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The composition of the Indian Banking System The organized banking system in India can be broadly divided into three categories viz., the central bank of the country known as the Reserve Bank of India, the commercial banks and the co-operative banks. Another and more common classification of banks in India is between scheduled and non-scheduled banks. The Reserve Bank of India is the supreme monetary and banking authority in the country and has the responsibility to control the banking system in the country. It keeps the cash reserves of all scheduled banks and hence is known as the Reserve Bank. Scheduled and Non-scheduled Bank Under the reserve Bank of India Act, 1934, banks were classified as scheduled banks and non-scheduled banks. The scheduled banks are hose which are entered in the Seconds Schedule of RBI Act, 1934. Such banks are those which have a paid-up capital and reserves of an aggregate value of not less than Rs. 5 lakhs and which satisfy RBI that their affairs are carried out in the interests of their depositors. All commercial banks- Indian and foreign, regional rural banks and state co-operative banks-are scheduled banks. Non-scheduled banks are those which have not been included in the second schedule of RBI Act, 1934. At present, there are only three non-scheduled banks in the country. Scheduled banks are divided into commercial banks and co-operative banks. Commercial banks are based on profit, while co-operative banks are based on co-operative principle. Commercial banks have been in existence for many decades. They mobilise savings in urban areas and make them available to large and small industrial and trading units mainly for working capital requirements. After 1969 commercial banks are broadly classified into nationalized or public sector banks and private sector banks. He State Bank of India and its associate banks along with another 20 banks are the public sector banks. The private sector banks include a small number of Indian scheduled banks which have not been nationalized and branched of foreign banks operating in India- commonly known as foreign exchange banks. The Regional Rural Banks (RRBs) came into existence since the middle of 1970s with the specific objective of providing credit and deposit facilities particularly to the small and marginal farmers, agricultural labourers and artisans

and small entrepreneurs. The Regional Rural Banks have the responsibility to develop agriculture, trade, commerce and industry in the rural areas. The RRBs are essentially commercial banks but their area of operation is generally limited to a district. SCHEDULED BANKING STRUCTURE IN INDIA Reserve Bank of India [Central Bank and supreme monetary authority of the country]

Scheduled Banks

Scheduled Commercial Banks

Scheduled Co-operative Banks

Public Sector Bank (27)

Private Sector Bank (30)

Foreign Banks in India (40)

Regional Rural Banks (196)

Scheduled Urban Co-operative Banks (52)

Scheduled State Co-operative Banks (16)

Nationalised Bank (19)

State Bank of India & its Associates (8)

Old Private Banks (22)

New Private Banks (8)



The Reserve Bank of India was inaugurated in April 1935 with a share capital of Rs. 5crores, divided into shares of Rs.100 each fully paid up. The entire share capital was in the beginning, owned by private shareholders. The Government of India held shares of nominal value of Rs. 2, 22,000. But in view of the public nature of the Banks functions, the Reserve Bank of India, Act, 1934 provided for the appointment by the Central Government of the Governor and two Deputy Governor (who were also directors of the central Board). The Act also contained provisions governing the holding of the shares and the rate of dividend to be paid to shareholders. The Reserve Bank was nationalized in 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, consisting of the Governor and four Deputy Governors, one Governments official from the Ministry of Finance, ten Directors nominated by the Government of India to give representation to important elements in the economic life of the country, and four Directors nominated by the Central Government to represent the four local Boards. Besides the central Board, there are four local Boards with headquarters at Bombay, Calcutta, Madras and New Delhi. Local Boards consist of five members each appointed by the central government for a term of four years to represent territorial and economic interest and interests of co-operative and indigenous banks. 1. FUNCTIONS OF THE RESERVE BANK OF INDIA By the reserve Bank of India Act of 1934, all the important functions of a central bank have been entrusted to the Reserve Bank of India. Bank of Issue. Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and conies and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs.40 crores in value. The remaining threefifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-war period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Rs.200 crores, of which at least Rs.115 crores should be in gold. The system as it exists today is known as the minimum reserve system.

Bankers to Government. The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of central Government and of all state Government in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, viz., to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government-both the Union and the States to float new loans and to manage public debt. The Banks makes ways and means advances to the Governments for 90 days. It makes loans and advances to the states and local authorities. It acts as adviser to the Government on all monetary and banking matters.

Bankers Bank and lender of the Last Resort. The Reserve Bank of India acts as the bankers bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with Reserve Bank a cash balance equivalent to 5 percent of its demand liabilities and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to3 percent of their aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve Bank of India.


The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Banks of India to come to their help in times of banking crisis, the Reserve Bank becomes not only the bankers bank but also the lender of the last resort Controller of credit. The Reserve Bank of India is the controller of credit, i.e., it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. The Reserve Bank of India is armed with many more powers to control the India money market. Every bank has to get a licence from the Reserve Bank of

India to do banking business within India; the licence can be cancelled by the Reserve Bank if certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank. As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers: (a) It holds the cash reserves of all the scheduled banks.

(b) It controls the credit operations of banks through quantitative and qualitative controls. (c) It control the banking system through the system of licensing, inspection and calling for information.(d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks. (v) Custodian of Foreign Exchange Reserves. The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was the exchange rate fixed at 1sh.6d. Though there were periods of extreme pressure in favour of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F. Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of Indias reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further the RBI has the responsibility of administering the exchange controls of the country. Supervisory Functions In addition to its traditional central banking functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Banks Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is

authorized to carryout periodical inspections of the banks and to call for return and necessary information from them. The nationalization of 14 major India scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realization of certain desired objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation. Promotional Functions With economic growth assuming a new urgency since Independence, the range of the Reserve Banks functions has steadily widened. The Bank now performs a variety of developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialized financing agencies. According, the Reserve bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilise saving, and to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Banks role in this field has become extremely important. The Bank has developed the co-operative credit movement to encourage saving, to eliminate money-lenders from the villages and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term finance to farmers. Credit Control 1. General Credit Controls Since 1955-56 and particularly after 1973-74 the inflationary rise in price has been steadily mounting. Increased Government expenditure financed through deficit spending has the direct effect of pushing up the prices, wages and incomes. Shortfalls in production, and hoarding and speculation in essential commodities have contributed to this inflationary pressure. RBI has various weapons of control and, through using them; it hopes to achieve its monetary policy. These weapons of control are broadly two: Quantitative and qualitative controls. Quantitative controls are used to control the volume of credit and indirectly, to control the inflationary and deflationary pressures caused by expansion and contraction of

credit. Quantitative controls are also known as generating credit controls and consist of bank rate policy, open market operations and cash reserve ratio. (a) Bank Rate. In accordance with the general tradition of the 1930s, RBI started with a cheap money policy and had fixed a low bank rate (3%) and did not change it till November 1953 when it raised the bank rate to 3.5 percent. The Bank rate gradually rose to 10% in July 1981- these were only changes during this period. The bank rate remained unchanged at 10 percent for another 10Years (1981-91). It was revised upwards to 11 percent in July 1991 and further to 12 percent in October 1991. The bank rate or the central banks rediscount rate is an important monetary instrument in modern economies. Its most useful role is to signal and/or clarify the central banks monetary and interest rate stance to all participants in the financial sector and particularly to banks. If monetary policy is effective and credible, a change in the bank rate will result in a change in prime lending rate of banks and thus act as an independent instrument of monetary control. However, the role of the bank rate as an instrument of monetary policy has been very limited in India because of these basic factors: (a) The structure of interest rates is administered by RBIthey are not automatically linked to the bank rate; (b) Commercial banks enjoy specific refinance facilities, and not necessarily rediscount their eligible securities with RBI at bank rate; and (c) The bill marked is under-developed and the different submarkets of the money market are not influenced by the bank rate. In other words, the bank rate in India is not the pace setter to the other market rates of interest and the money market rates do not automatically adjust themselves to changes in the bank rate. At the sometime, the deposit rates and lending rates of banks (and of development finance instaurations) are not related to the bank rate. The Government of India and RBI are reviewing the rules and procedures for general access to RBI rediscount facilities so as to

make bank rate an active instrument of monetary policy as in other modern economies. Since the later part of 1995, India passed through a severe liquidity crunch and as a result the prime lending rates were ruling high. Industrial production was affected adversely. One step which RBI took was to reduce the bank rate from 12 to 11 percent in April 1997, and gradually to 6.5 percent. The reduction of the bank rate was to help in the reduction of other interest rates and thus stimulate borrowing from banks. Cash Reserve Requirements (CRR) .Another weapon available to RBI for credit control is the use of variable cash reserve requirements. Under the RBI Act, 1934, very commercial bank has to keep certain minimum cash reserve with RBI- initially; it was 5percent against demand deposits and 2per cent against time deposits- these are known as the statutory cash reserve requirement between 3 per cent and 15 percent of the total demand and time deposits. During 1973, RBI exercised this power twice, as a form 3 to 5 per cent in June 1973and to 7 per cent in September 1973. Since then, RBI has raised or reduced C. R. R. a number of times (and ultimately raised to the maximum limit of 15 percent of net demand and time liabilities to influence the volume of cash with the commercial banking system and thus influence their volume of credit.

