreign Direct Investment means net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.
Here is the list of FDI limit of All Sectors:
Hotels and Tourism, Roads and Highway, Education, Advertisement, Farm sector, Petro Chemical, Pharmaceuticals, Coal and Lignite – 100%
FDI in Multi Brand retail:Allowed FDI in Multi brand retail - 51%
FDI in Single Brand retail:Allowed FDI in Single brand retail - 100%
FDI in Courier Service:Allowed FDI in Courier Service – 100%
FDI in Telecom Sector:Allowed FDI in Telecom – 100%
FDI in Asset Reconstruction Sector:Allowed FDI in Asset Reconstruction – 100%
FDI in Power Exchanges:Allowed FDI in Power Exchanges – 49%
FDI in Petroleum Refining:Allowed FDI in Petroleum Refining – 49%
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FDI in Civil Aviation sector:Allowed FDI in Civil Aviation – 49%
The Civil Aviation sector includes Airports, Scheduled and Non-Scheduled domestic passenger airlines, Helicopter services / Seaplane services, Ground Handling Services, Maintenance and Repair organizations; Flying training institutes; and Technical training institutions.
FDI In Insurance Sector:Allowed FDI in Insurance Sector – 49%
FDI in the Insurance sector, as prescribed in the Insurance Act, 1999, is allowed under the automatic route.
FDI in Defense Sector:Allowed FDI in Defense Sector – 49%
FDI in defense industry subject to Industrial license under the Industries (Development and Regulation) Act 1951 would be allowed up to 26% through government approval route.
FDI in Print Media:Allowed FDI in Print Media – 26%
26%. Publication of Indian editions of foreign magazines dealing with news and current affairs- 26% .
FDI in Broadcasting Sector:
FM Radio Stations 20%Cable Network 49%Direct –to-Home (d2h) Services – 49%
FDI limit in Headend-In-The-Sky (HITS) Broadcasting Service – 74% (total direct and indirect foreign investment including portfolio and FDI) Automatic upto 49% Government route beyond 49% and up to 74%.Setting up hardware facilities such as up-linking, HUB etc. – 49%
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FDI in Agriculture Sector:
FDI up to 100% is permitted, under the automatic route, subject to certain conditions mentioned in Consolidated FDI Policy, in the following agricultural activities: Floriculture, Horticulture, Apiculture and Cultivation of Vegetables & Mushrooms under controlled conditions; Development and production of Seeds and planting material; Animal Husbandry (including breeding of dogs), Pisciculture, Aquaculture, under controlled conditions; and Services related to agro and allied sectors.
100% FDI is also permitted in tea sector.
Tea plantation – 49%
Besides the above, FDI is not allowed in any other agricultural sector/ activity.
FDI In Credit Information Companies:Allowed FDI in Credit Information Companies – 74%
FDI in Stock Exchanges, Depositors:Allowed FDI in Stock Exchanges, depositors – 49%
FDI In Banking Sector in India:New Bank (After August, 2011) – 49%Allowed FDI in Private Sector Banks- 74%.
FDI in private banking sector of India is allowed up to 74% where FDI up to 49% is allowed through automatic route and FDI beyond 49% but up to 74% is allowed through government approval route.
Allowed FDI in Public Sector Banks- 49%.
Limit for FDI in public sector banks In the case of nationalized banks as well as SBI and its associate banks, the overall statutory limit of 20 per cent as FDI and portfolio investment will continue.
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Gross Domestic Product (GDP) – Basic Concept:-
What is GDP?
Gross Domestic Product (GDP) is the market value of all final goods and services produced within a country in a given period of time. GDP is the basic measure of the country's economic performance over a given period.
GDP is measured by three basic approaches
Expenditure approachIncome approachValue based approach
Types of GDP:
Real GDPNominal GDP
Real GDP is the production of goods and services valued at constant prices whereas nominal GDP is the production of goods and services valued at current prices.
But why we need to measure both real and nominal GDP?
Now when the total spending increases in a given period it points towards two happenings, either the goods or services are sold at higher prices (i.e inflation has increased) or the total output of goods and services have increased. While studying economy, economist tries to separate these two effects. Hence they measure the real GDP which allows them to find whether production of goods and services has increased or decreased over the periods.
Components of GDP:
GDP is a variable which depends upon four other variables. These variables form components of GDP
GDP = C+I+G+NXC= total consumptionI = gross investmentG= Government spendingNX= exports less imports
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Consumption is spending by households on goods and services. Here we do not include purchase of new housing. Investment is spending on inventories. Equipments and purchase of new housing Government spending includes spending on goods and services by state and central government Net exports spending on the domestic products by foreigners less spending on foreign products by locals.
Nair Committee Report on Priority Sector Lending:-
The Reserve Bank of India, the central bank of India, on February 21, 2012 has released the report of the Committee (Chairman: M V Nair, Chairman, Union Bank of India) constituted to re-examine the existing classification and suggest revised guidelines with regard to priority sector lending and related issues.
The Reserve Bank India had constituted the Committee under the chairmanship of M. V. Nair on August 25, 2011 pursuant to the announcement made in the Monetary Policy Statement 2011-12.
The Major Recommendations of the Nair Committee are:-
The sector 'agriculture and allied activities' maybe a composite sector within priority sector, by doing away with distinction between direct and indirect agriculture. The targets for agriculture and allied activities may be 18 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent of off-balance sheet exposure (CEOBE), whichever is higher.
A sub target for small and marginal farmers within agriculture and allied activities is recommended, equivalent to 9 percent of ANBC or CEOBE, whichever is higher to be achieved in stages by 2015-16.
The MSE sector may continue to be under priority sector. Within MSE sector, a sub target for micro enterprises is recommended equivalent to 7 percent of ANBC or CEOE, whichever is higher to be achieved in stages by 2013-14.
The priority sector targets for foreign banks may be increased to 40 percent of ANBC or CEOBE, whichever is higher with sub-target of 15 percent for exports and 15 percent for MSE sector, within which 7 percent may be earmarked for micro enterprises.
Bank loans to non-bank financial intermediaries for on lending to specified segments may be allowed to be reckoned for classification under priority sector, up to a minimum of 5 percent of ANBC or CEOBE, whichever is higher, subject to certain due diligence and documentation standards.
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Central Board of Reserve Bank of India:-
The Reserve Bank's affairs are governed by a Central Board of Directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India (RBI) Act, 1934.
Structure of Central Board of Directors:
Appointed/nominated for a period of FOUR years
Constitution:
Official DirectorsFull-time : One Governor and not more than four Deputy Governors.Non-Official DirectorsNominated by Government: Ten Directors from various fields and one government official (Generally from Ministry of Finance)Others: Four Directors - one each from four local boards. One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi.
The Function of Central Board of RBI:
The main function of Central Board of RBI is General superintendence and direction of the Bank's affairs. The local boards advises the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks; to perform such other functions as delegated by Central Board from time to time.
National Bank for Agriculture and Rural Development(NABARD):-
Short Notes on NABARD:-
National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India. The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) under the Chairmanship of Shri B. Sivaraman, conceived and recommended the establishment of the National Bank for Agriculture and Rural Development (NABARD).
The Committee to Review Arrangements for Institutional Credit for Agriculture and Rural Development (CRAFICARD) was set up by the Reserve Bank of India (RBI). NABARD was established on 12 July 1982 by a special act by the parliament
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The main objective behind the set up of NABARD was to uplift rural India by increasing the credit flow for elevation of agriculture & rural non farm sector.
Government of India holds 99% stake. in NABARD and currently 1% is held by the RBI. Initially, the RBI held 72.5 per cent of equity in NABARD but in October, 2012 the Reserve Bank of India (RBI) has divested 71.5 per cent stake amounting to Rs 1,430 crore in National Bank for Agriculture and Rural Development (NABARD) in favour of the government.
NABARD is active in developing financial inclusion policy and is a member of the Alliance for Financial Inclusion.
NABARD replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC).
Headquarters of NABARD is situated in Mumbai, Maharashtra, India. The Present Chairman of NABARD is Dr. Harsh Kumar Bhanwala. (As of May 1, 2014.)
Important Points to Remember about NABARD:
National Bank for Agriculture and Rural Development (NABARD) is an apex development bank in India.NABARD was established on the recommendations of Shivaraman Committee.
NABARD was established by an act of Parliament on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981.
NABARD replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of India, and Agricultural Refinance and Development Corporation (ARDC).
Headquarters of NABARD is situated in Mumbai, Maharashtra, India.
The Present Chairman of NABARD is Dr. Harsh Kumar Bhanwala.NABARD completed its 25 years on 12 July 2007 and Completed its 30 year in 12 July, 2012.NABARD announced Rural Innovation award to celebrate it's 30th foundation day.
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RuPay Card:-
All Information about RuPay and RuPay Cards (RuPay ATM, RuPay MicroATM, Debit, Prepaid and Credit Cards)
Short Notes of RuPay:
RuPay is the Indian domestic card payment network set up by National Payments Corporation of India (NPCI) at the behest of banks in India. The RuPay project had been conceived by Indian Banks Association (IBA) and had the approval of Reserve Bank of India (RBI).
RuPay LogoNational Payments Corporation of India (NPCI) has a plan to provide a full range of card payment services including the RuPay ATM, RuPay MicroATM, Debit, Prepaid and Credit Cards which will be accepted in India and abroad, across various channels like POS, Internet, IVR and mobile etc.
The initial focus of NPCI would be to approach those banks who have not been issuing any payment card at all more specifically – Regional Rural Banks (RRBs) and urban co-operative banks.
All Public Sector Undertakings (PSU) banks set to join RuPay system by the end of year 2012. RuPay-based debit cards can be used by the consumers on the Internet from September, 2012.
The government of India had launched India's first domestic payment card network, RuPay, to compete with Visa Inc and Mastercard Inc.
Objectives of RuPay:
The Main Objective of the RuPay payment network project is to reduce the overall transaction cost and develop products appropriate for financial inclusion.
Reduce overall transaction cost for the banks in India by introducing competition to international card schemes.
Develop products appropriate for the country particularly for financial inclusion.
Provide card payment service option to many banks who are currently not eligible for card issuance under the eligibility criteria of international card schemes.
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Build environment whereby payment information of the country remains within the countryShift Personal Consumption Expenditure (PCE) from cash to electronic payments in a growing economy with a population of 1.2 billion
Important Points to Remember:
RuPay is the Indian domestic card payment network.The RuPay payment network set up by National Payments Corporation of India (NPCI) at the behest of banks in India.The RuPay project had been conceived by Indian Banks Association and had the approval of Reserve Bank of India.
The main objective of RuPay project is to reduce overall transaction cost for the banks in India by introducing competition to international card schemes.
NPCI has plan to provide full range of credit service like RuPay ATM, RuPay MicroATM, Debit, Prepaid and Credit Cards which will be accepted across various channel POS, Internet, IVR, Mobile etc.
All state-owned banks are expected to join the RuPay system by the end of this year.
RuPay-based debit cards can be used by the consumers on the Internet from September, 2012.
RuPay card is accepted at all ATMs (1.6 lakh plus), 95 percent of PoS terminals (9.45 lakh plus) and most of the eCom merchants (about 10,000) in the country.
The President of India Shri Pranab Mukherjee on May 8, 2014 dedicates indigenous card payment network 'Rupay' to the nation.
Non Performing Assets (NPA) – Brief Concept:-
A Non-performing asset (NPA) is defined as a credit facility in respect of which the interest and/or instalment of principal has remained 'past due' for a specified period of time. Non-performing assets are one of the talking points of banks in their performance reports. Almost all banks in India is suffering from the problem of NPA. Here we have discussed the concept of Non-performing Assets.
