INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Pillar#1A-1: Money : Barter to Bitcoin
Barter system & its disadvantages
Intro – Mesopotamian tribes; Double coincidence of wants + High
Search/Transaction costs + Perishable -> Value loss + X
Specialization/ Division of Labour
Money: Functions
Pri -> Measure(Val) + Med (Exchange)
Sec-> Store & Transfer (Val) + Deferred Payments
Contingent -> Credit Sys + Production Factors -> Employing
(Land,Lab,Cap) + National Income (Creation & Redistribution) - TAX
Money: Evolution & Types
Commodity M (Intrinsic val -> YES) – Use(Commodity as money) -
> Ex- Nails, beans, bones, pebbles, etc. (Perishable/ X uniform/
impure/ X universally acceptable)
Metallic M (Intrinsic val -> Yes) – uniformity & trust +
representations of a trade currency
COINS -> Study (NITIN SINGHANIA)
Full Bodied (Intrinsic Val >= Face Val; Debasement)vs Token Coins
(Intrinsic Val < Face Val; Token Coins of Tughlaq (1330s); Cupronickel
-> Ferritic Stainless Steel (17% Chromium and 83% Iron) ; Lead Coins
-> Satvahana
https://rbi.org.in/Scripts/mc_ancient.aspx
1st official excavation - coinage in India b/w 7th c. BC & 1st c. AD ->
'punch-marked' coins -> punching &carving metal sheets -> largely
silver Coinage Act 2011 prohibits melting
Intrinsic value of a coin?
Precious Metal Coins vs Paper Currency
Paper Money (Intrinsic Value? No) ->
FIAT MONEY 2 conditions MUST BE
1. Form (Physical Currency Coin / Physical Currency Notes /
VirtualCoin/ DigitalCoin/ CryptoCoin) which can measure value
2. issued by order of a King / Queen / Govt / Central Bank
COINAGE ACT, 2011 -> govt -> Coins <1k [Presently 50p – Rs 20] +
Sign – Rs 1 Note -> Fin. Sec
RBI ACT, 1934 -> Currency notes (except Rs. 1 & Coins) = RBI
Legal Tender -> FIAT MONEY + Legally valid for all debts &
transactions (Cant refuse) + (EXCEPTION -> Bitcoin is not a Fiat
money, yet it is legal tender in El-Salvador)
Commemorative Coins = Fiat money but not legal tender unless
notified by Govt/RBI
Legal Tender – Limited (can refuse -> accepting payment; Coinage
Act 2011 -> LIMITAIONS ON USING COINS -> like 50p x20 coins – Rs
10) and Unlimited (No restriction -> RBI ACT 1934 -> Cant refuse
bank note (LEGAL TENDER)
** Finance Act 2017: “Cash transactions for less than Rs.2 lakh only.
Beyond that use Cheque, DD, NEFT etc. else penalty.
RBI’s App to help the blind identify currency notes -> bleed
lines, raised printing of Gandhi etc. => MANI APP -> Audio +
Vibrations [MOBILE AIDED NOTE IDENTIFIER]
Currency related General Knowledge -> 8th schedule (22 lang) ->
Note only 17 & both sides different
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“I promise to pay the bearer…”: Earlier -> Equivalent value of
gold/ silver BUT Now -> Conversion into other Bank notes & “token
coins” of equal face value. X inflation adjusted X linked with
Gold/Silver + CURRENCY NOTE = zero interest, anonymous bearer
bond / Promissory Note (Not a Promissory Note as per NEGOTIABLE
INSTRUMENTS ACT)
Demonetization of Fiat Money (Previously 1946, 1978) ->
Removal of legal tender status of currency notes. NOTIFIED BY
Ministry of Finance -> Dept (Eco. Affairs)
Specified Bank Notes (Cessation of Liabilities) Act 2017 -> Cessation
means ending & Liabilities here refer to that of RBI to honor the
promise to pay the bearer..
₹2000 banknotes continue to be legal tender but Withdrawn from
circulation/ Not printing anymore/ Not Demonetized
good vs bad money | soft vs hard currency
Gresham's law = monetary principle stating "bad money drives out
good". if 2 forms of commodity money in circulation, accepted by
law with similar face value, then more valuable commodity will
gradually disappear from circulation (As people will start hoarding
the good money & they will use the less valuable commodity with
equal face value for transactions)
Zimbabwe's Central bank -> Gold Coin ‘Mosi-oa-Tunya’ (2022)
named after Victoria Falls-> unique serial number- Bearer Ownership
Certificate+ meet regulatory requirements for asset investments +
transactional value + collateral for loans/ credit. + price of gold coin
in Zimbabwe will be published daily at 0800 hours by central bank, +
sold at prevailing international price of gold plus 5% to cover cost of
production and distribution of coin on a Payment vs Delivery basis.
Redenomination? Changing face value of Legal tender in
circulation – usually coz of inflation; Like Iran’s Toman Currency
(2016) ; News : Nigeria, Indonesia
Bank Money / Deposit Money
Paper orders: Cheque, Demand Draft (DD) : Viceroy Ripon’s
Negotiable Instruments Act, 1881: -> Cheque dishonour & forgery
Cheque -> Drawer (Sender); Drawee (Bank) ; Payee (Recipient)
IFSC Indian Financial System Code- 11 alphanumeric - bank branch
MICR Magnetic Ink Character Recognition. 9 digits code in Iron Oxide
ink for automated clearance.
Demand Draft (via Bank) and Overdraft (for short-term operating
expenses -> withdraw from A/C when insufficient balance) + Loans is
mainly for longer term higher value expenses
Cheque → NPCi’s Cheque Truncation System (CTS) for banks ->
Sender bank to relase money & Positive Pay Mechanism – before
releasing money - match images of cheque by Payee & the sender
bank
Electronic Orders / Digital payment
Payment & Settlement System Act 2007 empowers RBI to regulate
card payment, e-payment related products and services
CBS ( full form: Core Banking Solution /system) – banking
software with web-platform for centralized data management
& branch-less banking. E.g. Finacle software; BanCS software;
E-Kuber (used in RBI)
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Digital Payment Systems- transaction limits may differ, depending
on banks
RBI's centralised payment systems (CPS) NPCI - IMPS
RTGS : Real time NEFT : National Immediate
Gross Settlement Electronic Funds Payment Service
Transfer
2L --- 2000 Cr (SBI) <10L (SBI) 1-5L
Bizmen wanting high
value transactions Ordinary retail customers
instantly
Instant settlement Settles net amount b/w Instant settlement
banks after 30 min.
24/7
Rs.0 fee + GST#
BEFORE-2021: Only Banks can provide this Banks + Prepaid
facility + 2021: RBI announced - non-bank Payment
entities can also become members of centralized Instrument (PPI)/
payment systems (CPS = NEFT & RTGS) -> mobile-wallets
Amazonpay, PhonePe etc could directly allow. Phonepe, Mobikwik
LPSS- lightweight payment and settlement system
RBI’s (emergency/backup) alternative to NEFT, RTGS and IMPS/UPI +
temporary & portable solution during natural disasters & war + Can
be operated from anywhere by a bare minimum staff.
National Payment Corporation of India(NPCi)
2008 : Reg under Company act -> Not for Profit
Founder : 10 banks – 100 Cr Capital -> New stakeholders later + cost-
effective payment solutions / tech for Banks
NPCI → UPI (Unified Payment Interface)- technology for building
digital payment apps based on IMPS + Features : QR Scan + Link A/C
+ Push Transaction (when you push money out of you’re a/c by
own discretion ex- sending to relatives) Pull Transactions (when
others automatically pull money out of you’re a/c after approval ex-
monthly electricity bills + signed int’l agreements in Bhutan, Nepal,
Singapore, Europe, Mauritius, Srilanka etc. - Indian tourists in foreign
countries can spend from their Indian bank account by using UPI-
Based Apps
UPI: daily transaction limits : ₹1 lakh/day -> Normal transactions.
+ ₹ 2 lakhs/day -> Capital Markets (e.g. Mutual Funds) Credit card
payments, Loan re-payments/ EMI, Insurance premium/fees
payment etc. + ₹5 lakh/day -> Purchase of G-Sec under Retail Direct
Scheme, IPO Subscriptions. + Medical and educational services
payment.
NPCI → UPI → 123PAY for FeaturePhones No smartphone -> can
use UPI using USSD (Unstructured Supplementary Service Data) code
(99#). -> 2022 - RBI + NPCi launched new UPI platform - 123PAY ->
more UPI-payment options + Features: USSD + Interactive voice
response + missed call-based payments + proximity sound-based
payments (for contactless payments) + easier utility bill payment +
need to link bank a/c with feature phone. → Money transfer, check
a/c balances, pay utility bills, recharge FAST Tags
UPI observations by Economic Survey-ES-2023 : FY -> 8840 Cr
Total Digital Transactions + 52% UPI’s Share of Digital Transactions
UPI-Lite (on-device wallet) : User adds money from his bank
account to his UPI Lite wallet on his mobile App. (e.g. Google Pay
App, BHIM App)
UPI-Lite + NFC = Offline Retail Payment / Tap-and-pay offline
transactions + contactless + faster
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Conversational payments in UPI - chat/converse with AI-powered
systems to make payments - instruction via TEXT or voice note to UPI
system
PRE-SANCTIONED CREDIT LINE - When banker allows a/c holder
to borrow upto predetermined amount, w/o loan [Expensive interest
rate] – Faster + No Collateral (unsecured) = [Credit Card + Overdraft
– (Branch Visit/ Bank Website/ UPI) ]
UPI: Pre-sanctioned credit line/Overdraft in UPI (2023-Apr) :
need to repay principal & interest - “Buy now pay later”
-> Interoperable Card-less Cash Withdrawal (ICCW)
-> QR Code based Coin Vending Machine using UPI (2023-Feb)
UPI facility to foreign tourists coming to India (2023)
UPI Transactions: Volume surges 56% in H2 2023 but average ticket
size (ATS) shrinks 8% to Rs 1,515 + UPI transactions = person-to-
person (P2P) and person-to-merchant (P2M) transactions.
transaction volume - 65.77 billion + value of transactions = Rs 99.68
lakh crore
NPCI → UPI BHIM App: Bharat Interface for Money (2016) -
Money transfer app designed by NPCi + 2 factor of authentication
system
NPCI → Rupay Card Payment Gateway (2012) world’s 7th
payment gateway (Mastercard, Visa) + Free w/ PMJDY (Jan Dhan)
bank A/C + Collab w/ Singapore & japan
NPCI other notable initiatives
BBPS Bharat Bill Payment system - monthly payments of utility bills
(gas, electricity) + NPCi ‘s subsidiary Bharat BillPay Ltd. Co. → in 2022
launched Unified Presentment Management System (UPMS)
NFS National Financial switch -runs ATM network
CTS - Cheque Truncation System (2010) [DONE]
NETC - National Electronic Toll Collection – tech support to FASTag
toll collection.
PAI chatbot – AI based – replies to online queries about NPCI’s
products like FASTag, RuPay, UPI, AePS etc.
DigiSaathi Helpline Number - RBI & NPCi launched - for digital
payment & card payments problems. [ 1800 891 3333 ]
DakPay (2020) - Payment App by Dept of Post & its India Post
Payments Bank
BharatQR(2016) + E-Rupi (2021)
NACH-ABPS : Hybrid / Mixed mode in MGNREGA – both by
NPCi-; NACH - National Automated Clearing House for bulk monthly
payments of utility bills, dividends, salaries, pension / insurance
premiums etc.+ ABPS – Adhaar Based Payment System & AEPS –
Aadhaar Enabled Payment System -> for Direct Benefit Transfer
(DBT) into beneficiary’s account for MNREGA wages, LPG subsidy,
scholarship etc. ; Also req for Bankmitra-MicroATM system
Mahatma Gandhi National Rural Employment Guarantee Act, 2005:
[Mo Rural dt] - 100 days work to villagers. -> Uses both NACH & ABPS
for salaries to MGNREGA workers => Mixed payment mode/hybrid
mode for MGNREGA wages. -> Govt plans to shift to ABPS only
(Delay) – Issue people w/o adhaar
DBT → E-Rupi by NPCi (2021) -SMS /QR Code based -Prepaid –
Cashless- Electronic Voucher by NPCI - on UPI Platform. + supported
by Mo Finance (Dept of Financial Services) & Mo Health (National
Health Authority (NHA)) + USES 1) Food for mother, child, poor
under schemes. 2) Medicines - TB, Corona etc. 3) Fertilizer subsidies
Who can Buy? Govt + Companies + Individuals
Who can Sell? Banks + Non-bank Prepaid Payment Instrument (PPI)
e.g. AmazonPay, Mobikwick etc.
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Interoperability Problem –Can’t use Paytm Cashback on amazon –
Not interoperable b/w many wallets -> RBI making rules.
QR Codes: compulsory to implement UPI/Bharat QR from
2022
Japan in 1990s: 2 dimensional (2D) Quick Response (QR) Code sys
Indian E-payment systems - 3 types of QR Codes
Proprietary QR code : Exclusive QR of Paytm/Phonepe -> RBI
prohibited new proprietary QR code -> Interoperability issue
UPI QR code -> Generated by UPI app of NPCi- can be scanned by all
Apps developed using UPI tech
Bharat QR code- Developed by NPCi + Visa + Mastercard - can be
scanned by all Apps - developed using UPI techn
RBI ordered all Payment System Operators (PSOs e.g. Paytm,
PhonePe, MobiKwik, Google Pay etc) to shift to UPI QR or Bharat QR
Benefit? All Payment apps - scan these QR codes → 'interoperability'.
rMQR (Rectangular Micro QR
Code)
1990s: JAPANESE ENGINEER
Masahiro Hara, designed square QR code -> Now working on rMQR -
> can be printed in narrow spaces -> same scanning speed as Square
White label Non-Bank Non-Bank itself Ex- Muthooth
operates Finance
Micro-ATM Bankmitra – manual deposits/ withdrawl + Adhaar +
NPCi’s AEPS tech.
Measures to promote Cashless Economy : Nandan Nilekani RBI
committee (2019) -> restrictions on cash transactions
RBI’s Payments Infrastructure Development Fund (PIDF) 2020
Subsidy to merchants on adoption of PoS devices : Rs. 500 Cr fund
(250 Cr RBI + 250 Cr Banks & Gateway operators) : Subsidy also to
PM SVANidhi : Govt helps street vendor to get Biz loan + PM
Vishwakarma : Govt helps artisans (carpenter,potter,blacksmith) - in
skill training & Bank loans.
Global Money Transfer
UPI facility to foreign tourists coming to India (2023):
Foreigners (G20 nations’ tourists) can open Indian bank A/c and use
UPI to pay ; Non-Resident Indians/foreigners -> bank A/C’s in Indian
banks = NRE/NRO/FCNR (Foreign Currency Non-Resident Account).

Card Types based on Security Features Nostro-Vostro / Rupee-Ruble / Rupee-Rial Agreement? ->
Magnetic Card – Banned coz of Cloning/ Skimming issues Rupee-Rouble trade arrangement = alternative payment mechanism
EVM Card [Europay + Mastercard + Visa chip infrastructure w/ to settle dues in Rs. instead of Dollars or Euros. Idea was first
encryption] = Contactless (RFID) + Contact based (in PoS) conceived in 1953 under the Indo-Soviet trade agreement.
Ruble – Russia ; Rial - Iran
Credit & Debit Cards (also called ‘Plastic Money’) – payment NOSTRO : “Our Money on VOSTRO : “Your Money on
modality : Credit C : borrowing – interest – reward pts + Debit C – deposit at your bank” + A/c deposit at our bank” + A/c held
existing balance – Overdraft + Hybrid/ Duo C – 2 chips in 1 C for held by our bank in foreign by foreign bank in domestic
Credit & Debit each - E.g. Indusbank Hybrid C + Pre-paid C – subtype currency at another bank currency at our bank
of Debit C – can buy w/o any bank a/c ex- Union Bank of India & Ex- SBI holding money in Ex- Russian bank holding
NPCi’s Rupay -> IRCTC’s UBI Prepaid Card - rail tickets, meals etc. Rubals in a bank A/c in Russia money in Rs. in SBI A/c in India

Card Tokenization (from Oct2022)- Token – hide sensitive card RUPAY Cards- International acceptance – Allowed by RBI
data – digital safety 2023-June: Indian travellers can use them abroad for ATM money
withdrawal & shopping. (subject to T&C) + 2024 NEWS: UPI & Rupay
CVC Less transactions - Cardholder Verification Code -> X Req Connectivity with – Mauritius & Sri Lanka + Integration of UPI with
every time after RBI’s Tokenization norms National Payments Interface (NPI) of Nepal for cross-border
remittances. + UPI also available at Bhutan, Oman, UAE, South Asian
FASTag by NHAI for paying toll fees at highways (2017) - nations, Nepal and France etc.
prepaid rechargeable tags - automatic electronic toll collection – India-UAE: LCSS: UPI-IPP linkage (2023-Aug)
RFID. + Done Using NPCi’s NETC (National Electronic Toll Collection) 2023: Central banks of India & UAE signed for easier Local Currency
tech. + 2021 – mandatory else more toll Settlement System (LCSS) agreement. -> allow importers/ exporters/
investors/ tourists to pay in their respective domestic currencies (INR
MDR: Merchant Discount Rate - charge to a merchant by a bank + UAE Dirham (AED) – W/o using $$ Dollars. IPP = Instant Payment
for accepting payments from his customers through the bank’s cards. Platform of UAE.
merchant must pay to his (acquirer) bank for every credit / debit card
transaction. -> 3 parties Financial Messaging Systems: SWIFT- Russia gets banned
Customer’s card issuing bank [SBI]; Merchant’s acquiring bank [Axis]; Globally Within India
Payment gateway provider [Visa/Mastercard] + Issue: ↓ Profit Society for Worldwide Interbank Structured Financial Messaging
margin of merchants -> ↓ Point of Sale (PoS) device adop on. financial telecommunication System (SFMS)
MDR Subsidy by MEITY -> 0% MDR on Rupay/UPI -> Loss (banks (SWIFT)
commissions) -> Subsidy by MEITY => To ↑ adop on of PoS devices. By a Cooperative organization in designed by TCS for IDRBT
Belgium’s La Hulpe city (1973). (=Research arm of RBI)
To serve messaging function for messaging function in NEFT, RTGS,
Interchange fee by NPCi (2023-March) : fees charged on prepaid
Banks, NBFCs & brokers who may / and other inter-bank, intra-bank e-
wallet transactions above Rs 2k/- by NPCi on using UPI may not have direct int’l bank transactions platforms within India.
relations / settlement systems with
ATM (Automated Teller Machine) and its Types – NPCi’s NFS; each other
Owner Operations Other Nations banned -> Iran + Russia (2022) => difficult to receive money
Bank label Bank itself Bank itself Ex- SBI internationally.
Brown label Bank owns Outsourced Ops: cash
refilling, guard

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Payment System Operators?
RBI gives licence under Payment and Settlement Systems Act, 2007:
to Payment System Operators (PSOs); Types of PSO -> Examples
Umbrella Entity For Retail Payments →NPCi
Card Payment Gateway Operator → MasterCard, Visa, Rupay
Crossborder / Int’l Remittance → Western Union, MoneyGram
Prepaid Payment Instrument (PPI) → AmazonPay, Mobikwik, PayU…
Payment Aggregators (PAs) →help merchant collect digital payment
from customer - Paytm, Amazon, GPay, Zomato, CCBill, CCAvenue,
Razerpay, Stripe etc.
ATM Operators → SBI etc's own ATMs; White label ATMs by Tata,
Muthoot, SREI etc.
Financial Market Infrastructure Provider → Clearing Corpora on of
India (CCI): digital infra for share/bond/foreign currency deals
New Umbrella Entity (NUE) for Retail Payments System 2019)
Rival Companies : Paytm vs Phonepe; Mastercard vs Visa; SBI vs Axis
Bank; BUT NO RIVAL -> NPCi = umbrella entity for retail payments
system - operates -> card payment (RuPay), Money transfer (IMPS),
Mobile Apps (UPI, BHIM), ATM Network (NFS) etc.
2020: RBI seeking companies to rival NPCi in retail payment segment
by licensing them as new umbrella entity (NUE) + 2023-Jan: RBI put
this license process on halt/suspension.
Third Party Application Providers (TPAPs):
NON-Banks (Amazon Pay, GPay, Mobikwik, PhonePe, WhatsApp) ->
tie up w/ Partner bank -> TPAP license from NPCI to use FastTag/ UPI
/ other NPCi services.
Digital Payment Regulatory bodies
Digital Transactions Ombudsman (DTO-2019) :
RBI designates senior RBI officials at 21 places across India as DTO ->
customer complaints < ₹ 20L against PPIs, Mobile wallets, Apps,
NEFT/RTGS & other digital transactions + can order company / bank
to fix problem & pay upto additional ₹ 1L for mental agony of
customer → Higher Appeal to Dy.Gov of RBI. If matter > ₹ 20L, then
matter outside jurisdiction. Victim has to approach courts.
RBI: BPSS (Statutory body)
1998: Narsimham-II Committee on Banking Reforms suggested
regulatory framework for e-banking, card payment etc. -> 2007:
Payment & Settlement Systems Act → RBI → (Statutory) Board for
Regulation and Supervision of Payment and Settlement Systems
(BPSS) -> All payment system providers - register with RBI’s BPSS-
bank, non-bank, wallet/Prepaid Payment Instrument (PPI) etc.
Digital Payment related Index / Competitions/Reports by RBI
Like : RBI Digital Payments Index; RBI’s Financial Inclusion Index etc.
Crypto-Currency & Blockchain Technology
Cryptocurrency: digital / virtual currency created & stored using
blockchain tech
Blockchain: secured decentralized database/ distributed ledger
technology (DLT) that maintains continuously growing list of records
/ transactions. X Delete Old entries, new entries visible to all. Can
store any type of data (Mainly for Cryptocurreny).
USA’s Subprime Crisis (2007) eroded purchasing power of USD Dollar
-> Anarchist groups lost faith in FIAT MONEY + dislike Banks & Card
Companies : transaction charges on e-banking, card payments, MDR,
interoperability issues- > 2009: anonymous user Satoshi Nakomoto
launched a cryptocurrency ‘Bitcoin’. total 21 million Bitcoins(BTC), 1
BTC = 108 Satoshi (smallest unit) + other eg. Ethereum, Litecoin,
Digicoin, Laxmicoin, Ripple, Dogecoin etc.
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Hot Wallet vs Cold Wallet
Store BTC & other cryptocurrency in Crypto Digital Wallets
Hot wallets are connected to internet, (online app)
Cold wallets are not connected to internet (USB pendrive).
Crypto-Winter in Bitcoin Prices
B/w 2021-Nov & 2022-Jun: Bitcoin fell from ~$70,000 to $20,000 →
almost 70% loss! & similar situation in many cryptos. + experts fear
prices will remain frozen in this range for upcoming months, hence
using term "Crypto-Winter" to denote it.
Crypto-scams - Recent Global Scams of online exchange/portal to
buy/sell cryptocurrency :
Binance ->. Remains in -ve news coz of frauds/scams.
FTX -> went bankrupt - losses for investors - founder/CEO arrested
for scam → 10 lakh+ investors’ money got stuck.
Crypto currency observations by EcoSurvey’23
Cryptocurrencies are primarily held by few big players/“whales”. So
they can manipulate prices by manipulating supply. + Problems:
electricity-consumption, tax-evasion, abnormal fluctuation in prices,
investors-fraud, no-intrinsic value ..+ ES gave examples of legal
provisions in EU, Japan, Switzerland, Nigeria etc. + coordinated int’l
effort required to regulate sector. OECD & G20 group are working in
this direction. + ideally, need strict rules over crypto-market
Cryptocurrency Profit - 30% Tax + 1% TDS in Budget-22
Cryptocurrency Banned in other nations?
Nepal, Algeria, Egypt, Morocco, Turkey , Iran etc: Bitcoin is illegal.
Chinese prohibited banks from providing buying/selling/investment
services for BTC etc cryptocurrencies. After this crackdown, BTC
prices fallen ↓ by 30%
Crypto currencies as legal tender is in some countries
Venezuela -> Petro Crypto issued by govt
Marshall Islands -> 1st country to launch sovereign crypto currency
(Sovereign – SOV)
El-Salvador -> 1st to allow BTC as Legal tender
Cryptocurrency Permitted in Other Nations/Groups :
UNICEF : 1st Un org to accept crypto - setup a Cryptocurrency Fund to
accept donations in cryptocurrencies.
World Bank : World’s 1st blockchain bond called “Bond-i” in
Australia, denomina on: Australian Dollars → public invests, gets
~2% interest after 2 yrs
‘Blockchain Bill of Rights’ by World Economic Forum (WEF) – talks of
rights to accountability, transparency, data privacy, data protection…
Cryptocurrency → Global Regulations
→ MiCA (Markets in Crypto Assets) regulation/rules by EU
(2023) - protect people from scams /frauds in crypto investment +
combat tax-evasion, money laundering & terror-finance + X regulate
CBDC & NFTs
→ CARF (Crypto Asset Reporting Framework) by OECD (2022)
objective similar to MiCA
Stable-coins = type of cryptocurrency whose price is backed by a
reserve asset like gold / dollar / fiat currency e.g. Facebook’s
proposed ‘Libra’, Tether, Basecoin, and TrueUSD. + Challenges :
money laundering, terror financing, consumer protection, financial
frauds + 2019: France, EU, G20 group opposed.
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

World Coin Project (2021–22) : Non-fungible token (NFT) = Digital file photo file (JPEG), Animated
ChatGPT CEO -> Orb Machine -> Scan Iris -> get Unique ID using image (GIF), music file (MP3) etc Stored using blockchain Tech.
Blockchain tech -> get Free WorldCoin crypto NFT may also be used in storing physical assets. E.g. Ownership
document of house, boat, physical-painting etc. + cannot be
Central Bank Digital Currency (CBDC) : currency by Central banks subdivided- individual sub-units cannot be exchanged with one
in digital form instead of printing : Bahamas (1st nation to issue CBDC another. Because their values are different based on buyer’s
– “sand dollar” ; non- interest bearing CBDC + Nigeria launched preference. + E.g. Robot Sophia created a digital painting/art "Sophia
eNaira Instan a on" (NFT)→ Auc oned for > 6 lakh dollar$.
Budget-2022 announced Digital Rupee using blockchain tech. NFT-Charms? NFT-Challenges
SYMBOL -> Normal rupee = ₹ or INR. CBDC rupee = e₹ or eINR. 1) Multimedia Creators: 1) Started 2017→ 2021 steep
(e₹) CBDC wholesale vs Retail - RBI trials/experiment/pilot- Easier to trade digital assets price rise. Single GIF file selling
studies in 2 segments: CBDC Retail (e₹-R) -> P2P, P2M + CBDC 2) Easier to verify ownership for millions dollar$ crypto. ->
Wholesale (e₹-W) -> Sec. mkt transactions in G-Sec/ Interbank records. Prevent plagiarism. investment-bubble will collapse.
borrowing of short-term loans/ Crossborder payments 3) Cinema / Sports 2) Money laundering & terror
-> RBI allowed non-bank payment system operators to participate in tournament / Travel tickets Finance.
retail CBDC pilot + first use cases for CBDC is for farmers looking to etc can be stored with 3) Maintaining such computer
buy farm inputs with subsidy money. ownership records. Helps in blockchain record → ↑Electricity
(e₹) Indian CBDC = digital token of legal tender Paperless administration consumption → CO2 Emission.
Indian CBDC (e₹) is based on blockchain + is a digital token
representing legal tender + created under RBI Act, 1934 by amending
some sections in 2022 + RBI issued (e₹) on behalf of Govt of India. +
is liability of RBI + being distributed through financial intermediaries,
(banks) + Not earn any savings interest. + features of physical cash
like trust, safety and settlement finality.
(e₹) Settlement finality – no risk of reversal/cancellation after
financial transaction completes. e.g. Cash or CBDC-e₹ + Whereas, if
payment via Credit card/ cheque-book → customers can later block
payment by banker within a time-limit. So they (creditcard / cheque)
do not have instant-settlement finality.
(e₹) Indian CBDC = no interest earning: stored in separate digital
wallet/separate mobile created by bankers.+ not earn savings
interest rate as you keep it with yourself in a digital wallet. Is not
treat it as a deposit + can be converted to other forms of money, like
deposits with banks.
(e₹) CBDC - Interoperability permitted with UPI QR Codes
2022–23: CBDC trials/experiments started in a few cities. + bankers
developed separate apps to use CBDC money - SBI-e₹ App =
Interoperability present with SBI YONO app after Sept 2023
(e₹) CBDC - programability & offline features
Presently (e₹) can be used for Person to Person (P2P) and Person to
Merchant (P2M) transactions. 2024-Feb: RBI 2 new experiments: (1)
Offline functionality (similar to UPI-Lite) in areas with limited internet
connectivity. + (2) Programability Like a specific function,
Expiry/Validity, Geographical

E-Rupee [RBI – CBDC – Legal Tender] vs E-Rupi [NPCi – digital gift

card – Not a fiat money ]

Fungibility: Divisibility into subunits with some value + Mutual

substitution is possible in terms of value
Fungible ex- 500 Rs note, 1kg Gold bar, 1 BTC etc
Non-Fungible ex- diamond, shares, bonds, NFT
(e₹): Fungibility of CBDC - programmability not violate/destroy
fungibility (of e-Rupee), it is only a specific use binding.”