As explained already, India economy was passing through a serve liquidity problem since 1995-96 which was adversely affecting investment and production. RBI reduced CRR successively to 8 percent in October 1997 and finally to 5 per cent in June 2002. Pressure is being brought on RBBI to reduce CRR to international levels and not to use it as a weapon of credit control. The purpose of reducing CRR is to leave large cash reserves with banks so as to enable them to expand bank credit. It may be mentioned that the Indian economy has been reeling under serious economic recession for many years and reduction of CRR and expansion of bank credit to industry and trade is one method to stimulate the Indian economy. RBI has been pursuing its medium term objective of reducing CRR to the statutory minimum of 3 percent. (c ) Statutory Liquidity Requirements (SLR).

Apart from cash reserve requirement which commercial banks have to keep with RBI (under RBI Act, 1934), all commercial banks have to maintain (under section 24 of the Banking Regulation Act, 1949) liquid assets in the form of cash, gold and

unencumbered approved securities equal to not less than 25 percent of their total demand and time deposit liabilities, This is known as the statutory liquidity requirement; this is in addition to statutory cash reserve requirements. Maintenance of adequate liquid assets is a basic principle of sound banking. Hence commercial banks in India have been required by the Banking Regulation Act, 1949, to maintain minimum ratio of liquidity ratio. Accordingly, it raised the liquidity ratio from 25 percent gradually and finally to 38.5 percent. RBI has stepped up the liquidity ratio for two reasons: (a) Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances to business and industry- thus it is anti inflationary in impact, and (b)A higher liquidity ratio diverts banks from loans and advances to investment in government and other approved securities. In other words, a higher SLR was used to divert bank funds to finance Government expenditure. It may be mentioned here that stepping up statutory liquidity requirements (SLR) and the cash reserve ratio (CRR) have the same effects, viz., they reduce the capacity of commercial banks to expand credit to business and industry and thus are anti-inflationary. After accepting Narasimham Committee (1991) recommendation, RBI reduced the SLR by successive steps to 25 per cent in October 1997. There is now a demand to abolish SLR altogether. Open Market Operations of RBI In economies with well developed money markets, central banks use open market operation _ i.e. buying and selling eligible securities by the central bank in the money market- to influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the industrial and loans and advances they can make to the industrial and commercial sectors. RBI had not used this weapon for many years. Since 1991, the enormous inflow of foreign funds into India created the problem of excess liquidity with the banking Sector and RBI undertook large

scale open market operations. When RBI sells Government securities in the commercial banks and thereby, reduces the ability of banks to lend to the industrial and commercial sectors. At any given time, the banks capacity to create credit i.e., to give fresh loans- depends upon their surplus cash that is the amount of cash reserves in excess of their statutory CRR. Once the surplus cash is eliminated and even part of the statutory CRR is reduced, the banks have to contract their credit supply so as to generate some cash reserves to meet their statutory CRR. As a result, the supply of bank credit which involves the creation of demand deposits, falls and money supply contracts.


The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated. Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. Preamble The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank as: " regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."

Central Board The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

Appointed/nominated for a period of four years Constitution: o Official Directors Full-time : Governor and not more than four Deputy Governors o Non-Official Directors Nominated by Government: ten Directors from various fields and one government Official Others: four Directors - one each from four local boards

Functions : General superintendence and direction of the Bank's affairs Financial Supervision

The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India. Objective Primary objective of BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. Constitution The Board is constituted by co-opting four Directors from the Central Board as members for a term of two years and is chaired by the Governor. The Deputy Governors of the Reserve Bank are ex-officio members. One Deputy Governor, usually, the Deputy Governor in charge of banking regulation and supervision, is nominated as the Vice-Chairman of the Board. BFS meetings The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments. BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes Deputy Governor as the chairman and two Directors of the Central Board as members. The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues. Functions Some of the initiatives taken by BFS include: i. ii. iii. iv. restructuring of the system of bank inspections introduction of off-site surveillance, strengthening of the role of statutory auditors and strengthening of the internal defences of supervised institutions.

The Audit Sub-committee of BFS has reviewed the current system of concurrent audit, norms of empanelment and appointment of statutory auditors, the quality and coverage of statutory audit reports, and the important issue of greater transparency and disclosure in the published accounts of supervised institutions. Current Focus

supervisory rating model for banks. supervision of financial institutions consolidated accounting legal issues in bank frauds divergence in assessments of non-performing assets and

Top Legal Framework Umbrella Acts

Reserve Bank of India Act, 1934: governs the Reserve Bank functions Banking Regulation Act, 1949: governs the financial sector

Acts governing specific functions

Public Debt Act, 1944/Government Securities Act (Proposed): Governs government debt market Securities Contract (Regulation) Act, 1956: Regulates government securities market Indian Coinage Act, 1906:Governs currency and coins Foreign Exchange Regulation Act, 1973/Foreign Exchange Management Act, 1999: Governs trade and foreign exchange market "Payment and Settlement Systems Act, 2007: Provides for regulation and supervision of payment systems in India"

Acts governing Banking Operations

Companies Act, 1956:Governs banks as companies Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980: Relates to nationalisation of banks Bankers' Books Evidence Act

Banking Secrecy Act Negotiable Instruments Act, 1881

Acts governing Individual Institutions

State Bank of India Act, 1954 The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993 National Bank for Agriculture and Rural Development Act National Housing Bank Act Deposit Insurance and Credit Guarantee Corporation Act

Main Functions Monetary Authority:

Formulates, implements and monitors the monetary policy. Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

Regulator and supervisor of the financial system:

Prescribes broad parameters of banking operations within which the country's banking and financial system functions. Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.

Manager of Foreign Exchange

Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.

Issuer of currency:

Issues and exchanges or destroys currency and coins not fit for circulation. Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

Developmental role

Performs a wide range of promotional functions to support national objectives.

Related Functions

Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks.

Offices Has 22 regional offices, most of them in state capitals. Training Establishments Has six training establishments

Three, namely, College of Agricultural Banking, Bankers Training College and Reserve Bank of India Staff College are part of the Reserve Bank

Others are autonomous, such as, National Institute for Bank Management, Indira Gandhi Institute for Development Research

(IGIDR), Institute for Development and Research in Banking Technology (IDRBT)

For details on training establishments, please check their websites links for which are available in Other Links. Subsidiaries Fully owned: National Housing Bank(NHB), Deposit Insurance and Credit Guarantee Corporation of India(DICGC), Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL) Majority stake: National Bank for Agriculture and Rural Development (NABARD) The Reserve Bank of India has recently divested its stake in State Bank of India to the Government of India. for financial inclusion is not based on the principle of equity alone access to affordable banking services is required for inclusive growth with stability. Achieving financial inclusion in a country like India with a large and diverse

population with significant segments in rural and unorganised sectors requires a high level of penetration by the formal financial system. Even in areas that are well covered by banks, there are sections of society excluded from the banking system. Political and social stability also drive financial inclusion. In the recent period, in countries like India, government has been encouraging opening of bank accounts by providing government benefits through such accounts. ICT solutions have made such initiatives possible at relatively low cost. 2. Financial inclusion is not merely providing reliable access to an efficient payments system. Many discussions- especially in the context of mobile phone-led retail payments system- seem to focus on this aspect of financial inclusion. Financial inclusion is also not just micro finance. Financial inclusion represents reliable access to affordable savings, loans, remittances and insurance services. We in India believe that financial inclusion primarily implies access to a bank account backed by deposit insurance, access to affordable credit and the payments system. 3. The key question is What is the kind of regulatory and supervisory mechanism that will ensure that the formal financial system delivers affordable financial services to the excluded population with greater efficiency without compromising on acceptable levels of safety and reliability? 4. Hence, in this session on financial inclusion and financial regulation, drawing from the Indian experience, I am going to focus on the following issues :

Is there a trade off between financial inclusion and financial regulation - are they at cross purposes or do they work in tandem? What have been the various regulatory interventions in India to facilitate financial inclusion? What has been the approach to regulating non-bank intermediaries and entities providing innovative and low cost solutions for financial inclusion? What are the important consumer protection issues in the area of financial inclusion and what has been the regulatory approach?