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An Assets, including a leased asset, become an NPA when it ceases to generate income for the bank. An NPA is a loan or an advance where;
The Interest and/or Installment of principal remain overdue for a period of more than ninety days in respect of a term loan,
An account remains 'out of order' as indicated in the article below, in respect of an overdraft/cash credit (OD/CC).
A bill remains overdue for a period of more than ninety days, in the case of bills purchased and discounted.
An installment of the principal or the interest thereon remains overdue for one crop season for long duration crops.
Banks should classify an account as an NPA only if the interest charged during any quarter is not serviced fully within ninety days from the end of the quarter.
'Out of Order' status:
An account is treated as 'out of order', if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases, where the outstanding balance in the operating account is less than the sanctioned limit/ drawing power, but there are not credit continuously for ninety days as on the date of balance sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.
Categories of NPAs:
Banks are required to classify non-performing assets into the following three categories based on the period for which the asset has remained non-performing and reliability of the dues:
Substandard Assets – An assets which remained a NPA for a period less than or equal to twelve months (With Effect from March 31, 2005).
Doubtful Assets -An assets would be classified as doubtful assets if it has remained as Substandard Assets fore more than twelve months (With Effect from March 31, 2005).
Loss Assets – A loss assets is one, where the bank of internal or external auditors or the RBI inspection has identified the loss but the amount has not
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been written off wholly. In other words, such little value that it's continuance as a bankable asset is not warranted although there may be some salvage or recovery value.
Marginal Standing Facility or MSF:-
Marginal Standing Facility (MSF) Rate- Definition/Meaning of Marginal Standing Facility (MSF) by Reserve Bank of India (RBI). What is MSF?
Marginal Standing Facility (MSF) is the rate at which scheduled banks could borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities.
RBI-Reserve Bank of IndiaBanks can borrow funds through MSF during acute cash shortage (considerable shortfall of liquidity). This measure has been introduced by RBI to regulate short-term asset liability mismatches more effectively.
The Marginal Standing Facility (MSF) is pegged 100bps or 1 % above the Repo Rate.
To provide greater liquidity cushion the Reserve Bank of India (RBI) introduced Marginal Standing Facility or MSF. RBI announced the introduction of MSF on May 3, 2011 and it was effected from May 9, 2011.
Reserve Bank of India, in it's annual policy statement, has declared “The stance of monetary policy is, among other things, to manage liquidity to ensure that it remains broadly in balance, with neither a large surplus diluting monetary transmission nor a large deficit choking off fund flows.”
Marginal Standing Facility Rate: Under this scheme, Banks will be able to borrow upto 2% (wef 17/04/2012) of their respective Net Demand and Time Liabilities (NDTL).
Some Important Questions on Marginal Standing Facility (MSF):
1. What is the Present Marginal Standing Facility (MSF) Rate?Answer: 9% (As of April 1, 2014)2. What is Marginal Standing Facility (MSF)?Answer: Already explained above.3. MSF is costlier than Repo Rate, then Why do banks borrow money from RBI using MSF?Answer: Yes, MSF is 1% costlier than the Repo Rate. But usually banks borrow money from RBI during acute cash shortage.
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Cheque Truncation System (CTS):-
What is Cheque Truncation?
Cheque Truncation is settlement of clearing transactions on the basis of images and electronic data without the physical movement of the instruments. The Clearing Cheque is truncated at the Presenting bank itself.
A cheque truncation system allows a Financial Institution to truncate cheques at the “Point of Capture” by providing the capabilities of presenting chques to the “paying bank” electronically and process return cheques electronically.
CTS 2010 is the standard prescribed by the RBI for cheques issued by all banks in the country.
Why Cheque Truncation System in India?
Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefiting the system as a whole.
Cheques are still the prominent mode of payments in the country and Reserve Bank of India has decided to focus on improving the efficiency of the cheque clearing cycle, offering Cheque Truncation System (CTS) as an alternative. As highlighted earlier, CTS is a more secure system vis-a-vis the exchange of physical documents.
In addition to operational efficiency, CTS offers several benefits to banks and customers, including human resource rationalization, cost effectiveness, business process re-engineering, better service, adoption of latest technology, etc. CTS, thus, has emerged as an important efficiency enhancement initiative undertaken by RBI in the Payments Systems area.
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Benefits of Cheque Truncation System:
Better Customer Service – Enhanced Customer Window
T+0 for Local Clearing and T + 1 for inter-city clearing.
Elimination of Float – Incentive to shift to Credit Push payments.
The jurisdiction of Clearing House can be extended to the entire country – No
Geographical Dependence
Operational Efficiency will benefit the bottom lines of banks – Local Clearing activity is a high cost no revenue activity.
Minimises Transaction Costs.
Reduces operational risk by securing the transmission route.
Whether the Cheque Truncation System has legal sanction?
With amendments in the Sections 6 and 1(4), coupled with the introduction of 81 A to the Negotiable Instruments Act, 1881, truncation of cheques is now legalized.
NEFT: National Electronic Funds Transfer:-
What is NEFT? Short Notes on National Electronic Funds Transfer (NEFT). All about National Electronic Funds Transfer (NEFT).
National Electronic Fund Transfer (NEFT) system is a nation-wide system that facilitates individuals, firms and corporates to electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country.
The Reserve Bank of India (RBI) maintains this payment network. NEFT system is a funds transfer mechanism where transfer of money takes place from one bank to another on a deferred net settlement basis.
NEFT For being part of the NEFT funds transfer network, a bank branch has to be NEFT-enabled. Indian Financial System Code (IFSC) is required to perform a transaction using NEFT. IFSC code identifies a specific branch of a bank.
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Important Points to Know about NEFT:
1. The National Electronic Funds Transfer enables electronic transfer of funds between two NEFT-enabled bank branches. It can also be used to transfer funds from or to NRE/NRO accounts in India. Remittance is not allowed to a foreign country, except Nepal.
2. The transactions are bunched up and settled in batches at specified times. There are 12 settlements from 8 am to 7 pm on weekdays, and six from 8 am to 1 pm on Saturdays. If a transaction is initiated after a batch settlement time, it's deferred to the next batch.
3. There is no minimum or maximum limit on the amount that can be transferred under NEFT. Even those who do not have a bank account with a branch can deposit cash at the NEFT-enabled branches, but such remittances can be made up to a maximum of Rs 50,000 per transaction.
4. The credit for the first 10 batches on weekdays (8 a.m. to 5 p.m.) and the first five batches on Saturdays (8 a.m. to 12 noon) takes place on the same day. For the other batches, the funds may be credited on the next working day.
5. The inward transactions for NEFT are free, while the outward transactions are charged. This ranges from a maximum of Rs 2.50 for amounts up to Rs 10,000 to a maximum of Rs 25 for transfer amounts above Rs 2 lakh.
Salient Features of Banking Laws (Amendment) Bill 2012:-
Salient Features of Banking Laws (Amendment) Bill 2012. Important Points of Banking Laws (Amendment) Bill 2012.
The Banking Laws (Amendment) Bill 2011 was introduced in order to amend the Banking Regulation Act, 1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. The Banking Laws (Amendment) Bill 2012 has been passed by both the Houses of Parliament during Winter Session, 2012.
This Bill would strengthen the regulatory powers of Reserve Bank of India (RBI), the central banking institution and to further develop the banking sector in India. This bill will also enable the public sector banks to raise capital by issue of preference shares or rights issue or issue of bonus shares.
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It would also enable them to increase or decrease the authorized capital with approval from the Government and RBI without being limited by the ceiling of a maximum of Rs. 3000 crore.
Beside above, the Bill would pave the way for new bank licenses by RBI resulting in opening of new banks and branches. This would not only help in achieving the goal of financial inclusion by providing more banking facilities but would also provide extra employment opportunities to the people at large in the banking sector.
The salient features of the Bill are as follows:
To enable banking companies to issue preference shares subject to regulatory guidelines by the RBI;
To increase the cap on restrictions on voting rights;
To create a Depositor Education and Awareness Fund by utilizing the inoperative deposit accounts;
To provide prior approval of RBI for acquisition of 5% or more of shares or voting rights in a banking company by any person and empowering RBI to impose such conditions as it deems fit in this regard;
To empower RBI to collect information and inspect associate enterprises of banking companies;
To empower RBI to supersede the Board of Directors of banking company and appointment of administrator till alternate arrangements are made;
To provide for primary cooperative societies to carry on the business of banking only after obtaining a license from RBI;
To provide for special audit of cooperative banks at instance of RBI by extending applicability of Section 30 to them; and
To enable the nationalized banks to raise capital through “bonus” and “rights” issue and also enable them to increase or decrease the authorized capital with approval from the Government and RBI without being limited by the ceiling of a maximum of Rs. 3000 crore under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980.
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Certain additional official amendments have been proposed on the basis of recommendations of the Standing Committee of Finance which gave its report on the Bill on the 13th December, 2011 and has recommended enactment of the Bill, subject to the following modifications:
i) Voting rights in banks may be restricted up to 26%.
ii) The Depositors' Education and Awareness Fund may be used for the purpose of promoting depositors' interests.
Further, pursuant to the discussion with Indian Banks' Association (IBA), RBI and Industry Associations, the following additional amendments are proposed:
a) to exempt guarantee agreements of banks from the purview of the section 28 of the Indian Contract Act, 1872 to bring finality to redemption of such guarantees;
b) to allow select Directors on the Board of RBI a fixed maximum tenure of eight years with terms of not more than two terms of four years each either continuously or intermittently in consonance with the directions of the ACC;
c) to exempt conversion of branches of foreign banks to wholly owned subsidiary entities of foreign banks and transfer of shareholding of banks to the Holding Company structure pursuant to guidelines of RBI from payment of stamp duty; and
d) to ensure that unnecessary inspections are avoided and to encourage regulatory coordination, a condition has been added such that the inspection of the associate enterprise of a banking company would be conducted by RBI jointly with the sector regulator.
Base Rate:-
Base Rate is the minimum rate below which Bank's are not permitted to lend barring certain exceptions. It is the minimum rate of interest that a bank is allowed to charge from its customers. Reserve Bank of India (RBI) rule stipulates that no bank can offer loans at a rate lower than the Base Rate to any of its customers.
Base Rate replaced Bank Prime Lending Rate (BPLR) on July 1, 2010.
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Present Base Rate: 9.80% – 10.25%
RBI Issued Final Guidelines for New Bank Licenses:-
Reserve Bank of India (RBI) Issued Final Guidelines for New Bank Licenses in Private Sector.
The Reserve Bank of India (RBI), the central banking authority of India, on February 22, 2013 issued the final guidelines for new bank licenses, allowing any type of company to apply for a permit, paving the way for new banks after nine years.
RBI-Reserve-Bank-of-IndiaReserve Bank of India (RBI) said it would allow applications till July 1, 2013. No specific industry was barred from applying, although draft rules issued in August 2011 had barred real estate companies and brokerages.
The players which are expected throw their hat in the ring to get banking licenses are: L&T Finance Holdings, Tata Capital, Aditya Birla Financial Services, Reliance Capital, LIC Housing Finance, Mahindra & Mahindra Financial Services, Religare Enterprises, and Indiabulls.
The guidelines come three years after the then Finance Minister Shri Pranab Mukherjee announced that the RBI is considering giving some additional banking licenses to private sector players.
The last time that the central bank gave banking licenses was a decade ago when Kotak Mahindra Finance Ltd got converted into a commercial bank and YES Bank was floated.