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Pillar#1A-2: Money Supply & RBI’s Monetary Policy
Money’s Demand, Supply & Creation
Demand of Money: Liquidity Preference Theory British
Economist John Maynard Keynes (Book: The General Theory of
Employment, Interest and Money, 1936) noted - people prefer to
keep part of assets in liquid form (cash money) w/ 3 motives:
Transaction (For using as medium of exchange e.g. buying)
Precautionary (protect against sudden / unforeseen expenditure
e.g. medical emergency) + Speculative – Investors hold cash for
future investment opportunity (waiting for gold / land prices to
fall) Also known as "Asset Demand of Money".
Money held in cash vary inversely w/ (deposit) interest rates. If
higher interest in Bank Deposits → people invest money in banks,
instead of liquid (cash).
TOTAL demand of money = TRANSACTION DEMAND +
SPECULATIVE DEMAND ; Transaction demand -> directly
proportional to inflation (price lvl) + GDP (for salaries/ buying raw
material) ;Speculative demand (inversely proportional to interest
rates) -> if less interest in bank/bond => withdraw more to invest
in gold/ property
Liquidity of assets -
Liquidity= ease of converting an asset into CASH (most liquid asset)
Highly liquid assets = Gold, Demand deposits, G-Sec/ T-Bill, shares/
bonds of reputed companies
Relatively illiquid assets= Home/Real estate, Paintings/Sculptures
Liquidity injection/infusion - RBI buys Bank/NBFCs’ G-Sec/T-
bill/financial assets to give them cash.
Liquidity Trap = adverse economic situation - consumers &
investors hoard cash rather than spend/invest - even when
interest rates are low + 1st used by John Keynes - defined it as
when interest rates fall so low that most people prefer to let cash
sit rather than put money into bonds and other debt
instruments. + occur when short-term interest rate is at 0% &
individuals hold on to money in their possession at given interest
rates - fear (-ve events) -> People choose savings A/C over bonds
Deposit types =
Assets Liabilities
Company Factory Payments (Raw
Time Deposits -> GREEN DEPOSITS – 2023: RBI guidelines
= Type of FD – money is further loaned by bankers to environment
related (renewable energy, waste management, clean
transportation, energy efficiency, afforestation) + Collected by
banks, deposit-taking NBFCs (e.g. Bajaj Finserv), Housing Finance
companies (e.g. Canfin Homes) + NOT ALLOWED FOR Biz involved
in– fossil fuels, Nuclear power, tobacco etc.
These are NOT-Short term deposits -> available only for medium &
long term + If unable to find green-borrower (for long term loans)
then bank/NBFC can invest into liquid instruments (max. maturity
upto 1 yr) e.g. T-Bill, Commercial Papers etc. + No RBI penalty for if
unable to find green borrowers + Covered by DICGS - ₹5 lakh +
Only in Rupee currency + Voluntary for Bank/NBFC to raise/accept
green deposits
Inoperative & unclaimed accounts :
Inoperative A/C - if no transaction by depositor > 2yrs [>1L Cr]
Unclaimed Deposits – SA/CA– Not operated OR FD/RD Not
claimed within 10 years [> 42k Cr]
Bank can’t charge penalty on such customer + bank must continue
paying interest on it if it is a Savings A/C
UDGAM Portal: Unclaimed Bank Deposits (2023)
Unclaimed Deposits (10yrs) -> Need to be transferred to
“Depositor Education and Awareness FUND” (DEA) of RBI. -> 2023
RBI setup UDGAM (Unclaimed Deposits Gateway To Access
inforMation) portal for it.
Full Reserve Banking vs. Fractional Reserve Banking
Full Reserve -> Banker CANNOT lend loans from Demand Deposits
(CA/SA) of other customers + Low Vulnerability during BANK RUN +
Can give less loans so less help in Economic Growth
Fractional Reserve -> Yes, CAN lend; More Vulnerable during panic
withdrawals by clients + More ability to help in economic growth +
Used in India
*In both, banks can lend loans from Time deposits [FD/RD]
Measures of Money Supply (total amount of money in an
economy at any given time.) -> Plays role in inflation & interest
rates on deposits & loans. RBI measures through M0 M1 M2 M3
M4
Measure *CU Commercial Banks Post Office Savings
Bank
Demand Time Demand Time
Deposits Deposits Deposits Deposits
(CASA) (FDRD) (CASA) (FDRD)

Machines Material); Salary; Loans Narrow M1 √ √ x x x

Money
Banks Loans, Investments, Deposits (banks liable to M2 √ √ x √ x
Advances, Money at repay back) Broad M3 √ √ √ x x
call & short Notice Money
M4 √ √ √ √ √
2 type of Liabilities of Banks -> Time & Demand
Time Liabilities of a Bank Demand Liabilities of a *CU: Coins & Currency with Public
(FD/RD) – bank pays after Bank (CA/SA) – only counting “NET Demand / NET Time deposits [NOT counting
maturity inter-bank deposits i.e. one commercial bank’s deposit in other
Fixed deposits (FD), Have to repay when commercial banks.]
Cumulative/ recurring deposits customer demands Liquidity: M1>M2>M3>M4; Quantity: M4>M3>M2>M1
(RD), Staff security deposit etc. + Current A/C , Savings A/C, M1 = *CU + Commercial Banks’ (Demand Deposits)
may pay after deducting Demand Draft, Overdue M2 = M1 + Post office Savings Bank’s (Demand Deposits)
penalty/ interest before balance in FD, Unclaimed M3 = M1 + Time deposits with banks
maturity. deposits. M3 = Aggregate Monetary Resources / Aggregate Money Supply
Better interests -> More money Less interest -> but more = most commonly used measure of money supply- out of all
indicators (M0-M4) - RBI focus most on M3 for its analysis while
parked here + But less liquid liquid - easily convertible to
designing of monetary policy.
(needs maturity) cash
M1 & M2 = Narrow money - smaller size (only demand deposits)
M3 & M4 = broad money, relatively larger size.

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Call Money | Notice Money | Term Money - used when bank/ Short term (<1yr) : Govt -> Treasury bills (TBill), Cash Management bills
NBFC lend/borrow money among themselves for short term (< 1 (CMB) ; Corporate (reg. in company's Act) -> Bill of Exchange, Commercial
Papers, Promissory Notes. Long Term (>1yr) Govt -> G-Sec, Sovereign
yr) + Call M -> borrowed for 1 day = This duration also called
Bonds; Corporates -> Bonds / Debentures
“overnight”. + Notice M -> 2d – 14 d ; Term M -> 14d – 1yr
Money Supply & FRBM Act
Money Supply [M3]
Suppose govt wants to borrow loans and issues Debt Securities ->
M0 = also known as reserve money /high powered money
RBI as PUBLIC DEBT MANAGER -> E-Kuber Portal ->Lists on Primary
M3 = “Aggregate Monetary Resources / Aggregate Money Supply”
& Secondary Markets + G-Sec is purchased by investors here to
Quantity of both M0 & M3 ↑ed but % growth lower than 2020.
earn interest -> money as loan to Govt
Money multiplier = M3 divided by M0 = 5.6 in 2020 & 5.2 in 2021.
FISCAL RESPONSIBILITY AND BUDGET MANAGEMENT ACT 2003 ->
MM ↓ed than 2020 . (Not enough loan takers with Banks ->
Govt has to control its fiscal deficit within X% of GDP.+ Govt
parked deposits with RBI under Reverse Repo)
CANNOT borrow from RBI (RBI cannot buy govt’s instruments for
itself from primary market **Except in 2 situations:** i) Short term
Money Multiplier - RBI’s CRR controls Fractional Reserve Ways & Means Advances (WMA) ii) During war, disaster, agri-crisis,
Banking & Credit Creation by commercial banks (ZIG-ZAG) big fall in GDP. + BUT RBI can buy/sell govt’s loan instruments from
𝑆𝑡𝑜𝑐𝑘 𝑜𝑓 𝑇𝑜𝑡𝑎𝑙 𝑀𝑜𝑛𝑒𝑦 (𝑀3)
𝑀𝑜𝑛𝑒𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = secondary market (i.e. from other investors in OMO/ Open market
𝑆𝑡𝑜𝑐𝑘 𝑜𝑓 𝐻𝑖𝑔ℎ 𝑃𝑜𝑤𝑒𝑟𝑒𝑑 𝑀𝑜𝑛𝑒𝑦 (𝑀0)
1 1 1 operations - NEWS FROM 2021 : RBI net purchased Rs 34,175 crore of
𝑀𝑜𝑛𝑒𝑦 𝑀𝑢𝑙𝑡𝑖𝑝𝑙𝑖𝑒𝑟 = = = = 25 𝑡𝑖𝑚𝑒𝑠 [In theory]
𝐶𝑅𝑅 4% 1/25 sovereign papers b/w April 22 - May 4 from secondary market to ensure
In reality – MM < 25x due to poor banking penetration lower borrowing costs for corporates.
In functional economy -> [MM >1 & CRR < 100% ] -
MM directly improves with ↓CRR+ indirectly improves as economy Monetisation of deficit – If govt budget is in deficit & govt wants
develops, consumption / loan demand ↑es, ↑ in banking penetration, to MONETIZE deficit through loans via RBI by asking it to print
digital economy, less-cash economy, financial inclusion + Boom period,
more currency [* Difficult due to FRBM limits & Conditions] –
When loan demand↑ + When RBI adopts Cheap / Easy / Dovish /
Expansionary monetary policy to combat deflation + In 1960s < 2x ; 90s > PRINTING MORE CURRENCY IS MOST INFLATIONARY so avoided.
3x, At present > 5x.
Money Multiplier From 2019 to 2021: why fallen? deposit-to- Money Supply: observation–graphs are zigzag no trend
lending activity slowed – covid
Money Multiplier From 1981 to 2020 – mid 1990s to 2016-17
showed ↑coz of ↑in banking
habit; 2017-18 onwards
decreased -> Lack of growth
in loaning activities &
slowdown in economy.
Currency in Circulation (CIC) – indicator to measure cash as a
M0: Creation of Money : M0 / Reserve Money / Government payment instrument instead of other payment instruments -
Money / High Powered Money -> Issued under RBI Act by RBI's Cheque, NEFT/RTGS, Card etc. CIC changes due to precautionary
ISSUE DEPT => condition = ISSUE DEPT’s Assets MUST MATCH its demand for cash
liabilities : Assets = Rupee coins [RBI ‘buys’ coins & ₹1 notes from
Govt and circulates it as ‘Agent of govt’] + Gold coins [Min. ₹ 200
crores] + Gold bullion [Min. ₹ 115 crores] + Foreign Securities, incl.
IMF [Earlier Min. ₹ 400 crores but Post-1995 no such requirement.]
+ (Indian) Govt. Securities [through it Govt borrows money from
RBI & returns back Principal + Interest] (**RBI also acquires other
assets for currency exchange rate control Ex- > RBI buys American Velocity of Money Circulation - avg no. of times money passes
Treasury bonds, Gold Coins, Bullion) Liabilities of Issue Dept from 1 hand to another, during given time. FACTORS affecting –
(M0/Reserve, High powered) = Total Bank notes in circulation: Income distribution (Poor>Rich); More borrowers in economy
Currency in circulation (Help by Public/ other banks in “Vault Cash - (developed countries); Boom period is economy
daily ops”) + Banker’s deposits with RBI (CRR) + Other deposits
with RBI (of Public*/NBFCs/Govt orgs/ Int’l org) => to print more Monetary Policy – macroeconomic policy by Central banks –
notes/ circulate more money [↑ Liabilities] -> must add assets on manage money supply & interest rates -> Shapes inflation,
opposite side of equal amount to balance the Asset vs Liability consumption, savings, investment, & capital formation + Role in
Scale. ; M0 ↑ when RBI’s asset side ↑e.g. Govt issuing G-Sec to price stability [inflation control], economic growth, job creation &
borrow more from RBI social justice. {Monetary Policy – CRR,SLR/ Repo, MSF / OMO, PSL
M0 = Currency in circulation + Deposits w/ RBI (Bankers’ & others’) + Fiscal Policy – Taxation, Subsidy / Public Expenditure/
Divestment, PPP + Both Help in : ↑Savings ↑GDP ↑Investment
Concept : Debt Securities financial instruments - represent ↓Unemployment ↓Inflation, Inclusive Growth, etc.}
loan/ debt obligation (Bonds/debentures/notes) -> are typically Philip Curve: Inflation ↑ = unemployment ↓ (& vice versa).
issued with legal contract [bond indenture / trust deed] -> RBI tries to keep inflation with 2-6% (CPI: All India) using its bi-
outlining debt’s T&C (interest, maturity date, provisions for monthly monetary policy made by its 6- member statutory MPC.
repayment /default) + Wants to borrow (> 1yr) : Govt issue – G-Sec
& Corporates issues Bonds; [have relatively high liquidity due to
guaranteed return; Can sell/resell them for cash before maturity]

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Deposits by public -> MonPolicy → Quant Tools → Rates → LAF Repo

B CRR – 4.5% in cash with RBI (RBI pays CRR, SLR =
A zero interest) buffer/safety
N SLR – 18% in Cash, Gold, G-Sec (profits strategy during
K possible on Gold & G-Sec) bank run
S Loans – 40% PSL (Farmer, Weaker sec., Small Biz, Green)
SDF If NOT enough loan takers - bank invest
Reverse Repo surplus funds in RBI to earn interest.

MonPolicy: Quantitative/ General/ Indirect Tools - affect

entire economy, & not just a particular sector.
Statutory/ Variable Reserve Requirements: CRR, SLR (Fight
RBI’s Liquidity Adjustment Facility (LAF) – 2 windows Repo rate &
inflation: ↑, deflation: ↓)
Reverse Repo Rate
CRR: Cash Reserve Ratio SLR: Statutory Liquidity LAF – Repo Rate LAF- Reverse Repo Rate
RBI Act, 1934: Share of NDTL - Ratio Banking Regulation It is an agreement with RBI to Clients – park surplus
Net Demand & Time Liabilities Act, 1949 : Maintained by repurchase their G-Sec in future at a funds for short periods
banks must keep as deposits w/ Bank with themselves as predetermined price. + Also called in RBI (& earn interest) ;
RBI – usually X interest, except deposits in liquid assets ‘Ready forward transaction” + Reop RBI gives Collateral.
extraordinary (1999’s Banking (cash, gold, G-Sec, T- Bills, = Policy rate to ctrl Inflation. Rev Repo < Repo
slowdown) + No profit / interest. SDL Bonds, PSU-debenture & RBI –lends short term loans to ->
+ RBI can fix any CRR, legally no securities notified by RBI) + Clients (banks/NBFC etc) – G-Sec as
min floor/max ceiling + COVID – profit possible – Gold price collateral (Can’t pledge SLR quota
was 3%; Presently 4.5% [CRR: 1st ↑ or interest from G-sec. + G-Sec);
suggested by British economist Legally can’t be > 40% + Market Repo - Banks, NBFCs, etc. (NOT RBI) loaning short money
J.M. Keynes & 1st intro in US presently 18% NDTL to other Banks/NBFCs/Corporate Companies, & demanding
Federal Reserves ] + If RBI If RBI reduces SLR by 50 basis financial securities (G-Sec/T-Bill/shares/bonds/commercial paper
reduces CRR then money supply points – what can happen? etc.) as collateral
will (↑/↓/same)?
Current repo = Present Repo Rate -
All Banks must keep CRR & SLR + RBI may prescribe separate % Neutral/Terminal repo rate - % repo rate at which inflation is
norms for Regional Rural Banks (RRBs) & Cooperative Banks. under control, & full employment achieved. RBI Will not increase
CRR-SLR - counted fortnightly (15 d) + Penalty interest rate (linked repo rate beyond this point ELSE it’ll damage consumer demand &
with Bank Rate%) to RBI if not maintained + ensure monetary GDP growth [Theoretical – No official %age]
stability of India through 2 primary functions: assist in Money NAIRU – Non-Accelerating Inflation Rate of Unemployment
Multiplier effect + provide buffer/protection during a Bank Run + – term associated with Unemployment
can be used for inflation control – RBI primarily relies on REPO
Rate (=its Policy Rate) to combat inflation, & not CRR/SLR. REPO → SPECIAL WINDOWS UNDER ATMA NIRBHAR ->
DEPOSITs Green Deposit - SBI wants lower CRR (2023) : 4.5% TLTRO, SLTRO, On-Tap Windows
CRR + Reason - ↑ loanable funds ↓ loan interest rates for green
projects

Net Interest Margin (NIM) = Loan Interest – Deposit Interest

Rate (3-4% NIM healthy for bank’s profitability & growth)
Liquidity overhang = situation in monetary policy where Money
supply >> Demand for Money (Loans) -> Cheaper loan rates – may
lead to high inflation; It may occur 1) During Very Dovish (Easy)
monetary policy e.g USA’s Quantitative Easing (QE) 2) During
Demonetisation or withdrawal of currency. e.g. ₹2000 in 2023
₹2000 Withdrawal -> 87% of 2k notes as bank deposits not
exchanged for other notes -> can cause Liquidity overhang => So
RBI temporary measure -> Incremental CRR –10% extra CRR on
additional deposits – to absorb excess liquidity after withdrawal of
2k notes => i-CRR locked ₹1 trillion worth money
All Banks# not include Payments Banks (Can’t give loans)
↓Repo to 4% = Cheaper loans to revive economy
LTRO – Long Term Repo Operations – 1 to 3 yrs
TLTRO – Targeted LTRO – upto 3yrs – conditional like invest x% in
NBFC bonds etc.
SLTRO – Special LTRO – Only to Small finance banks loans to Micro
& Small industries & unorganized sector
On-Tap Liquidity Windows : RBI loan for 3 years @Repo% to
Banker - for Healthcare→ loans to Hospitals, vaccine manufacturer,
vaccine importers, medical device makers, oxygen suppliers
AIFI - RBI loaned large amount of money to All India Financial
Institutions (AIFI) i.e., NABARD, NHB, SIDBI, EXIM, NaBFID

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Reverse Repo Rate cut (2020) -> Corona led Eco Slowdown -> Sterilization / Forex Swap: to control currency exchange rate
↓ Loan demand -> Banks park excess in RBI under reverse repo -> volatility
RBI reduced rev Repo to 3.35% to discourage banks Operation Twist (2019): a special type of OMO

Variable Rate Reverse Repo (VRRR) – RBI auctions for lowest Security certificate – holder eligible – receive money
bid interest – variable rate + Objective same as Rev Repo. [2023] @particular time → Debt → G-Sec & Bonds
Short Term = (<1 yr) Long Term = (1yr />)
MonPolicy → Quant Tools → Rates → MSF (2011) Govt : Treasury Bill, Cash G-Sec, Sovereign Bonds
RBI – lends short term loans to – SCB & RRB with SLR-quota G-Sec Management Bills
as collateral. MSF = Repo% +0.25% Corporate : Bill of Corporate : Bond/
Exchange, Commercial Debenture
MonPolicy → Quant Tools → Rates → Bank rate Papers, Promissory Notes
**RBI Act, 1934: “Bank rate = standard rate at which RBI buys/ Interest - securities by Govt usually < Corporates (low risk)
rediscounts first class securities, bills of exchange or other
Deepening of G-Sec market- Retail investors’ RDAG
commercial papers.(NCERT)”
Bank Rate MSF Repo
@RBI – 2021– permit Retail Direct Gilt A/C for retail
Intro RBI Act 1934 2011 2000 investors on E-Kuber (Both Resident Indians & NRIs can
Rate% = MSF% =Repo% + Monetary Policy open A/C)- can directly buy T-Bill, G-Sec, SDL, Sovereign
’x’% Committee Gold bonds directly from RBI
Borrower Only Banks + Only Banks + All RBI Clients – Bank, Corporate Bonds: factors that determine its interest
+Collateral Yes & No ** Can use SLR Non-bank, Union & rate – Credit Rating of Co. (Risk), Inflation rate, Bank
securities state govt + NOT from
Deposit Interest rate, Yield on G-Sec
SLR securities
Duration > Repo Short term : Overnight to 14d Bond Yield (BY) – profit earned on bond investment
Utility for deciding Emergency Short term borrowing BY ∝ 1/Price (current selling price/SP of bond in secondary
penalty on borrowing by all clients of RBI mkt.) ; If Bond’s Demand ↑ it’s SP ↑ & BY ↓
errant banks BY: other factors affecting it – Economic Boom (Investors
sell bonds to invest in shares – more dividend – SP↓ in
Quanti. Tools → SDF (=Reverse Repo W/o Collaterals) : secondary mkt – BY ↑ + Economic Recession – sell shares
Clients deposit extra money in RBI for interest w/o RBI collateral. buy bonds - Bond’s Demand ↑ it’s SP ↑ & BY ↓ + Inflation
+ Political Instability + Actions of Central Bank + short term
MSF Repo vs Reverse Repo vs SDF interest rates
MSF Repo Rev Repo SDF
Rates 6.75% 6.5% 3.35% 6.25% MonPolicy: Quanti Tools: OMO → Operation Twist
Lender RBI Banks + NBFCs
Borrower Only SCB & Banks + RBI
Why? – Commercial Banks – reluctant to lend to pvt sector coz of
RRB NBFCs NPA – RBI ↓ BY of long-term G-sec – to help ↓ corporate bond
Collateral? Need Collateral NO interest rates (RBI starts buying G-Sec - Demand ↑ SP ↑ BY ↓) –
#Facility Client (SCB) RBI Clients Corporate Bonds are benchmarked against G-Sec BY
Not compulsory for RBI to entertain Client (Bank/NBFC) for RBI’s Operation Twist: methodology (2019-Dec) – Special
Reverse Repo + But for MSF – RBI will help OMO to make loans cheaper for corporates & boost economy –
Op Twist – 1st used by US Fed (1961) -> 2019 – RBI – Sp. OMO –
Policy Corridor / LAF Corridor simultaneously buys & sells G-Sec of varying maturities to adjust
After 2022-April: Policy Corridor = their BY – Main objective = Make borrowing cheaper for
MSF (Repo+0.25%) <-> REPO <-> SDF (Repo-0.25%) Corporates (NOT to fight inflation)
SDF replaced Reverse Repo as floor of Policy corridor.
Bond Yield & Inverted Yield Curve: Under normal conditions,
System level liquidity = [(Reverse repos +SDF) – (Repo + MSF)] interest rates go up with increase in time to maturity. If interest
+ve = System surplus liquidity ; -ve = System deficit liquidity rates & time to maturity are -vely correlated = inverted yield curve
2023: deficit of ₹0.42–1.61 lakh crore. [coz RBI reducing money Ex- Chinese BY, Italian Bond Mkt Crisis
supply to combat inflation]
MonPolicy: Quanti Tools: OMO → G-SAP
Tri-Party Repo - not a tool of Monetary Policy. It is a method to (Secondary Market) G-sec Acquisition Programme – RBI buy G-Sec
meant to help companies to borrow money from the market. from sec. mkt on specified times to ↑ Money Supply; (Indirect
tool to manage Money supply – Like Repo – which has low
Open market operations- 2 types transmission)
Repo-OMO – RBI buys/sells G-Sec with repurchase agreement G-SAP - Buy G-Sec @Fixed timetable + ↑ Money Supply – post
Outright-OMO – RBI buys/sells G-Sec w/o any promise to buy back Covid revival + (Money amount, date & time/ calendar/ time-
table - transparently & systematically announced in advance)
Market Operations (OMO): (Inflation → Sell G-Sec, Deflation → Op. Twist – Buy/Sell G-Sec of Varying maturities for Yield
Buy) OMO – RBI buys/sells Union & State govts’ Security to ctrl Manipulation – Make future borrowing for Govt & Corporates
money supply. Buying - ↑Money supply/ liquidity injected in mkt; Cheaper
Selling - ↓Money Supply/ liquidity absorbed from mkt. OMO – Buy/Sell G-Sec @RBI discretion – to combat Inflation
Market Stabilization Scheme- RBI sells special type of G-sec, T-Bill (sell G-Sec) / Deflation (Buy G-Sec)
& Cash Management Bills (CMB) to suck excess liquidity.

