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Banking Awareness PDF
Banking Awareness PDF
Banking Awareness PDF
Content Page
no.
1. History of Banking In India 2
2. Reserve Bank Of India 5
3. Nationalization of Banks In India 15
4. Indian Banking Structure 16
5. All India Financial Institutions 21
6. SEBI & IRDAI 29
7. Types of Account 32
8. Non-Banking Financial Companies (NBFC) 38
9. Credit Rating Agencies 40
10. Foreign Exchange Reserve 44
11. Financial Market 45
12. Small Finance Bank And Payments Bank 55
13. Payment And Settlement Systems Act 58
14. Financial Inclusion In India 82
15. Different Codes Used In Banking 85
16. Inflation 87
17. Priority Sector Lending 90
18. Basel Norms 94
19. Deposit Insurance and Credit Guarantee Corporation 97
20. Banking Ombudsman In India 99
21. Know Your Customer 100
22. Prompt Corrective Action 103
23. Bank Headquarters and Tagline 106
24. Banking Related Acts 114
25. Committees 117
27. Important Banking Abbreviations 123
28. Miscellaneous 135
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Year Event
1865 Allahabad Bank was established. It’s Oldest Joint Stock bank in India.
Oudh Commercial Bank was established in 1881 in Faizabad. At the time, it was
the first commercial bank in India having limited liability and an entirely Indian
1881 board of directors. It failed in 1958.
Punjab National Bank (PNB) was established in Lahore by Indian Merchants –
1894
1st Indian effort to continue till present day.
present such as Catholic Syrian Bank, The South Indian Bank, Bank of India,
1906 -
1911 Corporation Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank
of India)
Central Bank of India first Indian commercial bank which was wholly managed by
1911 Indians, was established. It was called first truly Swadeshi Bank.
1913 - Due to World War 1 and 2 at least 94 Banks in India were failed.
1917
All the three Presidency Banks merged by British Government and named it as
1921
Imperial Bank Of India.
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1955 Imperial Bank of India was renamed as ‘State Bank of India’ on 1st July, 1955.
1978 Deposit Insurance and Credit Guarantee Corporation (DICGC) was established.
Regional Rural Banks (RRB) was formed for financial inclusion and
1975
development of rural economy.
Second time Government of India announced demonetisation and banknotes of
1978
1000, 5000 and 10000 rupee were abolished.
1980 6 banks were nationalised with authorised capital more than Rs. 200 crores.
National Bank for Agriculture and Rural Development (NABARD) was
1982
established for credit to agriculture and cooperative sector.
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1994-96 Core Banking System started making its way into banks and branches.
1999 established.
2003 Pension Fund Regulatory and Development Authority (PFRDA) was formed
2006 IDBI merges with IDBI Bank and IDBI acquires United Western Bank.
CTS (Cheque Truncation System) first implemented in NCR, New Delhi –
2007
deadline was 31 December 2013.
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1. IDBI Nationalised. Now total nationalised banks is 20 excluding SBI and its
associates.
2. SBI merged with State Bank of Saurashtra (1st associate bank merged
2008
with SBI) on 13 August, 2008.
2. SBI merged with State Bank of Indore. Its 2nd associate bank merger
and IDFC.
2017 SBI merged with its five Associate Banks and Bharatiya Mahila Bank.
2019 Dena Bank and Vijaya Bank Merged with Bank of Baroda
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The bank is headed by the Governor and the post is currently held by Shaktikanta Das. There
are 3 Deputy Governors N S Vishwanathan, B P Kanungo and Mahesh Kumar Jain. Now,
One Deputy governor post is empty.
The Central Board of Directors is the main committee of the Central Bank. The Government
of India appoints the directors for a 4-year term. The Board consists of a Governor, and not
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more than 4 Deputy Governors, 4 Directors to represent the regional boards, 2 from the
Ministry of Finance and 10 other directors from various fields. RBI wants to create a post of
Chief Operating Officer (COO) and re-allocate work between the five of them(4 Deputy
Governor and COO).
Subsidiaries of RBI:
• Developing the financial structure of the country on sound lines consistent with the
national socio-economic objectives and policies.
Prior to 1956, the principle of note issue of the RBI was based on the ‘proportional reserve
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system’. This system was replaced by the ‘minimum reserve system’ in 1956 under which the
RBI was required to hold at least Rs. 115 crore worth of gold as backing against the currency
issued. The rest (i.e., Rs. 85 crore) should be in foreign securities, so that— together with
gold and foreign exchange reserve the minimum value of these assets is kept at Rs. 200
crore.
The RBI also acts as the agent of the Government in respect of membership of the IMF
and the World Bank.
Furthermore, the RBI acts as the adviser of the Government not only on banking and
financial matters but also on a wide range of economic issues (like financing patterns,
mobilization of resources, institutional arrangements with regard to banking and credit
matters, international finance), etc.
3. Bankers’ Bank
As a regulator and supervisor of the country’s financial system, the RBI prescribes the broad
parameters of banking operations within the entire banking and financial system operates in
the country. The basic objective of this activity of the RBI is to (i) maintain public confidence
in the country’s banking system, (ii) protect the interests of depositors, and (iii) provide cost-
effective banking services to the public.
As a bankers’ bank, the RBI holds a part of the cash reserves of commercial banks and lends
them funds for short periods. All banks are required to maintain a certain percentage (lying
between 3 p.c. and 20 p.c.) of their total liabilities. The main objective of changing this cash
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The RBI provides financial assistance to commercial banks and State cooperative banks
through rediscounting of bills of exchange. As the RBI meets the needs of the commercial
banks and cooperative banks, the RBI functions as the ‘lender of the last resort’.
The RBI has been empowered by law to supervise, regulate and control the activities of
commercial and cooperative banks. The RBI periodically inspects banks and asks them for
returns and necessary information.
4. Controller of Credit
As an apex bank of the country, the RBI has been empowered to formulate, implement and
monitor its monetary policy with the objective of maintaining price stability (both internal and
external) and ensuring adequate flow of credit to the productive sectors.
The RBI controls the total supply of money and bank credit to subserve the country’s interest.
The RBI controls credit to ensure price and exchange rate stability. To achieve this, the RBI
uses all types of credit control instruments quantitative, qualitative, and selective. The most
extensively used credit instrument of the RBI is the bank rate and now repo rate, cash
reserve ratio, etc. The RBI also relies on the selective methods of credit control. But, it has
fallen into disuse during the reform era.
The Reserve Bank, as the custodian of the country’s foreign exchange reserves, is vested
with the duty of managing the investment and utilization of the reserves in the most
advantageous manner. Being a manager of foreign exchange, it manages the Foreign
Exchange Management Act, (FEMA) 1999. As a manager of foreign exchange, the RBI helps
in facilitating trade (external) and payment and aims at promoting orderly development and
maintenance of the foreign exchange market in India.
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6. Miscellaneous Functions:
The RBI collects, collates and publishes all monetary and banking data regularly in its weekly
statements, in the RBI Bulletin (monthly), and in the Report on Currency and Finance
(annually).
This consists of such institutions as the Deposit Insurance and Guarantee Corporation
(DIGC) (to safeguard the interests of depositors against bank failure), the Agriculture
Refinance and Development Corporation (to meet the needs of agriculturists), IFCI, SFCs,
IDBI, UTI (to meet the long and medium term needs of industry), etc. As for cooperative credit
movement, the RBI’s performance is really commendable. This has resulted in curbing the
activities of moneylenders in the rural economy.
MONETARY POLICY
Monetary policy is the process by which monetary authority of a country i.e. RBI controls the
supply of money in the economy by its control over interest rates in order to maintain price
stability and achieve high economic growth. In India, the central monetary authority is the
Reserve Bank of India (RBI). So, it was designed to maintain the price stability in the
economy.
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The instruments of credit control or instruments of monetary policy are of two types:
Quantitative Tools:
The Quantitative Instruments are also known as the General Tools of monetary policy. These
tools are related to the Quantity or Volume of the money. The Quantitative Tools of credit
control are also called as General Tools for credit control. They are designed to regulate or
control the total volume of bank credit in the economy. These tools are indirect in nature and
are employed for influencing the quantity of credit in the country. The general tool of credit
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1. Reserve ratio:
Banks have to set aside certain percentage of reserves as cash or RBI approved assets.
They are two types of Reserve Ratios.
When a bank's deposits increase by Rs100, and if the cash reserve ratio is 9%, the banks will
have to hold Rs. 9 with RBI and the bank will be able to use only Rs 91 for investments and
lending, credit purpose. Therefore, higher the ratio, the lower is the amount that banks will be
able to use for lending and investment. This power of Reserve bank of India 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.
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). RBI is empowered to increase this ratio up to 40%.
An increase in SLR also restricts the bank's leverage position to pump more money into the
economy.
Net Demand Liabilities - Bank accounts from which you can withdraw your money at any time
like your savings accounts and current account
Time Liabilities - Bank accounts where you cannot immediately withdraw your money but
have to wait for certain period. E.g. Fixed deposit accounts
Open market operation refers to the purchase and sale of Government securities by the
Central bank in open market.
In order to correct the excess demand or inflation, the central bank sells securities to the
commercial banks and general public. When commercial banks buy securities, their cash
reserves are reduced directly. When people buy securities, they make large withdraw of cash
from commercial banks. Here their cash reserves are diminished indirectly. Consequently,
commercial banks’ capacity to create credit is curtailed. This leads to a reduction in the
volume of investment on the part of businessmen and entrepreneurs and a decline in national
income. As a result, the state of excess demand or inflation is checked.
On the contrary, central bank can correct the state of deficient demand or deflation by
purchasing securities in the open market.
3. Rates:
Bank Rate:
Bank rate, also referred to as the discount rate, is the rate of interest which a central bank
charges on its loans and advances to a commercial bank.
The bank rate is the rate of interest at which a bank lends money, especially the minimum
rate of interest that banks are allowed to charge, which is decided by the country's central
bank. Bank rate is not used by RBI for monetary management now. It is now same as the
MSF rate. Current bank rate is 6.25 %.
i. Repo rate:
Repo rate, also known as the benchmark interest rate, is the rate at which the RBI lends
money to the banks for a short term. When the repo rate increases, borrowing from RBI
becomes more expensive. If 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. Current repo rate is 5.40 %
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The Qualitative Instruments are also known as the Selective Tools of monetary policy. These
tools are not directed towards the quality of credit or the use of the credit. They are used for
discriminating between different uses of credit. It can be discrimination favoring export over
import or essential over non-essential credit supply. This method can have influence over the
lender and borrower of the credit. The Selective Tools of credit control comprises of following
instruments.
1. Margin Requirements:
The margin refers to the "proportion of the loan amount which is not financed by the bank". Or
in other words, it is that part of a loan which a borrower has to raise in order to get finance for
his purpose. A change in a margin implies a change in the loan size. This method is used to
encourage credit supply for the needy sector and discourage it for other non-necessary
sectors. This can be done by increasing margin for the non-necessary sectors and by
reducing it for other needy sectors. Example: If the RBI feels that more credit supply should
be allocated to agriculture sector, then it will reduce the margin and even 85-90 percent loan
can be given.
