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Indicators in Banking System

Indicators in Banking System

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Published by Santosh....
An assignment submitted to Miss Sonali Patnaik, Faculty, VISWASS, Bhubaneswar
An assignment submitted to Miss Sonali Patnaik, Faculty, VISWASS, Bhubaneswar

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Published by: Santosh.... on Nov 06, 2009
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11/17/2012

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 The Role of Financial Indicators in Banking System
AN ASSIGNMENT ON“THE ROLE OF FINANCIAL INDICATORS IN THE BANKING SYSTEM”
Submitted to:
Ms. SONALI PATTNAIK Faculty,P.G. Deptt. of Finance, VISWASS
Submitted by:
Ms. SHRADHANJALEE PANDA, MFC, 2
nd
YearMs. SUBHADRA NYAYAPATHI, MFC, 2
nd
Year, andMr. SANTOSH KUMAR SAHOO, MFC, 2
nd
YearVIVEKANANDA INSTITUTE OF SOCIAL WORK AND SOCIAL SCIENCES
(AFFILIATED TO UTKAL UNIVERSITY)BAPUJI NAGAR, BHUBANESWAR-751009
INTRODUCTION
1
 
 The Role of Financial Indicators in Banking System
India has had a long history of banking in so far as purveying of credit is concerned.There are references to lending for interest and the social-religious sanctions governing thenorms relating to these activities even in the ancient Indian scriptures like Manusmriti andArthasastra. However, some Madras-based officers of the East India Company as it isunderstood today attempted the establishment of banking of the western-type only as early as1683.Today Indian banking has come a long way since then in terms complexity of operationsand the elaborates of the structure. The Indian banking structure comprises a heterogeneousmass covering a wide spectrum ranging from the unorganized indigenous bankers at the oneend to the foreign banks at the other. Unlike a small drop of water that has the ability to createwaves on the entire surface of a pond, likewise there are some financial indicators that affectthe total banking system and impact the operations and solvency of the banking industry. Theseindicators play an important role for the smooth and sustainable functioning and growth of thebanking system as well as the economy as a whole.
FINANCIAL INDICATORS AND THEIR ROLE IN BANKING SYSTEM
In this fast changing world of LPG (Liberalisation, Privatisation and Globalisation) wherehundreds of “Lehman Brothers” became bankrupt within a fraction of moment, it has becamenecessary to look in to the financial market and towards the financial indicators to formulateproactive as well as reactive strategies. Some of the most effective indicators playing animportant role in the banking system are:
1.
The Cash Reserve Ratio (CRR)
2.
The Statutory Liquidity Ratio (SLR)
3.
The Bank Rate
4.
Repo Rate and Reverse Repo Rate
5.
Capital Adequacy Ratio
6.
Prime Lending Rate (PLR)
7.
Call Rate
8.
Coupon Rate
2
 
 The Role of Financial Indicators in Banking System
9.
The MIBID and MIBOR
10.
Priority Sector Lending (PSL)
11.
Gold Price
12.
Gross Domestic Product (GDP)
13.
Exchange Rate
14.
Rate of Inflation
15.
Rate of Savings
16.
Stock Market IndicesThe indicators and the role they play in the banking system are discussed below:
1.
CASH RESERVE RATIO (CRR)
CRR is the amount of cash reserve that is required to be maintained by every bank inIndia, (other than a scheduled bank) by way of cash reserve either with itself or incurrent with RBI, SBI, or any other notified bank or partly with itself and partly in suchcurrent account.
It is computed as a percentage on the total Demand and Time Liabilities (DTL) of thebank.
It’s a statutory requirement stipulated under section 18 of the Banking Regulation Act,1949.
Presently, the CRR is 5% as fixed by the RBI.
Role of CRR:
If the RBI wants to put a check on credit expansion, it raises the CRR,conversely when it is required to induce, to facilitate credit expansion, theCRR is lowered.
3

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