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Monetary Policy: Quantitative tools - Ctrl Volume of Loans – PSL Reforms-2020: on RRB/SFB/UCB?
SLR, CRR, Repo Qualitative Tools (SELECTIVE/ DIRECT Tools)- 40% SCB + Foreign banks
Ctrl Distribution of Loans to particular Sectors (PSL, LTV, …) 75% RRB + SFB + UCB
N/A on Rural Cooperative Banks
Moral Suasion (apply Persuasion w/o Punitive measures – (Internal quota for each category may differ)
conferences, meetings, letters, seminars E.g. RBI-Governor asking
banks to transmit repo-rate cuts, open new branches in rural PSL Reforms-2020: Weightage to poor districts based on
areas, spread financial literacy, give loans to farmers beyond PSL Credit Penetration – PSL loans Counted more if given in low credit
quota etc. OR requesting CM/ Finance Minister to ctrl fiscal deficit penetration area (e.g. Tawang, Dantewada …) & counted less in
& subsidy leakage to enhance efficacy of RBI’s monetary policy. high credit penetration areas (Ahemedabad, Pune …)
Publicity (Media Statements, Speeches, lectures etc. – to create
effective public opinion) PSL Shortfalls: RIDF and UIDF
Underachiever bank – deposit PSL shortfall money to NABARD’s
Direct Action- Punish banks/Non-banks – for non-complying w/ Rural Infrastructure Development Fund (RIDF), or other funds
RBI directives under [RBI Act, Banking Regulation Act, Payment & under SIDBI, National Housing Bank (NHB), MUDRA Ltd. etc as per
Settlement Systems Act, PMLA, FEMA] – Ex- 2019: RBI ordered norms decided by RBI + banks earn interest on such deposits +
banks to have a “Clawback” provision in CEO & Top executives’ Budget 2023 - one more fund UIDF, for PSL-shortfalls.
salaries – Any fraud/scam by CEO – return previous salary/bonus Rural Infrastructure Urban Infrastructure
Development Fund (RIDF) under Development Fund (UIDF) under
NABARD – 1995-96 NHB – 2023 budget
Margin Requirements / Loan to Value (LTV) for gold-loan,
for Agriculture, Social sector, for urban infra projects especially
home loan, auto loan or business loan etc. so Bank/NBFC can’t Rural connectivity projects. in Tier 2 (popln 50k-1L) & Tier 3
lend > x% of value of collaterals. RBI can change this x% to boost / cities (popln 20k-50k)
curb demand. Ex- Gold loan 90%
PSL Certificates (PSLC) from 2016 onwards - overachieving
Selective Credit Control Banks can sell excess PSL as ‘certificates’ to underachieving banks.
- In –ve / restrictive direction – Credit Rationing system English (in
18th c.) & USSR (till 1990s)– their central bank will not loan > “X” Monetary Policy Tools: A Ready Reckoner Table
amount to individual banks + individual can’t get > prescribed <2% CPI = Deflation >6%CPI = Inflation
amount of loans for each category (housing, education, business). Easy, Cheap, Dovish, Tight, Dear, Hawkish,
+ 1960s: Credit Authorization Scheme (CAS) in India: all Expansionary policy Contractionary
commercial banks -prior approval of RBI before loaning ₹ 1 crore/>
to single borrower. + 1970s: RBI imposed quantitative ceiling on QUANTITATIVE TOOLS
non-food loans to boost green revolution, food inflation.- failed Reserves CRR, ↓ ↑
SLR
due to lax monitoring & loopholes.
Key Rates (Repo, ↓ ↑
- In +ve direction – Consumer credit control e.g. During deflation / MSF, Bank Rate)
recession, RBI can relax down payment / EMI installment norms for RevRepo, SDF ↓ - less motivation ↑ - Banks park more in RBI
durables like Vehicles, TV, Fridge etc. to boost consumption for Bank to park in - ↓ loanable funds - ↑
/demand. + Priority Sector Lending RBI – more interest rates - ↓ demand
proactive to lend -
Priority Sector Lending (PSL) – 1st time use of “priority sector” ↑ demand
by RBI (1968) - Banks 40% loan to 3 sectors 1) agri 2) small Mkt Ops (OMO) RBI buys G-Sec from RBI Sells G-Sec
industries 3) exporters by 1985. + 2015: PSL reforms 2019: RBI's UK Mkt
Sinha Committee on MSME loan reforms suggested more PSL QUALITATIVE TOOLS
Moral Suasion/ Nudge/ Force Banks Enforce hawkish policy
reforms + 2020-Sept: RBI reformed PSL guidelines:
Direct action to enforce Easy
12% Weaker Sections: - SC, ST, Women, PH, Minorities, money policy
Manual scavengers, Artisans, PM-Jan DhanYojana Overdrafts
Margin Req./ ↑ (ex- Gold LTV : ↓
upto Rs.10,000, Beneficiaries of Govt's National Rural/Urban
LTV 60% -> 90%)
Livelihood Mission Schemes Selective Credit ↑ loan flow to ↓ loan flow to sectors
8% Agriculture (all farmers : small & big): 8% Ctrl/ PSL sectors generating where speculative
10% Agriculture : Marginal Farmers (< 1 ht land) + Small more employment investment is leading
Farmer (1-2 ht land) ex- textile – workers demand side inflation (ex-
7.5% Micro Enterprises, Khadi-Village industries buy more - ↑ real estate, housing) + ↑
demand / loan flow to sectors where
2.5 % Other categories - Small & Medium Enterprises,
consumption loans can ↑ supply ex-
Affordable housing loans to beneficiaries under PM Awas
onion farmers
Yojana + food processing companies, Vermi compost,
Deflation – ↑money supply – inject liquidity – make loans cheap -
biofertilizer, seed production, + Exporters, Student-Education
↑consumption
loans (upto Rs.10lakh), + Social Infrastructure (schools,drinking
Inflation – ↓money supply – withdraw liquidity – make loans expensive -
water, sanitation facilities, health care, COVID related
↓consumption
hospitals/labs etc); + Renewable Energy Projects (wind mills,
biomass generators, solar street light, micro-hydel plants etc.)
Bank loans to NBFCs lending to PSL categories – counted in PSL
quota + PSL Norms do not apply to NBFCs - apply ONLY to Bankers

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Monetary Policy in Present-Day INDIA - There are 3 strategies
/ ways of making a monetary policy: 1. Exchange rate stability:
Used by Singapore & other export-oriented economies – try to
keep their local currency at certain rate against US-dollar to boost
exports. 2. Multiple Indicators :Central Bank tries to focus on
Economic Growth, Employment, Inflation Control & Exchange rate
stabilization. Followed by RBI upto 2016 3. Flexible Inflation
Targeting/ Price Stability: Central Bank – aims to ctrl inflation –
other indicators (growth, employment, exchange rate)
automatically adjust. Recommended by RBI’s Urjit Patel
Committee Report (2013-14) → amended RBI Act Sec. 45 &
adopted in 2016
Monetary Policy Making under RBI Act since 2016 –
Monetary policy committee – 6 member body + Chair : RBI Gov
3 mem – RBI side (RBI Gov + Dy Gov of Monetary policy + 1 person
nominated by RBI Central Board) + are ex-officio members ->
tenure as per post + RBI Gov & Dy Gov selected by Financial Sector
Regulatory Appointment Search Committee (FSRASC) headed by
Cabinet Sec.
3 mem – Govt. side (Tenure 4 yrs, No reappointment + Selected by
Search-cum-selection committee headed by Cabinet Sec.
MPC – Min. Quorum 4 person (incl. Gov) + Legally req. to meet min
4x per year + Meet every 2 months – bi-monthly policy updates +
Repo rate=Policy rate= benchmark interest rate: decided by
Majority vote + Price stability by controlling inflation + Gov –
Casting vote in tie + Govt can send message only in writing + MPC
must publish minutes of meetings on 14th day & Monetary Policy
Report @ every 6 months
Inflation target – decided every 5 yrs by Union govt after
consultation with RBI Gov
Present Target – Keep CPI:All India 2-6% [4% +/- spread of 2%]
Target fail: if inflation not kept in 2-6% zone for 3 consecutive
quarters (=9 months) - MPC must report Govt reasons & remedies
(Ex- 2022- Nov = Inflation >6% for > 9 continuous months)
Stance: Calibrated Tightening / Neutral / Accommodative
After every MPC meet – it announces its stance wrt Repo in next
meet (√ - Possible)
Stance - Will ↑ Will ↓ Will Repo
Repo? Repo? unchanged?
Calibrated √ X √ bill yield/ any other benchmarks by Financial Benchmarks India Ltd
Tightening
Neutral √ √ √ every 3 months => Benefit both fresh & existing borrowers
Accommodative X √ √ Borrowers eligible? Personal loans (for sudden emergency
– provide guidance to investors/borrowers/bankers about future
action of RBI + Not legally bound to follow stance Ex- 2022-May-
June: Even though MPC said Accommodative Stance, still they kept
increasing Repo to fight inflation
RBI’s Monetary Policies: Before 2020-Corona :
2018 pattern – Inflation ↑ –> ↑ Repo (6-6.5%)
2019 pattern – Inflation < 2% –>↓ Repo (5%) – boost economy
2020 pattern – Covid – supply chain disruptions - Inflation ↑-
Expensive loans wont fix –>↓ Repo (4%) & CRR(3%) – boost
demand & consumption
Corona 2020 : ATMANIRBHAR → Reforms by RBI 2020-2021
↓ Repo (4%) & CRR(3%) + Opened new loan windows such as
TLTRO, On-Tap Window etc.+ Gold LTV 75% -> 90% + Loan/EMI/
NPA relief / Moratorium + Special Refinance Facility for AIFI + RBI
KV Kamath Committee report - restructure loans impacted by
Covid 19 pandemic + RBI defers BASEL Norms, IndAS accounting
Norms, orders bank to pause/halt Dividend Distribution + RBI
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reforms Ways & Means advances (WMA) and Consolidated Sinking
Fund (CSF) + RBI reforms attracting foreign investment: Voluntary
Retention Route (VRR) & Fully Accessible Route (FAR)
April-2022 Onwards : No changes in key rates or Stance. Repo
unchanged @4% => MSF@4.25 & RR@3.35%. Stance:
Accommodative + Introduced SDF + Earlier Policy Corridor = MSF
<—> REPO <—> Reverse Repo ; After 2022- April changed floor to
newly introduced SDF: Policy Corridor = MSF (Repo+0.25%) <—>
REPO <—> SDF (Repo-0.25%) + Slowly RBI increased Repo from 4%
to 6.5% (by 2023-Feb)& it is same till 2024 Feb
Monetary Policy: Governors other regulatory
announcements - MPC decides only Repo. Other decisions: CRR-
SLR cut, PSL norms, banning magnetic-chip cards etc decided
separately alone by RBI Governor + However, after MPC meeting,
he’ll make above type of announcements, in Press conference.
Banks’ Lending Rates % : RBI’s loan interest (Repo) – decided by
MPC + Banker’s loan interest – decided by formulas like Base rate,
MCLR, external benchmark.
1969 Govt began nationalization of private banks, & ‘administered
interest rates’-> 1991 M.Narsimham suggested deregulation (Not
govt but only RBI) -> 2003 RBI intro Benchmark Prime Lending Rate
(BPLR) system -> 2010 RBI intro “BASE Rate + formula = bank’s loan
interest rate” - update frequency on individual banks’ discretion –
Not help transmission of monetary policy -> 2016 RBI intro MCLR
“Marginal Cost of Funds based Lending Rate + Spread” system
(Issue – RBI ↓Repo by 1.35% but banks ↓loan interest by 0.4% ->
2019 – RBI intro external benchmark formula for Better/faster
transmission of Monetary Policy; transparency & accountability to
borrowers
Bank’s loan interest rate: External Benchmark (EB)
EB + Spread(Profit) + Risk premium = Bank’s Loan interest rate
Spread – Bank’s margins – Can’t change after lending
Risk Premium – Charge for risk (Bank can update later ex- if client
lost job etc.)
EB: Formula Components:
Banks – pick any 1 EB [RBI repo rate/ 91-day T-bill yield/ 182-day T-
-> Banks must feed latest EB data in above formula atleast once
expenditure) + Retails loans (home, vehicle, electronics etc) +
Loans to micro & small enterprises + Loans medium enterprises
(category added 2020) + applicable to previous loans in above
categories, if borrower fills application form.
Interest Rate Reset of EMI based Floating Interest Loans
2 type of Loan interest rates – Fixed (like 10% 5yr car loan) &
floating (like EB – keeps changing); 2020-2023 – repo ↑ed from 4%
to 6.5% -> EMI burden on EB based loans => RBI asked bankers to
give option to borrower after every change in floating interest loan
: 1. Ability to RESET (switch from Floating to fixed rate loans) & 2.
Foreclosure of Loan -> full repayment of remaining amount in 1
single payment instead of multiple EMIs.
Loan repayment based on repayment of principal & interest:
Bullet repayment (in 1 instalment @end of loan tenure) vs
Equated Monthly Instalments (EMI – monthly instalments)
2023 – RBI - If UBC completes PSL target - RBI allows to give upto
₹4L gold loan (bullet repayment) to customers. (Earlier 2 lakh)
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Limitations of Monetary Policy in India
Monetary policy updated every 2 months – still restricted efficacy
in controlling inflation & boosting growth due to following factors:
1) Western countries → consumerist lifestyle → less saving in
Banks -> banks borrow more from US Federal reserve/ European
Central Bank : INDIAN Banks - Repo not major source of funds, due
to higher savings & deposits.
2) Before External Benchmark System: Banks not pass RBI rate
cuts, citing NPA/Bad loans / profitability problem. RBI’s research ->
it took min 6-12 months for repo rate cut to benefit end-customers
& took ~ 24 months for repo changes to impact inflation.
3) Poor management in PSB, scams in pvt sector banks, large level
of NPA also ↓ impact of monetary policy.
4) Supply Side Issues: El-Nino/Poor monsoon hurting crop
production → food inflation; Wars & Geopolitical issues - global
crude oil & raw material prices, protectionism by China-US denting
our exports. (Difficult to target such inflationary factors)
5) Cheap loans can boost consumption, investment & growth but
fears (poor-monsoon/ oil-price), RBI usually apprehensive of
inflation & inclined to keep repo high. -> Criticism on RBI for not
facilitating cheap loans & economic growth - ‘Hawkish policy’.
6) Govt Side Issues: Fiscal deficit, Subsidy leakage, Populist Loan-
waivers etc.
7) Structural Issues in Economy: lack of Ease of Doing Biz,
electricity-road infra = production/supply affecting inflation trends.
8) Rural Informal moneylenders - circulate black money at high
interests. Poor penetration of banking sector, lack of financial
inclusion, cash-intensive rural economy etc.
Monetary policy limitations: Cheap loans causing inflation?
MPC Member -> can't continue cheap loans (4% repo) for so long,
else it'll cause asset price inflation. (e.g. rich buying bungalows
using cheap loans for 'investment' → demand for bungalows ↑ed
→ home prices ↑ed = inflation in asset prices. Similar problem in
Sharemarket + This could also result in Stagflation= high inflation,
high unemployment & low growth
USA Quantitative Easing (QE) & Fed Tapering : Impact on
India
QE = Cheap loans To boost Economy (by US Federal Bank) 2020;
Investors borrowed from US to invest in India -> 2022 – Fed
Tapering – To combat inflation in US (loans expensive – high
interest rates) -> Investors pullout money from Indian mkt to
return to US -> Impact on India = Imported inflation; Bearish Indian
Sharemarket; Price of Dollars
Monetary policy limitations: Black Swan Events - means
unprecedented unexpected extreme risk event e.g. 2007’s USA
sub-prime crisis, 2020’s Corona. + RBI report - next black swan
event FPI may pullout $100 billion from Indian mkt →it’ll create
problems similar to previous section.
Monetary policy observations by ES23
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Rate hikes since 2022: RBI vs Other Central banks
US Federal Reserve - 4.25% | European Central Bank (ECB) - 3% |
Bank of England - 2.50% | India’s RBI - 2.25%
Tight monetary policy - pursued in all major countries + RBI not
increased loan rates much compared to developed economies e.g.
USA, as RBI wants to do ‘soft landing’ & not ‘hard landing’
Monetary Policy: Soft landing vs Hard Landing
Inflation = RBI makes loans Expensive (↓Shopping ↓Production
↓GDP growth) – If done in gradual manner = Soft landing (GDP
growth falls gradually) + If done in extremely fast manner – Hard
Landing (Rapid fall in GDP growth)
Monetary policy limitations: Cantillon Effect When money
supply is ↑ed, purchasing power of people who 1st receive
freshly-created money is ↑ed @cost of rest of people
[Ex- If RBI ↑ed money supply by 1000 Rs. -> Distribution expected
is 333.33 (Rich); 333.33 (Middle class); 333.33 (Poor) BUT in reality
CANTILLON Effect – Uneven distribution of the created money &
majority of created money lands with the rich -> ↑ demand of
Goods/ Services used by rich (ex- bunglow) -> ↑ Price of bunglows
-> Becomes expensive for middle class & poor
Liquidity Trap occurs when interest rates are very low, yet
consumers prefer to hoard cash rather than spend/ invest money
in higher-yielding bonds/ other investments. In such cases, main
tool used by central bank has failed to be effective. [Investopedia]
[Mrunal] -> Suppose – RBI ↓Repo rate to combat recession – but
after some level banks won’t reflect repo cuts due to operational
expenses (Salaries, rent, marketing, etc.) + When Repo is too low
then banks get cheap loans from RBI -> they don’t need depositors
money (Banks keep low Deposit interests) -> Households –
withdraw money as not good interest & wait to invest in Gold,
Land, Property, Bonds etc. (Speculative demand of Money) => But
as Recession/ Economic Slowdown – Households loose job/ biz ->
they won’t take loans from banks as they can’t repay. So despite
RBi increasing money supply – Loan interest don’t decrease This
cycle is called Liquidity trap.
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Pillar#1B-1: Classification of Financial Intermediaries: Bank
& NBFC
Financial Intermediary (FI) = middleman b/w 2 parties in financial
transaction- b/w lenders vs. borrowers, investors vs.
entrepreneurs, households vs business firms. + 2 subdivision (1)
Formal (2) Informal (Moneylenders)
Financial Intermediaries → Banks
FINANCIAL INTERMEDIARIES
BANKS NON-BANKS
Commercial Banks AIFI NBFCs
-Public Sector -EXIM -Pri Dealers
-Pvt Sectior Coop -NABARD -Mutual fund
-Foreign Banks -NHB -Insurance Fund
Differential Bs : -SIDBI -Pension Fund
RRB ; Local Area B -NaBFID -Microfinance
SFB; Payment Bs -Mudra ltd.
Reserve Bank of India (RBI) - 1913 Anyone could open Bank
after registering in Companies Act => Commercial banks required
to register under Companies Act - Lax monitoring - No RBI NO CRR,
SLR, BASEL Norms -> No regulation. 1926 Royal Commission on
Indian Currency (Hilton Young Commission) recommends setting
up central bank to regulate banking sector. 1929 Great Depression
in USA -> Share market collapse + collapse of 450+ banks in India ->
British Indian Govt in 1934 enacted Reserve Bank of India Act -> Br
govt -> printed shares -> Rs. 100 (face Value) x 5 lakh shares = Rs. 5
Cr capital ->Investors bought shares -> Finance -> through RBI’s
Central Board -> estd. RBI (land, office, staff etc) 1935 RBI
operational from April - 1st Governor Osborne Smith. -> RBI starts
functioning [Viceroy: Willingdon]- Govt ownership ~4.4% only.
1935, July Commercial Banks fulfilling certain conditions were
listed in 2nd Schedule of RBI Act, & such “Scheduled Banks” must
keep CRR with RBI. 1943-49 C.D. Deshmukh 2nd FM of India
becomes 1st INDIAN Governor of RBI- also participated in Bretton
Woods Conference, USA (1944). 1948-49 RBI Before independence
(Ownership : British Indian Govt, 4.4%, Pvt investors 95.6%) RBI
transfer of ownership Act 1948: All private investors’ shares
transferred to GOI. 100% ownership => RBI governor answerable to
Parliament, RBI pay dividend to Govt from its profits. 1948-> RBI
nationalized -> 1949 Banking Regulation Act : Empowered RBI to
license companies to open banks & branches; auditing & liquidity
norms for Banks (SLR); Protect depositors. Force elimination /
merger of weak banks;
Companies -> shareholders -> provide money => Board of Director
-> elect head (Chairman/ CEO/ Governor) | For RBI -> 100%
shareholder = govt -> Makes RBI's Central Board
RBI Central Board Composition – 5 Official Directors – 1 Gov + 4
Dy. Gov 16 Non-Official Directors – 2 Govt officials + 10 directors
nominated by Govt + 4 from RBI’s local boards @W/E/N/W
RBI Governor & Dy Governor -> RBI Act (Sec. 8) = “NOT MORE
than 4” Dy. Gov + selected by Financial sector regulatory
appointment search committee (FSRASC) headed by Cabinet
Secretary (IAS) → names to Appointments Committee of Cabinet
head PM - final approval. + tenure usually 3 yrs + Can Re-appoint+
Informal convention Dy GOV : 2 from RBI’s officers cadre. + 2 from
outside (Economist )
RBI Offices & Departments : 4 regions N (DL) E (Kolkata) S
(Chenna) W (Mumbai) + depts. Like Banks, NBFCs, Payment
Systems, Foreign Exchange Management etc. [Different from
FinMin’s Enforcement Directorate -> looks after FEMA, 1999 &
PMLA, 2002]
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RBI: Functions
Controller of –Money Supply (Issues M0), Inflation (Monetary
Policy Committee) through RBI Act, Foreign Exchange [FEMA Act]
Banker to Union & State govts – Public Debt manager + Banker’s
Bank: (CRR); Lender of Last resort (Repo/ MSF/ Bank rate); Advises
in monetary matters (Advisor); (All banks have “Current A/C” With
RBI, E-Kuber CBS) + Regulator of All Banks [BR Act’49, Payment
Systems’07] + AIFI, NBDC-D & others + Promotional Roles :
Ombudsman (Customer Protection) ; Financial Inclusion (PSL
Norms – 25% bank branches in rural areas)
Data publication – Annual Financial Stability Report
Int’l Cooperation [BASEL, IMF, G20’s Financial Stability Board …]
2021 – RBI mem of NGFS – N/w for Greening the Financial sys – gp
of central banks to contribute to development of environment
*State Bank of Sikkim outside RBI regulation (Art371-F)
Agency Banks of RBI Union & State govt -> RBI as Banker to Govt
(Collects Tax, Salary, Pension, Small Savings) -> RBI does this
through Agency banks (pvt / public sector) -> Agency banks deal
with aspect of money collection/storage/transfer work from tax
payer’s bank a/c to govt’s a/c.
RBI’s notable portals
UDGAM Portal: Unclaimed Bank Deposits (2023) – unclaimed
deposits (10yrs) -> “Depositor Education and Awareness FUND”
(DEA) OF RBI.
PRAVAAH Portal for license from RBI (2023) – for Banks/
NBFC/ Digital payment related companies
Daksh Web Portal for supervision (2022) – Banks/NBFCs sends
reports to RBI for monitoring
E-Kuber Portal – RBI’s Core Banking Solution portal – All bankers
have C/A here + handling NEFT/RTGS, Repo, OMO & other
instruments + Retail investors can buy G-Sec
Scheduled Banks : Register a company -> Acquire Capital via
shares & bonds -> RBI license – Conditions 1. [ Paid Up Capital +
Reserves] = Min ₹5 Lakhs + 2. Bank biz manner not harmful to
depositor-> Listed in 2nd Schedule (RBI Act) = Scheduled Bank =
Access to RBI windows + Trusted by Govt/Pvt Co. for bank a/c or
employees’ salary deposit a/c + Partner in Delivery of Govt
Schemes (PMJDY- Financial inclusion scheme) + 2 types -
Scheduled Commercial Banks (SCB) e.g. SBI, Axis, ICICI + Schedule
Cooperative - Haryana Rajya Sahakari Bank, Tamil Nadu State Apex
Coop Bank [Airtel Payments Bank & Paytm Payment Bank
categorised as a scheduled bank in 2021-22.]
Scheduled Bank Non-Scheduled bank
Need to deposit CRR money Can maintain CRR with
to RBI’s office themselves in own vault
Eligible to borrow / deposit Depends on RBI’s discretion.
funds in RBI’s window
operations. LAF-Repo, MSF …
required to protect interests of depositors & abide to RBI norms
FI⇒ Commercial Banks⇒ Pre-Independence
British owned -> target audience (Judges, Civil Servants, Army
Personnel + Remittance @UK) | SWADESHI – Target - Merchants,
Indian civil servants, elites (NO FINANCIAL INCLUSION)
1707 : Bank of Hindustan, Calcutta -> Europeans owned
1806-42 : 3 Presidency Banks @Bengal then Bombay then Madras.
1861: all 3 were given right to issue currency. 1921: combined into
Imperial Bank of India later SBI (1955)
1865 : Allahabad Bank (Stakeholders - GROUP OF EUROPEANS)
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

