Finance Rbi Affairsmind

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.
Want to remember every current affair to excel in

any exam?
Watch this video
Link: https://www.youtube.com/watch?v=qo9_2AqSju8
a) Financial System
c) General Topics
9. FinTech
AffairsMind
Hello Friends, These notes are for Banking system, structures,
changing landscape of banking sector and Global Financial
Crisis. The notes are based on videos provided to you on
YouTube. We focus on understanding and remembering the
request you to watch free videos on YouTube to understand them
RBI
Scheduled Banks Non -Scheduled Banks Development Banks
IFCI
Commercial Banks Cooperative Banks
IDBI
Pubic Sector Banks
Rural Cooperative Urban Cooperative SIDBI
Private Sector Banks Banks Banks
State Central Co-op Banks EXIM
Foreign Banks District Central Co-op Banks NABARD
Primary Agricultural Societies
Regional Rural Banks
State Co-op Agriculture and rural
development Banks
Primary Co-op Agriculture and rural
development Banks
Banking Structure of India
Scheduled Banks
Scheduled Banks in India refer to those banks which have been included
in the second schedule of Reserve Bank of India Act, 1934.
Commercial Banks
The institutions that accept deposits from the general public and advance loans with the
purpose of earning profits are known as Commercial Banks.
Commercial banks can be broadly divided into public sector, private sector, foreign banks
and RRBs.
In Public Sector Banks the majority stake is held by the government. An example of Public
Sector Bank is State Bank of India.
•Private Sector Banks are banks where the major stakes in the equity are owned by private
stakeholders or business houses. A few major private sector banks in India are HDFC Bank,
Kotak Mahindra Bank, ICICI Bank etc.
Regional Rural Banks were established under the Regional Rural Banks Ordinance, 1975 with
the aim of ensuring sufficient institutional credit for agriculture and other rural sectors. The
area of operation of RRBs is limited to the area notified by the Government. RRBs are owned
jointly by the Government of India, the State Government and Sponsor Banks. An example is
Arunachal Pradesh Rural Bank.
•A Foreign Bank is a bank that has its headquarters outside the country but runs its offices as
a private entity at any other location outside the country. Such banks are under an obligation
to operate under the regulations provided by the central bank of the country as well as the
rule prescribed by the parent organization located outside India. An example is Citi Bank.
Co-operative Banks
A Cooperative Bank is a financial entity that belongs to its members, who are also the
owners as well as the customers of their bank. They provide their members with numerous
banking and financial services. Cooperative banks are the primary supporters of agricultural
activities, some small-scale industries and self-employed workers.
Cooperative Banks District Co-operative Bank
District Co-operative Bank
Credit Co-operative s ociety

Credit Co-operative society Credit Co-operative society Credit Co-operative s ociety

Credit Co-operative s ociety Credit Co-operative s ociety
Credit Co-operative society Credit Co-operative s ociety

Credit Co-operative s ociety State Co-

operative Bank
Credit Co-operative society Credit Co-operative society
Credit Co-operative society
At the ground level, individuals come together to form a Credit Co-operative

Society. The individuals in the society include an association of borrowers and
non-borrowers residing in a particular locality and taking interest in the
business affairs of one another. All the societies in an area come together to
form a District Co-operative Banks and further State Co-operative Banks.
The Short term co-operative banks mostly provide crop and other working capital loans
primarily for a short period to farmers and rural artisans.
Long term co-operative banks focus on providing typically medium to long-term loans for
making investments in agriculture, rural industries, and lately housing.
Cooperative banks are further divided into two categories - urban and rural.
•Rural cooperative Banks are either short-term or long-term.
• Short-term cooperative banks can be subdivided into State Co-operative Banks,
District Central Co-operative Banks, Primary Agricultural Credit Societies.
• Long-term banks are either State Cooperative Agriculture and Rural Development
Banks (SCARDBs) or Primary Cooperative Agriculture and Rural Development Banks
(PCARDBs).
•Urban Co-operative Banks (UCBs) refer to primary cooperative banks located in urban and
semi-urban areas.
Development Banks
Financial institutions that provide long-term credit in order to support capital-
intensive investments spread over a long period and yielding low rates of return
with considerable social benefits are known as Development Banks.(Remember
the
The example of Dam) banks in India are; Industrial Finance Corporation of India (IFCI Ltd),
major development
1948, Industrial Development Bank of India' (IDBI) 1964, Export-Import Banks of India
(EXIM) 1982, Small Industries Development Bank Of India (SIDBI) 1989, National Bank for
Agriculture and Rural Development (NABARD) 1982.
Changing Landscape of Banking Sector
The advancement of Indian Banking System can be classified

into 3distinct Phases:
1. The Pre-Independence Phase, i.e. before 1947
2. Second Phase from 1947 to 1991
3. Third Phase 1991 and beyond

Pre- Independence Phase
The Reserve Bank of India was set up on the basis of
the recommendations of the
Hilton Young Commission. The Reserve Bank of India
Act, 1934 provides the statutory
basis of the functioning of the Bank, which
commenced operations on April 1, 1935
This phase is characterized by the presence of a large number of banks most of

them were small in size and suffered from a high rate of failures. While some others
like Bank of Bengal (est. 1806), Bank of Bombay (est. 1840), Bank of Madras (est. 1843)
merged into a single entity in 1921 which came to be known as Imperial Bank of India
(later renamed in 1955 as the State Bank of India).
Second Phase from 1947 to 1991
In 1949, RBI was made Central Bank of the country and Banking Regulation Act was
passed to regulate the banks.
•To supervise the appointment of boards and management of the banks
•To lay down instructions for audits
•To control mergers, liquidation and moratorium
•To provide directives on banking policy
•Impose penalty
•To regulate operations of the bank
Important Sections of Banking Regulation Act, 1949
Section 5B
The section defines Banking. According to the act banking is defined as
•Accepting deposits of money from public
•Repaying money when demanded
•Withdrawing by cheque, order, draft or otherwise
Banking company means the company that transacts banking business in India.
Section – 6 – Banking Company

According to Section 6 of Banking Regulation act, 1949, the following businesses are
allowed for a banking company
•Lending and borrowing money with or without security
•Buying and selling foreign currency, issuing traveler’s cheque
•Buying bonds on behalf of the customers
•Executing and undertaking trusts.
•Selling and managing properties that are under the possession of the bank
Section 8
This section explains about prohibition of trading imposed on the banking companies. A
banking company cannot directly or indirectly contract to buy or sell or exchange goods.
(Remember why RBI was establish and link that)
Section 18
Every banking company should hold at least 4% of the total demand and time liabilities
as cash reserve. These amounts should be deposited before twentieth day of every
month. This ratio may change in future.
Section 30
It empowers RBI to conduct auditing of banking companies. The balance sheet
produced shall be audited by the person appointed by RBI.
Section 35
The section powers the RBI to conduct inspections on every banking company and its
branches.
Fourteen commercial banks were nationalized
in July 1969.
Why Nationalization?
The banks mostly catered to the needs of large industries, big business houses. Sectors
such as agriculture, small-scale industries and exports were lagging behind.The poor
masses relied on moneylenders.
On the recommendation of the Narasimham Committee, Regional Rural Banks (RRBs) were
formed on Oct 2, 1975. The objective behind the formation of RRBs was to serve the large
unserved population of rural areas and promoting financial inclusion. (Remember the
conversation of Narsimham and Govt. of India)
Six more commercial banks were nationalized in April 1980. (Same actions same
old results)
With a view to meet the specific requirement from the different sector (i.e.agriculture,
housing, foreign trade, industry) some apex level banking (Remember that Govt. did
something hatke)
institutions were also set up like:
a. NABARD (est. 1982)
b. EXIM (est. 1982)
c. NHB (est. 1988)
d. SIDBI (est. 1990)
(Remember that Govt. did all this things and no improvements then went again to
Badshaah Narsimham)
Even after nationalization and the subsequent regulations that followed, a large portion of
masses was untouched by the banking services. In 1991, the Narasimham committee
gave its recommendation i.e. to allow the entry of private sector players into the banking
system. Therefore licenses were given to- ICICI, HDFC, Axis Bank, IndusInd Bank, DCB.
(Remember that Narsimham Sir didn’t stopped there)
In 1998 Narsimham committee recommendation led to licensing of: (a) Kotak Mahindra
Bank (2001) (b) Yes Bank (2004)
In 2013-14, the third round of bank licensing took place and in 2015, IDFC bank and
Bandhan Bank emerged.
Third Phase 1991 and beyond
(Still No improvement so this time went to another person - Nachiket Mor)
In order to further Financial Inclusion, the Nachiket Mor committee recommended to
set up 2 new kinds of banks i.e. Payment Banks and Small finance Banks.
Future of Banking
Expansion of banking infrastructure: Physical as well as
virtual expansion of banking
through mobile banking, internet banking, tele-banking,
bio-metric and mobile ATMs
etc. is taking place since last decade and has gained
momentum in last few years.
Merger
Merger Pros
1.Small banks can gear up to international standards. This will also help in meeting
more stringent norms under BASEL III, especially capital adequacy ratio.
2.PSBs, which are geographically concentrated, can expand their coverage beyond
their outreach.
3. Can offer more products and services and help in integrated growth of the sector.
4. Customers will have access to fewer banks offering them wider range of products at
a lower cost.
5.From regulatory perspective, monitoring and control of less number of banks will be
easier after mergers
6.The burden on the central government to recapitalize the public sector banks again
and again will come down substantially.
Merger Cons
1.When a big bank books huge loss or crumbles, there will be a big jolt in the entire
banking industry. Its repercussions will be felt everywhere.
2.Mergers will result in shifting/closure of many ATMs, Branches and controlling offices,
as it is not prudent and economical to keep so many banks concentrated in several
pockets, notably in urban and metropolitan areas.
3.Mergers will result in job losses on account of large number of people taking VRS on
one side and slow down or stoppage of further recruitment on the other.
Global Financial Crisis
CDS WOW
4%
SAFE
(Kindly watch the video once to
understand the concept)
CDO OKAY
RISKY
10%
What is a sub-prime loan?
•Generally, poor credit rating people are disqualified to apply for conventional
mortgage or loan application.
•They’re disqualified because they have higher risks that they are not able to make the
loan payment due to their poor credit history.
•Hence, Banks in US came out with a special type of loan to cater to these people in
the form of “Subprime Mortgage” or “Subprime Loan”.
•It refers to a loan given to a borrower who does not qualify for a regular home loan
because of a poor credit record, low income and lack of job security.
Why this happened?
•Banks did this on the expectation that the value of the underlying security or the property
will go up in future.
•Even if they discontinued repayment, Banks could sell the property for a higher
consideration due to appreciation in property prices.
•On their part, Borrowers can rent out their house with higher value or they can sell the
house with higher value.
•Paying back the loan payment is not a problem at all for them, since the housing prices
were booming at that time.
•The investment banks also repackaged all mortgages which they brought from banks into
an investment product and sell it to investors all over the world to further reduce the risks
and to get more loans.
• This made global financial investors around the world to get involved in the subprime
mortgage.
•With housing demand exceeding supply, the cycle became beneficial for all the three
stakeholders from 2005 to 2007 (Banks, borrowers and investors).
What triggered the
crisis?
•As expected subprime borrowers were unable to pay their existing debt and they stopped
paying a the debt.
•As a result, the banks further increased the mortgage interest rate so that borrowers who
afford to pay can pay more.
•But the conditions got worse with more and more borrowers failed to pay their monthly
loan payment due to the interest rate increases.
•This was followed by an excess supply and reducing prices of the underlying properties in
the subsequent years. The real estate market begins to cool down and the house prices
begin to fall.
•Whole system collapse investors now no longer want to invest and didn’t trust the bank
anymore.
•A credit crisis erupted in August 2007 with the failure of two Bear Stearns hedge funds
while payment defaults triggered massive declines in banks and real estate incomes.
•In 2008, Lehman Brothers declared bankruptcy.
Did it impacted India?
India did not suffer much on account of the financial crisis. Absence of full capital account
convertibility
Capital account convertibility: Capital controls are used by the state to protect the
economy from potential shocks caused by unpredictable capital flows. Capital account
convertibility means the freedom to convert a currency for capital transactions and the
rupee is not fully convertible in case of India.
India’s banking system relative disconnect with the foreign banks insulated it from the
devastation that was faced by the global financial system at that time.
What was India’s Response?
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.
2008
What was India’s Response?
•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.