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Using this tool RBI may direct banks not to give loan for particular purpose or sector. For
example: RBI may ask bank not to give loans to traders of certain commodities like
sugar, oil, pulses etc. This prevents hoarding by traders of these commodities. This would
help in increasing supply in market and thus reducing inflation.
3. Moral Suasion:
Moral Suasions are suggestion and guidelines by the RBI to the commercial banks to take so
and so action and measures in so and so trend of the economy. RBI may request commercial
banks not to give loans for unproductive purpose which does not add to economic growth but
increases inflation in the economy.
The history of nationalization of Indian banks dates back to the year 1955 when the Imperial
Bank of India was nationalized and re-christened as State Bank of India under the SBI Act,
1955. Later on July 19, 1960, the 7 subsidiaries of SBI were also nationalized with deposits
more than 200 crores. Those subsidiaries are
1. Allahabad Bank
2. Bank of Baroda
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3. Bank of India
4. Bank of Maharashtra
5. Canara Bank
6. Central Bank of India
7. Dena Bank
8. Indian Bank
9. Indian Overseas Bank
10. Punjab National Bank
11. Syndicate Bank
12. UCO Bank
13. Union Bank of India
14. United Bank of India
On 1980, Government of India nationalized another 6 banks; all of these banks have a
deposit base over Rs.200 crores. The stated reason for the nationalization was to give the
government more control of credit delivery. With this nationalization, the Government of India
controlled around 91% of the banking business of India. Those 6 nationalized banks are
1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Commerce
5. Punjab & Sindh Bank
6. Vijaya Bank
Later on, in the year 1993, the government merged New Bank of India with Punjab National
Bank. It was the only merger between nationalized banks and resulted in the reduction of the
number of nationalized banks from 20 to 19.
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• A scheduled bank is a bank that is listed under the second schedule of the RBI Act, 1934.
• In order to be included under this schedule of the RBI Act, banks have to fulfill
certain conditions such as having a paid up capital and reserves of at least 5 lakh
and satisfying the Reserve Bank that its affairs are not being conducted in a manner
prejudicial to the interests of its depositors.
• Scheduled banks are further classified into commercial and cooperative banks.
• Non- scheduled banks are those which are not included in the second schedule of
the RBI Act, 1934.
Commercial Banks:
• Commercial banks may be defined as, any banking organization that deals with the
deposits and loans of business organizations.
• Commercial banks issue bank cheques and drafts, as well as accept money on term
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deposits.
• Commercial banks also act as moneylenders, by way of instalment loans and overdrafts.
• It also allow for a variety of deposit accounts, such as checking, savings, and time
deposit.
• These institutions are run to make a profit and owned by a group of individuals.
• Scheduled commercial banks (SCBs) account for a major proportion of the business
of the scheduled banks.
• SCBs in India are categorized into the five groups based on their ownership and/or
their nature of operations. State Bank of India and its subsidiaries are recognized as
a separate category of SCBs, because of the distinct statutes (SBI Act, 1955 and SBI
Subsidiary Banks Act, 1959) that govern them.
• Nationalized banks and SBI and associates together form the public sector banks group.
• IDBI ltd. has been included in the nationalized banks group since December 2004.
• Private sector banks include the old private sector banks and the new generation
private sector banks which were incorporated according to the revised guidelines
issued by the RBI regarding the entry of private sector banks in 1993.
• Foreign banks are present in the country either through complete branch/subsidiary
route presence or through their representative offices.
Nationalized Banks:
Both Public sector banks and SBI are categorized under nationalized banks. In these banks
the majority stake is held by the Government of India. The shares of these banks are listed
on stock exchanges.
Foreign Banks:
These banks are registered and have their headquarters in a foreign country but operate their
branches in our country. Examples of foreign banks in India are: HSBC, Citibank, Standard
Chartered Bank, etc.
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Banks, the issued capital of a RRB is shared by the owners in the proportion of 50%,
15% and 35% respectively.
• Prathama bank is the first Regional Rural Bank in India located in the city Moradabad
in Uttar Pradesh.
Cooperative Banks:
• A co-operative bank is a financial entity which belongs to its members, who are at
the same time the owners and the customers of their bank.
• Co-operative banks are often created by persons belonging to the same local or
professional community or sharing a common interest.
• It generally provides their members with a wide range of banking and financial
services (loans, deposits, banking accounts, etc).
• They provide limited banking products and are specialists in agriculture-related
products. Cooperative banks are the primary financiers of agricultural activities,
some small-scale industries and self-employed workers.
• It functions on the basis of “no-profit no-loss”.
• Anyonya Co-operative Bank Limited (ACBL) is the first co-operative bank in India
located in the city of Vadodara in Gujarat.
Urban Cooperatives can be further divided into scheduled and non-scheduled. Both
the categories are further divided into multi-state and single-state. Majority of these
banks fall in the non-scheduled and single-state category.
Banking activities of Urban Cooperative Banks are monitored by RBI.
Rural Cooperatives:
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The rural cooperatives are further divided into short-term and long-term structures.
The short-term cooperative banks are three tiered operating in different states. Those are,
1. State Cooperative Banks- They operate at the apex level in states
2. District Central Cooperative Banks-They operate at the district levels
3. Primary Agricultural Credit Societies-They operate at the village or grass-
root level.
Primary Cooperative Agriculture and Rural Development Banks (PCARDBS) - They operate
at district/block level.
The rural banking cooperatives have a complex monitoring structure as they have a dual
control which has led to many problems. A Forum called State Level Task Force on
Cooperative Urban Banks (TAFCUB) has been set-up to look into issues related to duality in
control.
All banking activities are regulated by a shared arrangement between RBI and NABARD. All
management and registration activities are managed by RCS.
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The IFCI was the 1st specialized financial institution setup in India to provide term
finance to large industries in India.
It was established on 1st July, 1948 under The Industrial Finance Corporation Act of
1948.
The Industrial Financial Corporation of India is authorized to grant loans to industrial
companies repayable with twenty five years grants, loans in foreign currency to
certain industries, under write bonds, shares and debentures etc. provided they are
disposed of by the I.F.C.I. within seven years, guarantee deferred payments by
importers of capital goods of foreign manufacturers, accept deposit from the local
institution, guarantee loans from any bank of a foreign country, subscribe shares of
industrial companies.
The corporation’s role now extends to the entire industrial spectrum in the country.
The facilities and services being provided by IFCI can be deemed to fall broadly
under
Project finance
Financial services
Promotional services
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The Industrial Finance Corporation has played a vital role in our industrial economy.
Since its inception, the Corporation has provided financial assistance to the
underdeveloped industrial concerns.
The Corporation has the power to examine the financial aspects of the industrial
companies and give valuable advice to the management for improving their
schemes.
IFCI. has launched promotional schemes like
It is also diversifying its activities in the field of merchant banking to render other
financial services like project counselling, sanction of loans etc. I.F.C.I. is also
showing concern for the development of backward districts of the country.
On June 29, 2018 Life Insurance Corporation of India (LIC) has got a technical go-ahead from
Insurance Regulatory and Development Authority of India (IRDAI) to increase stake in IDBI
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Bank up to 51%. Since January 21 2019, IDBI Bank has been categorised as Private Sector
Bank by Reserve Bank of India
Some of the financial institutions built with the support of IDBI are as follows
Exim Bank
It was set up to promote, finance and develop the Micro, Small and Medium
Enterprise (MSME) sector and for coordinating the functions of the institutions
engaged in similar activities.
“To facilitate and strengthen credit flow to MSMEs and address both financial and
developmental gaps in the MSME eco-system” is the mission of SIDBI.
The four basic objectives of SIDBI are:
▪ Financing
▪ Promotion
▪ Development
▪ Co-ordination
for orderly growth of industry in the small scale sector.
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The business domain of SIDBI consists of Micro, Small and Medium Enterprises
(MSMEs).
It was set up as a wholly owned subsidiary of Industrial Development Bank of India,
but now is an independent financial institution.
Its branches are available in all major clusters of the country.
SIDBI is in the top 30 Development Banks of the World according to the ranking of
The Banker, London.
SIDBI also provides financial support to National Small Industrial Corporation (NSIC)
for providing leasing, hire-purchase, and marketing support to the industrial units in
the small-sector.
The initial corpus of NABARD was Rs.100 crores. Consequent to the revision in the
composition of share capital between Government of India and RBI, the paid up
capital as on 31 May 2017, stood at stood at Rs.6,700 crore with Government of
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India holding Rs.6,700 crore (100% share). The authorized share capital is
Rs.30,000 crore.
NABARD takes measures towards institutions which help in improving absorptive
capacity of the credit delivery system including
▪ Monitoring
▪ Training of personnel
▪ Government of India
▪ State Governments
NABARD refinances financial institutions which finance the rural sector. These
refinances are availed by the following organizations
▪ State Co-operative Agriculture and Rural Development Bank (SCARDB)
▪ Commercial Banks(CB)
It has 336 District offices across the country including 1-sub office at Port Blair and
one special cell at Srinagar.
It has 6 training establishments.
NABARD is also known as Self Help Group (SHG) Bank Linkage Programme. About
22 lakh SGHs were credited through this programme.
NADARD has a portfolio of Natural Resource Management Programmes in the
following fields
▪ Watershed development
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▪ Tribal development
▪ Farm innovation
The RBI and NABARD has laid out guidelines for commercial, Regional Rural and
Cooperative banks to provide data regarding loans given by banks to the
microfinance institutions.
Till 22nd March 2017, Govt of India had 99.6% equity in NABARD and the remaining
0.4% was with RBI. The Union Cabinet on March 22nd March 2017 approved the
transfer of 0.4% equity of RBI in NABARD to the Govt. of India. So now NABARD is
fully owned by Govt. Of India.
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NHB was set up on July 9, 1988 under the National Housing Bank Act, 1987.
NHB is wholly owned by Reserve Bank of India, which contributed the entire paid-up
capital.
Managing Director & Chief Executive Officer- Sarada Kumar Hota,.
To upgrade housing stock in the country, provide building materials for housing and
supply of buildable land.
To encourage public companies to provide serviced land for housing.
Micro Units Development and Refinance Agency Bank (MUDRA Bank) was set up as
a public sector financial institution on 8 April 2015 under Pradhan Mantri MUDRA
Yojana (PMMY).
It is set up to provide loans at low rates to Micro-Finance Institutions (MFIs) and Non-
Banking Financial Companies (NBFCs) which then provide credit to MSMEs.
Established with an initial corpus of Rs. 20,000 crores and a credit guarantee corpus
of Rs 3,000 crores.
Under the aegis of Pradhan Mantri MUDRA Yojana (PMMY), MUDRA has already
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created its initial products / schemes. The financial limit for these schemes are,
Shishu : covering loans upto 50,000/-
Eligible entities can apply for MUDRA Bank loan under PMMY in NBFCs, MFIs,
Rural Banks, District Banks, Nationalize Banks, Private Banks, Primary Lending
Institutions and other intermediaries.
Any person who is eligible and having the need of loan of up to Rs 10 lakhs can
approach for loans under PMMY.
It will not refinance agriculture sector under PMMY but the traders of vegetables &
fruits are covered under MUDRA Bank Schemes.
