Sem III Batch:2018-20

BA 5008 BFSM
IAT 1 Key
Part A
1. A bank is an institution which accepts money from its customers who have surplus or who
wish to save, and lends to those who need and who apply, both transactions at fixed rates of
interest.
2. Fixed Deposit & Recurring Deposit Current A/c saving A/c.
3. Public Sector Banks (PSBs) are a major type of bank in India, where a majority stake (i.e.
more than 50%) is held by a government.
The private sector banks in India are banks where the majority of the shares or equity are
not held by the government but by private share holders.
4. Between Cheque and Demand Draft. Cheque is payable either to order or bearer whereas
Demand Draft is always payable to the order of a certain person. Cheques can be dishonored
due to insufficient balance, whereas dishonor is not possible in case of Demand Draft due to
pre-payment of the amount.
5. CAR Tier 1 capital + Tier 2 Capital divided by risk weighted assets.
6. a sum of money paid into a bank or building society account.
7. As per Section 5(b) of the Banking Regulation Act, 1949 , "banking" means the accepting, for
the purpose of lending or investment, of deposits of money from the public, repayable on
demand or otherwise, and withdrawable by cheque, draft, order or otherwise.
8. Certificate of deposit - a certificate issued by a bank to a person depositing money for a
specified length of time at a specified rate of interest.
9. Accepting Deposits. The bank collects deposits from the public. ...
Granting of Loans and Advances. The bank advances loans to the business community and
other members of the public. ...
Agency Functions. The bank acts as an agent of its customers. ...
General Utility Functions.
10. Short term & long Term loan.

Part B
11 a.Introduction
• It is the Central Bank of India Established in1934 under the RESERVE BANK OF INDIA ACT1934.
• Its head quarters is in Mumbai (Maharashtra).Its present governor is-------.
• It has 26 offices in which four are regionaloffices located in metropolitan cities.
Brief History of RBI
• It was set up on the recommendations of theHilton Young Commission.
• It was started as share-holders bank with a paidup capital of INR 5 crore.
• Initially it was located in Kolkata. It moved toMumbai in 1937.
• Initially it was privately owned. The govt. had anominal value of shares of INR 2,20,000. Later
onin 1949, the bank was nationalised and is fullyowned by the Govt. of India.
Preamble
• The Preamble of the Reserve Bank of Indiadescribes the basic objectives of the ReserveBank
as"...to regulate the issue of Bank Notes andkeeping of reserves with a view to
securingmonetary stability in India and generally tooperate the currency and credit system of
thecountry to its advantage."
Subsidiaries
The Reserve Bank of India has fully-owned four subsidiarieswhich include
National Housing Bank(NHB)
. Deposit Insurance and Credit Guarantee Corporation ofIndia(DICGC).
Bharatiya Reserve Bank Note Mudran PrivateLimited(BRBNMPL).
National Bank for Agriculture and Rural Development(NABARD, 12 July, 1982).
The Reserve Bank of India has recently divested its stake inState Bank of India to the
Government of India.
RBI has also set up some trainning institutions.
Functions of RBI
Monetary functions
Note issue (except one rupee note all other notes are issued)
Banker to the government Banker’s bank
Custodian of foreign reserves Controller of credit Bank Rate
Open market operations
Variable reserve requirements (Cash Reserve Requirement &Statutory Liquidity Requirements)
Non-Monetary Functions
Supervisory functions
Promotional functions
Banker to the Government
Keeping the cash balances of the Government as deposits free ofinterest
. Receiving and making payments on behalf of the Govt.
Carrying out the Govts’ exchange remittances and other bankingoperations.
Helping both Central and State Govts float new loans and mangepublic debt.
Making ways and means advances to the state and local authorities.
Acting as advisor to the Govt. on all monetary and banking matters.
Banker’s Bank
• Apex banking institution
• Controls the banking activities and creditsystem in India
• It provides financial assistance to scheduledbanks by rediscounting eligible securities
Custodian of Foreign Reserves
• Most of the countries, central bank is with thetask of managing their foreign reserves.
• In India, RBI has maintain the rate ofexchange.
• According to RBI Act, 1934 the bank wasrequired to buy and sell at fixed rates.
• The bank has licensed several banks asauthorized dealers in foreign exchange.
Controller of Credit
• Bank Rate– Sec.49 of RBI Act, empowers the Reserve Bank topublish the bank rate from time
to time.– Standard rate which is prepared to buy or rediscountbills of exchange or other
commercial papers eligiblefor purchase under this act.– RBI is able to regulate commercial bank
credit and thegeneral credit situation in the country to a certainextent.– 9.00% (w.e.f. close of
business of 17/04/2012)– Decreased from 9.50% to 9.00% which was continuingsince
Controller of Credit
• Open market operations– The purchase and sale of Govt. securities by theRBI from/to the
public and bank on its ownaccount.– Section 17(8) provides this right to RBI.– To provide
seasonal finance to commercial banksby purchase of securities from them.
Variable Reserve Requirements
 • Sec 42 of RBI Act, every bank included in thesecond schedule shall maintain with the bank
anaverage daily balance, the amount of which shallnot be less than 3% of the total demand and
timeliabilities in India of such bank.
• The reserve maintained is called Cash ReserveRequirement/Ratio (CRR).
• According to Sec 24 of Banking Regulation Act,every banking company shall maintain Cash,
Goldand Approved securities which shall be less than25% of business on any day.
11 b. obligation of Banker
1. Obligation of Banker to Honour Cheques
2. Obligation of banker to Maintain Secrecy
3. Obligation of Banker to Maintain Proper Records
4. Obligation of Banker to Follow Customer’s Instructions
5. Obligation of Banker to give Notice before Closing the Account