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a) Financial System
c) General Topics
9. FinTech
Risk Management in Banking Sector
Risk is the exposure a company or organization has to factor(s) that will lower its
profits or lead it to fail. Anything that threatens a company's ability to achieve its
financial goals is considered a risk.
Types of Banking Risk
Credit or Default Risk
It occurs when borrowers fail to meet contractual obligations. An example is when
borrowers default on principal or interest payment of a loan.
Credit risk can be classified as counterparty risk and country risk
Counterparty Risk arises when the counterparty is unable to perform its side of
transaction.
Country Risk is the risk of non-performance a counterparty due to restrictions
imposed by a country
Operational Risk
Operational risk is the risk of loss due to errors, interruptions, or damages caused by
people, systems, or processes. E.g. Losses that occur due to human error including
mistakes made during transactions.
Interest Rate Risk

Interest rate risk in the banking book (IRRBB) refers to the current or prospective risk to
the bank’s capital and earnings arising from adverse movements in interest rates that
affect the bank’s banking book positions. When interest rates change, the present value
and timing of future cash flows change affecting its net interest income (NII).
Market Risk
Market risk is the risk of losses in on- and off-balance sheet risk positions arising from
movements in market prices. The major component of market risk is an equity risk.
Liquidity Risk
Liquidity is a bank’s ability to meet its cash and collateral obligations without sustaining
unacceptable losses. Liquidity risk refers to how a bank’s inability to meet its obligations.
It threatens its financial position or existence.
Types of Liquidity Risk

Funding Risk is the risk of being unable to replace net outflows due to unanticipated
withdrawal/ non-renewal of deposits
Time Risk is the risk of being unable to compensate for non-receipt of expected
inflows of funds (e.g. performing assets turning into non-performing assets due to non
payment of loan emi)
Call Risk arises due to any future contingency resulting in payment offines by the
bank. E.g. a bank may be asked to pay hefty sum of fine due to breach of cyber security.
Reputational Risk
Reputational risk is the risk of damage to a bank’s image that occurs due to some
dubious actions taken by the bank. Sometimes reputational risk can be due to
perception or negative publicity against the bank, without any solid evidence of
wrongdoing. Reputational risk leads to the public’s loss of confidence in a bank.
Systemic Risk Vs Systematic Risk
Systemic risk and systematic risk are both dangers to the financial markets and
economy, but the cause of these risks is different.
Systemic risk is the risk that a company- or industry-level risk could trigger a
huge collapse.
Systematic risk is the risk inherent to the entire market, attributable to a mix of
factors including economic, socio-political, and market-related events.
Risk Identification
Risk identification is the process of taking stock of an organization’s risks and
vulnerabilities and raising awareness of these risks in the organization. It is the
starting point for understanding and managing risks – activities central to effective
management of financial institutions.
Value at Risk (VaR)

Value at Risk estimates how much a set of investments might lose, given normal
market conditions and a approach to measure the risk associated with exposures.
It uses values of time frame, confidence level and loss amount to determine the
risk potential. For eg. A bank may be having VaR of 2 crores within 1 month at 99%
confidence level.
Risk Management in India
A body called Board for Financial Supervision (BFS), which works under the control
of RBI, supervises all the financial institutions except Stock Markets (regulated by
SEBI) and Insurance (regulated by IRDAI).
CAMELS
CAMELS rating system is used to evaluate the financial soundness of the domestic
banks. The CAMELS Model consists of six components -
C Capital Adequacy Capital adequacy is the statutory minimum reserves of

capital which a bank or other financial institution must
have available.
A Asset Quality Asset Quality determines the quality of loans given by the
bank
M Management It sees whether the management of an institution is able
to properly react to financial stress
E Earnings Quality Earnings Quality is the ability to create appropriate returns
L Liquidity Liquidity is the availability of liquid assets to a bank.
S Sensitivity to It is used to see bank’s sensitivity to a particular risk

Market Risk
This framework was recommended by Basel Committee on Banking Supervision of the

Bank for International Settlements (BIS)
CALCS model (capital adequacy, assets quality, liquidity, compliance and systems) refer
to the supervision norm of the RBI for foreign banks. CALCS is similar to CAMELS in
supervision.
Prompt Corrective Action
The RBI introduced the PCA framework in 2002 as a structured early-intervention
mechanism for banks that become under capitalised due to poor asset quality, or
vulnerable due to loss of profitability. It aims to check the problem of Non-Performing
Assets (NPAs) in the Indian banking sector and to initiate and implement remedial
measures in a timely manner, so as to restore its financial health.
The PCA framework deems banks as risky if they slip below certain norms on three
parameters — capital ratios, asset quality and profitability. It has three risk threshold
levels (1 being the lowest and 3 the highest) based on where a bank stands on these
ratios.
The revised framework will be monitoring Capital, Asset Quality and Capital to Risk
Weighted Assets Ratio(CRAR), NPA ratio, Tier I Leverage Ratio.
The framework applies to all banks operating in India, including foreign banks
operating through branches or subsidiaries based on breach of risk thresholds of
identified indicators
Recent provision effective from January 2022, Payment Banks and Small finance
Banks has been removed from the list of lenders where prompt corrective action can
be initiated.
Stressed banks may not be allowed to expand credit/investment portfolios.
However, they are allowed to invest in government securities/other high-quality
liquid investments
Withdrawal of restrictions imposed will be considered if no breaches in risk
thresholds in any of the parameters are observed as
per four continuous quarterly financial statements.
Bank for International Settlement
The mission of the Bank for International Settlement (BIS) is to serve central banks
of different nations in their pursuit of monetary and financial stability, to foster
international cooperation in those areas and to act as a bank for central banks.
The Basel Committee is the primary global standard setter for the prudential
regulation of banks and provides a forum for cooperation on banking supervisory
matters.
Basel Norms I
Basel I is a set of international banking regulations put forth by the Basel Committee
on Bank Supervision (BCBS) that sets out the minimum capital requirements of
financial institutions with the goal of minimizing credit risk.
The Bank Asset Classification System classifies a bank’s assets into five risk categories
on the basis of a risk percentage: 0%, 10%, 20%, 50%, and 100%. It classifies an asset
according to the level of risk associated with it. Classifications range from risk-free
assets at 0% to fully risky assets at 100%.
Basel I primarily focuses on Capital to risk weighted assets ratio(CRAR). The
framework requires the minimum capital to RWA for all banks to be at 8%. As per RBI
norms, minimum CRAR should be 9%.
Tip : Capital to risk weighted assets ratio and Capital Adequacy Ratio is same.
Capital Adequacy Ratio

Capital Capital (Tier 1 + Tier 2)
Adequacy Ratio
Risk weighted Assets
CRAR
Tier 1 includes equity capital plus disclosed reserves.
Tier 2 includes asset revaluation reserves, undisclosed reserves, general loan loss
reserves, hybrid capital instrument and subordinated term debt and preference
share capital instruments.
Basel II
Minimum Capital Supervisory Review Market Discipline
In June 1999, the Committee issued a proposal for a new capital adequacy framework
to replace the 1988 Accord. This led to the release of the Revised Capital Framework
in June 2004. Generally known as ‟Basel II”, the revised framework comprised three
pillars, namely minimum capital, supervisory review and market discipline.
Minimum capital is the technical, quantitative heart of the accord. Banks must
hold capital against 8% of their assets, after adjusting their assets for risk. It is
also called as capital adequacy requirement. In India minimum capital
requirement is 9%.
Supervisor review is the process whereby national regulators ensure their home
country banks are following the rules. For example RBI should ensure that Indian
banks are following their rules.
Market discipline is based on enhanced disclosure of risk. That is banks should not
hide any transactions or information that might increase the risk for bank in future.
Basel III
The banking sector had entered the financial crisis of 2007-08 with too much leverage
an inadequate liquidity buffers. Responding to these risk factors, the Basel Committee
issued Principles for sound liquidity risk management and supervision in the same
month that Lehman Brothers failed. It improved it’s pillars by enhancing minimum
capital and liquidity requirements, supervisory review and market discipline.
Under BASEL III, banks were asked to maintain a certain minimum level of capital
and not lend all the money they receive from deposits. This acts as a buffer during
hard times.
Capital Conservation buffer
The capital conservation buffer was introduced to ensure that banks have an
additional layer of usable capital that can be drawn down when losses are incurred.
The buffer was implemented in full as of 2019 and is set at 2.5% of total risk-
weighted assets. It must be met with Common Equity Tier 1 (CET1) capital only, and
it is established above the regulatory minimum capital requirement.
Whenever the buffer falls below 2.5%, automatic constraints on capital distribution
(for example, dividends, share buybacks and discretionary bonus payments) will be
imposed so that the buffer can be replenished.
Counter cyclical capital buffer
With the CCCB, banks are required to set aside a higher portion of their capital during
good times when loans are growing rapidly, so that the capital can be released and
used during bad times, when there’s distress in the economy. It is aimed to protect
the banking sector against losses from changes in economic conditions. Banks may
face difficulties in phases like recession when the loan amount doesn’t return.
Liquidity Coverage Ratio
The Basel Committee on Banking Supervision (BCBS) introduced the Liquidity
Coverage Ratio (LCR) as part of the Basel III post-crisis reforms. The LCR is designed to
ensure that banks hold a sufficient reserve of high-quality liquid assets (HQLA) to
allow them to survive a period of significant liquidity stress lasting 30 calendar days.
Stock of HQLA / Total net cash outflows over the next 30 days ≥ 100%
Net Stable Funding Ratio
The Net Stable Funding Ratio (NSFR) aims to promote resilience over a longer time
horizon by creating incentives for banks to fund their activities with more stable
sources of funding on an ongoing basis. It does not allow bank to support it’s long
term loans with short term deposits.
Small deposits provided by retail customers and funding provided by small business
customers are behaviorally more stable than wholesale funding of the same
maturity from big businesses other counterparties.
Available amount
Net Stable of stable funding
Funding Ratio 100%
Required amount
of stable funding
Basics of Derivatives
Derivatives, Forwards
Options and Swaps
and Futures
International Banking
International banking is just like any other banking service, but it takes place across
different nations or internationally. To put it another way, it is an arrangement of
financial services by a residential bank of one country to the residents or businesses of
another country.
Reasons for International Banking

Globalization and growing economies around the world have led to the development
of international banking facilities. The world is now a marketplace and each business
wants to exploit it. Geographical boundaries are no more a concern.
In the period of globalization, clients or people usually migrate from one place to
another for job and other purposes. Migration of domestic customers and growing
foreign activities is major reason for opening account in international banks.
Types of International Banking Offices
Correspondent Bank Representative office

Correspondent Bank
Banks located in different countries establish accounts in other bank. It provides a

means for a bank’s MNC clients to conduct business worldwide through his local bank
or its contacts. Local banks also bags profit by serving the clients of Foreign banks.
Representative office
A small service facility staffed by parent bank personnel that is designed to assist MNC
clients of the parent bank in dealings with the bank’s correspondents. It is useful when
the bank has many MNC clients in a country. A foreign branch bank operates like a
local bank, but is legally part of the parent, not a separate entity.
Advantages of International Banking
1.Accessibility
International banking provides accessibility and ease of doing business to
companies from different countries. An individual or MNC can use their money
anywhere around the world. This gives them the freedom to transact and use their
money to meet any requirement of funds in any part of the world.
2.Flexibility
Quick and easy transfers in multiple currencies gives customers greater flexibility
over their finances and unlimited access to foreign exchange.
3.Account Maintenance
A multinational company can maintain the records of global accounts in a fair
manner with the help of international banking. All the transactions of the company
are recorded in the books of banks across the globe. By compiling the data and
figures, the accounts of the company can be maintained.
Risks in International Banks

1.Credit Risk
A credit risk is the risk of default on a debt that may arise from a borrower failing to
make required payments. It is type of risk associated with an investment where the
borrower is not able to repay the amount to the lender. This can occur on account of
poor financial condition of the borrower, and it represents a risk for the lender.
2.Country Risk
Country risk is associated with the risk of investing or lending in a country, arising from
possible changes in the business environment that may adversely affect operating profits
or the value of assets in the country. For example stability factors such as mass riots, civil
war and other potential events contribute to companies' operational risks.
3.Currency Risk
Currency risk is a type of risk that initiates from changes in the relative valuation of
currencies. These changes can result in unpredictable gains and losses when the
profits or dividends from an investment are converted from the foreign currency into
U.S. dollars.
SWIFT
The SWIFT is a global member-owned cooperative that is headquartered in Brussels,

Belgium. It was founded in 1973 by a group of 239 banks from 15 countries which
formed a co-operative utility to develop a secure electronic messaging service and
common standards to facilitate cross-border payments.
Swift Code allows financial entities to send and receive messages about financial
transactions in a secure, standardized and reliable environment. The messages
are encrypted to protect confidentiality. SWIFT does not facilitate funds transfer:
rather, it sends payment orders, which must be settled by correspondent
accounts that the institutions have with each other.
SWIFT Code
Society for Worldwide Interbank Financial Telecommunication
BIC Code
Bank Identifier Code
8-11 Characters
Bank
Country
City
Branch
A SWIFT/BIC is an 8-11 character code that identifies your bank, country, city,
and branch.
SWIFT Code
Bank code A-Z

SBIN
4 letters representing the bank.
Country code A-Z

2 letters representing the country the bank is
IN
in. Mumbai
City code 0-9 A-Z
BB Andheri West
2 characters made up of letters or numbers. It
says where that bank's head office is. SBININBB354
Branch Code 0-9 A-Z
354 8-11
3 characters made up of letters or numbers
specifying a particular branch.
Accounts of Banks with other Banks
NOSTRO VOSTRO LORO

NOSTRO
OUR’S
The term ‘NOSTRO’ has emerged from the Italian word ‘Nostro’ which meaning
is ‘OUR’. “NOSTRO ACCOUNT can be defined as a bank account open by any
commercial bank of a country in any bank of a foreign country with a
denomination of foreign currency.”
VOSTRO
YOURS
Vostro Account refers to an account held by a foreign-based bank in the
domestic currency with the domestic bank of the country”. The term ‘Vostro’ is
also an Italian word which means is ‘Yours’.
It is just like the inverse of Nostro accounts.
LORO
THEIR’S
When domestic banks use the account of third party banks which holds a Nostro
account to settle foreign exchange transactions then these type of transactions are
included under the Loro Account. In other words, If a domestic bank who possess a
bank account in foreign bank clear the due of foreign trade on the behalf of third party
banks then this is called Loro account transactions. Obviously, the third party bank
doesn’t have the Nostro account and hence, in this case, domestic bank functions as an
intermediary.
World Bank Group
The Bretton Woods Conference was a gathering of delegates from 44 nations that
met from July 1 to 22, 1944 in Bretton Woods, New Hampshire (USA), to agree upon a
series of new rules for international financial and monetary order after the
conclusion of World War II. The two major accomplishments of the conference were
the creation of the International Bank for Reconstruction and Development (IBRD)
and International Monetary Fund (IMF).
The International Bank for Reconstruction and Development (IBRD) and International
Development Association (IDA) form the World Bank, which provides financing, policy
advice, and technical assistance to governments of developing countries.
International Bank for Reconstruction and Development
Following the recovery from World War II, the International Bank of Reconstruction
and Development broadened its mandate to increasing global economic growth
and eliminating poverty.
The Bank only finances sovereign governments directly or projects backed by sovereign
governments. The IBRD focuses its services on middle-income and creditworthy low
income countries.
IBRD has maintained a triple-A rating since 1959. This high credit rating allows it to
borrow at low cost and offer middle-income developing countries access to capital
on favourable terms thus helping ensure that development projects go forward in a
more sustainable manner. IBRD earns income every year from the return on its equity
and from the small margin it makes on lending.
International Development Assistance
IDA is the part of the World Bank that helps the world’s poorest countries. IDA aims
to reduce poverty by providing loans (called “credits”) and grants for programs that
boost economic growth, reduce inequalities, and improve people’s living conditions.
IDA's work covers primary education, basic health services, clean water and
sanitation, agriculture, business climate improvements, infrastructure, and
institutional reforms.
IDA also provides significant levels of debt relief through the Multilateral Debt Relief
Initiative (MDRI).
International Finance Corporation
IFC is the largest global development institution focused exclusively on the private
sector in developing countries. It is a private-sector arm of the World Bank Group, to
advance economic development by investing in for-profit and commercial projects for
poverty reduction and promoting development. IFC raises virtually all funds for lending
activities through the issuance of debt obligations in international capital markets.
Maharaja Bonds Masala Bonds

Rupee denominated Rupee denominated
Invested in Infrastructure projects Invested in Infrastructure
of India projects of India
Onshore debt Instrument Off shore debt instrument
Multilateral Investment Guarantee Agency
MIGA is a member of the World Bank Group and its mandate is to promote cross-
border investment in developing countries by providing guarantees (political risk
insurance and credit enhancement) to investors and lenders. MIGA was created
to complement public and private sources of investment insurance against non-
commercial risks, government expropriation; war, terrorism, and civil disturbance
in developing countries.
International Centre for Settlement of Investment Disputes
ICSID provides for settlement of disputes by conciliation, arbitration or fact-finding.

