•✅Money: barter to Bitcoin

A-1

•✅RBI’s monetary policy Handout

A-2 •CRR, SLR, Repo etc
uploaded
•Classification of Banks-NBFC 1) MBFI 2) Budget 3) Intl. Trade
B-1

•Burning issues in Banking sector

B-2 •NPA, IBC, BASEL…

•SEBI Sharemarket
C

4) Sectors of
•Insurance, Pension, Fin. Inclusion 5) Infrastructure 6) HRD
D Economy
 BOOKMARK THIS LINK: https://unacademy.com/course/mrunals-economy-course-for-
upsc-prelims-mains-2023/M9WQ6SDA

1) Click on
this button

Those who
joined late.
Please start 2) Handout
from lecture1.
What we are
going to study,
Booklist,
strategy etc. 2) Weekly doubts ke
jawaab upto Monday 6PM
If using mobile browser then goto CHROME
App → Menu → REQUEST Desktop SITE
https://unacademy.com/@mrunal.org

• **Experimental
• New Feature in App
• I upload handouts
there but not weekly
FAQ & Weekly PPTs
• because then it’ll
become
khichdi…among other
announcements
related to quiz / free
classes.
Powerpoint is only for brief overview.
Memorize the handout next morning.
months
 Household Biz.Firms

Land Rent

Labour Wages

Capital (loans/bonds, shares) Interest / Dividend

We’ll start from this
side…
 Bengal
Bombay 1806 1861 All 3 given Right to issue
1840 currency [Lord Canning]
Negotiable Instruments act
Madras [Lord Rippon] to
1881 ⏫acceptability of bank
1842 cheques.

1921: Imperial Banks

1955: State Bank of India
 1770 1865 1894
• Thugs Bank of • Allahabad Bank • PNB- Lajpat helped in
Hindustan, Calcutta • GROUP OF foundation by asking
but Europeans owned. EUROPEANS friends to invest et al.

1908 1913 onwards..

• BoB • State Bank by various
princely states…

❑ British Banks: Judges, Civil Servants, Army Personnel → Remittance @UK

❑ “SWADESHI” Bank: merchants, Indian civil servants, elites. Financial Inclusion
 • 2) No CRR, No SLR,
• NO RBI,
3) 1926: Hilton Young Royal Commission on Indian • No BASEL-III capital
Currency – setup a central bank and regulate the Norms. (will study in
banking sector. 1B1-NPA).
Share market collapse
Great Depression
1929- late 30s
No CRR, No SLR, NO RBI,
No BASEL-III capital
Norms. (will study in
• 1926: Hilton Young Royal Commission on Indian NPA)…450+ banks
Currency – setup a central bank. collapsed by bad
• 1934: Viceroy Willingdon: ok, we’ll do like that. loans😰.
 •
iceroy Willingdon
• ₹
RBI’s Central Board •

𝟐𝟐𝟎𝟎 𝒘𝒊𝒕𝒉 𝑮𝒐𝒗𝒆𝒓𝒏𝒎𝒆𝒏𝒕 •

= 𝟒. 𝟒%
𝟓𝟎𝟎𝟎𝟎𝟎 𝒕𝒐𝒕𝒂𝒍 𝒔𝒉𝒂𝒓𝒆𝒔

Rs. 100 (face Value) x 5 lakh Nos. shares = Rs. 5 cr capital

 RBI starts functioning

iceroy Willingdon
Sir Osborne Smith
RBI’s Central Board 1st April 1935

𝟐𝟐𝟎𝟎 𝒘𝒊𝒕𝒉 𝑮𝒐𝒗𝒆𝒓𝒏𝒎𝒆𝒏𝒕

= 𝟒. 𝟒%
𝟓𝟎𝟎𝟎𝟎𝟎 𝒕𝒐𝒕𝒂𝒍 𝒔𝒉𝒂𝒓𝒆𝒔
Sir C.D. Deshmukh
1943: 1st Indian
Rs. 100 (face Value) x 5 lakh Nos. shares = Rs. 5 cr capital governor of RBI
Because it takes time to find office building,
staff recruitment .
Day1 se Mains Answer Writing
 1) Before indepdence
We are not majority shareholders
British
Indian we are minority shareholders
Govt,
4.4

private
Investors,
95.6
 1) Before indepdence 3) After indepdence
British
Indian
Govt,
4.4

2) RBI transfer of ownership act 1948

Govt of
private RBI All private shares transferred to GoI India,
Investors,
95.6 under from 1st January 1949 100
 1) Before indepdence 3) After indepdence
British 4) Implications
Indian • RBI governor answerable to Parliament &
Govt, RTI
4.4
• RBI has to pay dividend to Government
from its profits

2) RBI transfer of ownership act 1948

Govt of
private RBI All private shares transferred to GoI India,
Investors,
95.6 under from 1st January 1949 100
 😰 Before
, 😰

After 1949
Banking Regulation Act
 Controller of two things Banker to two things All banks have
“Current
Account” With
RBI,
E-Kuber CBS

RBI Act: Controller of Controller of Foreign Banker to Gov, Public Banker’s Bank, Advisor,
Money Supply & Exchange (FERA, FEMA) Debt Mgmt Lender of Last resort
Inflation [MPC] More under 3rd Pillar

Regulator of two things

Regulator of all Regulator of ”AIFI” , Customer protection, Data, Publication , Intl.

“BANKS” (BR Act’49), selected NBFCs Fin.Inclusion Coop (BASEL, IMF,
Payment Systems’07.. “Promotional Roles” G20’s FSB)
 Chairman Managing
Director & CEO

Company
100
Board of Refinery, Jio mobile
Directors
Shareholder

₹90 ₹10
 RBI
100
Central
Board
Shareholder

(Non-Official Directors) = 16*
- 2 Government officials
- 10 directors nominated by
Government.
- 4 directors from
RBI’s local boards
@West, East, North, South
Why Urjit Patel resigned,
What is sec-7 controversy
(Official Directors) = 5 = will see in
1B2:NPA lecture.
- RBI Governor
- 4 Dy. Governors
4 Regions
Gov & Dy Gov selected by
1. Northern: Delhi
a Committee headed by
2. Eastern: Calcutta
Cabinet Secretary (IAS)
3. Southern: Madras
4. Western: Bombay

RBI act section 8: provides for “NOT

MORE than 4” Dy. Gov

Informal convention: 2 of these DyGov from RBI’s officers cadre.

 Scheduled Banks?

Why Nationalization?

Merger / privatization of
Public Sector Banks

Entry Of Private Banks

Allowing Adani Ambani Tata

To Open Private Banks?

Handout page 112-120

Register a Company under
Companies Act.

issue shares to arrange money

(Capital) from investors

Get license from RBI to start a

bank

Then use capital to open offices,

hire staff →

start collecting deposits/savings

- Name of Contact persons
- Address of company
- Our company’s Authorized Capital
- E.g. Rs. 5 lakhs or 500 cr.
- That is the max. amount of shares
we’ll issue.
-
e.g Rs. 5 lakhs or 500
cr
• Ye lo Initial Public Offer (IPO)
• We are issuing ₹5 lakh
shares.
• If u buy → u become
shareholder → we give u Authorized capital = ₹5 lakh
dividend from profit
 • 2) But investors bought
only ₹3 lakh ke shares.
• =Company has only got
• ₹3 lakh “PAID UP”
capital

1) Authorized capital = ₹5 lakh 3) Paid up capital = ₹3 lakh

( )
✅Register a Company
under Companies Act.

✅issue shares to arrange

money (Capital) from investors

✅Get license from RBI to

start a bank

Then use capital to open

offices, hire staff →

start collecting
deposits/savings
 (+)Profit
Liabilities or Assets
(-)LOSS

• Share liability
• Bond liability
• Deposit Liability
• ….many things
 What are bonds= Pillar1c
For the time being just accept these are
instruments to mobilize money for a company

Liabilities

(Paid up) Assets

NET
Share Bonds Deposits (CRR, SLR,
PROFIT
Capital Loans)
 • ₹Don’t overthink.
• ✋No need to memorize this equation.
• On Day#1= there could be 0 profit, 0 deposit.
These figures depend on when PHOTO TAKEN.