The bank is set up as a subsidiary of the Small Industries Development Bank of India
(SIDBI), and later it will be converted to a separate institution.
The bank was decided to act as regulator of MFIs, but later the decision was
withdrawn and it will be done by RBI.
There is no fix interest rate in MUDRA loan; it will vary from bank to bank.
MUDRA will be extending refinance support to RRBs for enhancing their liquidity.
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The SEBI Act was amended on 25th January, 1995 in Mumbai to give additional powers for
ensuring orderly development of the capital market and to enhance SEBI ability to protect
the interests of the investors. SEBI can file complaints in courts and notify its regulations
without the prior approval of Central Government.
Management:
SEBI is managed by its Chairman and 5 members and has departments such as –
▪ Issue Management Department
▪ It has 2 advisory committees, one each for primary and secondary market to
provide advisory guidance in framing policies and regulations.
Functions of SEBI:
▪ Developmental functions
Regulatory Function:
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Inspect the books of accounts and call for periodical returns from recognized stock
exchanges.
Inspect the books of accounts of financial intermediaries.
Compel certain companies to list their shares in one or more stock exchanges.
Registration brokers.
IRDA was set up as autonomous body under the IRDA Act, 1999.
Objectives of IRDAI:
To ensure speedy settlement of genuine claims and to prevent frauds and malpractices
To bring transparency and orderly conduct of in financial markets dealing with insurance.
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Section 14 of the IRDA Act, 1999 lays down the following duties, powers and functions of
IRDA.
Regulating and overseeing premium rates and terms of non-life insurance covers
1. Demat Account
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Savings Account:
Any resident individual- single accounts, two or more individuals in joint accounts,
Associations, clubs etc., are eligible for this account.
Modest credit option available to the depositor.
Two free cheque books will be issued per year.
Internet banking facility will be provided without any charge.
Balance enquiry, NEFT, Bill payment, Mobile recharge etc., are provided through mobile phones.
Students can open this account with zero balance by providing the required documents.
In this account interest will be given in daily basis.
There is no restriction on the number and amount of deposits. But withdrawals are subjected
to certain restrictions.
Some banks recommend to maintain a minimum amount to keep it functioning.
Current Accounts:
Current Accounts are basically meant for businessmen and are never used for the purpose
of investment or savings.
These deposits are the most liquid deposits and there are no limits for number of
transactions or the amount of transactions in a day.
Most of the current accounts are opened in the names of firm / company accounts.
Cheque book facility is provided and the account holder can deposit all types of the cheques
and drafts in their name or endorsed in their favour by third parties.
No interest is paid by banks on these accounts. On the other hand, banks charge certain
service charges, on such accounts.
The main objective of Current Account holders in opening this account is to enable them
(mostly businessmen) to conduct their business transactions smoothly.
The current accounts do not have any fixed maturity as these are on continuous basis accounts.
However, in case of need, the depositor can ask for closing the fixed deposit prematurely by
paying a penalty. The penalty amount varies with banks.
A high interest rate is paid on fixed deposits. The rate of interest paid for fixed deposit varies
according to amount, period and also from bank to bank.
Recurring deposit account or RD account is opened by those who want to save certain
amount of money regularly for a certain period of time and earn a higher interest rate.
In RD account a fixed amount is deposited every month for a specified period and the total
amount is repaid with interest at the end of the particular fixed period.
The period of deposit is minimum six months and maximum ten years.
The interest rates vary for different plans based on the amount one save and the period of
time and also on banks.
No withdrawals are allowed from the RD account. However, the bank may allow to close the
account before the maturity period.
These accounts can be opened in single or joint names. Banks are also providing the
Nomination facility to the RD account holders.
Demat Account:
Demat account is an account in which the shares and securities are held in dematerialized form
To carry out transactions in the stock market, one should get open a demat account.
To open a demat account, KYC procedure is also followed.
Multiple demat accounts can be opened.
Demat accounts are held by a single person i.e. no joint accounts can be operated.
There is no need of any minimum balance in demat account.
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A person having BSBDA in a bank cannot have a Savings Account in the same bank. But he
can have other accounts such as fixed deposit and recurring deposit accounts.
A person having savings account can open a BSBDA in the same bank. But he will have to
close the savings account within 30 days from the date of opening of BSBDA.
BSBDAs can be opened in any commercial banks and also in foreign banks.
This account will be considered as normal banking service.
For this account, maintenance of minimum balance is not required.
ATM card/ ATM cum Debit card, Rupay card will be given for the account holders.
There are going to be no limit on the number of deposits that can be made in a month but,
account holders will be allowed most of 4 withdrawals in a month, which includes ATM
withdrawals also.
The above facilities will be given without any charge. There will be no charge levied for non-
operation/ activation of in-operative basic saving bank deposit account.
Small accounts are valid for a period of 12 months initially which may be extended by
another 12 months if the person provides proof of having applied for an Officially Valid
Document.
NRI Accounts:
Not only the Indians living in India can have their accounts in the banks of India, but the people who
leave India and reside in some other country or become NRIs (Non-Resident Indian) and PIOs
(Person of Indian Origin) can also maintain their accounts in India enjoying the various benefits of the
accounts as applicable.
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3. FCNR Account
Non Resident Ordinary (NRO) Account:
NRO account is a Savings Account/ Current Account/ Fixed Deposit Account/ Recurring
Deposit account opened by NRIs and PIOs.
It is a rupee denominated account i.e. the amount in the account is maintained in Indian Rupees.
The NRIs and PIOs who transfer from India and have funds gathered in India like rent
income, pension, etc. can enjoy the benefits of NRO account.
If the residents who leave India have account in India, then that account can be converted to
NRO account with the same account number.
So the account is efficient for maintaining local rupee earnings in India while living abroad.
Joint account facility and nomination facility is available with Indian residents.
Cheque book and ATM card facility is available for joint accountee in India.
The credit balances in NRO account are subject to respective income tax bracket.
NRE account is a rupee denominated account which can be Savings Account/ Current
Account/ Fixed Deposit Account/ Recurring Deposit account opened by NRIs and PIOs.
The NRIs and PIOs who want to transfer their foreign earnings to India can enjoy the
benefits of NRE account.
So the account is efficient to use foreign earnings in India while living abroad.
It is a safe and simple online money transfer service.
Joint account facility and nomination facility is available with other NRIs or Indian Residents.
Loan facility is also available against funds in NRE account.
The principal amount and the interest paid on the amount are not taxable in India.
The funds in account can be converted to any foreign currency.
FCNR account is a term deposit account that can be maintained by NRIs and PIOs in foreign
currency. Authorized dealer banks in India can allow deposits in any of the permitted
currency (currency freely convertible).
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The NRIs and PIOs who want to keep their savings as fixed deposits in Indian banks can
apply for FCNR account. They can gain more rate of interest in India than abroad.
So there is no Foreign Exchange risk, for example: if you deposited $100 in the account with
1% rate of interest, after 1 year on maturity you will get $ 101 irrespective of what the
previous or current currency rates are.
Funds in FCNR account can be used for making local payments in India.
Joint account facility and nomination facility is available with other NRIs or Indian Residents.
Loan facility is also available against funds in FCNR account.
The principal amount and the interest paid on the amount are not taxable in India.
The funds in account can be converted to any foreign currency.
▪ LIC,
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▪ GIC,
▪ UTI.
▪ Investment Company
▪ Loan Company
▪ Micro-Finance Institution
▪ Factors
ii. NBFCs do not form part of the payment and settlement system and cannot issue
cheques drawn on itself;
iii. Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is
not available to depositors of NBFCs, unlike in case of bank.
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• The interest rates charged to the borrowers by NBFCs are not regulated by RBI. It
has the right to choose its own interest rates but it cannot offer interest rates higher
than the ceiling rate prescribed by RBI from time to time. However, NBFC should
provide complete transparency to its customer about the rate of interest charged in
the application form.
• NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
• NBFCs (except certain AFCs) should have minimum investment grade credit rating.
• Certain mandatory disclosures are to be made about the company in the Application
Form issued by the company soliciting deposits.
• All NBFCs are not entitled to accept public deposits. Only those NBFCs to which the
Bank had given a specific authorization can accept public deposits.
• The RBI does not guarantee repayment of deposits by NBFCs even though they may
be authorized to collect deposits.
• If an NBFC defaults in repayment of deposit, the depositor can approach Company
Law Board or Consumer Forum or file a civil suit in a court of law to recover the
deposits.
• There is no Ombudsman for hearing complaints against NBFCs.
• However, in respect of credit card operations of an NBFC, which is a subsidiary of a
bank, if a complainant does not get satisfactory response from the NBFC within a
maximum period of 30 days from the date of lodging the complaint, the customer will
have the option to approach the Office of the concerned Banking Ombudsman for
redressal of his grievance/s.
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L = Liquidity, the level of liquidity and the components of liquidity are verified.
• HDFC – established in 1977 provides mortgages, life Insurance, mutual funds and
Micro Finance
• Power Finance Company – established in 1986 provides financial consulting,
investment banking and loan management
• Reliance Capital – established in 1986 – provides asset management, insurance,
broking and distribution, commercial finance and mutual funds
• Infrastructure Development Finance Company – established in 1997 – provides
finance for infrastructure projects, corporate finance, mutual funds and investment
banking
• Rural Electricity Corp. – established in 1969 – provides investment and private
banking and asset management
• Shree Ram Transport Finance – established in 1974 – provides consumer vehicle
finance, city union finance and micro finance
• Bajaj Holdings – established in 2007 – Asset management, loans and micro finance
• M & M financial – established in 1991 – financial services, micro finance and asset
management.
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• Credit Rating Agencies in the country are regulated by SEBI (Securities and
Exchange Board of India).
• The SEBI (Credit Rating Agencies) Regulations, 1999 govern the credit rating
agencies and provide for eligibility criteria for registration of credit rating agencies,
monitoring and review of ratings, requirements for a proper rating process,
avoidance of conflict of interest and inspection of rating agencies by SEBI,
amongst other things.
• These agencies determine the risk that is associated by investing in the companies.
• This aids in making Informed Investment Decisions. Credit Ratings give a fair
estimate of the ability of the organizations to fulfill their financial commitment.
• A high credit rating indicates a high possibility of paying back the loan.
• The Credit Rating of organizations also helps the lending institutions in deciding the
loan eligibility of the borrower.
• The increasing levels of default resulting from easy availability of finance, is
another factor that has led to the growing importance of the Credit Rating.
• Credit Rating also plays a vital role in financial markets. They assess the credit risk
of the corporate or government borrowers by analyzing the relevant information
available regarding the borrower and its economic circumstances. This analysis is
reflected in
Credit Rating. This rating represents an opinion about the likelihood of meeting
the financial obligations by the borrower.
• Credit Rating Agencies rates a wide range of entities, including:
▪ Industrial companies
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▪ Banks
▪ Infrastructure entities
▪ Mutual funds
▪ State governments
• CARE is promoted by Unit Trust of India or UTI, Canara Bank, IDBI and many
other reputed banks and companies dealing with financial services.
• Ratings conducted by CARE, are authenticated by Government of India.
• The Reserve Bank of India, SEBI, along with other regulatory authorities also
recognizes the ratings of CARE.