States have agreed on ICSID as a forum for investor-State dispute settlement in most
international investment treaties and in numerous investment laws and contracts.
India is not a member of ICSID. India claimed ICSID Convention is not fair,
convention's rules for arbitration leaned towards the developed countries.
World Bank Reports

World Development Report
Global Economic Prospects
Doing Business Report
Global Financial Development Report
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9. FinTech
AffairsMind
Hello Friends, These notes are for Financial Inclusion, Alternate
source of Finance, Private and social cost benefit and Public
Private Partnership. The notes are based on videos provided to you
on YouTube. We focus on understanding and remembering the
request you to watch free videos on YouTube to understand them
Financial Inclusion
Savings Loan
Pension Insurance
Financial Inclusion is the delivery of financial services at an affordable cost to the

vast sections of the disadvantaged and low-income groups, providing them with
timely and adequate access to financial products and services. Simply, Financial
inclusion is to provide financial services to poorest of the poor.
Financial Inclusion by Government
1.Savings
Jandhan account ensures access of various financial services to the excluded

sections i.e. weaker sections & low income groups at an affordable
cost and using the technology for the same.
Financial Literacy Program for promoting savings, use of ATMs, using basic
mobile phones for banking, etc.
Basic Savings Bank Accounts with OverDraft (OD) Facility of Rs. 10,000/- to
every household
•Creation of Credit Guarantee Fund for providing banks some guarantee
against defaults.
Free accidental insurance cover on RuPay cards of 2 lakh for PMJDY accounts
opened after August 2018.
Jan Dhan-Aadhar-Mobile (JAM) Trinity
The combination of Aadhaar, PMJDY, and a surge in mobile communication has reshaped
the way citizens access government services. By significantly changing the concept of
individual identity, Aadhaar has not only brought about a secure and easily verifiable
system but also easy to obtain as well to help in the financial inclusion process.
2.Loan
Pradhan Mantri Mudra Yojana was launched by the government in 2015 for
providing loans up to Rs. 10 lakh to the non-corporate, non-farm and small/micro-
enterprises.
MUDRA, which stands for Micro Units Development & Refinance Agency Ltd., is a
financial institution set up by the Government. It provides funding to the non-corporate
small business sector through various last-mile financial institutions like Banks, Non-
Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs).
MUDRA does not lend directly to micro-entrepreneurs/individuals.
Shishu covers loans up to Rs. 50,000.
Kishore covers loans above Rs. 50,000 and up to Rs. 5 lakh.
Tarun covers loans above Rs. 5 lakh and up to Rs. 10 lakh.
It was launched in April 2016 to promote entrepreneurship at the grass-root

level focusing on economic empowerment and job creation. This government
initiative aims to leverage the institutional credit structure to reach out to the
underserved sector of people such as SCs, STs and Women Entrepreneurs.
This scheme is to facilitate bank loans between Rs.10 lakh and Rs.1 crore for setting
up a Greenfield enterprise.
Financial Inclusion by Government
3.Insurance
50 yrs 70 yrs
330 12
PMJJBY is a life insurance scheme. PMSBY is an accidental insurance scheme.
The age limit for PMJJBY is minimum The age limit for PMSBY is minimum 18
18 years and maximum 50 years. years and maximum of 70 years.
The annual premium for PMJJBY is The annual premium for PMSBY is Rs 12
Rs 330.
4.Pension
The scheme was launched on 9th May, 2015, with the objective of creating a
universal social security system for all Indians, especially the poor, the under-
privileged and the workers in the unorganised sector.
Any citizen of India can join the APY scheme. The age of the subscriber should be
between 18-40 years. It provides a minimum guaranteed pension ranging from Rs
1000 to Rs 5000 on attaining 60 years of age.
Financial Tripod
Demand Financial Education
Supply
Financial Inclusion Financial Stability
Financial education, financial inclusion and financial stability are three elements of
Financial Tripod. While financial inclusion works from supply side of providing
access to various financial services, financial education feeds the demand side by
promoting awareness among the people regarding the needs and benefits of
financial services offered by banks and other institutions. Going forward, these two
strategies promote greater financial stability.
Financial Inclusion by RBI
Sadhan Kumar (2011) worked out an Index on financial inclusion (IFI) based on three
variables namely penetration (number of adults having bank account), availability of
banking services (number of bank branches per 1000 population) and usage
(measured as outstanding credit and deposit).
Basic Saving Bank Deposit (BSBD)

RBI advised all banks to open Basic Saving Bank Deposit (BSBD) accounts with
minimum common facilities such as no minimum balance, deposit and withdrawal of
cash at bank branch and ATMs, receipt/ credit of money through electronic payment
channels, facility of providing ATM card.
Relaxed and simplified KYC norms to facilitate easy opening of bank accounts,
especially for small accounts with balances not exceeding Rs. 50,000 and aggregate
credits in the accounts not exceeding Rs. one lakh a year.
Compulsory Requirement of Opening Branches in Un-banked Villages, banks are
directed to allocate at least 25% of the total number of branches to be opened
during the year in un-banked (Tier 5 and Tier 6) rural centers.
Bank correspondents
Bank Correspondents are retail agents who represent banks and are responsible
for delivering banking services at locations other than a bank branch/ATM. BCs
support banks in providing its limited range of banking services at affordable cost.
Thus, they are pivotal in promoting financial inclusion.
The Aadhar-enabled payment system (AEPS) enables an Aadhar enabled bank
account (AEBA) to be used at any place and at any time, using micro ATMs.
The payment system has been made more accessible due to offline
transaction-enabling platforms, like Unstructured Supplementary Service Data
(USSD), which makes it possible to use mobile banking services without
internet, even on a basic mobile handset.
Issuing Kisan Credit Cards (KCC)
Increasing the number of automated teller

machines (ATMs)
Public and private sector banks had been advised to submit board approved
three year Financial Inclusion Plan (FIP) starting from April 2010.
These policies aim at keeping self-set targets in respect of rural brick and mortar
branches opened, BCs employed, coverage of un-banked villages with population
above 2000 and as well as below 2000, BSBD accounts opened, KCCs issued and
others. RBI has been monitoring these plans on a monthly basis.
Licensing of new types of Banks like payments and small finance banks will
give further fillip to financial inclusion efforts in our country.
Informal and Cash-Dominated Economy
India is the heavily dominated cash economy, this poses a challenge for
digital payment adoption.
Digital Divide
Lack of skills among the stakeholders to use digital services, infrastructural issues
and low-income consumers who are not able to afford the technology required to
access digital services are some of the reasons for digital divide.
Higher operative costs for banks
The Jan Dhan scheme has resulted in the opening of many dormant accounts
which never saw actual banking transactions. All such activities incur costs on the
institutions, and thus, huge operative costs only proved to be detrimental to the
actual objective.
Lack of Credit Penetration
One of the main constraints in providing credit to low-income households and
informal businesses is the lack of information available with formal creditors to
determine their credit worthiness. This results in a high cost of credit.
Leveraging JAM Trinity
Technology should be used to improve the assessment of credit-worthiness for
households and informal businesses. With the adoption of appropriate technology
a new data-sharing framework (using Jan Dhan and Aadhaar platforms), to enable
easier access to credit.
Reviving Banking Correspondent Model
Given the infeasibility of locating branches in every nook and corner of the
country, bank correspondents are used to reach out to prospective clients.
However, an inadequate compensation structure makes correspondent banking
unattractive. Thus, there is a need to create better monetary incentives for
banking correspondents as well as to provide them better training.
Promoting USSD for Rural Areas

Payments through the USSD channel should be promoted (by reimbursing the charges
incurred in the USSD process), as they have an advantage over the internet in that it
can also cover a large proportion of non-smartphone users. In India, USSD can be
particularly useful in rural areas where some segments still do not have reliable
access to the internet.
Need For Data Protection Regime
In addition to greater digitization, there is also a need to strengthen cyber
security and data protection regime in the country.
Alternate
source of
Finance
Crowdfunding is a way of raising money to finance projects and businesses. It enables
fundraisers to collect money from a large number of people via online platforms.
Peer to Peer (P2P) Lending

P2P lending is a method of debt financing enabling individuals and companies to lend
and borrow money through an online platform instead of making use of a traditional
bank as an intermediary. Because the loans are split up in minor parts, many
different agents can finance the loan. P2P lending is also known as marketplace
lending. For this the platforms charges a fee from both the lender and borrower.
RBI Now Regulates Peer to Peer Platforms and they are categorized as NBFCs . The
Reserve Bank of India has kept the limits imposed on peer-to-peer lenders to ₹50 lakh.
The limit is the total amount of money any investor can invest across all P2P platforms.
A lease is defined as an agreement between the lessor (owner of the asset) and the
lessee (user of the asset), wherein, the lessor purchases an asset for the lessee and
allows him to use it in exchange of periodic payments called lease rentals. The
lessee is bound to pay the lease rental to the lessor for the use of assets. It is just
like renting of an asset for certain period of time.
Financial Lease
Financial leasing is a contract involving payment over a longer period. It is a long-
term lease. It is irrevocable. In this type of leasing the lessee has to bear all costs
and the lessor does not render any service.
Operating Lease
In an operating lease, the lessee uses the asset for a specific period. The lessor bears
the risk of obsolescence and incidental risks. There is an option to either party to
terminate the lease after giving notice. This kind of lease is preferred where the
equipment is likely to suffer obsolescence.
Factoring is a financial transaction and a type of debtor finance in which
a business sells its accounts receivable (i.e., invoices) to a third party (called a factor) at
a discount. In this purchase, accounts receivable are discounted in order to allow the
buyer to make a profit upon the settlement of the debt. Factoring therefore relieves the
first party of a debt for less than the total amount providing them with working capital to
continue trading, while the buyer, or factor, chases up the debt for the full amount and
profits when it is paid.
In recourse factoring, if your customer does not pay your factored invoices for any
reason, you are responsible to make the factor whole. That is, you must repay the
factor for the advance you received plus the factoring discount owed on date of the
“chargeback.” There is no debt protection under this type of service.
In non-recourse factoring, if your customer does not pay due to insolvency or
bankruptcy – in other words, your customer can’t pay your invoices – the factor does
not need to be made whole by you, since you are factoring “without recourse.” The
factor simply absorbs the loss.
Forfaiting is a factoring arrangement used in international trade finance

by exporters who wish to sell their receivables to a forfaiter. Forfaiting is the purchase of
an exporter’s receivables at a discount by paying cash. The purchaser of the receivables,
or forfaiter, must now be paid by the importer to settle the debt.
A franchise is a type of license that a party (franchisee) acquires to allow them to
have access to a business’s (franchisor) proprietary knowledge, processes, and
trademarks in order to allow the party to sell a product or provide a service under the
business’s name. In exchange for gaining the franchise, the franchisee usually pays the
franchisor an initial start-up and annual licensing fees.
An angel investor (also known as a private investor, seed investor or angel funder) is
a high net worth individual who provides financial backing for
small startups or entrepreneurs, typically in exchange for ownership equity in the
company. The funds that angel investors provide may be a one-time investment to
help the business get off the ground or an ongoing injection to support and carry the
company through its difficult early stages.
A venture capitalist (VC) is a private equity investor that provides capital to companies
exhibiting high growth potential in exchange for an equity stake. This could be
funding startup ventures or supporting small companies that wish to expand but do not
have access to equities markets. Venture capitalists are willing to risk investing in such
companies because they can earn a massive return on their investments if these
companies are a success.
Difference
Angel investors are rich persons who invest their own money in companies. Venture
capitalists are employees of risk capital companies who invest other persons’ money in
companies.
Private costs for a producer of a good, service, or activity include the costs the
firm pays to purchase capital equipment, hire labor, and buy materials or other
inputs. Private costs are paid by the firm or consumer and must be included in
production and consumption decisions.
External costs, on the other hand, are not reflected on firms’ income statements or
in consumers’ decisions. However, external costs remain costs to society, regardless
of who pays for them. Consider a firm that attempts to save money by not installing
water pollution control equipment. Because of the firm’s actions, cities located
down river will have to pay to clean the water before it is fit for drinking and the
fishing industry may be harmed.
Social costs include both the private costs and any other external costs to
society arising from the production or consumption of a good or service.
Private Costs + External Costs = Social Costs