1881 : Negotiable instruments Act (Rippon) – Bank Cheques 1894: Commercial Banks ⇒ Differential Banks
Punjab National Bank - Indian owned: Lajpat Lajpat Rai helped in Universal Banks Differential Banks
foundation by asking friends to invest et al -> 1908: Bank of Baroda 25% branch in unbanked rural Geographical Restrictions on
- Maharaja Sayajirao Gaekwad III -> 1913 onwards : Anyone could areas -> then anywhere branch opening for Local Area
open Bank in India after registering in Companies Act No CRR, No Bank (LAB), Regional Rural Banks
SLR, NO RBI, No BASEL-III capital Norms. – Stakeholders : State (RRB)
Accept any amount of – both time Payment Bank – Accept Max. 2
Bank by various princely states -> 1913-30s : State Bank of Mysore,
& demand deposits lakh deposit only.
State Bank of Patiala, rise and collapse of Banking industry, then
40% PSL -> Then Loan to anyone SFB, RRB: 75% to PSL
Birth of RBI (1935) -> 1940s : State bank of Bikaner, Jaipur, Payment Bank can’t loan;
Hyderabad, Travancore by the respective princely states / Nawabs. Chronology = RRB(1976) → LAB (1996) → SFB & Payments
Post-Independence: became ‘Associated Banks of SBI’, & bank(2015) → Wholesale banks (proposed)
ultimately, merged in SBI (2017)
Commercial Banks ⇒ Differential Banks⇒ RRB and LAB
Nationalization of Banks After Independence Regional Rural Bank Local Area Bank
1948: RBI Transfer of Ownership Act (Govt 100% owner) + 1951: M.Narasimham’s Committee on Based on Budget-1996 by Finance
1st FYP + 1955 Imperial Bank nationalized to SBI ; 1955-56 - LIC Financial Inclusion in 1970s Minister Manmohan Singh
Act took over private life insurance cos; + 1969 : 'Banking - Setup - RRB act - Setup - by pvt entities – apply w/
Companies (Acquisition and Transfer of Undertakings) Ordinance: - Subjected to CRR, SLR norms RBI under Banking Regulation Act
14 Pvt banks nationalized 1972-73 GIC Act- took over private Non- but RBI can prescribe separate - branches in Max. 3 districts sharing
Life (=General) insurance cos. Later GIC re-organized with 4 norms. + PSL: 75%. + loan borders with each other. only 1
interests < lending rates of urban centre per district allowed. (2
subsidiaries: National Insurance, New India Assurance, Oriental
Cooperative Banks in their area. rural)
Insurance and United India Insurance. + 1980: 6 more banks - Restricted to few districts. - Non-Sch. Banks - CRR, SLR, PSL etc
nationalized + 2019: J&K bank – 100% shareholding under union - Ultimate regulator: RBI but apply - norms decided by RBI. Only
govt immediate regulator NABARD. RBI regulates
Banking Reform Committees: M Narasimham-I (1991), M - Presently 43 such banks - Only 2 at present Coastal Local
Narasimham-I (1997), Dr. Raghuram Rajan Committee (2007) & P J Area Bank Ltd & Krishna Bhima
Nayak Committee (2014) [2021: Death of M Narasimham (RBI ex- Samruddhi LAB Ltd
Governor & chairman - Committees on Banking Sector Reforms -
“father of Indian banking system reforms”] RRB’s Shareholding pattern / IPO RRB Act 1976 - Union 50% +
State 15% + Sponsor Bank 35% + Amendment 2015 –
Consolidation of PSBs (Union+State+Sponsor)51% + Pvt investors49% -> Govt Guidelines -
→ A) Merger – transfer customers, staffs, deposits, close RRB can issue new shares - capital from pvt investors
duplicate branches/ATM/Servers + Amalgamating Banks -> Anchor
Bank Commercial Banks ⇒ Differential Banks ⇒ SFB & PB – Setup
by recomm of NACHIKET MOR Committee (2013-14) – for fin.
→ B) Privatization of PSBs – Sell > 51% to pvt parties & convert
Inclusion + competition & innovation
to Pvt sector Bank
Small Finance Banks Payment banks
Min.100cr. capital- Resident Min.100cr. capital- resident
Commercial Banks ⇒ Pvt. Sector Banks (PvB)
Indian, LAB , NBFC, Micro-finance, Indians, NBFCs, PPI-wallets,
Nationalization of banks -> politicization of PSBs -> govt w/ 10 yrs exp. in banking / finance mobile telephone companies,
administered loans (populism); interference; Employee Unions super-market chains, cooperatives
1991 -> BoP Crisis -> M Narasimham-I Committee on Banking & companies controlled by
reforms (↓Govt shareholding in PSBs; ↓CRR & SLR by RBI; Bank resident Indians
interest rates keep out of govt; liberalize branch expansion policy, RBI Committee gave selection Anywhere
allow New Pvt banks & New Foreign banks) -> 3 rounds of bank preference North East & Central
licensing 1993-95; 2001-04; 2013-16 India clusters with poor Universal
Banks’ penetration
‘On-Tap’ License to open Private Sector Banks (2016) – for CRR, SLR, Repo, FDI : Same as Same as Indian Private Banks, but
Indian private banks special terms & condition in SLR.
license from RBI under Banking Reg Act 1949 – eligibility >10yr XP
Must have 25% branches in 25% access points must be in rural
in banking finance, >500 Cr capital unbanked rural areas areas like Kiraana Stores
Target : Unserved Underserved Promoting Small savings
Commercial Banks ⇒ Foreign Banks allowed after 1991 refoms Farmers
– liberalized system Consumers : Micro, Small Remittance of migrant labors, low
Foreign Bank in India : Incorporated abroad (i.e. registered industries income households, unorganized
under Companies Act of foreign nation) -> open branch / subsidiary sector, small business
in India e.g. Citibank, Bank of America, HSBC + CRR, SLR & norms Can accept deposits, w/o No NRI deposits, No Fixed deposit
applicable (PSL norms vary depending on # of branches) + ‘on-tap’ restrictions + only Demand Deposits & Max.
Rs.2 lakh/ customer.
license on reciprocal basis by RBI
Can give both Debit & Credit Can give Debit Cards but No
Indian Public Sector Bank - Foreigners can invest max. 20% in its Cards Credit Cards (as can’t loan)
shareholding. Loans – 75% PSL + 50% of loan Can’t loan, no PSL + required to
India Private Sector Bank - Foreigners can invest upto 49% portfolio of Rs. 25 lakhs/< loans. invest all deposits in G-sec, T-Bill
(automatic) & upto 74% by approval of Govt (HDFC, ICICI, Axis) & in other SCBs.
After 5 yrs if RBI Satisfied can After 5 yrs, If RBI satisifed can
become Universal Commercial become SFB
Bank

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

For both: BASEL-III – applicable + after approvals of regulators (SEBI, IRDAI, FI ⇒ Banks ⇒ Cooperative Banks
PFRDA) can sell Mutual Fund (MF), Pension, Insurance policies Commercial Cooperative Banks
*India Post Payments Bank (IPPB) cannot loan as it is a payment bank but
Banking Applicable since 1949 Applicable since 1966
signed a deal with HDFC Bank to give home loans as an ‘Agent’.
Reg. Act
+ ON TAP Licenses available for starting SFB
Regulator RBI RBI supervision – Multistate
2024 : RBI stopped Paytm from accepting deposits, adding money in PayTM
& Urban Coop. Bks + Other
wallet, Fastag (issues KYC, PAN, Laundering, Servers, User data)
type of Coop Bks = Dual
Supervision (RBI + state
Commercial Banks → India Post Payment Bank (IPPB) govt’s registrar for coop.
- Registered as Public Ltd. Co. under Companies Act, 100% owned society)
by Dept of Posts (Mo Comm & Info Tech) → RBI’s License for CRR, SLR, Yes RBI can keep diff norms
Payment Bank. (Airtel 1st in 2017) + IPPB in 2018 + Largest BASEL-III
customer reach -> 1.55 lakh Post offices + Doorstep banking Repo, MSF Eligible to borrow Only selected Coop. Bks
through Postmen (fees) + 3 A/C types: Safal, Sugam, Saral + NO min PSL Lending 40-75% Only Urban Coop Bks
balance + Minor customer (10+ yrs) can open A/c Who can Anyone 1st preference = members
borrow?
(Yearbook) Dept of Post: POSB vs IPPB Voting Shareholding based Based on Coop. Society
Mo Comm. = 2 dept: 1) Dept (Telecomm) 2) Dept (Posts) norms. 1 mem = 1 vote
Motive Purely profit motive; To help community; lower
Dept (Posts) → Clive (1766) Setup, Warren Hastings (1774)
higher lending rates rates
Expanded + Dalhousie (1854) Post Office Act; 1st postal stamp, than Coop.
rates by weight & not by distance. + Project Arrow (2008) for Presence All India & overseas Mainly GJ, MH, AP, TN
modernization + 2013: Telegram stopped by India Post (SMS, branches
email) + Dept (Post) sells - Gangajal from Rishikesh/ Gangotri & Challenges: Politicization, casteism, poor recovery of loans, scams, money
UTI-Mutual funds & Sovereign Gold bonds + To submit RTI fees can laundering
buy Indian Postal Orders Urban Coop. Bks (UCB) Rural Coop. Bks
Post Office Savings Bank (PoSB) India Post Payments Bank (IPPB) Further subcategories 1) Notable State Coop. Bks → District
Govt Savings Bank Act 1873 Companies act 2013 → Public ltd depending on Scheduled Central Cooperative Bank (DCCB) →
co. registered 2016 / Non-Scheduled; OR Primary Agricultural Credit Societies (PACS)
Savings account only Both Current & Savings A/C Single State / Multi State. 2) Misc: Land Banks, Cooperative Agri &
Time deposits accepted No (Payment B) From 2018, RBI allowed Rural Development Banks. (longer duration
Any balance + Connected to CBS Balance <2lakh (Can link PoSB & to voluntarily upgrade to loans compared to above banks)
sweep excess balance there) SFB, with certain *PACS - not ‘banks’ - Can’t issue
E-Banking & online bill payment yes , UPI, BHIM, NEFT, IMPS and conditions. chequebooks – Regulated by State
by linking w/ IPPB (X available BBPS (Bharat Bill pay) available. registrar & NOT by RBI.
directly)
Can open Sukanya Smriddhi NO TIME DEPOSITS
(daughter’s fixed deposit account)
Money goes to NSSF Cannot loan until it becomes SFB
Promote savings among poor Remittance & digital payments

Digital Payments- (Proposed) Full Stack Digital Banks by NITI

Aayog (2021) – no physical branches + banking service delivery
through internet = For Financial Inclusion in Rural areas

Digital Banking Units (DBUs) in Budget 2022 - announced to

setup 75 DBUs = office of Commercial banks - every service
provided digitally / paper-less manner, w/ help of digital kiosks e.g.
opening bank A/C, getting credit cards etc.

Digital Payments- NeoBanks / full-stack digital banks Neo-

banks/full-stack digital banks= completely online-based digital
banking platforms. NO physical branches. + proposed by NITI
Aayog to ↑ banking penetration + RBI believes existing banks
capable to deliver banking services both online & thru physical
branches. (RBI reluctant to allow)

Digital banking unit Neobank

Yes, Physical branch – But No Physical Branch –
everything done via automatic Everything online. RBI yet to
machines + Ex – Axis Bank DBU permit.

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Banking Regulation (Amendment) Act, 2020 - protect Non-Bank ⇒ All India Financial Institutions (AIFI) – setup by
depositors, prevent coop. bnks from fraudulent activities. respective acts of Parliament
Regulator (s) EXIM (1982) NABARD(1982) NHB(1988) SIDBI (1990)
Before After Export-Import National Bank National Small Industries
Bank of India for Agriculture Housing Development Bank
Commercial RBI RBI
and Rural Bank of India
(SBI Axis) Development
Coop (Single RBI + State govt RBI + State govt Boss: Govt of Previously RBI Original: Original: 100% IDBI.
State: rural) (Dual Regulation) India (100%) minority-stakes RBI (100%) Now Shareholding
Coop (Single RBI + State govt RBI but 2018: 2019:100% transferred → SBI,
State: urban) (Dual Regulation) 100% Govt Govt LIC etc
Coop (Multi RBI + Union govt RBI owned.
Promotes Regulatory Finance to Operates Credit
State) (Dual Regulation)
cross border supervision: banks and Guarantee fund,
Coop: PACS State govt State govt trade & Coop + RRB ; NBFCs for Small Enterprises
State govt = State Govt’s Registrar for Coop Societies investment, Indirect housing Development Fund
Union= Ministry of Cooperation - Registrar Multi-State Coop helps refinance to projects. + (SEDF) + Operates
Societies. (previously, part of Agri-ministry) importers- farmers, RESIDEX udyamimitra.in for
Related topics: DICGC, UCB’s Supervisory Action Framework (SAF), exports with artisans + index to loans to small
UCB 4 tier regulation + Jan Dhan Yojana, Lead Bank Scheme loans & Operates Rural monitor entrepreneurs via
foreign Infra residential schemes like Mudra,
currency. Development real estate Stand-up-India.
NUCFDC: UMBRELLA ORG / SRO FOR UCB (March 2024) -
fund (RIDF) prices.
National Urban Cooperative Finance and Development
AIFIs are not ‘banks’ - can’t accept direct deposits from public +
Corporation Limited - Launched by Ministry of Corporation - Type:
RBI is regulator over AIFI + BASEL norms applicable but RBI can
NBFC, regulated by RBI.
prescribe diff slabs norms / deadlines.
FUNDING - from National Cooperative Development Corporation
(NCDC, statutory body under Ministry of Cooperation) + NUCFDC NABFID, the 5th AIFI (2022-Mar) National Bank for Financing
aims to collect ₹300 cr capital (from investors) -> use this money
Infrastructure & Development - setup by Parl Act - initial capital
for developing → IT-Tech for UCB.
₹20,000 Cr + will get funding from RBI, Govt, Financial institutions,
FUNCTIONS - Develop tech for UCBs + ↓ cost of tech development
World Bank etc. + will also issue bonds in mkt etc. + will give loans
by individual UCB + Self-Regulatory Organization (SRO) for UCB +
worth ₹5 L Cr in 3 yrs + will help in National Infrastructure Pipeline
Umbrella organization for UCB. + Facilitate dialogue b/w UCB-
(NIP) project. + Chairman: K.V. Kamath + HQ: Mumbai (Presently
banks & regulators + Give Advisory/consultancy services to UCB for
working from SIDBI office) + Regulator? RBI + 2022: RBI ordered
business operations, fund management, etc.
that NaBFID will be treated AIFI
Formal FI ⇒ Non-Banking Financial Institutions FI ⇒ Non-Bank ⇒ Primary Dealers (PD) deal in "primary" mkt
Development Finance Institutions (DFI) - meant for Medium to (directly buy fresh G-sec from RBI’s E-Kuber & sell them in
long term loans to industries, incl. support services like arranging secondary mkt) + Total 20+ PD licensed by RBI: 14 are Banks. E.g.
foreign currency, underwriting, technical / management HSBC, SBI, Kotak etc.
consultancy, Bank guarantee etc. + don't accept DEPOSITs from
ordinary people + Previously FIs classified into 3 categories Bank |
Non-Bank | DFI -> 1998 M.Narasimham-II Committee on Banking
sector reforms - recommended only 2 categories: Bank |Non-
bank. DFI join either category.

Chronology -
1948 – IFCI - Industrial Finance Corporation of India owned by
Finance Ministry's Dept of Financial Services.
1955 – NSIC - National Small Industries Corporation under Ministry
of MSME FI ⇒ Non-Banking Financial Companies (NBFCs)
1955 – ICICI - Industrial credit & Investment Corporation of India Commercial Banks NBFC
Ltd setup by GoI, World Bank etc. Later turned Pvt Sector Bank. Reg.? Banking regulation Act Companies Act
1964 – IDBI - Industrial Development Bank Of India Act. 2004: Supervision? RBI Depends ; SEBI – Mutual Funds ;
Transformed into Public Sector Bank. 2018: Govt sold majority IRDAI – Insurance …
Entry capital? 500 Cr Diff norms as per org
shareholding to LIC.
Number? 13 Public Sector (incl. Total >10k – 108 deposit taking,
2006 – IIFCL - India Infrastructure Finance Company Ltd owned by
Post payment bank) remaining ND (Non-deposit
Finance Ministry's Dept of Financial Services. 56 RRB, 39 pvt. Sector (incl. SFB, taking)
2021 – NaBFID National Bank for Financing Infrastructure and PB), 44 Foreign Banks
Development Bill, 2021 Accept deposits? Can accept Time Only NBFC-Deposit-Taking (NBFC-
& Demand deposits [also known D) & can only accept Time
as chequable deposit] + Payment Deposits. E.g. Bajaj Finance +
banks- can’t accept time deposits Deposits not insured under
(ex- FD) + deposits insured under DICGC Act.
DICGC Act.
Chequebook/ Debit Card? Yes, Can’t issue
Banker can issue

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Credit Card? Yes Yes.
Prudential Norms? CRR, SLR, SLR ONLY on NBFC-D. but RBI can
applicable prescribe diff slabs than banks +
CRR not applicable on any type of
NBFC.
BASEL Norms? Applicable -Applicable on 108 NBFC-D & on
276 NBFCs – ND – SI (non-deposit
taking Systematically Imp w/
assets > ₹ 500 Cr) e.g. L&T
Finance, Cholamandalam etc. +
RBI can prescribe diff norms
/deadlines.
Investment? can keep depositor’s Can invest clients’ money in
money in RBI approved securities. share market. E.g. Mutual Funds,
But can’t invest in share market, Insurance Companies
directly.
Loan interest rates - Decided as Varies & depends on nature of
per RBI’s methodology from time biz
to time (BPLR, MCLR, External
Benchmark…)
Recovery - Loan recovery powers Housing Finance Companies have
under SARFAESI Act. SARFAESI powers. But, all types
of NBFCs don’t have it.
Consumer Complaints - RBI’s RBI’s separate Ombudsman for
Ombudsman, Bank’s Internal NBFCs starting the NBFC-D since
Ombudsman 2018.
NBFCs CAN DIRECTLY ISSUE CREDIT CARD (2022 reforms) -
NBFC can directly issue credit card in its own capacity + can tie up
w/ card-payment gateway (MasterCard, Rupay, Visa) + Before 2022
NBFC can issue only co-branded credit cards after tying up with a
banker. (e.g. Bajaj Finserve Credit with help of RBL Bank)
MUDRA (2015) –NBFC-ND owned by SIDBI - indirect loans to
Micro enterprises through PM Mudra Yojana [Fin. Inclusion]
Money Changers/ Authorised dealers (AD) for foreign currency
– help clients buy/sell foreign currencies + Need License from
RBI under FEMA (Both Banks & NBFC can get this license from
RBI)
Residuary Any NBFC not regulated by other regulator (SEBI…)
FinTech Companies - provide innovative solutions for
money/financial transaction/loan/sharemarket -using digital tech
Fintech regulated by RBI
P2P Lenders - connect borrowers & lenders (individual persons ;
w/o financial intermediaries like Banks etc.). E.g. Faircent.com,
Cashkumar.com, CRED Mint etc.
Account Aggregators (AA) manage customer’s financial assets’
info & display to client/3rd party + 2018: RBI license 5 cos- NeSL,
Cookiejar etc.
Loan Aggregators Connect customer with bank/NBFC for loans
ex- Loanadda, Moneytap, Loanbazaar, Paisabazaar etc.portals -.
Challenges? act as outsourced agents of banks/NBFCs to sell
loans. -> customers difficulty in grievance redressal
Payment Aggregators - help sellers accept payment from
buyer through technological solutions E.g. Razerpay.
Mobile Wallet App PhonePe, MobiKwik, Paytm apps/services.
Fintech regulated by NON-RBI org (e.g SEBI, IRDAI)
SEBI - Discount brokers - e.g.Zerodha, Upstox, 5paisa, Groww. -
help clients buy/sell shares/bonds etc via apps/ web portals.
IRDAI - Insurance Web Aggregator - e.g Policybazaar.com -
Help find & compare insurance policies of various companies

NBFCs Regulated by RBI Digital Lenders – 3 categories as per RBI

Investment and Credit Company - mainly help buying 1. Giving loans online & regulated by RBI – Ex- Banks, P2P lenders
‘assets/machinery’ like tractor, bulldozer, etc E.g. SREI 2. Giving loans online regulated by other regulators (NOT RBI) e.g.
Equipment Finance Ltd. SEBI - Venture Capital Funds (VCF)
Consumer Durable Loan Finance - Help buying TV, Fridge, 3. Giving loans online but not regulated by anyone = their App will
Mobile, AC etc. w/ Buy now Pay later / EMI model. Eg. Bajaj be shut down. Legal action will be taken. Ex- unauthorized digital
Finserv, Flexpay, Zestpay etc. lenders
Core Investment Company (CIC) - do long term investment in
Co. E.g. Tata / Birla / Reliance Capital, [IL& FS 2018 controversy Credit Information Credit Rating Agencies (CRA)
– couldn’t repay interest to lenders] Companies (CIC)
Infrastructure Finance Company (IFC)/ Infrastructure Debt RBI regulates SEBI
Fund (IDF) – loan for infra projects – railway, highway (Rural Check credit Of companies, NBFCs, govts, local
Electrification Company ltd. (REC), L&T IDF, Kotak IDF, IDFC IDF worthiness/loan bodies, non-profit orgs.
(“IDFC First” has separate license for Bank). repayment capacity of [Not for individual persons]
Asset Reconstruction Companies (ARC) – buy bad loans/NPA Individual persons
from banks/NBFCs -> to salvage value from underlying assets. Rating – Numerical alphabetical symbols
E.g Anil Ambani’s Reliance ARC. Scores ex- CIBIL score e.g. AAA, AA-, D-
Factoring Companies - lend short term to client against invoices 300-900
/ accounts receivable. E.g. IFCI Factors, Siemens Factoring. Ex- CIBIL TransUnion, Ex- Standards and Poor's,
Gold Loan Companies - e.g. Muthoot gold loan, Mannapuram CRIF High Mark, Equifax Moody’s, CRISIL, CARE, ICRA,
Gold. RBI decides their LTV ratio. and Experian. FITCH Ratings India Pvt. Ltd,
Home Loan Companies – DHFL, Muthoot Housing finance etc. SMERA. [Brickwork Ratings India =
Housing Finance Companies – RBI regulates from 2019 earlier SEBI shut it down – malpractices]
NHB Better score → Faster clearance of Loan application + may
Micro Finance Institutions (MFI) – Category created by RBI’s YH lower interest rate.
Malegam Committee -> Bandhan (WB, separately PvB license),
Disha (A'bad: separately SFB license), SKS (AP), Cashpor (UP), NBFCs Regulated by SEBI
Ujjivan (KN). -> financial services to the poor such as micro-
savings, micro-credit, micro-insurance. + Give small loans to Stock Broker - help clients invest in sharemarket i.e buy-sell
poor w/o collateral + Regulator: RBI + Ministry of Corporate shares and bonds (=debentures) depending on his instructions
Affairs + To borrow - Household annual income < ₹ 1.25L (rural) E.g. Motilal Oswal, Indiabulls, Sherkhan, Karvy etc. 2023 –Karvy
/ 2L (urban) + 1 person can borrow < ₹ 1.25L scams – banned for 7 yrs by SEBI

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Discount Broker – [Zerodha, Upstox, 5paisa, Groww] help clients NBFC-not allowed in India: Islamic Banking
buy/sell shares/bonds etc online through apps + operational Interest (Riba) - prohibited (Haram) in Islam. Islamic Banking
costs lower (less sales-agents/physical offices) - less commission operates through Ijara, Murbaha, Musharaka mechanisms-
charges vs traditional Stock brokers - Motilal Oswal, Sherkhan. depositors’ money invested in borrower’s property / business &
Mutual Funds (MF) pool clients’ money & MF-manager invests it returns shared as rent / profit but not as Interest. + Some
in assets [shares/bonds/ G-sec] using own discretion & expertise committees permitted in India, but RBI opposed (2017) + 2017: KL
[SBI's Shariah Equity MF: don’t deal with alcohol, pork, debt, Govt allowed opening - register as coop. society – to avoid RBI ban
tobacco or weapons]
REITs / InvITs Pool & invest money in real estate / infra projects
Informal Financial Intermediaries loans w/o formal application
procedure, etc but require property/ Vehicle/ Home/ Goods/
e.g. IRB
Crop/ Gold etc. as collaterals + very high compound interest + use
Investment Banks: (US term) & Merchant Banking Companies:
muscle power for recovery + For every Rs.100 borrowed by rural
(UK term) Underwriting (help companies issue shares/IPOs),
household, 33% from informal money lenders, remaining from
Merger & Acquisition, Wealth Management of rich + E.g. Kotak
banks, friends-family etc. (2012 data) + Not under RBI + State
Mahindra, Citigroup, Bank of America, DSP Merrill Lynch,
Morgan Stanley, SBI capital + 2021: SEBI allowed Payment banks govt’s laws regulate them Ex- Bombay Moneylenders Act 1947,
Kerala (1958), Gujarat (2011) -> These laws require such them to
to act as investment bankers (after fulfilling rules/regulations of
register, impose ceiling on interest & prohibit strong-arm tactics.
SEBI).
Indigenous Banker – Known as Shroff, Shikarpuri, Chettiar,
Venture Capital Fund VCF Help startup companies arrange
Marwari, Aiyar, Rastogi in Medieval times + mobilize money from
capital via equity finance (funding) e.g. IFCI, IDG.
Public via: 1) Hundi: bill of exchange; 2) Commercial bills
Market Infrastructure Institutions (MII) – 3 subtypes
Moneylender / Brokers – Medieval times (Kabuli Pathan,
1) Stock exchanges (BSE/NSE etc) - help buyer/seller connect in
Quistwala, Arhatia, Village Bania, Soni, Mahajan & Seth,
secondary mkt 2) Depositories (NSDL/CDSL etc): help clients
Pawnbrokers, Financial Brokers) – Money mobilization through
store shares, bonds etc DIGITALLY in demat A/C 3) 3) Clearing
houses/Central Counter-Parties (e.g. CCIL): help settling trade own savings money
by transferring money to seller & transferring shares to buyer.

NBFCs Regulated by Others

IRDAI Insurance Regulatory and Development Authority
regulates: 1) Life Insurance companies e.g. LIC, HDFC Standard
Life Insurance 2) Non-Life (=General) insurance companies e.g.
IFFCO-Tokyo General Insurance. 3) Policy aggregator web-
platforms like Policybazaar.com
[Premium → invest→ Protect against uncertainties.]

PFRDA Pension Fund Regulatory and Development Authority

regulates all Pension Funds, except EPFO & statutory funds.

Ministry of Corporate Affairs 1. NIDHI Companies: Mutual

benefit club, only members can borrow. e.g. South Madras
Benefit Fund ltd, Maben Nidhi Ltd (of Mannapuram group)
2. Microfinance Companies: Give small loans to poor w/o
collateral, flexible EMI. + RBI regulates lending & interest
activities + MCA has some Administrative powers.

State Registrar of Chit Funds Chit fund - type of collective

investment scheme with monthly contributions & borrowing by
contributing members e.g. Shriram Chit funds

NBFC: Shadow Banking

📔ES20: Shadow banking = set of activities & institutions - operate
partially (or fully) outside traditional commercial banking sector +
NOT fully regulated by RBI + They mobilize funds by borrowing
from banks, issuing Commercial Papers (CP) & Bonds (=Non-
convertible debentures)
HFCs Housing Finance Companies. E.g. Dewan Housing Finance
Limited (DHFL)
LDMFs Liquid Debt Mutual Funds - invest clients money into short
term debt instruments [T-bill (of Govt) & Commercial Papers (of
companies) e.g. certain schemes by UTI, Kotak, L&T, Tata MFs
Retail-NBFCs – like Gold Loan Companies, Asset Finance
Companies etc.
Shadow banking system’s assets are risky - ILFS crisis (2019) –
when can’t honour obligations/ bond repayment.