Abstracts of Final Guidelines for new bank licenses issued by RBI:
Everyone is welcome, but with caveats:
Corporates, non-banking finance companies (NBFCs) and public sector entities can set up banks. Broking and real estate companies can also apply. Promoters need to be financially sound with track record of 10 years. Positive feedback from other regulators and investigative agencies critical.
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Ring fenced structure:
Promoters must set up banks through wholly-owned non-operative financial holding companies. Holding company and bank not permitted to lend or invest in any entity belonging to the promoter group. Shares of holding companies cannot be transferred to entities outside the promoter group.
Shareholding in the bank:
Holding company to hold 40% stake in bank for 5 years. Holding company to reduce stake in the bank to 20% in 10 years, 15% in 12 years. Foreign shareholding capped at 49% for 5 years.
Capital requirements:
Minimum paid-up capital of the bank must be Rs 500 crore. The bank needs to maintain capital adequacy ratio at 13% for initial 3 years. The bank must get listed within 3 years.
Other conditions:
At least 25% of new branches must be in unbanked rural centres. At least 50% of the directors of holding company must be independent directors. The bank's board must have a majority of independent directors.
Application process:
Applications for banking licenses need to be submitted by July 1, 2013.
RBI to issue in-principle approval after considering recommendations from a high level advisory committee.
The in-principle approval will be valid for 1 year.
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RTGS: Real-time gross settlement:-
RTGS. What is RTGS? Short Notes on Real-time gross settlement (RTGS). All about Real-time gross settlement (RTGS).
Real-time gross settlement (RTGS) maintains by the Reserve Bank of India (RBI). RTGS systemRTGS is a funds transfer mechanism where transfer of money takes place from one bank to another on a 'real time' and on 'gross' basis. This is the fastest possible money transfer system through the banking channel. Settlement in 'real time' means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. 'Gross settlement' means the transaction is settled on one to one basis without bunching with any other transaction. Considering that money transfer takes place in the books of the Reserve Bank of India, the payment is taken as final and irrevocable.RTGS is a large value funds transfer system whereby financial intermediaries can settle interbank transfers for their own account as well as for their customers. The minimum value of transaction in RTGS system is Rs 2,00,000. The system effects final settlement of interbank funds transfers on a continuous, transaction-by-transaction basis throughout the processing day. Customers can access the RTGS facility between 9 am to 4:30 pm on weekdays and 9 am to 1:30 pm on Saturdays.
Reserve Bank of India (RBI) Governor Raghuram Rajan on October 19, 2013 launched new Real Time Gross Settlement (RTGS) system for fund transfers will improve the efficiency of the country's financial markets.
The new ISO 20022 compliant RTGS system provides three access options to participants — thick-client, Web-API (through INFINET or any other approved network) and Payment Originator module.
Participants can decide the mode of participation in the system based on the volume of transactions and the cost of setting up the infrastructure.
Micro, Small and Medium Enterprises (MSME). All about MSME Act 2006:-
The Micro Small & Medium Enterprises Development (MSMED) Act 2006 was become operational from 2nd October 2006. The Act replaces the concept of “Industry” with “Enterprises”.
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The definition of micro, small and medium enterprises is as under:
(a) Enterprises engaged in the manufacture or production, processing or preservation of goods as specified below:
A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh;
A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore;
A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.
(b) Enterprises engaged in providing or rendering of services and whose investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006 are specified below.
A micro enterprise is an enterprise where the investment in equipment does not exceed Rs. 10 lakh;
A small enterprise is an enterprise where the investment in equipment is more than Rs.10 lakh but does not exceed Rs. 2 crore; and
A medium enterprise is an enterprise where the investment in equipment is more than Rs. 2 crore but does not exceed Rs. 5 crore.
BSBDA: Basic Savings Bank Deposit Account:-
Basic Savings Bank Deposit Account (BSBDA). What is BSBDA? What is the definition of Basic Savings Bank Deposit Account (BSBDA)?
The Basic Savings Bank Deposit AccountBasic Savings Bank Deposit Account-BSBDA allows you to bank with a zero minimum balance requirement. All the existing 'No-frills' accounts opened by the banks are now converted into BSBDA in compliance with the guidelines issued on August 22, 2012 by the Reserve Bank of India (RBI).
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Under the Basic Savings Bank Deposit Account (BSBDA) scheme of Reserve Bank of India:
The Basic Savings Bank Deposit Account should be considered as a normal banking service available to all customers (Any individual, including poor or those from weaker section of the society), through branches.
BSBDA guidelines are applicable to “all scheduled commercial banks in India, including foreign banks having branches in India”.
The services available in the account will include deposit and withdrawal of cash at bank branch as well as Free ATMs-cum-Debit Card; receipt/credit of money through electronic payment channels or by means of deposit/collection of cheques drawn by Central/State Government agencies and departments.
There will be no limit on the number of deposits that can be made in a month, account holders will be allowed a maximum of four withdrawals in a month, including ATM withdrawals.
No charge will be levied for non-operation/activation of in-operative 'Basic Savings Bank Deposit Account'.
Holders of 'Basic Savings Bank Deposit Account' will not be eligible for opening any other savings bank deposit account in that bank. If a customer has any other existing savings bank deposit account in that bank, he/she will be required to close it within 30 days from the date of opening a 'Basic Savings Bank Deposit Account'.
One can have Term/Fixed Deposit, Recurring Deposit etc., accounts in the bank where one holds 'Basic Savings Bank Deposit Account'.
The 'Basic Savings Bank Deposit Account' would be subject to RBI instructions on Know Your Customer (KYC) / Anti-Money Laundering (AML) for opening of bank accounts issued from time to time. If such account is opened on the basis of simplified KYC norms, the account would additionally be treated as a 'Small Account'.
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Limits in BSBDA (Accounts with introduction/ Small Accounts):
Aggregate of all credits in a financial year does not exceed Rs.1.00 lac
The aggregate of all withdrawals and transfers in a month does not exceed Rs.10,000/-
Balance at any point of time does not exceed Rs.50,000/-.
The aim of introducing BSBDA is part of the efforts of RBI for furthering financial inclusion objectives.
Bancassurance:-
In India, ever since espousing of financial reforms following the recommendations of First Narasimham Committee, the contemporary financial landscape has been reshaped steadily.
Banks have been striding into several new areas and offer innovative products, viz., merchant banking, lease and term finance, capital market / equity market related activities, hire purchase, real estate finance and so on.
So, banking business has become far more diversified than ever before. Therefore, their entering into insurance business is only a natural corollary and is fully justified too as 'insurance' is another financial product required by the bank customers.
Definition: Bancassurance or Bank Insurance Model refers to the distribution of the insurance and related financial products by the Banks whose main business is NOT insurance. So, simply Bancassurance, i.e., banc + assurance, refers to banks selling the insurance products. Bancassurance term first appeared in France in 1980, to define the sale of insurance products through banks' distribution channels.
Benefits:
It helps both the banks and Insurance Companies as follows: This is a referral business in which the banks tend to leverage the existing clientele.
Insurance companies get the benefit because they can have distribution relationships with multiple insurers.
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Business Model:
For Bancassurance, the Banks need to obtain a prior license from the IrDA or Insurance Regulatory and Development Authority, so that they can work as "Composite Corporate Agent" or may have "Referral Arrangement" with the Insurance Companies.
RBI Guidelines: As per the Government of India Notification dated August 3, 2000, specifying 'Insurance' as a permissible form of business that could be undertaken by banks under Section 6(1)(o) of the Banking Regulation Act, 1949. The RBI, in line with this issued its guidelines for the Bancassurance as follows:
Agent Business
Any scheduled commercial bank would be permitted to undertake insurance business as agent of insurance companies on fee basis, without any risk participation.
The subsidiaries of banks will also be allowed to undertake distribution of insurance product on agency basis.
Joint venture:
Only the Banks which satisfy the eligibility criteria given below will be permitted to set up a joint venture company for undertaking insurance business with risk participation, subject to safeguards. The maximum equity contribution such a bank can hold in the joint venture company will normally be 50 per cent of the paid cup capital of the insurance company. On a selective basis the Reserve Bank of India may permit a higher equity contribution by a promoter bank initially, pending divestment of equity within the prescribed period:
The net worth of the bank should not be less than Rs.500 crore;
The CRAR of the bank should not be less than 10 per cent;
The level of non-performing assets should be reasonable;
The bank should have net profit for the last three consecutive years;
The track record of the performance of the subsidiaries, if any, of the concerned bank should be satisfactory.
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JV with Foreign partners:
In cases where a foreign partner contributes 26 per cent of the equity with the approval of Insurance Regulatory and Development Authority/Foreign Investment Promotion Board, more than one public sector bank or private sector bank may be allowed to participate in the equity of the insurance joint venture. As such participants will also assume insurance risk, only those banks which satisfy the criteria given above, would be eligible.
A subsidiary of a bank or of another bank will not normally be allowed to join the insurance company on risk participation basis. Subsidiaries would include bank subsidiaries undertaking merchant banking, securities, mutual fund, leasing finance, housing finance business, etc.
Investment in Insurance:
Banks which are not eligible for 'joint venture' participant as above, can make investments up to 10% of the net worth of the bank or Rs.50 crore, whichever is lower, in the insurance company for providing infrastructure and services support. Such participation shall be treated as an investment and should be without any contingent liability for the bank.
The eligibility criteria for these banks will be as under: The CRAR of the bank should not be less than 10%; The level of NPAs should be reasonable; The bank should have net profit for the last three consecutive years.
Prior Approval:
All banks entering into insurance business will be required to obtain prior approval of the Reserve Bank and have to be compliant with IrDA regulations. The Reserve Bank will give permission to banks on case to case basis keeping in view all relevant factors including the position in regard to the level of non-performing assets of the applicant bank so as to ensure that non-performing assets do not pose any future threat to the bank in its present or the proposed line of activity, viz., insurance business.
It should be ensured that risks involved in insurance business do not get transferred to the bank and that the banking business does not get contaminated by any risks which may arise from insurance business. There should be 'arms length' relationship between the bank and the insurance outfit.
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Current Issue with Bancassurance:
Now, we know that Banks have to follow RBI as well as IrDA regulations for Bancassurance Business. The present regulations do not allow banks to sell insurance products of more than one insurance company.
The current issue is that the Banks might get to tie up with multiple insurance companies to distribute their products if a panel set up by the industry regulator comes to a consensus on the issue. Following requests from various life and general insurance companies asking Insurance Regulatory and Development Authority (IRDA) to allow banks to have distribution relationships with multiple insurers, the regulator had formed a seven-member committee in Mid of 2009 to look into the matter.
These 7 members are the veterans of the market viz. Deepak Satwalekar, G V Rao, S V Mony, Sandeep Bakshi, R Krinshnamurthy, N M Govardhan and A Giridhar. The committee was given the job to examine the desirability for a differential treatment of insurance intermediation by banks under the Bancassurance model consistent with international best practices and modified suitably to meet domestic regulatory requirements.
In September 2010, speaking at an insurance summit organized by industry body Assocham, Mr Harinarayan said IrDA would be coming up with new regulations on Bancassurance. Most insurers expect the regulators to break the exclusive deals that insurers have with banks for selling insurance. It is also expected that the regulator will put in place norms to ensure that banks continue to service policyholders even if they decide to discontinue their insurance partnerships.
Concept of Narrow Banking:-
Consider the following statements:
In Narrow Banking, Banks just accept deposits and provide loans.