• Mr. Rajesh Mokashi is the current MD and CEO of the organization.
• This credit rating agency was set up in 2005 exclusively for Micro, small and
medium enterprises.
• It has its headquarters in Mumbai.
CIBIL:
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loan applications.
• CIBIL was created to play a critical role in India’s financial system, helping loan
providers manage their business.
• MD and CEO of CIBIL is Satish Pillai, Chairman is M.V.Nair.
• According to Moody’s rating system, rates from Aaa to C are assigned. Aaa for
highest quality and C s for lowest quality.
• The organization has its headquarters in New York, USA.
• Standard & Poor’s is the world’s leading Index provider and the foremost source of
independent credit ratings. It provides financial market intelligence to decision
makers.
• It is founded by Henry Varnum Poor in 1860
Fitch Ratings:
• In 1914 Fitch was founded by John Knowles in New York City as Fitch Publishing
Company.
• Later it merged with London based IBCA in 1997
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• Fitch Ratings is also the parent company of India Ratings & Research Private
Limited that operates from Mumbai.
• Funding import like trade in different commodities in international market the trader
may not accept the local currency so to settle trade any accepted currency has to be
given.
• Debt servicing to facilitate or settle borrowings in acceptable currency
• Stabilizing domestic currency ( it’s known that exchange rate in free market is
decide by foreign currency comparison )
• Confidence building for markets
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• Foreign currency assets mean total foreign currency available with RBI.
Financial Market
A financial market is a broad term describing any marketplace where buyers and sellers
participate in the trade of assets such as equities, bonds, currencies and derivatives.
• Transparent pricing
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II. Capital Market – the capital market handles the medium term and long-term credit.
Money Market
The money market is that part of a financial market which deals in the borrowing and
lending of short term loans generally for a period of less than or equal to 365 days. It meets
the short term requirements of borrowers and provides liquidity or cash to the lenders.
It is a place where short term surplus investible funds at the disposal of financial
institutions and individuals are bid by borrowers, again comprising institutions and
individuals and also by the government.
The Indian money market consists of Reserve Bank of India, Commercial banks, Co-
operative banks, and other specialized financial institutions. The Reserve Bank of
India is the leader of the money market in India.
Money market does not refer to any specific market place. Rather it refers to the
whole networks of financial institutions dealing in short-term funds, which provides an
outlet to lenders and a source of supply for such funds to borrowers.
It should be noted that money market does not deal in cash or money but simply
provides a market for credit instruments such as bills of exchange, promissory notes,
commercial paper, treasury bills, etc. These financial instruments are close substitute
of money.
Some Non-Banking Financial Companies (NBFCs) and financial institutions like LIC,
GIC, UTI, etc. also operate in the Indian money market.
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Organized sector: The organized sector is within the direct purview of RBI regulations.
Unorganized sector: The unorganized sector consists of indigenous bankers, money
lenders, non- banking financial institutions, etc.
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Call Money:
Call money is mainly used by the banks to meet their temporary requirement of cash.
It is also known as money at call and money at short notice.
In this, market money is demanded for an extremely short period. The duration of
such transactions is from a few hours to 14 days.
These transactions help stock brokers and dealers to fulfill their financial requirements.
Rate is fixed by the market forces such as the demand for and supply of money.
Treasury Bill:
It is a market for sale and purchase of short-term government securities.
These securities are called as Treasury Bills, which are promissory notes or financial
bills issued by the RBI on behalf of the Government of India.
There are two types of treasury bills:
Treasury bills are highly liquid instruments. At any time the holder of treasury bills
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They are worth the value of Rs. 25 lakh and in multiple of Rs. 25 lakh
The minimum subscription of CDs should be worth Rs. 1 Crore.
The government initiated a market of CDs in order to widen the range of instruments
in the money market and to provide a higher flexibility to investors for investing their
short term money.
The maturity period for the CP is a minimum of 7 days and maximum 1 year.
Repurchase Agreements:
A repurchase agreement, also known as a repo, is the sale of securities together
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with an agreement for the seller to buy back the securities at a later date.
The repurchase price should be greater than the original sale price, the difference
effectively representing interest, sometimes called the repo rate.
The party that originally buys the securities effectively acts as a lender. The original
seller is effectively acting as a borrower, using their security as collateral for a
secured cash loan at a fixed rate of interest.
Capital Market
▪ Primary Market
▪ Secondary Market
Primary Market:
The companies have to follow well defined procedures when they are auctioning
their shares for the first time. This is called Initial Public Offer.
At this stage, the investment banks are involved in setting a price for the shares
which the company is issuing.
The major players in the primary market are merchant bankers, mutual funds,
financial institutions, and individual investors.
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Secondary markets:
The secondary market known as stock market or stock exchange plays an equally
important role in mobilizing long-term funds by providing the necessary liquidity to
holdings in shares and debentures.
It is an organized market where shares and debentures are traded regularly with high
degree of transparency and security.
They are both short term (T- bills) and long term (Dated bonds or Government bonds)
Do not carry any risk of default and are hence called 'risk-free gilt-edged securities'.
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GOI also issues savings instruments (savings bonds, NSCs or special securities
(power bonds, oil bonds) but they are not fully tradable.
Dated government securities are long-term and carry a fixed or floating coupon rate
which is payable at fixed time periods. The maturity of these securities can be up to
30 years.
Dated security can be issued to any person, firm, corporate, state governments and trusts.
Foreign companies owned by NRIs and FIIs registered with SEBI can also invest in
them.
Floating Rate Bonds carry variable interest rates with fixed percentage pegged to
some benchmark rate.
Capital Indexed Bonds carry a fixed interest rate over wholesale price index or
consumer price index.
Inflation Indexed Bonds carry interest rates linked to inflation rates (observed from
WPI earlier, now CPI) so that real return is positive from investments.
Lately, RBI has allowed sovereign wealth funds, endowment funds, insurance and
pension funds & foreign central banks (Federal Reserve etc) to invest in G-secs if
they are registered with SEBI.
Mutual Funds:
Mutual funds raise money from the public, pool them and invest in stock market.
▪ Custodian - A bank or a financial institution registered with SEBI which holds and
safeguards the securities owned within a mutual fund. E.g. SBI is the custodian of
SBI mutual fund.
Hedge Funds:
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They are comparatively more risk prone, aim at faster returns and generally avoid
regulatory oversight.
Available only to certain investors and can't be sold to general public.
Venture Capital:
Angel Investors:
An individual who provides capital for a business starts up.
They invest their own money, unlike venture capitalist who invests public money.
Angel Funds are allowed to invest in overseas venture capital undertakings upto
25% of their investible corpus in line with other AIFs.
The lock-in requirements of investment made by Angel Funds in the venture capital
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Chit Funds:
An arrangement that a group of people arrive at to contribute money in a manner at
periodic intervals into a kitty.
A member can withdraw that money through a lucky draw, auction or other agreed ways.
Usually popular in Rural India, Tier2 and Tier3 cities due to under penetration of
banking services.
Chit funds are established under Central Chit Funds Act, 1982.
They comprise of a basket of stocks that has a composite index and the value of that
depends on underlying stocks.
The major benefit is that you can invest in a diverse portfolio with the simplicity of
trading a single stock.
ETFs are increasingly becoming a popular investment option throughout the globe.
Money market is the place where short Capital Market, where long term securities
term marketable securities are traded. are traded is known as Capital Market.
market.
The money market instruments are The instruments of the capital market are not
rich in liquidity. that much liquid.
Money Market instruments gives lower Capital market instruments gives higher
returns as compared to capital market returns as compared to money market
instruments. instruments.
Small Finance banks are physical banks whose aim is to provide basic banking products
such as deposits and supply of credit but in a limited area of operation. Their work is to
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supply credit to small farmers, micro and small industries, and other unorganized sector
entities through high technology and also low cost operations.
NBFC, Micro- Finance Institutions and Local Area Banks who has 10 years of
experience in banking can apply for Small Finance Bank license.
Small Finance Banks are licensed under section 22 of Banking Regulation Act 1949
and registered as Public Limited Company under the Companies Act 2013.
The bank shall primarily undertake basic banking activities of accepting deposits and
lending to small farmers, small businesses, micro and small industries, and
unorganized sector entities
Their primary targets are Small Business and MSMEs. They are not allowed to lend
the deposited money to big business or industries.
The minimum paid-up equity capital for small finance banks shall be Rs. 100 crore.
Every small finance bank will be required to use the words “Small Finance Bank” in
its name in order to differentiate it from other banks.
Maximum loan size and investment limit exposure to single person is 10% and for
group would be restricted to 15% of capital funds.
Annual branch expansion plans should be in compliance with the requirement of
opening at least 25% of its branches in unbanked rural centers.
75% of its Adjusted Net Bank Credit (ANBC) should be advanced to the priority
sector as categorized by RBI.
At least 50% of its loan portfolio should constitute loans and advances of up to Rs.25
lakh to micro finance business.
For the first three years, 25% of branches should be in unbanked rural areas.
Minimum paid-up equity capital is 40% and it will be gradually brought down to 26%
within 12 years from date of commencement.
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Small banks can undertake financial services like distribution of Mutual Fund units,
Insurance products, Pension products and so on but not without prior approval from
RBI.
It cannot set up subsidiaries to undertake non-banking financial services activities.
Payment Banks:
Payment Banks are banks which will reach their customers through mobile phones rather
than traditional bank branches. They can be thought of as mobile wallets; however they can
also have physical branches.
The objectives of payments banks will be to further financial inclusion by providing small
savings accounts and payments or remittance services to migrant labor workforce, low
income households, small businesses, other unorganized sector entities and other users.
They can offer only savings and current account in which deposit only up to Rs 1
lakh per customer is permitted.
They cannot lend money to people and also cannot issue credit cards. Though ATM
or debit card can be issued.
A payments bank will need to invest 75% of its funds in government securities or
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The Act came into effect on 12th August 2008 vide a notification to that effect.
The PSS Act specifies that no person, other than the RBI, can operate a payment system
except with due authorization issued by the RBI (unless specifically exempted by the terms
of the PSS Act itself.).
The Act provides for netting and settlement finality and gives formal oversight powers over
all payment and settlement systems with the RBI.
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Under this act two regulations have been made by RBI, One is, Board for Regulation and
Supervision of Payment and Settlement Systems (BPSS) 2008. This committee is formed
by the central board of directors of RBI. It deals with exercising its powers, the constitution
of subcommittees and advisory committees for payment and settlement related matters.
Another one is Payment and Settlement Systems Regulations, 2008. It deals the issues like the
form of application for authorization for commencing on a payment system and grant of
authorization, payment systems, furnishing of returns, documents, the furnishing of accounts and
balance sheets by systems provider etc.
A Cheque is a document that orders a bank to pay a specific amount of money to the
person in whose name the cheque has been issued. Cheque is used to make safe and
convenient payment. Cheque is a financial instrument which can be transferred to another
party by simply endorsing it.
After opening an account in a bank, with cheque book facility, the bank you will provide you
with a cheque book. However, there are various kinds of cheque book you receive and it
would depend on the type of account you have. The number of cheques in a cheque book
also differs depending on the account. Charges also vary depending on the type of account,
like current account, where more cheque leaves are provided as compared to individual
savings account.