(Paid up) Assets

Share Bonds Deposits NET Profit (CRR, SLR,
Capital Loans)
1) If a Bank’s paid up capital + reserves = minimum ₹ 5 lakh
or more.
2) If RBI is satisfied that bank doing biz. not detrimental to
its depositors. ( )

(Paid up) Assets

Share Bonds Deposits NET Profit (CRR, SLR,
Capital Loans)
 Scheduled Bank Non-Scheduled Bank
two sub-parts • Hundreds of cooperative
1)Scheduled Commercial banks are Non-Scheduled.
Banks (SCB) e.g. SBI , Axis… • E.g. Akhand Anand Co-
Operative Bank Ltd., Surat
2)Schedule Cooperative
• ✋We need not prepare
Banks like Haryana Rajya their list/examples.
Sahakari Bank, Tamil Nadu
State Apex Cooperative UPSC examiners are intelligent= will not
Bank ask name of non-sch. Bank because if
such bank gets approved in sch. List
before exam then answerkey problem!
 Scheduled Bank Non-Scheduled Bank
Required to deposit CRR Keep CRR money in
money to RBI’s office/vault their own office/vault
Eligible to borrow / deposit Depends on RBI’s
Where do they keep the
funds in RBI’s window discretion.
operations (MSF, LAF).
CRR Money?
are required to protect the
Ofcourse they also have
interests of depositors to do it else action
under B.Reg.Act’49
 Scheduled Bank
Required to deposit CRR
money to RBI’s office/vault
Eligible to borrow / deposit
funds in RBI’s window
operations (MSF, LAF).
are required to protect the
Can they borrow money from RBI?
interests of depositors
? under B.Reg.Act’49
Non-Scheduled Bank
Keep CRR money in
their own office/vault
Depends on RBI’s
discretion.
Ofcourse they also have
to do it else action
 Scheduled Bank
Required to deposit CRR
money to RBI’s office/vault
Eligible to borrow / deposit
funds in RBI’s window
operations (MSF, LAF).
are required to protect the
interests of depositors
Non-Scheduled Bank
Keep CRR money in
their own office/vault
Depends on RBI’s
discretion.
Ofcourse they also have
to do it else action
under B.Reg.Act’49
 Bank

Non-
Scheduled
Scheduled

Akhand
SBI , ICICI
Anand, Surat
We are not here to
change the world,
we are here to
pass an exam!
 Because my brain is
fixated over ₹5 lakh limit
 1.
2.
PNB: 1894
Punjab-Sind (1908)
India around independence
3. SBPatiyala (1917)
4. OBC (1943)
5. SB Bik&Jai (40s-63)
1. Bank of India (‘06) 1. UCO-United Commercial ‘43
2. Central Bank of India (‘11) 2. United Bank of India ’50
3. Union Bank (‘19)
4. RBI (’34-35)
5. Bank of Maharashtra (‘35)
6. Dena Bank (‘38)
1. Corporation (06) GSM1: Banking industry is
2. Canara Bank (’10) usually concentrated at
3. SBMysore(13)
4. Syndicate bank (‘28)
Costal Trading centres
5. Vijaya (‘31)
1. Andhra bank: 1923;
✋Years, 2. SBHyd: 1941
locations 3. TN: Indian Bank (‘23); Indian
Overseas bank(‘37)
not imp. SBTravenkore’45
Ref: http://www.rediff.com/money/slide-show/slide-show-1-inside-story-of-vadras-realty-business/20121010.htm
NEXUS between Banks and Industrialists
•‘50-60s: 188 people were in board of top 20 pvt banks, 1452
companies, and numerous insurance, finance companies, NGO, trust.
•Reckless lending to directors and their firms.
•So, Banks failed frequently, even RBI close down unviable banks.

Financial Inclusion was being neglected by pvt banks

•Free India was Poor India: deposits growth low, so, Private banks
unwilling to open in small areas- as can’t make profits.
•Financial inclusion of poor, farmers, MSME…X
•Private banks helped in FYP targets….X
 1948 1955 55-56

•RBI Transfer of •Imperial Bank •LIC Act took

Ownership Act → SBI over private life
•1949:Banking insurance cos.
Reg.Act
1969: Nationalization of bank Round#1

• 14 banks with ₹ 50 cr/> deposits

• Bank of Baroda, PNB, Dena, Canara etc.
•

• Catholic Syrian Bank (1920, Kerala), Ratnakar Bank, Dhanlaxmi Bank etc., did
not have such large deposits, so they were left out & called “Old Private Banks”.
•
 1948 1955 55-56 1969 72-73

•RBI Transfer of •Imperial Bank •LIC Act took •Bank •General

Ownership Act → SBI over private Nationalization Insurance
•1949:Banking life insurance Round#1 Companies
Reg.Act cos. (=non-life
insurance cos)
nationalization
📑Pillar#1D
1980: Bank Nationalization Round#2
6 banks with 200 cr/> deposits: Corporation Bank, Vijaya Years not imp.
chronology is.
Bank, Oriental bank of Commerce etc. nationalizated
 Scheduled Banks?

Why Nationalization?

Merger / privatization of
Public Sector Banks

Entry Of Private Banks

Allowing Adani Ambani Tata

To Open Private Banks?

Handout page 112-120

 ✅Yes
•⬆ rural branches, loans to
farmers, villagers
•Food production ⬆
•Poverty ⬇
✋No really
•Those ⬆ because of
•Govt schemes, green
revolution, FYP,
•RBI’s moral suasion &
PSL norms.
•Bank nationalization itself
has not helped in it much.
 ✅Yes
•⬆ rural branches, loans to
farmers, villagers
•Food production ⬆
•Poverty ⬇
✋No really
•Those ⬆ because of
•Govt schemes, green
revolution, FYP,
•RBI’s moral suasion &
PSL norms.
•Bank nationalization itself
has not helped in it much.
2 dozen graphs 📔📔ES20
 2 dozen graphs
📔📔Eco survey
• ,
• We’ll learn this segment in detail in
• Pillar1-B-2: NPA,BASEL, EASE
framework
• ✋Don’t lose sleep yet.

.
 Consolidation of
PSB [ ]

Merger Privatization
( (

page 112-120
Before independence, Private owners’ shares
• owned by pvt parties. transferred to Govt of India.
• So they were private •= “Nationalized Banks”
banks
• Govt is the majority
shareholder.
•= Public Sector Bank
•
 1. Private owners’ shares transferred to
Before independence, Govt of India. = “Nationalized Banks”
owned by pvt parties. 2. Public Sector Bank = Govt is majority
So they were private banks shareholder.

BMB was never a private owned

banks. Directly, govt setup with
public money in 2013. So,
“Public Sector Bank”, but not
“Nationalized Bank”.
 Why Nationalization?

Merger / privatization of
Public Sector Banks

Entry Of Private Banks

Allowing Adani Ambani Tata

To Open Private Banks?

Handout page 112-120

 Consolidation of
PSB [ ]

Merger Privatization
( (

page 112-120
 ✋Their timeline,
HQ given in handout
but don’t lose sleep.
•
•
•
…5 SBI Associated Banks
• SBI
• shareholders
, –
• SBI
 …5 SBI Associated Banks

shareholders shareholders
 Merger ( )

•Combining 2 or more
PSBs into one. •.
•2017: BMB, SBI’s 5
associated banks → …5 SBI Associated Banks
SBI
• Small banks’ Customers, branches,
officials get absorbed into the big bank.
• Small bank ceases to exist.
• However Govt remains majority share
holder in the big bank.
 Amalgamating Banks → Anchor Bank
( / (
− Dena Bank; Vijaya Bank → Bank of Baroda
− Oriental Bank of Commerce (1943, 1) PNB. (1984, HQ: Delhi)
HQ: Gurugram, Haryana),
− United Bank of India (1950, Kolkata)
− Syndicate Bank (1925, HQ: Manipal, 2) Canara Bank (1906, HQ: Bengaluru,
Karnataka) Karnataka)
− Andhra Bank (1923, Hyd) 3) Union Bank of India (1919, Mumbai)
− Corporation Bank (1906, Mangaluru)
− Allahabad Bank (1865, Kolkata) 4) Indian Bank (1907, Chennai)
 Pro-Arguments: Anti-Arguments

