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Banking, General Awareness & Current Affairs A-1-A-60

1. Banking System in India & World 1-4

2. Banking Structure & Instrument 5-10

3. Banking Functions 11-18

4. Banking Products 19-22

5. Money & Finance in Banking 23-30

6. Marketing & Computer in Banking 31-84

7. General Knowledge 85-95

8. Current Affairs 96-107

CONTENTS

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BANKING AWARENESS

RESERVE BANK OF INDIAIn 1926, Royal Commission on Indian Currency and Finance popularly known as the Hilton–Young Commission submitted its report and made recommendations to the British Government of India for creation of a central Bank.Objectives:• To separate the control of currency and credit from the

government • To augment banking facilities throughout the countryFinally, on April 1, 1935, Reserve Bank of India was established via the RBI Act of 1934 as the banker to the central government.

Post-Independence PeriodAfter independence, in order to serve the economy better, the All India Rural Credit Survey Committee was set up by RBI. This Committee recommended that Imperial Bank of India be taken over and with it are merged / integrated former state-owned and state-associate banks.The Government of India (GOI) adopted planned economic development which basically aimed at social ownership of the means of production. However, commercial banks were in the private sector those days. It was considered that banks were controlled by business houses and thus failed in catering to the credit needs of poor sections such as cottage industry, village industry, farmers, craft men, etc. In 1950-51, there were 430 commercial banks.

1951 India implemented its First Five Year Plan for overall development of the nation1955 State Bank of India (SBI) was constituted in 1955 under the State Bank of India Act (1955)

1959 State Bank of India (subsidiary bank) Act was passed, enabling the SBI to take over five major former state-associate banks as its subsidiaries. These were -

• State Bank of Patiala• State Bank of Hyderabad• State Bank of Travancore • State Bank of Bikaner & Jaipur • State Bank of Mysore

After creating a subsidiary of SBI, arrangement made was that 55 per cent of the capital will be owned by the SBI and rest 45 per cent remain with old shareholders. However, this arrangement also saw some weaknesses like reduced bank profitability, weak capital base, and banks getting / burdened with large amounts of bad loans (unrecovered loans).

1966 • Cooperative Banks came within the regulations of the RBI. • Rupee was devaluated for the first time.

1969 Nationalization of 14 Banks happened.

1973 Foreign Exchange Regulation act was amended and exchange control was strengthened

1974 Priority Sector Advance Targets started getting fixed.

1975 In 1975 five Regional Rural banks were established on 2.10.1975 through an Ordinance. The ordinance was replaced by Regional Rural Banks Act, 1976, with the main objective to extend banking facilities to the un-banked rural areas along with commercial banks and cooperative banks.

Nationalisation of BanksThe Government of India had some social objectives like ensuring social welfare, credit availability to the needy sectors such as Agriculture, Small and Village Industries, checking private monopolies, Reducing Regional Imbalance and so on. These commercial banks failed helping the government in attaining these objectives. Thus, the government decided to nationalize 14 major commercial banks on 19th July, 1969. All commercial banks with a deposit base over Rs.50 crores were nationalized.

List of 14 Banks Nationalized in 1969 (1st Phase)1. Central Bank of India 8. Indian Overseas Bank2. Bank of Maharashtra 9. Bank of Baroda3. Dena Bank 10. Union Bank4. Punjab National Bank 11. Allahabad Bank5. Syndicate Bank 12. United Bank of India6. Canara Bank 13. UCO Bank7. Indian Bank 14. Bank of India

BANKING, GENERAL AWARENESS & CURRENT AFFAIRS

Banking, General Awareness & Current AffairsA-2

2nd Phase of Nationalisation This process was followed again in 1980 when another lot of six banks were nationalized under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. The stated reason for the nationalisation was to give the government more control of credit delivery. With the second phase of nationalisation, the Government of India controlled around 91% of the banking business in India.The 6 banks nationalized in 1980 are as follows:List of 6 Banks Nationalized in 1980 (2nd Phase)1. Punjab & Sind Bank2. Oriental Bank of Commerce3. New bank of India (now merged with Punjab National Bank)4. Vijay Bank5. Andhra Bank6. Corporation Bank

Impact of NationalisationAfter the two major phases of nationalization in India, the 80% of the banking sector came under the public sector / government ownership. The nationalization of banks imparted major impetus to branch expansion in un-banked, rural and semi-urban areas, which in turn resulted in huge deposit mobi l izat ion, thereby giving boost to the overal l s a v i n g s r a t e o f t h e e c o n o m y. I t a l s o r e s u l t e d in scaling up of lending to agriculture and its allied sectors. After the nationalisation of banks, the branches of the public sector banks in India rose to approximately 800 per cent in deposits, and advances took a huge jump by 11,000 per cent. Government ownership gave the public implicit faith and immense confidence in the sustainability of public sector banks.

