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Logo of RBI The RBI headquarters in Mumbai Headquarters Mumbai, Maharashtra Coordinates Established Governor 18°55′58″N 72°50′13″ECoordinates: 18°55′58″N 72°50′13″E 1 April 1935 Duvvuri Subbarao India
Central bank of Currency
Indian Rupee INR
ISO 4217 Code Reserves
US$300.21 billion (2010)
Base borrowing rate 6.5% Base deposit rate Website 5.5%
The Reserve Bank of India (RBI, Hindi: भारतीय िरजवर बैक) is the central banking system of India and controls the monetary policy of the rupee as well as US$300.21 billion (2010) of currency reserves. The institution was established on 1 April 1935 during the British Raj in accordance with the provisions of the Reserve Bank of India Act, 1934 and plays an important part in the development strategy of the government. It is a member bank of the Asian Clearing Union.
1991—2000 The national economy came down in July 1991 and the Indian rupee was devalued. The currency lost 18% relative to the US dollar, and the Narsimahmam Committee advised restructuring the financial sector by a temporal reduced reserve ratio as well as the statutory liquidity ratio. New guidelines were published in 1993 to establish a private banking sector. This turning point should reinforce the market and was often called neo-liberal The central bank deregulated bank interests and some sectors of the financial market like the trust and property markets. This first phase was a success and the central government forced a diversity liberalisation to diversify owner structures in 1998. The National Stock Exchange of India took the trade on in June 1994 and the RBI allowed nationalized banks in July to interact with the capital market to reinforce their capital base. The central bank founded a subsidiary company—the Bharatiya Reserve Bank Note Mudran Limited—in February 1995 to produce banknotes.
Since 2000 The Foreign Exchange Management Act from 1999 came into force in June 2000. It should improve the foreign exchange market, international investments in India and transactions. The RBI promoted the development of the financial market in the last years, allowed online banking in 2001 and established a new payment system in 2004 - 2005 (National Electronic Fund Transfer). The Security Printing & Minting Corporation of India Ltd., a merger of nine institutions, was founded in 2006 and produces banknotes and coins. The national economy's growth rate came down to 5.8% in the last quarter of 2008 - 2009 and the central bank promotes the economic development.[22
Monetary authority The Reserve Bank of India is the main monetary authority of the country and beside that the central bank acts as the bank of the national and state governments. It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credit to productive sectors. Objectives are maintaining price stability and ensuring adequate flow of credit to productive sectors. The national economy depends on the public sector and the central bank promotes an expansive monetary policy to push the private sector since the financial market reforms of the 1990s. The institution is also the regulator and supervisor of the financial system and prescribes broad parameters of banking operations within which the country's banking and financial system functions. Objectives are to maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective addressing of complaints by bank customers. The RBI controls the monetary supply, monitors economic indicators like the gross domestic product and has to decide the design of the rupee banknotes as well as coins. Manager of exchange control The central bank manages to reach the goals of 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 The bank issues and exchanges or destroys currency and coins not fit for circulation. The objectives are giving the public adequate supply of currency of good quality and to provide loans to commercial banks to maintain or improve the GDP. The basic objectives of RBI are to issue bank notes, to maintain the currency and credit system of the country to utilize it in its best advantage, and to maintain the reserves. RBI maintains the economic structure of the
country so that it can achieve the objective of price stability as well as economic development, because both objectives are diverse in themselves. Developmental role The central bank has to perform a wide range of promotional functions to support national objectives and industries. The RBI faces a lot of inter-sectoral and local inflation-related problems. Some of this problems are results of the dominant part of the public sector. Related functions The RBI is also a banker to the government and performs merchant banking function for the central and the state governments. It also acts as their banker. The National Housing Bank (NHB) was established in 1988 to promote private real estate acquisition. The institution maintains banking accounts of all scheduled banks, too. There is now an international consensus about the need to focus the tasks of a central bank upon central banking. RBI is far out of touch with such a principle, owing to the sprawling mandate described above. The recent financial turmoil world-over, has however, vindicated the Reserve Bank's role in maintaining financial stability in India.
RBI has various tools to control which are listed below
(a) Bank Rate: RBI (Reserve Bank of India) lends to the commercial banks through its discount window to help the banks meet depositor’s demands and reserve requirements. The interest rate the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if it wants to reduce the liquidity and money supply in the system, it will increase the bank rate. The current rate is 8.75%. (b) Cash Reserve Requirements (CRR): Every commercial bank has to keep certain minimum cash reserves with RBI. RBI can vary this rate between 3% and 15%. RBI uses this tool to increase or decrease the reserve requirement depending on whether it wants to affect a decrease or an increase in the money supply. An increase in CRR will make it mandatory on the part of the banks to hold a large proportion of their deposits in the form of deposits with the RBI. This will reduce the size of their deposits and they will lend less. This will in turn decrease the money supply. The current rate is 4%. (c) Statutory Liquidity Requirements (SLR): Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities. RBI has stepped up liquidity requirements for two reasons: - Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans andadvances – thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities.
In well developed economies. Bank Rate. b) Banks are mandatorily required to keep 25% of their deposits in the form of government securities. When the repo rate increases borrowing from RBI becomes more expensive. What is Inflation? Inflation is defined as an increase in the price of bunch of Goods and services that projects the Indian economy. The RBI is resorting more to open market operations in the more recent years. on small savings and provident funds. Banks are always happy to lend money to RBI since their money are in safe hands with a good interest. What is a Reverse Repo Rate?How will it affect the Bank Loan interest rates Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. c) Banks are required to lend to the priority sectors to the extent of 40% of their advances. Repo rate is the rate at which our banks borrow rupees from RBI.e. are administratively set. central banks use open market operations.to influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the commercial and industrial sectors. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. b) Ceiling on the amounts of credit for certain purposes. Repo Rate and Reverse Repo rate our banks adjust their lending or investment rates for common man. It can cause the money to be drawn out of the banking system. In the open money market. What is a Repo Rate? Whenever the banks have any shortage of funds they can borrow it from RBI. c) Discriminatory rate of interest charged on certain types of advances. Direct credit controls in India are of three types: a) Part of the interest rate structure i.buying and selling of eligible securities by central bank in the money market. government securities are traded at market related rates of interest. Generally RBI uses three kinds of selective credit controls: a) Minimum margins for lending against specific securities. Due to this fine tuning of RBI using its tools of CRR. A reduction in the repo rate will help banks to get money at a cheaper rate. Inflation happens when there are less Goods .