In Narrow Banking, there is rarely Asset Liability Mismatch.
Which among the above statements is / are correct?
In the above question, only statement 2 is correct. The Narrow Banking is very much an antonym to the Universal Banking. In Narrow Banking, the Bank places its funds under the risk free assets and the maturity of the liabilities match the assets and there is No possibility of the Asset Liability Mismatch.
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Narrow Banking means Narrow in the sense of engagement of funds and not in activity.
So, simply, Narrow Banking involves mobilizing the large part of the deposits in Risk Free assets such as Government Securities. Now, please note the following:
Banks in India partially implement the Narrow banking.
The RBI prescribes a 25% SLR Statutory Liquidity Ratio, but Banks invest much more than that in Government securities which provides them a low return.
The Government securities have a 0% risk weightage and the Government approved Securities have a risk weightage of 2.5% , compared to the loan assets which have around 50-75%.
Narrow Banking, in Narrow sense helps the Banks to reduce the Non Performing Assets (NPA) as the engagement brings them some returns also.
Narrow Banking and Tarapore Committee:
The Tarapore Committee had recommended that to bring down the NPAs, the incremental sources of the banks (called narrow banks) should be restricted only to investments in Government Securities.
Thus Tarapore Committee is best known for giving the Concept of Narrow Banking as a solution to the problem of Non Performing Assets.
Functions of RBI:-
The RBI established by RBI Act 1934 in 1935 and nationalized in 1949 is the central banking and monetary authority of India. It acts as a regulator and supervisor of the Banks.
Every country has its own central bank such as Federal Reserve of United States.
Please note that most of the central banks of the world were established during the early 20th century and RBI was one of them. Following is the list of the establishment of some of the major banks in the world.
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Federal Reserve Bank of United States was established via Federal Reserve Act 1913
Bank of England is the oldest established central bank among the major countries. It was established in 1694 as a private entity and remained so till 1946 when it was nationalized.
The central Bank of China is People's Bank of China and it was established in 1948
One more older bank is Banque de France , the central Bank of France which was established in 1800.
Following are major functions of RBI:
Currency authority Control of Money supply and credit Management of Forex As banker to the government Maintenance of India's financial infrastructure Banker of the banks Supervision of the Banks.
In the commercial Banking system, the two functions of RBI viz. Banker of the Banks and Supervision are very important. As the Banker's Bank , RBI carries out the following functions:
Holds a part of the Cash Reserves of the banks
Short term lending Centralized clearing facilities.
LORL: RBI is known as Lender of Last Resort because, banks are supposed to meet their shortfalls of cash from other sources and if the other sources don't meet the demand, then they approach RBI.
CRR: CRR is Cash Reserve Ratio , the share of the liquid cash that the banks have to keep with the RBI. Current CRR 6%.
Supervisory Functions: These functions are related to banking license, branch expansion, liquidity, management and working methods, amalgamation, reconstruction and liquidation.
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Types of Deposits accounts in India:-
There are two types of deposits:
Demand deposits: The money we keep in our saving accounts is like a medium of exchange and this is called Demand deposits. This is because ownership of this deposit may be transferred from one person to another via cheques or electronic transfers. There is no fixed term to maturity for Demand Deposits.
Time Deposits: If we deposit our money has an FD in the bank it becomes a Time Deposit on which NO cheque is drawn. They are paid on maturity at a particular time.
Current Account and Savings Accounts:
A current account is always a Demand Deposit and the bank is obliged to pay the money on demand. The Current accounts bear no interest and they account for the smallest fraction among the current, saving and term deposits. They provide the convenient operation facility to the individual / firm. The cost to maintain the accounts is high and banks ask the customers to keep a minimum balance.
On the other hand, Savings deposits , which are also demand deposits, are subject to restrictions on the number of withdrawals as well as on the amounts of withdrawals during any specified period. Further, minimum balances may be prescribed in order to offset the cost of maintaining and servicing such deposits.
Savings deposits are deposits that accrue interest at a fixed rate set by RBI (3.5 percent as of January 2010).
Difference between Current Account and Saving Accounts:
The basic objective of a Savings Bank Account is to enable the customer save his / her liquid assets and also earn money on that saving. The Savings banks Accounts are preferred by individuals and provide liquidity for private and small businesses sometimes. On the other hand the current account is basically a transactional account which is preferred by business people. The basic objective of the current accounts is to provide flexible payment methods to the business people and entities. These payment methods include special arrangements such a overdraft facility, accommodation of standing orders, direct debits, offset mortgage facility.
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Transactions:
Usually saving accounts have low transactions while current accounts have large transactions.
Handling:
Savings accounts involve personal handling of assets, while current accounts are aimed to make the account holder free of personal handling of liquid funds. The current account facility helps the business to run without hurdles due to non availability of funds and short term deficits.
Interest Income:
Usually the current accounts don't earn interests. The saving accounts earn 3.5% interest at present in India. The interest is compounded half yearly. (Please note that in case of death of the current account holder his legal heirs are paid interest at the rates applicable to Savings bank deposit from the date of death till the date of settlement)
Overdrafts:
As discussed above saving accounts have no overdraft facility, current accounts have. The money can be borrowed for short term and to be paid back with interest.
Minimum Balance: Usually saving accounts need a minimum balance in the banks to keep the account active (however No Frill accounts require either nil or low minimum balance to be maintained). In current accounts there are no minimum balance requirements.
CASA Deposits:
CASA Deposits refers to Current Account Saving Account Deposits. As an aggregate the CASA deposits are low interest deposits for the Banks compared to other types of the deposits. So banks tend to increase the CASA deposits and for this they offer various services such as salary accounts to companies, and encouraging merchants to open current accounts, and use their cash-management facilities.
The Bank is High CASA ratio (CASA deposits as % of total deposits) are in a more comfortable position than the Banks with low CASA ratios , which are more dependent on term deposits for their funding, and are vulnerable to interest rate shocks in the economy, plus lower spread they earn.
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Term Deposits:
Term Deposits are of three kinds:
Fixed deposits: A fixed rate of interest is paid at fixed, regular intervals
Re-investment deposits: Interest is compounded quarterly and paid on maturity, along with the principal amount of the deposit. In the Flexi Deposits amount in savings deposit accounts beyond a fixed limit is automatically converted into term-deposits.
Recurring deposits: Fixed amount is deposited at regular intervals for a fixed term and the repayment of principal and accumulated interest is made at the end of the term. These deposits are usually targeted at persons who are salaried or receive other regular income. A Recurring Deposit can usually be opened for any period from 6 months to 120 months.
NRO, NE(E)RA and FCNA(A) Accounts:
There are several kinds of accounts available for non resident Indians , Persons of Indian Origin and Overseas Citizens of India. They are as follows:
Non Resident Ordinary Accounts: (NRO):
Any person resident outside of India can open this account. Normally, when a resident becomes a non resident, his domestic rupee account gets converted into the NRO account. This helps the NRI to get his credits which accrue in India, for example rent or interest from investments.
Non-Resident (External) Rupee Account:
(NR(E)RA This account was introduced as NRE scheme in 1970. It's a Rupee account and the NRI can remit money to India from the funds abroad. This means that depositor is exposed to the Currency rates risk.
Foreign Currency Non-Resident Account: (FCNR) Foreign Currency Non-Resident Account Bank or FCNR (B) was first introduced in 1993. It replaced the existing FCNR (A) scheme.
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This account is opened by the NRIs in 6 designated currencies as follows:
US Dollar (USD)
Great Britain Pound (GBP)
Euro (EUR)
Japanese Yen (JPY)
Canadian Dollar (CAD)
Australian Dollar (AUD)
Please note that FCNR account is opened ONLY in the form of Term Deposits and NOT in the form of Demand Deposits.
The term is from 1 year to 5 years. Repatriation of the principal and interest is allowed for repatriation after maturity.
Interest is paid on maturity, in the same currency of the deposit. For deposits of tenure up to one year simple interest is paid and for deposits of tenure beyond one year the interest is compounded at half yearly rests. The maturity proceeds inclusive of interest is fully reptriable.
The banks may decide the interest rates after approval from RBI and within the limits fixed by RBI.
If a person has NRE account and wishes to transfer to FCNR, it is permissible without prior approval of the RBI.
Negotiable Instruments Act 1881:-
Negotiable Instruments Act 1881 had been passed in 1882 and was modified in 1989 and 2002, as some more sections were added into the age old law. This act is applicable in entire India , including Jammu & Kashmir. J & K was brought in the ambit of the act in 1956.
The act has provisions of Negotiable Instruments such as Promissory Notes, Checks, Drafts , Bills of exchanges etc.
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What is a Negotiable Instrument?
Negotiability means transfer of an instrument from a person / entity to another person / entity. The transfer should be without restriction and in good faith.
Before we move ahead , please note the following:
The NI Act has 147 sections.
Draft was not included and was made included in the Section 85(a). Currency Note is not a negotiable instrument as per section 21 of the Indian Currency Act .
Section 4 deals with promissory notes
Section 5 deals with Bill of Exchange
Section 6 deals with Cheque
Section 9 deals with holder and holder in Due course.
Section 15 deals with Endorsements
Various other sections such as 123-131 deal with crossing of cheques.
In the next few articles , we discuss the salient features of the NI Act 1881.
Promissory Note:-
PN means a paper with a writing which has a promise. But it does not mean that we write "I owe You" and it becomes a PN.
PN is always in writing
PN has an unconditional undertaking called promise
The promise is to pay money
The money has to be paid to the certain person.
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Please note that when a person issues a promissory note, he/ she would have to stamp it as per the Indian Stamp Act and normally a revenue stamp is affixed on the PN signed by the promissory.
The PN can be Demand Promissory Note or Usance Promissory Note. Demand Promissory Note has to be paid immediately on demand and Usance Promissory Note has to be paid after certain time period.
There are two parties in the PN. The maker is who promises to pay and the payee is who is promised to pay.
Is a currency Note a promissory note?
The currency Notes bear the following note signed by Governor Reserve Bank of India (for more than 1) and Finance Secretary (` 1) :
I promise to pay the bearer a sum of ________Rupee/ Rupees.
However , Currency notes are money and they don't fulfill the conditions of the PN. The currency is excluded from NI act and governed by Indian Currency Act. So Currency notes are Not promissory Notes.
Bill of Exchange:-
There are 3 parties in the bill of Exchange.
BEO is a written negotiable Instrument which contains an unconditional order which is
Signed by the Maker
Directs a certain person to pay
Certain sum of Money only to
Certain person or the bearer.
The parties are Drawer, Drawee and Payee.
Drawer: The person who orders to pay
Drawee: The person who is directed to pay
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Payee: The person who is authorized to obtain a payment
Please note that A minor can be a Drawer but not a Drawee because he can not incur liability.
Once the Drawee accepts the BOE, he becomes acceptor.
Inland Bill & Foreign Bill
A bill that is drawn in India and paid in India or out of India to a person, who is in India, whether Indian or Foreigner, is Inland Bill. Simply, a bill drawn in India and paid in India is a Inland Bill.
A bill which is NOT drawn in India but is payable in India to a person, who is in India and is Indian or a foreigner is a Foreign Bill.
Hundi: Hundi is the Desi version of a bill of Exchange.
They are used conventionally, not stamped and a vernacular language is written on them. They are still in use and are governed by local practices only.
Darshani Hundi is akin to a Demand Promissory Note
Miadi Hundi is akin to a Usance Promissory Note
Khoka is also a Hundi which refers to a bill of exchange that has been paid and canceled.
BOE , as per the NI act are charged at the rate of 18% per annum interest.