Functions of Reserve Bank of India

Supervisor ofFinalcialSystem

ForeignExchange

Management

Banker to Govt

Role of RBI

MonetraryPolicty

Issuer of currency

Banker’s to Bank

• Monetary Authority:Formulates, implements and monitors the monetary policy.Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

• Regulator and supervisor of the financial system: Prescribes broad parameters of banking operations within

which the country’s banking and financial system functions. Objective: maintain public confidence in the system, protect

depositors’ interest and provide cost-effective banking services to the public.

• Manager of Foreign Exchange: Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and

promote orderly development and maintenance of foreign exchange market in India.

• Issuer of currency: Issues and exchanges or destroys currency and coins not fit

for circulation. Objective: to give the public adequate quantity of supplies

of currency notes and coins and in good quality.• Developmental role: Performs a wide range of promotional functions to support

national objectives. Banker to the Government: performs merchant banking

function for the central and the state governments; also acts as their banker.

Banker to banks: maintains banking accounts of all scheduled banks.

Instruments of Monetary Policy - Quantitative & Qualitative ToolsThe instruments of monetary policy are tools or devices which are used by the monetary authority in order to attain some predetermined objectives.

Demonetisation and RBI• The government had “advised” the Reserve Bank to junk Rs

500/1000 notes on November 7, 2016.• The RBI’s Central Board met the very next day to consider

the government’s advice• After “deliberations,” RBI decided to “recommend that the

legal tender status of the banknotes in the high denominations of Rs 500 and Rs 1000 be withdrawn.

RBI under the Section 20 of the RBI Act 1934 has the obligation to undertake the receipts and payments of the Central Government and to carry out the exchange, remittance and other banking operations, including the management of the public debt of the Union.

Acts administered by Reserve Bank of India• Reserve Bank of India Act, 1934 • Public Debt Act, 1944/Government Securities Act, 2006 • Government Securities Regulations, 2007 • Banking Regulation Act, 1949 • Foreign Exchange Management Act, 1999 • Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 • Credit Information Companies(Regulation) Act, 2005

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• Payment and Settlement Systems Act, 2007 • Payment and Settlement Systems Regulations, 2008 and

Amended up to 2011 and BPSS Regulations, 2008 • The Payment and Settlement Systems (Amendment) Act,

2015 - No. 18 of 2015 • Factoring Regulation Act, 2011

Other relevant Acts • Negotiable Instruments Act, 1881 • Bankers’ Books Evidence Act, 1891 • State Bank of India Act, 1955 • Companies Act, 1956/ Companies Act, 2013 • Securities Contract (Regulation) Act, 1956 • State Bank of India Subsidiary Banks) Act, 1959 • Deposit Insurance and Credit Guarantee Corporation Act,

1961

• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970

• Regional Rural Banks Act, 1976 • Banking Companies (Acquisition and Transfer of

Undertakings) Act, 1980 • National Bank for Agriculture and Rural Development Act,

1981 • National Housing Bank Act, 1987 • Recovery of Debts Due to Banks and Financial Institutions

Act, 1993• Competition Act, 2002 • Indian Coinage Act, 2011 : Governs currency and coins • Banking Secrecy Act• The Industrial Development Bank (Transfer of Undertaking

and Repeal) Act, 2003 • The Industrial Finance Corporation (Transfer of Undertaking

and Repeal) Act, 1993

RBI COMMITTEES IN RECENT TIMES

Committee Date Headed byMundra Committee-To speed up the process of Recalibration of ATM’s November 2016 S.S. MundraTo study the regulatory issues relating to Financial Technology (Fintech) and Digital Banking in India

June 2016 SudarshanSen

PJ Nayak Committee-To Review Governance of Boards of Banks in India

June 2016 PJ Nayak

To look at the various facets of household finance in India and to benchmark India’s position

August 2016 Dr. Tarun Ramadorai

Working Group on Import Data Processing and Monitoring system April 2016 A.K. PandeyWorking Group on Interest Rate options February 2016 P.G. ApteAdvisory Committee on Ways and Means Advances to State Governments January 2016 Sumit Bose Committee on Mediumterm Path on Financial inclusion