A deflationary spiral is when decrease in prices lead to a vicious circle (a trouble leads to another that aggravates the first). We are trying to make it simple for you to understand the relation between inflation and bank interest rates in India.. What are the effects of Deflation During deflation the price of goods and services is falling and consumers will tend to delay their purchases until prices fall further. This is known as deflationary spiral.and more buyers. which can lead to further decrease in the prices. RBI is using this method (increase of CRR rate).. there will be an increase of interest rate also. out of that the major one is inflation. the available amount with the banks comes down. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period. This will cause for a lower production. lower wages and demand. lower wages and demand which will lead to further decrease in prices. this will result in increase in the price of Goods. you might have heard lot of these terms and usage on inflation and the bank interest rates. What is a CRR rate? CRR Rate in India Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. since there is more demand and less supply of the goods. What is Deflation? Deflation Deflation is the continuous decrease in prices of goods and services. If RBI decides to increase the percent of this. What is Deflationary Spiral? It is a situation when decrease in the prices leads to lower production. Relation between Inflation and Bank interest Rates Now a days. Whenever you see an increase on inflation. to drain out the excessive money from the banks. Bank interest rate depends on many other factors. What is SLR Rate? Statutory Liquidity Ratio .
By changing the SLR rates. . Through SLR rate tuning the money supply in the system can be controlled efficiently. It is also helpful to control the expansion of Bank Credits.Indicator for India Inc’s growth IIP number or IIP data (Index of Industrial Production) is a measurement which represents the status of production in the industrial sector for a given period of time compared to a reference period of time. Please note that IIP data is a shortterm indicator of our industrial growth till the actual results from Annual Survey of Industries (ASI) is published.SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash. RBI can increase or decrease bank credit expansion. The IIP index reflects the growth in India’s industrial activity and excludes all kinds of services. What are IIP numbers? Index of Industrial Production (IIP) . Research Institutes. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. IIP data and Stock Markets How IIP Data is formed? IIP data is a simple index which provides information about the growth of different sectors of our economy like mining. Use-Based Classification .. Manufacturing & General. • • SLR to Control Inflation and propel growth SLR is used to control inflation and propel growth. The base year for the index over the period of the analysis is 1993-94. RBI compels the commercial banks to invest in government securities like government bonds. which helps us to measure the level of industrial activity in Indian economy. IIP data is a very important indicator to the Government for planning purposes and is also used by various organisations like Industrial Associations. the RBI can ensure the solvency a commercial bank. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit. Financial Institues and Academicians. electricity. IIp number is one of the best statistical data. What is the Need of SLR? With the SLR (Statutory Liquidity Ratio). Also through SLR. approved securities (Bonds) before providing credit to its customers. How is SLR determined? SLR is determined as the percentage of total demand and percentage of time liabilities. or gold or govt.
mining & quarrying (10. hydro.17%). Petroleum and Coal Products * Non-Metallic Mineral Products * Basic Metal and Alloy Industries * Metal Products and Parts.Another classification is use-based (consumption based). Intermediate goods & consumer goods.47%) and electricity (10. solar etc) Mining: includes mining of coal. Sectors in IIP Data The weightage of Indian IIP data is broadly divided into three segments – manufacturing (79. which is further divided into 17 industry groups like * Food Products * Beverages. paper products. machinery.36%).thermal. oil other metals etc • Manufacturing is the major sector. where IIP is classified on the base of use like Basic Goods. except Machinery and Equipment * Machinery and Equipment other than Transport equipment * Transport Equipment and Parts * Other Manufacturing Industries Tracking Growth using GDP & IIP data . printing and allied industries * Leather and leather and fur products * Basic Chemicals & Chemical Products (except products of Petroleum & Coal) * Rubber. Capital goods. • • Manufacturing: includes items like food items. silk and man made fibre textiles * Jute and other vegetable fibre textiles * Textile products including wearing apparel * Wood and wood products (furniture & fixtures) * Paper.Tobacco and related Products * Cotton Textiles * Wool. wood furniture etc Electricity: includes generation and transmission of electricity ( from various sources like . Plastic.
as well as by sound prudential regulation where required 3. credit or insurance. short and longterm credit. so as to bring costeffective and a wide variety of alternatives to customers (which could include any number of combinations of sound private. payments. it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of public policy. This was in view of the need to frequently watch the movements of the Indian economy based on suitable method and international best practices.GDP and IIP Numbers used by Indian Policy makers to track Growth A technical advisory group of the Reserve Bank of India (RBI) suggested using quarterly gross domestic product (GDP) and monthly index of industrial production (IIP) data to track economic growth. guided by appropriate internal management systems. we can and must build inclusive financial sectors that help people improve their lives. Financial inclusion is now a common objective for many central banks among the developing nations. Multiple providers of financial services. The term "financial inclusion" has gained importance since the early 2000s. UN On 29 December 2003. local money transfers and international remittances 2. industry performance standards. Financial and institutional sustainability as a means of providing access to financial services over time 4. Financial Inclusion. Together. Financial inclusion: Financial inclusion is the delivery of financial services at affordable costs to sections of disadvantaged and low income segments of society. non-profit and public providers). wherever feasible. The great challenge before us is to address the constraints that exclude people from full participation in the financial sector. insurance.Former UN Secretary-General Kofi Annan said: ”The stark reality is that most poor people in the world still lack access to sustainable financial services. and performance monitoring by the market. pensions. Access at a reasonable cost of all households and enterprises to the range of financial services for which they are “bankable. mortgages. It is argued that as banking services are in the nature of public good.” including savings. . Sound institutions. whether it is savings. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. and is a result of findings about financial exclusion and its direct correlation to poverty. leasing and factoring.” According to the United Nations the main goals of Inclusive Finance are as follows: 1. RBI set up Technical Advisory Group on "Development of Leading Economic Indicators for Indian Economy" in March 2006.