Cheque:-
A cheque is also a Bill of Exchange
A cheque is a bill of exchange in which one party (Drawee) is a Bank. So a Drawer (account Holder) draws the Cheque on the (Drawee bank) in the name of a Payee.
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The Drawer has to write the amount in both in figures and words.
If different values are written in Figures and words, the value of words can be paid as per section 18 NI act. This means that if a person writes a check with the following :
Figures : 5000
Words: Rupees Five Lakh Only
This means that amount of Five lakhs is to be paid.
If the amount is written in words only and NOT in figure than NO payment will be made because it would be Inchoate. This means that a person writes a check with the following:
Figures: _________ (Left Blank)
Words: Rupees Five Lakh Only
No payment would be made (Section 20 NI Act)
Bearer Cheque:
Bearer cheque is payable to the bearer. Sometimes "Self" is written, that is also a bearer cheque payable to the account holder.
Dating: If a check does not bear a date, it will be returned.
The holder / bearer can fill a date , if there is no date written
If the date filled is a holiday, it can be paid only after that Holiday.
If a person opens an account on November 10, 2010 and gives a check to somebody with date say October 25, 2010, then it is Valid and will be paid. This is called "Ante dated Cheque".
Normal validity is 3 months but can be restricted by the account holder.
The check older than 3 months is called Stale Cheque and is NOT paid and will be returned.
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After the state Cheque is returned , it can be revalidated for any number of times J and each time it becomes valid for next 3 months.
A post dated check can bear any date of future and the payment can be stopped.
Crossing:
Crossing provides an additional security. Crossing means that sum of that cheque can only recovered from a specified banker and it will be credited to the holders account. The crossed cheques are not paid at the counter. Crossing is applicable in case of cheques only and not in case of Bill of Exchange or promissory notes.
Crossing may be General crossing or Special crossing. General crossing (NI Act Section 123) is where a cheque bears two parallel lines with words such as a/c payee etc.
In Special crossing (NI Act Section 124) the cheque bears the name of the banker also. Section 126 directs that such cheques shall be paid to the banker to whom it is crossed specially or to his agent for collection.
Difference between a Cheque and Draft:-
Cheque has been defined in Negotiable Instruments Act 1881 section 6. A cheque is a bill of exchange drawn on a specified bank and not expressed to be payable otherwise than on demand.
A demand draft has been defined by Negotiable Instruments Act 1881 in section 85. A demand draft is an order to pay money drawn by one office of a bank upon another office of the same bank bank for a sum of money payable to order on demand.
Following are some more differences:
A cheque can be made payable to bearer but a Demand Draft cannot.
A demand draft can be cleared in a specified branch of the issuer bank
A cheque can get dishonored but Demand draft is always honored.
An issuer party of the cheque is liable to the cheque and not backed by a Bank Guarantee, A demand draft is backed by a bank guarantee.
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Difference between a Crossed cheque and A/C Payee cheque:-
A person who signs the cheque and transfers the instrument is an endorser and in whose favor it is transferred is endorsee. The endorsee acquires a right to negotiate the instrument to anyone he / she likes. By making an endorsement the endorser promises that in case of dishonor, he / she provides a guarantee to compensate the holder.
Crossing a cheque by making two parallel lines with or without such words as ___& company is general crossing. Section 126 of the NI Act says that this is a direction to the bank to not to pay the cheque across the counter.
This crossed cheque is no more a bearer cheque where anyone can negotiate and get payment across the counter.
In case of a crossed cheque, the payee is free to make further endorsements.
Conditions of Endorsements:-
The section 15 of the Negotiable Instruments Act 1881 defines endorsing as "signing on the face or an instrument for the purpose of negotiating a negotiable instrument (such as Cheque)."
Endorsing is signing in the instrument either on face or on back, for the purpose of negotiation of a NI. The person who signs is called endorser. The person in whose favor the instrument has been transferred is called Endorsee.
The holder of the instrument endorses the instrument.
If he signs only and does not mention anything else it is called Blank Endorsement.
If he endorses and adds a direction to pay the amount to a specified person it is called Endorsement in full.
If he signs and adds direction for restriction on further negotiability, then it is called Restrictive Endorsement.
Partial endorsement is NOT valid. This means that if Suresh issues you a check of 10000 and endorses on the backside of the check that "Pay Ramesh 5000" it is NOT a Valid endorsement.
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Again if Suresh issues you a check of 10000 and endorses with a direction that " Pay Ramesh when he passes his examination", this is again NOT a valid endorsement. Both these conditions are called partial endorsements.
A minor is NOT a valid endorser.
Commercial Papers:-
The Commercial papers are "Unsecured" Promissory Notes. Since these papers are Unsecured and don't have any collateral security, only highest credit rated firms are able to sell their CPs at reasonable price and "Trust" over the company matters a lot in CP Business. The maturity of the CP is from 7 days to 1 year.
Usually the CP is sold at a discount value and redeemed at face value. For example, if Suresh buys a CP with face value at 100 at the discount value of 98, when he redeems the CP on its maturity which may be anything between 7 days to 1 year ,2 would be his earning.
Certificate of Deposit:-
There is no difference between a Commercial Paper (CP) and Certificate of Deposits (CD) except the CD is issued by the Commercial banks and Finance Institutions. Using the CDs banks are able to mobilize the bulk financial resources. CDS are again issued at a discount and the maturity is maximum 1 year. Most common CDs are in the form of 90 days CDs in the market.
T-Bills:-
T-Bills mean Treasury Bills or the bills issued by the Government. The T-Bill is issued by the Government to fulfill its short term money needs. The T-bills are again issued at discount and the face value is higher than the discount value.
In India, the active T-Bills at present are 91-days T-Bills and 364-days T-Bills.
Please note that T-bills have an advantage over the other bills such as
Zero Risk weightage associated with them. They are issued by the government and sovereign papers have zero risk assigned to them
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High liquidity because 91 days and 364 days are short term maturity.
Transparency The secondary market is very active so they have a higher degree of tradability.
Know Your Customer:-
What is Know your Customer?
Know your customer (KYC) is a bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them.
What are Objectives of KYC?
Money laundering is a growing menace and it not only poses serious threat to the stability and integrity of the financial system but also to the sovereignty and safety of nations worldwide. In the coming days, challenges before banks would primarily lie in saving themselves from the growing threat of money laundering.
prevention of money laundering act (PMLA) was passed in 2002 and it has been aligned with the financial action task force (FATF) recommendations in 2009. Further, India has become a member of FATF in 2010.
Banks are being extensively sensitised about money laundering and KYC norms.
In India Banks were advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority. These 'Know Your Customer' guidelines have been revisited time to time in the context of the Recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT).
These standards have become the international benchmark for framing Anti Money Laundering and combating financing of terrorism policies by the regulatory authorities. Compliance with these standards both by the banks/financial institutions and the country have become necessary for international financial relationships.
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India-On Path of Unified KYC
KYC discipline assumes critical importance especially in the light of our concerted efforts to widen the reach of banking as part of financial inclusion initiatives.
Banks have to ensure a very high degree of KYC compliance and a very robust AML regime. Once these standards are achieved, a unified KYC for banking system could be thought of.
In 2011, SEBI said that it would also come out with Homogenous norms for setting up a uniform Know Your Customer (KYC) Regulation Authority. It will relieve the burden comparable on the intermediaries as well as the common man, seeking to make investments. This mechanism once set would make certain that KYC exercise is undertaken only once and enabling all intermediaries to access a prospective client's number for getting his KYC status.
Factsheet: Know Your Customer (KYC)
Know Your Customer (KYC) is the due diligence and bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them.
Know your customer policies are becoming increasingly important globally to prevent identity theft fraud, money laundering and terrorist financing.
Beyond name matching, a key aspect of KYC controls is to monitor transactions of a customer against their recorded profile, history on the customers account(s) and with peers.
Banks doing KYC monitoring for anti-money laundering (AML) and checks relating to combating the financing of terrorism (CFT) increasingly use specialized transaction monitoring software, particularly names analysis software and trend monitoring software. The generated alerts identify unusual activity which is then subject to due diligence or enhanced due diligence (EDD) processes that use internal and external sources of information on the subject, including the internet. This helps to determine whether a transaction or activity is suspicious and requires reporting to the authorities.
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Some specialist consultancies help multinational companies and SMEs conduct Know Your Customer processes when entering new markets.
The Reserve Bank of India introduced KYC guidelines for all banks in 2002. In 2004, RBI directed that all banks ensure that they are fully compliant with the KYC provisions before December 31, 2005. The purpose was to prevent money laundering, terrorist financing and theft.
KYC and Damodaran Committee
The committee, headed by former SEBI chief M Damodaran, has proposed a slew of consumer-friendly measures. The committee was set up by RBI and if the recommendations are accepted, Bank account holders can expect better standards of service and more secure ways of doing business.
In context with KYC, the committee recommended third-party Know Your Customer data bank.
KRA
In January 2012, the Capital markets regulator SEBI's Chairman, Mr. U.K. Sinha, launched India's first Know Your Customer Registration Agency – KRA at Bombay Stock Exchange.
The system avoids duplication of customer details and is interoperable, which means that other market participants can share the data and bring in more uniformity.
Financial Inclusion:-
The Inclusive Meaning of Financial Inclusion Financial Inclusion or Inclusive Finance refers to the delivery of financial services (Not only Banking) at an affordable cost to the vast sections of the disadvantaged and low profile groups of the society.
So, Financial Inclusion helps vulnerable groups such as low income groups, weaker sections, etc., to increase incomes, acquire capital, manage risk and work their way out of poverty through secure savings, appropriately priced credit and insurance products, and payment services.
Financial Inclusion should not be seen as a social responsibility of the Governments and the banking system,
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but it is a potentially viable business proposition today which provides the poor with opportunities to build savings make investments and get credit. The upcoming Tech solutions such as UID project have a potential to make a difference.
Rangarajan Committee on Financial Inclusion
Despite of the efforts made so far by the successive governments a sizeable majority of our population; in particular the vulnerable groups continue to remain excluded from the opportunities and services provided by the financial sector.
In 2006, Government of India constituted a "Committee on Financial Inclusion" which was headed by Dr C Rangarajan, Chairman, Economic Advisory Council to the Prime Minister. The members of this committee were the stalwarts of the Finance & Banking system in the country.
The terms of reference to this committee were as follows:
To study the pattern of exclusion from access to financial services disaggregated by region, gender and occupational structure.
To identify the barriers confronted by vulnerable groups in accessing credit and financial services, including supply, demand and institutional constraints.
To review the international experience in implementing policies for financial inclusion and examine their relevance / applicability to India.
The committee was asked to recommend:
A strategy to extend financial services to small and marginal farmers and other vulnerable groups, including measures to streamline and simplify procedures.
Reduce transaction costs and make the operations transparent;
Measures including institutional changes to be undertaken by the financial sector to implement the proposed strategy of financial inclusion
A monitoring mechanism to assess the quality and quantum of financial inclusion including indicators for assessing progress.
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Viewpoint of the Committee: (Very Important)
The committee is of the view that "while financial inclusion can be substantially enhanced by improving the supply side or the delivery systems, it is also important to note that many regions, segments of the population and sub-sectors of the economy have a limited or weak demand for financial services."
In order to improve their level of inclusion, demand side efforts need to be taken including improving human and physical resource endowments, enhancing productivity, mitigating risk and strengthening market linkages. However, the primary focus is on improving the delivery systems, both conventional and innovative.
Whose Inclusion?