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Pillar#1B-2: Bad loans & other Burning issues in Banking
sector
Bad Loans & Other Burning Issues in Banking
Loan types
: Depending on Guarantee / Collateral Secured – collateral –
pledge asset as security – low risk – low interest rate – longer
repayment tenure (15-20 yrs) + Unsecured – X pledge – High
interest (Exception – Edu, MSME, Farmer loans – govt gives credit
guarantee so unsecured yet cheap) – short tenure
: Based on Interest Rate - Fixed (same through tenure) vs
Floating (In case of External Benchmark loans) – Subtype - Teaser
loan – initial yrs low interest, afterwards high (X banned but strict
regulations by RBI from 2011
: Based on Borrowers Prime Borrowers (capacity to repay) |
Subprime Borrower Individual – X capacity to repay – 2007-08
Subprime crisis in US coz of teaser home loans which led to Global
Financial Crisis | Overleveraged Borrower Company – borrowed
more than ability to repay – High ratio of Debt (Bonds/loans) to
Equity (Shares) | Zombie lending – Weak banks – new loans to
subprime/overleveraged borrower
NPA / TBS Problem: 3 Stages
Till mid-2000s – Global Eco boom – Indian corporates
overleveraged (many loans) -> 2007-08 Subprime & Global
Financial Crisis – Exports ↓ & govt’s policy paralysis & Judicial
activism, envi activism –difficult finish projects (delayed) & repay
loans -> 2013 – 1/3rd loans owned by IC1 companies (interest
coverage ratio <1) – not enough revenue to repay loan interest
(IC>1 good) => TWIN BALANCE SHEET SYNDROME – weak balance
sheet of both large corporates & PSBs
Non-Performing Assets – Loan principal / interest unpaid >90d
(For farm loans - # of cropping seasons)
NPA related definitions in Banking Sector
Std. Assets – Timely repaying by borrower (Principal & interest)
Special Mention Accounts (SMA) – unpaid for ___ ds
SMA-0 (1-30d) | SMA-1 (31-60d) | SMA-2 (61-90d)
Provisioning of funds – RBI norms – funds set aside to recover
losses against NPA (↓ Profitability)
Gross NPA = Total of all NPA loans |Net NPA = GNPA – provisioning
Substandard Asset – NPA for > 12m | Doubtful Asset – Sub-
standard for > 12m | Loss Asset – Little to No salvageable value
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For BANKS : Equity Shares + Bonds (Debt) + Deposits + Profit/Loss
= [Assets + CRR + SLR + Good loans + NPA]
Loan Write-off - Banker remove loan amount from asset side of
bank balance sheet to save corporation tax - ↓ NPA % of Bank
[2022-Dec : 11.17 L Cr written off loans by Banks in 6 yrs]
Restructured Loan – Modified principal/ interest/ tenure
Stressed Assets = NPA + Loans Written-Off + Restructured Loans
OTS with Haircut – if bank allows borrower to pay 60% dues 7
forgoes 40% as loss – bank offered One Time Settlement w/ 405
Haircut
Evergreening of Loans – taking new loan to repay old loan
Key ratios of PSBs - Improved 2013-14 2022-23
Net Interest Margin (NIM) 2.45 2.72
Return on Assets (RoA) 0.5 0.79
Return on Equity (RoE) 8.48 12.35
Equity = shares | Return = Profit (Pillar 1C)
Resolution Framework 1.0 and 2.0 (2020-21) – recomm of KV
Kamnath Committee – RBI guidelines for Bank/NBFCs for dealing
w/ bad loans post covid -> 1.0 for large companies & 2.0 for
individuals & small companies [1) extra loans to genuine cases 2)
Extending loan tenure 3) reducing loan interest etc..]
SARFAESI Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act 2002:
Origin, Objective & Limitations
1991: Narsimham-I Committee - banking sector reforms -
borrowers obtain stay orders from courts = banks difficulty
recovering NPA -> 1993 Setup Debt Recovery Tribunals = ordinary
courts can’t interfere in loan recovery process -> 1998: Narsimhan-
II Committee - DRTs need to strengthened with law -> 2002
SARFAESI Act enacted -> if loan not repaid - lenders can [attach
mortgaged assets + change BOD + auction assets + sell assets to
Asset Reconstruction Companies (ARC, NBFC) [2021: RBI’s
Sudarshan Sen Committee - ARC reforms ] + SARFAESI not
applicable on farm loans. + For stay order Loan Defaulter – DRT ->
higher appeal Debt Recovery Appellate Tribunal (DRAT) - DRAT will
require to deposit min 50% of loan dues (discourage fake appeals)
-> higher appeal - High court.
Which lenders have SARFAESI powers?
All Banks (commercial & coop) + Housing Finance Cos. + NBFC (w/
asset size >100 Cr & loaned >20L)
Legal Rights of Loan Defaulter in SARFAESI Act (RT- Right to)
RT ample = After a/c becomes NPA → Lenders give 60d notice
RT be heard = can make a representation/appeal to the
lender/bank manager during the notice period.
RT ensure fair value – lender can’t auction < fair mkt val
RT balance proceeds – If auction amount > due amount (return
remaining)
RT humane treatment - Recovery Agents X harass - can only
contact b/w 7am - 7pm.
Limitations of SARFAESI Act
DRTs & DRATs – understaffed | 1L+ pending cases | Long cases -
borrower retain assets | Erosion of asset value | No restructuring |
No Arbitration in SARFAESI -> New law IBC
Insolvency and Bankruptcy (I&B) Code 2016 : 2 creditor type
Financial Creditors (FCs)- banks, NBFC, bond & other debt security
holders, Home buyers + can sit in committee of creditors (CoC) for
IBC proceedings | Operational creditors - Suppliers, contractors,
salaried employees etc. + Can’t sit | Both - can complaint under IBC
code for recovery of due amount
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

IBC Code: Appeal Structure
Individual/ Partnership firm -> Reg under Shops and
Establishments Act, Indian Partnership Act, 1932 etc. -> 1st level
courts (Adjudicating authority) – DRT dealing w/ SARFAESI
Company – reg. under Companies Act 2013 -> 1st lvl NCLT (National
Company Law Tribunal)
For both = Appellate Authority – NCLAT National Company Law
Appellate Tribunal -> Next Appeal – SC
IBC: Process for resolution
Guarantor - friend, relative, business associate - takes legal
responsibility for borrower’s debt - ‘to repay loan, If applicant not
repay’ + Not req for every bank loan
Consequences - Guarantor as liable as loan defaulter + Bank can
take action against Guarantor for loan-recovery + Bank may
confiscate/attach bank A/C of Guarantor, property etc. depends on
case + if Guarantor fails to repay -> downgrade credit score/credit-
rating
IBC Pre-Packs

Insolvency Professional (IP) - makes resolution plan -> present plan Pre-Pack System found in UK & US + IBC 2021 Amendment to
to Committee of Creditors (CoC) of FCs [voting pow wrt amt lent] - enable in India for MSMEs.
If x% FCs agree with plan -> Plan set in motion o/w IP liquidates Corporate Insolvency Pre-packaged Insolvency
assets to recover loan. Resolution Process (CIRP) Resolution Process (PIRP)
Statutory bodies related to IBC IBC's Formal process: lenders Pre-packaging = Borrower
NCLT & NCLAT – both under Companies Act, 2013 (HQ Delhi) complaint NCLT → Insolvency informally negotiates
IBBI (Insolvency & Bankruptcy Board of India) – by IBC 2016 (DL) professional appointed → resolution plan with lenders
Insolvent vs Wilful Defaulter Loan restructuring proposal → before approaching IBC/NCLT
Insolvent / incapable defaulter : person/ company incapable to If NOT approved by lenders → process. e.g. Anil proposes,
pay off loans - shortage of money. – Loan restructuring eligible (But Auctioning “unable to repay loan but
if NPA > 1 yr + X capacity to repay even partial amount -> No getting new partner/investor
resolution -> Assets auctioned under SARFAESI) – Not allowed to to revive biz & repay 80%
contest election/ govt job/ become a judge. loan.” – If agreed – NCLT
Wilful Defaulter – has capacity to repay but not repaying – No informed – internally agreed
restructuring (Assets auctioned under SARFAESI) – Constitution for plan - give judicial approval
silent wrt Contest election/ govt job/ judge [Bankers’ association Time limit: < 330 days 120 days = faster than CIRP
requested ECI to disallow wilful defaulter to contest election.] More days = more -ve news in quick & confidential way of
Declare wilful defaulters within 6 months of NPA- says RBI media = ↓confidence of completing insolvency
customers & investors resolution process + Prevents
Proposal to Banks – 2012 Vijay Mallya stopped repaying loans –
bad publicity to brand image
SBI declared Wilful defaulter in 2017
associated with formal IBC
Wilful Defaulters can do compromise settlement – RBI proceedings + least disruptive
(2023) to biz + Cost-effective
applicable to all enterprises. Only to MSMEs as per 2021’s
IBC Amendment

ATMANIRBHAR → IBC Ordinance/Act 2020 to suspend new

cases - Case can start if loan default of min 1Cr (earlier was 1L)

Insolvency and Bankruptcy Board of India (IBBI) – statutory –

monitors & implements IBC
2016 – under MCA – 10
members (1Ch, 1 nominated
from RBI, 8 from Govt) + Ch :
5yrs/65age (reappointment) +
IBBI Selects Insolvency
Professionals Agencies (IPAs) -
IPAs enroll & supervise
members as Insolvency Professionals (IPs) + Presently, 3 org given
“IPA” status 1) ICAI (Chartered Accounts) 2) ICSI (Company
Secretaries) 3) Institute of Cost Accountants.

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
IBBI selects Information Utility (IU) - org to maintain database
of borrowers | 2017 - 1st IU status : NeSL: National E-Governance
Services Ltd (owned by SBI, LIC etc.) | compulsory for lenders to
share data with IU. | helps lenders - borrowers’ credit history +
proofs during NCLT / DRT / judicial / liquidation proceedings.
Insolvency → Misc. Org: Indian Institute of Corporate Affairs
IICA autonomous body under MCA – New 2 yr Graduate Insolvency
Programme (GIP) - student passing can register as IP, w/o 10 yr exp
Cross-border Insolvency
foreign creditors - recover from Indian corporates & VICE VERSA +
Indian insolvency in India, lenders - recover from foreign assets &
VICE VERSA + provisions in IBC sections 234 & 235 BUT not
enforced -> uncertainty
2018: MCA’s Insolvency Law (reforms) Committee under Injeti
Srinivas recommended - separate law for Cross-border Insolvency +
>40 nations use UN Commission on Int’l Trade Law (UNCITRAL)'s
Model Law of Cross Border Insolvency (1997) – Can be a template
for laws [📙ES22 also recomm same] + Budget-2022: amend IBC
Code to facilitate cross border insolvency resolution.
Voluntary Liquidation (shutting down) of Companies –
Involuntary Liq. – Loan default -> IBC/ SARFAESI - liquidate
Voluntary Liquidation – owner no loan default but wants to shut
down biz - done through - application to registrar of companies
under Companies Act, 2013 or application under IBC
Budget-2022: will setup Centre for Processing Accelerated
Corporate Exit (C-PACE)- faster voluntary liquidation / winding-up
Credit Rating / Monitoring- various org/initiatives
CIC & CRA – Pillar 1B1
Information Utility (IU) - by IBBI with help of NeSL
CRILC - RBI setup “Central Repository of Information on Large
Credits” for Loans > Rs 5 cr.+ Banks & NBFCs - weekly updates here
Public Credit Registry (PCR) Proposed RBI’s Yeshwant M.
Deosthalee Committee - RBI yet to set up.
NFIR - Budget 2023.
National Financial Information Registry (NFIR) in Budget-
2023 - will be designed w/ help of RBI + contain info on all loans
taken by on both individual & company borrowers through banks,
NBFCs, bonds, etc. + info on creditworthiness + help lenders
process loan application faster
RBI’s Public-Tech Platform for Frictionless Credit (2023)
portal - collect
data from
Central & State
govts, account
aggregators ,
CRA-CICs & other
org. - loan
approval/
rejection faster
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eBkray auction platform / IBAPI [Indian Banks Auctions
Mortgaged Properties Information] (2019) - website for e-
auction of assets attached by PSBs - Boss? Indian Banks Association
(IBA) w/ help of Dept of Financial Services (FinMin) + use to search
properties details & participate in auction.
CEIB’s Unified Automated Search portal for large borrower
(2024) - website helps PSBs verify b/g (large borrowers > ₹50 Cr) +
Boss? Central Economic Intelligence Bureau (CEIB- under FinMin)
w/ help of SBI + collects data - economic offenses from other
regulators /investigating agencies, SEBI, ED, CBI, NIA, SFIO (Serious
Fraud Investigation Office), CBDT (Central Board of Direct Taxes),
CBIC (Central Board of Indirect Taxes & Customs) etc.
Indian Financial Technology & Allied Services (IFTAS) – 100%
owned by RBI – 2024 Cloud Computing Facility for Banks/NBFCs -
Indian financial data stored w/ IFTAS - Security & privacy
Reserve Bank Innovation Hub (RBIH) Repository - 100% RBI
owned - 2024: digital repository of essential info wrt Blockchain,
AI/ML & other new tech developed by Fin-Tech co.
Legal Entity Identifier (LEI) Number
Objective? Indian banks Blacklisted co.– overseas loans - unaware
of co. history -> After US Subprime crisis & Global Financial Crisis –
G20 & its Financial Stability Board – brought in LEI (20 digit alpha-
numeric code) – Boss: Global Legal Entity Identifier Foundation
(GLEIF), Frankfurt, Germany. LEI’s Indian agent: Clearing
Corporation of India + 2022 RBI ordered all co. - crossborder
transactions > Rs 50 crore to quote LEI in financial transaction +
Power of RBI - Payment and Settlement Systems Act, 2007 &
Banking Regulation Act 1949
Fugitive Economic Offenders Act, 2018
targets economic offenders – accused - cheque dishonor, loan /
investment / chit-fund scam, money laundering etc. > ₹ 100 Cr &
left India to avoid facing prosecution + Sp. courts under PMLA
order accused to appear in 6 weeks - if not then - declared
“Fugitive Economic Offender” - Indian & Overseas & Benami
properties attached - & union govt oversee its admn & liquidation
+ can appeal only in HC & SC
DICGC [Deposit Insurance and Credit Guarantee Corporation] Act:
1961: Act - all banks - buy insurance on their deposit A/C from
DICGC. Banks pay premium for this insurance. + DICGC 100% RBI
owned + Chair: RBI Dy. Gov HQ: Mumbai + Bank shuts down,
DICGC pay ~ ₹ 1L insurance - every depositer for principal &
interest. + Budget-2020: insurance coverage to ₹ 5 L + 2021: Govt
introduces Deposit Insurance & Credit Guarantee Corporation
(Amendment) Bill → [Protection ↑ upto 5L (from 1L) + RBI
imposes moratorium on weak bank DICGC repay depositors in 90d
(earlier No clear time) + DICGC can ↑ premium fee [earlier 10paise
per 100 Rs] + All types of Banks covered But NBFCs not covered ]
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Earlier DICGC - guarantee cover on Priority Sector Loans – Later
credit guarantee work divided among many org - SIDBI (1990),
National Credit Guarantee Trustee Company Ltd. [NCGTC 2016] etc
Proposal (2022): DICGC should cover PPIs/Mobile Wallets? –
suggested by RBI’s B.P.Kanungo committee on customer services
Limitation - Not cover PACS & NBFC [victims - approach courts]
Bad Bank (NARCL, IDRCL-2021): 📙ES2016-17 - ₹ 2L Cr bank
money stuck in large sized NPA-accounts - Each account > ₹500cr +
(Origin) Sometimes resolution of large NPA A/C - difficult u/ IBC
(ex- Vijay Mallya - wilful defaulter - not eligible for IBC) + Under
SARFAESI - assets auctioned but bidders/ ARCs not enough
financial capacity to purchase assets >₹500Cr = ES 2016-17
suggested BAD BANK - “Public Sector Asset Rehabilitation Agency”
(PARA) - buy bad loans - get max value from loan-restructuring /
liquidation-auction & absorb losses -> Budget-2021 announced set
up Asset Reconstruction Company (ARC) & Asset Management
Company (AMC) to take over bad loans from banks. + No
shareholding of Govt in ARC/AMC – set up by own funds of Banks
Ex- Danaharta in Malaysia, UKAR in UK.
Bad Bank Structure
NARCL-ARC (2021) National IDRCL-AMC (2021) India Debt
Asset Reconstruction Resolution Company Ltd. =
Company Limited (NARCL) – Asset Management Co. = To
Licence given by RBI for ARC = manage/value addition/
To purchase bad loan assets auction bad loan assets
from banks purchased by NARCL.
51% PSBs (8 PSBs = SBI, BoB, 49% (PSBs, NBFCs) + 51%
PNB…) + 49% PvSB & NBFCs (PvSB, NBFCs)
Reg. under Companies Act in 2021 + Both org will exist for 5 yrs.
Bad Bank: functioning During Auctions of Assets – If Bad Bank
wins – Pays bid (partially in currency & remaining in Security
receipts (promising to pay due amount in fixed time + SR - legally
valid instrument under Sarfaesi + banker may resell SR @discount
to [Bank, Insurance/ Pension Co., AIFI (e.g. SIDBI, NABARD)] -> SR-
holders receive amount from Bad Bank in future. (IF Bad Bank
dishonour SR payment deadlines → then, Union Govt - sovereign
guarantee (for 5 yrs) - Rs.30,600 Cr to SR.
Bad Bank: Benefits - Faster resolution of large NPA + Individual
Bank’s Bad loans↓= BASEL-III Capital req ↓ Challenge : losses paid
by owners of NARCL & IDRCL & Taxpayers money used for Govt’s
guarantee to Security receipts
Bad Bank: Conclusion - NARCL aims to resolve stressed loans >
₹500Cr - Total ~ ₹ 2L Cr stuck => Relief to banks wrt NPA & can
focus on expansion, fin. Inclusion => Appreciable steps by govt
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Prompt Corrective Action (PCA) Framework - “Qualitative /
Selective Tool of Monetary Policy → Direct Action” : RBI classifies
SCB wrt Risk threshold #1, #2, #3 based on - capital, loan-asset
quality etc. Higher risk in #3 -> RBI - corrective actions [warning,
audit & supervision / Restricting directors’ salaries & dividend to
investors./ Restricting branch expansion & lending ops / merger or
shutdown. + PCA-listed bank -> to get ‘whitelisted’ ↓ NPA + obtain
additional capital, ↑ profitability.
RBI’s Prompt Corrective Action (PCA) for NBFCs (2022) –
3 parameters: - 1) NPA 2) BASEL-capital adequacy ratio - 3) BASEL-
Tier 1 capital. + RBI classify NBFCs in risk category#1-2-3.
Higher risk → ↑restrictions branch expansion/ halt on dividend
distribution/ owners asked to infuse capital in NBFC | Applicable
on NBFC-D & govt owned NBFCs [X applicable on primary dealers,
housing finance companies, NFBC-ND]
RBI’4-tiered regulatory framework for UCBs (2022-Dec) –
Tier-1 Tier-2 Tier-3 Tier-4
<100 Cr 100-1000 Cr 1000-10000Cr >10,000Cr
Higher the tier e.g. 3-> 4 = stricter RBI norms under BASEL-III.
RBI supervision: Utkarsh-2022” roadmap 3yr framework to
improve RBI regulation & supervision - global best practices
Digital lending norms by RBI (2022-Nov)
Lending/Loan Service Provider (LSP) = Fintech co. connecting
borrowers & lender (Banks & NBFCs) - Lazypay, Bank Bazaar, Paisa
Bazaar + helps get loan digitally + RBI - guidelines to regulate
‘digital lending’ + RBI requires 1) X charge exorbitant interest
2)Appoint Grievance redressal officers & clear complaint in time
Digital lending → FIRST LOSS DEFAULT GUARANTEE (FLDG)
norm by RBI – require Fintech Co. to cover some losses of banker
if borrower defaults
FinTech- Self-regulatory organisation (SRO = NGO regulating
particular industry) - Objective? transparency, fair competition,
ethical practices , protect consumer & workers, dispute resolution
among companies, training & skill development for workers.
Ex – [News Industry 1)Printed Newspaper – Regulator (Press
council of India – Statutory body by Parl. 1978 + 2)News Channels –
Regulator - News Broadcasters & Digital Association (NBDA) – SRO
by pvt sector (it is not govt body) | 2023: RBI Gov suggested
Fintech companies to create SRO for themselves.
Benefits? ↓ RBI’s supervision workload + Est. link b/w RBI &
fintech + setup rules/standards for data-privacy, cyber security,
mis-selling, ethical conduct, complaint/grievance redressal for
consumers
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

BASEL-III Norms - Bank for International Settlements (BIS) – int’l

institution of 60 Central Banks. HQ@ BASEL – For global financial
stability - BIS’s committee on banking supervision - set norms in
1988 (I), 2004 (II), 2011(III) -> 2013, RBI began implementation of
BASEL-III norms
-1st bank - calculate its Risk-Weighted Assets (RWA) - Against it
SCB must keep “Min Capital to Risk Weighted Assets Ratio” (CRAR)
@9% or higher + Some % in Capital Conversation Buffer (CCB);
Counter Cyclic Capital Buffer (CCCB); Leverage ratio (LR); Net Stable
Funding Ratio (NSFR); High quality liquid assets (HQLA); Liquidity
Coverage Ratio (LCR) …

D-SIB: Domestic Systematic Important Banks

Each member Central Bank - prescribe %, ratios depending on
situation. + As NPA ↑ bank’s asset quality ↓ RWA ↑ → ↑ capital
to comply with these ratios, norms and buffers. + If can’t comply
w/ BASEL norms → RBI puts it in PCA list [worst case - merge/ sell
off / shut down] + BASEL Norms also apply on Differential
Commercial Banks (LAB, RRB, SFB, PyB), Coop. Banks, AIFI (EXIM,
NABARD, NHB, SIDBI) & certain NBFCs [separate norms]
2023: RBI ↑ CRAR [Capital to RWA ratio] ON BANK/NBFCS'
UNSECURED LOANS
Implications of higher CRAR - bank/NBFC more prudent in
approving loans. + Higher risk weight = higher capital req. Bank
make loan expensive to cover cost of capital. + may ↑ loan interest
by upto 4% + ↓ profitability (cost of additional capital)
RBI’s reasoning behind higher CRAR
2020: Covid - RBI relaxed norms - easy loans -revive economy
2023: now economy better but inflation ↑ => RBI - counter-cyclical
policy - no systemic risk due to reckless lending - Bank/NBFCs
BASEL-III norms: Capital Tiers BASEL-III norms - RBI -> all banks
& some NBFCs - keep capital in proportion to RWA – This Capital
many tiers
Additional Tier 1 (AT1) Bonds – No maturity date (bank has to
pay interest forever & principal X returned) - bank may ‘buyback’
them after certain years -> If / when a bank makes huge losses →
AT1 Bonds’ liability may be written off or Bail-In (converted into
shares)
2010: G-20’s Financial Stability board (HQ: BASEL) asked countries
to identify Systematically Important Financial institutions & setup
framework to reduce risk in them. -> Every yr RBI - lists “too big to
fail” banks : D-SIB -> keep additional equity capital against RWA +
Presently, 3: SBI, ICICI, HDFC (Latest Entry).
Banks’ Balance sheet / Audit Norms -
IndAS Accounting Norms – MCA : all co. balancesheet as per
Indian Accounting Standards format -> makes easier investors &
regulators to u/d co.’s financial position from its balancesheet. +
IndAS is not part of BASEL norm but Banks as financial companies
have to comply to IndAS norms.
Recapitalization of PSBs If inadequate capital - BASEL-III norms –
Bank can issue debt (bonds) & equities (shares) for new capital.
2015: Estimation PSBs need ₹ 1.8 L Cr additional capital by 2019 to
comply -> Dept. (Financial Services) -> Indradhanush PLAN for
phased-recapitalization of PSBs with ₹ 70,000 Cr from 2015 to
2018. PSBs - funded based on performance. -> insufficient to
comply so Govt. announced more amount -> To arrange ₹₹ Govt
issued Bank Recapitalization Bonds (RcB) in mkt : interest ~7%,
mature@ 2028-2033. Non-transferable, Non-convertible. + Govt
instructed PSBs to mobilize equity (share) capital from pvt
investors => Diff for Small banks -> Bank mergers SBI (2017) BoB
(2019) + Budget-2020: ₹3.50L Cr given in last 3 yrs + Budget-2021:
₹20,000 Cr for PSB recapitalization in FY 2021-22 + Budget-2022
onwards: No money given - PSBs profitability ↑ can themselves
issue shares/bonds in mkt
Banking Sector: Governance / Administrative Reforms
Gyan-Sangam-I, 2015, Pune - FinMin’s Dept of Financial Services
-workshop of financial regulators, PSBs, Insurance Co. etc. = 3
outcomes | a)PSBs’ CMD post split into separate chairman &
separate MD&CEO | b)Indradhanush plan for bank recapitalization
(₹ 70,000 Cr) | c)Finance Ministry setting up an autonomous body-
Bank Board Bureau (BBB).
Personnel Selection
→ Bank Board Bureau (BBB), 2016 - non-constitutional, non-
statutory body - interview & select top officials (MD, CEO,
Chairman & Directors) for PSBs, public sector insurance co., &
other public sector financial institutions (e.g. NABARD, SIDBI etc.) +
Actual appointment by Dept of Financial Services. + also helps in
governance reforms, raising capital for BASEL-III etc. + BBB – 1
Chairman (usually retd IAS) & some members