• Geographical & Technological • Employees worried seniority,

Synergies ( )⬆ promotion, increments
• ⬇ cost of business → better • Financial burden of Voluntary
lending & deposit rates. ( Retirement Scheme (VRS).
• Banks may lose regional identities
&• customer intelligence
Duplication with in
of efforts
) transfer/VRS of employees.
• Easier compliance with BASEL-III • ATM refilling, security
• Big customers may shift to other
norms. <More in 📑Pillar#1B2: banksguards,
for faster service and
NPA/BASEL lecture> • CCTV camera,
personalized Server cost…
privileges.
• ⏬⏬
✓ Merger of PSB= large
PSB =⬇ cost of operation
→ start branches
overseas → channelize
global savings for loan
towards India
✓ Factory expansion, jobs,
GDP growth
✓ $5 trillion (GDP) By
2025.
✓ More in 📑Pillar#4C
 PHD
Imp4 Public Administration Optional but
✋NOT for GS.
 Consolidation of
PSB [ ]

✅Merger Privatization
( (

page 112-120
 Merger ( ) Privatization (
•Combining 2 or more PSBS
•2017: BMB, SBI’s 5
associated banks → SBI
•2019, 1st Apr: Vijaya Bank
and Dena Bank → BoB
•And others..
)
•Government reducing its
shareholding to <50% in a
Public Sector Bank
•1960s: Govt owned UTI Bank →
UTI Mutual Fund → applied Axis Bank
for UTI Bank license in 90s
→ Scam → restructuring
→ UTI Bank privatized into
Axis Bank in 2007.
•2018: IDBI Bank
“attempted” privatization.
 Others,
Others, Govern
8
LIC, 11 8 ment,
41
2018
Before After

Government, LIC, 51
81

IDBI’s NPA/bad loans too high, no private investors interested

 Others,
Others, Govern
8
LIC, 11 6 ment,
45
2018
Before After

LIC, 49
Government,
81
 Positive
• ✅LIC can market its insurance policies to IDBI consumers
(=bancassurance). LIC
/ SMS spam Is the boss of…
• ✅Govt. no longer worry about BASEL-recapitalization of
IDBI. <More in 📑Pillar#1B2: BASEL-lecture>

For MCQs: Negative Is the boss of…

• LIC policy holders’ money is going into a loss-making Bank.
RBI has classified IDBI
They’ll be as ofaoptimal
deprived ‘private
returnssector’ bank.
(opposite to had LIC
invested in a profitable company) = this amounts to “Financial
(Even though its ownerof Households”
Repression LIC itself( is owned ). by
Government).
 • Perhaps because Government is not
direct owner so Shakti felt “private
sector” tag better.
• Shakti did not bother to explain.
• U can send suggestion to him.

But LIC also owned by Government

Then Why RBI classified IDBI Bank as
‘private sector’??
Positive
•LIC can market its insurance policies to IDBI
consumers (=bancassurance). Is the boss of…
•Govt. no longer worry about BASEL-
recapitalization of IDBI. <More in BASEL-lecture>

Negative
Is the boss of…
•😰LIC policy holders’ money is going into a loss-
making Bank.
We’ll sell these remaining shares
to private investors

.
 • But u said RBI can order
merger under Baking
regulation Act! • RBI can also force
• So how can Government merger of weak banks
under banking
order merger? regulation act.
• But here Govt doing
• Because Government is majority that for ⏫efficiency of
PSB banks through
shareholding in PSBs merger. And since Govt
• So ‘owner’ can merge two of his is the majority
shops. shareholder so they can
decide as well.
 🤩

Bank of 📔📔ES20
Bank of India
Maharashtra
Not confirmed but
newspapers speculated

Indian Overseas Central Bank of

Bank India
• some PSB → privatized (UTI: axis)
• some PSB merged with bigger
banks. (BMB)
• At present ~13 Public Sector (incl.
✅Post Payment Bank & excluding
I✋DBI)
•

. Anskey
UPSC
#Dynamic-factoids
Audio/Video
Problem?

Edu Doubt?
Ask through
 ✅Why Nationalization?

✅Merger / privatization of
Public Sector Banks, BIC

Entry Of Private Banks

Allowing Adani Ambani Tata

To Open Private Banks?

Handout page 112-120

😰 .

😰Administered interest
rates: low profitability
😰RBI would keep high CRR
to prevent failure, high SLR
to finance Govt’s borrowing
1000000
😰Unviable projects on 😰Govt. shareholding →
Political Considerations → politicized “Boards”, experts
High NPA, low recovery less, branch expansion??
79000
1958 1990
😰Aam-aadmi deprived of 😰Large staff, unionized
loans @reasonable rates staff: customer service….x PSB staff strength
Reduce Govt Ctrl
• ⏬ shareholding in PSB →
• Privatization: Axis, IDBI

Branch expansion: make it liberal

• RBI: 25% rural mandate.
• Beyond that, bank free to open branches anywhere

Allow New private banks

• 1993, 2001
• 2013 (2) Bandhan, IDFC

Allow New foreign banks

• “on tap” i.e. whenever apply- allow
• But ‘reciprocal bases”.
1993-95 (6+4=10) 2001-04 (2) 2013-16 (2)
1.ICICI •Kotak Mahindra •Bandhan
2.UTI → Axis (2007) •Yes Bank Microfin
3.IDBI (‘64 DFI)=> IDBI (W.Bengal )
Bank=> 2018* <50%
Later on, another NBFC •IDFC (Mumbai
4.HDFC “Capital First” merged so power-infra-
5.Indus renamed
• These intofour failed & mergedNBFC)
IDFC-First with others.
6.DCB • ‘private banks are not panacea to economic
3 round: Rajan invited application Bimal
rd
1. Global Trust Bank (2001 growth, they can fail, create crisis’ –
Jalan Committee shortlisted
scam=>Merged in OBC) • be
1. 1000 it in India
cr. Networth or USA (Subprime Crisis).
[assets-liability]
2. Bank of Punjab=>Centurion 2. 25%• branches in unbanked rural areas
bank 3. Then license under Banking Regulation
3. Centurian Bank=>(HDFC) Act, 1949 [Sec.22(1)]
4. Times Bank (HDFC)
1993-95 (6+4=10) 2001-04 (2) 2013-16 (2)
1.ICICI •Kotak Mahindra •Bandhan
2.UTI=>Axis (2007) •Yes Bank Microfin
3.IDBI (‘64 DFI)=> IDBI (W.Bengal )
Bank=> 2018* <50% Later on, another NBFC •IDFC (Mumbai
• “Capital First” merged so power-infra-
4.HDFC
5.Indus renamed into IDFC-First . NBFC)
6.DCB .
• 3Just because scams happen → doesn’t mean policy
rd round: Rajan invited application Bimal

Jalan
makersCommittee
shouldshortlisted
keep status quo.
• 1.Economy
1000 cr.–Networth [assets-liability]
competition is necessary to bring innovation
2. 25% branches in unbanked rural areas
and better services to customers.
3. Then license under Banking Regulation
• Hence another
Act, 1949 round…
[Sec.22(1)]
1993-95 (6+4=10) 2001-04 (2) 2013-16 (2)
1.ICICI •Kotak Mahindra •1) Bandhan
2.UTI=>Axis (2007) •Yes Bank Microfin
3.IDBI (‘64 DFI)=> IDBI (W.Bengal )
Bank=> 2018* <50% •2) IDFC (Mumbai
4.HDFC power-infra-
NBFC)
5.Indus
6.DCB
BMB was
‘outside’
3rd round: Rajan invited application Bimal Jalan rounds, got
license
Committee shortlisted directly
Then license under Banking Regulation Act, 2013.
.
1949 [Sec.22(1)]
 Why Nationalization?

Merger / privatization of
Public Sector Banks

Entry Of Private Banks

Allowing Adani Ambani Tata

To Open Private Banks?

Handout page 112-120

 Till now:
“Start & Stop”
•3rd round: last date •No “deadline for
to apply was July 1, application”
2013…Bandhan, •Just like driving
IDFC won license. license, come to RBI
•If you want to open when you’re ready
bank, you’ve to wait •No need to wait for
for ‘RBI Notification’ notification.
 Before 2016: From 2016 onwards:
“Start & Stop” “On tap”
•Round3: last date to •No “deadline for
apply was July 1, application”
2013…Bandhan, •Just like driving
IDFC won license. license, come to RBI
•If you want to open when you’re ready
bank, you’ve to wait •No need to wait for
for ‘RBI Notification’ notification unlike
UPSC.
Capital ₹₹ invested in biz
Holding
company
Resources that can help in production/ income
Assets generation in future
Tata Sons

Turnover Sales/income from biz.