Rights of Banker
1. Right of General Lien
2. The Right of Set-off
3. Right of Appropriation
4. Right to Charge Interest and Commission
5. Right to Close the Account

12.a. Banking Regulation Act

BANKING REGULATION ACT-1949
BANKING DEFINED : a͞ ccepting for the purpose of lending or investment ,of deposits of money from
the public ,repayable on demand or otherwise ,and withdrawal by cheque ,draft ,order or otherwise ͞
Main Objective of the Act To ensure sound banking through regulation covering the opening of
branches and maintenance of liquid asset .
Sec-6 Permitted business of Banks
Banking for borrowing ,raising or taking up of money ,selling ,collecting and dealing in bills of
exchange ,promissory notes, railway reciepts.Dealing in shrares ,bonds,debentures.
Acting as agents for government
Contracting for public and private loans and issuing the same.
Managing ,selling and realizing any property which may come into the possession of the company .
Undertaking and executing trusts
Establishing and supporting or aiding in the establishment and support of associations ,funds ,trust.
Dealing with Acquisition, construction and maintenance of building
Business prohibited for Banks ‡ No banking company shall directly or indirectly deal in the buying
and selling or bartering of goods or engage in any kind of trade or buy.
12.b.
DEPOSITS AND NON DEPOSITS SOURCES
Deposits
Meaning : It is a sum of money paid into a bank (or) building society account
Parameters to determine the fund mobilization
• Maturity
• Cost of funds
• Tax implications
• Regulatory Framework
• Market conditions
Sources of deposits
Parameters
• Type of deposit customers
• Tenure of deposits
• Cost of banks
Classification of deposits
1.Transaction deposits/payment deposits
• These deposits are repayable by the bank on demand from the depositors.
• interest bearing deposits(individual & saving a/c)
• Non interest bearing deposits(low rate of interest)
2.Term deposits:
The customers receives a stream of cash flows in the form of interest. These deposits typically the
high rate of interest.
Example: certificate of deposit
USA –MMDA(Money market deposit accounts)
DDA(Demand deposit accounts)
UK- Saving deposits
Canada- term deposits,saving accounts
Non deposit sources/whole sale funding sources
Funding gap:
It is calculated as the difference between current and projected credit and deposit flows.
If the difference shows the projected need for credit exceeding the expected deposit flows, the bank
has to raise additional resources either from deposit or non deposit sources.
If the difference shows the projected credit requirements falling short of resources the bank will
have to find profitable investment avenues for the surplus resources.
Alternative funding sources
• Central bank funds
• Certificate on deposits(cd)
• Foreign funds
• Other money market funds
Types of non deposit sources
Call & notice money
External commercial borrowings(ECB)
Export refinance
1.Call & notice money
it is a money market instrument
Money market is a market for short term financial assets.
Features
Banking &all co-op banks
Outstanding borrowing should not exceeding 100% of banks capital
Non banking institutions cannot operate.
2.External commercial borrowings:
Commercial loan in the form of bank loan,buyers credit,suppliers credit,fixed rate of bonds
taken from non resident lenders with a minimum maturity period of 3years
Features
• Do not get approval from RBI& GOI
• Amount of maturity
• End use permitted
• Prepayment of ECB
• Security
3.Export refinancing from RBI
offer Refinancing for credit
Ex: SIDBI