Parts of a Cheque:
Drawer: Maker or writer of a bill of exchange (cheque)
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Drawee: The party that has been directed by the depositor to pay certain sum of money to
the person
• In 1938, the Calcutta Clearing Banks’ Association, which was the largest bankers’
association at that time, adopted clearing house.
• Until 1 April 2012, cheques in India were valid for a period of six months from the
date of their issue, before the Reserve Bank of India issued a notification reducing
their validity to three months from the date of issue.
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2) Order Cheque:
• When the word "or bearer" printed on the cheque is cancelled and the word ‘order’
may be written on the cheque, the cheque is called an order cheque.
• An order cheque is one which is payable to a particular person.
• The payee can transfer an order cheque to someone else by signing his or her name
on the back of it.
3) Crossed Cheque:
• Crossed cheque means drawing two parallel lines on the left corner of the cheque
with or without additional words like “A/c Payee only” or “&co” or “Not Negotiable”.
• A crossed cheque cannot be encashed at the cash counter of a bank but it can only
b credited to the payee’s account.
• This is a safer way of transferring money then an Uncrossed or open cheque
because we can find to which account the money has been transferred.
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• Post Dated Cheque’s are cheques issued with future date on it.
• The cheque issued today will be valid for three months from the date of issue.
• For example; on 11/6/2017 you are issuing it dated 15/9/2017 than it will called post
dated cheque and will be valid for three months from 15/9/2017.
5) Anti-Dated Cheque:
• If a cheque bears a date earlier than the date on which it is presented to the bank, it
is called as “anti-dated cheque”.
• Such a cheque is valid upto three months from the date of the cheque.
• For example on 11/6/2017 you are issuing a cheque dated 1/6/2017 than it will called
anti dated cheque and will be vailed for three months form 1/1/2015.
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6) Stale Cheque:
If a cheque is presented for payment after three months from the date of the cheque, it is
called stale cheque. A stale cheque is not honoured by the bank.
7) Gift Cheque:
• Gift cheque, it is a cheque forirted in decorative form issued for a small extra charge
by the banks for use by customers who wish to give presents of money on special
occasions.
• Gift cheques may be purchased in unlimited numbers from every branch of the ‘X’ Bank.
8) Traveller’s Cheque:
It is an instrument issued by a bank for remittance of money from one place to another.
• Travelers Cheques are accepted almost everywhere and are available in many
denominations. There is no-expiration in this type.
• Generally used by people on vacation in foreign countries instead of cash, as many
businesses used to accept traveler’s cheques as currency.
9) Multilated Cheque:
• If a cheque is torn into two or more pieces such cheque is Mutilated Cheque.
• If it presented for payment, such a cheque the bank will not make payment against
such a cheque without getting confirmation of the drawer.
• In case, if a cheque is torn at the corners and no material fact is erased or cancelled,
the bank may make payment against such a cheque.
• Normally, when the drawer is willing to get cash from the bank, they used to write the
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cheque favoring “Self” and after tendering the cheque to the teller they will get
payment for the cheque.
• Suppose you are having two different accounts in the same branch, you can issue a
cheque from one account favoring “Self” and deposit the cheque in another account
in your name and it is transfer of funds from one account to another account by
means of cheque.
• Suppose you are having one account with ABC bank and another account with XYZ
bank, you can issue a cheque drawn on ABC bank favoring “Self”(means your name)
and can deposit the cheque in the account with XYZ bank.
• Normally, bearer cheques will not create any issue; however, in the case of order
cheques, you have to establish your identity to XYZ bank.
• For example,
• It is kind of a pre-paid negotiable instrument that is used to direct payments from one
bank to another bank or one of its own branches to pay a certain sum to the
specified party.
• Demand drafts can only be made payable to a specified party, also known as pay to order.
• When a bank gets request for the issue of a DD by any individual or party, it either
deducts the money from the bank account (if the individual/party has bank account in
that bank) or individual/party has to give the amount in cash not exceeding Rs
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In 1990 RBI took initiative for the electronic clearing service in order to enhance better
payment and settlement system in India.
Electronic Payment System in India can be classified into two types such as Gross
Settlement System and Net Settlement System.
• Reserve Bank of India introduced the RTGS System in March 2004 with four bank
branches on a pilot basis, only for inter-bank transactions.
• RTGS is a real time and gross settlement system. Real Time means settlement of
the transaction is start at the time it received.
• Gross Settlement means transactions are individually processed. No other
transaction can bunch with other.
• The transaction is recorded in the books of RBI so it is final and irrevocable transaction.
• In RTGS, there is minimum limit for the transfer of money is Rs 2,00,000 (Rs 2 lakh)
and there is no maximum limit for the transfer of money.
• Customers can avail facility of RTGS between 9:00 am to 4:30 pm on weekdays and
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• In order to enter into the RTGS the bank must be enable for NEFT.
• National Payments Corporation of India has the important role to improve electronic
payment system in India. It introduced lot of products to develop digital payment in
India.
• NPCI was founded in 2008 under section 8 of Companies Act 2013.
1. National Financial Switch (NFS) - network of shared automated teller machines in India.
2. Immediate Payment Service (IMPS) - Real time payment with mobile number.
3. Unified Payment Interface (UPI) - Single mobile application for accessing different
bank accounts
4. BHIM App - Smartphone app built using UPI interface. *99# - mobile banking using USSD
5. National Automated Clearing House (NACH)- a web based solution to facilitate
interbank, high volume, electronic transactions.
6. Cheque Truncation System - online image-based cheque clearing system
7. Aadhaar Payments Bridge System (APBS) - Aadhar based payment solution
8. RuPay - card scheme
9. Bharat Bill Payment System (BBPS) - integrated bill payment system.
• Any bank having a core banking solution system can be a part of NFS.
• Customers of member banks can withdraw money from any of these banks without
incurring any extra cost.
• Main purpose of NFS initially was to include rural and cooperative banks under its
umbrella, but now any bank can join this network for maximizing its reach.
IMPS is a tool through which one can transfer money instantly within banks across India
through mobile, internet and ATMs which is not only safe but also economical both in
financial and non- financial perspectives.
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Before IMPS system, the transactions could be done either by NEFT or by RTGS. But it
creates lot of inconvenience to the customer because of its working hours.
So NPCI along with some banks like SBI, BOI, UBI and ICICI in 2010 launched IMPS in
Mumbai.
▪ Remitter (Sender)
▪ Beneficiary (Receiver)
▪ Banks
• Can build the foundation for a full range of mobile based Banking services.
• The bank should have an approval from RBI for Mobile Banking Service to be eligible
to participate in IMPS.
• Customer should do Mobile Banking Registration if he wants to transact through mobile.
• The customer gets a unique Mobile Money Identifier (MMID) which is one of the
inputs to start the transaction. It is a 7 digit number issued by banks.
• Every mobile phone be it a basic phone or Smartphone is eligible for IMPS.
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• Individual banks can also charge money for IMPS as per bank policy.
transactions using a single app. So, through the use of one app, one can perform all
payment transactions.
• The limit on transaction through UPI system is Rs 1 lakh.
4. BHIM App:
• BHIM (Bharat Interface for Money) is a Mobile App developed by National Payments
Corporation of India (NPCI).
It was launched by Narendra Modi, the Prime Minister of India, at a Digi Dhan mela at
Talkatora Stadium in New Delhi on 30 December 2016.
• It has been named after Dr. Bhimrao R. Ambedkar.
• The app is built over the Immediate Payment Service infrastructure and allows the
user to instantly transfer money between the bank accounts of any two parties.
• It can be used on all mobile devices.
• It is an open platform and not a mobile wallet. It means unlike mobile wallets (Paytm,
MobiKwik, mPesa, Airtel Money etc) which hold money, the BHIM app is only a
transfer mechanism, which transfers money between different bank accounts.
• We can send or receive money to different bank accounts with ZERO Transaction
charges by using
a) UPI payment addresses by dialing *99#
b) Account number with IFSC (Indian Financial System Code) code or MMID
(Mobile Money Identifier) Code
c) QR (Quick Response) code for a fixed amount of money
d) ‘Pay to Aadhaar Number’ – can transfer money to the Aadhaar number linked
with beneficiaries’ bank account.
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• BHIM allow users to send or receive money to or from UPI payment addresses, or to
non-UPI based accounts (by scanning a QR code with account number and IFSC
code or MMID Code)
• Transactions on BHIM are nearly instantaneous and can be done 24/7 including
weekends and bank holidays.
• BHIM also allows users to check the current balance in their bank accounts and to
choose which account to use for conducting transactions, although only one can be
active at any time.
• Users can create their own QR code for a fixed amount of money, which is helpful in
merchant — seller — buyer transactions. Users can also have more than one
payment address.
• If the 12-digit Aadhaar number is listed as a payment ID, the BHIM app will not
require any biometric authentication or prior registration with the bank or Unified
Payment Interface (UPI).
• Transaction limit per transaction would not exceed Rs.10,000 and per day limit is Rs.
20,000.
5. *99#:
One of the innovative payment service launched by NPCI includes *99# service, which
works on Unstructured Supplementary Service Data (USSD) channel.
This service was launched envisioning the potential of Mobile Banking and the need for
immediate low value remittances which will help in financial deepening and inclusion of
under banked society in the mainstream banking services.
*99# service was dedicated to the nation by the Honorable Prime Minister of India Shri
Narendra Modi on 28th August 2014 as part of Pradhan Mantri Jan Dhan Yojana (PMJDY).
▪ Additional channel for banking and key catalyst for financial inclusion
▪ Service also offered through BC Micro ATMs to serve the rural populace
NACH is a centralized, web-based clearing service that can ease the work of banks,
financial institutions, the government and the corporates by consolidating all regional ECS
systems into one national payment system, thereby removing any geographical barriers in
efficient banking.
The service is now active in all Indian banks with core banking facility. It comes in two variants
▪ Regional ECS
▪ ECS
Some facts about NACH:
• From 1st May, 2016 NACH replaced ECS.
• Those who are using ECS already can use ECS till their validity expires. After this,
one will have to fill NACH forms instead of ECS forms.
• NACH forms can be availed from AMC (Asset Management Company) offices or
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their websites.
• The structure of NACH allows member banks to design their own products to ensure
the needs of their retain customers, corporate clients and Government.
• This system eliminates the local barriers and facilitates same day transactions
anywhere in India.
• Customers need not keep track of due date for payments.
Though MICR technology helped improve efficiency in cheque handling, clearing is not very
speedy as cheques have to be physically transported from the collecting branch of a bank
to the drawee bank branch.
Under CTS, instead of physical movement of the cheque, an electronic image of the cheque
is transmitted to the drawee branch / bank. Along with the electronic image, certain key
relevant information is also transmitted, such as date of presentation, presenting bank
details, data on the MICR band.
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(a) Details of the bank and its logo: The bank details and its logo are printed on the face
of the cheque. However, it is printed in invisible ink.
(b) VOID pantograph: This is a wavelike design, which is visible to the naked eye and
seen below the area where the account number is printed.
(c) Cheque printer details: This is printed on the extreme left hand side of the cheque.
The printer details along with the words ‘CTS-2010’ is mentioned along the area
where you tear off the leaf from the cheque book.