December 2016 Deepak Mohanty

Committee on Differential Premium System for Banks in India September 2015 Jasbir SinghWorking Group on Compilation of Flow of Funds Accounts for Indian Economy August

August 2015 D.K. Mohanty

High Powered Committee on Urban Co operative Banks (UCBs) June 2015 R. GandhiCommittee on Data Standardization March 2015 LP. ParthasarathiInternal Working Group (IWF) to Revisit the Existing Priority Sector Lending Guidelines

March 2015 Lily Vadera

Committee on Capacity Building in Banks and Non Banks September 2014 G. GopalakrishnaCommittee on Implementation of Countercyclical Capital Buffer July 2014 B. MahapatraCommittee on Data and information Management in the Reserve Bank of India.

June 2014 D.K. Mohanty

Committee or Productivity Growth for the India Economy June 2014 B.N. GoldarCommittee or Review Governance of Boards of Banks in India May 2014 P.J. NayakWorking Group on Resolution Regime for Financial Institutions May 2014 Anand SinhaGIRO Advisory Group- Umesh Bellur Group on Enabling PKI in Payment System Applications

April 2014 Anil Kumar Sharma

Committee on Licensing of New Urban Cooperative Banks September 2011 Malegam CommitteeCommittee on Issues and Concerns in the NEFC Sector August 2011 Usha Throat

Banking, General Awareness & Current AffairsA-4

MONEY SUPPLYMoney and its Types Money: Money is anything that is widely accepted in exchange for goods and services. Types of Money• Commodity Money - Commodity money is the type of

Money that is in the form of a commodity with intrinsic value which means it has value outside of its use as money. The commodity itself represents money, and the money is the commodity. Example: Gold silver, copper, salt, peppercorns, rice, large stones, etc.

• Representative Money - It actually represents Money. It is exchangeable for a commodity. Examples: Token coins, or any other physical tokens like certificates.

• Fiat Money – It is whose value is not derived from any intrinsic value or any guarantee that it can be converted into valuable commodity (like gold). It has value as money because a government decreed that it has value for that purpose.

MONEY MARKET Money Market is a short-term credit market. The Money Market is regulated by the Reserve Bank of India. It is the centre in which short-term funds are borrowed and lent. It consists of borrowers and lenders of short-term funds. The lenders are commercial banks, insurance companies, finance companies and the central bank. The money market brings together the lenders and the borrowers.

RBI approach of money supply The RBI controls the money supply in the economy by various means.

Various measures of money supply are:Reserve Money (M 0): Notes and coins + reserves of banks with central bank • M1= currency with the public + demand deposits+ other

deposit held with the R.B.I. • M2=M1 + savings deposits with post office savings banks • M3 =M1 + time deposit• M4= M3 + total deposits with the post office savings

organization.

Money Market Instruments 1. Treasury Bills 2. Commercial Papers 3. Certificate of Deposit 4. Banker’s Acceptance 5. Repurchase Agreement

Treasury Bills Treasury bills (T-bills) offer short-term investment opportunities, generally up to one year. They are thus useful in managing short-term liquidity. At present, the Government of India issues three types of treasury bills through auctions, namely, 91-day, 182-day and 364-day. There are no treasury bills issued by State Governments.

Minimum Price Treasury bills are available for a minimum amount of Rs 25,000 and in multiples of Rs 25,000. Treasury bills are issued at a discount and are redeemed at par. Treasury bills are also issued under the Market Stabilization Scheme (MSS).

COMMERCIAL PAPER AND CERTIFICATES OF DEPOSITSCertificate of Deposit Commercial Paper (CP)

Certificate of Deposit (CD) is a negotiable money market instrument and issued in demat form or an a Ysance Promissory Note against funds deposited at a bank or other eligible financial institution for a specified time period.

Commercial paper (CP) in an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990 with a view to enabling highly rated corporate borrowers.

CDs can be issued by (i) scheduled commercial banks (excluding regional Rural Banks and Local Area Banks); and (ii) select All-India Financial Institutions (FIs) that have been permitted by RBI

Corporates, primary dealers (PDs) and the All-India Financial Institutions (FIs) are eligible to issue CP. (the audited balance sheet, is not less that Rs. 4 crore)

Minimum amount of a CD should be Rs. 1 lakh, i.e., the minimum deposit that could be accepted from a single subscriber should not be less that Rs. 1 lakh, and in multiples of Rs. 1 lakh thereafter.