The UK government also set up the Financial Inclusion Fund of £120 m to help bring about Financial Inclusion. Himachal Pradesh and Kerala have announced 100% financial inclusion in all their districts. Financial inclusion in India The Reserve Bank of India has set up a commission (Khan Commission) in 2004 to look into financial inclusion and the recommendations of the commission were incorporated into the mid-term review of the policy (2005–06). The bank asked the commercial banks in different regions to start a 100% financial inclusion campaign on a pilot basis.s likePuducherry. the Reserve Bank permitted commercial banks to make use of the services of non-governmental organizations (NGOs/SHGs). Apart from this there are certain in Current model which is followed. There is inadequate legal and financial structure. In January 2006. Reserve Bank of India’s vision for 2020 is to open nearly 600 million new customers' accounts and service them through a variety of channels by leveraging on IT. 50. However. from a pilot project in UT of Pondicherry. when it was introduced. being a mostly agrarian economy. . In addition to this KYC (Know your Customer) norms were relaxed for people intending to open accounts with annual deposits of less than Rs. Mangalam Village became the first village in India where all households were provided banking facilities. India. It published its strategy of financial inclusion in its report Promoting Financial Inclusion which was published alongside the Pre-Budget Report of 2004. General Credit Cards (GCC) were issued to the poor and the disadvantaged with a view to help them access easy credit.Financial Inclusion Taskforce. that. UK The United Kingdom was one of the first countries to realize the importance of financial inclusion. too. the Reserve Bank of India (RBI) wants to connect every Indian to the country s banking system.000. Financial Inclusion first featured in 2005. hardly has schemes which lend for agriculture. Along with microfinance we need to focus on Microinsurance too. micro-finance institutions and other civil society organizations as intermediaries for providing financial and banking services. by K C Chakraborthy. These intermediaries could be used as business facilitators (BF) or business correspondents (BC) by commercial banks. The Financial Inclusion Taskforce was formally launched on 21 February 2005 to monitor progress on financial inclusion and to make suitable recommendations. In its platinum jubilee year. In the report RBI exhorted the banks with a view of achieving greater financial inclusion to make available a basic "no-frills" banking account. As a result of the campaign states or U. the chairman of Indian Bank. In India. illiteracy and the low income savings and lack of bank branches in rural areas continue to be a road block to financial inclusion in many states.T.
Inclusive finance does not require that everyone who is eligible use each of the services .and un-banked into the mainstream banking fold. "Nearly forty years after nationalization of banks. India has currently the second-highest number of financially excluded households in the world. but they should be able to choose use them if desired. According to UNITED NATIONS." As per " TREASURY COMMITTEE . Approximately.6% have non-life insurance cover.RBI is currently working on a three-year financial inclusion plan and is discussing this with each bank to see how to take this forward. Despite heightened focus on financial inclusion. REPORT OF THE COMMITTEE ON FINANCIAL INCLUSION IN INDIA (Chairperson : C. deputy governor. " 'Major Three Aspects Of Financial Inclusion' Make people to Access financial markets Access credit markets Learn financial matters (financial education ) Financial Inclusion Includes Accessing Of Financial Products And Services Like. while a meager 0." he pointed out . (2005) " Ability of individuals to access appropriate financial products and services . 40% of India s population have bank accounts. Indian banks still somewhat failed to bring the under. HOUSE OF COMMONS . "A financial sector that provides 'access to credit for all "bankable " people and firms and to savings and payments services for everyone . and only about 10% have any kind of life insurance cover. RBI said. 60% of the country's population does not have bank accounts and nearly 90% do not get loans. Savings facility Credit and debit cards access Electronic fund transfer All kinds of commercial loans Overdraft facility Cheque facility Payment and remittance services . Rangarajan ) (2008) "The process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. UK . KC Chakrabarty.
Level of income : Level of income decides to have financial access . Low cost financial services Insurance (Medical insurance) Financial advice Pension for old age and investment schemes Access to financial markets Micro credit during emergency Entrepreneurial credit Financially Excluded People The financially excluded sections largely comprise : Marginal farmers Landless labourers Oral lessees Self employed and unorganised sector enterprises Urban slum dwellers Migrants Ethnic minorities and socially excluded groups Senior citizens Women The North East. birth certificates . so the uneducated and poor people find it very difficult to access financial services . driving license . Eastern and Central regions contain most of the financially excluded population.employment identity card etc Limited literacy : Particularly financial literacy and lack of basic education prevent people to have access from financial services . it is very difficult for those people who lack both to read terms and conditions and account filling forms . Complicated procedures : Due to lack of financial literacy and basic education . Factors affecting access to financial services Legal identity : Lack of legal identity like voter id . 'Terms and conditions : While getting loans or at the time of opening accounts banks places many conditions . . Low income people generally have the attitude of thinking that banks are only for rich.