Private benefits are the benefits to people who buy and consume a good. External
benefits are the benefits to a third party, someone who is not the buyer or the seller.
Social benefits are the total benefits to the society, arising from an economic activity.
They include both private and external benefits. Again, where social benefits are
greater than private benefits, external benefits exist
Social benefit = Private benefit + external benefit
Public Private Partnership
A public-private partnership (PPP) involves the private sector in aspects of the provision of
infrastructure assets or of new or existing infrastructure services that have traditionally
been provided by the government. While there is no single definition of PPPs, they broadly
refer to long-term, contractual partnerships between the public and private sector agencies,
specifically targeted towards financing, designing, implementing, and operating
infrastructure facilities and services that were traditionally provided by the public sector.
Public
Private
Partnership
Under Design build model, the government contracts with a private partner to design
and build a facility in accordance with the requirements set by the government. After
completing the facility, the government assumes responsibility for operating and
maintaining the facility. This method of procurement is also referred to as Build-
Transfer (BT).
Design Build Maintain (DBM) model is similar to Design-Build except that the private
sector also maintains the facility. The public sector retains responsibility for
operations.
Under Design Build Operate (DBO) model, the private sector designs and builds a
facility. Once the facility is completed, the title for the new facility is transferred to
the public sector, while the private sector operates the facility for a specified
period. This procurement model is also referred to as Build-Transfer-Operate (BTO).
Design Build Operate Maintain (DBOM) model combines the responsibilities of design-
build procurements with the operations and maintenance of a facility for a specified
period by a private sector partner. At the end of that period, the operation of the facility
is transferred back to the public sector. This method of procurement is also referred to
as Build Operate-Transfer (BOT).
BOT Toll Model: The road developer constructs the road and is allowed to recover his
investment through toll collection till 30 years. Therefore, no government payment in
this case. Here, all the risks- land acquisition and compensation risk, construction risk
(i.e risk associated with cost of project), traffic risk and commercial risk lies with the
private party. The private party is dependent on toll for its revenues. The government
is only responsible for regulatory clearances.
In this model, the private player build, maintain and operate the road projects while
government pays each year (annually) the private player a fixed amount of annuity for
the term of contract. The private party recovers all the costs which it incurred for
building, maintaining and operating the road project from the annual annuity amount
paid by the government. It is obvious that there is no commercial and traffic risk to the
private party as was the case with BOT- TOLL model.
However in BOT Annuity model risk associated with cost of project is there.
Engineering, Procurement and Construction (EPC) model was brought in, where all
(100%) money or cost to build the road is provided by the government including that
for land acquisition and rehabilitation of people affected by project. Private
developers will only design and build fixed length of stretches and leave
after completing their part of work handing the road to the government, which then
maintains and operates the road by collecting toll or otherwise.
The HAM is a mix EPC and BOT- ANNUITY model, with the government and the
private companies sharing the total project cost in the ratio of 40:60 respectively.
Apart from 60% project cost, the private player will also build the road and on
completion will hand it over to the government. The government shoulders the
responsibility of revenue collection (by toll). The government will then pay the
fixed amount of annuity annually to the private player for the defined period (10 or
20 years) as per the contract.
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a) Financial System
c) General Topics
9. FinTech
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Hello Friends, These notes are for Corporate governance in
banking sector, role of e-governance and Union Budget. 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.
Corporate Governance
Corporate Governance refers to the process that ensures that business operations
and management of corporate entities are carried out in accordance with the highest
prevailing standards of ethics and effectiveness to safeguard the interests of all its
shareholders. Simply put, it corresponds to the transparent, fair, and ethical
administration of a corporation that offers maximum benefits to the shareholders.
Executive Director
Executive directors have a dual role as employees of the company and as directors.
An executive director brings an insider’s perspective to the table which can be very
valuable when discussing the operations of a company.
Non-executive Director
These directors bring an outside perspective to the table and offer a wealth of
knowledge and experience. Non-executive directors' principal role is to provide
independent judgement. A non-executive director may be representing a major
shareholder.
Independent Director
A non-executive director may or may not hold shares in the company. An
independent director is the member of Board who does not own any shares in the
company and does not have any monetary relationship with the company except
his remuneration.
RBI has come up with some instructions with regard to the chairman and meetings
of board of directors.
Different Boards in Banks
Board of Directors
Audit Committee Board
Risk Management Committee of the board
Nomination and Renumeration Committee

Board of Directors
The chair of the board shall be independent Chairman Independent

director.
In the absence of chair of the board, the meetings Independent
shall be chaired by an independent director.
Quorum 1/3rd or 3
Quorum for board meetings, One third of total
strength of the board or three directors, 6 member 3 should attend
whichever is higher, should be present.
At least half of the directors attending the Requirement ½ -Independent

meetings of the board shall be independent 2 should be
directors. independent
Audit Committee Board (ACB)
Chairperson should be an independent Chairman Independent

director & Chairperson should not chair any
other committee. Committee
Should comprise only non- executive directors. Quorum Non executive
All members should understand all financial
statements. At least one member shall have Financial Statements
requisite professional expertise or qualification in Financial Accounting
financial accounting or financial management.
At least 3 mem.
Quorum should be at least of 3 members.
It should meet at least once in a quarter & at Requirement Once in a quarter

least 2/3rd of members who attend the meeting 2/3rd Independent
shall be independent directors.
Risk Management Committee of the board (RMCB)
Chair of the board should be an independent Chairman Independent

director and Chair of the board should be one
who shall not be the chair of the board or any Committee
other committee of the board.
Quorum Majority
Should have majority of non-executive Non executive
directors and Quorum should be of at least 3
members. At least 3 mem.
RMCB shall meet once in a quarter.

At least half of the members attending the Requirement Once in a quarter
meeting shall be independent directors.
½ Independent
Nomination and Renumeration Committee
Chair should be an independent director and It Chairman Independent

should not be the chair of the board.
BoD
It shall comprise only non executive directors. Quorum Non executive
Quorum should be of at least 3 members. At least 3 mem.
At least half of the members attending the

meeting shall be independent directors, of
which one shall be member of the RMCB.
Requirement ½ Independent
RCMB
E-Governance
The “e” in e-Governance stands for ‘electronic’. Thus, e-Governance is
basically associated with carrying out the functions and achieving the results
of governance through the utilization of ICT (Information and Communications
Technology).
Why Government should use?

ICT provides efficient storing and retrieval of data, instantaneous transmission
of information, processing information and data faster than the earlier manual
systems, speeding up governmental processes, taking decisions expeditiously
and judiciously, increasing transparency and enforcing accountability. It also
helps in increasing the reach of government – both geographically and
demographically. This reduces chances of corruption and increases efficiency.
Start of e-governance
The main thrust for e-Governance was provided by the launching of NICNET,
National Informatics Centre Network in 1987 – the national satellite-based
computer network. This was followed by the launch of the District Information
System of the National Informatics Centre (DISNIC) programme to computerize
all district offices in the country for which free hardware and software was
offered to the State Governments.
Further Initiatives
Computerization of Land Records: In collaboration with NIC. Ensuring that
landowners get computerized copies of ownership, crop and tenancy and updated
copies of Records of Rights (RoRs) on demand.
Further Initiatives
Bhoomi Project: Online delivery of Land Records. Self-sustainable e-Governance

project for the computerized delivery of 20 million rural land records to 6.7
million farmers through 177 Government-owned kiosks in the State of Karnataka
Lokvani Project in Uttar Pradesh: Lokvani is a public-private partnership project at

Sitapur District in Uttar Pradesh which was initiated in November, 2004. Its
objective is to provide a single window, self-sustainable e-Governance solution with
regard to handling of grievances, land record maintenance and providing a mixture
of essential services.
Further Initiatives
e-Seva (Andhra Pradesh) project is designed to provide ‘Government to Citizen’ and

‘e-Business to Citizen’ services. The highlight of the eSeva project is that all the
services are delivered online to consumers /citizens by connecting them to the
respective government departments and providing online information at the point
of service delivery.
SmartGov (Andhra Pradesh) has been developed to streamline operations,

enhance efficiency through workflow automation and knowledge
management for implementation in the Andhra Pradesh Secretariat.
Digital India
MyGov aims to establish a link between Government and Citizens towards
meeting the goal of good governance.
It encourages citizens as well as people abroad to participate in various
activities i.e. 'Do', 'Discuss', 'Poll', 'Talk', ‘Blog’, etc.
Initiatives with states

DARPAN is an online tool that can be used to monitor and analyze the
implementation of critical and high priority projects of the State.It facilitates
presentation of real time data on Key Performance Indicators (KPIs) of selected
schemes/projects to the senior functionaries of the State Government as well as
district administration.
Initiatives with states
PRAGATI (Pro-Active Governance And Timely Implementation) has been aimed at
starting a culture of Pro-Active Governance and Timely Implementation. It is also a
robust system for bringing e-transparency and e-accountability with real-time
presence and exchange among the key stakeholders. It was launched in 2015.
Initiatives on education
DigiLocker serves as a platform to enable citizens
to securely store and share their documents
with service providers who can directly access
them electronically.
Initiatives on education
National Scholarships Portal (NSP) provides a centralized platform for
application and disbursement of scholarship to students under any scholarship
scheme.
SWAYAM includes Massive Online Open Courses (MOOCs) for leveraging e-

Education. It provides for a platform that facilitates hosting of all the courses,
taught in classrooms from Class 9 till post-graduation to be accessed by anyone,
anywhere at any time.
PMGDISHA, Pradhan Mantri Gramin Digital Saksharta Abhiyaan aims

to make six crore people in rural India digitally literate.
Initiatives on health
e-Hospital-Online Registration Framework (ORF) is an initiative to facilitate the patients
to take online OPD appointments with government hospitals. This framework also
covers patient care, laboratory services and medical record management.
Other initiatives
Common Services Centres 2.0 (CSC 2.0) is being implemented to develop and
provide support to the use of information technology in rural areas of the country.
The CSCs are Information and Communication Technology (ICT) enabled kiosks with
broadband connectivity to provide various Governments, private and social
services at the doorstep of the citizen.
Other initiatives
Jeevan Pramaan is an Aadhaar based Biometric Authentication System for Pensioners.
The system provides authenticity to Digital Life Certificate without the necessity of the
pensioner being present in person before his/ her Pension Dispensing Authority
(PDA).
Advantages of e-governance
1. Speed
Technology makes communication speedier. Internet, Phones, Cell Phones

have reduced the time taken in normal communication.
2. Cost Reduction
Most of the Government expenditure is appropriated towards the cost of
stationary. Paper-based communication needs lots of stationary, printers, etc.
which calls for continuous heavy expenditure. Internet and Phones makes
communication cheaper saving valuable money for the Government.
3. Transparency
Use of ICT makes governing profess transparent. All the information of the
Government would be made available on the internet. The citizens can see the
information whenever they want to see. ICT helps make the information available
online eliminating all the possibilities of concealing of information.
4. Accountability
Once the governing process is made transparent the Government is automatically
made accountable. Accountability is answerability of the Government to the
people. It is the answerability for the deeds of the Government. An accountable
Government is a responsible Government.
5.Increased access to information
E-Governance improves the accessibility of government information to citizens

allowing it become an important resource in the making the decisions that
affect daily life and so it helps in empowerment of citizens.
Challenges to e-governance
1. Infrastructure
Lack of basic infrastructural facilities like electricity, internet, etc.
Initiatives like BharatNet and Saubhagya are steps taken in this regard.
2.Cost
e-Governance measures are costly affairs and require huge public expenditure.
In developing countries like India, the cost of projects is one of the major
impediments in the implementation of e-Governance initiatives.
3. Trust
The implementation of public administration functions via e-government
requires the presence of two levels of trust. The first is that the user must be
confident, comfortable and trusting of the tool or technology with which they
will interact. The second dimension of trust pertains to trust of the government.
4. Resistance to change
The innovation diffusion theory states that over time an innovation will diffuse
through a population, and the rate of adoption will vary between those who adopt
early, referred to as early adopters and to those who adopt the innovation much
later, referred to as ―laggards. The resistant to change phenomenon can explain
much of the hesitation that occurs on the part of constituents in moving from a
paper based to a Web-based system for interacting with government.
5. Privacy and Security

Recent spark in data leak cases has threatened the peoples’ faith in e-governance.
Therefore, the implementation of e-governance projects must have security
standards and protocols for safeguarding the interest of all classes of masses.
Union Budget
According to Article 112 of the Indian Constitution, the Union Budget of a year is
referred to as the Annual Financial Statement (AFS). It is a statement of
the estimated receipts and expenditure of the Government in a financial year (which
begins on 01 April of the current year and ends on 31 March of the following year).
In addition to it, the Budget contains:

• Details of the actual receipts and expenditure of the closing financial year and
the reasons for any deficit or surplus in that year,
• Estimates of revenue and capital receipts and expenditures
• The economic and financial policy of the coming year, i.e., taxation proposals,
prospects of revenue, spending programme and introduction of new
schemes/projects.
The Budget Division of the Department of Economic Affairs in the Finance

Ministry is the nodal body responsible for preparing the Budget.
Six stages of Budget
1 Presentation of Budget.
2 General discussion.
3 Scrutiny by Departmental Committees.
4 Voting on Demands for Grants.
5 Passing of Appropriation Bill.
6 Passing of Finance Bill.