CP can be issued in denomination of Rs. 5 lakh or multiples there of.

The maturity period of CDs issued by banks should not be less than 7 days and not more than one year, from the date of issue. The Fls can issues CDs for a period not less than 1 year and not exceeding 3 years from the date of issue.

CP can be issued for maturities between a minimum of 7 days and maximum of up to one year form the date of issue. However, the maturity date of the CP should not go beyond the date up to which the credit rating of the issuer is valid

CDs can be issued to individuals, corporations, companies (including banks and PDs), trusts, funds, associations, etc. Non -Resident Indians (NRIs) may also subscribe of CDs, but only on non-repatriable basis, which should be clearly stated on the Certificate. Such CDs cannot be endorsed to another NRI in the secondary market.

Individuals, baning companies, other corporate bodies (registered or incorporated in India) and unincorporated bodies, NRIs and Foreign institutional Investors (Flls) etc. can invest in CPs. However, investment by FIIs would be within the limits set for them by Securities and Exchange Board of India (SEBI) from time-to-time.

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COMMERCIAL PAPER • Commercial Paper (CP) is an unsecured money market

instrument issued in the form of a promissory note. CP, as a privately placed instrument, was introduced in India in 1990 with a view to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and to provide an additional instrument to investors.

• Individuals, banking companies, other corporate bodies (registered or incorporated in India) and

Unincorporated bodies, Non-Resident Indians (NRIs) and Foreign Institutional Investors (Ells) etc. can invest in CPs. However, investment by Flls would be within the limits set for them by SEBI from time-to-time.

Who is permitted to issue CPSubsequently, primary dealers (PDs) and all-India financial institutions (Fls) were also permitted to issue CP to enable them to meet their short-term funding requirements. However, the corporate issuing CP should meet the following conditions 1. The tangible net worth of the company, as per the latest

audited balance sheet, is not less than Rs 4 crore.2. The company has been sanctioned working capital limit by

banks or Fls; and 3. The borrowal account of the company is classified as a

Standard Asset by the financing bank/institution. 4. The minimum credit rating shall be ‘A3’ as per rating symbol

and definition prescribed by SEBI

Minimum and maximum period of maturity CP can be issued for maturities between a minimum of 7 days and a maximum of up to one year from the date of Issue.

Denomination CP can be issued in denominations of Rs.5 lakh or multiples thereof.

Other Conditions • Only a scheduled bank can act as an IPA for issuance of CP. • CP can be issued either in the form of a promissory note

or in a dematerialised form through any of the depositories approved by and registered with SEBI. Banks, FIS and PDS can hold CP only in dematerialized form.

CALL AND NOTICE MONEY MARKET The money market is a market for short-term financial assets that are close substitutes of money. The most important feature of a money market instrument is that it is liquid and can be turned into money quickly at low cost and provides an avenue for equilibrating the short-term surplus funds of lenders and the requirements of borrowers. • Call Money” means deals in overnight funds. • “Notice Money” means deals in funds for 2 -14 days. • “Term Money” means deals in funds for 15 days - 1 year.

Participants Scheduled commercial banks (excluding RRBs), co-operative banks (other than Land Development Banks) and Primary Dealers (PDs), are permitted to participate in call/notice money market both as borrowers and lenders.

CAPITAL MARKET Capital Market is an institutional arrangement for facilitating the borrowing and lending of long-term funds. Usually, focus is on the markets for long-term debt and equity claims, government securities, bonds, mortgages, and other instruments of long-term debts. • This capital market encircles the system through which the

public takes up long-term securities, either directly or through intermediaries. It also to be noted that Risk is much greater in capital market unlike Money Market which has small risk.

• This instrument consists of a series of channels through which the savings of the community are mobilised and made available to the entrepreneurs for undertaking investment activities.

• Regulator: Stock Exchange Board of India set up guidelines, and supervise and regulate the working of capital market. SEBI in consultation with the Government has taken a number of steps to introduce improved practices and greater transparency in the capital markets in the interest of the investing public and the healthy development of the capital markets.

Government Securities Government securities, also called the gilt edged securities or G-secs, are not only free from default risk but also provide reasonable returns and, therefore, offer the most suitable investment opportunity to provident funds. • The Government securities comprise dated securities issued

by the Government of India and state governments as also, treasury bills issued by the Government of India.

• Reserve Bank of India manages and services these securities through its public debt offices located in various places as an agent of the Government.