regulation and financial inclusion is there a trade off? 5. The last year was the platinum jubilee year of the Reserve Bank of India. As part of the celebrations, several outreach activities were undertaken at remote unbanked areas. During these visits, we were often asked by the people about fly by night operators who had vanished with their life savings. The distress to people and the damage to public confidence caused by such unscrupulous operators are something that no regulator can ignore. Sound and reliable deposit taking entities, backed by

deposit insurance for small deposits, accessible to all are, therefore, essential for financial inclusion. It is not possible to have sound and reliable deposit taking entities and a deposit insurance system without financial regulation. Hence, in my mind, there is no doubt that financial regulation and financial inclusion work together - the former is a must for the latter. 6. Another reason why there is convergence between financial regulation and financial inclusion is that if financial intermediaries have to deliver affordable services they need to take advantage of technology and economies of scale this requires them to grow to some optimal size. Such growth is not possible without capital. Investors and lenders are comfortable with providing more funds only if such entities are regulated. This was our experience with Micro Finance Institutions (MFIs) wanting to be registered as non-banking financial companies with RBI, but wanted us to reduce the minimum capital requirement below what we had prescribed for non banking financial companies in general. We allowed them to register, on fulfilling the prescribed norms, without lowering the minimum capital requirement. The dramatic growth of MFIs in the recent period on account of support by lenders and investors owes in no small measure to their being registered with RBI as Non Banking Financial Companies (NBFCs). 7. More recently, in the context of the global crisis, it is observed that undue reliance on borrowed funds can be a source of risk and a more stable retail base of deposits is good for both the bottom line and resilience. Similarly, a diversified asset portfolio lends to less volatility in earnings. Thus financial inclusion which can promote such a retail and diversified portfolio- in assets and liabilities- also promotes financial stability. Regulatory interventions for facilitating financial inclusion 8. In this section, I would like to highlight the various regulatory measures taken by the RBI to facilitate financial inclusion. The key message here is that the regulatory approach has not compromised with prudential norms for deposit taking entities. We are of the firm view that only sound and strong institutions can deliver financial inclusion. Within the overall traditional prudential framework, what we have tried to do is to have a system of incentives and disincentives that further the financial inclusion objective and while doing so, we have tried to balance the degree of the risk with the ability to achieve greater penetration. Is small beautiful?

Looking at the success of credit unions and community banks world-wide in providing financial services to local communities, it could be argued that smaller regional banks could be the answer for financial inclusion. However, our experience with local entities such as cooperative banks, deposit taking non banking financial companies and regional rural banks highlighted the risks of poor governance, connected lending, geographic concentration leading to vulnerability to natural calamities and downturns. Small entities also tend to absorb disproportionate share of supervisory resources. Besides, the adoption of ICT solutions that are essential for accessing mainstream payments system requires larger investments and these often prove to be too onerous for small entities and render them uncompetitive. We have encouraged merger of non viable entities and growth of banks that meet regulatory requirements. We have also followed a three tiered regulatory approach non-Basel approach for regional rural banks and rural cooperatives with the objective of ensuring positive net worth, Basel-I for urban cooperative banks and Basel II for commercial banks. For non banking deposit taking entities, that dont enjoy deposit insurance or offer savings/checking accounts, we have adopted a simpler regulatory framework albeit with higher capital ratios. Allowing banks to open accounts for Self Help Groups 10. An important regulatory dispensation that facilitated financial inclusion was given in the early 90s, when banks were allowed to open savings accounts for Self Help Groups (SHGs), which were neither registered nor regulated. An SHG is a group of 15 to 20 members from very low income families, usually women, which mobilises savings from members and uses the pooled funds to give loans to those members who need them, with the interest rates on deposits and loans being determined entirely by members. National Bank for Agriculture and Rural Development (NABARD) launched the SHGBank Linkage Program in 1992 to forge the synergies between formal financial system and informal sectors. Under this programme, banks provide loans to the SHGs against group guarantee and the quantum of loan could be several times the deposits placed by such SHGs with the banks. The recovery rates of such loans have been good and banks have found that the transaction cost of reaching the poor through SHGs is considerably lower as such cost is borne by the SHG rather than the bank. Interest earned from group members is retained in the group. The penetration achieved through SHGs has been very significant. As per NABARDs report on status of microfinance (2008-09), about 86 million poor households are covered under the SHG-Bank Linkage program with over 6.1 million saving-linked SHGs and 4.2 million credit-linked SHGs as on March 31, 2009.

11. The initial phase of SHG movement saw concentration of SHGs in the southern parts of the country, but now the SHGs have spread more to the eastern and north eastern regions where the extent of financial exclusion is greater. The Government of India has also been using the SHGs for subsidy linked credit schemes for the poor. NABARD offers grant assistance to NGOs that promote SHGs and link them to banks. Mandated priority sector lending Priority sectors broadly include agriculture and allied activities, micro and small enterprises, education, housing and micro-credit. All domestic commercial banks are required to allocate 40 per cent of their lending to the priority sectors. For foreign banks, the requirement is 32 per cent and export credit is also included in their case. Credit extended by banks to SHGs, micro finance institutions, to NBFCs for on-lending to priority sector, and to regional rural banks for agriculture and allied activities have been included in the definition of priority sector. Investments made by banks in securitised assets, representing loans to various categories of priority sector which are originated by banks and financial institutions, are also included in priority sector. A bank can also purchase priority sector lending from another bank though participatory notes. Any shortfall in priority sector lending is required to be deposited in special funds maintained by NABARD/SIBDI/NHB, which are used for funding rural infrastructure/micro-enterprises/housing sectors. As on March 31, 2009, the coverage under priority sector was to the tune of 51 million loan accounts. While it could be argued that mandated credit distorts allocative efficiency of the banking system, I would like to emphasise that no subvention is involved as interest rates are deregulated and all the usual prudential norms for income recognition, asset classification and provisioning, as also standard risk weights are applicable, which ensures that such loans do not add undue risk to the banks balance sheet. Linking branch licensing approvals to penetration in under-banked areas 13. Under the current laws in India, every bank requires a license from RBI for opening a branch. This legal requirement has been used as a regulatory tool for furthering financial inclusion. Statutory approvals for branch licenses in more lucrative centres are linked to the number of branches opened in under -banked districts and States, as also other factors such as fulfilling priority sector obligations, offering no frills accounts and other parameters to gauge achievements in financial inclusion and in customer service. Opening of no frills accounts by banks

14. Taking the view that access to a bank account can be considered a public good, in 2005, RBI directed all banks to offer at all branches the facility of no frills account to any person desirous of opening such an account. These accounts have nil or low minimum balances and charges, and have limited facilities. Since 2005, over 39 million no frills accounts have been opened. However, there are certain barriers that inhibit the active operation of such accounts like the time and cost involved in reaching the nearest branch where the accounts have been opened. Hence, we have, as will be described below allowed branchless banking to ensure that these accounts are more accessible to their holders. KYC regulations for small value clients and transactions 15. One significant area, where we found that regulation could be a challenge in achieving greater financial inclusion is in regard to Know Your Customer (KYC) norms. In a country where most of the low income people do not have any document of identity or proof of address it is very difficult to have KYC norms that insist on such documents. At the same time, to ensure integrity of financial transactions, it is necessary that each customer is properly identified before accounts are opened. In rural areas, this is addressed by asking for identification by local officials and requiring a photograph of the account holder. Drives for financial inclusion locally have been achieved through active involvement of government in the identification process. In big towns and cities where there are a large number of migrants who do not have any documents, fulfilling KYC norms and opening a bank account continue to be a challenge. As a proportional regulatory dispensation having regard to the degree of risk, RBI has simpler KYC norms for small value accounts where the balances in the account do not exceed about $1000 and where the annual credits in the account do not exceed about $4000. There are similar dispensations for walk-in clients for small remittances and payments not exceeding US$1,000. 16. Recently, the Government of India constituted the Unique Identification Authority of India (UIDAI) to issue a Unique Identification Number (UID) with biometric recognition to every resident of the country. It is expected that by latter part of this year, the UIDAI will begin issuing UIDs and roll out 600 million UIDs in a phased manner by 2014. UID enrolment would be done with the help of State Government machinery and other Registrars. Banks could benefit by synchronizing opening of bank accounts for those who will be enrolled through this exercise. Government is also looking into the possibility of converting food and fertilizer subsidies into cash payments which will flow through bank accounts. This project is a unique opportunity to leverage UID, bank accounts and mobile telephony