etc. Consequences Of Financial Exclusion Major Two Threats : Losing opportunities to grow : In the absence of finance . Loss due to theft : Banks provide various schemes of safety locker facility . Other allied financial services : People who do not have bank accounts may not go to bank as for as possible . Bank Accounts . presumed that they are excluded from mainstream society . Loss of opportunities to thrift and borrow : Financially excluded people . any compensation . cheque facility . may lose chances to save their some part of livelihood earnings and also to borrow loans . Country's growth will retard : Due to vast unutilized resources that is in the form of money in the hands of people who lack financial inclusive services.Psychological and cultural barriers : Many people voluntarily excluded themselves due to psychological barriers and they think that they are excluded from accessing financial services . . people who are not connected with formal financial system lack opportunities to grow. So they lack basic financial auxiliary services like DD . Exclusion from mainstream society : The people who lacks financial services .People who lived in under developed areas find it very difficult to go to areas in which banks are generally reside . Place of living : As the name suggests that commercial banks operate only in commercially profitable areas and they set up branches and main offices only in that areas .Insurance cover and other emergency need loans Etc . Finance . Employment barriers : Nowadays all salary and other financial benefits from various sources like Governments scholarships . grants . reliefs . All transactions cannot be made in cash : Some transactions can be made in cash . etc are paid through bank accounts. It mitigates the risk due to thefts . Lack of awareness : Finally . In this technological world everybody wants to have electronic cash system like debit and credit cards and also EFT . Other Consequences : Business loss to banks : Banks will loss business if this condition persists for ever due to lack of opening of bank accounts. people who lack basic education do not know the importance of the financial products like Insurance .
Benefits Of Inclusive Financial Growth Growth with equity : In the path of super power we the Indians will need to achieve the growth of our country with equality . All the above influence economic development which follows adequate financial and credit facilities • Expectations of poor people from financial system Taking into account their Seasonal Inflow Of Income from agricultural operations. payment and settlement facility etc.indicator of economic development Electricity consumption and road length -indicators of infrastructure development. Because if they borrow loans for business or education or any other purpose they get the loan will pave way for their development . Security and safety of deposits . Financial Transactions Made Easy : Inclusive finance will provide banking related financial transactions in an easy and speedy way . In order to achieve the objective of growth with equity. savings and credit accounts . Seasonal And Irregular Work Availability And Income. the existing financial system needs to be designed to suit their requirements. Safe savings along with financial services : People will have safe savings along with other allied services like insurance cover . Inflating National Income : Boosting up business opportunities will definitely increase GDP and which will be reflected in our national income growth . entrepreneurial loans . it is imperative that infrastructure is developed with financial inclusion. Migration from one place to another. It is provided by inclusive finance. Get rid of poverty : To remove poverty from the Indian context all everybody will be given access to formal financial services . Becoming Global Player : Financial access will attract global market players to our country that will result in increasing employment and business opportunities . Relationship between Financial Inclusion and Development Indicators Economic growth follows financial inclusion. per capita income .indicators of financial inclusion.
As a first step towards this. Most of the excluded consumers are not aware of the bank’s products. insurance services and much more. Getting money for their financial requirements from a local money lender is easier than getting a loan from the bank. With the directive from RBI. Most of the banks need collateral for their loans. Low transaction cost Convenient operating time Minimum paper work Frequent deposits Quick and easy access Product suitable to income and consumption What is Financial Inclusion & its implementation in India? Financial inclusion is the availability of banking services at an affordable cost to disadvantaged and low-income groups. Moreover. These accounts either have a low minimum or nil balance with some restriction in transactions. It is not profitable for banks to provide small loans and make a profit. The first-ever Index of Financial Inclusion to find out the extent of reach of banking services among 100 countries. Only 34% of Indian individuals have access to or receive banking services. banks give more importance to meeting their financial targets. In reality it includes loans. The main reason for financial exclusion is the lack of a regular or substantial income. Banks are now considering FI as a business opportunity in an overall environment that facilitates growth. With the combined effort of financial institutions. The proximity of the financial service is another fact. The loss is not only the transportation cost but also the loss of daily wages for a low income individual. Financial inclusion mainly focuses on the poor who do not have formal financial institutional support and getting them out of the clutches of local money lenders. . In order to increase this number the Reserve Bank of India had the Government of India take innovative steps. our banks are now offering “No Frill” Accounts to low income groups. It is very difficult for a low income individual to find collateral for a bank loan. The individual bank has the authority to decide whether the account should have zero or minimum balance. The RBI has simplified the KYC (Know your customer) norms for opening a ‘No frill’ account. One of the reasons for opening new branches of Regional Rural Banks was to make sure that the banking service is accessible to the poor. six million new ‘No Frill’ accounts were opened in the period between March 2006-2007. some of our banks have now come forward with general purpose credit cards and artisan credit cards which offer collateral-free small loans. So they focus on larger accounts. which are beneficial for them. In India the basic concept of financial inclusion is having a saving or current account with any bank. In most of the cases people with low income do not qualify for a loan. India has been ranked 50. This will help the low income individual to open a ‘No Frill’ account without identity proof and address proof.
Nationalization of the major private sector banks in 1969 was a big step. So without much difficulty telecom providers can win the battle with banks. With this facility we can channel the untapped. In 1975 GOI established RRBs with the same aim. The SHG is given loans against the group members’ guarantee. retail trade etc. small scale industries.In such cases banks can take the individual’s introduction from an existing customer whose full KYC norm procedure has been completed. banks are fighting to fulfill the Financial Inclusion dream. SHGs are usually groups of women who get together and pool money from their savings and lend money among them. SHGs and other civil society organizations as intermediaries in providing financial and banking services through the use of business facilitator and business correspondent models. The RBI guidelines to banks shows that 40% of their net bank credit should be lent to the priority sector. It is possible that the telephone providers themselves will start basic banking services like savings and payments. The Indian Government has a long history of working to expand financial inclusion. Financial service providers should learn more about the consumers and new business models to reach them. Self Help Groups are playing a very important role in the process of financial inclusion. Through SHGs nearly 40 million households are linking with the banks. The main reason is that the products designed by the banks are not satisfying the low income families. So 18% of net bank credit should go to agriculture lending. .50. affordable products will help to bring the low income families into the formal financial sector. Yet. Banks should therefore be proactive about transferring this technology into an opportunity. Indian telecom consumers have few links to financial institutions. Micro finance is another tool which links low income groups to the banks. The provision of uncomplicated. And the introducer must have a satisfactory transaction with the bank for at least 6 months. the government should provide a less perspective environment in which banks are free to pursue the innovations necessary to reach low income consumers and still make a profit. small. Recent simplification of KYC norms are another milestone. Peer pressure within the group helps in improving recoveries. Banks are now permitted to utilize the service of NGOs. But to achieve this. More than 80% of our population depends directly or indirectly on agriculture. This simplified procedure is available to those who intend to keep a balance not exceeding Rs. Educating the consumers about the financial benefits and products of banks which are beneficial to low income groups will be a great step to tap their potential. Usually they are working with the support of an NGO. Banks have limitations to reach directly to the low income consumers. Correspondents can be considered to be an excellent channel which banks can use to distribute their product information. It encouraged branch expansion of bank branches especially in rural areas. This mainly consists of agriculture. Financial inclusion is a great step to alleviate poverty in India. considerable amount of money from the low income group to the formal economy. Banks are now using new technologies like mobile phones to reach low income consumers. In India Financial inclusion will be good business ground in which the majority of her people will decide the winners and losers.000 in all accounts taken together.