Mutual Fund A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. • The first introduction of a mutual fund in India occurred in

1963, when the Government of India launched Unit Trust of India.

• The regulator of mutual funds in India - SEBI. • The first private sector fund to operate in India was Kothari

Pioneer, which later merged with Franklin Templeton.

Capital Market Instruments l. Shares 2. Debentures 3. Bonds

Banking, General Awareness & Current AffairsA-6

Other Important Points on Money Supply• ‘High powered money’ as used by RBI means money

produced by RBI and Government of India and held by public and banks. Ingredients of high powered money include post office deposits + public sector bank deposits + deposit held by RBI including cash reserves of banks partly held in the form of currency as ‘cash in hand’ and partly as deposit with RBI and other deposits of RBI.

• Difference between high-powered money and ordinary money supply is that ordinary money supply includes demand deposits with banks plus currency with public plus other deposits with RBI whereas high powered money includes currency with public besides cash reserves of banks

and other deposits of RBI.• Narrow Money concept used by RBI means those assets

which represent immediate purchasing power and act as a ‘medium of exchange’ function of money.

• Blocked Currency means when one money currency of a country is not permitted to be exchanged with another country’s money currency, it is called blocked currency.

Masala Bonds Masala bonds are the rupee-denominated bonds which can be issued by the Indian entities to raise money from overseas markets. By rupee-denominated bonds, it means that the money borrowed will be in Indian rupees and not any foreign currency.

Key Facts: • Masala bonds are a step to help internationalize the Indian

rupee and also deepen the Indian financial system. • IFC issued a Rs I,000 crore bond to fund infrastructure

projects in India. These bonds were listed on the London Stock Exchange (LSE).

• IFC then named them Masala bonds to give a local flavour by calling to mind Indian culture and cuisine.

• These are the first rupee bonds listed on the London Stock Exchange.

• They can be issued for three or five or seven-year maturities. • The first Masala bonds were issued on 10 November 2014

under IFC’s $2 billion offshore rupee program. • They are different from External Commercial Borrowings

(ECB) in a way that in ECB the currency risk lies with the Indian issuer while in case of masala bonds, the currency risk lies with the overseas Investor.

The first Masala bond was issued by the International Finance Corporation (IFC), the investment arm of the World Bank dubbed as Uridashi Masala Bonds in November 2014. The Housing Development Finance Corporation (HDFC) was the first Indian company to issue rupee-denominated bonds “masala bonds” on London Stock Exchange (LSE) in July 2016. International Financial Corporation was first time issued green masala bonds in August 2015 to raise private sector investments that address climate change in India. Canada’s British Columbia province was the first foreign government to issue of masala bonds.

MONETARY POLICYRBI regulates liquidity in a manner that balances inflation and help in GDP growth and development. The tools that RBI uses to manage monetary policy are - • Bank rate: Bank rate is the interest rate at which central

bank lends money to domestic banks. Such loans are given out either by direct lending or by rediscounting (buying back) the bills of commercial banks and treasury bills. Thus, bank rate is also known as discount rate. In bank rate, there is no need for collateral security.

• Repo rate: When banks sell security, banks promise to buy back the same security from RBI at a predetermined date with an interest at the rate of REPO. It is actually a repurchase agreement. When RBI reduces the Repo Rate, the banks can borrow more at a lower cost.

• Reverse repo rate: RBI borrowing money from banks and the interest paid by RBI to banks on such borrowing is known as Reverse Repo Rate. It is opposite of Repo rate. An increase in this rate can cause the banks to transfer more funds to RBI due to their attractive interest rates. Hence RBI uses this way to drawn out excess money from the banks.

• Cash reserve ratio: All the commercial banks have to keep certain minimum amount of cash reserves with RBI. It 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%.

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• Statutory Liquidity Ratio: Amount of liquid assets such as Gold or other approved securities that a financial institution must maintain as reserves other than the cash.

• Marginal Standing Facility : Marginal standing facility (MSF) created by Reserve Bank of India in its credit policy of May 2011 which is a frame for banks to borrow from the RBI in an emergency situation when inter-bank liquidity dries up completely.

• Liquidity Adjustment Facility: Liquidity adjustment facility (LAF) is a monetary policy tool was introduced by RBI during June, 2000 which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity.

• This tool used for absorbing liquidity and injecting the same with banks through agreement with the Cap of 0.25% ofNDTL as on April 2014.