Objectives of Budget
Reallocation of Resources– It helps to distribute resources keeping in view

the social and economic conditions of the country.
Reducing Inequalities in Income and Wealth– Government aims to bring

economic equality by imposing taxes on the elite class and spending the
collected money on the welfare of the poor.
Contributing to Economic Growth– A country’s economic growth is based on

the rate of investment and savings. Therefore, the budgetary plan focuses on
preparing adequate resources for investing in the public sector and raise the
overall rate of investments and savings
Objectives of Budget
Bringing Economic Stability– The Budget focuses on avoiding business

fluctuations so as to accomplish the aim of financial stability.
Managing Public Enterprises– Many public sector industries are built for
the social welfare of the people. The Budget is planned to deliver different
provisions for operating such business and imparting financial help.
Reducing Regional Differences– It aims to reduce regional inequalities by

promoting the installation of production units in the underdeveloped
regions.
Union Budget
Annual Financial Statement
Receipts Expenditure
Receipts indicates the money received by Expenditure includes all expense done
the government. This includes: in the name of planning for example
• the money earned by the expenditure on electricity generation,
government irrigation and rural developments,
• the money it receives in the form of construction of roads, bridges, canals,
borrowings or repayment of loans etc. and other than planning for
by states. example interest payments, pensions,
statutory transfers to States and Union
Territories governments, etc
Union
Budget
Revenue Capital
Budget Budget
Revenue Revenue Capital Capital

Receipts Expenditure Receipts Expenditure
Tax Revenue Non Tax Revenue
Direct Tax Indirect Tax

Revenue Budget
Revenue Revenue
Revenue Budget consists of the Revenue

Expenditure and Revenue Receipts.
Revenue Receipts are receipts which do not have a Revenue Expenditure is
direct impact on the assets and liabilities of the the expenditure by the
government. It consists of the money earned by the government which does not impact its
government through tax (such as excise duty, assets or liabilities. For example, this
income tax) and non-tax sources (such as dividend includes salaries, interest payments,
income, profits, interest receipts). pension, and administrative expenses.
Capital Budget
Capital Capital
Capital Budget includes the Capital Receipts and Capital Expenditure

Capital Receipts indicate the receipts which Capital expenditure is used to create
lead to a decrease in assets or an increase assets or to reduce liabilities. It consists of:
in liabilities of the government. It consists (i) the long-term investments by the
of: (i) the money earned by selling assets government on creating assets such as
(or disinvestment) such as shares of public roads and hospitals, and (ii) the money
enterprises, and (ii) the money received in given by the government in the form of
the form of borrowings or repayment of loans to states or repayment of its
loans by states. borrowings.
Union Budget
Revenue Revenue Revenue
Expenditure Expenditure Expenditure
A Budget is in deficit if A government Budget is A Budget is said to be surplus

the expenditure assumed to be balanced if when the expected revenues
surpasses the revenue the expected expenditure surpass the estimated
for a designated year. is equal to the anticipated expenditure for a particular
receipts for a fiscal year. business year. Here, the
Budget becomes surplus,
when taxes imposed, are
higher than the expenses.
Revenue Deficit
Revenue Expenditure Revenue Receipts
Revenue Deficit refers to the excess of government’s revenue

expenditure over revenue receipts.
Revenue Deficit = Revenue expenditure – Revenue receipts
Fiscal Deficit
100 Cr 80 Cr
Total Expenditure Total Receipts
Revenue Receipts Capital Receipts

40 Cr 40 Cr
(Fiscal Surplus)
100 Cr 120 Cr
Total Expenditure Total Receipts
Revenue Receipts Capital Receipts

40 Cr 80 Cr
Fiscal Deficit
Revenue Receipts
Total Expenditure
Non debt creating Capital Receipts
Fiscal Deficit is the gap between the government’s expenditure requirements

and its receipts. This equals the money the government needs to borrow
during the year. A surplus arises if receipts are more than expenditure.
Fiscal Deficit = Total expenditure – (Revenue receipts + Non-debt creating
capital receipts).
Fiscal Deficit
Revenue Receipts
Total Expenditure
Non debt creating Capital Receipts
Primary Deficit
Total Expenditure
Primary Deficit
Total Receipt except Debt 80 90

Total Expenditure 100 100 120
Fiscal Deficit 20 10 30
Total GDP 1000 1000
Fiscal Deficit % 2% 1% 3%
Loan 20
Primary Deficit Fiscal Deficit Interest Payments

Primary Deficit
Primary Deficit Fiscal Deficit Interest Payments
Primary deficit equals fiscal deficit minus interest payments. This

indicates the gap between the government’s expenditure requirements
and its receipts, not taking into account the expenditure incurred on
interest payments on loans taken during the previous years.
Primary deficit = Fiscal deficit – Interest payments
Fiscal Policy
Fiscal policy is the use of government revenue collection (mainly taxes but also
non-tax revenues such as divestment, loans) and expenditure (spending) to
influence the economy.
Objectives
1. Economic Growth
It helps to maintain the economy’s growth rate so that certain economic
goals can be achieved.
2. Full Employment
It aims to achieve full employment, or near full employment, as a tool to
recover from low economic activity.
Fiscal Policy
Objectives
3. Price Stability
It controls the price level in the country so that when the inflation is too
high, prices can be regulated.
Fiscal Policy
Fiscal Contractionary Expansionary

Neutral Fiscal policy Fiscal policy
policy
Fiscal Neutral Policy is where the government brings in enough taxation to pay
for its expenditures. In other words, government spending equals taxation.
Contractionary fiscal policy is where government collects more in taxes than it
spends. In turn, this reduces aggregate demand which may seem like a bad
thing, but it helps reduces inflation.
Expansionary fiscal policy is where the government spends more than it takes in
through taxes. This may involve a reduction in taxes, an increase in spending, or a
mixture of both to ultimately boost prosperity and economic growth.
Deficit Financing
Sometimes the government fails to mobilize adequate resources. In this situation,
the government use the option of deficit financing. If the option of deficit
financing is not utilized the government ends up compromising on growth targets.
Government does deficit financing by burrowing and minting new currency.
FRBM Act, 2003

The Fiscal Responsibility and Budget Management Act, 2003 (FRBMA) is an Act of
the Parliament of India to institutionalize financial discipline, reduce India’s fiscal
deficit, improve macroeconomic management and the overall management of
the public funds by moving towards a balanced budget.
FRBM Act, 2003
Objectives
Reduction of fiscal deficit and revenue deficit
To achieve inter-generational equity in fiscal management by reducing

the debt burden of the future generation
Achieving long-term macroeconomic stability
Transparency in fiscal operations of the Government

Major Provisions of FRBM Act, 2003
The FRBM rule set a target reduction of fiscal deficit to 3% of the GDP by
2008-09. This will be realized with an annual reduction target of 0.3% of
GDP per year by the Central government
Revenue deficit has to be reduced by 0.5% of the GDP per year with
complete elimination by 2008-09.
The government shall end its borrowing from the RBI except for temporary
advances.
The RBI was supposed to not subscribe to the primary issues of the central
government securities after 2006.
NK Singh Committee on FRBM Act
NK Singh committee, that was set up in 2016 to review the FRBM Act,
recommended that the government must target a fiscal deficit of 3% of the
GDP in the years up to March 31, 2020, subsequently cut it to 2.8% in 2020-
21 and to 2.5% by 2023.

any exam?
Watch this video
a) Financial System
c) General Topics
9. FinTech
AffairsMind
Hello Friends, These notes are for Inflation and Fintech. 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.
Inflation
Price difference
Inflation Rate X 100
Price in Base Year
5
X 100 25%
20
1 apple = Rs.20 1 apple = Rs.25

Inflation
In economics, inflation is a general rise in the price level of an economy over a period
of time. When the general price level rises, each unit of currency buys fewer goods
and services; consequently, inflation reflects a reduction in the purchasing power per
unit of money – a loss of real value in the medium of exchange and unit of account
within the economy.
Types of Inflation
Demand-Pull Inflation
Demand-pull inflation is the upward pressure on prices that follows a shortage in supply,
a condition that economists describe as "too many rupees chasing too few goods."
What causes Demand-Pull Inflation? A growing economy or increase in the supply of
money so consumers feel confident, they spend more and take on more debt,
government spending or fiscal stimulus and high employment rate. This leads to a steady
increase in demand, which means higher prices
Types of Inflation
Cost-Pull Inflation
Cost-push inflation occurs when overall prices increase due to increases in the
cost of wages and raw materials thus higher costs of production decrease the
aggregate supply in the economy. This type of inflation is caused due to various
reasons such as increase in price of inputs, hoarding and speculation of
commodities, increase in indirect taxes, crude oil price fluctuation, low growth
of agricultural sector and interest rates increased by RBI.
Measurement of Inflation
Inflation can be measured at three levels – producer, wholesaler and consumer. Prices
generally rise in each level till the commodity finally reach the hand of consumer.
Inflation at Producer Level

As of now in India, there is no index to measure inflation at producer level. A
Producer Price Index (PPI) is proposed, but so far this type of inflation
calculation has not started in India.
The index used to calculate wholesale inflation is known as Wholesale Price Index
(WPI). This inflation rate is often known as headline inflation. WPI is released by the
Office of Economic Adviser, Department for promotion of industry and internal
trade, Ministry of Commerce & Industry.
Measurement of Inflation
Consumer often directly buys from retailer. So the inflation experienced at retail shops is
the actual reflection of the price rise in the country. It also shows the cost of living better.
In India, the index which shows the inflation rate at retail level is known as Consumer
Price Index (CPI). CPI is released by National Statistics Office (NSO), Ministry of Statistics
& Programme Implementation (MoSPI) and the Labour Bureau, Ministry of Labour.
Wholesale Price Index
Three Major Groups
Weights
(eg- Food Articles,
Primary Articles Vegetables etc)
22.62
(eg- LPG,
Fuel and Power 13.15 Base Year – 2011-12
Petrol etc)
(eg- manufacture
Manufactured of food products, 64.23
Products sugar, textiles etc)
100
Weights Price Weighted Price Weighted

Price Price
Primary Articles 22.62 180 40.72 185 41.85
X 22.62% X 22.62%
Fuel and Power 13.15 150 19.73 160 21

X 13.15% X 13.15%
Manufactured 64.23 200 210 134.89

128.46
Products
X 64.23% X 64.23%
100 188.91 197.74
188.91 197.74
Weighted Price difference

Inflation Rate X 100
Weighted Price in Base Year
197.74-188.91
X 100
188.91
8.83
X 100 4.68%
188.91
Wholesale Price Index WPI Food Index
Three Major Groups
Manufactured
Primary Articles Fuel and Power
Products
Coal Food Product
Food articles:
Fruits, vegetables Beverages
,cereals, eggs, fish
Mineral Oils: Tobacco Product
Non Food articles: Airplane Turbine
Fuel, Naptha Textiles
Flowers, rubber,
cotton, raw silk Diesel Apparels
Petroleum
Minerals: Metallic LPG Leather Products
and Non-metallic
Electricity Paper Products
Crude Petroleum
and Natural gas Chemical Products
WPI Food Index
As a part of the revised WPI series (base year 2011-12), a separate WPI Food Index has
been launched. WPI food index measures the changes in prices of food items at the level
of producers. The WPI Food index is compiled by taking the aggregate of WPI for Food
Products under Manufacture Products and Food Articles under Primary Article using
weighted arithmetic mean.
1.Food Articles under Primary Article — 15.26
2.Food Products under Manufactured Products — 9.12
3.WPI Food Index (1 +2) – 24.38
Consumer Price Index
Retail Price Index
CPI measures the average change in prices of fixed baskets of goods and services that
households purchase for the purpose of consumption. It is also called Retail Inflation. There
were segment specific CPIs which were compiled regularly. There were four major segment
1.Consumer Price Index for Industrial Workers CPI (IW)
2.Consumer Price Index for Agricultural labour CPI (AL)
3.Consumer Price Index for Rural Labourers CPI (RL)
4.Consumer Price Index for Urban Non Manual Employees CPI(UNME)
As earlier 4 segments of CPI do not provide a true picture of price fluctuations

of various goods and services, which were consumed by the general
population in the country over a period of time. So, the National Statistical
Commission (NSC), under Dr. C. Rangarajan, in its Report (2001)
recommended the compilation of CPI for rural and urban areas.
•CPI (Urban, Rural and All India) is released by National Statistics Office (NSO),
Ministry of Statistics & Programme Implementation (MoSPI)
•CPI (Industrial Workers), CPI (Agricultural Labour) and CPI (Rural Labour) are a set
of Indices released by the Labour Bureau, Ministry of Labour.
Earlier the base year was 2010. Then the base CPI was revised from 2010 to 2012.
Consumer Price Index Weights
Food and Beverages 45.86
Components of CPI Housing 10.07

The major component in CPI (C)
are as follows (along with their
weights) Fuel and Light 6.84
1.Food and Beverages – 45.86
2.Housing – 10.07
3.Fuel and Light – 6.84 Clothing and Footwear 6.53
4.Clothing and Footwear – 6.53
5.Pan, tobacco and intoxicants –
Pan Tobacco and
2.38
intoxicants
2.38
6.Miscellaneous – 28.32
Miscellaneous 28.32
Consumer Food Price Index
Consumer Food Price Index is a component of CPI (C) . It measures the change
in the retail prices of the food products only. The Weightage of the Consumer
Food Price Index is 39.06.
Consumer Food Price Index

Food inflation
WPI Food Index
The combined index number of WPI Food indices together with the Consumer
Food Price Index published by CSO, would help monitor the food inflation
effectively.
Monetary Policy
Inflation Target = 4-6%
WPI or CPI?