(d) Rupee symbol: The new symbol of the Indian rupee is printed beside the area where
the amount in figures needs to be written.
(e) Signature space indicator: The words ‘please sign above’ are mentioned indicating
the space where you will need to sign the cheque.
• It provides faster clearance of cheques as local cheques are cleared on the same
day as the cheque is presented to the clearing house, while intercity cheques is
cleared the next day.
• It reduces reconciliation and clearing frauds.
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• There are no extra charges levied for collection of cheques drawn on a bank
located within the grid.
• cash withdrawal
• cash deposit
• Aadhaar to Aadhaar funds transfer
Now all that a customer needs for availing of the AEPS services are an individual
identification number (identifying the bank to which the customer is associated), an Aadhaar
number and fingerprints captured during his/her enrolment.
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9. RuPay Cards:
RuPay is the Indian domestic card payment network being set up by National Payments
Corporation of India (NPCI) at the behest of banks in India.
This project had been conceived by Indian Banks Association and has the approval of
Reserve Bank of India. The objectives to be fulfilled are:
• Reduce overall transaction cost for the banks in India by introducing competition to
international card schemes.
• Develop products appropriate for the country particularly for financial inclusion.
• Provide card payment service option to many banks that are currently not eligible for
card issuance under the eligibility criteria of international card schemes.
• Build environment whereby payment information of the country remains within the country
• Shift Personal Consumption Expenditure (PCE) from cash to electronic payments in
a growing economy with a population of 1.2 billion
The need for a domestic payment card the “RuPay” card is on account of two factors:
(a) The high cost borne by the Indian banks for affiliation with international card
associations in the absence of a domestic price setter and
(b) The connection with international card associations resulting in the need for
routing even domestic transactions, which account for more than 90% of the total,
through a switch located outside the country.
NPCI has since been granted approval to launch the “RuPay” affiliated cards for use at
ATMs and Micro ATMs.
NPCI has been advised to ensure that the use of these cards under the Aadhaar Enabled
Payment System (AEPS) is in strict compliance with the DBOD (Department of Banking
Operations & Development) guidelines on business correspondents (BCs).
RuPay will compete with Visa and MasterCard in terms of cost and quality of service, and it
is only natural to expect the incumbents also to reduce their rates.
It is imperative for India to create a low-cost electronic payment system if the ongoing
Endeavour to overhaul the existing system of welfare payments and subsidies is to
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succeed.
The unique identity project will deliver a unique numerical tag for every Indian resident,
which can then be used to create unique electronic bank accounts.
Transferring welfare and other payments from government treasuries directly to beneficiary
accounts would be possible. Thereafter, if the beneficiary can use electronic cards to spend
the money in his account, it would remove one more layer of administrative mediation with
its potential for corruption and leakage.
The BBPCU will set necessary operational, technical and business standards for the entire
system and its participants, and also undertake clearing and settlement activities. It will
work only as a medium to connect multiple billers and agents through various Operating
Units.
Banks and non-bank entities presently engaged in any of the bill payment activities falling
under the scope of BBPS can apply for approval from RBI under the Payment and
Settlement Systems (PSS) Act 2007.
• The system will provide multiple payment modes and instant confirmation of payment.
• Payments may be made through the BBPS using cash, transfer cheques, and
electronic modes.
• Retail points will be set up for bill payments across the country who would be able to
accept all kinds of bills payments made through credit cards, debit cards, mobile
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• Payments would be made securely through the NPCI network with instant receipts
getting generated.
• PayU India is the first non-bank entity which got RBI approval to set up and operate
Bharat Bill Payment System (BBPS).
2. The more complex machines will accept deposits, facilitate credit card payments
and report account information.
ATM does most of the functions of cashier in the bank. ATM is operated by plastic card
issued by the bank which is called as ATM Card, with its special features.
Advantages of ATM:
• Round the Clock Services: ATM provides banking services to its customers
round the clock, 24 hours a day, 7 days a week and 365 days a year.
• Access to bank from any part of the world: Essential banking services like
deposits, withdrawals transfer of funds, etc can be accessed by customers from any
part of the world.
• Expansion of Services to any corner of the world: Of the Banks can expand their
services to any corner of the world by providing electronic access to its customers.
• For shopping Purpose: Now days almost every shopping mall, restaurant and
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Types of ATM:
White Label ATMs are those ATMs which set up, owned and operated by non-bank entities.
To aid financial inclusion and drive ATM penetration in the country the Reserve Bank of
India has permitted the launch of White Labeled ATMs (WLAs) i.e. private non-bank
companies to set up, own and operate its own brand of ATMs in the country. These white
label ATMs will not display logo of any particular bank. TATA launched the first white label
ATM in India under the brand name of Indicash.
Brown Label ATM:
These ATMs are owned and maintained by service provider whereas a sponsor bank
whose brand is used on ATM takes care of cash management and network connectivity.
Onsite ATM:
These are ATM machines that are set up in the premises where there is a bank branch so
that both the physical branch and the ATM can be used. This is known as being on site and
this can be used for several purposes. Many people can use this to avoid the lines that are
present in the branch and hence save on the time required to complete their transactions.
Offsite ATMs:
These are the machines that are set up on a standalone basis. This means that the bank
has a place where there is only an ATM machine then this becomes an offsite ATM. This is
done to ensure that the bank reaches out to more geographical areas and that people are
able to use its services even when there is no bank branch in the area.
Cash Dispenser:
• Allows only cash withdrawals, balance enquiry and mini statement
requests, cash dispenser (CD)
Worksite ATM:
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Mobile ATM:
• It refers to an ATM that moves in various areas for the customers. Few
priavte banks have introduced ATM on wheels.
A point of sale terminal (POS terminal) is an electronic device used to process card
payments at retail locations. A POS terminal generally does the following:
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Transfers the funds from the customer’s account to the seller’s account (or at least,
accounts for the transfer with the credit card network)
Records the transaction and prints a receipt
Mobile Wallet:
It’s a mobile-based virtual wallet, where you preload a certain amount in your
account created with the mobile wallet service provider, and spend it at online and
offline merchants listed with the mobile wallet service provider.
For example, if you go to a coffee shop A, which is listed with XYZ mobile wallet, you
can pay for your coffee through the phone. Depending on the service provider, you
can also pay through app, text message, social media account or website.
There are four types of mobile wallets in India
▪ open
▪ semi-open
▪ closed
▪ semi-closed
Open wallets are the ones that allow you to buy goods and services, withdraw cash
at ATMs or banks and transfer funds. These kinds of wallets only issued by banks.
M-Pesa by Vodafone is one such example. Apart from the usual merchant
payments, it also allows you to send money to any mobile number bank account.
Airtel Money is a semi-open wallet, which allows you to transact with merchants that
have a contract with Airtel. You can't withdraw cash or get it back. You'll have to
spend what you load.
Closed wallets are issued by a company to a consumer for buying goods and
services exclusively from that company, which are quite popular with e-commerce
companies.
Lastly, semi-closed wallets like Paytm, which do not permit cash withdrawal or
redemption, but allow you to buy goods and services at listed merchants and perform
financial services at listed locations.
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The GOI and RBI with the help of banks has initiated financial inclusion program to provide
banking services to deprived and low income groups of our society at affordable cost.
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Use of Technology:
Recognizing that technology has the potential to address the issues of outreach and credit
delivery in rural and remote areas in a viable manner, banks have been advised to make
effective use of information and communications technology (ICT), to provide doorstep
banking services through the BC model where the accounts can be operated by even
illiterate customers by using biometrics, thus ensuring the security of transactions and
enhancing confidence in the banking system
Adoption of EBT:
Banks have been advised to implement EBT by leveraging ICT-based banking through BCs
to transfer social benefits electronically to the bank account of the beneficiary and deliver
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government benefits to the doorstep of the beneficiary, thus reducing dependence on cash
and lowering transaction costs.
The objective of the scheme is to provide hassle-free credit to banks’ customers based on
the assessment of cash flow without insistence on security, purpose or end use of the
credit. This is in the nature of revolving credit entitling the holder to withdraw up to the limit
sanctioned.
Swabhimaan:
Swabhimaan is financial inclusion scheme launched by GOI to provide banking facilities in
habitation with a population in excess of 2000 by March 2012. This nationwide programme
on financial inclusion was launched in February, 2011 with its focus on bringing the
deprived sections of the society in the banking network.
This code is an alpha-numeric code that is used to uniquely identify a bank branch
participating in the electronic payment systems in India like Real Time Gross
Settlement (RTGS) and the National Electronic Fund Transfer (NEFT).
It is an 11 digit code.
MICR:
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The magnetic ink character recognition line is printed using special ink, which is
sensitive to magnetic fields that allow computers to read the printed information.
This code is present at the bottom of cheques and other vouchers.
MICR code is 9 digits numeric code used to identify a bank participating in electronic
clearing scheme.
The components of MICR code are:
SWIFT/BIC Code:
It is an 8 or 11 digit code.
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For example: The SWIFT code of one of the branches of Indian Bank in Chennai is
IDIBINBBASA.
BSR code is used by the Income Tax department in order to identify a bank branch
for submission of returns to the RBI.
It is allotted to banks by Reserve Bank of India. While filling TDS/TCS (tax deducted
at source/ tax collected at source) returns, BSR code is used in details related to
challan and deductee.
It is a 7-digit code.
Inflation
Inflation is nothing but the more prices we pay for goods. It is the persistent rise of all
goods and services over a period of time. There are several factors that influence
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inflation in India.
The major factors to be taken into account are the population, unbalanced economic
growth, demand for more money and increased taxes. On the flip side it has adverse
effects on consumers.
The day to day goods are sold considerably at a higher rate which makes difficult for
the consumers to afford their basic needs. Hence the need for money increases
which is one of the major cause.
There is huge money gap which could be the potential factor for increased price and
inflation in India. Increase in enormous expenditure can cause inflammatory gap at
current prices.
The rate of inflation is measured on the basis of price indices which are of two kinds
Types of Inflation:
In first case, the demand increases over the same level of supply. In second case, the
supply decreases with the same level of demand. In both cases the situation of Demand-
pull inflation arises.
Low Inflation:
Low inflation takes place in a longer period and the range of increase is usually in ‘single
digit’. Such inflation has also been called as ‘creeping inflation’.
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Deflation:
Deflation is the exact opposite of inflation.
The persistent fall in the prices of all goods and services over a period of time is
called deflation.
When deflation occurs it is possible to buy more amounts of goods with the same
amount of money.
Deflation has often had the side effect of increasing unemployment in an economy,
since the process often leads to a lower level of demand in the economy.
Stagflation:
Stagflation is a situation in an economy where inflation and unemployment both are at
higher levels. Stagflation occurs when the economy isn’t growing but prices are going up.
Stagflation is basically a combination of high inflation and low growth.
Galloping Inflation:
This is a “very high inflation” running in the range of double-digit or triple digit (i.e. 20%,
100% or 200% a year). The Russian economy showed such inflation after the disintegration
of the ex- USSR in the late 1980s.