MCLR (Marginal Cost of Lending Rate)MCLR got effective after April 1, 2016. HowRBI decided to implement MCLR system? Before 2010, there was Benchmark Prime Lending Rate (BPLR) system. Under this, banks were allowed to lend loans to their most trustworthy customers at a low rate. But this system was not transparent. After this, banks were advised by RBI to apply the system of base rate i.e. below this rate, banks will not be able to lend credits, except in the cases allowed by RBI. Different parameters are used. These parameters include average cost of funds, marginal cost of funds or any other methodology which seemed reasonable. But then banks used to change their methodology as and when they wanted. Whenever the RBI cuts the repo rate, the same has to be done by banks also in their base rates, but they lower the base rate in small because most banks currently follow average cost of funds based calculation for arriving at respective base rates. This is the main reason for changing the policy to Marginal Cost of Funds based Lending Rates (MCLR).

Monetary Policy Committee The Reserve Bank of India Act, 1934 (RBI Act) has been amended by the Finance Act, 2016, to provide for a statutory and institutionalized framework for a Monetary Policy Committee, for maintaining price stability, while keeping in mind the objective of growth. • As per the provisions of the RBI Act, out of the six Members

of Monetary Policy Committee, three Members will be from the RBI and the other three Members of MPC will be appointed by the Central Government. 1. The Governor of the Bank—Chairperson, ex officio; 2. Deputy Governor of the Bank, in charge of Monetary

Policy—Member, ex officio; 3. One officer of the Bank to be nominated by the Central

Board—Member, ex officio; 4. Shri Chetan Ghate, Professor, Indian Statistical Institute

(ISI) —Member 5. Professor Pami Dua, Director, Delhi School of

Economics (DSE) — Member 6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of

Management (IIM), Ahmedabad

• The Members of the Monetary Policy Committee appointed by the Central Government shall hold office for a period of four years, with immediate effect or until further orders, whichever is earlier.

INFLATION AND ITS TYPES Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.

Types of Inflation • Demand pull inflation: This type of inflation occurs when

total demand for goods and services in an economy exceeds the supply of the same.

• Cost-push Inflation: If there is increase in the cost of production of goods and services, due to increase of wages and raw materials cost, there is likely to be a consequent increase in the prices of finished goods and services.

• Stagflation: It is a situation in which the inflation rate is high and the economic growth rate is low.

• Reflation: It is the act of stimulating the economy by increasing the money supply or by reducing taxes. It is an act of pumping money in the market to increase the circulation so that economy can be stipulated again.

• Disinflation: It is a decrease in the rate of inflation — a slowdown in the rate of increase of the general price level of goods and services in a nation’s gross domestic product over time.

• Deflation: It is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate).

• Hyperinflation: It is the extremely rapid escalation of prices (typically more than 50% per month) for goods and services.

• Headline Inflation: Headline inflation refers to inflation figure which is not adjusted for seasonality or for the often volatile elements of food & energy prices, which are removed in the Core CPI. Headline inflation will usually be quoted on an annualized basis, meaning that a monthly headline figure of 4% inflation equates to a monthly rate that, if repeated for 12 months, would create 4% inflation for the year. Comparisons of headline inflation are typically made on a year-over-year basis. Also known as “top-line inflation”.

• Imported Inflation: A depreciation in the exchange rate will make imports more expensive. Therefore, the prices will increase solely due to this exchange rate effect. A depreciation will also make exports more competitive so will increase demand.

How to Measure Inflation CPI (Consumer Price Index): A consumer price index (CPI) measures changes in the price level of consumer goods and services purchased by households or consumers. Wholesale price index: The Wholesale Price Index or WPI is the price of a representative basket of wholesale goods.

Indian CurrencyThe Indian currency is called the Indian Rupee (INR) and the coins are called paise. One Rupee consists of 100 paise. The Reserve

Banking, General Awareness & Current AffairsA-8

Bank manages currency in India. The Government, on the advice of the Reserve Bank, decides on the various denominations.• The Reserve Bank can also issue notes in the denominations

of one thousand rupees, five thousand rupees and ten thousand rupees, or any other denomination that the Central Government may specify.

• There cannot, though, be notes in denominations higher than ten thousand rupees in terms of the current provisions of the Reserve Bank of India Act, 1934. Coins can be issued up to the denomination of Rs 1000.

Soiled and Mutilated Notes Soiled notes are notes, which have become dirty and limp due to excessive use. Mutilated notes are notes, which are torn, disfigured, burnt, washed, eaten by white ants, etc. • A double numbered note cut into two pieces but on which

both the numbers are intact is now being treated as soiled note. Soiled notes can be tendered at all bank branches for and exchange obtained.