services. Using UID for fulfilling KYC for small value accounts will facilitate financial inclusion. In a country with deep penetration of mobile phones, this is expected to give a boost to the financial inclusion while ensuring the integrity of financial transactions. Branchless banking 17. With 600,000 villages in the country, we realised that it was impossible to provide access to a bank account for every household through branch banking. At the same time, electronic banking for such a populace where cash forms the dominant payment mechanism, is unlikely to become a reality for quite some time. Keeping in view these ground realities, RBI issued the business correspondent guidelines in 2006, which paved the way for branchless banking through agents. The guidelines allowed, for the first time, commercial banks to offer simple savings loan and remittance products through agents, who were allowed to undertake banking transactions, including cash in cash out transactions at locations close to the customer. Banks were advised as part of risk management to adopt ICT solutions including biometric identification of the customer. The agents are required to deposit banks cash balances beyond certain limits with the banks branches by end of day or the next day. Initially, the regulations restricted the entities that could act as business correspondents to not for profit entities such as NGOs/ cooperatives / post offices etc. This was because we were concerned about the risk of reckless pushing of by agents whose sole incentive was earning commission; it was also felt that local community based organisations and NGOs had the trust and confidence of the local population. Over the last few years, the list of persons who can be appointed as business correspondents has been relaxed to include individuals such as retired government officials , school teachers, defence personnel as also for profit local mom and pop shops, petrol pump/public call office operators etc entities that usually deal in cash in the villages. Another regulatory requirement was that the business correspondents appointed for direct contact with the customers should be within 30 km from a designated base branch of the bank to ensure proper oversight of such agents and minimise agency risk. The distance criteria can be increased in consultation with the district consultative committee, a forum for bankers and government officials that meets each quarter. Initially there was a restriction on the bank in recovering any charge from the customer for such doorstep service as it was expected that the savings in cost of setting up a branch would be sufficient incentive. Subsequently, following a comprehensive review of the business correspondent guidelines, we have relaxed this condition and banks are now allowed to recover reasonable charges from the customer for providing the service. Branchless banking illustrates an area where

there have been progressive relaxations of the regulations for furthering penetration while ensuring consumer protection. Deregulation of interest rates for small loans 18. Currently, interest rates for loans up to Rs.200000 (about $4200) in the priority sector are capped at the prime lending rates of banks. RBI has taken a decision to free the interest rates, which will come into effect from July 1, 2010. Thus, these interest rates would soon stand deregulated as long as banks ensure that the rates charged by them are reasonable and transparent. This change in policy was based on the view that financial inclusion can be viable and sustainable only if pricing is freed to cover costs even though some cross subsidisation is possible. Approach towards non-banking entities involved in financial inclusion 19. Non-Banking entities can be either non-banking non-financial entities or nonbanking financial entities. In case of non-banking financial entities, we have had to deal with two issues. The first is the question of allowing non-deposit taking financial companies registered with the RBI, especially micro finance companies, to provide savings facilities and deposit products for their clients. The argument put forth is that these entities are innovative and nimble footed and have shown their ability to provide loan products to the poor. Considering the difficulties is ensuring effective supervision of large number of small deposit taking entities and the constraints in extending deposit insurance to such entities, the regulatory approach in India has been to restrict deposit taking activity to banks while promoting the branchless banking model for remittance services. There have also been demands that large for profit companies having a wide network of outlets especially in rural areas could be allowed to act as business correspondents of banks as there could be significant synergies if such networks are leveraged upon. This issue is currently under examination and in doing so the possible risks such as conflicts of interest, co-mingling of funds, misrepresentation and other agency related risks would need to be weighed against possible safeguards for consumer protection 21. Non-bank non-financial entities have emerged as active players in financial inclusion in that they have helped banks in offering customised payments and remittance services to their customers based on innovative ICT solutions. Any role enhancement of nonbanks to become principals in provision of financial services implies that these nonbank entities would have to be brought under financial regulation and this could inhibit their other activities. Combining financial and non-financial business is also something the regulator may not be comfortable with as there could be conflicts of interest. Our concerns have also been on the access to and the use of float funds by such non-bank entities in the process of providing such payments services. Many

jurisdictions have dealt with this issue by asking the service provider to maintain 100 per cent liquidity against float funds held by them and restricting the value of transactions. Whether the escrowed funds/investments will be protected in the event of bankruptcy of the service provider depends on the legal provisions and there could be risks in such arrangements. In addition, there has to be clear regulatory authority over such companies. Hence, our preference is to have a bank led system with non bank players as partners and service providers, so that regulatory resources are focused on banks. Banks in turn take responsibility for their partners and agents as part of their risk management processes. 22. Subsequent to the notification of Payment and Settlement Systems Act, 2007, the payment services have been opened up in India for non-bank service providers also. The broad regulatory approach of RBI towards non-banks has been to permit these entities to provide payment services which are fee-based without access to funds of the customers. Indian regulations clearly spell out the role of telecom operators as service providers. However, keeping in view the penetration of mobile telephony in the country, they have been permitted to enable m-wallet facilities up to Rs.5000 (about $ 100) in the interest of small retail payments. Consumer protection issues 23. Amongst the various objectives of regulation, consumer protection should take priority in the context of financial inclusion. In 2005, RBI took the initiative of setting up of the Banking Codes and Standards Board of India (BCSBI) in order to ensure that comprehensive code of conduct for fair treatment of customers was evolved and adhered to. The BSCBI is registered as a separate society and functions as an independent and autonomous body. The BCSBI has evolved two voluntary codes- one which is a code of commitment setting out minim products been tightened um standards of banking practices in dealing with individual customers. The other is a code of commitment to micro and small enterprises. Individual complaints about non adherence to the code fall within the jurisdiction of the Banking Ombudsmen who also investigate individual complaints on non adherence to the various RBI guidelines on customer service. 24. Other areas of consumer protection are related to excessive interest rates and harsh recovery practices. In particular the high rates of interest charged by non banking micro finance companies have attracted attention. Views have been expressed that with the lending to MFIs included in the priority sector, there should

be a cap on the interest rates charged to the ultimate borrower Efforts at financial inclusion can be sustained only if the delivery models are viable and interest rate caps can be a deterrent. From a regulatory perspective, we emphasise transparency, creating better awareness, customer education and effective grievance redressal systems. 25. Financial literacy has to be an integral part of financial inclusion and consumer protection. In fact, it should accompany and even precede the provision of financial services. Several countries have a very clearly articulated vision and programs for afinancial literacy with initiative from the central banks and regulators. We too have a comprehensive financial literacy program. At the grass root level, financial literacy and grievance redressal is best delivered by arranging regular meetings of communities with peoples representatives, local officials and bankers, NGOs and other stake holders. The Banking Ombudsman for the region and the major controlling offices of banks attend such meetings and perhaps even hold on-thespot conciliation meetings for complaint redressal. Ultimately, responsible borrowing facilitated by financial literacy and responsible lending by financial institutions are essential for consumer protection and financial stability. Summing-up 30. Financial inclusion primarily represents access to a bank account backed by deposit insurance, access to affordable credit and the payments system. The Indian experience demonstrates that financial inclusion can work within the framework of mainstream banking within a sound regulatory framework. Regulations have been used to facilitate financial inclusion without subventions or compromising on prudential and financial integrity norms. Regulations have been proportional to the risks. Innovative solutions like SHG bank linkage, branchless banking have been adopted after careful assessment of risks to the banks as also to customers. The preference has been to restrict deposit taking to banks and non-bank financial companies are encouraged to focus on innovative approaches to lending under a lighter regulatory framework, with additional regulations for systemically important NBFCs entities. Non-banking non-financial players are encouraged to be partners and agents of banks rather than principal providers of financial services. Fair and transparent code of conduct enforced through an effective grievance redressal system and facilitated by financial literacy and education are the cornerstones for ensuring consumer protection which is an overarching objective of financial regulation in the context of financial What is Bank rate? Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to commercial banks. Bank Rate is a tool, which

central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Prime Lending Rate. This any revision in the Bank rate indicates could mean more or less interest on your deposits and also an increase or decrease in your EMI. What is Bank Rate ? (For Non Bankers) : This is the rate at which central bank (RBI) lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa. Thus, it can said that in case bank rate is hiked, in all likelihood banks will hikes their own lending rates to ensure and they continue to make a profit.