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
→ FSIB replaces BBB (2022)
2022: Delhi HC “BBB cannot select public sector (govt owned)
insurance co. -conflict w/ other laws wrt public sector insurance co.
+ Govt replaced BBB - new body FSIB “Financial Services
Institutions Bureau” to comply w/ court -> Rest all same as BBB
Customer Service: Enhanced Access & Service Excellence
(EASE) Agenda 2018 – By Dept of Financial Services to make
PSBs more responsive & responsible
Staff Accountability Framework for PSB-NPA Finance Ministry
issued for NPA a/c upto 50Cr in PSBs from 2022 - If PSB Banker
took bonafide business approved loan - turned NPA then banker
protected from inquiries by — CBI, CVC & CAG. Fear (3Cs – PSB
managers discouraged - sanctioning big loans (aftermath of TBS,
Mallya, Nirav Modi)
Customer Service: RBI’s B.P.Kanungo committee (2022)
suggested various reforms against bullying/harassment for loan
recovery agents, etc. | Bancassurance : banker sells insurance for
commission = allowed. | Cross-selling : banker sells additional
services (credit card, Insurance policy, MF investment etc.) =
allowed. | Mis-selling : customer misled about a product (Credit
card FREE for lifetime! (but free only for 1st yr -> then starts
charging annual fees of ₹1999/-) = illegal/unethical.
NEGATIVE News: ILFS & Shadow Banking
NBFC: Shadow Banking 📔ES20 -> Shadow banking =set of
activities & institutions- operate partially/ fully outside traditional
commercial banking + X fully regulated by RBI + funds by borrowing
from banks, issuing Commercial Papers (CP) & Bonds (Non-
convertible debentures) | 3 imp segments in India |HFCs : Housing
Finance Co.|LDMFs : Liquid Debt Mutual Funds - invest in short
term debt instruments - T-bill (Govt) / Commercial Papers (of
companies) -> Some of LDMFs invested in IL&FS & DHFL, but failed
to get money back ~ ₹4000 Cr investors’ money stuck, triggering
NBFC crisis in India |Retail-NBFCs : like Gold loan co., asset finance
co. etc.
Shadow banking system’s assets - risky & illiquid - If ‘bank run’ -
can’t honour obligations - ILFS crisis (2019)
Shadow Banks → IL&FS & NBFC Liquidity Crisis Infrastructure
Leasing & Financial Services (IL&FS) is a Systemically Important
NBFC-ND - setup 1987 HQ@Mumbai
Challenge? 1-2-3 + loans to unworthy borrowers - forged
documents, bribes paid to IL&FS board directors & auditors.
ATMANIRBHAR → RBI Helping NBFCs/ Shadow Banks
RBI launched 1) TLTRO and 2) special liquidity window + Govt
announced 1) Partial credit guarantee [govt pays 20% loss to PSB]
2) Sp. Liquidity scheme 3) Credit Guarantee Enhancement
Corporation
Shadow Banking → Remedies by RBI - tightened norms of
Asset-Liability Management (ALM) norms + 2021: RBI proposes 4-
tier structure for tighter regulation of NBFCs
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Negative News: Int’l Level Banking Sector
Intl. Banking Crisis: Silicon Valley bank crisis (SVB), USA 2023
USA Fed Tapering → US Federal bank ↑ loan interest to fight
inflation → SVB’s loan customers ↓ed (due to expensive loans) -
SVB had invested money in govt securities, but losses due to yield
change [-ve media coverage - Federal Deposit Insurance
Corporation (FDIC- America’s DICGC type org.) shut down SVB &
FDIC will sell SVB’s assets - return money to depositors
Credit Suisse Bank, Switzerland (2023) - suffered losses due to
instrument called ‘Credit Default Swaps (CDS) - Post-Corona, Post-
Ukraine general slowdown - Data leak bank helps criminals hide
money → investigations/court-cases → share-price ↓Outcome?
1)Bank had to write-off $17 billion worth of AT-1 Bonds to cover
losses -> angered bondholders their investments ↓ed to zero ->
Another Swiz Bank UBS bought Credit Suisse Bank.
RBI Dividend, Reserves, Economic Capital Framework
RBI’s income sources From its income, RBI allocates
funds to
1. Interest on [G-Sec - X sold in 1. Staff retirement fund,
OMO + Foreign G-Sec / provisions for bad loans,
Sovereign Bonds + Loans given depreciation in assets…
to other Banks / NBFCs. 2. Reserves for contingency
2. Revaluation of foreign (emergency): ~₹ 2.5 Lcr.
currency & gold in RBI 3. Reserves for Exchange Rate
reserves. Stability (Technically called
3. Seigniorage: profits from “Currency & Gold Revaluation
printing money- as face value Reserve: ~₹7 lakh cr
>intrinsic value. 4. After these allocations,
6. Penalties on errant banks profit shared w/ Union Govt.
as ‘Dividend’ (RBI Act)
RBI’s Bimal Jalan panel (2018) 2017: RBI Gov Urjit Patel gave
₹50,000 Cr dividend but Govt wanted ₹3.6L Cr dividend => RBI
setup Bimal Jalan panel - decide principles for dividend transfer ->
2019 RBI board approved report - updated norms in such that RBI
can transfer more dividend / surplus to Govt.
RBI’s Financial / Accounting Year 2019: Bimal Jalan panel
recommended reforms like switch RBI’s FY to April-March (from
old 1940s July to June format) + Earlier interim dividend to Govt
due to difference in financial yr → RBI’s central board accepted it
from 2021 => No need for interim dividend
Section-7 Directive & Urjit Patel’s Resignation
Sec. 7(1) RBI Act : Govt - consult RBI GOV in Public Interest - 2018
for 1st time in Independent India, Govt began Sec.-7(1)
consultation w/ RBI GOV Urjit Patel, on issues of PCA norms,
BASEL-III deadline, higher dividend to Govt., Cheap Monetary
Policy etc. + If RBI GOV doesn’t +vely respond in Sec-7(1)
consultation, then Sec.7(2): Govt can issue binding orders to RBI
Central Board to implement -> Though govt X issue any specific
directions to RBI Board But, 2018-Dec: Urjit Patel resigned before
completing 3-yr term
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Pillar#1C1: SEBI-Share Market (Debt/Bonds) Capital Arrange → Retained Earnings (Long Term)
Co. -> Profits -> Board of Directors decides & Splits into 2 parts,
Capital - types Fixed (money for fixed assets land, plant, shareholders’ dividend & Retained Earnings (remaining money –
reinvested in biz)
machinery, furniture…) vs Working (for day 2 day ops – raw
material, employee salaries, office rent, marketing …)
Financial / Securities market: = buying & selling of Securities
Capital / Funding Arrangement: Types on basis of
1. Period a) Long Term – Equity shares, retained earnings,
preference shares, debentures, loan from financial institutions,
loan from banks b) Medium term – Loan from banks, public
deposits, loans from financial institutions, lease financing c) Short
term – trade credit, factoring, banks, commercial paper
2. Ownership a) Owner’s funds – Equity shares, retained earnings
b) Borrowed funds – Debentures, loans, Public deposits, lease
financing, commercial papers
3. Source of Generation a) Internal – Equity share capital,
retained earnings b) External– loans, preference shares, public
deposits, debenture, lease financing, commercial papers, Trade Types based on 1) Tenure a) Money Mkt (<1yr maturity) b)
credit, factoring
Capital mkt (1yr/> maturity) | 2) Freshness a) Pri Mkt (new sec 1st
Manufacturer -> Distributor/Wholesaler -> Retailers time issue) b) 2° mkt (old securities – resold + physical existence
Capital Arrange → Trade Credit (Short Term debt) like Dalal Street Mumbai BSE) | 3) Settlement a) Spot mkt
Wholesaler – TRADE CREDIT – > Retailers (buys goods on credit) (bought & sold - immediate delivery) b) Future mkt (contract to
buy/sell @specific price on future date – weekly, monthly…) |
4) Asset –Bond (Debt) mkt, Share (equity) mkt, G-Sec mkt, Foreign
Currency mkt, commodity mkt … [2018 - SEBI allowed BSE & NSE to
launch UNIVERSAL EXCHANGE of all such asset types]

FINANCIAL Mkt
Money Mkt (<1 yr) Capital Mkt (1yr />)
Govt : T-Bill, CMB, WMA Govt : G-sec, Sovereign Bonds,
Firm: C-Paper, Pre-notes SDL
FI: CD, Call Money, Notice, Firm/FI: Share (stock), Bond/
Account Receivable for Wholesaler / Payable for Retailer Repo Debenture
Issuing for 1st time = Primary mkt; Reselling = Secondary mkt

Debt Instruments- 2 types -based on Term : SHORT & LONG

Short term debt instruments : <1yr; unsecured (usually not backed
by any asset) + Sold at discount – repurchased @Face Val or Par Val
+ Process called ‘Rediscount the bills’ – traded @Money mkt +
usually negotiable & transferable (can sell to 3rd party) + also called
NEAR Money (highly liquid asset)
Capital Arrange → Lease Financing (Medium Term)
Lessor – LEASE FINANCING – > Lessee [(ex- WIPRO leasing servers
on rent to Lessee Unacademy) ]

→ by Govt Treasury Bill (by Union) – 14, 91, 182, 364 d (Stopped
for State govt – 2001) + Cash management bill– 90 d (start – 2009)
+ Ways and Means Advances (WMA) – RBI lends Union & State
govt for short term (3 months) – for short term mismatch in receipt
& expenditure. Not counted in fiscal deficit. Interest @Repo%
Consolidates Sinking Fund (CSF) for State Govts’ repayment
reserve fund set aside by RBI to repay debts + gives state govts
buffer to service their drawbacks. + Provisions from Article 266 (1)

Securities – certificate – holder eligible – receive money

@particular time –
Equity (Share Certificate)
Dividend from profits + Co.’s owners/
proprietors + Last claim on liquidation
– Shareholders are ‘Residual
Claimants’ + Attractive in boom
Debt (Bond/Debenture)
Interest & principal
(irrespective of profit or not)
+ Creditors of Co. + 1st claim +
Attractive in Slowdown

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Short term debt: Certificate of Deposit (CD-instrument by
Bankers) – Issued by Commercial banks in money mkt to borrow
money – unsecured (No collateral), short term (<1 yr), negotiable
(specific person @ specified time) – 2023 CD issued ↑ (less
quantity loans + repo expensive)
Debt → Interest Rate Benchmarks: LIBOR, MIBOR (Mumbai)
London Inter-bank Offered Rate (LIBOR) : avg interest @which
banks in London - give short term loans to each other.

Short term debt instruments → more types

Borrower - Short term debt instrument
Company - Bill of Exchange, Hundi, Commercial Papers, Promissory Notes.
(Note: Currency Note = A ‘Promissory Note’ by RBI Gov -but not bound to
pay interest - promise to exchange w/ currency of equal face value.)
Merchant - Commercial Bill
Banks / NBFC - Certificate of Deposits
Call/ Notice Money - interest rate when FIs (Banks/NonBanks) borrow
among themselves | CALL MONEY = for ONE DAY | NOTICE MONEY = for 2
to 14 days.
LIBOR - London Inter-bank Offered Rate = avg interest rate at which banks
in London give short term loans to each other + benchmark, using which
Global banks decide their call money /notice money rates.
MIBOR = Mumbai ; for INDIAN banks
CBLO - Collateralized Borrowing and Lending Obligation.
Clearing Corporation of India Ltd (CCIL = NBFC) helps FIsget short term loans Long Term Debt Instruments (1 yr/ >)
through this instrument.
Repo - Repo and Reverse Repo
Colonial era Govt. to borrow money
ICD – Inter Corporate Deposits – unsecured, short term loan – co. w/
another co. 1. Coupon Bonds: Contain detachable coupons. Coupons
presented to issuer to claim interest @ ‘coupon rate’.
Debt → Short Term → Tri-Party Repo (NOT RBI tool) 2. Zero Coupon Bonds: sold on discount - repurchased at face
3 parties – Borrowers, Lenders & Tri-party agent (intermediary - value, do not have any coupons.
facilitate collateral custody, & repayment + Earns commission + Ex- 3. Bearer Bonds: Not linked to PAN/Aadhar/passport/voter card
NSE or BSE) /social security number. Any bearer can get interest & principal
through issuer - Usually issued during wars.
Debt → Short Term → Factoring & TREDS
Modern day Govt to borrow money
- Govt securities, Dated securities, Sovereign bonds, Kisan Vikas
Patra etc. + Also called Gilt Edged securities (repayment assured by
Govt – low risk of investor = lower interest)
- Global Credit Rating Agencies -> ‘rating’ to sovereign bonds.
“AAA” highest - US Treasury Bonds. India - “BAA” rating = moderate
risk of default.
- World’s top 3 credit rating agencies- Fitch, Moody’s and Standard
Suppose MSME seller - sold cardboard boxes for jiophones to & Poor = pro- US/EU allegiance. These 3 give inadequate ratings to
Ambani but Ambani “will pay bill next month” = unpaid invoices -> Govt bonds of India, China, Russia despite economic growth.
MSME seller can pledge this invoice to a factor (bank/NBFC) to
avail loans Global Bond Indices & inclusion of Indian G-Sec - bond mkt
Bill Discounting: MSME collects money from Buyer & delivers ₹ ₹ index - reporting tool - performance of bond mkt | JPMorgan
to Factor (bank/NBFC). Chase (An investment bank) – Index = GBI-EM [Govt Bond Index-
Factoring: Factor (lender: bank/NBFC) directly collects ₹₹ from Emerging Markets] tracks prices of >15 emerging countries’ G-Secs
unpaid invoices from Buyer (Ambani). like China, Brazil, S Africa, Russia etc. [Indian G-Sec added 2024] |
[Factoring biz = acquires receivables (total amount owed /yet to be Bloomberg Emerging Market (EM) Local Currency Government
paid by customers (debtors) to assignor for use of any goods, Index [Indian G-Sec added from 2025]
services or facility) of another entity for an amount. Factor can be BENEFITS- ↑ foreign investor confidence ↑ # investors (Easier
bank/ registered NBFC/ any co. reg. under Companies Act ] liquidity to existing investors in secondary mkt)

Factoring Regulation (Amendment) Act, 2021 Banks & NBFCs BONDS ISSUED BY GOVT/RBI FOR SPECIAL PURPOSE?
allowed (After Reg. w/ RBI) + RBI more powers to regulate this biz Bonds by Modern day Govt. to curb Gold Consumption
+ Need to register invoice-pledge-factoring-loan transaction on Real interest rate = Nominal Interest – Inflation
central registry under SARFAESI + More clarity about TReDS sys

TReDS Trade Receivables Electronic Discounting Sys : online

platform to connect factors (bank/NBFC) w/ borrowers (MSME)
Ex: M1xchange, RXIL, A.TReDS - Have to reg. with RBI.
Most famous RXIL (owned by SIDBI, NSE, SBI, ICICI & Yes bank)
When Real interest –ve -> ↓ purchasing power despite ↑ money
quantity in bank a/c -> People park money in gold/ real-estate =>
So RBI – Inflation Indexed Bonds

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

RBI’s Inflation Indexed Bonds (IIB) - provide a continuous return
to investors regardless of inflation + Fixed real coupon interest on
IIBs but nominal principal value is adjusted for inflation. [RBI
launched IIB in 1997, 2013, 2018 to provide +ve Real interest rate
to household]
- SAHARA REFUND PORTAL setup - 2023: Each investors given ₹10k
refund
Hybrid: Foreign Currency Convertible Bonds (FCCBs) option to
convert bond to shares @pre-determined exchange rate + issued in
foreign currency & @fixed interest

Hybrid: Contingent convertible bond (CoCo)/ enhanced

capital note (ECN) - features hybrid Mix of AT1 Bonds & OFCD +
x% interest – but if “A” happens convert to shares & “B” happens
we’ll write off principal + Interest & not convert it to share.

BONDS TYPES : BASED ON ISSUER [issued to borrow form public]

RBI's Sovereign Gold Bond (SGB) (started from 2015) - RBI
issues on behalf of govt. Denomination: gold grams. RBI/Govt NO
‘promise’ to give gold - give ₹₹ equivalent of latest gold price on
maturity - Annual interest 2.5-2.75% + Tenure: 8 yrs - get amount
equivalent to prevailing gold prices + Eligible investor categories:
Indian resident individuals, Hindu Undivided Families (HUFs),
trusts, universities & charitable institutions + Depending on
investor’s category – buy 1gm-20 kg + RBI sells via selected banks,
post offices, selected stock exchanges (NSE & BSE) & other
institutions. Benefit - ↓ import-demand for physical gold & shift a
part of domestic savings used to purchase gold to financial saving
Issuer : ULB (Urban Local Bodies)
Ahmedabad 1st to launch Municipal bonds (1996) |
2021 Ghaziabad – 1st green Municipal bond in India (for select
players X for retail investors)|
2023 Indore – 1st civic body to issue municipal green bonds for
retail investors - used for solar plant |
2024 – Ahmedabad 2nd after Indore
Issuer : Global
BRICS Bond: 2014- BRICS - New Development Bank (NDB, HQ:
Shanghai) - BRICS Bonds to mobilize money for infrastructure loans.
In US$$ |
World Bank: 2018: Bond-i = world’s 1st Blockchain Offered New
Debt Instrument – Denomination in Australian$$ = Also called
Kangaroo Bond |
Evergrande Crisis: Evergrande - Chinese real estate developer –
trouble repaying bonds – crisis in Chinese & global mkts
Long Term Debt Instruments: Masala, Maharaja, Panda
Bond

Long term debt instruments by Companies

Bonds (British Term), Debentures (American Term)
Redeemable Bonds : repay regular interest -return principal on
maturity | Irredeemable Bonds : pay interest; but no principal
returned | Secured vs Unsecured = asset pledged vs Not pledged
|Non-convertible Bond/Debenture = can’t convert into share
|Hybrid instruments: Issued as “Bond” but can convert into Share.
E.g. Optionally Fully Convertible Debentures (OFCD)
Issuer → Borrowing In currency → Is called
Hybrid financing / Mezzanine Financing - elements of both from
debt (loan) & equity (partnership) + Lender gets right to convert Non-Chinese China Renminbi (=yuan) Panda Bs
debt (bond) to equity (share) - done via instruments like OFCD + Non-Australian Australia Australian dollar Kangaroo Bs
usually done by venture capitalists in startups + OFCD usually pays Non-Indian India Rupee Maharaja Bs
less interest than traditional bonds (NCD) (Indian/ non-Indian Outside Rupee Masala Bs
on behalf of India
Hybrid: OFCD: Sahara Refund portal (2023) Indians)
Non-Taiwanese Taiwan OTHER than Formosa Bs
entity Taiwan dollar
Masala Bonds: rupee denominated - issued outside India -borrow
for Indian companies - World Bank’s pvt sector arm Int’l Financial
Corporation (IFC) launched ‘Masala Bonds’ help Indian public & pvt
sector cos. + 2015: RBI allowed Indian entities to launch Masala
Bonds + 2017: NHAI issued Masala Bonds in London Stock Exchange
- for Highway projects + 2019: KL – 1st state - KL Infra Investment
Fund Board (KIIFB) issued @ London Stock Exchange.
Denomination: ₹ ₹ (₹ 21.5 billion – 5yrs)

Ministry of Coop. → Central Registrar of Coop. Societies (CRCS,

statutory body under Multi-State Co-op Societies Act 2002) → CRCS

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Long Term Debt: Sp. purpose: Surety Bonds – Allowed by
Budget-2022 - Regulator IRDAI
Long Term Debt Instruments: Special purpose Bonds-
Sovereign green bonds: RBI sells via E-Kuber to investors ->
Money goes to Consolidated fund of India → borrowed money
used in Subsidies, Grants, Tax-Cuts For: Renewables (solar, wind),
Egy efficiency (LED bulbs), Clean transportation (EVs),
Water & waste mgmt., Pollution ctrl, Green Buildings, etc + Equity
(share) investment in metro projects |Won’t be used for - Nuclear
generation, landfill projects, alcohol/ weapons/ tobacco/ gaming/
palm oil industries; hydropower plants >25 MW | Above
investment projects reviewed by Finance Min → Green Finance
Working Committee (GFWC) headed by Chief Economic Advisor
(CEA)
Long Term Debt Instruments: Special purpose Bonds- Misc.
Green bonds (GB): Renewable egy, pollution ctrl, envi friendly
projects + World’s 1st by World Bank (2007) - India’s 1st by Yes
Bank (2015) + BRICS-New Development Bank issued Yuan- GBs
(2016) + Indian Renewable Egy Development Agency (IREDA)
launched India’s 1st Masala GB @London Stock Exchange (2018)
+ 2021: Ghaziabad Municipal Corporation (UP) - 1st- Green
Municipal bond + 2021: India’s 1st euro - denominated GBs by
Pow Finance Corp (PFC, NBFC under Power Min) + 2022:
Sovereign GBs
Blue bonds: sub-type of GB - climate resilient water / marine /
fisheries projects. Ex- 2018- Seychelles - world's 1st - to expand
its marine protected areas & fisheries sector
ESG Bonds: Money invested in bonds of cos. w/ good track
record of Environment, Social & Governance (ESG)
Catastrophe Bond: by Govt / Insurance co. - high annual
interest – If natural disaster happens – No principal returned. ⇒
If no disaster - principal returned
Oil Bonds: promissory note issued by govt to compensate Oil
Marketing Companies OMCs to offset losses from shielding
domestic consumers from rising crude prices
Consol Bonds : (proposed) : Consol = short of ‘consolidated
annuities’- no maturity date - perpetual bonds pay interest @4-
5% for lifetime - don’t repay principal - Irredeemable Bonds -
Govt may redeem(/buyback) bonds after certain years, by
paying principal to investor
Social Impact Bonds: 2019 SIDBI issued ₹ 300 cr. worth
Women’s Livelihood Bonds with help of World Bank, UN
Women org etc. – for High Net worth Individuals (HNI), Impact
Investors - Money collected → SIDBI → Micro Finance Institutes
(MFI) → loaned to individual women entrepreneurs in food
processing, agriculture, services etc. + 2021: Skill Impact Bond:
By National Skill Development Corporation (NSDC) & global
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partners from UK, Dubai etc. $14.4 million for skilling 50,000
Indian youth job.
NABARD Social Bonds (2023) – listed on BSE @7% 5yrs - India’s
1st AAA-rated Rupee currency social bond -> Money for Jeevan
Mission (Union’s drinking water project)
Sukuk Bond/ Islamic Bond: sharia-compliant bond used in
Islamic finance - in News - PAK Govt issued such bonds.
Zero coupon zero principal instrument: issued by Not for Profit
Org (NPO), NGO for social service - repay NEITHER principal NOR
interest – X resale in secondary mkt - can be transferred to legal
heirs + Like donation in charity but greater transparency + min
issue size ₹50 lakh - min subscription ₹10k [2023-Nov: Unnati –
NPO formed in issued bonds @ NSE-social stock exchange for youth
skill development]
Electoral bonds (2017 Budget) → Notified by Dept. of Economic
Affairs, Fin. Min + Only SBI + Only Indian Citizen/ Indian reg. Co. can
buy → donated only to political party under ROPA 1951 & which
secured 1% /> votes polled in last LS/SLA elections + Validity 15d +
Paper / Physical format (not electronic format) + Bearer instrument
(Donor or Recipient’s name absent), + Promissory Note (promises
to transfer money in bank a/c)
SC bans electoral bonds (2024-Feb) SC ruled: Electoral bonds
can promote corruption & quid pro quo (e.g. biz-man giving fund &
minister passing contract) + violates provisions of RoPA ,
Companies Act, Income Tax Act, Voters’ RT info about political
funding under Art. 19(1)(a) + Donors’ RT privacy < voters’ RT know
+ SBI must disclose – list of all donors & recipient political parties
from 2019–24 to ECI & ECI must disclose to public
Electoral Bond & Companies Act - SC bans amendments
Matter Companies Act Amendment in
2013 2017
How much money can co. < 7.5% of 3-years’ Unlimited.
donate to political party? avg net profits
Does co. need to disclose Yes. In financial no need to
name of recipient political statements mention exact
party? name.
2024: SC declared 2017 amendments in Co. act – unconstitutional
Electoral Trusts (ET) Scheme (2013) by UPA govt – allows co. to
create ET -> which can receive donations from other
(persons/companies) -> ET →donates it to various political parties.
e.g. Donor (DLF, GMR, Bharti Airtel, etc. companies) -> ET (Prudent
Electoral Trust) -> Recipient Parties (INC, BJP, regional parties)
Bonds: Misc. Types
Market Linked Debentures/Bonds : interest is not fixed. It is
linked to an underlying market index e.g. SENSEX, G-Sec-Yield, gold
price index, etc
Strip bond / Stripped bond - bond’s principal & interest
repayment stripped into separate compartments.
Debenture Redemption Reserve (DRR) Fund of Companies
issuing Bonds – When co. issues bonds/debentures (=long term
instruments) it must create buffer fund from its profits - DRR fund -
used later - pay principal & interest -legally required under
Companies act - 2019: Govt relaxed rules for EoDB + some type of
co. are exempted – like Bank, NBFCs, Public Listed Co. (cos. whose
shares are traded at BSE/NSE like Reliance)
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Pillar#1C2: Shares / SENSEX / Mutual Fund/ etc.
Equity Instruments Equity holders = owners / proprietors of co. + If
co. profits → get dividend + last claim during liquidation.
Sweet Equity: Shares sold @discount to directors & employees for value
addition to co. [Amount regulated under Companies Act]
Share types depending on risk / quality
Penny stocks: Shares - mkt price - excessively low comp to face value-
give zero/little dividend.
Blue Chip stocks: Shares of nationally recognized, well-estd co. w/
history of good return for investor
Multibagger Share: co.’s share price climbs rapidly in short time.
Cyclical / Seasonal Shares: share price depend on biz cycle

Share types: Floating vs Restricted Stocks

Private equity (PE) funds & Venture Capital Funds -

PE = type of investment fund - wealthy individuals park = money in pvt
unlisted cos.(shares not traded in stock exchanges – like BSE/NSE) | VCF
= subtype of PE fund investing in startup cos. + professional firms
helping startups w/ seed capital (debt/ equity/ hybrid) |Angel Investors:
Rich helping startups |Corporate Strategic Investor: Invests in startup -
goal = acquiring co./ its tech later
Free float = co. shares that are not restricted => available to public for
Share Types: Preference Shares vs ordinary shares trading in sec. mkt | Restricted shares = held by co. insiders, directors,
vested employees, affiliated trusts & foundations.