• Soiled or mutilated notes are fully payable. Payment of exchange value of mutilated notes is governed by the RBI under refund Rules, 1975.

• In order to increase the life of currency notes, Reserve Bank of India (RBI) issued Clean Note Policy in 2001.

These Rules have been framed under Section 28 of the Reserve Bank of India Act, 1934. The public can get value for these notes as laid down in the Rules, after adjudication. Currently, provisions exist for paying either full, half or no value as far as notes in the denomination for Rs 10 and above are concerned; as regards Re 1, Rs 2 & Rs 5, a tenderer can get either full or no value depending upon the condition of the note.

Coin MintingThe Union Government has the sole right to mint the coins and one rupee note. The responsibility for coinage comes under the Coinage Act, 1906 which is amended from time to time. The designing and minting of coins in various denominations is also the responsibility of the Government of India. The coins are issued for circulation only through the Reserve Bank in terms of the RBI Act. Coins are minted at the following four Government Mints. 1. Mumbai,2. Alipore (Kolkata), 3. Saifabad (Hyderabad), CherlapaIly (Hyderabad) 4. Noida (UP)

Currency Notes The design of bank notes is approved by the central government, on the recommendation of the central board of the Reserve Bank of India. The current series of bank notes (which began in 1996) is known as the Mahatma Gandhi series. Bank notes are issued in the denominations of Rs 5, Rs 10, Rs 20, Rs 50, Rs 100, Rs 500 and Rs 2000.1. Currency notes are printed at the Currency Note Press in

Nashik2. Bank Note Press in Dewas3. Bharatiya Reserve Bank Note Mudran (P) Ltd at Salboni and

Mysore and at,4. The Watermark Paper Manufacturing Mill in Hoshangabad.

BANKING IN INDIA

Commercial BanksCommercial bank is an institution that accepts deposits, makes business loans and offers related services to general public and businessmen. Commercial banks in India are largely Indian public sector and private sector with a few foreign banks. The public sector banks account for more than 80 percent of the entire banking business in India—occupying a dominant position in the commercial banking. These are a profit making institution owned by government or private or both.There are currently 27 public sector banks in India out of which 19 are nationalised banks and 6 are SBI and its associate banks, and rest two are IDBI Bank and Bharatiya Mahila Bank, which are categorised as other public sector banks. There are total 93 commercial banks in India.

a. Public sector banksThere are currently 27 public sector banks in India out of which 20 are nationalised banks and 6 are SBI and its associate banks, and last is Bharatiya Mahila Bank, which is categorised as other public sector bank. There are total 93 commercial banks in India.The public sector accounts for 80 percent of total banking business in India and State Bank of India is the largest commercial bank in terms of volume of all commercial banks.

b. Private sector banksPrivate sector banks are those whose equity is held by private shareholders. For example, ICICI, HDFC etc. Private sector banks play a major role in the development of Indian banking industry.

Differences between Private and Public Sector Banks Private sector banks introduced the concept of online banking in India. This was mostly because the private banks were technologically well equipped.

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• Private sector banks were using state-of-the-art technology and fully computerized systems since the time they entered the Indian market whereas the Public sector banks were not.

• Despite the technological challenges, the public sector banks are still the preferred destinations for many as they are considered as safer options for money deposit.

c. Foreign BanksForeign banks are those banks which have their head offices abroad. These banks have their registered head offices in a foreign country, while they operate their branches in India. They can operate in India either through wholly-owned subsidiaries or through branches. CITI bank, HSBC, Standard Chartered etc. are the examples of foreign banks in India.

Regional Rural Bank (RRB)These are state sponsored regional rural oriented banks. They provide credit for agricultural and rural development. The main objective of RRB is to develop rural economy. Their borrowers include small and marginal farmers, agricultural labourers, artisans etc. NABARD holds the apex position in the agricultural and rural development.After nationalization of banks in 1960, there were problems which made it difficult for commercial banks even under government ownership to lend to farmers. Government set up Narasimham Working Group in 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. First RRB : Prathama Grameen Bank spo sored by Syndicate Bank established on 2nd October 1975 with its Head Office at Moradabad. The RRBs were owned by three entities with their respective shares as follows: Central Government-50% State Government -15% Sponsor bank-35%

Scheduled and Non-Scheduled banksA bank is said to be a scheduled bank when it has a paid up capital and reserves as per the prescription of RBI and is included in the second schedule of RBI Act 1934.Non-scheduled banks are those commercial banks which are not included in the second schedule of RBI Act 1934.