Rural or Urban or Combined?
CPI Combined
Since, RBI has adopted Inflation Targeting, CPI (C) is used as nominal anchor for
conduct of monetary policy in India. [Monetary Policy Committee is mandated to
keep CPI (C) in range 2% – 6%. So CPI is used for inflation targeting.
Measures to Control Inflation
Monetary Policy Fiscal Policy

Open Market Operations
Public Distribution System
Market Stabilization Scheme
Trade Measures
Repo/ Reverse Repo
Bank Rate Essential Commodities Act
Marginal Standing Facility Minimum Support Price
Call Rate Price Stabilization Fund
Clearing the Concepts
Liability
Saving A/c and Fixed Deposits
Cash Reserve Ratio Statutory Liquidity Ratio

Net Demand and Time Liabilities
4% 18%
4 Cr 18 Cr 100 Cr
CRR & SLR
Net Demand and Time Liabilities
Cash Reserve Ratio Statutory Liquidity Ratio
Cash Reserve Ratio (CRR) is a specified minimum fraction of the total deposits of
customers, which commercial banks have to hold as reserves either in cash or as
deposits with the central bank.
Statutory liquidity ratio (SLR) is the Indian government term for reserve requirement
that the commercial banks in India require to maintain in the form of gold,
government approved securities before providing credit to the customers.
These both ratios are calculated against banks Net Demand and Time liabilities (NDTL).
Open Market Operations
Open Market Operations (OMOs) are market operations conducted by RBI by way
of sale/purchase of government securities to/from the market with an objective
to adjust the rupee liquidity conditions in the market on a durable basis. If there is
excess liquidity, RBI resorts to sale of securities and sucks out the rupee liquidity.
Similarly, when the liquidity conditions are tight, RBI buys securities from the
market, thereby releasing liquidity into the market.
Market Stabilization Scheme

Market Stabilization scheme (MSS) is a monetary policy intervention by the RBI
to withdraw excess liquidity (or money supply) by selling government securities
in the economy. The MSS was introduced in April 2004. This is mainly done when
government don’t want to burrow money from the market but still RBI uses this
mechanism just to reduce money supply in the market.
Bank Rate
Bank rate is the rate charged by the central bank for lending funds to commercial
banks. This bank rate is a long term loan rate which is used when banks keep no
collateral against the loan. Bank rates influence lending rates of commercial banks.
Higher bank rate will translate to higher lending rates by the banks. In order to curb
liquidity, the central bank can resort to raising the bank rate and vice versa.
Repo Rate
Repo rate is the rate at which the central bank of a country (Reserve Bank of India in
case of India) lends money to commercial banks for short term in the event of any
shortfall of funds. In the event of inflation, central banks increase repo rate as this
acts as a disincentive for banks to borrow from the central bank. This ultimately
reduces the money supply in the economy and thus helps in arresting inflation. The
central bank takes the contrary position in the event of a fall in inflationary pressures.
Reverse Repo Rate
Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of
India in case of India) borrows money from commercial banks within the country.
It is a monetary policy instrument which can be used to control the money supply in
the country.
Repo Rate Reverse Repo Rate Liquidity Adjustment Facility
Repo and reverse repo rates form a part of the liquidity adjustment facility.
Marginal Standing Facility
Marginal standing facility (MSF) is a window for banks to borrow from the Reserve
Bank of India in an emergency situation. Banks borrow from the central bank by
pledging government securities from SLR quota at a rate higher than the repo rate
under liquidity adjustment facility or LAF in short.
Call Rate
The call rate is the interest rate at which banks lend overnight money to each
other without collateral.
Fiscal Policy
The two main components of fiscal policy are government receipt and government
expenditure. In fiscal policy, the government controls inflation either by reducing
private spending or by decreasing government expenditure, or by using both. It
reduces private spending by increasing taxes on private businesses and salaried
individuals. When private spending is more, the government reduces its
expenditure to control inflation.
Public Distribution System

The Public distribution system (PDS) is an Indian food Security System established under
the Ministry of Consumer Affairs, Food, and Public Distribution. PDS evolved as a system
of management of scarcity through distribution of food grains at affordable prices. At
times of high inflation, especially food inflation, PDS prove to be very effective by
distributing demand pressure on food items.
Trade Measures
Inflation rise in economy when demand for essential items increase and the supply for
the same is in short. Government can use trade measures to control inflation effectively.
When any commodity is in short supply, government can import from other countries to
meet demand in the country. Similarly, whenever supply is excess in the economy
government can give incentive to exporters to export that item at lower price.
Essential Commodities Act

The ECA is used to curb inflation by allowing the Centre to enable control by
state governments of trade in a wide variety of commodities. The states imposed
stock limits to restrict the movement of any commodity deemed essential. It
helped to discourage hoarding of items, including food commodities, such as
pulses, edible oils and vegetables.
Minimum Support Price
The Minimum Support Price (MSP) is the rate at which the government
purchases crops from farmers, and is based on a calculation of at least one-and-
a-half times the cost of production incurred by the farmers. MSP is a “minimum
price” for any crop that the government considers as remunerative for farmers
and hence deserving of “support”. Higher MSP has been announced so as to
incentivize production and thereby enhance availability of food items which may
help moderate prices.
Price Stabilization Fund
Established in 2014-15, Price Stabilization Fund (PSF) is any fund created to absorb
extreme volatility in selected commodity prices. Such goods will be procured directly
from farmers or farmers' organisations at the farm gate/mandi, and made available to
consumers at a more affordable price. The sum in the fund is usually used for activities
aimed at bringing down/up the high/low prices say, for example, acquisition of certain
goods and distribution of the same as and when appropriate so that costs remain
within a range.
Headline Inflation
Headline Inflation is the measure of total inflation within an economy. It

includes price rise in food, fuel and all other commodities. The inflation rate
expressed in Wholesale Price Index (WPI) usually denotes the headline
inflation. Though Consumer Price Index (CPI) values are often higher, WPI
values traditionally make headlines.
Non food Inflation Core Inflation Underline Inflation
Core inflation, which is also called Underline Inflation or Non-food Inflation,

does not consider the inflation in food and fuel. This is a concept derived from
headline inflation. There is no index for direct measurement of core inflation
and now it is measured by excluding food and fuel items from Wholesale Price
Index (WPI) or Consumer Price Index (CPI).
Inflation Disinflation Deflation
Price level rise Price level rise Price level falls
Basket of goods Inflation rate falls Basket of goods
100 120 7% 5% 100 80
Rate is above 0% Rate is below 0%
+ve
Last Year
Inflation line
-ve
Disinflation
Disinflation is a situation in which the rate of inflation falls over a period of
time. For example disinflation is when the inflation rate is falling from say
5% to 3%. But inflation rate will always above zero.
Deflation
Deflation is the reverse of inflation. It refers to a sustained decline in the price

level of goods and services. It occurs when the annual inflation rate falls below
zero percent (a negative inflation rate). Japan suffered from deflation for almost
a decade in 1990s.
Creeping Inflation Galloping Inflation
Mild Moderate
Creeping Inflation is also known as mild If creeping or mild inflation is not checked and
inflation or moderate inflation. This type if it is uncontrollable, it may assume the
of inflation occurs when the price level character of galloping inflation. Inflation in
persistently rises over a period of time the double or triple digit range of 20, 100 or
at a mild rate. Here, rate of inflation is 200 percent a year is called galloping inflation
less than 10 per cent annually, or it is a . Many Latin American countries such as
single digit inflation rate. Argentina, Brazil had inflation rates of 50 to
700 percent per year in the 1970s and 1980s.
Hyperinflation
Hyperinflation is a stage of very high rate of inflation. While economies seem to
survive under galloping inflation, a deadly strain takes hold when the cancer of
hyperinflation strikes. Nothing good can be said about a market economy in which
prices are rising a million or even a trillion percent per year . Hyperinflation occurs
when the prices go out of control and the monetary authorities are unable to impose
any check on it. Germany had witnessed hyperinflation in 1920’s.
Stagflation
Stagflation is an economic situation in which inflation and economic stagnation

or recession occur simultaneously and remain unchecked for a period of time.
Stagflation was witnessed by developed countries in 1970s, when world oil
prices rose dramatically.
Inflation Survey by RBI
Inflation expectation RBI’s OBICUS: Order

Banking Business
survey for households Books, Inventories
Service Price by RBI
by RBI and Capacity
Utilization Survey
Growth Vs inflation
Economy will fall Inflation will fall
Economy will rise Inflation will rise

How to strike Balance??
Subir Gokarn
The trade-off i.e. increasing the interest rates which decrease
2011
growth rate is essentially a short-term one, with monetary
policy aiming to keep growth at close to its long-term,
structural trend as possible. Thus. it cannot have any significant
impact on the trend rate of growth. In fact, long-term growth
can only be helped, not hurt, by low and stable inflation.
How to strike Balance??
Government has option to help people by providing money in their hands directly to
spend or by increasing infrastructure and giving them jobs. Both this options increase
spending and thus the economy. But the earlier option will be for short term and
latter will be for long term. The Government thus should keep a balance in both these
options and focus on improving economy for long term and creating a sustainable
trend to grow.
FinTech
Fin Tech
Fintech is used to describe new technology that seeks to improve and

automate the delivery and use of financial services. The key segments within
the FinTech space include Digital Payments, Digital Lending, BankTech,
InsurTech and RegTech, Cryptocurrency.
Challenges for Fintech
Cyber Attacks
Automation of processes and digitization of data makes fintech systems vulnerable
to attacks from hackers. Recent instances of hacks at debit card companies and
banks are illustrations of the ease with which hackers can gain access to systems
and cause irreparable damage.
Difficulty in Regulation
Regulation is also a problem in the emerging world of FinTech, especially

cryptocurrencies. In most countries, they are unregulated and have become fertile
ground for scams and frauds. Due to the diversity of offerings in FinTech, it is
difficult to formulate a single and comprehensive approach to these problems.
Challenges for Fintech
Data Privacy
The most important questions for consumers pertain to the responsibility for
cyber attacks as well as misuse of personal information and important
financial data.
Remedies for Challenges

Guarding against Cybercriminals
Currently, India majorly relies on import of offensive as well as defensive
cybersecurity capabilities. Given the growing scale of adoption of technology, it is
imperative for India to attain Self-Sufficiency in this domain.
Remedies for Challenges
Educating Consumers
Apart from establishing technological safeguards, educating and training customers
to spread awareness about the benefits of fintech and guard against cyberattacks
will also help in democratization of FinTech.
Data protection Law

Established fintech sandboxes by RBI to evaluate the implications of technology in
the sector is a step in the right direction. However, there is a requirement for a
strong data protection framework in India.
The Reserve Bank of India (RBI) set up an internal “FinTech department” for focusing
on the dynamically changing financial landscape in India.
International Financial Service Centre
An International Finance Service Centre (IFSC)

enables bringing back to India the financial services
and transactions that are currently carried out in
offshore financial centers by Indian corporate entities
and overseas branches / subsidiaries of financial
institutions (FIs) by offering business and regulatory
environment that is comparable to other leading
international financial centers in the world like
London, New York and Singapore. An IFSC caters
IFSC to customers outside the jurisdiction of the domestic
economy. Such centres deal with flows of finance,
financial products and services across borders.
Services by IFSC
Fund-raising services for individuals, corporations and governments.
Asset management and global portfolio diversification undertaken by pension

funds, insurance companies and mutual funds.
Global tax management and cross-border tax liability optimization, which

provides a business opportunity for financial intermediaries, accountants and
law firms.
Merger and acquisition activities among trans-national corporations.
India’s IFSC
The Gujarat International Finance Tech City (GIFT City) in Gandhinagar, Gujarat
is India’s first and only International Financial Services Centre (IFSC) where banks,
stock exchanges and financial services firms have set up their global operations.
International Financial Services Centers Authority

The IFSCA was established in April 2020 under the International Financial Services
Centres Authority Act, 2019. It is a statutory authority established by the Indian
Government. It is an authority to develop and regulate financial services, financial
products and financial institutions in the International Financial Services Centre
(IFSC) in India. IFSCA is headquartered in Gandhinagar.
Prior to the establishment of IFSCA, the domestic financial regulators, namely, RBI,
SEBI, PFRDA and IRDA regulated the business in IFSC.
International Financial Services Centers Authority
9 Members
1.Chairperson
2. 1 member from RBI
3. 1 member from SEBI
4. 1 member from PFRDA
5. 1 member from IRDAI 3 years

6. 2 members from the Finance Ministry
The term of each member
7. 2 members appointed on recommendation of a is three years subject to
Selection Committee reappointment.
any exam?
Watch this video
a) Financial System
c) General Topics
1. Risk Management in Banking Sector Financial Statements
9. FinTech
Financial Statements
Financial Ratios
Income Statement
ABC Ltd.
Balance Sheet
Financial Ratios
Cash Flow Statement

Profit and Loss Statement Statement of Revenues and Expenses
Operations Statement Statement of Earnings
Revenue Profits Expenses
Revenue Expenses Revenue Expenses

Profit Loss
Income Statement
An income statement is a financial statement that consists of

two things in particular i.e. Revenues and expenses. With the
help of which we determine Profit/ loss of a company. If the
Revenue is more than expenses then the difference is
considered as Profit. Whereas, if Expenses is more than
Revenue then the difference is considered as Loss. Income
Statement can be called by different names like Profit and
Revenue Profits Expenses
Loss Statement, Operations Statement, Statement of
Revenues and expenses and Statement of earnings.
Two ways of making Income Statement
Single Step Format Multi Step Format

Single Step Format
ABC Ltd.
Total Revenue
Total Revenue = 100 Cr
Total Expenses Total Expenses = 70 Cr

Tax Rate = 30%
100 Cr -70 Cr
Total Revenue – Total Expenses Profit Before Tax = 30 Cr
= Profit Before Tax (PBT)
Tax = 30% * 30 Cr = 9 Cr
Profit Before Tax – Income Tax
= Net Profit / Net Income 30 Cr - 9 Cr
Net Profit = 21 Cr
Multi Step Format
Cost of Goods Sold

Total Revenue
Cost of Goods Sold
Raw Material
Gross Profit
Labor
Total Operating Expenses
Total Operating Expenses
Operating Profit
Earning before Interest and Taxes (EBIT)
Selling, General and
Interest Cost Administrative expenses
Profit Before Tax Depreciation Expenses
Income Tax
Interest
Net Profit / Net Income
Multi Step Format
Total Revenue 100 Cr