ACCOUNT TYPES Personal A/C – Natural or Artificial legal person’s a/c

[Cos. are Legal person] | Real A/C – Tangible Real A/C (buildings,
vehicles, machines) or Intangible Real A/C (Goodwill, Patent, Copyright,
Trademark) | Nominal A/c – Gain/Income A/c (revenue from goods
sold, income from investments) Loss/Expense A/C (salaries, rent, cost of
raw material)

Goodwill –while buying another co./brand + Goodwill = ‘intangible

e.g. Jio 10% fixed dividend Preference Share on face value of ₹100 => asset’ for buyer co. - it represents reputation, customer base, brand, or
person entitled to FIXED ₹10 dividend (if co. makes profit.) other intangible factors- for which acquirer pays extra, BEYOND fair-mkt
Parameter Preference Share Ordinary Share value of co. assets + GOODWILL A/C is a REAL A/C
Rate of dividend Dividend payout’s rate = = fluctuates – depends Ratios / Numbers to compare companies
fixed e.g. NIRMA 10%. on money LEFT AFTER
dividend to pref.
Valuation (V) : process of estimating total val of co. | V of listed co. =
shareholders total value of its shares = [Current share price * total # of shares] | V of
if co. makes No No. (unlisted) startup co. = estimating val of Startup + Complex formula
ZERO profit - involving co.’s financial performance, assets & liabilities, future growth
RTget dividend? potential … | Unicorn Startup = V > 1 billion US$$ | Market
Rights upon co. get money BEFORE AFTER pref. capitalisation = [Total # share share * current share price] -can change
liquidation ordinary shareholders shareholders every day, depending on price movt in sharemkt | In IND – Shares of
Voting rights X voting rights. √ in co. decisions.
Listed Cos. are classified based on market cap - Small Cap/Mid
Convertibility can be converted into Equity stocks cannot be
Cap/Large Cap
ordinary shares converted
Type Small Cap Mid Cap Large Cap
Issuance X mandatory to issue Reg. cos. must issue
Market Cap < ₹5000 Cr 5000-20,000 Cr > 20,000 Cr
equity shares.
(General (₹50 bn) (50-200 bn) (₹200 billion)
Risk to investor? lower higher
understanding*)
NOTE: preference shares have many sub-types e.g. (cumulative vs non Market Cap < 250 rank 101–250 rank top-100 cos.
cumulative), (redeemable vs non-redeemable) (exact SEBI based on Mkt
Rule) cap
Shares for Employees / VIPs / Special investors : ESOP, Equity Risk to High Medium Low
Warrents shareholder
Liquidity of Low. Difficult Medium High
shares (easy to to find buyer
re-sell & Exit)
*Cr Rs # varies yr to yr depending on changes in share prices.
Reliance – 1st co. to hit 20L Cr Mkt Cap (2024-Feb)
Market Froth & Asset bubble in Small-cap & Mid-cap :
During mkt froth - investors ignore fundamentals (like co.’s profit-loss
balance sheet) & buy shares rapidly - ↑ demand ↑ share price –
unsustainable rapid ↑ -> results in asset bubble that can lead to a
collapse [ex- Dotcom bubble in USA (2001); Subprime crisis (2007–08)] +

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

2024: SEBI felt small & mid-cap experiencing mkt froth →SEBI issued Sharemarket- co. related documents
technical directives on mutual funds to ↓ investments/exposure in Guidance report - contains co.’s estimate of future growth + Co.
small & mid cap. releases it for investors/shareholders/analysts.
Tulip Mania -1660s: Tulip in Netherlands – many bought ↑quantity -> Prospectus - document containing all info about IPO of co.
resell @higher price -> Untimately bubble collapsed = Tulip Mania–
(Present context - If price of asset (share, real-estate, Bitcoin) start IPO vs FPO
climbing unreasonably high → Bubble like Tulip)
Volatility / ViX - If
share prices
changes rapidly in
short time → has “high
volatility” [Adani after
Hindenburg
report] =
Mathematically
expressed thru indicator called “ViX”

Price-to-Earnings (P/E) Ratio and EPS (Earnings per Share)

Underwriter = merchant banker/investment banker -

Responsible for issuing IPO/FPOs on behalf of co. promoters.
If IPO not fully subscribed -> underwriter buys unsold shares.
Leverage Ratio, Debt to Equity Ratio, ROCE, etc
Lead Manager = synonym for underwriter.

Rights issue: Co. issues additional shares (FPO) but gives 1st right to
existing shareholders to buy them, if they refuse then to outsiders.
Qualified Institutional Placement (QIP): co. issues shares only to
qualified institutional buyers - MFs, pension funds, insurance co.
Private Placement: If co. offers to sell its shares only to fixed co. But not
to others retail investors.

Share-selling: Offer for sale (OFS) and share pledging

Debt:Equity = 2 (means Tata borrowed 2x times more money than

amount of share capital it has)

Net Worth = Total Assets −(minus) Total Liabilities

EBITDA = shows Co.’s Earnings Before loan Interest repayment, Taxes
payment, Depreciation, & Amortization. [High is better]
Depreciation = wear & tear, repairs, or ↓in value of physical assets
(machinery, buildings) | Amortisation: Represents ↓in value of
intangible assets like patents & copyrights IPO/FPO - owner wants money for co. by selling fresh shares.
OFS - owner wants money for himself by selling his own shares.
METHODS OF ISSUING SHARES:
Share Price = Share have printed price on certificate called Face / Par Share-selling: Open Offer
Value. If sold > face value, it’s called “Premium Value”- usually happens
when investor is confident of getting high dividend/return on his
investment. if sold lower than face value, it's called "trading at a
discount"

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Share Selling: Equity dilution
Share Swaping & De-listing [Terms in news after HDFC (NBFC) got
merged into HDFC (Bank), in 2023]
Share Swaping: corporate arrangement, in case of a merger or
acquisition, under which 2 entities agree to exchange equity -based
asset of one with that of another. Also called share-for-share exchange,
share exchange, stock-for-stock.
Bonus Shares - additional share that co. gives to its shareholders – for
free. Also known as scrip dividend
Share Splitting – Split value of share as per discretion of co.’s BoD
Share buyback/repurchase : co. buy back its own shares from existing
shareholders usually @ premium to prevailing mkt price = tax-efficient
way to return money to shareholders.
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ADR/GDR: DESHI Shares in Videshi soil
ADR/GDR: Non-American co. - mobilize money from US share mkt &
avoid reg. w/ US regulator -> Co. gives its shares to American bank ->
issues American Depositary Receipts & sell them to American investors.
(Denomination: USD)
Global Depositary Receipt (GDR): similar but single bank issues
receipts for investors in multiple countries (usually USD/ Euro
Share issuing Deposits co.’s shares That bank issues -- in local
co. → in bank of → mkt in – currency
Non-American American Bank Issues ADR (in $) in
co. American Sharemkt
Non-Indian Indian Bank Issues Bharat / Indian
co. depositary receipt (IDR) (in
₹) in Indian Sharemkt
Direct listing of Indian Companies in foreign stock exchanges
(2023)- allowed via Gift-City (GJ)
Initial Coin Offering (ICO) -> issued when Co. need money for
launching new cryptocurrency, or service/app wrt existing
cryptocurrency → Investor subscribes - receives ‘tokens’ (& not SHARES)
- Investors can use ‘tokens’ to buy cos. coins/services / may sell it to 3rd
party. => RBI warning X to invest in ICOs
STOCK EXCHANGES / SEC. MARKET: Shares - issued through IPO
@Pri mkt -> can resell in sec. mkt = known as Share mkt /Stock Exchange
[StEx]/ Bourses | World’s Oldest: Amsterdam StEx, Netherlands (1602) |
Asia’s Oldest: Bombay StEx (BSE: 1875) |
India’s StEx chronology: BSE → A’bad → Kolkata → NSE (early 90s) ⇒
StEx have their electronic platforms for trading (Like Banks CBS for e-
banking) Ex - BOLT (BSE's On-line Trading Sys), NEAT (National Exchange
for Automated Trading). They communicate using VSAT (Very Small
Aperture Terminal) Satellite.
Social Stock Exchange - mkt for buying/selling - shares/ bonds/
mutual fund for projects/orgs related to hunger/ malnutrition, poverty,
gender equality, LGBT welfare, rural sports, Slum Area Development,
affordable housing. ... | SEBI setup Ishaat Hussain panel & Harsh
Bhanwala panel to study it (after Budget 2019)
Secondary Market: Significance? ↓ Transaction costs (X manual
search buyers/sellers) + Liquidity to Financial Assets. + Price Discovery of
shares / bonds + …
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Depositories = org. holding securities (shares/bonds etc.) in electronic
(=DEMATERIALIZED) form - facilitates online trading + Regulated by SEBI
u/ Depositories Act 1996 | Ex- Central Depository services Limited
(CDSL: owned by BSE, HDFC, Canara Bank etc.) + National Securities
Depository Limited (NSDL: owned by SBI, IDBI, UTI, NSE etc.) NSDL also
has RBI license to operate Payment Bank + Upon client’s request,
Depository can ‘rematerialize’ (i.e. giving physical/hard copy of
share/bond etc) for client -> Customer must open “Demat” account in a
depository-partner (DP) like bank/ NBFC.
DEMAT → SEBI’s ASBA Reforms Application Supported by Blocked
Amount ASBA - allows underwriter to block amount in IPO-investor-
applicant’s bank a/c – Only IF shares allotted - bank money deducted.
UPI-ASBA in Sec. Mkt 2024-Jan Reform by SEBI
ISIN Number – Int’l Securities Identification No. (ISIN) = 12 digit
alphanumeric – serial code to identify securities
Central Counterparties (CCPs), Novation & ESMA controversy
CCPS = intermediary b/w buyers & sellers in financial mkt (G-Sec, T-bill,
shares, bonds, derivatives, forex, commodities) + act as central counter-
party to every trade i.e. CCP becomes seller to buyer simultaneously
becomes buyer to seller = process called “novation”. [CONTROVERSEY -
Indian CCPs also deal with int’l financial trades ex- in Europe. But,
European Authority - ESMA planning to cancel their license]
CCP Examples in India - Clearing Corporation of India (CCIL), Indian
Clearing Corporation Ltd (ICCL), NSE Clearing Ltd (NSCCL), Multi
Commodity Exchange Clearing (MCXCCL), India International Clearing
Corporation (IFSC) and NSE IFSC Clearing Corporation Ltd (NICCL).
CCP Regulation in India:
RBI - Money transfer b/w buyer & seller: Payment & Settlement Systems
Act, 2007 + Foreign currency transactions: FEMA, 1999
SEBI - Shares, Bonds, Commodities: SEBI Act, 1992 & Securities Contract
(Regulation) Act, 1956 (SCRA)
Investors Types
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Types of Investors:
Depending on Buying Capacity
Qualified Institutional Buyers: expertise & financial capacity - large
investments in capital mkts (ex- MFs, Insurance co., Foreign Venture
Capital Funds etc. - has separate reg. norms thru SEBI
Anchor investors: sub-type of QIBs - offered shares before IPO-launch –
gives confidence to other investors to subscribe given IPO.
Retail investor - individual investor who is not a QIB.
Depending on Buying Behaviour
Jobbers: Full time engaged in buying / selling securities using own
money. (Whereas brokers / commission agents buy/sell using
money/shares of their clients)
STAG (Male Deer): buys newly issued securities from pri mkt & sells in
sec. mkt - quick profit
Bull: Optimistic speculator - hopes share prices ↑ - purchases (to sell
later @higher price) - like bull throw victim up in air, bull speculator
stimulates price to rise.
Bear: Pessimistic speculator – fears ↓ prices => sells – like bear presses
its victim down to ground - bear speculator tends to force down prices
of securities.
Style of Trading / Investing based on duration and risk
Margin Trading: buying more shares, than can afford to. usually by
borrowing from broker – Risky as if investment fails = Huge Debt
Day / Intra-day trading: buy & sell shares over single day's trading, -
speculative intention - profits from small price fluctuations.
Swing Trader: buying share just few days/weeks to sells for profit.
Long term investor: buying for self + holds share > 1yr
Block Deal: large value order placed (ex > ₹5Cr) - usually by institutional
investors (MFs, Insurance cos.)
Contra Trading / investing: investor do opposite of everyone – ex-
Covid – if everyone buys Pharma shares & ignoring cinema shares →
then contra trader invests in cinema shares (hoping after Corona unlock
→ cinema industry will boom & great profit)
SENSEX & other Notable Indices
SENSEX - Sensitive Index = weighted average of Free Float Mkt
Capitalization (FFMC) of 30 cos. selected by BSE officials
NIFTY – NSE’s index of 50 cos.
Nikkei - Tokyo Stock Exchange index of 225 cos.
When SENSEX goes up? RBI’s easy mon. policy → cheap loan & credit
cards → consumers ↑ spending → ↑ profit to co. → more dividend ↑ -
> investor becomes Bullish + Peace, Economic boom / prosperity,
Political Stability + When govt. ↑ FDI limits + +ve News Merger-
Acquisition, New product launched, Envi clearance to factory + If bond
yield ↓ such that bond investor pullouts from bonds & buy shares |
When SENSEX goes down? Tight mon. policy + War, recession, political
instability → Bearish mkt + ↓FDI + -ve News CEO/MD arrest/FIR, Courts
slapping fine, media exposing scandal + bond yield ↑
Force Majeure (French – superior force) - unexpected external
circumstances preventing party to a contract from meeting their
obligations (natural disasters, epidemics, war, terror attacks) - courts
may not punish party for dishonoring contract.
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Sharemarket: 2020- Impact of Corona - ↓ Initial months – panic DEMAT Portfolio: Portfolio = collection of assets held by investor. In
investors – force Majure – then ↑ bcoz – Expansionary monetary policy financial mkt, “Portfolio” = shares/ bonds/ ETF in DEMAT A/c.
+ 'work from home' + RBI loan Moratorium + Unprecedented demand &
profit for IT & Pharma sector
2021-22 observation by ES23- Indian share mkt - volatile 2022-23
due to – US Fed tapering (exiting FPIs) + RUS-Ukraine war (imported
inflation + weakening global economy) + 2023 Adani – Hindenburg
controversy
Proportion of money invested by retailers is falling- ES23
Institutional investors > Retail investment
Retail investors have ↓ed participation in share mkt due to
loss-making IPOs in pri mkt [PayTM] + volatility in sec. mkt - Fed
Tapering , Foreign investors’ exit + global uncertainties - Ukraine war +
Loss of income - job-layoffs in IT/Startup sector
India becomes 4th-largest equity (Share) mkt (2024-Jan) - Ranking
- Combined val (shares listed) on stock exchanges:
US > China >Japan > India ($4.33 trillion) > HongKong ($4.29 trillion)
Reason – Strictness of Chinese regulators - foreign investors shift +
Stable polity + Strong GDP growth

MARKET THEORIES
Efficient Market Hypothesis /theory (EMH)- financial mkts efficient
in processing info & pricing securities => investor CANNOT KEEP earning
more profits than avg trend in mkt
Random walk theory - Share prices – unpredictable => co.’s history
shouldn’t be used to predict future prices => impossible to beat/defeat
share-mkt.
Securities and Exchange Board of India (SEBI) HQ- Mumbai + (1988)
ALPHA AND BETA VALUES - Alpha (Mainly to compare performance Formed by executive order → (1992) Statutory Body → pow ↑ed -
of Mutual Funds) vs Beta (Mainly to monitor price volatility/risk of a amendments 1999 & 2014 + Board : Chairman + 1 RBI officer + 2 Union
share/asset) govt officers + 5 mem appointed by Union govt + Chairman: 5 yrs / 65
age √ Reappointment + 2022: Madhabi Puri Buch-1st woman Ch in SEBI
history + Selection by Financial Sector Regulatory Appointments Search
Committee (FSRASC - also app. RBI Gov) headed by Cabinet Secretary

β > 1 - share moves faster than sharemkt in both directions. High

Reward: if SENSEX ↑ @1x, co. moves >1x speed. High Risk: If SENSEX ↓
- co. share ↓ more [Tech/ Startup/ small-cap cos.)
β < 1 - moves slower than SENSEX. Low risk, Low return.
β = 1 - moves parallel to SENSEX.
β = 0 - uncorrelated to mkt (Mona-Lisa Painting)
β < 0 - asset moves opposite of SENSEX.[Bond/Gold]
Alpha value to compare performance of Mutual Funds
Regulates - Process of issuing securities (Bonds, Shares, IPO, ETF, ReIT,
INVITs, etc.) Securities Contracts Regulation Act, 1956 + Places
(Depositories, Stock exchanges, Commodity Exchanges etc.) + Persons
(Investors, Brokers, Fund Managers, Public Limited companies etc.) +
any Collective Investment Scheme (CIS) of ₹100 Cr/> [after SAHARA
scam & Chit Fund scams] | Further appeal: Securities Appellate Tribunal
(SAT) → SC [SAT also hears appeals against orders passed by IRDAI &
PFRDA |

Alpha > 0 - MF gives better profit than SENSEX
Alpha = 0 - MF performing same as SENSEX
Alpha < 0 - MF gives less return than SENSEX
Types of Analysis – fundamental vs Technical
Fundamental Analysis – Long term Investor studies – Co’s profit, loss,
balance sheet, new products-launch etc. (>1 yr)
Technical Analysis – investor studies - Share price - graphs &
mathematical-indicators [Simple-moving-avg of share price for last 200d
(200-day SMA), RSI, MACD … - Suitable for Intraday & Swing traders
Budget-2021: Securities Market Code : create single new law
"Securities Markets Code" - merging SEBI Act, 1992 + Depositories Act,
1996 + Securities Contracts (Regulation) Act, 1956 + Govt Securities Act,
2007 | SEBI Investor charter - applies on Entities (investors, mutual
funds, stock brokers, stock exchanges, depositories, underwriters, REITs,
InvITS, & other collective investment schemes) & on Events (IPO, FPO)

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

SEBI: why protect investors & ↑ investors participation?
Share mkt scams = erode publics’ hard-earned savings → social ills +
Duped investors - may choose gold / real estate = import-bill, black
money | If households don’t participate in capital mkt → cos. - banks
for loans – ltd. lending capacity - CRR, SLR, PSL, NPA, PCA.
If more retail investors participate in capital mkt = “Deepening of capital
mkt” → factory expansion, job creation, eco growth.
measures to ↑ retail investors participation- 25% public holding
in Govt Companies Budget 2019: For all listed govt companies - min
25% public shareholding + min public shareholding in listed pvt sector
companies: 35%.
covers investors’ ‘non-speculative’ losses. Ex- if not delivering shares coz
of court case + IPF promotes investor edu & awareness.
SERVER CRASH PROTECTION
SEBI’s BCP Plan & DRS Sites - SEBI designed biz continuity plan (BCP)
for market infra institutions (MIIs) (1) stock exchanges, (2) depositories,
(3) clearing corps + MII must have a disaster recovery site (DRS) – if
disruption in server @primary site (PR) - move data/op. to server @DRS
site.→ 2024-March: BSE & NSE mock drill / special trading sessions for
this.

SEBI Reforms to boost investors’ confidence?

Circuit breaker : Harshad Mehta (1992), Ketan Parekh (2001) bank
money – rigged share prices - windfall gains during Bull-runs by other
investors + Once prices crashed, small investors suffered -> To prevent
SEBI : Circuit Breaker System - fluctuation in share prices >x% than IRRA Portal: Investor Risk Reduction Access (IRRA) - ‘safety net’ for
previous day, then stock exchange must stop trading for “y” minutes. investors during tech glitches/server errors - cancel/close trade - during
server errors + jointly developed by all stock exchanges – BSE, NSE,
NCDEX, MCX & Metropolitan Stock Exchange of India (MSE)

ADANI HINDENBURG, FLASH CRASH, SHORT-SELLING (2023)

T+1 day Settlement instead of T+2 day
Carry forward system: Buying shares - borrowed money -promises to
carry forward settlement for upto 72 days. scamsters misused -> SEBI
new sys 2001 - (T+2) rolling settlement sys - after trade - parties must
settle it within 2 working days (= buyer pays money, seller deliver
shares/bonds/securities). -> 2022: T+1 settlement started.
T+1 hour settlement & T+0 hour (instantaneous) settlement T+1
hour : Within 1 hour, Payment-delivery concluded [Mar 2024]
T+0 hour : instant/instantaneous settlement. [October 2024]
Hindenburg Research firm (US) alleged Adani doing stock manipulation,
accounting fraud, money laundering, too much loans beyond capacity to
repay etc. -> investors panicked - started exiting Adani shares at loss -
Shareprice fell = Flash Crash = term to describe sudden (& huge) ↓
share price - profit thru short selling of Adani shares. + SC setup panel to
investigate Adani share crash & other regulatory aspects for stock
markets.
Short selling (make profit from falling share price) occurs when
investor borrows share then sells it in market hoping buy back later for
lesser price

Illegal Trading:
Dabba or Box Trading / Bucketing: Trades in unofficial books/ ledgers of
unscrupulous broker – may/ may not execute orders in DEMAT A/C -
prone to scam, NO tax
Insider Trading: if insider (co. associated person) uses confidential info
(like new product launches, patents, merger, acquisitions) for
buying/selling shares to make windfall gains
Front Running: ex - LIC Mutual Fund manager knew LIC-MF is about to
invest in X co. -> bought shares of X in advance personal A/C (to profit
when price ↑ after LIC-MF starts buying). SEBI banned him.

Algo Trading & Co-Location

Finfluencers (influencer - advicing on financial investments via social

media): Arshad Warsi banned from Sharemkt - wrong advice on behest
of share mkt scamsters. SEBI punishes

ONLINE TRADING PLATFORMS G-SEC→

G-Sec Trading- Retail investors’ RDG @RBI
RBI “Retail Direct Scheme” 2021 - permits “Retail Direct Gilt (RDG) A/C”
for retail investors on E-Kuber + Both Resident Indians & NRIs can open
A/C -> Retail investors can directly buy T-Bill, G-Secs, SDL & Sovereign
Gold Bonds, from RBI directly. [0 fee] => Benefit : 1) Earlier bought
Investor Protection Fund (IPF) - Stock exchanges (BSE, NSE etc) &
through MFs – fees + 2) Retail participation = Deepening of G-Sec mkt
commodity exchanges (NSEL, MCX etc) required by SEBI to setup IPF =

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
G-Sec Trading: RBI's NDS-OM, OTC: RBI owns & regulates Negotiated
Dealing Sys (NDS) for trading in G-Sec. + NDS is maintained by Clearing
Corporation of India Limited (CCIL co. founded by SBI, IDBI, ICICI, LIC etc)
+ NDS - records transactions of G-Sec buy-sell. NDS components:
Telephonic (buyer/seller call to make deal & then inform RBI’s NDS) +
Over-The-Counter (OTC - physically walks to seller's office (or vice-
versa) – transact & report to RBI's NDS) + NDS-OM (Negotiated Dealing
System-Order Matching sys: electronic, anonymous, order driven
trading system for dealing in G-sec's sec. mkt. - Buyer-seller orders
online w/o knowing any info about each other)
Bid-Ask Spread Share – Bidding price (600) – Asking price (800) –
Spread/Gap(200) => Bid-Ask Spread is high => liquidity of asset ↓es -
difficult to sell -> deal can’t happen
Arbitrage: Making profit due to difference in price due to
markets/location. (Ex- difference in gold price in DL, Mumbai = Arbitrage
-> Dealer can buy from Cheap place & sell to make a profit (arbitrage) in
other place) | nowadays arbitrage in financial assets (share/bond etc) =
v. low coz online trading.
Investment Funds → Mutual fund (MF) for aam-aadmi
Mutual Fund = Asset Management Company (AMC-NBFC) - pools
savings of (retail) investors -> gives them “Units” + MF Manager parks
this money in securities & builds ‘portfolio’ +
dividend/ interest generated from portfolio -is distributed among
investors in proportion of their units
Investor pays Entry Load (= fees for joining), Exit Load (= fees while
quitting). Regulated by SEBI
Low Bank deposit rates -> people invested in MFs BUT post-IL&FS crisis,
corona crisis, charm ↓ as MFs subject to mkt risks.
“Side pocketing”: SEBI ‘s guideline - help MFs to separate stressed
assets from standard assets – protect investors
MF: Hybrid mutual funds→Type of MF -> Invests money in
Equity-MF –> Shares | Debt-MF -> Bonds instruments | Hybrid-MF ->
Shares and Bonds both | Multi-asset -> Shares, Bond & Gold.
MF: Open ended vs Close ended Open ended – Fund Size : Unlimited
(everyone welcome & can subscribe when client wants w/ no maturity |
Close ended – MF manager stops accepting money when fixed size is full
(say 50Cr) / closing date is over + Fixed maturity period (say 5 yrs)
MF: Lumpsum (One-off – client contributes only 1 time) vs SIP -
Systematic Investment Plan - contributes regularly (ex-monthly)
Mutual fund → ESG, Shariya Mutual Funds
ESG MFs= invest money in cos - good performance on Environmental,
Social, And Governance (ESG) aspects.
Shariya MF = invest in cos compliant w/ Islamic Shariya law (not in
alcohol, pork, gambling etc)
Mutual fund → SIP, ELSS, ULIP
Traditional MF = client invests entire amount at once | SIP= client
deposits small-small fixed amounts at fixed intervals (monthly) | Equity
Linked Savings Scheme (ELSS)= sub-type of MF –amount locked for 3 yrs
& invested in equities (shares) + certain benefits in Income Tax | Unit
linked insurance policy (ULIP)= invest in scheme some ₹₹ to MF &
some goes to insurance policy
Mutual fund → Mutual fund risk-o-meter SEBI requires MF co. to
disclose risk present in their scheme, on monthly basis, thru a digital
dashboard called 'risk-o-meter' + 6 categories of risk: low, low to
moderate, moderate, moderately high, high, very high risk. + helps
investor make decision- based on risk appetite.
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Investment Funds → Hedge Fund for rich | Sp. type of MF for HNI
(High Net Worth Individual) - high risk high return. SEBI norms: Min
investment per person ₹1 Cr + Hedge Fund manager invest in Junk
Bonds, Risky assets; risky trading activities - Arbitrage, Leverage, Short
Selling, Future&Options(F&O) trading, Derivatives Trading etc. to
generate max return.
Investment Funds → REITs / InvITs: for rich
REITs: Real Estate InvITs: Infrastructure Investment
Investment Trusts Trusts
Who invest? HNI / ₹1 lakh (2019: SEBI ↓ min limits to
institutions: Min. ₹50k attract investors)
investment (earlier ₹2L)
Parks in real estate projects In airport, highway, thermal plants, gas
soon to complete + earn grid etc. + earn from toll collection at
income from rent / sale. highways, services fees at airports …
Blackstone-Embassy group IRB, India-grid
Benefits: New finance for Stressed developer to finish project &
opportunity for to invest & may also sell units to 3rd party via stock
exchange. SEBI permitted these instruments in 2014
Investment Funds → Sovereign Wealth Fund
State owned investment fund – Central Bank, Fin Min & other public
sector FIs park their surplus fund -> used for investment [Ex. 2020-Jun:
Abu Dhabi Investment Authority (ADIA) bought 1.16% of Reliance Jio for
₹5600+Cr. Singapore's GIC sovereign wealth fund, Qatar Investment
Authority (QIA) also active in Indian mkt]
Investment Funds → CPSE-Exchange Traded Funds (ETF)
Disinvestment : govt sells it shares from Central Public Sector
Enterprises (CPSE) keep shareholding > 51%.
Privatization: Govt shareholding <51% [NITI – ‘Strategic Disinvestment]
2014: Govt wanted to disinvest 10 CPSE (ONGC, GAIL ltd etc) - If govt tried to sell
individual co.- shares - time consuming & price issue => Govt gave CPSE-shares to
fund manager Goldman Sachs -> created new securities out of it “Exchange
Traded Funds (ETF)” & made “New Fund Offer (NFO)” to public to subscribe
securities @ ₹ 10/unit + If investor holds ETF → returns from dividend by CPSE-
companies in backend + can sell ETF to 3rd party via stock exchange, hence called
Exchange Traded Funds.
BHARAT-22: Another CPSE-ETF when Govt wanted to disinvest shares from 22
cos. including CPSE, PSBs & UTI using ICICI Prudential as fund manager (2017-18)
– But PSB-NPA problem → ↓ dividends (↓returns) → investors response was
initially lukewarm -> Later govt announced, “income tax benefits to CPSE-ETF-
investors” to attract investors.
Bharat Bond (Debt) ETF (2019) | Fund Manager (Edelweiss Asset
Mgmt ltd) → will issue Bharat Bond-ETF + Maturity: 3 & 10 yrs + Unit
Size: ₹1k each (attract middle-class investors) + Manager invest into
basket of bonds of CPSE, Central public FIs (PSB/ Ins. Co.)& other govt
org. + tradable @ Stock exchange | Benefits? Govt cos = Easier &
efficient to borrow ₹₹ comp. to individually launching bonds + Investors
= Safety, assured return on bonds, irrespective of profit Govt + Retail
participation → deepening capital mkt.
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

CPSE-ETF vs Mutual Fund Investment Funds → Alternative Investment Funds (AIF)

Mutual Fund
Objective = invest clients’ money in
shares/bonds
Fund managers may buy/sell variety
of shares & bonds of Govt & pvt cos.
for best return
Fund manager may also change
portfolio [Profit motive based on
returns]
manager charges higher fees
INDEX-ETF: A TYPE OF PASSIVE FUND - invests in cos. in proportion
to stock-exchange weight assigned to those cos.
CPSE-ETF
Objective : help govt for its
disinvestment / govt co. borrow
money (Bharat-Bond ETF)
Not for this - objective above.
Fixed Portfolio (list of govt Cos.’
shares/ bonds) = no change.
lower fees.
AIF Category I = generate +ve spillover effects on economy. Ex: Venture Capital
Funds, Angel investors fund, SME Funds, social venture fund, Infrastructure
funds. SEBI : relaxed norms
AIF Category II = Neither in Cat-1 nor in Cat-3 E.g. Private Equity or Debt Fund
AIF Category III = excessive risk - high returns in short time. Ex- Hedge Funds, P/E
Funds. SEBI strict norms - may destabilize capital mkt
Forward / Future Contracts & Call / Put Option
Forward / Future contract = customized contract b/w 2 parties -
settlement on future date @price/quantity agreed today. Ex- on
1/5/2025 I shall sell you 100 nos. of Infosys shares at ₹1000 each + risk
other party not honoring commitment => for protecting (=hedging)
themselves, they (buyer/seller) may buy “Option” from 3rd party by
paying fees.
Option = type of insurance for executing forward/future contract in
manner beneficial to them Ex- I’ll sell ₹1000 on X date, & you must buy,
but if I’m getting another buyer who is willing to pay ₹1500 then I may
not sell you & you can’t compel me. Such ‘insurance options’ are further
subdivided into Call Option & Put Option.
Hedging = Act of purchasing options to prevent your losses.

