AffairsMind

Hello Friends, These notes are for Regulators and Financial

Institutions. The notes are based on videos provided to you on
Youtube. We focus on understanding and remembering the
concept which will help you to fetch good marks in the exam. I
request you to watch free videos on Youtube to understand them
well and then proceed with these notes for maximum benefit.
a) Financial System
1. Regulators of Banks and Financial Institutions
2. Reserve Bank of India- functions and conduct of monetary policy
3. Banking System in India – Structure and concerns, Financial Institutions – SIDBI, EXIM Bank, NABARD, NHB, etc,
Changing landscape of banking sector.
4. Impact of the Global Financial Crisis of 2007-08 and the Indian response
b) Financial Markets
Primary and Secondary Markets (Forex, Money, Bond, Equity, etc.), functions, instruments, recent developments.
c) General Topics
1. Risk Management in Banking Sector
2. Basics of Derivatives
3. Global financial markets and International Banking – broad trends and latest developments.
4. Financial Inclusion
5. Alternate source of finance, private and social cost-benefit, Public-Private Partnership
6. Corporate Governance in Banking Sector, role of e-governance in addressing issues of corruption and inefficiency
in the government sector.
7. The Union Budget – Concepts, approach and broad trends
8. Inflation: Definition, trends, estimates, consequences, and remedies (control): WPI, CPI - components and trends;
striking a balance between inflation and growth through monetary and fiscal policies.
9. FinTech
 Reserve Bank of India
The Reserve Bank of India was established on April 1, 1935 in accordance with the
provisions of the Reserve Bank of India Act, 1934.Though originally privately owned, since
nationalization in 1949, the Reserve Bank is fully owned by the Government of India.
(Remember the history of establishment and Great Depression Story)
Functions of RBI
1. Monetary Authority:
Monetary Policy Committee
•It was created in 2016.
•It was created to bring transparency and
accountability in deciding monetary policy.
•MPC determines the policy interest rate required
to achieve the inflation target or maintaining price
stability.
Current inflation target is pegged at 4% with -2/+2.
 •Committee comprises of six members where Governor RBI acts as an ex-officio chairman.
Three members are from RBI and three are selected by government with veto power is
given to Governor.
•Inflation target is to be set once in a five year. It is set by the Government of India, in
consultation with the Reserve Bank.
Section 45ZB of the amended RBI Act, 1934
2.Regulator and Supervisor of the Financial System:

RBI prescribes broad parameters of banking operations within which the country's banking
and financial system functions such as issuing licenses, branch expansion, liquidity of
assets, amalgamation of banks etc.
Objective is to maintain public confidence in the system, protect depositors' interest and
provide cost-effective banking services to the public.
3.Manager of Foreign Exchange
To keep the value of currency at a fixed rate and keep the market steady. (Remember
example of a friend going Foreign University)
 To increase exports by keeping value of the currency lower than the US Dollar.
(Remember foreigner want a book at low price)
To maintain liquidity in case of an economic crisis. ( Remember oil price hike)
To ensure that country is meeting its foreign obligations and liabilities.
(Remember IMF)
4. Issuer of Currency:
Bank notes are printed at four currency presses, two of which are owned by the
Government of India through its Corporation, Security Printing and Minting Corporation of
India Ltd. (SPMCIL) and two are owned by the Reserve Bank, through its wholly owned
subsidiary, Bharatiya Reserve Bank Note Mudran Private Ltd. (BRBNMPL). The currency
presses of SPMCIL are at Nasik (Western India) and Dewas (Central India). The two presses
of BRBNMPL are at Mysuru (Southern India) and Salboni (Eastern India).
Coins are minted in four mints owned by SPMCIL. The mints are located at Mumbai,
Hyderabad, Kolkata and NOIDA. The coins are issued for circulation only through the Reserve
Bank in terms of Section 38 of the RBI Act.
 RBI issues and exchanges or destroys currency and coins not fit for circulation.
It is duty of RBI to give the public adequate quantity of supplies of currency notes and
coins and in good quality.
5. Financial Inclusion and Development (Remember to start from poorest)
1.No Frills Accounts – account either with nil or very low minimum balance as well
as charges that would make such accounts accessible to vast sections of population.
2.Credit Delivery to SHGs, SC/ST community and Minority Communities: To enhance flow
of credit to individuals, Self Help Groups, persons belonging to SC/ST category and Minority
Communities through select Government Sponsored Schemes.
3.Credit flow to agriculture: Providing broad guidelines for easy access to finance to
farmers and assistance measures for farmers in natural calamity affected areas.
4.Credit flow to MSME: Stepping up credit flow to MSME sector and provide a simpler
and faster mechanism to address the stress in the accounts of MSMEs
 5.Use of Technology – devices such as ATMs, hand held devices to identify user accounts
through a card and biometric identifier, Deposit taking machines and Internet banking and
Mobile banking facility to provide the banking services to all sections of society with more
ease.
6. Priority Sector lending: Commercial banks lend loans to small-scale industrial units
and agriculture as per the directives (Priority Sector Lending) issued by the Reserve
Bank of India.
6.Act as a Banker
•Banker to the Government: performs merchant banking function for the central and the
state governments. It is entrusted with central govt.’s money, remittances, exchange and
manages its public debt as well.
•Banker to banks: maintains banking accounts of all scheduled banks. It also acts
as lender of last resorts by providing fund to banks.
Publications
•Financial Stability Report •Annual Report
•Monetary Policy Report •Trends and progress of banking in India
•Report on Financial Review •Consumer Confidence Survey
National Bank for Agriculture and Rural Development
The Reserve Bank of India (RBI) at the insistence of the
Government of India, constituted a Committee to Review
the Arrangements for Institutional Credit for Agriculture
and Rural Development (CRAFICARD) in 1979, under the
Chairmanship of Shri B. Sivaraman (As RBI was
overloaded)
It resulted in foundation of NABARD (National Bank for Agriculture and Rural
Development) in 1982 as a statutory body under Parliamentary act-National Bank for
Agriculture and Rural Development Act, 1981.
NABARD came into existence by transferring the refinance functions of (1)
the Agricultural Credit Department (ACD), (2) Rural Planning and Credit Cell (RPCC), (3)
and Agricultural Refinance and Development Corporation (ARDC) of RBI.
Do RBI and NABARD work independently? See the next page
 •Reserve Bank of India is the central bank of the country with sole right to regulate the
banking industry and supervise the various institutions/banks that also include NABARD
defined under Banking Regulation Act of 1949.
•NABARD provides recommendations to Reserve Bank of India on issue of licenses to
Cooperative Banks, opening of new branches by State Cooperative Banks and Regional
Rural Banks (RRBs).
NABARD is a development bank focusing primarily on the rural sector of the country. It is
the apex banking institution to provide finance for Agriculture and rural development.