The essence of Financial Inclusion is to ensure that a range of appropriate financial services is available to every individual of the country. This should include:
Regular financial Intermediation such as Banking which includes basic no frills accounts for sending and receiving money.
Saving Products which are suitable to the pattern of cash flow of the poor household.
Availability of the Money transfer facilities
Availability of small loans and overdrafts for productive , personal and other uses.
Regional Rural Banks:-
Narasimham Committee and Genesis of RRBs
We all know that the first stage of nationalization that took place in 1969 boosted the confidence of the public in the Banking system of the country.
However, in the early 1970s, there was a feeling that even after nationalization there were cultural issues which made it difficult for commercial banks, even under government ownership, to lend to farmers. This issue was taken up by the government and it set up a working group to suggest the alternatives for institutional finances to the rural sector.
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The committee was Narasimham Working Group 1975.
On the basis of this committee's recommendations, a Regional Rural Banks Ordinance was promulgated in September 1975, which was replaced by the Regional Rural Banks Act 1976.
RRBs started their development process on 2nd October 1975 with the formation of a single bank viz. Prathama Grameen Bank.
So, Prathama Grameen Bank is India's first Regional Rural Bank. The making of RRB started with an ordinance which later was upgraded to an act.
The Regional Rural Banks Act 1976 allowed the government to set up banks from time to time wherever it considered necessary.
The regional rural banks (RRBs) were owned by the central government, the state government and the sponsor bank who held shares in the ratio as follows (important)
Central Government : 50% State Government : 15% Public Sector Commercial banks (Sponsor Banks): 35%
Some Basic Banking Terms:-
1) RBI – The Reserve Bank of India is the apex bank of the country, which was constituted under the RBI Act, 1934 to regulate the other banks, issue of bank notes and maintenance of reserves with a view to securing the monetary stability in India.
2) Demand Deposit – A Demand deposit is the one which can be withdrawn at any time, without any notice or penalty; e.g. money deposited in a checking account or savings account in a bank.
3) Time Deposit – Time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term.
4) Fixed Deposits – FDs are the deposits that are repayable on fixed maturity date along with the principal and agreed interest rate for the period. Banks pay higher interest rates on FDs than the savings bank account.
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5) Recurring Deposits – These are also called cumulative deposits and in recurring deposit accounts, a certain amounts of savings are required to be compulsorily deposited at specific intervals for a specified period.
6) Savings Account – Savings account is an account generally maintained by retail customers that deposit money (i.e. their savings) and can withdraw them whenever they need. Funds in these accounts are subjected to low rates of interest.
7) Current Accounts – These accounts are maintained by the corporate clients that may be operated any number of times in a day. There is a maintenance charge for the current accounts for which the holders enjoy facilities of easy handling, overdraft facility etc.
8) FCNR Accounts – Foreign Currency Non-Resident accounts are the ones that are maintained by the NRIs in foreign currencies like USD, DM, and GBP etc. The account is a term deposit with interest rates linked to the international rates of interest of the respective currencies.
9) NRE Accounts – Non-Resident External accounts are the ones in which NRIs remit money in any permitted foreign currency and the remittance is converted to Indian rupees for credit to NRE accounts. The accounts can be in the form of current, saving, FDs, recurring deposits. The interest rates and other terms of these accounts are as per the RBI directives.
10) Cheque Book - A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank with your account number, sort-code and cheque number printed on it. The account number distinguishes your account from other accounts; the sort-code is your bank's special code which distinguishes it from any other bank.
11) Cheque Clearing - This is the process of getting the money from the cheque-writer's account into the cheque receiver's account.
12) Clearing Bank - This is a bank that can clear funds between banks. For general purposes, this is any institution which we know of as a bank or as a provider of banking services.
13) Bounced Cheque - when the bank has not enough funds in the relevant account or the account holder requests that the cheque is bounced (under exceptional circumstances) then the bank will return the cheque to the account holder.
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14) Credit Rating - This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual's credit history, the details of which are available from specialist organisations like CRISIL in India.
15) Credit-Worthiness - This is the judgement of an organization which is assessing whether or not to take a particular individual on as a customer. An individual might be considered credit-worthy by one organisation but not by another. Much depends on whether an organization is involved with high risk customers or not.
16) Interest - The amount paid or charged on money over time. If you borrow money interest will be charged on the loan. If you invest money, interest will be paid (where appropriate to the investment).
17) Overdraft - This is when a person has a minus figure in their account. It can be authorized (agreed to in advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because the account holder represents too great a risk to lend to in this way or because the account holder has not asked for an overdraft facility).
18) Payee - The person who receives a payment. This often applies to cheques. If you receive a cheque you are the payee and the person or company who wrote the cheque is the payer.
19) Payer - The person who makes a payment. This often applies to cheques. If you write a cheque you are the payer and the recipient of the cheque is the payee.
20) Security for Loans - Where large loans are required the lending institution often needs to have a guarantee that the loan will be paid back. This takes the form of a large item of capital outlay (typically a house) which is owned or partly owned and the amount owned is at least equivalent to the loan required.
21) Internet Banking - Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by the bank.
22) Credit Card - A credit card is one of the systems of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services.
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23) Debit Card – Debit card allows for direct withdrawal of funds from customers bank accounts. The spending limit is determined by the available balance in the account.
24) Loan - A loan is a type of debt. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. There are different kinds of loan such as the house loan, auto loan etc.
25) Bank Rate - This is the rate at which central bank (RBI) lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa.
26) CRR - Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
27) SLR - SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits). It regulates the credit growth in India.
28) ATM - An automated teller machine (ATM) is a computerised telecommunications device that provides the clients with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip, that contains a unique card number and some security information such as an expiration date or CVV. Authentication is provided by the customer entering a personal identification number (PIN)
29) REPO RATE: - Under repo transaction the borrower places with the lender certain acceptable securities against funds received and agree to reverse this transaction on a predetermined future date at agreed interest cost. Repo rate is also called (repurchase agreement or repurchase option).
30) REVERSE REPO RATE: is the interest rate earned by the bank for lending money tothe RBI in exchange of govt. securities or "lender buys securities with agreement to sell them back at a predetermined rate".
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31) CASH RESERVE RATIO: specifies the percentage of their total deposits the commercial bank must keep with central bank or RBI. Higher the CRR lower will be the capacity of bank to create credit.
32) SLR: known as Statutorily Liquidity Ratio. Each bank is required statutorily maintain a prescribed minimum proportion of its demand and time liabilities in the form of designated liquid asset.OR"Every bank has to maintain a percentage of its demand and time liabilities by way of cash, gold etc".
33) BANK RATE: is the rate of interest which is charged by RBI on its advances to commercial banks. When reserve bank desires to restrict expansion of credit it raises the bank rate there by making the credit costlier to commercial bank.
34) OVERDRAFT: It is the loan facility on customer current account at a bank permitting him to overdraw up to a certain agreed limit for a agreed period ,interest is payable only on the amount of loan taken up.
35) PRIME LENDING RATE: It is the rate at which commercial banks give loan to its prime customers.
36) IFSC: IFSC stands for Indian Financial System Code. It is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEFT system.ii. This is an 11 digit code with the first 4 alpha characters representing the bank, The 5th character is 0 (zero) and the last 6 characters representing the bank branch.
iii. IFSC is used by the NEFT system to identify the originating / destination banks / branches and also to route the messages appropriately to the concerned banks / branches.For ex: SBIN0015986 :(a) First 4 character SBIN – refers to State Bank of India.(b) 0 is a control number.(c) Last six characters (015986) represents the SBI branch name.
37) MICR : MICR stands for Magnetic Ink Character Recognition. MICR Code is a 9 numeric digit code which uniquely identifies a bank branch participating in the ECS Credit scheme. MICR code consists of 9 digits e.g 400229128
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i. First 3 digits represent the city (400)ii. Next 3 digits represent the bank (229)iii. Last 3 digits represent the branch (128)
The MICR Code allotted to a bank branch is printed on the MICR band of cheque leaves issued by bank branches.
38) Cheque Truncation:
i. Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch.ii. In its place an electronic image of the cheque is transmitted to the drawee branch by the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.iii. Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefiting the system as a whole.
Banking acts in India:-
The Bankers Books Evidence Act, 1891
The Reserve Bank of India Act, 1934
The Industrial Finance Corporation of India Act, 1948
The Banking Companies (Legal Practitioner Clients' Accounts) Act, 1949
The Industrial Disputes (Banking and Insurance Companies) Act, 1949
The Banking Regulation Act, 1949
The State Financial Corporations Act, 1951
The Reserve Bank of India (Amendment and Misc. Provisions) Act, 1953
The Industrial Disputes (Banking Companies) Decision Act, 1955
The State Bank of India Act, 1955
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The State Bank of India Act, 1955
The State Bank of India (Subsidiary Banks) Act, 1959
The Subsidiary Banks General Regulation, 1959
The Deposit Insurance and Credit Guarantee Corporation Act, 1961
The Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
Third Bi-Monthly Monetary Policy, 2014-15:-
The Reserve Bank of India (RBI) in its third bi-monthly monetary policy statement for 2014-15 kept the repo rate unchanged at 8%. The reverse repo rate was kept unchanged at 7% and Cash Reserve Ratio ( CRR) was maintained at 4%.
The SLR was cut by 50 bps to 22%. "The moderation in CPI headline inflation for two consecutive months, despite the seasonal firming up of prices of fruits and vegetables since March, is due to both base base effects and the steady deceleration in CPI inflation excluding food and fuel," RBI Governor Raghuram Rajan said.
"The recent fall in international crude prices, the benign outlook on global non-oil commodity prices and still-subdued corporate pricing power should all support continued disinflation, as should measures undertaken to improve food management," the bank said.
However the central bank said, "There are, however, upside risks also, in the form of the pass-through of of administered price increases, continuing uncertainty over monsoon conditions and their impact on food production, possibly higher oil prices stemming from geo-political concerns and exchange rate movement, and strengthening growth in the face of continuing supply constraints.”
Accordingly, the upside risks to the target of ensuring CPI inflation at or below 8 per cent by January 2015 remain, although overall risks are more balanced than in June, the bank said. "It is, therefore, appropriate to continue maintaining a vigilant monetary policy stance as in June, while leaving the policy rate unchanged," it added.
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According to RBI, the prospects for reinvigoration of growth have improved modestly. The firming up of export growth should support manufacturing and service sector activity.
The Reserve Bank will continue to monitor inflation developments closely, and remains committed to the disinflationary path of taking CPI inflation to 8 per cent by January 2015 and 6 per cent by January 2016, the policy statement said.
Some Special Banking Notes:-
GDP: It is the money value of all the final goods and services produced within the geographical boundaries of the country during a given period of time.
GNP: It refers to the money value of total output or production of find goods and service produced by the nationals of a country during a given period of time.
Producers Price Index: It is the cost incurred by the producer in producing single unit in terms of GDP. It does not include any indirect taxes.
Credit Control: By credit control we mean to regulate the volume of credit created by banks in India. It is the principal function of Reserve Bank of India. The basic objective of credit control mechanism is to realize both price stability and exchange stability in the economy. RBI uses two types of methods to control credit: (i) Quantitative Methods, and (ii) Qualitative Methods.
Quantitative Measures are used to control the volume of credit or indirectly to control inflationary and deflationary pressures caused by expansion and contraction of credit. These are also known as general credit measures. These consist of Bank Rate, Cash Reserve Ratio, Statutory Liquidity Ratio and Open Market Operations.