after the Nationalization of 14 major commercial banks in 1969. Competition did not exist during those days. In spite of huge branch expansion in rural areas and developmental policies of the Government it is to be noted that the commercial banks have not made systematic efforts to squeeze the rural business. Then the help in the social upliftment of the poor as a part of social banking. It is worth noting that the number of rural branches will form 45 per cent of the total bank branches in the country. Class banking was prevalent during those days. The banks have to play a dual role in rural areas to institutionalize the rural savings for developmental activities as a part of commercial banking.Introduction Access to finance.528 branches of commercial banks ( including RRBs ) in the country. the lending to the select elite in the urban areas gave way to lending to the rural masses. Indian banks were more conservative and inward looking.29 per cent during the 39 years period from 1969 to 2008. of which 35. economic growth. This will enable them to break the chain of poverty.3 per cent ) were in rural areas as against 22. there were 60. Since Nationalisation. poverty alleviation and social upliftment. As at the end of March 1992. is an essential requisite for employment. However. Hardships in obtaining loans from the banks has paved the way for the growth of private money lenders in rural areas especially in States like Kerala. . to borrow and to repay. The compound growth rate of rural credit of the country is 30. A rural bank is one whch serves a population of less than 10. concerned with their profits. Majority of the banks were private commercial banks. The banking industry in India has undergone drastic changes during the last two decades. and evaluated the rapidly changing environment. existence of rural banks assumes a significant importance.275 ( 58. especially by the poor and vulnerable groups. The slogan during the Bank Nationalization was ‘transformation from class banking to mass banking’. Reforms since the early nineties.57 per cent during the 39 years from 1969 to 2008. Therefore. Often it is felt that the commercial banks have started their branches in rural areas not to satisfy the rural asses but to satisfy the Govt. Banking services were greatly used by a segment of the people. The banks tend to positively appropriate their liabilities for keeping their funds safe and give modest interest on deposits. The policy makers recognized the fact that the potential of rural India should not be under estimated.000.3 per cent at the time of bank nationalization. financial inclusion will enable the poor and the rustics of our country to open a bank account to save and invest. to insure and to take part in the credit. has paved the way for the economic transformation of the country. Analysis of the available statistics on rural banks reveals that the rural deposits in the country shows a compound growth rate of 27. They had limited range of activities. Till 1960s. Indian banks woke from their isolation. They basically concentrated on selling their loans to those who are financially sound and are capable of providing security for their borrowings. Inadequate management and marketing competence in individual banks is the major cause for the non-viability of rural banks. Rural Banking Scenario In India more than 70 per cent of households live in rural areas. local oriented and primarily serving the business community. Further.
The unbanked population is higher in the North Eastern and Eastern Regions as compared to other regions. Financial Exclusion has a geographic dimension as well. Eastern and Central region contain most of the financially excluded population. but are denied access to the same. To compound matters. Mostly low income.Chakrabarty “Financial Exclusion is the lack of access by certain consumers to appropriate. While there are pockets of large excluded population in all parts of the country.C. No Insurance. No affordable credit. high transaction cost. The financially excluded sections largely comprise marginal farmers.95 95. In countries with a large rural population like India.91 %. Table showing the percentage of farm house holds not having access to formal credit Region Northern North-Eastern Eastern Central Western Southern Union Territories Percentage to total farm households 74. where the farming community is living. Going by the available data on the number of savings bank accounts and even assuming that one person has only one account. self employed and unorganized sector enterprises.25 89. women and disabled are excluded from the formal financial services.26 77. and (3) individuals who have inappropriate products.59% in the North- . the farm house holds having bank accounts is showing a miserable picture. Financial exclusion means : No Savings.26% and 77. low cost.Financial Exclusion: According to K. lack of banking knowledge and insufficiency of knowledge on banking products prevents the unbanked people from knocking the door steps of banks. Inaccessibility. the North-East. unemployed and illiterate people. Lack of Banking habits. distance and lack of proper infrastructure hinder financial inclusion. ethnic minorities. No access to money advice. socially excluded groups. There are people who desire the use of financial services.86 The Farm households not accessing credit from formal sources as proportion to total farm households is especially high at 95. fair and safe financial products and services from main stream providers. landless labourers.02 57. (b) people who have limited access to banks and other financial services. senior citizens and women. on an all India basis less than 60 per cent of adult population in the country have bank accounts. The region-wise data regarding the farm house holds not having access to formal credit is given in the table. Further the extent of credit inclusion is even lower at 14 per cent of adult population.” There are three types of exclusions : (a) people who do not have any accss to a regulated financial system.59 56. there are regional disparities among different regions of the country in this respect. No Bank account and No assets. 81. In the rural parts of the country.91 81.