/ TCS
Tata Tata Tata
Motors Chemical Steel

Profit Income MINUS expenses-

,
subsidiary companies
Exact figures
not imp.
Register a Company under
Companies Act.

issue shares to arrange money

(Capital) from investors.

Get license from RBI to start a

bank

Then use capital to open offices,

hire staff →

start collecting deposits/savings

 Register a Company under
Companies Act.

issue shares to arrange money

(Capital) from investors.

Get license from RBI to start a

bank

Then use capital to open

offices, hire staff →
non-schedule .
RBI start collecting
deposits/savings
1) ✅If a Bank’s paid up capital + reserves = minimum
₹ 5 lakh or more.
2) If RBI is satisfied that bank doing biz. not
detrimental to its depositors. ( )

non-schedule .
RBI /
RBI will observe bank’s conduct for few months/years → then
give ‘scheduled status’
✅Capital ₹₹ invested in biz

Resources that can help in production/ income

✋Assets generation in future
Tata Sons

Turnover Sales/income from biz. Existing: TCS, New: TATA

/ Motors,
Chemical, Steel
BANK Apply for
license

✋Sorry sir, your Tata Sons = Total assets more than ₹5000 cr
Profit Income MINUS expenses-
= large industrial group= NOT allowed
,
✋ ,
 Many large NBFCs
with >5000cr assets
 critiques

RBI’s P K Mohanty Committee

To review corporate structure
for ‘Indian Private Sector
Banks’. (2020)
✋Anti:

•Considering aforementioned challenges, risks far outweigh the benefits.

RBI and government should focus on improving the administration &
supervision of existing bank instead of allowing more entities here.
•(

🤩Pro / favour

•Considering above benefits, Large nbfcs and industrial houses may be

given bank licences after due diligence & effective supervision.
•(
 Why Nationalization?

Merger / privatization of
Public Sector Banks

Entry Of Private Banks

Allowing Adani Ambani Tata

To Open Private Banks?
Next time
Handout page 112-120 onwards
Foreign banks
Monetary Policy
to Bank
Classification
Wednesday Test
Revise More if
<20/25
 Weekly Quiz
✅explanations given at bottom of
the question.
“click on Show solution”.
Handout#3 (Bank Classification)
Finished upto page 119
Uske PYQ were in Weekly Wednesday Quiz
Explanations also given inside it.
“click on Show solution”.
• These PYQs were in
Wednesday Quiz.
Solution also given
inside quiz.
• So, I’ll not waste
time repeating Pause Video to
here. Attempt it Yourself
 This is the answer as per
academic books on
Banking
I disagree e.g. Bharati Pathak.
PauseAnswerkey
And Official Video to
tooAttempt
says theitsame.
Yourself
 Look @Official
That’s a ‘regulatory’ answerkey
qualitative tool function!

Online forums

Pause Video to
Attempt it Yourself
A similar
question in
pre-2018

Pause Video to
Attempt it Yourself
3) Air India
nationalized in
1953 from JRD
TATA
2)SBI = 55
1) Communist=57
4) GoaPause Video to
= 60s
Attempt it Yourself
Handout#3 (Bank Classification)
Finished upto page 119
Uske PYQ were in Weekly Wednesday Quiz
Explanations also given inside it.
“click on Show solution”.
 BOOKMARK THIS LINK: https://unacademy.com/course/mrunals-economy-course-for-
upsc-prelims-mains-2023/M9WQ6SDA

1) Click on
this button

Those who
joined late.
Please start 2) Handout
from lecture1.
What we are
going to study,
Booklist,
strategy etc. 2) Weekly doubts ke
jawaab upto Monday 6PM
If using mobile browser then goto CHROME
App → Menu → REQUEST Desktop SITE
https://unacademy.com/@mrunal.org

• **Experimental
• New Feature in App
• I upload handouts
there but not weekly
FAQ & Weekly PPTs
• because then it’ll
become
khichdi…among other
announcements
related to quiz / free
classes.
 ✅Why Nationalization?

✅🤯Merger / privatization
of Public Sector Banks, BIC

✅Entry Of Private Banks

✅Allowing Adani Ambani

Tata To Open Private Banks?

Handout page 112-120 onwards

2) Yes, Foreigner can buy Indian banks’ shares: 1) Promoter = those who
founded the company in initial
stage: Govt (UTI), LIC etc.

Indian
Public Sector Banks promoters,
16
•Foreigners can upto 20% shareholding
Indian
Private Sector Bank Foreign investors,
investors, 27
•upto 49% (automatic=without 57
Government permission),
•upto 74% with Govt approval.
• More in 📑Pillar 3A: FDI As of 2020
 1) Promoter = those who founded
the company in initial stage.
UTI, LIC etc.
Indian
promoters,
16

2) Yes, Foreigner can buy Indian Indian

banks’ shares: Foreign investors,
investors, 27
• PSB: upto 20% shareholding 57
• PvB: upto 49% (automatic),
upto 74% with Govt approval.
📑Pillar 3A: FDI As of 2020
 1) Promoter = those who founded
the company in initial stage.
2) Yes, Foreigner can buy UTI, LIC etc.
Indian banks’ shares:
Indian
promoters,
16
• PSB: upto 20%
shareholding Indian
Foreign investors,
• PvB: upto 49% investors, 27
(automatic), upto 74% 57
with Govt approval.
📑Pillar 3A: FDI
As of 2020
• 2) Yet, Axis bank is not a ‘foreign
bank’ as per RBI Definition. 1) Promoter = those who founded
Because the company in initial stage.
UTI, LIC etc.
Indian
promoters,
• Because originally registered in 16
India under India’s companies Act
2) Yes, Foreigner can buy Indian Indian
banks’ shares: Foreign investors,
investors, 27
• PSB: upto 20% shareholding 57
• PvB: upto 49% (automatic),
upto 74% with Govt approval.
📑Pillar 3A: FDI As of 2020
Indian bank (public or private)
• Bank originally founded by registering in India’s
Companies Act.
• / .
.

Foreign Bank in India (Presently >40)

• They’re Incorporated abroad (e.g registered under the
Singapore’ Companies Act, US-Texas State Companies Act)
• then opening branch / subsidiary Company in India
• e.g. Citibank, Bank of America, HSBC. /
✋
Audio/Video
Problem?
LVB merged with Development
Bank of Singapore’s Indian
branches. Self-explanatory

Edu Doubt?
Ask through
 Universal Bank Differential Bank
Geographical Restrictions
Anywhere: example SBI,
on branch opening for
ICICI [*After opening
1. Local Area Bank (LAB),
25% of branches in
2. Regional Rural Banks
unbanked rural areas]
(RRB)
 🤩 😰
2 lakh

Universal Bank Differential Bank

Accept both Time & Payment Bank – Accept
Demand Deposits of any Max. 2 lakh balance per
amount. customer per year only.
 😰
G-sec
🤩

Universal Bank Differential Bank

Loan Anyone - SFB, RRB: 75% to PSL
[After 40% PSL] - ✋Payment Bank can’t
give loans;
Restricted: / /
1. ✋Geographical Wholesale Bank
(Proposed)
expansion,
2. ✋deposits
3. ✋lending ops.
Small Finance Banks
Payment Banks [2015]

LAB [1996]

RRB [1976]
 •Committee on Financial inclusion ( )
1970s
• → Regional Rural Banks (RRB)
Died in
•Committee on Banking Sector Reforms-i ( 2021
1991 ) 😰
• → entry of private and foreign banks
•Committee on Banking Sector Reforms-ii
1997-98 • → payment and settlement system Act
• → Sarfaesi Act for loan recovery
 Regulator RBI +NABARD

Type Universal Commercial RRB

Banking Reg. Act Yes Yes + RRB Act ‘ 76

Sponser
CRR, SLR Yes Yes** Bank, 35%

(75%) & lending rate not more

PSL Yes (40%) than avg. coop banks in area Union,
50%

Presence All India, Abroad Few Districts

Vote power Shareholding Pie chart → → State,

15%

RRB,
 Challenges faced by
RRBs😰
This is its Sponsor
bank. Lend money,
This is an train staff
RRB
Payment Gateway

• 😰1) villagers deposit ₹ in commercial banks for better interest rate & ATM facilities
• 😰2) RRBs more dependent on NABARD and sponsor bank loans for running their
operations. As their own deposit growth is low.
• 😰3) villagers take loans from RRB as they’re cheaper. But many villagers don’t
return the loans promptly.
 •
• RRB
• shares

(Paid up) Deposits Assets

Share Bonds NET Profit (CRR, SLR,
Capital 😰😰 Loans)
 Sponser
Bank, 35%

Union,
50% How can I invest?