Qualitative Measures are used to control the quantum as well as purpose for which credits are given by banks. RBI uses measures like Publicity, Rationing of Credit, Regulation of consumer credit, Moral suasion and Variation in margin requirement for qualitative credit control.
Bank Rate: Bank rate is the rate at which the RBI is prepared to buy or re-discount eligible bills of exchange or other commercial papers. In simple words, bank rate is the rate at which RBI extends advises (Credit)
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to commercial banks. A change in the bank rate will result in a change in the prime lending rate of banks and thus act as an independent instrument of monetary control. Cash Reserve Ratio (CRR): Cash reserve ratio is the cash parked by the banks in their specified current account maintained with RBI. In other words, it is the percentage of deposit (both demand and time deposit) which a bank has to keep with the RBI. RBI was empowered to vary the CRR between 3% to 15%. But now there is no minimum limit of CRR in India but the maximum limit is still retained at 15%. The purpose of reducing CRR is to leave large cash reserve with banks so as to enable them to expand bank credit. Similarly increasing of CRR means squeezing the cash reserve of the banks and limits their credit providing capacity.
Statutory liquidity Ratio (SLR): Statutory liquidity ratio is the liquid assets commercial banks maintain with the RBI in the form of cash (book value), gold (current market value) and balances in unencumbered approved securities. The maximum limit of SLR is 40% and minimum limit of SLR is 23% In India. RBI can change SLR from time to time. Both CRR and SLR reduce or increase the capacity to expand credit to business and industry. Thus both of these are anti-inflationary.
Open Market Operations (OMO): The buying and selling of eligible securities in the money market by RBI for the purpose of curtailing or expanding the volume of credit. By selling securities the RBI can absorb funds, and buying the securities can release funds also into the market. The purpose of OMO is to influence the volume of cash reserves with the commercial banks and thus influence the volume of loans and advances they can make to the industrial and commercial sector.
Selective Credit Controls: Under the Banking Regulation Act 1949, section 21 empowers RBI to issue directives to the banking companies regarding their advance in order to check speculation and rising prices. The controls are selective as they are used to control and check the rising tendency of price and hording of certain individual commodities of common use. However, while imposing selective control, RBI takes care that bank credit for production and transportation of commodities and exports is not affected. These are mainly focused on credit to traders who use such credit for financing hoarding and speculation. Since 1956-57 RBI is employing this method.
Prime Lending Rate (PLR): It is rate of interest of which commercial banks lend to their prime high profile blue chip corporate borrowers. (From 1990's banks are free to determine PLR).
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Repo Rate: Repurchasing option is traded in this market for a short time periods. Repo is Repurchasing by RBI.
Priority Sector Lending: Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.
Market Stabilization Scheme: It is a scheme under which RBI buys and sells Government of India securities in order to control liquidity.Money in Circulation: Money in use to finance current transactions as distinct from idle money.
Investment Bank: A Bank that provides long term fixed capital for industry, generally by taking up shares in limited companies.
Regional Rural Bank: It was established in 1975 under the provision of RRB Act 1976, with a view to develop rural economy.
Lead Banking Scheme: Under this scheme all the nationalized banks and few private sector banks were allowed specially and were asked to play the “Lead Role”. The lead banks act as a leader to bring about co-ordination of cooperative banks, commercial banks and other financial institutions in their respective demises to bring about rapid economic development.
CAMELS: Capital Adequacy, Asset Quality, Management, Earnings Liquidity and Systems.
Capital Adequacy Ratio (CAR): It is the ratio of total capital fund of a bank to its risk weighted assets. It is an indicator of banks financial health.
Over Heating of Economy: When the supply is not able to keep phase with demand, it is as called over heating of economy. It leads to inflation and shortage goods.
Cost-push Inflation: General prices of goods and services in the economy rises due to an increase in production cost. Such types of Inflation are caused by three factors (i) an increase in wages, (ii) an increase in profit and (iii) imposition of heavy tax.
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Demand- pull inflation: The most common cause of inflation is the pressure of ever-rising demand on a less rapidly increasing supply of goods and services. The expansion in aggregate demand may be the result of rapidly increasing private investment and/or spending government money for war or for economic development.
Forward Market Commission: It is a regulatory body for commodity futures, and forward trade in India. It was set up under Forward Contract (Regulation) Act 1952. It's headquarter is in Mumbai.
CARE: Credit Analysis and Research Ltd. It was started in November 1993. It was set up by IDBI.
ICRA: Investment Information and Credit Rating Agents of India Limited. It was established in 1991. It primarily rates short, medium and long debt instruments. But, since 1995 it has been doing equity rating also.
NSDL: National Securities Depository Limited
CDSL: Central Depository Services Limited.
Some Key Financial Terms:-
APR: It stands for Annual Percentage Rate. APR is a percentage that is calculated on the basis of the amount financed, the finance charges, and the term of the loan.
ABS: Asset-Backed Securities. It means a type of security that is backed by a pool of bank loans, leases, and other assets.
EPS: Earnings Per Share means the amount of annual earnings available to common stockholders as stated on a per share basis.
CHAPS: Clearing House Automated Payment System. It's a type of electronic bank-to-bank payment system that guarantees same-day payment.
IPO: Initial Public Offerings is defined as the event where the company sells its shares to the public for the first time. (or the first sale of stock by a private company to the public.)
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FPO: Follow on Public Offerings: An issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.
Difference: IPO is for the companies which have not been listed on an exchange and FPO is for the companies which have already been listed on an exchange but want to raise funds by issuing some more equity shares.
RTGS: Real Time Gross Settlement systems is a funds transfer system where transfer of money or securities takes place from one bank to another on a “real time”. ('Real time' means within a fraction of seconds.) The minimum amount to be transferred through RTGS is Rs 2 lakh. Processing charges/Service charges for RTGS transactions vary from bank to bank.
NEFT: National Electronic Fund Transfer. This is a method used for transferring funds across banks in a secure manner. It usually takes 1-2 working days for the transfer to happen. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. (Note: RTGS is much faster than NEFT.)
CAR: Capital Adequacy Ratio. It's a measure of a bank's capital. Also known as “Capital to Risk Weighted Assets Ratio (CRAR)”, this ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. It is decided by the RBI.
NPA: Non-Performing Asset. It means once the borrower has failed to make interest or principal payments for 90 days, the loan is considered to be a non-performing asset. Presently it is 2.39%.
IMPS: Inter-bank Mobile Payment Service. It is an instant interbank electronic fund transfer service through mobile phones. Both the customers must have MMID (Mobile Money Identifier Number). For this service, we don't need any GPS-enabled cell phones.
BCBS: Basel Committee on Banking Supervision is an institution created by the Central Bank governors of the Group of Ten nations.
RSI: Relative Strength Index.
IFSC code: Indian Financial System Code. The code consists of 11 characters for identifying the bank and branch where the account in actually held. The IFSC code is used both by the RTGS and NEFT transfer systems.
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MSME and SME: Micro Small and Medium Enterprises (MSME), and SME stands for Small and Medium Enterprises. This is an initiative of the government to drive and encourage small manufacturers to enjoy facilities from banks at concessional rates.
LIBOR: London InterBank Offered Rate. An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.
LIBID: London Interbank Bid Rate. The average interest rate at which major London banks borrow Eurocurrency deposits from other banks.
ECGC: Export Credit Guarantee Corporation of India. This organisation provides risk as well as insurance cover to the Indian exporters.
SWIFT: Society for Worldwide Interbank Financial Telecommunication. It operates a worldwide financial messaging network which exchanges messages between banks and other financial institutions.
STRIPS: Separate Trading for Registered Interest & Principal Securities.
CIBIL: Credit Information Bureau of India Limited. CIBIL is India's first credit information bureau. Whenever a person applies for new loans or credit card(s) to a financial institution, they generate the CIBIL report of the said person or concern to judge the credit worthiness of the person and also to verify their existing track record. CIBIL actually maintains the borrower's history.
CRISIL: Credit Rating Information Services of India Limited. Crisil is a global analytical company providing ratings, research, and risk and policy advisory services.
AMFI: Association of Mutual Funds of India. AMFI is an apex body of all Asset Management Companies (AMCs) which have been registered with SEBI. (Note: AMFI is not a mutual funds regulator)
FCCB: Foreign Currency Convertible Bond. A type of convertible bond issued in a currency different from the issuer's domestic currency.
CAC: Capital Account Convertibility. It is the freedom to convert local financial assets into foreign financial assets and vice versa. This means that capital account convertibility allows anyone to freely move from local currency into foreign currency and back, or in other words, transfer of money from current account to capital account.
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BANCASSURANCE: Is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.
Balloon payment: Is a specific type of mortgage payment, and is named “balloon payment” because of the structure of the payment schedule. For balloon payments, the first several years of payments are smaller and are used to reduce the total debt remaining in the loan. Once the small payment term has passed (which can vary, but is commonly 5 years), the remainder of the debt is due - this final payment is the one known as the “balloon” payment, because it is larger than all of the previous payments.
CPSS: Committee on Payment and Settlement Systems
FCNR Accounts: Foreign Currency Non-Resident accounts are the ones that are maintained by NRIs in foreign currencies like USD, DM, and GBP.
M3 in banking: It's a measure of money supply. It is the total amount of money available in an economy at a particular point in time.
OMO: Open Market Operations. The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Open market operations are the principal tools of monetary policy. RBI uses this tool in order to regulate the liquidity in economy.
Umbrella Fund: A type of collective investment scheme. A collective fund containing several sub-funds, each of which invests in a different market or country.
ECS: Electronic Clearing Facility is a type of direct debit.
Tobin tax: Suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another.
Z score is a term widely used in the banking field.
POS: Point Of Sale, also known as Point Of Purchase, a place where sales are made and also sales and payment information are collected electronically, including the amount of the sale, the date and place of the transaction, and the consumer's account number.
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LGD: Loss Given Default. Institutions such as banks will determine their credit losses through an analysis of the actual loan defaults.
Junk Bonds: Junk bonds are issued generally by smaller or relatively less well-known firms to finance their operations, or by large and well-known firms to fund leveraged buyouts. These bonds are frequently unsecured or partially secured, and they pay higher interest rates: 3 to 4 percentage points higher than the interest rate on blue chip corporate bonds of comparable maturity period.
ARM: Adjustable Rate Mortgage is basically a type of loan where the rate of index is calculated on the basis of the previously selected index rate.
ABO: Accumulated Benefit Obligation, ABO is a measure of liability of pension plan of an organisation and is calculated when the pension plan is terminated.
Absorption: A term related to real estate, it is a process of renting a real estate property which is newly built or recently approved.
AAA: A type of grade that is used to rate a particular bond. It is the highest rated bond that gives maximum returns at the time of maturity.
DSCR: Debt Service Coverage Ratio, DSCR is a financial ratio that measures the company's ability to pay their debts.
FSDC: Financial Stability and Development Council, India's apex body of the financial sector.
ITPO: India Trade Promotion Organisation is the nodal agency of the Government of India for promoting the country's external trade.
FLCC: Financial Literacy and Counseling Centres.
ANBC: Adjusted Net Bank Credit is Net Bank Credit added to investments made by banks in non-SLR bonds.
Priority sector lending: Some areas or fields in a country depending on its economic condition or government interest are prioritised and are called priority sectors i.e. industry, agriculture.
M0, M1, M2 AND M3: These terms are nothing but money supply in banking field.
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BIFR: Bureau of Industrial and Financial Reconstruction.
FRBM Act 2003: Fiscal Responsibility and Budget Management act was enacted by the Parliament of India to institutionalise financial discipline, reduce India's fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget.