What is CRR? The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities]. RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation. Thus we can say that this serves duel purposes i.e. it not only ensures that a portion of bank deposits is totally riskfree, but also enables RBI to control liquidity in the system, and thereby, inflation by tying the hands of the banks in lending money. What is CRR (For Non Bankers) : CRR means Cash Reserve Ratio. Banks in India are required to hold a certain proportion of their deposits in the form of cash. However, actually Banks dont hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivlanet to holding cash with themselves.. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus, When a banks deposits increase by Rs100, and if the cash reserve ratio is 9%, the banks will have to hold additional Rs 9 with RBI and Bank will be able to use only Rs 91 for investments and lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for lending and investment. This power of RBI to reduce the lendable amount by increasing the CRR, makes it an instrument in the hands of a

central bank through which it can control the amount that banks lend. Thus, it is a tool used by RBI to control liquidity in the banking system.

What is SLR? Every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). Present SLR is 24%. (reduced w.e.f. 8/11/208, from earlier 25%) RBI is empowered to increase this ratio up to 40%. An increase in SLR also restrict the banks leverage position to pump more money into the economy. What is SLR ? (For Non Bankers) : SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits) It regulates the credit growth in India.

What are Repo rate and Reverse Repo rate? Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate


Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of interest. As a result, banks would prefer to keep their money with the RBI Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks. BANKING RBI (Reserve Bank of India) started 1935 by virtue of RBI act 1934 started as private share holder bank it was nationalized in 1949. RBI nationalization act but started functioning on 1 January 1950. In 1949 banking regulation act was passed. This act emphasizes RBI to hold control over other banks. RBI study Functions control of credit Stands of RBIs monetary policy PLR (Prime Lending Rate) is that rate of interest at which bank gives loans to its prime borrowers or to blue chip, high profile borrowers like corporate Money are call on short note means inter bank loans on a day to day basis that is loans given by one bank to another on a day to day basis. Rate of interest that prevails in market on day to day basis call money rate depends on demands and supply on day to day basis it is nothing to do with RBI. Money market market for short term funds up to 1 year Measure players in money markets are banks Functions Soul authority to issue emergency. Lender of the last, bankers bank Custodial of forex Central clearing house for inter banking settlement Control of credit loans

Comprehensive structural reforms since 1991 Industries Banking/ tax reforms Foreign trade Agriculture Labour Expenditure Capital market 1st generation reforms SOS- Save our Soul because these were crisis driven 2nd generation reforms because they were consensus driven at the end of 90s decade. Second generation on reforms is complementary reforms to first generations. Labour Reforms RBI system issues currency under minimum reserve system. RBI keeps backing of 2,000 crore out of which [115 crore gold that is why this system is called inconvertible paper currency system. RBI contributes credit generation and commercial banks through some measurements. They are of two types. RBI credit control measures Quantitative Qualitative (Selective measures) qualitative measures popularly called detective measures) Quantitative measures 1. Banks RBI 2. CRR 3. Open market operation 4. SLR (Statutory Liquidity Rate) Qualitative measures 1. Rationing of credit 2. Variation of margin requirements 3. Regulation of consumer credit 4. Priority and moral analysis 5. Direct action

BANK RATE It is that rate at which the central bank of country (in the RBI) provides refinance facilities to commercial banks. In other words it is that rate of interest at which the central bank rediscounts the bills of exchange brought by commercial banks. This rate at present is 6%. Airing- not following guidelines Bill of exchange Its a trading document (legal) Radio counting-bank goes to RBI Refinancing When Bank Rate should be increase or decreased when inflation when recession Dead-Money Policy/ Cheap Money Policy When Bank Rate is raised When Bank Rate is lowered monetary policy or credit policy in announced by RB: twice in a year. These periods are called 1. Lean season. Sowing (May to September) 2. Busy season (October to April Harvesting) CRR (Cash Receive Ration) CRR is also known as variable Reserve Ration. CRR is that ratio of the total deposits of bank which it has to keep with the central bank of country (or RBI). This ratio at present is 5%. It may be lowered when recession It may be raised when inflation Accounts Current Savings Fixed (timed)

Demand deposit

Deposits are of three types 1. Current 2. Savings 3. Fixed Together current and saving deposits are called deacon deposit. Fixed deposits are timed deposits. Deposits Demand Liabilities, Timed Liabilities

SLR (Statutory Liquidity Ratio): It is that ratio of the total deposits of a bank which it has to maintain with itself in the form of liquid funds like government securities and cash in hand at any give conditions. Point of time. It present it is 50%. SLR is exclusive to India. No other country has SLR. Then why SLR? 1. It helps the government to borrow from banking system. 2. To stop or reduce union bank. Run on the bank- When heavy load Open Market Operations are operations there by the central bank (RBI) conducts buying & selling operations in terms of first class securities predominately Government securities buying & selling to banks & financial institutions. This is day to day basis Government securities. A government piece of paper promising to repay the amount written on it (interest) Treasury Bill Government securities floated to take short term funds. Dated security for long time Gill edged security means least risk security in terms of repayment of principle and interest. When it should buying more during recession and when it should selling more during inflation. REPO RATE Emerging concept in India REPOs the open market operation by may of repurchased actions are exercised by RBI to minimize short term fluctuations in the money market. Liquidity overall availability of fund/cash In other words REPO an essentially short term say for 1 day, 3 day, 5 days, 17 days. Under EPOs RBI sells securities to banks and financial institutions with a promise to repurchase them after a short period hence they could be called 1 day REPOs, 3 days REPOs etc. The rate at which these REPO, operations are conducted is called the REPO rate. Reverse REPO, Distinguished between quantitative and qualitative measure of credit counted. Quantitative credit count measures are measure and controlling the overall quantitative/volume of credit (loans) given by commercial bank whereas the

qualitative volume but also the purpose and the direction of credit should be given to priority sector at any point of time. Priority sector is agriculture, housing has come latest. Qualitative measures Rationing of credit 40% Credit is rationed according priorities land in a plan 18% Variation of Margin Requirement Margin is kept to prevent speculation, house, crop black marketing Changing the margin Regulation for consumer credits RBI controls credit for consumption. 1946-Federal Reserve Bank of USA, introduced the following measures 1935-45 Publicity and moral suasion RBI outlays guidelines to banks of banks countries to disobey the guideline. It may increase Bank rate or cancel licensing. Direct action- cancellation of licensing COMMERCIAL BANKS Scheduled Commercial Bank: - is a bank listed in the end schedule of the RBI Act, 1934 which lies down. Such a bank must have a paid up capital of 5 lakhs and above. It must be working in the interest of the depository Co-operative banks are both scheduled & non-scheduled. Non-scheduled banks do not enjoy RBIs provisions scheduled public Commercial Banks implied. Public Regional Rural Banks 1. Oldest commercial bank 2. Oldest existing commercial bank-PNB SBI is the largest public bank earlier known as empirical bank of India in 1955 this was nationalized and renamed as SBI 1969 for the first time banks were nationalized. The 14 banks which had deposits of 50 crores and above. 1980, 6 more banks were national having deposits of 200 crores or more. 1993- Nationalized bank merged and PNB 7 other banks also in public sector banks. 1. Many banks are nationalized in 1960 2. To prevent concentration of economic power

3. To direct banking activities to more and more to the agricultural sector & rural sector. 4. To mobilize saving of small people 5. To convert banking from else banking to maso banking 6. To direct the banking industry to sub serve social interest. 7. To direct banking t serve product line purpose rather than consumption or commercial purposes. 8. To develop a pool of professional banks and managers. 9. 1969-91 uses a period of total nationalization 10.1991 onwards banking reforms came in picture why? July 1969- Lerd Bank Scheme also introduced Under which banks were allotted districts and given the lead (responsibilities) to bring about development of these districts. Identifying needs, problems of district then prepare plants and give RBI so that this can be align with policies. This scheme is based on area approach. 1972 DIRS (Differentiated Interest Rate Scheme) Scheme under which banks give loans at near 4% rate of interest to people below the poverty line. RBI gave instruction that the target amount is 1% of previous deposits of the banks. 1989 Service Area Approaches was introduced as part of lead bank scheme under which banks have to adopt certain service area consisting of rural & semi-urban area, for bringing about their intensive development. There were good as well as bad things in development of 1969-91. Good thing about nationalized banks Class banking to mass banking Bank branches increased Deposit mobilization Diversification of social activities Average served by a bank branched increased. There were 8242 bank branches at the time of bank nationalization 1969. 1991 69,000 but now 66,000 1969 4,000 crore deposits now 13 lakhs crores 23% in rural areas 1969 (bank branches) Now 50% in rural areas Diversification

Entrepreneur Mutual fund Merchant banking Office scheme banking Foreign banking Financial poverty High purchase Social purpose

Average population served by a bank was 65,000 40% of deposits to priority areas. What lead to Reforms? 1. Uneconomic & in discriminatory branch expansion. 2. Directed investments that is banks directed by RBI to keep a very high SLR & very high CRR (SLR-38.5%, CRR-15% in 1991). Thus blocking a major part of the bank funds- 53.5% of their deposits blocked. Under the SLR it has mandatory to keep a predominant portion in the form of government securities which were low yielding thereby affecting the probability of bank. Other portion is in the form of ideal case which further affected probability. 3. Directed Credit Program i.e. mandatory lending of 40% to the priority sector thus implying that over 90% of bank funds were blocked. This also meant that throughout this period. The focus was purpose oriented lending rather than security oriented lending. 4. Over staffing & over manning in the banking industry leading to escalation of cost. 5. Rampant political interference in the day to day forcing of banks. Even forcing on many occasion to meet 40% target of priority sector. Lending without regard to prudential banking norms 6. Poor recovery of loans, precipitated by day to day political interference due to which political bosses would some time even announce loan waives. So much so on man occasions in order to meet priority sector lending by end of the Banks would even reason to contacting loan useless for disbursement of loans without any sound criteria to people. 7. Fast declining consumer services. Further effecting the overall image and profile of banking 8. total disregard of transparency of maintaining balance sheets 9. Total disregard of provisioning norms and capital adequacy norms as well as total disregard of classifying had loans in to various categories.