Often it is asked.7%. The Southern and Western Regions. Financial Inclusion is a critical component of the inclusive growth envisaged for the overall development of the economy. The working definition of Financial Inclusion . and this can be transmitted from one generation to the next. payments. implicit or explicit. loans. . As banking services are viewed as public goods. Financial Inclusion: Providing various financial services like. Even after Nationalisation of commercial banks in 1969 and in 1980. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. It is a short and term for what can happen when people or areas have a combination of problems such as unemployment. This is mainly on account of spread of banking habits and a more robust infrastructure. to insurance for all insurable people and firms and to savings and payments services for everyone. The spread of banking facilities has been uneven in the country. policies were made to encourage banks to provide extensive banking services to the unbanked mass of the country. of basic banking services to the common person.“Financial Inclusion may be defined as the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low income groups at an affordable cost. on the other hand. Their problems are linked and mutually reinforcing. Eastern and Central Regions. throwing up challenges for achieving financial inclusion. why are so many bankable people of rural India are unbanked? An inclusive financial sector would provide access to credit for all ‘bankable’ people and firms. a good proportion of households. An open and efficient society is always characterized by the unrestrained access to public goods and services. insurance. availability of banking and payment services to the entire population without discrimination of any type is called Financial Inclusion. discrimination. is still outside the coverage of the formal banking system. scope and cost of services would be monitored to assess whether there is any denial. exhibits relatively better level of access to forma/non-formal sources when comparing with the All India level of 72. Social exclusion is about more than income poverty. The nature. often because of disadvantages they face at birth. remittances and financial advisory services to the downtrodden who have no access to the formal financial structure of the country is the basic objective of Financial Inclusion.Eastern. specially rural. Social Exclusion: Another facet of exclusion which needs to be addressed is ‘Social Exclusion’ – which is an extreme consequence of what happens when people do not get a fair deal throughout their lives. Banks are being urged to review their existing practices to align them with the objective of financial inclusion. poor skills low incomes and poor housing.” Initiates of RBI for Financial Inclusion: In the Annual Policy Statement of the RBI ( 2005-06).
drawn by one person or bank on another . "he cashed a check at the bank". "he asked to see the executive who handled his account" ATM • an unattended machine (outside some banks) that dispenses money when a personal coded card is used Bank • a financial institution that accepts deposits and channels the money into lending activities. "that bank holds the mortgage on my home" Bank draft • a draft drawn by a bank against funds deposited in another bank Commercial bank • a financial institution that accepts demand deposits and makes loans and provides other services for the public Commercial bank • a financial institution that accepts demand deposits and makes loans and provides other services for the public Custodial account • a brokerage firm account that parents have created for a minor Debit card • a card (usually plastic) that enables the holder to withdraw money or to have the cost of purchases charged directly to the holder''s bank account Draft • a document ordering the payment of money.Account A formal contractual relationship established to provide for regular banking or brokerage or business services.
reluctance to spend money unnecessarily Withdrawal • • the act of withdrawing the act of taking out money or other capital Withdraw • remove (a commodity) from (a supply source).Drawee • the person (or bank) who is expected to pay a check or draft when it is presented for payment Drawer • the person who writes a check or draft instructing the drawee to pay someone else Negotiable instrument • an unconditional order or promise to pay an amount of money Overdraft • a draft in excess of the credit balance Personal identification number • a number you choose and use to gain access to various accounts Thrift • extreme care in spending money.000 from the account". "She drew $2. "The doctors drew medical supplies from the hospital’s emergency bank" Debt instrument • a written promise to repay a debt .
Book Value: The amount of stockholders’ equity in a firm equals the amount of the firm’s assets minus the firm’s liabilities and preferred stock. Bond: Publicly traded long-term debt securities. Brokerage Fee: The commission charged by a broker.81% is a change of 6 basis points. Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market. Bid-ask Spread: The difference between a dealers’s bid and ask price.Accrued interest: Interest due from issue date or from the last coupon payment date to the settlement date. They are issued by large and well-established firms that have impeccable financial credentials. Bid Price: The highest price offered by a dealer to purchase a given security. Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans. leases. whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal at maturity.g. Most ABS are backed by auto loans and credit cards – these issues are very similar to mortgage-backed securities. Basis Point: One hundredth of 1%. a change from 5. and other assets. Bear Markets: Unfavourable markets associated with falling prices and investor pessimism. Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and dividends. . Bull Markets: Favorable markets associated with rising prices and investor optimism. Ask Price: The lowest price at which a dealer is willing to sell a given security. /p> Broker: Individuals licensed by stock exchanges to enable investors to buy and sell securities. At-the-money: The exercise price of a derivative that is closest to the market price of the underlying instrument. Accrued interest on bonds must be added to their purchase price. issued by corporations and governments. A measure normally used in the statement of interest rate e..75% to 5.
Closed-end (Mutual) Fund: A fund with a fixed number of shares issued. allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. A conversion price is . Mortgage bonds are backed by claims on property. Compound Interest: Interest paid not only on the initial deposit but also on any interest accumulated from one period to the next.Call Option: The right to buy the underlying securities at a specified exercise price on or before a specified expiration date. Common Stock: Equity investment representing ownership in a corporation. and premature withdrawals incur interest penalties. Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very high credit standings. or more of the voting power at general meetings of the issuer. or who is or are in a position to control the composition of a majority of the board of directors of the issuer. or group of persons who together are. Equipment obligation bonds are backed by claims on equipment. and all trading is done between investors in the open market. each share represents a fractional ownership interest in the firm. The share prices are determined by market prices instead of their net asset value. Collateral: A specific asset pledged against possible default on a bond. Controlling Shareholder: Any person who is. Convertible Bond: A bond with an option. entitled to exercise or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction) that triggers a mandatory general offer. Certificate of Deposits (CDs): Savings instrument in which funds must remain on deposit for a specified period. Contract Note: A note which must accompany every security transaction which contains information such as the dealer’s name (whether he is acting as principal or agent) and the date of contract. Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated maturity. Capital Gain: The amount by which the proceeds from the sale of a capital asset exceed its original purchase price. Capital Markets: The market in which long-term securities such as stocks and bonds are bought and sold. Collateral trusts bonds are backed by claims on other securities.