The main objectives of FRBM Act are:-1. To reduce fiscal deficit.2. To adopt prudent debt management.3. To generate revenue surplus.
Gold Standard: A monetary system in which a country's government allows its currency unit to be freely converted into fixed amounts of gold and vice versa.
Fiat Money: Fiat money is a legal tender for settling debts. It is a paper money that is not convertible and is declared by government to be legal tender for the settlement of all debts.
BCSBI: The Banking Codes and Standards Board of India is a society registered under the Societies Registration Act, 1860 and functions as an autonomous body, to monitor and assess the compliance with codes and minimum standards of service to individual customers to which the banks agree to.
OLTAS: On-Line Tax Accounting System.
EASIEST: Electronic Accounting System in Excise and Service Tax.
SOFA: Status of Forces Agreement, SOFA is an agreement between a host country and a foreign nation stationing forces in that country.
CALL MONEY: Money loaned by a bank that must be repaid on demand. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule. Brokerages use call money as a short-term source of funding to cover margin accounts or the purchase of securities. The funds can be obtained quickly.
Scheduled bank: Scheduled Banks in India constitute those banks which have been included in the Second Schedule of RBI Act, 1934 as well as their market capitalisation is more than Rs 5 lakh.
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RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.
FEDAI: Foreign Exchange Dealers Association of India. An association of banks specialising in the foreign exchange activities in India.
PPF: Public Provident Fund. The Public Provident Fund Scheme is a statutory scheme of the Central Government of India. The scheme is for 15 years. The minimum deposit is Rs 500 and maximum is Rs 70,000 in a financial year.
SEPA: Single Euro Payment Area.
GAAP: Generally Accepted Accounting Principles. The common set of accounting principles, standards and procedures that companies use to compile their financial statements.
Indian Depository Receipt: Foreign companies issue their shares and in return they get the depository receipt from the National Security Depository in return of investing in India.
Hot Money: Money that is moved by its owner quickly from one form of investment to another, as to take advantage of changing international exchange rates or gain high short-term returns on investments.
NMCEX: National Multi-Commodity Exchange.
PE RATIO: Price to Earnings Ratio, a measure of how much investors are willing to pay for each dollar of a company's reported profits.
CASA: Current Account, Savings Account.
CAMELS: CAMELS is a type of Bank Rating System. (C) stands for Capital Adequacy, (A) for Asset Quality, (M) for Management ,(E) for Earnings, (L) for Liquidity and (S) for Sensitivity to Market Risk.
OSMOS: Off-site Monitoring and Surveillance System.
Free market: A market economy based on supply and demand with little or no government control.
Retail banking: It is mass-market banking in which individual customers use local branches of larger commercial banks.
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Eurobond: A bond issued in a currency other than the currency of the country or market in which it is issued.
PPP: Purchasing Power Parity is an economic technique used when attempting to determine the relative values of two currencies.
FEMA Act: Foreign Exchange Management Act, it is useful in controlling HAWALA.
Hawala transaction: It's a process in which large amount of black money is converted into white.
Teaser Loans: It's a type of home loans in which the interest rate is initially low and then grows higher. Teaser loans are also called terraced loans.
ECB: External Commercial Borrowings, taking a loan from another country. Limit of ECB is $500 million, and this is the maximum limit a company can get.
CBS: Core Banking Solution. All the banks are connected through internet, meaning we can have transactions from any bank and anywhere. (e.g. deposit cash in PNB, Delhi branch and withdraw cash from PNB, Gujarat)
CRAR: For RRB's it is more than 9% (funds allotted 500 cr) and for commercial banks it is greater than 8% (6000 cr relief package).
NBFCs: NBFC is a company which is registered under Companies Act, 1956 and whose main function is to provide loans. NBFC cannot accept deposit or issue demand draft like other commercial banks. NBFCs registered with RBI have been classified as AssetFinance Company (AFC), Investment Company (IC) and Loan Company (LC).
IIFCL: India Infrastructure Finance Company Limited. It gives guarantee to infra bonds.
IFPRI: International Food Policy Research Institute. It identifies and analyses policies for meeting the food needs of the developing world.
Currency swap: It is a foreign-exchange agreement between two parties to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency. Currency swap is an instrument to manage cash flows in different currency.
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WPI: Wholesale Price Index is an index of the prices paid by retail stores for the products they ultimately resell to consumers. New series is 2004 2005. (The new series has been prepared by shifting the base year from 1993-94 to 2004-05). Inflation in India is measured on WPI index.
MAT: Minimum Alternate Tax is the minimum tax to be paid by a company even though the company is not making any profit.
Future trading: It's a future contract/agreement between the buyers and sellers to buy and sell the underlying assets in the future at a predetermined price.
Reverse mortgage: It's a scheme for senior citizens.
Basel 2nd norms: BCBS has kept some restrictions on bank for the maintenance of minimum capital with them to ensure level playing field. Basel II has got three pillars:
Pillar 1- Minimum capital requirement based on the risk profile of bank. Pillar 2- Supervisory review of banks by RBI if they go for internal ranking.Pillar 3- Market discipline.
Microfinance institutions: Those institutions that provide financial services to low-income clients. Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients.
NPCI: National Payments Corporation of India.
DWBIS: Data Warehousing and Business Intelligence System, a type of system which is launched by SEBI. The primary objective of DWBIS is to enhance the capability of the investigation and surveillance functions of SEBI.
TRIPS: Trade Related Intellectual Property Rights is an international agreement administered by the World Trade Organisation (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members.
TRIMs: Trade Related Investment Measures. A type of agreement in WTO.
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SDR: Special Drawing Rights, SDR is a type of monetary reserve currency, created by the International Monetary Fund. SDR can be defined as a “basket of national currencies”. These national currencies are Euro, US dollar, British pound and Japanese yen. Special Drawing Rights can be used to settle trade balances between countries and to repay the IMF. American dollar gets highest weightage.
LTD: Loan-To-Deposit Ratio. A ratio used for assessing a bank's liquidity by dividing the bank's total loans by its total deposits. If the ratio is too high, it means that banks might not have enough liquidity to cover any fund requirements, and if the ratio is too low, banks may not be earning as much as they could be.
CAD: Current Account Deficit. It means when a country's total imports of goods, services and transfers is greater than the country's total export of goods, services and transfers.
LERMS: Liberalized Exchange Rate Management System.
FRP: Fair and Remunerative Price, a term related to sugarcane. FRP is the minimum price that a sugarcane farmer is legally guaranteed. However sugar Mills Company gives more than FRP price.
STCI: Securities Trading Corporation of India Limited was promoted by the Reserve Bank of India (RBI) in 1994 along with Public Sector Banks and All India Financial Institutions with the objective of developing an active, deep and vibrant secondary debt market.
IRR: Internal Rate of Return. It is a rate of return used in capital budgeting to measure and compare the profitability of investments.
CMIE: Centre for Monitoring Indian Economy. It is India's premier economic research organisation. It provides information solutions in the form of databases and research reports. CMIE has built the largest database on the Indian economy and companies.
TIEA: Tax Information Exchange Agreement. TIEA allows countries to check tax evasion and money laundering. Recently India has signed TIEA with Cayman Islands.
Contingency Fund: It's a fund for emergencies or unexpected outflows, mainly economic crises. A type of reserve fund which is used to handle unexpected debts that are outside the range of the usual operating budget.
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FII: Foreign Institutional Investment. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market.
P-NOTES: “P” means participatory notes.
MSF: Marginal Standing Facility. Under this scheme, banks will be able to borrow upto 1% of their respective net demand and time liabilities. The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.
FIU: Financial Intelligence Unit set by the Government of India on 18 November 2004 as the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions.
SEBI: Securities and Exchange Board of India. SEBI is the primary governing/regulatory body for the securities market in India. All transactions in the securities market in India are governed and regulated by SEBI. Its main functions are:
1. New issues (Initial Public Offering or IPO)2. Listing agreement of companies with stock exchanges3. Trading mechanisms 4. Investor protection5. Corporate disclosure by listed companies etc.
Note: SEBI is also known as capital regulator or mutual funds regulator or market regulator. SEBI also created investors protection fund and SEBI is the only organization which regulates the credit rating agencies in India. (CRISIL and CIBIL).
ASBA: Application Supported by Blocked Amount. It is a process developed by the SEBI for applying to IPO. In ASBA, an IPO applicant's account doesn't get debited until shares are allotted to him.
DEPB Scheme: Duty Entitlement Pass Book. It is a scheme which is offered by the Indian government to encourage exports from the country. DEPB means Duty Entitlement Pass Book to neutralise the incidence of basic and special customs duty on import content of export product.
LLP: Limited Liability Partnership, is a partnership in which some or all partners (depending on the jurisdiction) have limited liability.
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Balance sheet: A financial statement that summarises a company's assets, liabilities and shareholders' equity at a specific point in time.
TAN: Tax Account Number, is a unique 10-digit alphanumeric code allotted by the Income Tax Department to all those persons who are required to deduct tax at the source of income.
PAN: Permanent Account Number, as per section 139A of the Act obtaining PAN is a must for the following persons:-1. Any person whose total income or the total income of any other person in respect of which he is assessable under the Act exceeds the maximum amount which is not chargeable to tax.2. Any person who is carrying on any business or profession whose total sales, turnover or gross receipts are or are likely to exceed Rs. 5 lakh in any previous year.3. Any person who is required to furnish a return of income under section 139(4) of the Act.
JLG: Joint Liability Group, when two or more persons are both responsible for a debt, claim or judgment.
REER: Real Effective Exchange Rate.
NEER: Nominal Effective Exchange Rate.
Contingent Liability: A liability that a company may have to pay, but only if a certain future event occurs.
IRR: Internal Rate of Return, is a rate of return used in capital budgeting to measure and compare the profitability of investments.
MICR: Magnetic Ink Character Recognition. A 9-digit code which actually shows whether the cheque is real or fake.
UTR Number: Unique Transaction Reference number. A unique number which is generated for every transaction in RTGS system. UTR is a 16-digit alphanumeric code. The first 4 digits are a bank code in alphabets, the 5th one is the message code, the 6th and 7th mention the year, the 8th to 10th mentions the date and the last 6 digits mention the day's serial number of the message.
RRBs: Regional Rural Banks. As its name signifies, RRBs are specially meant for rural areas, capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank.
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MFI: Micro Finance Institutions. Micro Finance means providing credit/loan (micro credit) to the weaker sections of the society. A microfinance institution (MFI) is an organisation that provides financial services to the poor.
PRIME LENDING RATE: PLR is the rate at which commercial banks give loans to its prime customers (most creditworthy customers).
BASE RATE: A minimum rate that a bank is allowed to charge from the customer. Base rate differs from bank to bank. It is actually a minimum rate below which the bank cannot give loan to any customer. Earlier base rate was known as BPLR (Base Prime Lending Rate).
EMI: Equated Monthly Installment. It is nothing but a repayment of the loan taken. A loan could be a home loan, car loan or personal loan. The monthly payment is in the form of post dated cheques drawn in favour of the lender. EMI is directly proportional to the loan taken and inversely proportional to time period. That is, if the loan amount increases the EMI amount also increases and if the time period increases the EMI amount decreases.
Basis points (bps): A basis point is a unit equal to 1/100th of a percentage point. i.e. 1 bps = 0.01%. Basis points are often used to measure changes in or differences between yields on fixed income securities, since these often change by very small amounts.
Liquidity: It refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset.
Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form for funds deposited at a bank or other eligible financial institution for a specified time period.
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990. Corporates and the All-India Financial Institutions are eligible to issue CP.
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