As a result profitability became the biggest casualty for the banking industry and there is no motivation for banking industry to improve itself on the face of political interference. So the recovery rate was becoming poorer and poorer with result that losses were mounting expenditures were rising, profitability was decline so that in 1991 as many as 14 out of 20 nationalized banks were reported sick. This prompted to the Government to carry out sweeping reforms of the Banking Industry as part of economic reforms Pary launched in 1991. Hence the Narsimham comes on Financial Sector reforms was pet up in 1991 whose major recommendation most of which were implemented were as follows. 1. There should be a 3 tier banking structure in the country viz. 3 to 4 banks should be of international character, 8 to 10 Banks of national character and the rest meeting local & regional requirements. Not Implemented as 2. There should be no further branch expansion and bands should enjoy the freedom to open or close a branch other than closing the branch in the Rural Area. 3. There should be no further nationalization banking sector. 4. More and more of private sector & foreign banks should be encouraged to be set up so as to infuse competition in banking sector. 5. Public Sector banks should be permitted to float shares in the market and rural capital to boost their capital funds. 6. SLR & CRR should be brought down in a phased manner 20 as to give flexibility to bank funds. 7. Seat Recovery Tribune should be set up to recover bad debts money of banks in an expeditions manner. Recovery of Debts due to Banks & Financial institutions Act-1993 8. There should be speedy computerization of Banking Industry. 9. An Asset Reconstruction find/company should be set up to take case of bad & doubtful assets of Banks. 10.The priority sector lending should be brought down from 40% to 10% and priority sector itself should be redefined. (NOT IMPLEMENTED). 11.Banks should classify there NPA according to whether they are bad, doubtful or totally loss asserts. 12.Banks should adopt provisioning norms and transparency of Balance sheets. 13.Banks should scheme & adhere to a capital adequacy ratio of 3% by 1996. so as to conform to soundness and stability of the banking NPA


Technically a NPA according to RBI is a test for which repayment has not been made for ever today. NPAs are further classified into substandard, doubtful, Loss. Capital Adequacy Ratio is a ratio of the total unimpaired capital funds of a bank to its risk weighted assert it is also known as CRAR that is capital to Risk weighted Ratio. This ratio strengthens the countries and Stability of a banks/financial institution. Banks in India are required to attain CAR of 10% by 2002. But till date they have attained only 9%. Based according pertain to Banking Industry NBFC-12% CAR CAR= Total Unimpaired Capital Funds Risk Weighted Asserts TIER I- Capital = Paid up capital +Reserves (Undistributed Profit) Risk Weight 01 0.1 to government security Interest Rates should be deregulated Paid-up-capital Authorized capital by SEBI Paid up capital NARSIMHAN COMMITTEES RECOMMENDATION, 1998 1. 3 tier Banking (not implemented) 2. Speedy competition. 3. Asset reconstruction fund should be set up. 4. Strong banks should be merged with strong banks. So as to face international challenges of banking industry. 5. CAR to be raised to 10% by 2002. 6. Recommended that weak banks should be converted into narrow banks that is banks which should have a narrow and limited exposure, should only be allowed to invest their funds in safe government securities. 7. Banking service recruitment board should be obliged. 8. Bank boards should enjoy greater autonomy in terms of decision making, top lend and investment expenditure to certain amounts. 9. Government share holding in public sector bank should be brought down to 30%. 10.There is a need to review the four existing leg viz i. This RBI Act 1934. ii. The Banking Regional Act 1949. iii. SBI Act 1955.


Bank Nationalization Act 1969.

MS VERMA Committee, 1999 Was called comm. On restructuring of weak banks. It identified 3 banks as weak banks i. UCO Bank ii. Indian Bank iii. United Bank of India 1. 2. 3. 4. It recommended that weak Banks should announced VRS. Government should pump more money to their share capital. Weak banks should be merged with strong bank. Weak banks should close down their overseas operations and branches.

Securitization, Reconstruction of financial Assets and Enforcement of security interests Act, 2002 ARC/ARF is a set up to take over with the purpose of taking over from Banks/financial institution then bad departments at a discount and recovering them on their own. An ARC can also manage the attached property of a defaulter on behalf of a bank or financial institution. The first ARC in and was setup a couple year ago as an in depended has been floated among other by the ICICI thus over under the securitization Act while a bank itself enjoys the right to sell the assets of the defaulter without the prior permission of the Government. It can also set up in ARC to manage the assets of the defaulting company for recover of its loan. MONEY 1. Greshams law. 2. Money supply denoted by M1, M2 & M3. 3. Reserved Money 4. Legal Tender Money. Grashams law pertains to circulation of currency bad money derives good money out of circulation. Legal tender money that circulates as in command of government. Ex. Rupee in India also called fiat currency of government legal tender money is divided into (below 50ps) 1. Limited legal tender money 2. Unlimited legal tender money Can be used to discharge tax of unlimited. Money supply

When RBI calculator money supply in country on the basis of narrow money & broad money for Narrow money it used symbol M1 which means currency & coins in inclusion + demand deposits of banks + other deposits with the RBI government IDBI etc and M2 is M1 + post office saving deposits M3 is called broad money. = M1 +timed deposits of banks M4 = M3+ total post office deposits Y.V. Reddy (in 1998) comm. Reclassification M1 is same. M2 = M1+ current deposits + saving deposits + timed deposits maturing up to one year+CDs (Certificates of deposits) M3 = M2+Termed deposits of over 1 year maturity+call/ termed borrowing from non- financial corporation by Banks Reserve money is money created by the central bank the country also called HFpowered money which is actually the base of monetary expansion in country. Currency and coins in circulation +cash in hands with banks + cash reserves in hand of RBI+ other deposits with RBI. CAMELS is an acronym used for banking Regulation C: Capital adequacy A: Asset quality M: Management E: Earning L: Liquidity S: Systems control All banks have to be conformed and CAMELS at any time. CDs (Certification of Deposits) are a financial Institution issued by a Bank to raise short term loans form it corporate clients. A CD is issued at a discount to the face value and it can be issued subject to a certain minimum amount and a certain minimum t o maximum period. The maximum being one year and it cant be less than 15 days and 5 lack minimum. LIBOR- London Inter Bank Offered Rate It is the Rate of Interest that prevails in the London Inter Bank Money Market. That is the rate at which loans are given on inter bank basis in the London money market. Industry

1. Industrial Sickness Deficient of a sick unit Magnitude of sickness in India Consequences of sickness Causes Remedial Policy EXIT Policy Definition 4 sick industrial unit is defined as a unit which having been in existence for not less than is found at the end of an accounting year to have accumulated losses for 3 successive years to anxiety that its net worth has been completely 100 percent eroded. Net worth = paid up capital+Reserves Weak Unit if net worth has been 50% eroded signs Defaulter in Inventory files Magnitude Magnitude of sickness in India can be gauged fact that not only traditional industries like textiles, jute, cotton, rubber are prone to sickness but also modern industries like, engineering, chemical etc have also been probe to sickness. Act to the data released by the RBI of the sick units in the country member over 2 reported sick just a little over 3000 belong to large scale sector while rest were in small scale sector interesting also the number of sickness units are predominately in small scale. Nearly 180% of the funds of Banks and financial institution were found blocked up in large scale unit and just 20% of the funds were blocked in small scale. The latest data of RBI gives figures as of 31st march, 2002. This data is only for sick small scale unit recording to which 1.77 lakhs units were reported sick but of which over 1.65 lakh were non-viable. By an estimate in India every day at least 30 units fall sick. Consequences 1. Unemployment 2. NPA grows 3. It affects profitability, productivity man hours and it leads to overall productivity. 4. Spoils industrial relations and Industrial atmosphere and it may lead to domino effect (spread effect) Causes