Derivative Instrument: Financial instrument whose value depends on the value of another asset. plus deposition of securities in a designated account with the bank’s bankers or with any other institution providing custodial services. The conversion premium is the excess of the bond’s value over the conversion price. Diversification: The inclusion of a number of different investment vehicles in a portfolio in order to increase returns or be exposed to less risk. as interest in-lieu to the bondholders. Any changes in the size of the monetary base has to be fully matched by corresponding changes in the foreign reserves. Custody of Securities: Registration of securities in the name of the person to whom a bank is accountable. Default Risk: The possibility that a bond issuer will default ie. Coupon: The feature on a bond that defines the amount of annual interest income. Credit ratings are provided by credit agencies or rating agencies to verify the financial strength of the issuer for investors.the specified value of the shares for which the bond may be exchanged. Coupon Rate: The annual rate of interest on the bond’s face value that a bond’s issuer promises to pay the bondholder. . Covered Warrants: Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise. or in the name of the bank’s nominee. Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right to buy (sell) the shares of a listed company at a specified price. It is the bond’s interest payment per dollar of par value. Corporate Bond: Long-term debt issued by private corporations. Discount Bond: A bond selling below par. Currency Board: A monetary system in which the monetary base is fully backed by foreign reserves. fail to repay principal and interest in a timely manner. Credit Rating: An assessment of the likelihood of an individual or business being able to meet its financial obligations. It is shown as: Coupon Rate divided by Price multiplied by 100%. Current Yield: A return measure that indicates the amount of current income a bond provides relative to its market price. Coupon Frequency: The number of coupon payments per year.
not the buyer. Fundamental Analysis: Research to predict stock value that focuses on such determinants as earnings and dividends prospects. expectations for future interest rates and risk evaluation of the firm. Floating Rate Bonds: Bonds bearing interest payments that are tied to current interest rates. For transactions during the ex-dividend period. Hedge: A combination of two or more securities into a single investment position for the purpose of reducing or eliminating risk. the seller will receive the dividend. Ex-dividend status is usually indicated in newspapers with an (x) next to the stock’s or unit trust’s name. Future Value: The amount to which a current deposit will grow over a period of time when it is placed in an account paying compound interest. Fixed-income Securities: Investment vehicles that offer a fixed periodic return. Ex-dividend (XD): A security which no longer carries the right to the most recently declared dividend or the period of time between the announcement of the dividend and the payment (usually two days before the record date). Earnings Yield: The ratio of earnings to price (E/P). . The reciprocal is price earnings ratio (P/E). Interest is calculated on face/nominal value. Equity Call Warrants: Warrants issued by a company which give the holder the right to acquire new shares in that company at a specified price and for a specified period of time. Earnings: The total profits of a company after taxation and interest. Equity: Ownership of the company in the form of shares of common stock. Fixed Rate Bonds: Bonds bearing fixed interest payments until maturity date.Duration: A measure of bond price volatility. it captures both price and reinvestment risks to indicate how a bond will react to different interest rate environments. Earnings per Share (EPS): The amount of annual earnings available to common stockholders as stated on a per share basis. Future Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will grow over a period of time when it is placed in an account paying compound interest. Futures Contract: A commitment to deliver a certain amount of some specified item at some specified date in the future. Face Value/ Nominal Value: The value of a financial instrument as stated on the instrument.
Investment: A vehicle for funds expected to increase its value and/or generate positive returns. IPO price: The price of share set before being traded on the stock exchange. Junk Bond: High-risk securities that have received low ratings (i.e. major owners. Inside Information: Non-public knowledge about a company possessed by its officers. Limited Company: The passive investors in a partnership. Initial Public Offering (IPO): An event where a company sells its shares to the public for the first time. . Libor: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). The LIBOR rate is published daily by the British Banker’s Association and will be slightly higher than the London Interbank Bid Rate (LIBID). Once the company has gone Initial Public Offering. Insider Trading: The illegal use of non-public information about a company to make profitable securities transactions Intrinsic Value: The difference of the exercise price over the market price of the underlying asset. Liquidity: The ability to convert an investment into cash quickly and with little or no loss in value. Limit Order: An order to buy (sell) securities which specifies the highest (lowest) price at which the order is to be transacted. who supply most of the capital and have liability limited to the amount of their capital contributions. Leverage Ratio: Financial ratios that measure the amount of debt being used to support operations and the ability of the firm to service its debt. Investment Adviser: A person who carries on a business which provides investment advice with respect to securities and is registered with the relevant regulator as an investment adviser. The company can be referred to as an IPO for a period of time after the event. or Moody’s BBB rating or below) and as such. such as the S&P 500.Income: The amount of money an individual receives in a particular time period. the stock price is determined by supply and demand. Index Fund: A mutual fund that holds shares in proportion to their representation in a market index. the rate at which banks are prepared to accept deposits. produce high yields. so long as they do not go into default. Standard & Poor’s BBB rating or below. or other individuals with privileged access to information.