😰
State, 15%
 Sponser
Bank, 35%

Others
Union, , 49%
50%

Union,
• Additional capital from private State, SB,
investors → modernization 51%
better quality of services,
State, 15%
infrastructure
• Encourages mergers among
RRBs
LAB is a faded obscure
topic. Wholesale Bank
(Proposed)
Don’t lose sleep over it.

✋#🕰 - - - Small Finance Banks

Payment Banks [2015]

LAB [1996]

✅RRB [1976]
,

Budget 1996
•Only rural and semi-urban areas
•Max. 3 geographically contiguous districts.

•only 1 urban centre/per District

 •Licensed under Banking Regulation Act 1949. [SLR]
•✋But not in 2nd Schedule of RBI Act 1934= non-
scheduled commercial bank.
•have to give 40% PSL, as per RBI order

Budget 1996 Scheduled Bank

1. Min Rs.5 lakh
(Cap+Reserves)
•Only rural and semi-urban areas 2. Protect interest of
•Max. 3 districts sharing border with depositors
each other. 3. RBI Act 1934 Sch.2
•only 1 urban centre/District
4 Coastal Bank
LAB Andhra Pradesh LAB is a faded obscure topic.
(first '99) Don’t lose sleep over it.

Subhadhra Local ✋#🕰 - - -

Area Bank,
Kolhapur

Krishna Bhima
Samruddhi (Andhra
& Karnataka)

Capital Local Area

Bank: Punjab
(Largest)
Audio/Video
Problem?
Wholesale Bank
(Proposed)

Small Finance Banks

Edu Doubt? Payment Banks [2015]
Ask through

LAB [1996]

RRB [1976]
😰Post office
• ₹250 in service fees.

😰Visiting Bank Branch

• ₹100 in wageloss.
“Payment Bank”

🤩Paytm, Airtel Money type Apps

• ₹0-75*
 ✋Don’t overstress mugging
entire list. Just see patterns
✋

• Individual with 10 year xp in • Existing PPI (pre-paid payment

payments banks
small finance banks

banking/finance instrument)
• Existing NBFC, Microfinance,LAB • individuals / professionals; Non-
• Preference to NE, Central India Banking Finance Companies
clusters (NBFCs), corporate BCs, mobile
telephone companies, super-market
chains, companies, real sector
cooperatives; that are owned and
controlled by residents; and public
sector entities

NOT IMPORTANT to know eligibility conditions.

 Ex-Dy Gov.
Usha Thorat
Committee
selected them

OUTDATED. Don’t loose

sleep over
private Mock Tests
https://rbi.org.in/CommonPerson/english/scripts/banksinindia.aspx#IB
 Wants to convert to SFB

withdrew

RBI Board Dir.

Nachiket Mor OUTDATED. Don’t loose
Committee selected sleep over
them
private Mock Tests
https://rbi.org.in/CommonPerson/english/scripts/banksinindia.aspx#IB
small finance bank
 •25% branches •No need, but
Small finance banks

Payment Banks
in unbanked 25% of access
rural area points must be
•with upto 9,999 with rural area.
population •e.g. Kiranawala
Under Census- recharging airtel
2011 mobile balance
 •Unserved •Promoting
Small finance banks

Payment banks
•Underserved Small savings
•Farmers-small, •Remittance to
marginal migrant labour
•Micro, Small families, low
income I want to send
industries money to my family
households,
from Mumbai to
We want loans
Odisha
 ✋
!😰

• 40% strictly categorywise • Can’t loan, So no PSL

Small finance banks

Payment Banks
as SCB-PSL • Can’t issue credit card
• ++ addl. 35% to any PSL • What to do with deposits?
category as per their wish. • Ans. →
• =Total 75% PSL • Invest it into (Gsec,T-Bill),
• 50% of loan account • deposit in other SCB as
should be upto 25 Lakhs’ per RBI norms
loans
So that only few people don’t corner all the
loans. Ofcourse, this is not a very profitable enterprise so
. they’re facing problems😰
 May act as ‘Agent’ /Dalaal to
connect the parties.
Gives loans, Credit Card Commercial bank
Borrower
 Paytm Payment bank
offering ‘FD’ but its simply
working as ‘agent’ of
IndusInd Bank.

• No such limits

Payment Banks
Small finance banks

• ✋No NRI deposits

• ✋Time deposits? NO
• ✅Demand Deposit? Yes
• Max. balance Rs.2 lakh
per year per customer
• ✅YES to ATM/DEBIT
• ✋NO to CREDIT CARD.
 ??Universal
Universal Bank like
SFB
SFB Bank like SBI /Axis
Payment
SBI /Axis Bank

• Can evolve into Universal • Can convert to SFB? Yes

Payment Banks
Small finance banks

commercial Bank (UCB) after 5 years of operation

after 5 years, on RBI • Can convert to UCB? Not
discretion. explicitly mentioned.
• 2019-Jun: ‘Op-tap’ license • ✋‘On-tap’ for new players
for new players wanting to to setup Payment Bank?
open SFB. RBI not yet approved.
 Register a Company under
Companies Act.
Commercial Bank = Min “X” cr
issue shares to arrange money
SFB = Min “Y” cr (Capital) from investors

Get license from RBI to start a

bank

Then use capital to open

offices, hire staff →

start collecting
deposits/savings
 Usual FAQ in google form
1. Why conditions are like this?
2. Compare-Contrast eligibility conditions of
Commercial Banks vs Small Finance Banks pe
PHD

SFB On Tap License ✋Basic idea is required

conditions PHD is not required
 Wholesale Bank
(Proposed)

Small Finance Banks

Payment Banks [2015]

LAB [1996]

RRB [1976]
RBI proposed (2017)
- Can’t accept deposits less than ₹10 crore from
anyone
- Give loans to large infra and corporate borrowers.
- PSLC-trading
- e.g. Wholesale bank gives loans to large solar
project → counted in its PSL
- → other banks can buy PSL-Certi to meet
their own PSL-quotas📑Pillar#1A2
'full-stack digital banks’- proposal by NITI
•be new type of banks under Banking Regulation Act, 1949
•⇒ Digital Banks will not have physical branches.
•They will rely on internet for delivering banking services.

NeoBanks
•Fancy term for Financial technology (FinTech) related
startups & Non-Banking Financial
•Companies (NBFC) that are helping banking connectivity
using digital channels
✋Pen-Paper form nahi
✅Digital Kiosks
Tell me great compare-contrast
difference between

NITI’s Digital
Digital NeoBanks Banking
Bank Unit
Just One-liners.
 Meaning Audio/Video
Problem?

Scams,
Legal Reform Edu Doubt?
Ask through

Classification
(Paid up) Assets
Share Bonds Deposits NET Profit (CRR, SLR,
Capital Loans)

• ✋EVEN If u deposit ₹500cr even then

• it’ll not make you ‘OWNER’ of the bank.
Others, Governm
6
• Because ownership depends on shareholding.
ent, 45

2020
LIC, 49
📑Pillar 1C
• Members’ voting power based on Cooperative
Society norms: 1 shareholder/member= 1
vote, irrespective of whether ₹1 capital given
or ₹100 contributed.
• Community spirit → Cheaper lending rates
than Commercial Banks.

• Mainly in Guj,MH,Andhra,TN
• Banking Regulation Act applicable
• Regulators: RBI, NABARD, Registrar of
Cooperatives @Union & State <After some
slide>.
• CRR-SLR, BASEL-III applies to these banks, but
slabs may be different. ( )
• Only some of these banks eligible for Repo,
MSF ops.
• PSL not required, except for Urban Cooperatives
Banks (UCB)
 • Banking Regulation Act applicable
• Regulators: RBI, NABARD, Registrar of Cooperatives
@Union & State <After some slide>.
• CRR-SLR, BASEL-III applies to these banks, but slabs
may be different. ( )
• Only some of these banks eligible for Repo, MSF ops.
• PSL not required, except for Urban Cooperatives
Banks (UCB)

✋Primary agri credit society =NOT bank.