Hyperinflation:
This form of inflation is ‘large and accelerating’ which might have the annual rates in million
or even trillion. In such inflation not only range of increase is very large but the increase
takes place in a very short span of time, prices shoot up overnight. This hasn’t happened in
the U.S. since the Civil War, occurred in Germany before World War II, and in Zimbabwe in
the 2000s. Such inflation quickly leads to a complete loss of confidence in the domestic
currency and people start opting for other forms of money.
Skewflation:
It is an un-usual inflation, where there is inflation in one particular sector for a particular
period of time, while the other sector is experiencing no changes at all or facing deflation.
Impacts of Inflation:
It slows down the economic growth rate. Inflation redistributes wealth from creditors
to debtors i.e. lenders suffer and borrowers benefit out of inflation.
Prices goes up, that mean you pay more money for the same product which you got
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it lesser earlier.
With the rise in inflation, lending institutions feel the pressure of higher lending.
The overall objective of priority sector lending is to ensure that adequate institutional
credit flows into some of the vulnerable sectors of the economy, which may not be attractive
for the banks from the point of view of profitability.
Priority sector came into much attention in 1972, following the National Credit
Council’s plea that more emphasis should be given by commercial banks to the priority
sector. Therefore, initially, in 1974, the commercial banks were given a target of 33.33 % of
their total credit should go to the priority sector.
The latest revision in PSL targets has been made by the M.V. Nair Committee in 2012.
Export Credit
Social Infrastructure
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Renewable Energy
Others
The targets and sub-targets under priority sector lending are linked to Adjusted Net
Bank Credit (ANBC).
Under PSL the domestic and foreign banks operating in India are furnished below:
Categories Domestic Scheduled Commercial Foreign banks with less than 20
Banks and Foreign banks with 20 branches
branches and above (It can be
either ANBC or Credit Equivalent
Amount of Off-Balance Sheet
Exposure, whichever is higher.)
Micro
Not Applicable
Enterprises 7.5%
Advances to
Weaker
10% Not Applicable
Sections
Direct Agricultural advances denote advances given by banks directly to farmers for
agricultural purposes. Direct finance to agriculture shall include short, medium and long-
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term loans given for agriculture and allied activities directly to individual farmer, Self-Help
Groups (SHGs) or Joint Liability Groups (JLGs) of individual farmers.
It also includes loans to small and marginal farmers for purchase of land for
agricultural purposes, Purchase of agricultural implements and machinery, Development of
irrigation potential, Reclamation and Land Development Schemes, Construction of farm
buildings and structures, etc.
Indirect finance may include loan for construction and running of storage facilities to
store agricultural products. Indirect finance denotes to finance provided by banks to farmers
indirectly, i.e., through other agencies. Priority sector lending by commercial banks is
monitored by Reserve Bank of India through periodical Returns received from them.
The limits for investments as notified by Ministry of Micro Small and Medium Enterprise are:
Further, the following loans are also counted as priority sector loans under MSME:
Loans to Khadi and Village Industries Sector (KVI)
Loans to entities which provide inputs to artisans / village / cottage industries and
their cooperatives
Loans to Micro-finance Institutions, which in turn use this loan to disburse to MSME
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Outstanding deposits with SIDBI and MUDRA Ltd. on account of priority sector
shortfall.
Education:
Education loans include loans and advances granted to only individuals for
educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies
abroad, and do not include those granted to institutions.
Housing:
For housing loans to individuals, limit to be counted as priority sector loans is Rs. 28 Lakh in
Metros and Rs. 20 Lakh in other cities, towns and villages.
For repairing of house, limit is Rs. 5 Lakh in metros and Rs. 2 lakh in others.
Loans to any government agency for construction of houses subject to ceiling of Rs.
10 Lakh per house / dwelling unit for weaker sections or slum clearing.
Export Credit:
Incremental export credit up to 2% for domestic banks and foreign banks with 20
branches and above.
Social Infrastructure:
This includes loans up to Rs 5 crore per borrower for building social infrastructure for
activities viz. schools, health care facilities, drinking water facilities and sanitation
facilities including construction/ refurbishment of household toilets and household
level water improvements in Tier II to Tier VI centers.
It also includes loan to Micro-finance Institutions (MFIs) for on-lending to SHGs and
JLGs for water and sanitation facilities.
Renewable Energy:
This includes loan up to Rs. 15 crore to borrowers for purposes like solar based
power generators, biomass based power generators, wind mills, micro-hydel plants
and for non- conventional energy based public utilities Viz. Street lighting systems,
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Others:
Bank credit to Micro Finance Institutions (MFIs) treated as priority sector lending:
Bank credit to MFIs- Micro Finance Institutions (NBFC-MFIs, societies, trusts, etc)
extended for on-lending to individuals and also to members of SHGs/JLGs is eligible
for categorisation as priority sector advance under respective categories viz.,
Agriculture, Micro, Small and Medium Enterprises, Social Infrastructure and Others.
Basel Norms
Basel is a city in Switzerland which is also the headquarters of Bureau of
International Settlement (BIS).
Basel is a set of international banking regulations put forth by the Basel Committee
on Bank Supervision (BCBS) that sets out the minimum capital requirements of
financial institutions with the goal of minimizing credit risk.
The set of agreement by the BCBS, which mainly focuses on risks to banks and the
financial system are called Basel accord. The purpose of the accord is to ensure that
financial institutions have enough capital on account to meet obligations and absorb
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unexpected losses.
RWA means assets with different risk profiles; it means that we all know that is much
larger risk in personal loans in comparison to the housing loan, so with different types of
loans the risk percentage on these loans also varies.
BASEL 1:
• The BCBS was founded in 1974 as an international forum where members could
cooperate on banking supervision matters.
• The BCBS aims to enhance "financial stability by improving supervisory know-
how and the quality of banking supervision worldwide."
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BASEL 2:
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BASEL 3:
In the wake of the Lehman Brothers collapse of 2008 and the ensuing financial
crisis, the BCBS decided to update and strengthen the Accords.
In 2010, Basel III guidelines were released. Basel 3 accord is an enhancement of
Basel 2 accord.
The Reserve Bank of India has extended the timeline for full implementation of the
Basel III capital regulations by a year to March 31, 2019.
• Nearly 2.4 lakh crore rupees are required to implement Basel 3 in India.
DICGC is one of the wholly owned subsidiaries of the Reserve bank of India (RBI).
It was established on 15 July 1978 under Deposit Insurance and Credit Guarantee
Corporation Act, 1961 for the purpose of providing insurance of deposits and
guaranteeing of credit facilities to the customers of banks.
This means that the money of customers who deposit money in the banks is insured
by DICGC. And the customers who take loans from banks are guaranteed of money
by DICGC.
Deposit Insurance Corporation (DIC) and Credit Guarantee Corporation of India Ltd.
(CGCI) which were merged to form DICGC with a view to integrate the functions of
both DIC and CGCI.
It also include foreign banks which is running in India also be covered under DICGC.
It also include Indian Banks which is functioning outside India will also be covered
under this Act.
All Regional Rural Bank which is functioning in India also be covered under DICGC.
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DICGC insures all bank deposits, such as saving, fixed, current, and recurring, etc. except
the following types of deposits.
Deposits of the State Land Development Banks with the State co-operative banks;
Any amount which has been specifically exempted by the corporation with the
previous approval of the RBI.
Features of DICGC:
A maximum of Rs 1,00,000 is insured for each user for both principal and interest
amount.
If the customer has accounts in different banks, they all account are insured to a
maximum of Rs 1,00,000. However, if there are more accounts in same bank, they
all are treated as a single account.
The insurance premium is paid by the insured banks itself. This means that the
benefit of deposit insurance protection is made available to the depositors or
customers of banks free of cost.
The Corporation has the power to cancel the registration of an insured bank if it fails
to pay the premium for three consecutive half-year periods.
The Corporation may restore the registration of the bank, which has been de-
registered for non-payment of premium, if the concerned bank makes a request in
this behalf and pays all the amounts due by way of premium from the date of default
together with interest.
Banking Ombudsman is a quasi judicial authority functioning under the Banking Ombudsman
Scheme, 2006. The authority was created to enable resolution of complaints of customers of banks
relating to services rendered by the lenders.
Banking Ombudsman Scheme is a mechanism created by the RBI to address the
complaints raised by bank customers. It is run by the RBI directly to ensure customer
protection in the banking industry. According to the RBI, “The Scheme enables an
expeditious and inexpensive forum to bank customers for resolution of complaints relating
to certain services rendered by banks.”
The Banking Ombudsman Scheme was introduced under Section 35 A of the Banking
Regulation Act, 1949 by RBI with effect from 1995. The present Ombudsman scheme was
introduced in 2006.
The Banking Ombudsman is a senior official appointed by the Reserve Bank of India. He
has the responsibility to redress customer complaints against deficiency in certain banking
services. At present twenty Ombudsmen were appointed by the RBI to settle complaints
and they are appointed in state capitals.
All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-
operative Banks are covered under the Scheme.
The Banking Ombudsman can receive and consider any complaint relating to a number of
deficiencies related to banking operations including internet banking. RBI has mentioned a
large number of service deficiencies by banks to customers where the customers can
approach the Ombudsman through a complaint.
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A customer can file a complaint before the Banking Ombudsman if the bank doesn’t gives a reply to
the customer within a period of one month or the bank rejects the complaint, or if the complainant
is not satisfied with the reply by the bank.
KYC guidelines have been revisited time to time in the context of the
Recommendations made by the Financial Action Task Force (FATF) on Anti Money
Laundering (AML) standards and on Combating Financing of Terrorism (CFT).
In January 2012, the Capital markets regulator SEBI’s Chairman, Mr. U.K. Sinha,
launched India’s first Know Your Customer Registration Agency – KRA at Bombay
Stock Exchange. The system avoids duplication of customer details and is
interoperable, which means that other market participants can share the data and
bring in more uniformity.
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• While using e-KYC service, you have to authorize the Unique Identification Authority of
India (UIDAI), by explicit consent, to release your identity/address through biometric
authentication to the bank branches/business correspondent (BC).
• The UIDAI then transfers your data comprising your name, age, gender, and
photograph electronically to the bank.
• Information thus provided through e-KYC process is permitted to be treated as an
‘Officially Valid Document’ under PML (Prevention of Money Laundering) Rules and is
a valid process for KYC verification.
• RBI has issued a policy action guideline (first in May 2014 and revised effective from
April 1, 2017) in the form of Prompt Corrective Action (PCA) Framework if a
commercial bank’s financial condition worsens below a mark.
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The PCA framework is applicable only to commercial banks and not extended to co- operative
banks, non-banking financial companies (NBFCs) and FMIs.
• The PCA framework specifies the trigger points or the level in which the RBI will
intervene with corrective action. This trigger points are expressed in terms of
parameters for the banks.
• The triggering of PCA means there will be several restrictions imposed on the banks
from lending to the distribution of dividends etc.
The parameters that invite corrective action from the central bank are:
As per the revised framework by the RBI, in April 2017, capital, asset quality and profitability
continue to be the key areas for monitoring. Along with this, leverage of banks also will be
monitored.
The trigger points along with structured and discretionary actions that could be taken by the
Reserve Bank are described below:
1. CRAR
(i) CRAR less than 9%, but equal or more than 6% -
• Bank need to submit capital restoration plan
• Reducing its exposure to sensitive sectors like capital market, real estate or
investment in non-SLR securities.