ABC Ltd.
Raw Material 25 Cr
Cost of Goods Sold 40 Cr Labor 15 Cr
Gross Profit 60 Cr Selling, General and
Total Operating Expenses Administrative expenses 20 Cr
25 Cr
Depreciation Expenses 5 Cr
Operating Profit 35 Cr
Earning before Int & Taxes (EBIT) 35 Cr
Interest Cost 5 Cr
Profit Before Tax 30 Cr
Income Tax 9 Cr Income Tax 30%
Net Profit / Net Income 21 Cr Single Step Format Net Profit = 21 Cr

Income Statement
ABC Ltd.
Balance Sheet
Financial Ratios
Cash Flow Statement

a) Financial System
c) General Topics
9. FinTech
Income Statement
ABC Ltd.
Balance Sheet
Financial Ratios
Cash Flow Statement

Book Value
Net Worth
Equity
Owner’s equity
Assets Liabilities Shareholder’s Equity
Economic
Value
Assets Equity + Liabilities
Balanced
Assets = Equity + Liabilities
Balance Sheet Equation
Two ways of making Balance Sheet
1. Horizontal Balance Sheet 2. Vertical Balance Sheet
Left Right
Assets
Equity
Assets
+
Liabilities
Equity + Liabilities
Assets
1. Current Assets < 1 year 2. Non - Current Assets > 1 year
Use or cash Long term Assets
Fixed Assets
Marketable
Securities
ABC Ltd.
Cash and Cash Short Term Land Building Factories

Equivalents Investments
Inventory Account Receivables Long Term Investments

Equipment
Liability
1. Current Liabilities < 1 year 2. Non - Current Liabilities
Long Term Liabilities
> 1 year
Debt
Short Term Loans Accounts Payable

Long Term Loans
Working Current Current
Capital Assets Liabilities
Difference
Equity
Net Profit
Dividend
Retained Earnings
Equity Share Capital
Loan Repay
Business Expand
Assets
Non Current (Fixed) Assets…………………………………..50 Cr
ABC Ltd.
Land and Buildings……………………………………10 Cr
Machinery…………………………………………………5 Cr
Investments……………………………………………..35 Cr
Current Assets……………………………………………………30 Cr
Inventory………………………………………………….8 Cr
Accounts Receivables……………………………….5 Cr
Marketable Securities………………………………10 Cr
Cash and Cash Equivalents………………………..7 Cr
Total Assets……………………………………………………….80 Cr
Non- Current Liabilities………………………………………20 Cr
Long Term Loans………………………………………20 Cr
Current Liabilities……………………………………………….20 Cr
Accounts Payable……………………………………..20 Cr
Equity………………………………………………………………..40 Cr
Equity capital (19 lakh shares * Rs.100).…...19 Cr
Retained Earnings…………………………………….15 Cr
Dividend…………………………………………………..6 Cr
Total Equity and Liabilities………………………………...80 Cr
Working Capital (CA-CL)……………………………………..10 Cr
Income Statement
ABC Ltd.
Balance Sheet
Financial Ratios
Cash Flow Statement

a) Financial System
c) General Topics
9. FinTech
Income Statement
ABC Ltd.
Balance Sheet
Financial Ratios
Cash Flow Statement

Assets
Total Revenue 100 Cr Machinery…………………………………………………5 Cr
Investments……………………………………………..35 Cr
Cost of Goods Sold 40 Cr Current Assets……………………………………………………30 Cr
Inventory………………………………………………….8 Cr
Gross Profit 60 Cr Accounts Receivables……………………………….5 Cr
Total Operating Expenses 25 Cr Cash and Cash Equivalents………………………..7 Cr
Operating Profit Total Assets……………………………………………………….80 Cr
35 Cr
Earning before Int & Taxes (EBIT) 35 Cr Equity + Liabilities
Interest Cost 5 Cr Long Term Loans………………………………………20 Cr
Profit Before Tax 30 Cr Accounts Payable……………………………………..20 Cr
Income Tax 9 Cr Equity………………………………………………………………..40 Cr
Net Profit / Net Income 21 Cr Retained Earnings…………………………………….15 Cr
Dividend…………………………………………………..6 Cr
Income Statement
ABC Ltd.
Balance Sheet
Financial Ratios
Cash Flow Statement

Financial Ratios
Liquidity Ratios Capital Structure Ratios
Coverage Ratios Turnover Ratios
Profitability Ratios
Liquidity ratios
Current Ratio
CA CL
The current ratio is a liquidity ratio that measures a
company’s ability to pay short-term obligations or Short term
those due within one year. The current ratio is called Obligations
current because it incorporates all current assets
< 1 year
and current liabilities. Ideal ratio is 2:1.
Ideal = 2:1
Current Assets
Current Ratio
Current Liabilities
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Liquidity ratios
Current Ratio
CA CL
The current ratio is a liquidity ratio that measures a
company’s ability to pay short-term obligations or Short term
those due within one year. The current ratio is called Obligations
current because it incorporates all current assets
< 1 year
and current liabilities. Ideal ratio is 2:1.
Ideal = 2:1
Current Assets 30 Cr
Current Ratio 1.5
Current Liabilities 20 Cr
Assets
Current Ratio Machinery…………………………………………………5 Cr
Investments……………………………………………..35 Cr
Current Assets……………………………………………………30 Cr
Inventory………………………………………………….8 Cr
Accounts Receivables……………………………….5 Cr
Cash and Cash Equivalents………………………..7 Cr
Total Assets……………………………………………………….80 Cr
Quick Ratio Long Term Loans………………………………………20 Cr
Current Assets - Inventory Accounts Payable……………………………………..20 Cr
Equity………………………………………………………………..40 Cr
Current Liabilities Equity capital (19 lakh shares * Rs.100).…...19 Cr
Retained Earnings…………………………………….15 Cr
A/c Receivables + Mark. Sec. + Cash Dividend…………………………………………………..6 Cr
Current Liabilities Working Capital (CA-CL)……………………………………..10 Cr
Liquidity ratios
Quick Ratio
The quick ratio is an indicator of a company’s short-
term liquidity position and measures a company’s ability to
meet its short-term obligations with its most liquid assets.
Acid Test
Since it indicates the company’s ability to instantly use its
near-cash assets (assets that can be converted quickly to Ideal = 1:1
cash) to pay down its current liabilities, it is also called
the acid test ratio. Ideal ratio is 1:1.
Current Assets - Inventory

Quick Ratio
Current Liabilities
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Liquidity ratios
Quick Ratio
The quick ratio is an indicator of a company’s short-
term liquidity position and measures a company’s ability to
meet its short-term obligations with its most liquid assets.
Acid Test
Since it indicates the company’s ability to instantly use its
near-cash assets (assets that can be converted quickly to Ideal = 1:1
cash) to pay down its current liabilities, it is also called
the acid test ratio. Ideal ratio is 1:1.
Current Assets - Inventory 30 Cr – 8 Cr

Quick Ratio 1.1 : 1
Liquidity ratios
Cash Ratio
The cash ratio is a measurement of a company's liquidity,
specifically the ratio of a company's total cash and cash
equivalents to its current liabilities. The metric calculates Cash and its equivalents
a company's ability to repay its short-term debt with cash
Marketable Securities
or near-cash resources like marketable securities. The
cash ratio is almost like an indicator of a firm’s value Worst Case Scenario
under the worst-case scenario—say, where the company
is about to go out of business.
Cash and Cash Eq. + Mark. Sec.

Cash Ratio
Current Liabilities
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Liquidity ratios
Cash Ratio
The cash ratio is a measurement of a company's liquidity,
specifically the ratio of a company's total cash and cash
equivalents to its current liabilities. The metric calculates Cash and its equivalents
a company's ability to repay its short-term debt with cash
Marketable Securities
or near-cash resources like marketable securities. The
cash ratio is almost like an indicator of a firm’s value Worst Case Scenario
under the worst-case scenario—say, where the company
is about to go out of business.
Cash and Cash Eq. + Mark. Sec. 17 Cr

Cash Ratio 8.5 : 10
Capital Structure Ratios
Shareholder Equity ratio
The shareholder equity ratio indicates how much of

a company's assets have been generated by issuing
equity shares rather than by taking on debt. The Assets Generated
shareholder equity ratio is calculated by dividing
total shareholders' equity by the total assets of the
company.
Shareholder Total Shareholder Equity

Equity Ratio
Total Assets
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Shareholder Equity ratio
The shareholder equity ratio indicates how much of

a company's assets have been generated by issuing
equity shares rather than by taking on debt. The Assets Generated
shareholder equity ratio is expressed as a percentage
and calculated by dividing total shareholders'
equity by the total assets of the company.
Shareholder Total Shareholder Equity 19 Cr

0.238
Equity Ratio
Total Assets 80 Cr
Debt Ratio ( Total debt to assets ratio)

The term debt ratio refers to a financial ratio that
measures the extent of a company’s leverage. The debt
ratio is defined as the ratio of total debt (liabilities) to Assets Funded by Debt
total assets. A ratio greater than 1 shows that a
considerable portion of a company's debt is funded by Total Liabilities
assets, which means the company has more liabilities
than assets. A ratio below 1 means that a greater
portion of a company's assets is funded by equity
Total Liabilities
Debt Ratio
Total Assets
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Debt Ratio ( Total debt to assets ratio)

The term debt ratio refers to a financial ratio that
measures the extent of a company’s leverage. The debt
ratio is defined as the ratio of total debt (liabilities) to Assets Funded by Debt
total assets. A ratio greater than 1 shows that a
considerable portion of a company's debt is funded by Total Liabilities
assets, which means the company has more liabilities
than assets. A ratio below 1 means that a greater
portion of a company's assets is funded by equity
Total Liabilities 40 Cr
Debt Ratio 0.5
Total Assets 80 Cr
Debt to equity ratio

The debt-to-equity (D/E) ratio is used to evaluate a
company's financial leverage and is calculated by Financial Leverage
dividing a company’s total liabilities by
its shareholder equity. It is a measure of the degree Debt Vs Equity
to which a company is financing its operations
through debt versus wholly owned funds.
Debt to Total Liabilities

Equity Ratio
Shareholder Equity
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Debt to equity ratio

The debt-to-equity (D/E) ratio is used to evaluate a
company's financial leverage and is calculated by Financial Leverage
dividing a company’s total liabilities by
its shareholder equity. It is a measure of the degree Debt Vs Equity
to which a company is financing its operations
through debt versus wholly owned funds.
Debt to Total Liabilities 40 Cr

Equity Ratio 1
Shareholder Equity 40 Cr
Coverage Ratios
Interest Coverage ratio

The interest coverage ratio is used to determine how
easily a company can pay interest on its outstanding debt. Can company pay
The interest coverage ratio is calculated by dividing a interest
company's earnings before interest and taxes (EBIT) by its
interest expense during a given period. The interest EBIT and not Net Profit
coverage ratio is sometimes called the times interest
Times Interest Earned
earned (TIE) ratio.
Interest EBIT
Coverage
Ratio Interest Expense
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Coverage Ratios
Interest Coverage ratio

The interest coverage ratio is a debt and profitability ratio
Can company pay
used to determine how easily a company can
interest
pay interest on its outstanding debt. The interest coverage
ratio is calculated by dividing a company's earnings before
EBIT and not Net Profit
interest and taxes (EBIT) by its interest expense during a
given period. The interest coverage ratio is sometimes Times Interest Earned
called the times interest earned (TIE) ratio.
Interest EBIT 35 Cr
Coverage 7
Ratio Interest Expense 5 Cr
Total Revenue 100 Cr Bank
Cost of Goods Sold 40 Cr
Gross Profit 60 Cr
EMI
Total Operating Expenses 25 Cr
Operating Profit 35 Cr
Earning before Int & Taxes (EBIT) 35 Cr Interest Principal 10 Cr
Interest Cost 5 Cr
Profit Before Tax 30 Cr Interest Coverage ratio
Income Tax 9 Cr
Net Profit / Net Income 21 Cr
15 Cr Debt Service Coverage Ratio
Coverage Ratios
Debt Service Coverage Ratio
The debt-service coverage ratio (DSCR) is a measurement of a

firm's available cash flow to pay current debt obligations. Interest + Principal
Debt Service Coverage ratio DSCR = Earnings available for Debt
Service / (Interest + Installments). It measures the ability to Earn enough to pay
meet the commitment of various debt services like interest , debt
installment etc. Ideal ratio is 2. The DSCR shows investors
whether a company has enough income to pay its debts.
Debt Service EBIT 35 Cr

Coverage 2.33
Ratio Debt Service 15 Cr
Turnover Ratios
Total Assets Turnover Ratio
The asset turnover ratio measures the value of a company's

sales or revenues relative to the value of its assets. The Use of Total assets
asset turnover ratio can be used as an indicator of the
efficiency with which a company is using its assets to How much revenue?
generate revenue. It is a measure of total asset utilization.
It helps to answer – what sales are been generated by each
rupees worth of assets invested in the business.
Total asset Sales

Turnover
Ratio Total Assets
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Turnover Ratios
Total Assets Turnover Ratio
The asset turnover ratio measures the value of a company's

sales or revenues relative to the value of its assets. The Use of Total assets
asset turnover ratio can be used as an indicator of the
efficiency with which a company is using its assets to How much revenue?
generate revenue. It is a measure of total asset utilization.
It helps to answer – what sales are been generated by each
rupees worth of assets invested in the business.
Total asset Sales 100 Cr

Turnover 1.25
Ratio Total Assets 80 Cr
Turnover Ratios
Fixed Assets Turnover Ratio
The fixed asset turnover ratio (FAT) is, in general, used by

Use of Fixed assets
analysts to measure operating performance. This efficiency
ratio compares net sales to fixed assets and measures a How much revenue?
company's ability to generate net sales from its fixed-asset
investments, namely property, plant, and Non current Assets
equipment (PP&E).
Fixed asset Sales

Turnover
Ratio Fixed Assets
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Turnover Ratios
Fixed Assets Turnover Ratio
The fixed asset turnover ratio (FAT) is, in general, used by