So no CRR, SLR, BASEL. I’ve written here because RBI annual
reports present classification like this.
 audience Geographical
Span

Rural Urban Single State Multi State

audience
Urban
• Urban banks are not ‘prohibited’ from opening
branches in rural area, Rural Urban
If it’s a multi-state,
→ usually an
• but their founding members, HQ has urban origin.
urban cooperative
•
 audience Geographical
Span

Rural Urban Single State Multi State

audience
Urban
They are not ‘prohibited’
from opening branches Rural Urban
in rural area, but their If it’s a multi-state,
→ usually an
founding members, HQ
urban cooperative
has urban origin.
 • If Coop Bank → RBI delegated day-to-day Agro Min → Registrar Given state Govt’s
supervision to NABARD. Multi-State Coop Registrar for
• But, RBI remains ultimate regulator Societies Coop Societies

Type RBI Union State

Commercial (SBI Axis) ✅ ✋ ✋

Coop (Single State: rural) ✅ ✋ ✅

Coop (Single State: urban) ✅ ✋ ✅

Coop (Multi State) ✅ ✅ ✋

✅+✅=Dual Supervision model ( )
We’ll see more of
this in
Pillar 4A
 .

( )

• If a scam in cooperative bank

• 😰RBI can impose limits on cash withdrawal / suspend its license etc
• But, to merge/shutdown- liquidate such bank → additional
permission req. from Union/State’s registrar. = delays, corruption
 Geographical
Span

Single State Multi State

audience
Urban
Rural Urban

Multi-State Scheduled Urban

Co-operative Bank
 Outgoing Incoming
CRR, SLR
Deposits
Loans

Bank Run due to panic: 😰

😰 • But losses so big, even CRR-SLR
can’t cover up.
• So, RBI imposed withdrawal limits
on the depositors ₹1000 →
10,000 → 40,000****
 Given state Govt’s
Registrar Multi-State
Registrar for
Coop Societies
Coop Societies

Type RBI Union State

Commercial (SBI Axis) ✅ ✋ ✋

Coop (Single State: rural) ✅ ✋ ✅

Coop (Single State: urban) ✅ ✋ ✋

Coop (Multi State) ✅ ✋ ✋

Multi-state & urban coop brought under sole regulation of RBI. Registrar of Union/State kept out.
 Before: If scam
•RBI will put moratorium ( )”
e.g.
•“single depositor can’t
withdraw more than XX
amount,
•Bank can’t give loan to
anyone
•=PANIC among people.
AFTER Reform: if scam
•Technical reforms for
•Easier/Faster amalgamation-
merger / restructuring of
weak banks
•Without needing moratorium
•= less PANIC among people.
RBI
 Before After

•difficult for a cooperative bank Technical norms relaxed, to

to raise capital/money from make it Easier to issue shares,
the public by issuing IPO- bonds .
Shares/Bond/Debentures
📑Pillar#1C
Handout
 ! ,
All will be covered in appropriate pillars!
Factual question with low-
profile banks. So no scope
for 50:50. either tick or
skip.

Pause Video to
Attempt it Yourself
 Basic
awareness
sufficient.

We’ve to create daily

content just to get
pageviews
/subscribers
 Finished upto
Urban Cooperatives

Now rural
cooperatives
 audience Geographical
Span

Rural Urban Single State Multi State

audience
Urban
They are not ‘prohibited’
from opening branches Rural Urban
in rural area, but their If it’s a multi-state,
→ usually an
founding members, HQ
urban cooperative
has urban origin.
 Rural
Cooperative
Banks

Short-Term Long Term

loans loans

✋Not banks. State State “Coop

Land
Cooperative Agri & Rural
No CRR, SLR, Banks
Bank → Dev Banks”
But RBI
annual reports District
“Central” CB
show them in (DCCB) • Long term means how much?
hierarchy so • How do they function?
we’ve to be PACS Credit ✋Ans. NOTIMP
Society
aware. . #🕰 - - -
 Loan

Loan

Loan
→ →
 2) Parked in State Bonds
(SLR/ above)

😥problems:
Frauds, casteism,
politicization,
poor loan
recovery.
National Bank for
Financing
Infrastructure and
Development
(NaBFID)
• But after bank nationalization →
• Banks reluctant to give large loans
to industrialist.
• PSB: first priority to open branches
in rural area and give loans to poor
people
✋ Factory ke
liye Loan
✋
 3) Then where can I get
large funds to start
business?
😥

1) PSB Banks:
• We’ll focus on farmers and
villagers.
• If corporate asks for big loan-
we may not even have that
much money.
 3) Then where can I get
large funds to start
business?
😥

1) PSB Banks: 2) Capital market (share/bond) underdeveloped 😰

• We’ll focus on farmers and
villagers.
• If corporate asks for big loan-
we may not even have that
much money.
• Very few investors participated.
• So difficult to arrange ₹₹ by issuing share/
bonds.
 IFCI’48 •Industrial finance corporation
ACT of India ltd.
Issue
•Industrial credit and investment bonds
Corporation of India Ltd
ICICI’55 External
•By GoI, World Bank, and other loans from
World
Financial intermediaries Bank, ADB

IDBI’64 •Industrial development bank of

Act India( IDBI)’
✋Don’t worry about years and fullform. DFI → help Corporate
There were many such institutes @union and state level.
1 2 3

Narsimham-I (‘91):
New bank license…
to ⏫ competition
1993-94 process
1 2 3

Later sold to LIC

Narsimham-II (‘late-90s):
→ PvB only two category:
1. Bank or
2. non-bank.
3. NO DFI…regulatory issues
1948 • Industrial Finance Corporation of India (IFCI)
• ICICI: Industrial credit and Investment Corporation Issue
1955 of India Ltd was setup by GoI, World Bank etc. bond
• Later became a Private Sector Bank. s External
loans from
• Industrial Development Bank Of India (IDBI) Act. World Bank,
1964 • 2004: Transformed into a Public Sector Bank. ADB
• 2018: Govt sold its majority shareholding to LIC.
• India Infrastructure Finance Company Ltd (IIFCL)
2006 • owned by the Finance Ministry's Department of DFI → help big projects
Financial Services.
• National Bank for Financing Infrastructure and
2021 Development (NaBFID) Bill, 2021 (
• Loan for Asset
• National Infrastructure Pipeline Loans given to infra
projects
(NIP) Project
• (📑Pillar#5: infrastructure) ₹5 lakh crore in 3 years.
 Asset Liabilities

Loans given to Loans taken

infra projects from..

National Infrastructure
Pipeline (NIP) Project
Example, World Bank
(📑Pillar#5:
BRICS Bank, AIIB, ADB etc
infrastructure) More in 📑Pillar#3B
 ASSETS Liabilities
? ?
Indirect loans to end
users Loans to Banks Bonds in market

Loans from RBI, Govt,

Indirect loans to end Loans to NBFCs
World Bank etc
users
Direct Investment in
large companies** ✋Public Deposit = No!

✋
✋
1) EXIM: 1 / Jan / 1982 ACT
•Export-Import Bank of India
•loan/credit/finance to exporters and
importers.
•promotes cross border trade and
investment
•Boss: Government of India (100%)
2) NABARD: 12 / July / 1982 ACT
•National Bank for Agriculture and Rural
Development
•BOSS: GoI (99.3%) + RBI (0.7%) Government =
100%
•Rural infra. Development fund (RIFD) if PSL not met
•Indirect lending to farmers, artisans, rural MSME.
•It’s also the immediate regulator of: Coop Banks &
RRBs. (RBI is the ultimate regulator)
NABARD Amendment Act
2017:
1) facilitated transfer of RBI
shares to Govt

✋Not Important, unless preparing for

NABARD exam.
 RBI owned

National Housing
• National Housing Bank ACT [88, July]
Bank • 100% owned by RBI
• Published RESIDEX index (housing sector-
inflation)
• Regulated NBFC-housing loan companies
₹₹ to Banks & such as DHFL, Muthoot Housing finance etc.
NBFCs for home
loans
 Govt owns

• RBI’s ownership in NHB transferred to

National Housing Govt
Bank
• RBI to Regulate NBFC-housing loan
companies such as DHFL, Muthoot
Housing finance etc.
₹₹ to Banks &
NBFCs for home
loans
#4: SIDBI ACT [1990, April]
•Small industries development bank of India
•Originally 100% owned by IDBI
•Presently, IDBI, SBI, LIC, other public sector
banks, insurance companies etc.
•SIDBI’s helps MSME borrowers with indirect
lending.
•Udyamimitra.in portal for loans to MSME.
5th Industrial Investment Bank of India (IIBI)…closed in 2012
North Eastern….X (AIFI not in annual reports of RBI)
 2019
GoI: 100%
• AIFIs are not ‘banks’
because can’t accept
direct deposits from
people at large.
• (hence CRR, SLR funda not
applicable.)