NABARD’S Functions and Contributions

•Refinance - Short Term Loans: Crop loans are extended to farmers for crop production by
financial institutions, which support in ensuring food security in the country. (Remember
the story format is important- first give to farmers)
•Long-Term Irrigation Fund (LTIF): The LTIF in NABARD was setup with an initial corpus of
Rs 20,000 crore for funding 99 irrigation projects during 2016-17 following announcement
in the Union Budget. (They could not depend on monsoon)
•Pradhan Mantri Awaas Yojana - Grameen (PMAY-G) - NABARD supports rural housing by
refinancing to scheduled commercial banks and RRBs for this scheme. (Need to store)
•Warehouse Infrastructure Fund (WIF): Union government created WIF in the year 2013-
14 with NABARD with a corpus of Rs 5,000 crore for providing loans to meet the
requirements for scientific warehousing infrastructure for agricultural commodities in the
country. (But not enough)
•Rural Infrastructure Development Fund (RIDF): It was set up with NABARD in 1995-96
by the RBI for supporting rural infrastructure projects. (Development for selling)
•NABARD Infrastructure Development Assistance (NIDA): NIDA has been designed to
complement RIDF.
NABARD set up Producer Organizations Development Fund (PODF) with an initial corpus
of Rs 50 crore to support and finance Producer Organizations (POs) and Primary
Agriculture Credit Societies (PACS. (Want to do business and help others)
•Producer Organisation (PO): it is a legal entity formed by primary producers, viz. farmers,
milk producers, fishermen, weavers, rural artisans, craftsmen. A PO can be a producer
company, a cooperative society or any other legal form which provides for sharing of
profits/benefits among the members.
•Primary Agricultural Credit Society (PACS) is a basic unit and smallest co-operative credit
institution in India. It works on the grassroots level (gram panchayat and village level). It
provides credit to farmers in the form of term loans and recovers the amount after
harvesting of crop from the cultivator.
•Long Term Loans: NABARD's long-term refinance provides credit to financial
institutions for a wide gamut of activities encompassing farm and non-farm activities with
tenors of 18 months to more than 5 years. (Now want to expand)
 Securities Exchange Board of India
Before SEBI came into existence, Controller of Capital
Issues was the regulatory authority. In April, 1988 the
SEBI was constituted as the regulator of capital markets
in India under a resolution of the Government of India.
It became autonomous on April 12, 1992 and given
statutory powers by SEBI Act 1992. (Don’t want any
fraud)
•The basic functions of the Securities and Exchange Board of India is to protect the
interests of investors in securities and to promote and regulate the securities market.
SEBI deal with (Remember our story with image to understand)
•Issuers – By providing a marketplace in which the issuers can increase their finance.
•Investors – By ensuring safety and supply of precise and accurate information.
•Intermediaries – By enabling a competitive professional market for intermediaries like
stock exchanges, merchant banks, brokers, debenture trustees, and portfolio managers
Functions (Will SEBI keep quiet when others will do fraud?)
•SEBI is a quasi-legislative and quasi-judicial body which can draft regulations, conduct
inquiries, pass rulings and impose penalties.
SEBI Chairman has the authority to order "search and seizure operations". SEBI board can
also seek information, such as telephone call data records, from any persons or entities in
respect to any securities transaction being investigated by it
•SEBI perform the function of registration and regulation of the working of venture
capital funds and collective investment schemes including mutual funds and chit funds.
(What is SEBI became GOD of securities market? So next point)
A Securities Appellate Tribunal (SAT) has been constituted to protect
the interest of entities that feel aggrieved by SEBI’s decision.
 Small Industries development Bank of India
Small Industries Development Bank of India (SIDBI) is
an independent financial institution aimed at aiding the
growth and development of Micro, Small and Medium
Enterprises (MSMEs) which contribute significantly to
the national economy in terms of production,
employment and exports. (Remember importance of
MSME)
It is a statutory body set up under an act of the Indian Parliament in 1990. It’s headquarters
in Lucknow UP.
Functions
•It is involved in the promotion and development of the MSME sector.
It aims at emerging as a single-window to meet the financial needs of MSMEs in order to
make them globally competitive, strong, vibrant and to protect the institution as a
customer-friendly financial body. (They will require finance too)
 •It is the principal institution for the development, promotion and financing of the MSME
sector and for coordination of functions of the institutions engaged in similar activities.
•SIDBI also functions as a Nodal/Implementing Agency to various ministries of the
Government of India viz., Ministry of MSME, Ministry of Commerce and Industry, Ministry
of Food Processing and Industry, etc. (Working at top level also)
Types of financing (with or without banks)
1.Direct financing is type of financing provided by SIDBI where MSME account holder
approach SIDBI for finance.
2.Indirect financing is done by way of refinancing the banks, refinancing financial
institutions for onward lending to MSMEs.
Insurance Regulatory & Development Authority of India
The Insurance Regulatory and Development Authority of
India or the IRDAI is the apex body responsible for
regulating and developing the insurance industry in
India. It is an autonomous body. It was established by an
act of Parliament known as the Insurance Regulatory and
Development Authority Act, 1999. The IRDAI is
headquartered in Hyderabad in Telangana. (Insurance
sector was growing remember LIC agents)
Functions (Only two people to work with)
•Its primary purpose is to protect the rights of the policyholders in India.
•It also creates regulations to protect policyholders’ interests in India.
•It gives the registration certificate to insurance companies in the country.
•It also engages in the renewal, modification, cancellation, etc. of this registration.
 Pension Fund Regulatory & Development Authority
The Government of India had, in the year 1999, commissioned
a national project titled “OASIS” (an acronym for old age social
& income security) to examine policy related to old age
income security in India. Based on the recommendations of
the OASIS report, Government of India introduced a new
Defined Contribution Pension System for the new entrants to
Central/State Government service, except to Armed Forces,
replacing the existing system of Defined Benefit Pension
System. (Remember the story)
On 23rd August, 2003, Interim Pension Fund Regulatory & Development Authority (PFRDA)
was established through a resolution by the Government of India to promote, develop and
regulate pension sector in India. (No rights were given till 10 years)
The Pension Fund Regulatory & Development Authority Act was passed on 19th September,
2013 and the same was notified on 1st February, 2014. PFRDA is regulating NPS, subscribed
by employees of Govt. of India, State Governments and by employees of private
institutions/organizations & unorganized sectors.
Another function of PFRDA is to promote old age income security by establishing, developing
and regulating pension funds, to protect the interests of subscribers to schemes of pension
funds and for matters connected there with. (Because pension is not just NPS)
 Export-Import Bank of India
EXIM Bank or Export-Import Bank of India is India’s leading
export financing institute that engages in integrating foreign
trade and investment with the country’s economic growth.
Founded in 1982 by the Government of India, EXIM Bank is a
wholly-owned subsidiary of the Indian Government.
(Remember importance of exports)