Co-operative BanksCooperative banks are socalled because they are organised under the provisions of the Cooperative Credit Societies Act of the states. The major beneficiary of the Cooperative Banking is the agricultural sector in particular and the rural sector in general.The cooperative credit institutions operating in the country are mainly of two kinds: agricultural (dominant) and non-agricultural. There are two separate cooperative agencies for the provision of agricultural credit: one for short and medium-term credit, and the other for long-term credit. The former has three tier and federal structure.Three tier structures exist in the cooperative banking:i. State cooperative banks (SCB) at the apex level.ii. Central cooperative banks (CCB) at the district level.iii. Primary cooperative banks (PCB) at the base or local level.

Payments Banks and Small Finance BanksIn order to expedite financial inclusion, RBI had created a framework for licensing Payments Banks / Small Banks and other differentiated banks. These local area banks, payment banks and Small Banks are expected to meet credit and remittance needs of small businesses, unorganized sector, low income households, farmers and migrant work force.Airtelwas the first entity to launch India’s first Payments Bank service in Rajasthan.

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Banking Codes and Standards Board of India (BCSBI)Under the recommendations from RBI constituted Committee on Procedures and Performance Audit of Public Services under the Chairmanship of Shri S.S. Tarapore, Banking Codes and Standards Board of India (BCSBI) was setup on February 18, 2006. The Independent banking industry watchdog is based in Mumbai, Maharashtra. It functionsas an independent and autonomous body.

BCSBI as Banking Industry Watchdog • BCSBI was envisaged to ensure that the common person as

a consumer of financial services from the banking Industry is in no way at a disadvantageous position and really gets what he/she has been promised.

• The Banking Codes and Standards Board of India was registered as a society under the Societies Registration Act, 1860 in February 2006.

• Membership of BCSBI is voluntary and open to scheduled banks. Initially the membership of BCSBI was open to scheduled commercial banks and has now been extended to include Regional Rural Banks and select Urban Co-operative Banks.

BANKING OMBUDSMANThe Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995.• A Banking Ombudsman is a senior official appointed by the

Reserve Bank of India.• All Scheduled Commercial Banks, Regional Rural Banks

and Scheduled Primary Co-operative Banks are covered under the Scheme.

• The Banking Ombudsman does not charge any fee for filing and resolving customers’ complaints.

• The amount, if any, to be paid by the bank to the complainant by way of compensation for any loss suffered by the complainant is limited to the amount arising directly out of the act or omission of the bank or Rs 10 lakhs, whichever is lower.

• If one is not satisfied with the decision passed by the Banking Ombudsman, one can approach the appellate authority against the Banking Ombudsmen’s decision. Appellate Authority is vested with a Deputy Governor of the RBI.

Banks Board Bureau (BBB) The main aim of Banks Board Bureau is to recommend appointment of directors in Public Sector Banks (PSBs) and advice on ways of raising funds and dealing with issues of stressed assets. Besides this task, the BBB will also be a link between the government and banks and will be engaged with banks to evolve strategies for them. • The first chairman of Banks Board Bureau selected is Vinod

Rai who is former CAG.

Ratings of Banks in IndiaAs per the recommendations of Padmanabhan Committee, the banks in India should be rated on a 5 point scale of A to E, based on international CAMELS rating model.• Upon these guidelines, RBI has evolved the model for rating banks based on CAMELS. Each of the 6 components would be weighed on a scale of 1 to 1 (H) and would contain several parameters with individual weightage.

Various Types of Banking Investment Banks Investment banking is a special segment of banking operations that help individuals, corporations, and governments raise financial capital by underwriting or acting as the client’s agent in the issuance of securities.

Universal BankingA universal bank participates in both investment banking with commercial banking under one roof and reaping synergies.

Retail BankingRetail banking or Consumer Banking refers to the division of a bank that directly deals with individual consumers, rather than with companies, corporations or other banks. Services offered include savings and transactional accounts, mortgages, personal loans, debit cards, and credit cards.

Wholesale BankingThese banks provide banking solutions to coporate and institutional and other financial institutions such as large corporations and other

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Topicwise Solved Papers For IBPS SBIBank PO Clerk Prelim And Mains

Banking Economy General Awareness

Publisher : Disha Publication ISBN : 9789386323521 Author : Disha Publication

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