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(ii) CRAR less than 6%, but equal or more than 3%:
• In addition to actions in hitting the first trigger point, RBI could take steps to bring in
new Management/ Board, appoint consultants for business/ organizational
restructuring, take steps to change ownership, and also take steps to merge the
bank if it fails to submit recapitalization plan.
2. Net NPAs
(i) Net NPAs over 10% but less than 15% -
• Review loan policy and take steps to strengthen credit appraisal skills, follow-up of
advances and suit-filed/decreed debts, put in place proper credit-risk management
policies
• Reduce loan concentration
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Corrective action that can be imposed on banks includes special audit, restructuring
operations and activation of recovery plan.
Promoters of banks can be asked to bring in new management, or even can supersede the bank’s
board, as a part of corrective action.
Head
No Bank Name MD and CEO Tagline
Quarters
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Bank of America
6 USA Bank of Opportunity
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Bank International
10 Indonesia
Indonesia
Berclays Bank
11 UK Fluent In Finance
Commonwealth
15 Australia
Bank of Australia
Credit Agricole
Corporate &
16 Investment Bank France Common Sense has a future
DBS Bank
19 Singapore Living, Breathing Asia
Deustsche Bank
20 Germany A Passion to Perform
Doha Bank
21 Qatar
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HSBC Ltd
23 Hong Kong The World's Local Bank
Industrial &
Commercial Bank of
24 China Ltd. China Moving Forward
Industrial Bank of
25 South Korea
Korea
J.P. Morgan Chase
26 USA The Right Relationship is
Bank N.A
Everything
JSC VTB Bank
27 Russia World Without Barriers
KBC Bank NV
28 Belgium
Korea Exchange
29 South Korea
Bank
Krung Thai Bank
30 Thailand
Public Co. Ltd.
Mashreq Bank PSC
31 UAE We Do Banking Services with
High Focus on Innovation
Mizuho Bank Ltd.
32 Japan Channel to Discovery
National Australia
33 Australia A Little Word for a big life;
Bank
More give, less take
National Bank of
34 UAE
Abu Dhabi PJSC
Rabobank
35 Netherlands A Bank with Ideas
International
Royal Bank of
36 UK Make It Happen
Scotland
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Sberbank
37 Russia By Your Side; Always Nearby
Scotia Bank
38 Canada You’re Richer Than You Think
Shinhan Bank
39 South Korea The Bank Of Bride
Societe Gednerale
40 France Building Team Sprit Together
United Overseas
48 Singapore United for Growth
Bank Ltd
Westpac Banking
49 Australia Help is What we do
Corporation
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No Bank Headquarters
Bank
No Head Quarters
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Committees
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SFC’s
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(JPC)
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No Acronyms Abbreviations
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42 CD Certificate of Deposit
51 CP Commercial Paper
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Miscellaneous
Bancassurance:
Bancassurance as the term suggests is Bank + Insurance. Bancassurance means selling insurance
product through banks. It is one of the para banking activity which the RBI has allowed the banks to take
up. For selling the insurance product, bank and insurance company come up in a partnership where the
bank sells the insurance company’s insurance products to its clients.
Bouncing of a Cheque:
When an account has insufficient funds the cheque is not payable and is returned by the bank with a
reason “Exceeds arrangement” or “funds insufficient”.
Bank Rate:
It is the rate of interest charged by a central bank to commercial banks on the advances and the loans it
extends.
Basis Point:
One-hundredth of 1% point normally used for indicating cost of finance Bullion Market:
A market where the trading of precious metals held like: Gold, Silver, Diamond, Platinum and Crystal.
Bull:
Bull is an investor who thinks the market a specific security or an industry will raise. Bulls are the
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optimistic investors presently predicting good things of the market and bullish is a habit to purchase that
share which is in profit they are responsible to Rose in stock exchanges.
Bear:
It is an investor who believes that a particular security or market is headed downward. Bears attempt to
profit from a decline in prices. A Bear is generally pessimistic about the state of the given market.
Bridge Loan:
It is also known as swing loan, which is basically a real estate loan or a home loan, where the current
residence/real estate is pledged by the borrower as collateral in order to purchase a new residence.
Call Money:
It is a loan that is made for a very short period of a few days only with a low rate of interest.
Clearing House:
A clearing house is a place for exchange of cheques by banks; it facilitates transfer of funds from one
bank to another, which represents the proceeds of cheques. It is as a central meeting place for bankers
to exchange the cheques drawn on one another and claim funds for the same. Such operations are
called as clearing operations.
Core Banking:
It is a general term used to describe the services provided by a group of networked bank branches.
Currency chest:
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•To facilitate the distribution of banknotes and rupee coins, the Reserve Bank has authorised select
branches of scheduled banks to establish Currency Chests.
•These are actually storehouses where banknotes and rupee coins are stocked on behalf of the Reserve
Bank. As on June 30, 2006, there were 4428 Currency Chests and 4102 Small Coin Depots.
•The currency chest branches are expected to distribute banknotes and rupee coins to other bank
branches in their area of operation.
Currency swap:
It is a foreign-exchange agreement between two parties to exchange aspects (namely the principal
and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present
value loan in another currency. Currency swap is an instrument to manage cash flows in different
currency.
Debit Card:
It is a card issued by the bank so the customers can withdraw their money from their account
electronically.
Demat Account:
The way in which a bank keeps money in a deposit account in the same way the Depository Company
converts share certificates into electronic form and keep them in a Demat account.
Deflation:
Deflation is the general decline in the prices of goods or assets. In deflation, there is a tremendous lack
of liquidity in the market and the purchasing power of consumers is reduced.
Dishonour of Cheque:
Non-payment of a cheque by the paying banker with a return memo giving reasons for the non-
payment.
Disinvestment:
The Selling of the government stake in public sector undertakings. E-Banking:
It is a type of banking in which we can conduct financial transactions electronically. RTGS, Credit cards,
Debit cards etc come under this category.
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Exchange Rate:
Rate at which the domestic currency can be converted into foreign currency and vice versa. Fiscal
Deficit:
It is the amount of Funds borrowed by the government to meet the expenditures.
Fiat Money:
Fiat money is a legal tender for settling debts. It is a paper money that is not convertible and is declared
by government to be legal tender for the settlement of all debts.
Floating Rate:
An interest rate that is referenced to a market rate and is revised as per the change in the interest rates
in the economy. When interest rates in the economy rise, floating rates rise and vice versa.
GDP:
The Gross Domestic Product or GDP is a measure of all of the services and goods produced in a
country over a specific period; classically a year.
GNP:
Gross National Product is measured as GDP plus income of residents from investments made abroad
minus income earned by foreigners in domestic market.
Grace Period:
It is an interest free period that is to be given by a creditor to a debtor after the period of the loan gets
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over, before initiating the process of loss recovery. The grace period depends on the amount of the loan
and also the credit score of the borrower.
Hot money:
Money that is held in one currency but is liable to switch to another currency at a moment’s notice in
search of highest available returns.
Junk Bonds:
Junk bonds are issued generally by smaller or relatively less well- known firms to finance their
operations, or by large and well-known firms to fund leveraged buyouts. These bonds are frequently
unsecured or partially secured, and they pay higher interest rates: 3 to 4 percentage points higher than
the interest rate on blue chip corporate bonds of comparable maturity period.
Inflation:
Inflation is defined as a sustained increase in the general level of prices for goods and services. It is
measured as an annual percentage increase. As inflation rises, every rupee you own buys a smaller
percentage of a good or service. Consequently, Inflation affects as a reduction in the purchasing power
per unit of money- a loss of real value in the medium of exchange and unit of account within the
economy.
Islamic Banking:
Islamic banking refers to a system of banking or banking activity that is consistent with Islamic law
(SHARIA) principles and guided by Islamic economics. Particular Islamic law Prohibits usury, the
Collection and payment of interest, also commonly called RIBA in Islamic discourse in addition, Islamic
law prohibits investing in businesses’ that are considered unlawful, or HARAAM (such as Businesses
that sell alcohol or pork, or businesses that produce media such as gossip columns or pornography,
which are contrary to Islamic values). In the late 20th century, a number of Islamic Banks were created,
to cater to this particular banking market.
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Kiosk Banking:
Doing banking from a cubicle from which food, newspapers, tickets, etc are also sold. Leverage Ratio:
It is a financial ratio which gives us an idea or a measure of a company’s ability to meet its financial
losses.
Liquidity:
It is the ability of converting an investment quickly into cash with no loss in value.
LIBOR:
London Inter Bank Offered Rate. An interest rate at which banks can borrow funds, in marketable size,
from other banks in the London interbank market.
Market Capitalization:
The product of the share price and number of the company’s outstanding ordinary shares.
Mortgage:
A Mortgage is a method of using property as a security for the performance of an obligation, usually the
payment of a debt. The term Mortgage refers to a legal device used for this purpose and it is also
commonly used to refer to a debt secure by the Mortgage.
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Money Laundering:
Money laundering is the practice in a specific financial transaction to conceal the identity, source and
destination of money and is the main operation of underground economy. India has prevention of money
laundering act 2002 which was at latest amended in 2009.
Mutual Fund:
These are investment schemes. It pools money from various investors in order to purchase securities.
Monetary Policy:
It refers to the Central Government policy with respect to the quantity of money in the economy, the rate
of interest and the exchange rate.
National Income:
National Income is the money value of all goods and services produced in a Country during the year.
Nostro Account:
It is the overseas account which is held by the domestic bank in the foreign bank or with the own foreign
branch of the bank. For example the account held by state bank of India with bank of America in New
York is a Nostro account of the state bank of India.
Pass Book:
It is a book where all the bank transactions are recorded. They are mainly issued to Current or Savings
Bank account holders.
Repo Rate:
Commercial banks borrow funds by the RBI if there is any shortage in the form of rupees. If this rate
increases it becomes expensive to borrow money from RBI and vice versa.
Revenue deficit:
It defines that, where the net amount received (by taxes & other forms) fails to meet the predicted net
amount to be received by the government.
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Stock Market:
A stock market is a private or public market for trading of company, stock and derivatives of company
stock at an agreed price. Both of these are securities listed on stock exchange as well as those only
traded privately.
Stag:
A Stag is an investor or speculator who subscribes to a new issue with the intention of selling them soon
after allotment to realize for quick profit.
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Teller:
He/she is a staff member of the bank who cashes cheques, accepts deposits and perform different
banking services for the general mass.
Teaser Loan:
If a bank offers a slightly lower rate in the initial years and higher rate in later years, it is called a teaser
loan.
Universal Banking:
When financial institutions and banks undertake activities related to banking like investment, issue of
debit and credit card etc then it is known as universal banking.
Virtual Banking:
Internet banking is sometimes known as virtual banking. It is called so because it has no bricks and
boundaries. It is controlled by the World Wide Web.
Vostro Account :
It is the account which is held by a foreign bank with a local bank, so if bank of America maintains an
account with state bank of India it will be a vostro account for state bank of India.
Wholesale Banking:
It is similar to retail banking with a slight difference that it mainly focuses on the financial needs of the
institutional clients and the industry.
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