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    This document summarizes key aspects of financial intermediaries and banks in India. It explains that financial intermediaries like banks collect deposits and lend money as loans, earning a commission. It discusses why banks invest more than required in government securities, including that it is a safer investment. It also outlines the different types of bank accounts (current, savings, term deposits), and notes that current and savings accounts are most important for banks because they can lend money at higher interest rates than what is paid to account holders. Finally, it briefly mentions that the RBI controls interest rates on foreign currency loans and deregulated rates on some domestic loans in 2012.

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    This document summarizes key aspects of financial intermediaries and banks in India. It explains that financial intermediaries like banks collect deposits and lend money as loans, earning a commission. It discusses why banks invest more than required in government securities, including that it is a safer investment. It also outlines the different types of bank accounts (current, savings, term deposits), and notes that current and savings accounts are most important for banks because they can lend money at higher interest rates than what is paid to account holders. Finally, it briefly mentions that the RBI controls interest rates on foreign currency loans and deregulated rates on some domestic loans in 2012.

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    Download as DOC, PDF, TXT or read online from Scribd
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    5 views3 pages

    Speak

    Uploaded by

    Invincible Balu
    This document summarizes key aspects of financial intermediaries and banks in India. It explains that financial intermediaries like banks collect deposits and lend money as loans, earning a commission. It discusses why banks invest more than required in government securities, including that it is a safer investment. It also outlines the different types of bank accounts (current, savings, term deposits), and notes that current and savings accounts are most important for banks because they can lend money at higher interest rates than what is paid to account holders. Finally, it briefly mentions that the RBI controls interest rates on foreign currency loans and deregulated rates on some domestic loans in 2012.

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    of 3

    mrunal.org/2013/04/economic-survey-ch5-financial-intermediaries-insurance-sector-issues-reforms-bancassurance-fdi-part-1-of3.

    html/print/

    11/10

    What is financial intermediaries? Why are they important for Economy? Then in part 1 of 3, we saw insurance sector In part 2 of 3, capital market In this third and final part, well see the banks and NBFCs.

    Banks
    What do banks do? They collect deposits from savers and lend it as loan to the borrowers, and earn Commission in between. Hence theyre one type of financial intermediaries. We already know that banks have to invest some of their deposit money in govt. securities (and high rated corporate bonds) under the statutory liquidity ratio (SLR). For past few years, this SLR rate has remained steady 23-24%. Yet banks have invested more than 30% of their deposits in Government securities. Recall that Government securities are safe investments and if an investment is safe then it wont give much profit. So why are the bank investing more money in Government securities, even above the SLR requirement? 1. because they think it is safer investment (compared to lending it to the likes of Kingfisher) and or 2. because businessmen are not coming forward to take loans and or 3. Consumers are also not coming forward for getting loans for bike, car, or home loans (due to inflation).

    Interest rate
    There are mainly three type of bank account: Current Account Interest paid by bank 0% Savings account 4-6*% Term deposits/Fixed Deposit Depends on how long you keep the money. 6-8*%

    These rates change from bank to bank, ^these are just approximate numbers for illustration. For banks Current account and savings account (CASA) are most important. Why? Because on these deposits, bank has to pay very low interest. So if bank gets lot money from CASA source, and lends it as car/bike/home/business/personal loans @12 -18% =there is big profit margin.

    Interest rate change


    Deposit rates (bank pays to accounts holders) Lending rate (bank charging to loan takers)
    22/19

    mrunal.org/2013/04/economic-survey-ch5-financial-intermediaries-banks-rrbs-nbfcs-part-3-of3.html/print/

    RBI control s the interest rates on foreign currency non-resident

    2012: RBI deregul ated the interest rate on loans given to

    mrunal.org/2013/04/economic-survey-ch5-financial-intermediaries-banks-rrbs-nbfcs-part-3-of3.html/print/

    33/19

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