CRR, SLR
• They mobilize funds by
borrowing from bond-market
& RBI
• Atma-Nirbhar = RBI gave
more funds
• PSL = only for SCB+UCB.
✋So not applicable on AIFI.
• RBI is the regulator over AIFI,
• ✅BASEL norms for Capital
requirement applicable
• but RBI can prescribe different /
slabs norms / deadlines than
other SCB banks.
• More in 📑Pillar#1B2
•
Primary dealer do this only. PD is
also an NBFC. but classification
presented like this separately, in
academic books
 Fresh securities:
Financial shares/bonds
Market

Money Capital
Market Market
(<1 yr) (1yr/>)

Primary Primary
Market Market Re-sold.

Secondary Secondary
Market Market
 Tax collection & income is
always lower than cost of
welfare programs. So have
to borrow
Sold through
RBI’s e-kuber G-Sec: 100 Cr. @8% for 1 year
platform
70 cr.
Primary dealers & Banks will buy
Unsold G-sec are bought
by RBI.
If RBI doesn’t have cash, 10 cr. 20 cr.
it’ll print new cash
Monday: Current Affairs
•Night 8PM Mrunal's Monday Quiz

Google Form FAQ

•Whatever doubts received in google form till Monday 6PM:
•Ans in a PDF file in course page → update section
•ON Wed 10PM , depending on volume of querries

Wednesday 9PM:
•Weekly Economy Quiz from what we learned so far.

Thursday
•Same handout continued…

Thursday onwards 9PM

•LIVE Classes
 Mains Test
Series With
Evaluation
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🙋🏻‍♂️🙋‍♀️I am have doubts about a topic or overall

preparation. What to do
 Pause Video to
Attempt it Yourself
50:50 So, #1 is right without
checking. Boils down to whether #2 is
right or not?
Those who ticked A or C need to be
Pause Video to
more attentive. Attempt it Yourself
Credit card is a type of ‘loan’ so
not allowed in Payment Banks
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 Pause Video to
Attempt it Yourself
Boils down to
whether #3 is
right or not?

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 Boils down to
whether #3 is
right or not?

?
Birbal ki Khichdi- it may attract indirectly but,
SFB not offering age specific cheap loans,
Pause in
special subsides or additional allocation Video to
Government Schemes? Ans. NO Attempt it Yourself
No answer must be
“c” because Birbal
ki Khichdi
 ?
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 ASSETS Liabilities
? ?
Indirect loans to end
users Loans to Banks Bonds in market

Loans from RBI, Govt,

Indirect loans to end Loans to NBFCs
World Bank etc
users
Direct Investment in
large companies** ✋Public Deposit

✋
✋
• NABARD gives indirect loans.
NABARD → bank,NBFC →
villager.
• Land Development Banks = Coop
Banks that give long Pause
term loans.
Video to
Attempt it Yourself
 Pause Video to
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 IS Arjun Kapoor bigger
dancer than Hrithik Roshan?

₹1
₹3🤯

It is unlikely that district central

₹1 banks have that much funds to give
larger quantity of loans
than other banks!!🤯✋
 Pause Video to
Attempt it Yourself
 Pause Video to
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• By elimination the
Answer is “B”.
• WhatPause
is preferential
Video to
shares? = Pillar1C.
Attempt it Yourself
 Factual
Questions asked
Pause Video to
from here.
Attempt it Yourself
What is an NBFC?
 Bank is a financial intermediary that provides
Deposit and lending services to “Public AT LARGE”.
Deposit services Lending Services
•Deposit Money. •Direct lending: to Public at large.
[goods/documents/jewelry assets •Indirect lending: NABARD/SIDBI
in Safe Deposit vault is “auxiliary Mudra/ funds when fail to meet
service”] PSL targets.
•Accepts from public @large. [not Auxiliary services:
just shareholders or selected 1. Safe deposit vault,
“subscribers”, “policy holders”] 2. foreign exchange conversion,
3. tax payment,
•Deposits are Repayable @Time
(FDRD) and @Demand.(CASA) 4. sale of mutual fund, pension, insurance
policies (Bancassurance),
5. Investment advice, underwriting.
 Parameter Commercial Banks Non-Banking Financial Companies
(NBFCs)
Registration Banking Regulation Companies Act
Act
Supervision RBI Varies: Mutual funds-SEBI, Insurance
Company: IRDAI etc.
Entry Capital 500 Cr. For Universal 5cr for MicroFin,
Commercial Bank 200 cr. For reinsurance company etc.
[figures not imp]
 Parameter Commercial Banks Non-Banking Financial Companies
(NBFCs)
Deposits - Can accept Time & - Only NBFC-Deposit-Taking (NBFC-
Demand [chequable D) & even they can accept only
deposit] Time Deposits. E.g. BajajFinServe
? - Their deposits are - Can’t issue their own chequebook,
insured under DICGC debit/credit card.
More in NPA Act. - Deposits are not insured.
lecture
 U said NBFC can’t issue Credit Card
But Bajaj FinServe (NBFC) is doing?
Bajaj FinServe (NBFC) doing it
an ‘agent’ of RBL BANK
 Parameter Commercial Banks
Prudential Norms CRR, SLR, applicable
BASEL-III norms Applicable (will study in later
lecture)
Exact figures not imp. for MCQ sufficient
to remember
BASEL-III applicable on NOT ALL
NBFCs, but on some NBFCs”.
(NBFCs)
NBFC-Deposit taking → : SLR required but RBI
can prescribe different slabs / norms.
CRR not applicable on any NBFC.
- Applicable on 108 NBFC-Deposit-taking and
- Applicable on 276 NBFCs – ND – SI (non-
deposit taking Systematically Important with
assets over Rs. 500 crores) e.g. L&T Finance,
Cholamandalam etc.
But RBI can prescribe different slabs / norms
/deadlines.
Parameter Commercial Banks (NBFCs)
Investment They can keep depositor’s Can invest clients’ money in share
money in RBI approved market. E.g. SBI Mutual Funds (but that’s
securities. But can’t invest in separate entity from SBI Bank)
share market per se.
Loan Rate Decided as per RBI’s Varies & depends on nature of biz. e.g.
methodology (external urgent gold loan x%, otherwise y%
benchmark etc.)
Recovery Loan recovery powers under - Not all NBFCs have this SARFAESI
SARFAESI Act- power for all types of loans (more in
(in 1B2: NPA lecture)
1B2: NPA lecture)
 NEXT week’s lecture
Shadow Banking
ILFS & NBFC crisis (2019)
 @NBFC Who’s your regulator?

Min. of
RBI SEBI IRDAI PFRDA Corp.
Affairs

NHB FMC
 NBFC @NBFC
! Who’s your
regulator?

Min. of
RBI SEBI IRDA PFRDA Corp.
Affairs

NHB FMC
 Bank loans

✋
NBFC
?
Bonds
 They do long term investment in
Core investment
Companies. E.g. Tata / Birla / Reliance
Companies (CIC)
Capital, IL&FS
Infrastructure Gives loan for infra. projects. E.g. Rural
Finance Electrification Company ltd. (REC)
Company (IFC)
Long term loans to highway / port
Infrastructure developers etc. e.g. L&T IDF, Kotak IDF, Names, objectives ,
examples not imp. But
Debt Fund (IDF) IDFC IDF (“IDFC First” has separate need vague idea to
license for Bank). eliminate wrong options.
 They buy bad loans / NPA from Banks &
Asset
other NBFCs, and try to salvage value from
Reconstruction
the underlying assets. E.g Anil Ambani’s
Companies (ARC) More in
Reliance ARC.
They lend short term money to client Pillar1C.
Factoring
against his invoices / accounts receivable.
Companies
E.g. IFCI Factors, Siemens Factoring.
Gold Loan e.g. Muthoot gold loan, Mannapuram Gold.
Companies RBI decides their Loan to Value ratios.
Micro Finance RBI + Min. of Corporate Affairs.
Institutions (MFI)
Who regulates them?