External-Exogenous Internal factors- Indogenous 1. Government policies e.g. 1. Labour Trouble Liberalization, location, 2. Managerial deficiency price, distribution policy. 3. Wrong location 2. Market Recession 4. Lack of provisions for 3. International Market depreciate leading to units not Scenario being to change its machine in 4. Lack of infrastructural time in tune with Technical facility Ex. Power, transport 5. High over head costs (publicity 5. Technology lag advertise etc) 6. Lack of Credit 6. Tendency of diversion of fund 7. Scarcity of critical Raw marginal perfect making material. 7. lack of modernization Textile modernization term inter modernization term Remedial Policy Government policies o Pre 1987 o Post 1987-2004 o Present status 1987- Setting up of BIFR Pre 1987 policies by and large tire policies frame work setting up of BIFR was that the governments top priority addressing sickness was to protect the interest of the nation and hence not allow a unit to dic and by to surrounding it. In this regard the following policy options used. 1. Government would it self take over sick unit like took over a large number of sick textiles mill and formed national textile corporation. 2. Give the option to workers to take over a non-unit an option which in most cases worker not accepted but in cases like atlas cycles. Workers take over the sick units. 3. Merge a sick unit with a healthy unit 4. Providing textile reliefs, tax rebate, tax holidays, and tax exemptions to sick units. 5. Monitory rehifs and concessions like waiving of international and part of the loans, rescheduling loans, providing loans. 6. Recapitalizing a unit by government i.e. putting funds to boost its should capital

7. Setting up of IRCI by government in1971. POLICY FRAMEWORK SINCE 1987 On the recommendation of tiwari comm (1951) the government enacted a legislative called sick industrial companies (special provisions) Act-1985. SICA under which it set up a question judicial body called BIFR (Board for Industrial and responsibility of diagnosing, identifying, revising , rehabilitating an din the ultimate case recommendation signing up of a sick unit rested with BIFR as a sole authority. So much as after 1987, it refers itself to the BIFR. On receipt of such a reference, the BIFR would investigate weather a unit is actually sick or not. If it is satisfied that the unit has actually fallen sick, it will set up a cocoordinating agency, consisting of some bank and financial institutions and ask them to prepare a comprehensive package for revival of and nursing health of sick unit. Package may consist for any of measure 1. Merge sick unit with a healthy unit 2. Provide tax relief, concession, rebate 3. Give financial relief 4. Bring about a change in management 5. Bring about technological changes. 6. Bring about restructuring of capital 7. After all these steps fail to receive a limit to recommend ultimately the binding up of the units The BIFR very rarely exercised the option of recommending building up and by and large in it. 17 years if functioning focused on revival and relate. Its functioning over the years have come in lots of criticism on this ground as well as on ground that it adopted long thrown out process for revived and rehabilitation which would takes average number less than 10-12 years for revival all it takes place. This it and created large problems like The sick units containing to function of they enjoy patronage of BIFR. 1. Banks funds renewable blocked 2. Sick units enjoy from creditors. Who cant recover their dues? The government set up in 1994. Omkar Goswami called committed on Industrial & Corporate restructuring to study the pools if sickness and make recommendation. The comm. Report observed that the way a sick unit was defined in terms of 100% erosion of net work itself faculty because such a unit should be

considered dead rather than sick. Hence it recommendation sickness to be redefined. It strongly recommended that BIFR should be fast track facilitator rather an arbitrator. It also strongly recommended five fast tracks binding up tribunals should set up in the country for quicker binding sick units. The report of comm. was dumped. The government also took another initiative as early as 1992. when it announced what was them know as EXIT Policy to ensure smoother exit the sick units by setting up a National Renewal Fund (NRF)- a fund which would have provision for providing compensation to workers affected due to sickness, a fund which would have a provision of retraining of worker as well as to providing pension to certain category of workers affected as a sickness of unit. EXIT Policy was never implemented because of strong opposition from the trade unions, however the NRF and was used subsequently for restructuring of PSUs. The fund has since been abolished. Governments continued concern at growing sickness is reflected in the form of taking another initiative to set up what is known as the ERADI Panel headed by justice Bal Krishnan Eradi looks a fresh into the prob of sickness. This panel observes that Barriers to exit soon become barriers to entry. Unfortunately under the BIFR even it recommendation binding up the case goes HC and Pd pressure was often exercised to prevent binding up. Similarly while the units asserts could be sold the land could not be sold because NIFR could not overwrite ULCRA. The Eradi Panel recommended a mechanism under which a unit would be bound up within a maximum period of 2 years if efforts to reviving it fail. It recommended the setting up of NCLT (National Company Law Tribunal) as a body which would assume the powers either vested in a. Company law Board b. BIFR c. HC in respect of binding up SICA for binding up of BIFR. It has not still become functional. The highlights of the new mechanism sender NCLT are as follows. 1. Sickness has been redefined on the basis accumulated losses for four years leading to erosion of 50% or more of the net worth of a company or failure to repay loans within 8 months the demands made by the creditors. 2. Other important features in terms of operational changes under the NCLT are as follows. 3. Protection from creditors has been withdrawn 4. It is the single forum replacing the company law boards for, BIFR & HCs. 5. It can order binding up of a company.

6. While under BIFR, basis and financial institutor were required is package

for revival under NCLT the company has to switching it package for revival. 7. A maximum of 2 year period shall be given for revival failing which then company would bind up. 8. A rehabilitation fund is to be set up under NCLT for looking after the interests of workers laid off due to sickness. The corpus of this fund would be built by imposing a less at 0.005% to be raised subsequently to 0.1% of the annual turn over of a company having a certain net worth. Thus it is expected that with this new mechanism they will beat expedious solution to the problem of sickness in the country. NPA RBI introduced CDR (Corporate Department Recast Scheme) as an informed mechanism to recover bad debits of banks by instructing banks to identity, default. Committee lays roadmap for greater financial inclusion

Chennai, Aug. 24 Every village with a population of over 2,000 should have banking services at least once a week on a regular basis by March 2011. These need not necessarily be only through a bank branch. It can be done through other channels such as banking correspondents, extension counters and satellite offices, according to a high-level committee set up by the Reserve Bank of India. Where penetration of banking services is better, the date can be suitably advanced, the committee said, in its report released today. The committee was set up to improve the effectiveness of the Lead Bank Scheme with a focus on financial inclusion and recent developments in the banking sector. Pvt sector banks role The committee has called for a greater role for private sector banks in the lead bank scheme. (The lead bank scheme was started in 1969 to facilitate local

development and channelise credit to the weaker sections of society. Banks were entrusted with the responsibility of identifying growth centres, deposit potential, credit gap and coordinating with other banks and agencies to improve credit deployment in each district.) The committee has asked private sector banks to involve themselves more actively by bringing in their expertise in strategic planning and leveraging on information technology. The committee has also suggested that the Lead District Manager should convene a quarterly public meeting at various locations in the district to generate awareness of the various banking policies and regulations relating to the common man. Every Lead Bank should open a Financial Literacy and Credit Counselling centre in each district by following the recent guidelines issued by the RBI. The committee urged State Governments to ensure road and digital connectivity to all centres where penetration by the formal banking system is required, expedite use of IT solutions for disbursal of National Rural Employment Guarantee Act and social security payments and extend support to banks in the recovery of their dues.



1. What does S & P 500 relate to? a) Supercomputer b) A new technique in e-business c) Anew technique in bridge building d) An index of stocks of large companies

2. Basel II relates to which one of the following? a) International standards for safety in civil aviation b) Measures against cyber crimes c) Measures against drug abuse by sportspersons d) International standards for measuring the adequacy of a banks capital

3. Consider the following statements 1. The repo rate is the at which other banks borrow from the Reserve Bank of India. 2. A value of 1 for Gini coefficient in a country implies that there is perfectly equal income for everyone in its population. Which one of the statements given above is/are correct?

1 only

b) 2 only

c) Both 1 and 2

d) Neither 1 nor 2


4. The National Housing Bank was set up in India as a wholly-owned subsidiary of which one of the following? a) State Bank of India b) Reserve Bank of India c) ICICI Bank d) Life Insurance Corporation of India

5. Consider the following statements;


Life Insurance Corporation of India is the oldest insurance company in India.