Use of Fixed assets
analysts to measure operating performance. This efficiency
ratio compares net sales (income statement) to fixed assets How much revenue?
(balance sheet) and measures a company's ability to
generate net sales from its fixed-asset investments, Non current Assets
namely property, plant, and equipment (PP&E).
Fixed asset Sales 100 Cr

Turnover 2
Ratio Fixed Assets 50 Cr
Turnover Ratios
Capital Turnover Ratio Equity Turnover Ratio
Capital (Equity) turnover compares the annual sales
of a business to the total amount of its stockholders'
equity. The intent is to measure the proportion of Use of Equity
revenue that a company can generate with a given
How much revenue?
amount of equity. It is also a general measure of the
level of equity investment needed in a specific
industry in order to generate sales.
Capital Sales
Turnover
Ratio Stockholder’s Equity
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Turnover Ratios
Capital Turnover Ratio Equity Turnover Ratio
Capital (Equity) turnover compares the annual sales
of a business to the total amount of its stockholders'
equity. The intent is to measure the proportion of
revenue that a company can generate with a given
amount of equity. It is also a general measure of the
level of equity investment needed in a specific
industry in order to generate sales.
Capital Sales 100 Cr

Turnover 5.26
Ratio Stockholder’s Equity 19 Cr
a) Financial System
c) General Topics
9. FinTech
Income Statement
ABC Ltd.
Balance Sheet
Financial Ratios
Cash Flow Statement

Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Financial Ratios
Gross Profit Ratio
Gross profit margin is a metric analysts use to

assess a company's financial health by Sales after COGS
calculating the amount of money left over
from product sales after subtracting the cost How much Gross profit
of goods sold (COGS). This ratio tells us how per sales
much sales or revenue is required for gaining
particular Gross Profit.
Gross Profit Gross Profit

Ratio
Sales
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Gross Profit Ratio
Gross profit margin is a metric analysts use to

assess a company's financial health by Sales after COGS
calculating the amount of money left over
from product sales after subtracting the cost How much Gross profit
of goods sold (COGS). This ratio tells us how per sales
much sales or revenue is required for gaining
particular Gross Profit.
Gross Profit Gross Profit 60 Cr

0.6
Ratio 100 Cr
Sales
Operating Profit Ratio
The operating margin measures how much profit

a company makes on a dollar of sales after How much operating
paying for variable costs of production, such as profit per sales
wages and raw materials, but before paying
interest or tax. It is calculated by dividing a
company’s operating income by its net sales.
Operating Operating Profit

Profit Ratio
Sales
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Operating Profit Ratio
The operating margin measures how much profit

a company makes on a dollar of sales after How much operating
paying for variable costs of production, such as profit per sales
wages and raw materials, but before paying
interest or tax. It is calculated by dividing a
company’s operating income by its net sales.
Operating Operating Profit 35 Cr

0.35
Profit Ratio 100 Cr
Sales
Net Profit Ratio
The net profit margin, or simply net

How much net profit per
margin, measures how much net income or
sales
profit is generated as a percentage of revenue.
It is the ratio of net profits to revenues for a
company or business segment.
Net Profit Net Profit

Ratio
Sales
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Net Profit Ratio
The net profit margin, or simply net

How much net profit per
margin, measures how much net income or
sales
profit is generated as a percentage of revenue.
It is the ratio of net profits to revenues for a
company or business segment.
Net Profit Net Profit 21 Cr

0.21
Ratio 100 Cr
Sales
Return on Assets and Investments
Return on Assets Ratio (ROA)
The term return on assets (ROA) refers to a How much net profit
financial ratio that indicates how profitable a from assets
company is in relation to its total assets.
Return on Net Profit

Assets (ROA)
Total Assets
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Return on Assets Ratio (ROA)
The term return on assets (ROA) refers to a How much net profit
financial ratio that indicates how profitable a from assets
company is in relation to its total assets.
Return on Net Profit 21 Cr

0.2625
Assets (ROA) 80 Cr
Total Assets
Return on Capital Employed (Pre-tax)
Return on Capital Employed (ROCE) is a

financial ratio that measures a company's How much return for money
profitability and the efficiency with which its invested in company
capital is employed Equity Loans
Return on Capital EBIT

Employed (ROCE) Capital Employed
(Pre-tax)
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Return on Capital Employed (Pre-tax)
Return on Capital Employed (ROCE) is a

financial ratio that measures a company's How much return for money
profitability and the efficiency with which its invested in company
capital is employed Equity Loans
EBIT 35 Cr
Return on Capital
0.89
Employed (ROCE) Capital Employed 39 Cr
(Pre-tax)
Return on Capital Employed (Post-tax)
t = tax rate (30%)
EBIT (1-t) 35 Cr * 0.7

Return on Capital
0.63
Employed (ROCE) Capital Employed 39 Cr
(Post-tax)
Don’t confuse
Turnover Ratios Profitability Ratios
Capital Return on Capital EBIT
Sales
Turnover Employed (ROCE) Capital Employed
Ratio Stockholder’s Equity (Pre-tax)
Capital Capital Employed
Equity Equity
Loans
Return on Equity
ABC Ltd.
Net Profit 21 Cr
1 2
0 Cr Preference General
Shareholders
21 Cr
Shareholders
Fixed Dividend Return on Equity

Return on Equity
Return on equity (ROE) is a measure of financial

performance calculated by dividing net income by How much return for money
shareholders' equity. Because shareholders' invested by shareholders
equity is equal to a company’s assets minus its
debt, ROE is considered the return on net assets.
Net Profit – Preference Dividend (21 -0) Cr

Return on Equity 1.10
Stockholder’s Equity 19 Cr
Shareholder’s point of view
Earnings per share
ABC Ltd.
Net Profit 21 Cr
1 2
Preference General (equity)
Shareholders Shareholders
Earnings
Profit Available for
0 Cr 21 Cr
equity shareholders
15 Cr 6 Cr
Retained Earnings Dividend
Earnings per share
Earnings per share (EPS) is a company's net profit
divided by the number of common shares it has
How much earning for
outstanding. EPS indicates how much money a
per share
company makes for each share of its stock and is a
widely used metric for estimating corporate value.
Earnings
Net Profit – Preference Dividend
Earnings per
share No of equity shares outstanding
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Earnings per share
Earnings per share (EPS) is a company's net profit
divided by the number of common shares it has
How much earning for
outstanding. EPS indicates how much money a
per share
company makes for each share of its stock and is a
widely used metric for estimating corporate value.
Earnings
Net Profit – Preference Dividend 21 Cr
Earnings per
110.5
share No of equity shares outstanding 19 lakh
Dividend Per share
Dividend per share (DPS) is the sum of declared dividends
issued by a company for every ordinary share
outstanding. The figure is calculated by dividing the total How much dividend for
dividends paid out by a business, including interim per share
dividends, over a period of time, usually a year, by the
number of outstanding ordinary shares issued.
Dividend Paid to
Dividend Per equity shareholders
Share No. of equity shares outstanding
Assets
Investments……………………………………………..35 Cr
Inventory………………………………………………….8 Cr
35 Cr
Dividend…………………………………………………..6 Cr
Dividend Per share
Dividend per share (DPS) is the sum of declared dividends
issued by a company for every ordinary share
outstanding. The figure is calculated by dividing the total How much dividend for
dividends paid out by a business, including interim per share
dividends, over a period of time, usually a year, by the
number of outstanding ordinary shares issued.
Dividend Paid to
equity shareholders 6 Cr
Dividend Per 31.58
Share No. of equity shares outstanding 19 lakh
Dividend Per share Earnings per share
Dividend Payout
Dividend Per share
Earnings per share
Dividend Paid to
Net Profit – Preference Dividend
equity shareholders
No. of equity shares outstanding No of equity shares outstanding

Dividend Paid to
equity shareholders No of equity shares outstanding
No. of equity shares outstanding Net Profit – Preference Dividend

ABC Ltd.
Net Profit 21 Cr
1 2
Preference General (equity)
Shareholders Shareholders
Earnings
Profit Available for
0 Cr 21 Cr
equity shareholders
Dividend Payout
15 Cr 6 Cr
Retained Earnings Dividend
Dividend Per share
Dividend Payout
Earnings per share
Dividend Paid to
equity shareholders 6 Cr
Dividend Payout 0.286
Net Profit – Preference Dividend 21 Cr
The dividend payout ratio is the ratio of the total amount

of dividends paid out to shareholders relative to the net income of the
company. The amount that is not paid to shareholders is retained by the
company to pay off debt or to reinvest in core operations.
Investors point of view
Price Earnings Per share (P/E ratio)
The price-to-earnings ratio (P/E ratio) is the ratio for valuing
a company that measures its current share price relative to
its earnings per share (EPS). The price-to-earnings ratio is
How much market
also sometimes known as the price multiple or the
price to get one rupee
earnings multiple. A high P/E ratio could mean that a
company's stock is overvalued, or else that investors are
expecting high growth rates in the future.
Market Price Per Share 500

Price Earnings 4.52
per share Earnings per share 110.5
Financial Ratios
a) Financial System
c) General Topics
9. FinTech
Income Statement
ABC Ltd.
Balance Sheet
Financial Ratios
Cash Flow Statement

Cash Flow Statement
ABC Ltd.
Change in Cash
Total Revenue 100 Cr

Cost of Goods Sold 40 Cr
Net Profit / Net Income 21 Cr
ABC Ltd. 60 days
Sale
Revenue
Accrual Accounting
Expense
Revenue
Expense
Paise aye ya na Profit
aye.
Cash Flow Statement
Importance
ABC Ltd.
Salary to employees
Interest to loan
Day to day expense
Cash Flow Statement
Cash flow from Cash flow from Cash flow from

Operating Activities Investing Activities Financing Activities
Cash inflow – cash outflow Cash inflow – cash outflow Cash inflow – cash outflow
Net Cashflow Net Cashflow Net Cashflow
Total Change in Cash

Cash Flow Statement
Cash flow from operating activities
Cash received from customers…………………………………………………….8 Cr
Cash paid to suppliers…………………………………………….……………………2 Cr
Employee Compensation.…………………………………………………………….0.5 Cr
Other operating expenses……………………………………………………….…..2 Cr
Net Cash flow from Operating activities……………………………………..3.5 Cr
Cash flow from Investing activities
Sale of land………………………….……………………………………………………….5 Cr
Purchase of Equipment…………………………………………………………………3 Cr
Mutual Fund buying……..…………………………………………………..………….0.5 Cr
Interest Received…………..……………………………………………..………….…..0.5 Cr
Net Cash flow from Investing activities……………………………..…………..2 Cr
Cash flow from Financing activities
Common Share dividends…….…………………………………………….………….1 Cr
Payment of long term debt……………………………………………….……………1 Cr
Net Cash flow from Financing activities……………………………..…………..2 Cr
Net increase or decrease in cash (3.5+2-2) ………………………………..…..3.5 Cr
Beginning Cash Balance…………………………..………………………………..…..10 Cr

Ending Cash Balance…………………………..……………………………..……..…..13.5 Cr
Income Statement
ABC Ltd.
Balance Sheet
Financial Ratios
Cash Flow Statement

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AffairsMind

Hello Friends, These notes are for Regulators and Financial

NABARD’S Functions and Contributions

Want to remember every current affair to excel in

Credit Co-operative s ociety

District Co-operative Bank

Credit Co-operative society Credit Co-operative society Credit Co-operative s ociety

Credit Co-operative s ociety

Credit Co-operative s ociety Credit Co-operative s ociety

Credit Co-operative s ociety

Credit Co-operative s ociety Credit Co-operative s ociety

District Co-operative Bank

Credit Co-operative society Credit Co-operative s ociety

Credit Co-operative s ociety State Co-

Credit Co-operative society

At the ground level, individuals come together to form a Credit Co-operative

The advancement of Indian Banking System can be classified

1. The Pre-Independence Phase, i.e. before 1947

2. Second Phase from 1947 to 1991

3. Third Phase 1991 and beyond

This phase is characterized by the presence of a large number of banks most of

Section – 6 – Banking Company

•The Raghuram Rajan Committee in 2008

Want to remember every current affair to excel in

Interest Rate Risk

Types of Liquidity Risk

Value at Risk (VaR)

C Capital Adequacy Capital adequacy is the statutory minimum reserves of

E Earnings Quality Earnings Quality is the ability to create appropriate returns

L Liquidity Liquidity is the availability of liquid assets to a bank.

S Sensitivity to It is used to see bank’s sensitivity to a particular risk

This framework was recommended by Basel Committee on Banking Supervision of the

Capital Adequacy Ratio

Minimum Capital Supervisory Review Market Discipline

Reasons for International Banking

Correspondent Bank Representative office

Banks located in different countries establish accounts in other bank. It provides a

Risks in International Banks

The SWIFT is a global member-owned cooperative that is headquartered in Brussels,

Bank code A-Z

Country code A-Z

NOSTRO VOSTRO LORO

Maharaja Bonds Masala Bonds

ICSID provides for settlement of disputes by conciliation, arbitration or fact-finding.

World Bank Reports

Financial Inclusion is the delivery of financial services at an affordable cost to the

Jandhan account ensures access of various financial services to the excluded

It was launched in April 2016 to promote entrepreneurship at the grass-root

Basic Saving Bank Deposit (BSBD)

Increasing the number of automated teller

Promoting USSD for Rural Areas

Peer to Peer (P2P) Lending

Forfaiting is a factoring arrangement used in international trade finance

Private Costs + External Costs = Social Costs

Different Boards in Banks

Audit Committee Board

Risk Management Committee of the board

Nomination and Renumeration Committee

The chair of the board shall be independent Chairman Independent

At least half of the directors attending the Requirement ½ -Independent

Chairperson should be an independent Chairman Independent

It should meet at least once in a quarter & at Requirement Once in a quarter

Chair of the board should be an independent Chairman Independent

RMCB shall meet once in a quarter.