Services
•Buyer’s credit – it is a credit facility program that facilitates exports by offering credit to
overseas buyers to import goods from India. (Remember our story with image)
•Lines of credit – it offers extended a line of credit to Indian exporters to help them expand
to new geographies and uses a line of credit as an effective market-entry tool.
•Overseas investment finance – it offers loans to Indian companies for equity investments
in their overseas joint ventures or wholly-owned subsidiaries. (Need to expand in overseas)
•Research and analysis – conducts research in the field of international
economics, trade and investment, country profiles to identify risks, etc.
•Export advisory services – it offers information, advisory, and support services enabling
exporters to evaluate international risks, exploit export opportunities and improve
competitiveness. (Use of Research?)
•Marketing advisory services – help Indian exporters in their globalization ventures by
assisting in locating overseas distributors/partners, etc. Also, assists in identifying
opportunities abroad for setting up plant projects or acquiring companies. (Help to improve
brand)
•Term deposit scheme (No need to visit a bank)
 Export Credit Guarantee Corporation
•ECGC Limited, formerly known as Export Credit Guarantee
Corporation of India was founded on the 30th of July, 1957.
•ECGC Ltd. has aim of advancing exports from India by
giving credit risk insurance and related services for exports.
Over the years, it has designed different export credit risk
insurance products to cater to the needs of Indian
exporters. (What if war happens? Remember the story)
The Corporation has introduced various export credit insurance schemes to meet the
requirements of commercial banks offering export credit. (does only exporter gets
affected?)
ECGC keeps its premium rates at a reasonable level.
 National Housing Bank
NHB is an All India Financial Institution (AIFl), set up
in 1988, under the National Housing Bank Act, 1987.
It is an apex agency established to operate as a
principal agency to promote housing finance
institutions both at local and regional levels and to
provide financial and other support incidental to such
institutions and for matters connected therewith.
(Remember the importance of this sector)
Functions
•To support an increase in the availability of buildable land or building materials for homes.
(Requirements to build)
•Promoting a sound, safe, sustainable and cost-effective mortgage lending framework which
will appeal to all sections of the population and integrating the housing finance sector with
the banking markets overall. And To offer loans for housing more reasonably priced. (Who
will buy?)
•Focused on the supervisory and regulatory authority derived under the Act, to control
the activities of housing finance companies. (Ultimate goal)
 Financial Stability and development Council
•The recent global economic meltdown has put pressure on
governments and institutions across the globe to regulate their
economic assets.
•The Raghuram Rajan Committee in 2008 mooted the idea
to create super regulator for the first time. (Remember the
story of Raghuram Rajan)
•Finally in 2010, the then Finance Minister of India, Pranab Mukherjee, decided to set up
such an autonomous body dealing with macro prudential and financial regularities in the
entire financial sector of India.
•It will address inter-regulatory coordination issues. This council is seen as India's initiative
to be better conditioned to prevent such incidents in future.
•The Chairman of the FSDC is the Finance Minister and its members include the heads of
the financial sector regulatory authorities (i.e, SEBI, IRDA, RBI, PFRDA) , Finance
Secretaries and the Chief Economic Adviser.
Functions
•Financial Stability
•Financial Sector Development
•Inter-Regulatory Coordination
•Financial Literacy
•Financial Inclusion
•Macro prudential supervision of the economy including the
functioning of large financial conglomerates.

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