National Insurance company Limited was nationalized in the year 1972 and made a subsidiary of General Insurance corporation of India.

3. Head Quarters of United India Insurance Limited are Located at Chennai Which one of the statements given above is/are correct?

1, 2 and 3

b) 2 and 3 only

c) 1 and 2 only

d) 1 and 3 only

6. What is Indo next which was launched in January, 2005? a) A new scheme to promote Indian Tourism b) A new scheme to promote export of Indian Handicrafts

An association of the non resident Indians to organize Pravasi Bhartiya Divas every year in India.


An alternative trading Platform being promoted by the Bombay Sstock Exchange and Regional Stock Exchange.


7. Consider the following statements;


Sensex is based on 50 of the most important stocks available on the Bombay Stock Exchange (BSE)

2. For calculating the sensex, all the sensex stocks are assigned proportional weightage. 3. New York stock Exchange is the oldest stock Exchange in the world. Which one of the statements given above is/are correct?

2 only

b) 2 and 3

c) 1 and 3

d) None

8. Consider the following statements;

1. The

National Housing Bank, the Apex institution of housing finance in India,

was set up as a wholly owned subsidiary of the Reserve bank of India. 2. The small Industries Development Bank of India was established as whollyowned subsidiary of the Industrial Development Bank of India. Which one of the statements given above is/are correct?
a) 1

only b) 2 only

c) both 1 and 2

d) Neither 1 nor 2

9. In India, the first of limited liability managed by Indians and founded in 1881 was a) Hindustan Commercial Bank b) Oudh Commercial Bank c) Punjab National Bank d) Punjab and Sind Bank


10. Debenture holders of a company are its



b) Creditors

c) Debtors

d) Directors


Which one of the following statements is correct with reference to FEMA in India?

The foreign Exchange Regulation Act (FERA) was replaced by Foreign Exchange Management Act (FEMA) in the year 2001.


FERA was given a sunset clause of one year till 31st May, 2002 to enable Enforcement Directorate to complete the investigation of pending issues.

c) Under FEMA, violation of foreign exchange rules has ceased to be a criminal offence. d) As per the new dispensation, Enforcement Directorate can arrest and prosecute the people for the people for the violation of foreign exchange rules

12. Consider the following statements; 1. Currency with the public 2. Demand deposits with banks 3. Time deposits with banks

1 and 2

b) 1 and 3

c) 2 and 3

d) 1, 2 and 3


Among the following major stock exchanges of India, the exchange which recorded highest turnover during the year 2000-01

a) Bombay stock Exchange b) Calcutta Stock Exchange c) Delhi Stock Exchange d) National Stock Exchange

14. Consider the following financial institutions of India; 1. Industrial Finance corporation of India (IFCI) 2. Industrial Credit and Investment Corporation of India (ICICI) 3. Industrial Development Bank of India(IDBI) 4. National Bank for Agriculture and rural Development (NABARD)
5. The a)

correct chronological sequence of the establishment of these institutions b) 3, 4, 1, 2 c) 2, 3, 4, 1 d) 4, 1, 2, 3

1, 2, 3, 4

15. Consider the following statements: Full convertibility of the rupee may mean 1. Its free float with other international currencies. 2. Its direct exchange with any other international currency at any prescribed place inside and outside the country. 3. Its acts just like any other international currency. d) 1,2 and 3

Which of these statements are correct? a) 1 and 2 b) 1 and 3 c) 2 and 3

16. with reference to the Wholesale Price Index (WPI). Consider the following statements: 1. The new WPI series with base 1993-94=100 became effective from April 1998. 2. In the new WPI series, the weight for primary articles has gone down by 10 percentage points. 3. The weight for electricity has increased in the new WPI series. Which of these statements are correct?

a) 1,

2 and 3

b) 2 and 3

c) 1 and 3

d) 1 and 2

17. The new series of Wholesale Price Index (WPI) released by the Government Of India is with reference to the base prices of a) 1981-82 b) 199-91 c) 1993-94 d)1994-95 18. The average rate of domestic savings (gross) for the Indian economy is currently estimated to be in the range of a) 15 to 20 per cent b) 20 to 25 per cent c) 15 to 30 per cent d) 30 to 35 per cent 19. Consider the following statements: The Indian Rupee is fully convertible 1. In respect of Current Account of Balance of Payment 2. In respect of Capital Account of Balance of Payment 3. Into gold Which of these statements is/are correct? a) 1 alone b) 3alone c) 1 and 2 d) 1, 2 and 3 20. Gilt-edged market means a) bullion market b) market of Government securities c) market of guns d) market of pure metals 21. Resurgent India Bonds were issued in US dollar, Pound Sterling and a) Japanese Yen b) Deutsche Mark c) Euro d) French Franc 22. A rise in SENSEX means a) A rise in prices of shares of all companies registered with Bombay Stock Exchange b) A rise in prices of shares of all companies registered with National Stock Exchange c) An overall rise in prices of shares of group of companies registered with Bombay Stock Exchange d) A rise in prices of shares of all companies belonging to a group of companies registered with Bombay Stock Exchange 23. From the balance sheet of a company, it is possible to

a) Judge the extent of profitability of the company b) Assess the profitability and size of the company c) Determine the size and composition of the assets and liabilities of the company d) Determine the market share, debts and assets of the company 24. A: Devaluation of a currency may promote export. R: Price of the countrys products in the international market may fall due to devaluation. 25. The current price index (base 1960) is nearly 330. This means that a) All items cost 3-3 times more than what they did in 1960 b) The prices of certain selected items have gone up to 3-3 times c) Weighted mean of prices of certain items has increased 3-3 times d) Gold price has gone up 3-3 times 26. The banks are required to maintain a certain ratio between their cash in hand and total assets. This is called a) SBR (Statutory Bank Ratio) b) SLR (Statutory Liquid Ratio) c) CBR (Central Bank Reserve) d) CLR (Central Liquid Reserve) 27. The accounting year of the Reserve Bank of India is a) April- March b) July-June c) October- September d) January December 28. Capital Account Convertibility of the Indian Rupee implies a) that the Indian Rupee can be exchanged by the authorized dealer for travel b) that the India Rupee can be exchanged for any major currency for the purpose of trade in goods and services c) that the Indian Rupee can be exchanged for any major currency for the purpose of trading financial assets d) none of the above 29. Economic Survey in India is published officially, every year by the a) Reserve Bank of India b) Planning Commission of India c) Ministry of Finance, Government of India d) Ministry of Industries, Government of India

30. In India, the interest rate on savings accounts in all the nationalized commercial banks is fixed by a) Union Ministry of Finance b) Union Finance Commission c) Indian Banks Association d) None of the above 31. With reference to the institution of Banking Ombudsman in India, Which one of the statements is not correct? a) The Banking Ombudsman is appointed by the Reserve Bank of India b) The Banking Ombudsman can consider complaints from Non Resident Indians having accounts in India c) The orders passed by the Banking Ombudsman are final and binding on the parties concerned d) The service provided by the Banking Ombudsman is free of any fee 32. With reference to India, consider the following: 1. Nationalization or Banks 2. Formation of Regional Rural Banks 3. Adoption of villages by Bank Branches Which of the above can be considered as steps taken to achieve the financial inclusion in India? a) 1 and 2 only b) 2 and 3 Only c) 3 Only d) 1, 2 and 3 33. Consider the following statements: The Functions of commercial banks in India include 1. Purchase and sale of shares and securities on behalf of customers. 2. Acting as executive and trustees of wills. Which of the statements given above is/are correct? a) 1 Only b) 2 Only c) Both 1 and 2 d) Neither 1 nor 2 34. Which of the following terms indicates a mechanism used by commercial banks for providing credit to the government? a) Cash Credit Ratio c) Liquidity Adjustment Facility b) Debt Service Obligation d) Statutory Liquidity Ratio 35. With reference to the Non-banking Financial Companies (NBFCs) in India consider the following statements: 1. They cannot engage in the acquisition of securities issued by the government.


2. They cannot accept demand deposits like savings Account. Which of the statements given above is/are correct? 1 only b) 2 only c) Both 1 and 2 d) Neither 1 nor 2

36. When the Reserve Bank of India announces an increase of the Cash Reserve Ratio, what does it mean? a) The commercial banks will have less money to lend b) The Reserve Bank of India will have less money to lend c) The Union Government will have less money to lend d) The commercial banks will have more money to lend.

1. 2. 3. 4. 5. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 D D D B C D A C B B C D A A A B C C A B A 26 27 28 29 30 31 32 33 34 35 36 B A C C D C B C D B A


22 23 24 25