Investors will often apply for more shares than required in anticipation of only receiving a fraction of the requested number. Option: A security that gives the holder the right to buy or sell a certain amount of an underlying financial asset at a specified price for a specified period of time. Market Capitalization: The product of the number of the company’s outstanding ordinary shares and the market price of each share. Open-end (Mutual) Fund: There is no limit to the number of shares the fund can issue. or on behalf of. Oversubscribed: When an Initial Public Offering has more applications than actual shares available. Open Offer: An offer to current holders of securities to subscribe for securities whether or not in proportion to their existing holdings. the holders of securities already in issue. also used with preferred stock. Mutual Fund: A company that invests in and professionally manages a diversified portfolio of securities and sells shares of the portfolio to investors. The share prices are determined by their net asset value.Listing: Quotation of the Initial Public Offering company’s shares on the stock exchange for public trading. Market Order: An order to buy or an order to sell securities which is to be executed at the prevailing market price. Net Asset Value: The underlying value of a share of stock in a particular mutual fund. Money Market: Market in which short-term securities are bought and sold. Investors buy their shares from. The fund issues new shares of stock and fills the purchase order with those new shares. Investors and underwriters will often look to see if . Offer for Subscription: The offer of new securities to the public by the issuer or by someone on behalf of the issuer. Listing Date: The date on which Initial Public Offering stocks are first traded on the stock exchange by the public Margin Call: A notice to a client that it must provide money to satisfy a minimum margin requirement set by an Exchange or by a bank / broking firm. the mutual fund itself. Offer for Sale: An offer to the public by. and sell them back to. Market Maker: A dealer who maintains an inventory in one or more stocks and undertakes to make continuous two-sided quotes.
Par Bond: A bond selling at par (i. Present Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will discount back to present when it is depreciated in an account paying compound interest. Prospectus: A detailed report published by the Initial Public Offering company. Portfolio: A collection of investment vehicles assembled to meet one or more investment goals. at its face value). where the new securities of issuing companies are initially sold. primary market. Privatization: The sale of government-owned equity in nationalized industry or other commercial enterprises to private investors. Preference Shares: A corporate security that pays a fixed dividend each period. . application procedures. Perpetual Bonds: Bonds which have no maturity date. or the sale of. Par Value: The face value of a security. IPO prices etc. Present Value: The amount to which a future deposit will discount back to present when it is depreciated in an account paying compound interest. Real Interest Rate: The net interest rate over the inflation rate. for the IPO Put Option: The right to sell the underlying securities at a specified exercise price on of before a specified expiration date. which includes all terms and conditions. The price/earnings (P/E) ratio relates the company’s earnings per share (EPS) to the market price of its stock. Rate of Return: A percentage showing the amount of investment gain or loss against the initial investment. The growth rate of purchasing power derived from an investment. Premium Bond: Bond selling above par. It is senior to ordinary shares but junior to bonds in its claims on corporate income and assets in case of bankruptcy.an IPO is oversubscribed as an indication of the public’s perception of the business potential of the IPO company. Placing: Obtaining subscriptions for. Premium (Warrants): The difference of the market price of a warrant over its intrinsic value. Redemption Value: The value of a bond when redeemed. Price/Earnings Ratio (P/E): The measure to determine how the market is pricing the company’s common stock.e.
Risk-Neutral.Reinvestment Value: The rate at which an investor assumes interest payments made on a bond which can be reinvested over the life of that security. . Repurchase Agreement: An arrangement in which a security is sold and later bought back at an agreed price and time. Short Position: Investors sell securities in the hope that they will decrease in value and can be bought at a later date for profit. Risk-taking describes an investor who will accept a lower return in exchange for greater risk. Relative Strength Index (RSI): A stock’s price that changes over a period of time relative to that of a market index such as the Standard & Poor’s 500. Rights Issue: An offer by way of rights to current holders of securities that allows them to subscribe for securities in proportion to their existing holdings. preventing further price rises. Risk-neutral describes an investor who does not require greater return in exchange for greater risk. Resistance Level: A price at which sellers consistently outnumber buyers. and receives from the broker the proceeds of a sale. securities sold. For example. Risk-Taking: Risk-averse describes an investor who requires greater return in exchange for greater risk. Speculation: The process of buying investment vehicles in which the future value and level of expected earnings are highly uncertain. usually measured on a scale from 1 to 100. Risk-Averse. Short Selling: The sale of borrowed securities. Settlement: Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivered. Senior Bond: A bond that has priority over other bonds in claiming assets and dividends. Stock Splits: Wholesale changes in the number of shares. Return: Amount of investment gain or loss. 1 being the worst and 100 being the best. their eventual repurchase by the short seller at a lower price and their return to the lender. Short Hedge: A transaction that protects the value of an asset held by taking a short position in a futures contract. a two for one split doubles the number of shares but does not change the share capital.
It states the purpose and terms of the name of the trustees and beneficiaries. Contrasted with fundamental analysis which involves the study of financial accounts and other information about the company. Support Level: A price at which buyers consistently outnumber sellers. but before equity holders. . Valuation: Process by which an investor determines the worth of a security using risk and return concept. debenture. volume. and after some general creditors in its claim on assets and earnings. and open interest. permissible spreads according to the prices of securities available for trading and board lot sizes for each security.Subordinated Bond: An issue that ranks after secured debt. Trading Rules: Stipulation of parameters for opening and intra-day quotations. such as charts of price. Substantial Shareholder: A person acquires an interest in relevant share capital equal to. Zero Coupon Bond: A bond with no coupon that is sold at a deep discount from par value. when an issuer fails financially. normally at the time of auditing of company accounts. Owners of this kind of bond stand last in line among creditors. or exceeding. (It is an attempt to predict movements in security prices from their trading volume history.) Time Horizon: The duration of time an investment is intended for. Yield (Internal rate of Return): The compound annual rate of return earned by an investment Yield to Maturity: The rate of return yield by a bond held to maturity when both compound interest payments and the investor’s capital gain or loss on the security are taken into account. Warrant: An option for a longer period of time giving the buyer the right to buy a number of shares of common stock in company at a specified price for a specified period of time. Underlying Security: The security subject to being purchased or sold upon exercise of the option contract. and other bonds. Technical Analysis: A method of evaluating securities by relying on the assumption that market data. preventing further price falls. can help predict future (usually shortterm) market trends. Trust Deed: A formal document that creates a trust. Window Dressing: Financial adjustments made solely for the purpose of accounting presentation. 10% of the share capital.
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