• RBI + Ministry of Corporate Affairs

Who can borrow from MFI?

• Ans. Household whose annual income is not more than

• ₹ 1.25 lakh (rural) or ₹ 2 lakhs (urban).

How much can one person borrow from an MFI?

• Ans. Not More than ₹ 1.25 lakh.

Example

• Bandhan (W.Bengal, separately got PvB license),

• Disha (A'Bad: separately got SFB license),
 Each has separate
regulator
webportal

Bank balance RBI

NBFC: AA
Mutual fund:
SEBI
return on assets

NPS: investment PFRDA

Insurance Policy IRDAI

 1. Show to client
2. Show to loan giver
3. Show to app like BHIM, Google Pay→
further transactions like repay credit
card dues or insurance premium
Bank balance RBI

NBFC: AA
MF: return on
SEBI
assets

NPS: investment PFRDA

2018-Nov: RBI said it’ll give license to 5
companies. List notimp. Term imp because Insurance Policy IRDAI
ecosurvey 2019 mentioned.
• E.g. Loanadda.com,
Moneytap.com,Loantap.com,
Loanbazaar, Paisabazaar etc.
• They connect customer with
bank/NBFC for loans.
• Sometimes they act as outsourced
agents of banks/NBFCs to sell loans.
• But, customers face difficulty in
complaint/grievance redressal.
• RBI working on rules to fix
responsibilities
 Like Olx & quikr for “LOANS”

I want to directly loan to a borrower

without using a ‘bank’ as
middleman.
 1. Credit Information
Companies (CIC)
2. Regulated by RBI
3. Example CIBIL
Equifax and
🤩Show score to bank → faster loan approval Experian etc
At cheaper interest rate (How? External Benchmark →
“Risk” parameter REF: 1A2
Credit Rating Agencies (CRA) Regulated by SEBI
Union List State List Concurrent List Residuary subject

Citizenship Agriculture Bankruptcy and insolvency. On subjects which are not

mentioned anywhere
• If new type of NBFC is born,
• not regulated by anyone,
• then RBI to regulate it.
• E.g. NBFC Account aggregator
or P2P lenders
@NBFC
Who’s your
regulator?

Min. of
RBI SEBI IRDAI PFRDA Corp.
Affairs
 @NBFC
Who’s your
regulator?

Min. of
✅RBI SEBI IRDAI PFRDA Corp.
Affairs

NHB FMC To be Continued from CRA and CIC

• Help individual client • Pool people’s money to
invest in Sharemarket invest in asset: G-sec,
• Bonds, Shares, real
estate properties More in
•
Pillar#1C
Mutual Funds,
Sharebrokers
REITs, InviTs

• Underwriting : help • Help startup

companies issue companies with funding
shares/IPOs •
• Wealth Management
for rich people

Investment Banks
Venture Capital
(USA), Merchant
Funds
Banks (UK)
 @NBFC
Who’s your
regulator?

✅ Min. of
✅RBI IRDAI PFRDA Corp.
SEBI Affairs

NHB FMC What happened to Forward

market commission- it got
merged with SEBI. Why? Ans. In
📑Pillar#1C: SEBI lecture.
Regulator: IRDAI:
• Insurance companies like LIC, Oriental Insurance, Reinsu., Policybazaar.com
• Premium→invest→ Protect against uncertainties. (more in 📑Pillar#1D: lecture)

Regulator: PFRDA Act 2013

• Regulator for all pension funds except EPFO and a few others**
• (more in 📑Pillar#1D: lecture)

Regulator: RBI – Home loan NBFC companies

• DHFL, Muthoot Housing finance etc.
Nidhi - How is this similar /
•Mutual benefit club, only members can borrow. different than Chit
•SOUTH MADRAS BENEFIT FUND ltd. fund / Coop Banks
•Maben Nidhi Ltd (Mannapuram group) =✋ NOT IMP

MicroFin
•Learned few slides back.
•RBI regulates lending and interest activities
•MCA has some Administrative powers.
 ✅Some of its
regulation by Corporate
Affairs Ministry AND

✅Some of its
regulation by RBI
1) FI: supposed to mobilize ₹ →investment
(Loan, Bond, Share-partnership)
FI =
1) FI: supposed to mobilize ₹ →investment
(Loan, Bond, Share-partnership)
FI =
2) Phonepe, amazonpay= I’m using
my money for myself.
So neither bank nor NBFC.
NBFCs’ in the traditional “textbook”
sense AND we need not PHD.
1) FI: supposed to mobilize ₹ →investment
(Loan, Bond, Share-partnership)
FI =
2) Phonepe, amazonpay= I’m using
my money for myself.
So neither bank nor NBFC.
NBFCs’ in the traditional “textbook”
sense AND we need not PHD.

3) Airtel Money, Paytm Payment Bank

(although they can’t “loan” but invest it
in G-Sec, other banks.) but RBI says
they’re banks, so we’ve to ACCEPT.
 @NBCF: Can u accept deposits?

Yes No
(100+ (10k+
Cos) Cos)

• Only “TIME DEPOSIT”.

• SLR applicable NBFC-D NBFC-ND
• Bajaj FinServ
Mahindra fin,
Muthoot capital NBFC-ND-
SI
service,
 @NBCF: Can
u accept
deposits?

Yes (100+ No
Cos) (10k+ Cos) How do they arrange money?
Ans. They issue
• shares, bonds in market,
NBFC-D NBFC-ND
• borrow from other banks
• Borrow from external
sources.
• IF Asset size above 500 cr.
• Non-deposit Taking-systematically NBFC-ND-SI
Important. (tougher norms on them)
• L&T finance, IL&FS
Shadow Mudra in
banks in Pillar#1D
#1B2
According to Islam / Shariya
law Muslim can't
• invest money in speculative
trading, gambling,

• Alcohol or pork or similar

“Haram” biz.
• Pay or receive interest.
 ₹1 lakh Loan ₹1 lakh Deposit

Principal Principal
+ Loan Interest + Savings Interest
 Sell at “marked up” Banker buys
price ₹1.20 lakh car for ₹1 lakh ₹1 lakh Deposit

Return ₹1.20 lakh in ₹20,000 Principal

PROFIT
installments + “Profit” share
NOT Interest
 Borrowers
Depositors
(Assets)
iJARA (Home rent) RENT “not interest”

Murbaha (sell at
PROFIT, not interest
@marked up price)
Musharaka (Jt.
Share in profit
Investment)

we need not bother with internal meaning. Because not permitted in India.
Pro-anti arguments given in handout. but faded topic
 2013

✋
. Sufficient to know that RBI is opposed to this idea

2017
 Financial Intermediaries
Regulated, Formal Unregulated, informal
 Financial Intermediaries
Regulated, Formal Unregulated, informal

• Shroff, Shahukar, etc- Instant cash loans without Documents,

Heavy compound interest rate,
• strong arm recovery tactics so low NPA.

• RBI doesn’t regulate but States have laws to register them,

impose restrictions on their interest rates.

• Types, examples in handout but ✋not-very-imp except IBPS

3 ways to introduce any Answer Define Origin Data
 Handout

Then don’t waste ₹100 in

UPSC application form!
Swiggy App pe dominos
pizza ₹100
 • Money: barter to Bitcoin
A-1

• RBI’s monetary policy

A-2 • CRR, SLR, Repo etc

• Classification of Banks-NBFC 1) MBFI 2) Budget 3) Intl. Trade

B-1

• Handout#4 uploaded
• Burning issues in Banking sector
B-2 • NPA, IBC, BASEL…

• SEBI Sharemarket
C

4) Sectors of
• Insurance, Pension, Fin. Inclusion 5) Infrastructure 6) HRD
D Economy