Derivatives & Swaps

Index-ETF
Managed Passively. Manager
mechanically invest into external
indicator/ index/asset w/o Logic
e.g. Index-ETF
Fee charged : less
Liquidity : higher/easier
Can be resold in sec. mkt
Mutual Fund
Managed Actively. Manager apply
brain before investing - checks
balance sheet & future expected
profits.
more
lower/slower
difficult for close-ended MF w/ fixed
maturity period ex- 3 yrs.
Derivative =contract whose value is derived from value of underlying
asset ( share, bond, commodity or currency + They’re usually generated
by process of ‘securitization’. E.g. NHB taking loan papers from banks,
using them to generate new Mortgage Backed Securities.
SWAP = derivative instrument to swap 1 financial asset w/ another
(usually) to reduce risk e.g. Currency Swap Agreement b/w 2 countries
to protect themselves against dollar volatility
Similarly, there are Credit Default Swap (CDS) agreement against risk of default,
Interest swap agreement to protect against volatility in interest rates.

BITCOIN ETF APPROVED IN USA (2024)
2024: USA’s share market regulator i.e. Securities and Exchange
Commission (SEC) approved Bitcoin ETF. (India has not)
Pros - no anonymity to investor = easier for Govt to tax + helps bypass
complexities of buying BTC from unknown websites + ↓ price volatility
(as when MF/ Ins. Co./ institutional investors -> invest => not randomly
run away for smallest -ve news => stable prices) Cons – fee to stock
exchange for buying & selling
Gold-ETF | manager buys gold for safekeeping & trades it depending
on price movts → returns divided among unit-holders + In b/w, investor
may sell Gold-ETF to 3rd party via Stock Exchange => they’re also
Exchange Traded Funds.
Participatory notes (P-Notes) = Offshore Derivative Instruments that
derive the value from underlying Indian shares & bonds.
Foreigner -> invest in India but Not register w/ SEBI - get PAN – open
DEMAT A/c => approach SEBI registered FII/ FPI like Morgan Stanley,
Citigroup, Goldman Sachs -> will pay & instruct them to purchase
particular shares & bonds & store them in their Demat a/c -> Then FII
will give P-Notes, & will receive interest & dividend accordingly + may
also sell those P-notes to 3rd party.
Harmful for Indian economy coz = investors not registered w/ SEBI +
Identity of actual investor, source of funds disguised= Tax evasion,
money laundering, terror finance + If owner sells to another foreign
investor, GOI tax may ↓ (Scenario - Indian share owner selling shares to
another Indian investor @profit -> govt get securities transaction tax &
capital gains tax on profit [PAN linked w/ DEMAT] => SEBI tightening
norms ex- “X” category of FPIs can’t issue P-Notes. “Y” category of FPI
can issue P-Notes but every time they issue P-notes-they’ll have to
deposit $1,000 to SEBI etc.
Bharat-DR: Foreign Co. wants Indian to invest in its foreign shares, w/o
registering w/ SEBI.
ADR/GDR: Non-American Company wants American people to invest in its
shares w/o registering w/ American regulator.
Masala/Panda/Kangaroo Bonds etc - Foreign co./org wants to borrow
money, in particular currency from particular country.
Credit Default Swap (CDS)
= instrument to protect
lender/ bond investors from
loan default by borrower +
Topic in news, due to some
scam in Swiss Bank “Credit
Suisse”

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Tax on Investment / financial assets – depending on investment/
transaction type – Taxes like income tax, capital gains tax, securities
transaction tax, commodities transaction tax, stamp duty …
Tax relief given on
Bank FD (sp.type) - 5-Yr Tax Saving FD w/ Banks
Small Savings / social security : Public Provident Fund (PPF);
Employee Provident Fund (EPF); Sukanya Samriddhi Yojana (SSY)-
Fixed bank deposit for daughter; National Savings Certificate (NSC);
Senior Citizen Savings Scheme (SCSS)
Pension/Insurance - Unit Linked Insurance Plans (ULIPs), National
Pension System (NPS), EPFO
Share mkt - Equity-Linked Savings Scheme (ELSS)
Bonds - Tax-Free bonds by some (NOT ALL, only Some) of Govt
companies/statutory bodies like NHAI, Indian Railway Finance Corp
(IRFC), Power Finance Corporation (PFC), Housing & Urban
Development Corporation (HUDCO), India Infrastructure Finance
Company Limited (IIFCL) etc.
Donations - Election donation, PM-CARES funds, Army Welfare
Fund etc.
Location based - Investments made from GIFT City (GJ)
Tax relief NOT given on Interest income on Bank Savings A/C -
Sovereign Green Bond, Municipal Bonds, G-Sec, T-Bill; Shares,
Company Bonds; Futures, Options, P-Notes; Mutual Fund, REITS,
InVITS, ETF; Bitcoins & Cryptocurrency (30% Tax); Property, Mona-
Lisa Painting, Gold-Silver etc precious metals, Diamonds,
Racehorses etc.
FSB (2009) Financial Stability Board - brainchild of G20 HQ: BASEL = +
Global Financial monitoring, Coordination b/w national financial
regulators bodies. India 3 seats in FSB 1. Dept of Eco Affairs Secretary 2.
RBI Dy. Gov 3. SEBI chairman
FATF (1989) - Financial Action Task Force - brainchild of G7 HQ: Paris +
India mem (2010) + Combats Money laundering & terror finance.
IOSCO – Int’l Org. of Securities Commissions – int’l body of world's
securities regulators. SEBI is a member. + Guidelines for Investors
Protection & risk prevention
NISM- capacity building for financial market professionals -
National Institute of Securities Markets =educational institute by SEBI.
HQ: Mumbai, Foundation Yr-2006 👛Budget-2023: NISM to conduct
more training courses for financial Mkt + will give degrees, diplomas &
certificates for courses.
Pillar#1C-2: Corporate Governance
Company types

COMMODITY MARKET, FMC, SEBI MERGER

Commodity mkt / exchange = bulk trade goods in food grains, cotton,
precious metals or energy resources (coal, oil gas) + were regulated
under Forward mkt Commission (FMC) under Min of Consumer Affairs &
Public Distribution -> Scams => FMC transferred to Fin Min & later
merged with SEBI (2015) | “Commodity Futures”: Type of contract for
future delivery & settlement of commodity Ex-. “on 1/5/2025, I shall
deliver 500 quintals of wheat @ X price”.

Commodity Market: Gold exchanges = sp. type of commodity

market devoted only to Gold trading. + Budget-2021: reforms in
regulation of gold exchange mkts 1) SEBI as regulator 2) Warehousing
Development & Regulatory Authority (WDRA- Statutory body under
Dept of Food & Public Distribution) - responsible for Warehousing/
Vaulting, Assaying, Logistics of gold exchanges.
Co. types based on incorporation
Chartered Cos. - Setup by charter of king / queen - EIC (1600)
Statutory Cos. – sp. Parl/SL acts – ex- RBI, LIC, SBI.
Registered Cos. – reg. u/ Companies Act, 1956 (& later 2013)

Commodity Market: Electronic Gold Receipts (EGRs) Stage1: Gold Co. types based on # of mem:
cos. deposit gold in warehouses authorized by WDRA -> Stage2: Private ltd. Public Limited Company (Companies Act 2013)
Warehouse manager generates Electronic Gold Receipts (EGRs) -> Min. 2 to Max. 200 Min. 7 to Max. unlimited number (depending on
shares issued & purchased by people)
Stage3: EGR listed on SEBI regulated electronic gold exchanges. → Buyer
Can’t invite public can invite public at large, to subscribe to its shares &
can buy quality assured gold - electronically + may sell EGR to other/
at large to buy bonds. If shares listed on BSE, NSE etc => ‘Listed Public
may goto warehouse to collect physical gold. | Benefits: 1) Assured shares/ bonds (can Ltd. Co.’ (e.g. Reliance), else ‘Unlisted Public Ltd Co.’
quality. 2) Tax evasion difficult (SEBI monitored) invite pvt investors) (India Post Payment Bank : IPPB)
Directors min 2- Min 3 to Max 15. Must 1=Indian Resident, 1=Woman +
Commodity Market: India’s 1st bullion exchange (2022) = IIBX max 15 1/3rd=independent directors (persons w/o any
India International Bullion Exchange (IIBX) @ GIFT City, GJ; pecuniary interest in co. - supposed to protect
Bullion = physical gold & silver of high purity stored as coins, biscuits or minority shareholders)
bricks (ingots). + Bullion mkt/exchange = where large quantity of gold & No Term limit Directors have age & term limit.
silver traded for 24/7 basis. Corporate Companies Act requires - hold specific annual
governance Norms meetings of BODs, norms for quorum, e-voting
either not mechanism, appoint Company Secretary, Implement
♀️ BODIES WITH SIMILAR SOUNDING NAMES applicable or mechanism for protecting whistleblowers …
FSDC (2010) Financial Stability & Development Council: Chair – FM + relaxed.
Other mem RBI Gov; SEBI/IRDAI/PFRDA/IBBI chiefs & govt officials.
Functions? Supervision of economy & large financial conglomerates,
coordination among financial regulators, financial literacy & financial
inclusion. + Secretariat assistance by: FinMin → Dept. of Economic
Affairs

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Company types based on Ownership Unclaimed shares and dividends of IEPF & Budget-2023
Government / Public Sector : Govt owns 51%/> shares. Ex: SAIL, IPPB,… Investor Education & Protection Fund Authority (IEPF) = statutory body
Private Sector: Pvt parties own 51%>. Ex- Reliance, Tata, Adani | in Companies Act, 2013. + Ex-officio Chair = MCA Secretary + looks after
Holding Co. = owns majority shares in another co. Ex - Tata Sons ltd. unclaimed shares, bonds, dividends, interest etc. -> uses such money for
holds majority shares of TCS, Tata Steel, Tata Sky etc investor awareness | 👛Budget-2023: if wants to ‘reclaim’ unclaimed
Subsidiary Co. = controlled by parent holding company. E.g TCS, Tata shares & unpaid dividends from IEPF → IT portal to help file application
Steel, Tata Sky are subsidiary co of Tata Sons.
Ministry of Corporate Affairs also associated with:
Company Types: Misc. Chartered Accountants Act 1949 - Regulates CA profession through a
Under Companies Act : Statutory body: Institute of Chartered Accountants of India (ICAI) |
One Person Co.: spl. type of pvt ltd co. – Only 1 mem + Bud-2021: OPCs- Company Secretaries Act, 1980 Statutory Body: Institute of Company
Legal reforms [1) allow NRIs to easily register OPC in India [2) Ease Secretaries of India (ICSI) | Cost and Works Accountants Act, 1959
conversion of OPC to other type Statutory Body: Institute of Cost Accountants of India (ICAI) | All 3
Not for Profit Co.: e.g. GSTN, NPCi… = profit re-invested in biz expansion has IPA status under IBC.
- tax benefits & relief in frequency of submit data to MCA Legislative Responsibilities of MCA: 1860: Societies Registration Act- for
Dormant Co.: A) setup to start biz in future B) setup to store intellectual registration of literary, scientific & charitable societies. Ex. Sahitya
property C) not filled annual returns for 2 consecutive yrs. Akademi, National School of Drama etc. + 1932: Partnership Act
Under Limited Liability Partnership (LLP) Act 2008 - LLP Co. formed by +Companies Act 1956 → 2013. + 2008: Limited Liability Partnership Act
min 2/+ partners + Individuals shielded from joint liability of partner's E-governance initiatives of MCA Simplified Proforma for Incorporating
wrongful biz decisions or misconduct. Ex - Vajiram & Ravi IAS – LLP + Companies (SPICe) online form – reg. new co. + MCA-21 portal – Cos.
reg.fees, auditing norms, tax liabilities, winding up process - flexible than can file online doc related to Companies Act compliance + e-scrutiny, e-
a (public or pvt) ltd. Co. of Companies Act. Adjudication, e-Consultation & Compliance Management.
Under Indian Partnership Act 1932 Partnership firm – 2/+ partners + Officers - Indian Corporate Law service (ICLS) via UPSC CSE-exam
Each partner liable jointly w/ all other partners for losses, wrongful biz.
decisions & misconduct. Companies Act: EoD- Central Data Processing Centre in Budget-
2023 In past, MCA – many E-Gov initiatives - helps co. to register &
Corporate Governance → Small Companies - compliance relief upload docs - Ex MCA21, SPICe, SPICe+ etc. | Budget-2023: setup
💼Budget-2021: Cos w/ paid up capital < ₹2Cr & annual turnover < ₹20cr Central Data Processing Centre - faster form processing - filled by cos.
= ‘Small Companies’ -> relief in Companies Act wrt compliance ex – under Companies Act. [Ease of doing biz for cos.]
frequency to submit accounts & ownership related documents to MCA
Corporate Governance - ensure co. is run w/o any scams/scandals.
Commercial Orgs: Other Types [PSU, CPSE; MSME; Startups] Companies Act - provisions Ex- Term limits on BoD + independent
directors to protect minority shareholders + women directors + Limit on
Statutory bodies in Ministry of Corporate Affairs (MCA) CA which he can audit + Protection for whistleblower, co. secretary +
Competition Commission of India - Competition among cos= consumer SEBI can also issue directives. Ex- splitting CMD post. + Committee for
competitive / affordable prices for goods & services - prevent improving corporate governance: Uday Kotak (2017).
cartelization (price fixing/ production fixing by gp of Cos.), prevent Corporate Social Responsibility (CSR) - Mandated under Companies
monopoly (single company commanding the production / supply), Act 2013: Last 3 yrs' avg. profit → spend 2% on CSR (edu, envi, public
protect consumers + freedom of trade. health, sanitation, disaster mgmt etc.) + Applicable on both public &
1970: Monopolies and Restrictive Trade Practices (MRTP) Act. -> private ltd. with high turnover + MCA gives National CSR awards
Replaced by Competition Act, 2002- w/ statutory regulator CCI: 1 Chair +
6 Mem) -> In past, CCI imposed penalties on cement cos, real estate cos. NSE Prime regulation for corporate governance (2022) - voluntary
+ investigating telecom cos for alleged cartelization -> Competition framework - set of higher standards of corporate governance for Cos.
(Amendment) Bill, 2022 to ↑ CCI’s pow. | Appeals against CCI -> NCLAT listed on NSE stock exchange.
Google pe Penalty by CCI
Takeover related terms
Insolvency & Bankruptcy Board of India (IBBI) statutory body under Friendly Takeover – When BOD approve selling co. to another co.
Ministry of Corporate Affairs (MCA) Hostile Takeover – Person takes control w/o consent of target co.’s BoD
National National Financial Investor Serious Fraud
Company Law Reporting Education & Investigation
Tribunal (NCLT) Authority (NFRA) Protection Fund Office (SFIO)
Leverage Buy-Out (LBO) ex- Musk borrows money to acquire majority
shareholding in Twitter (“X”).
Mem : Judicial + Chair + mem Boss: Corp. Civil servants &
technical; Affairs Secretary financial experts Poison Pill against Takeover by Twitter = strategy adopted by Co.
Benches @DL, + mem from RBI,
Kolkata, Jaipur… SEBI, financial (Twitter) to defend against hostile takeover (By Musk) -> give extra
experts shares to existing shareholder to make % shareholding composition
Appeal: NCLAT NFRAA (Appellate Regular Courts Regular Courts unfavorable to new buyer taking over (Musk).
Authority)
Cases: Hear cases Sets standards for use unclaimed Investigate white- De-Merger When a company subdivided into multiple companies. Ex-
wrt to Auditors & CA, in money from collar (financial)
Companies Act listed cos. & large shares/ bonds frauds. Powers to
TATA Motors -> planning to divide into (1) truck (2) cars & EV
Act, Board room unlisted cos. -> If for financial search,
battles, Merger- malpractices-> literacy & seize,arrest.
Acquisition, investigate & awareness Once SFIO gets
Corporate debar, Powers of case, other
Insolvency & civil court. agencies (like CBI)
Bankruptcy (I&B) can’t proceed.

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Pillar # 1D: Insurance, Pension & Financial Inclusion Life Insurance – Types
Life Insurance Type → Money @Maturity @Death
Insurance: Meaning & Significance returned?
insurance policy = Debt instrument / Legal contract against Whole life= Longer policy: (ex 35-40 √ savings √
eventualities of death/damage. yrs) returned w/
Indemnification = process of insuring someone/something & paying Endowment= Shorter policy: (ex 10- interest
compensation, if any death/loss. 20)
Parties in contract: Insured/ client <=> Insurer/ Underwriter Term life= Short Policy, Low Premium X √
Insurance -> stability to households (against death, disability, e.g. PM Jeevan Jyoti Bima Yojana
damage) & entrepreneurs (against fire, theft, natural disasters etc.) + ULIP: Unit Linked Insurance Plans: √ savings √
Insurance cos. invest clients’ premium in projects -> channelizing Some money in ins. & some in MF returned w/
savings towards investment & economic growth. some profit

Insurance Principles
Uberrima fides- Good faith, hide nothing. ( HIV+ health ins.)
Indemnity- Only REAL loss, not imaginary (X join MBA book burnt)
Subrogation- can recover from negligent 3rd party [Ex- fire ins. → fire
due to faulty boiler → ins. co. can recover from boiler maker]
Causa Proxima - Direct loss link. [X buy policy for Modi ji]
Insurable interest- If “risk-x” not happen, client in same position,
“risk-x” happens = bad position (X win lottery= X insurable interest)

History of insurance in India

(1818): Europeans started ins. Cos. – w/ higher premium on Indian
Life Insurance → public sector
clients - racist bias - inferior race = ↑ probability to die.
(1870): Bombay Mutual Life Ins. = 1st swadeshi Life ins. Co. [No extra
Post Office Life Insurance
premium on Indians]
Postal Life Insurance (PLI) Rural PLI
(1912): Life Ins. Cos Act to regulate them - lax norms – problems like
Started 1884 Employees in Panchayat/ Started 1995 For
bank sector – ins. industry - aftermath of Great Depression in US
municipal employees, Public sector co., Villagers, schemes
(1938): Insurance Act = tougher regulation.
PSBs, University, Coop bodies; Pvt sector like Gram Suraksha,
Like banking, ins. industry - nationalized after independence due to
Professionals; Private sector cos’ Gram Suvidha, Gram
scams, financial inclusion & FYPs
employees of listed co. Ex Schemes = Santosh, Gram Priya,
CHRONOLOGY (Nzn = nationalization)
Suraksha, Suvidha, Santosh, Sumangal, Gram Sumangal, etc.
1948-49 RBI Nzn | 1955 1956 LIC Act took over ~245 (pvt
Yugal Suraksha, Bal Jiwan Bima
SBI Nzn | 1969 Nzn of 14 owned) Life ins. Cos. | 1972 GIC Act:
Pvt Banks | 1980 Nzn of 6 GIC & its 4 subsidiaries tookover
Post Offices Services: G2C & B2C
pvt Banks ~107 (pvt owned) General ins. Cos.
G2C (Govt to Citizen) B2C (Biz to Citizens)
Reforms: Narasimham ‘91 Malhotra Committee 1993→ Pvt
Application forms for PM Fasal Bima, Bharat Bill payment
& ‘98 ins. Cos. - allowed, FDI liberalized
PM Street Vendors' Atmanirbhar Nidhi; sys bills (electric, gas,
Safeguards: CRR, SLR, Investment Pattern, Solvency
PM Jan Arogya (Ayushman Bharat); PM water bills, etc.);
BASEL Margin [ex- must invest min. “x%”
Shram Yogi Maan-dhan; PM Laghu renewal premium
of premium in G-Sec, can’t invest >
Vyapari Maan-dhan; National Pension collection for Life Ins.
“y%” premium in pvt cos.’ shares/
Scheme; PAN card eKYC, Election Card policies & General Ins.
debentures etc. must not invest in
Printing; e-Stamp (i.e. buying stamp- (motor vehicle, health
cos. <“AA” credit rating etc.
paper for property registration etc.) & fire ins. etc.)
Financial Inclusion, Rural & Social Obligation Norms:
Welfarism : PSL norms + every yr “x” policies in rural areas, Life Insurance Corporation of India (1956)
25% unbanked rural PH/backward etc + invest min. “x%” To nationalize pvt life ins. Cos. → LIC Act, 1956 [LIC statutory corp.]
branches in affordable housing projects, State 2018: LIC became majority shareholder in IDBI bank.
Govt’s fire equipment etc. else 2021:Govt ↑retirement age of LIC chair to 62 yrs (from 60)
penalty by IRDAI
LIC regulation 1938 Insurance Act |1956 LIC Act |1999 IRDAI Act
Delivery Channel : Bank Ins. Intermediaries: Agents/ LIC’s Aam Aadmi Bima Yojana (AABY – 2007 ) for BPL &
branch; Business brokers; Bankers selling insurance marginally above poverty line citizens in occupations like carpenter,
Correspondence Agent (Bancassurance); Surveyor/Loss cobbler, blacksmith etc. | Death ₹30k | Disability ₹37.5k-75k | Child
(BankMitra) Assessor; 3rd party Administrators scholarship (9th-12th) ₹1.2k/yr
(e.g. Hospital - treatment for health Premium (Total Rs. 200/-)contri – Union social security fund inside LIC
ins.) pays ₹100 & Beneficiary (OR State/Central Dept if they want to do it)
pays ₹100

LIC’s Disinvestment (2020) : Bud-2020: LIC Act amended → IPO →

2022: SEBI permitted IPO-> Govt sold 5% shareholding (earlier 100%)

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

PM schemes for Life Insurance & Accidental (Gen) insurance Unorganized sector worker X
(2015) Ex- Cobblers, blacksmith,
PM Jeevan Jyoti Bima PM Suraksha Bima Yojana carpenter, coolie
Yojana (PMJJB) = LIFE Ins. (PMSBY) = General Ins. Organized sector workers Ex- Covered*
Age 18-50 yrs w/ bank A/C 18-70 yrs w/ bank A/C in India. working in registered co./factory
in India. NRIs eligible but NRIs eligible but payment in Rs. Informal worker= No formal job X
payment in Rs. Only. Only. contract with employer
Purchase from LIC/ any 4 Public Sector/ any empaneled Formal worker = job contract Covered*
empaneled pvt. life ins. Co. pvt. General Ins. Co. *under conditions – min. # (workers) in factory, salary lvl, …
Premium: Rs. 436/yr/person Rs.20/yr/person
[Before 2022 was ₹330] [Earlier 2022 ₹12] Employees' State Insurance Corporation
Nature of Plan 1 yr “term” 1-yr “term” accident cum death 1948: Employees' State Ins. Act → 1952: ESIC Corp. (ESIC) setup
LIFE ins. = no death, no ins. under Labour Min
money returned. ESIC applicability? COMPULSARY for - any non-seasonal
Return? Any type of death: Accidental Death ₹2L: murder, establishment w/ 10/> employees & hazardous industry w/ <10
₹2 L natural disaster etc. workers (firecrackers, toxic chemicals, acid – Before 2020 this was
₹1L : Loss 1 eye/hand/leg Voluntary) | VOLUNTARY - If establishment <10 workers → Non-
Max. ₹2 Loss 2 organs/> hazardous industries
(Suicide, alcohol-drugs related ESIC subscribers – monthly salary <21k/-
death ineligible) ESIC Premium? “x%” of employee’s wages+ “y%” by employer
covers both permanent employees & casual/temporary employees
Neither scheme gives hospitalization cost. + premium auto-debited
from bank a/c, after person applies
FAQ: Seasonal vs Temporary (Casual)
Seasonal industry – Ineligible for ESIC ex- Farm laborer, salt-pan
General Insurance (GI) = policy other than ‘life insurance’ ex
worker, marriage orchestra, marriage catering etc.
Accident ins., Health Ins., Crop Ins., Fire-Theft-Marine & Vehicle Ins.
(Casual) Temporary worker in non-seasonal – Eligible for ESIC ex-
Public Sector GI Entities: Timeline worker employed in a newspaper factory for 1 month; Newspaper co.
1948 : ESIC Employees' State Ins. Corp. under Labour Min. – Parl Act - itself is non-seasonal but workers are temporary.
protect selected category of workers.
An ESIC subscriber - benefits: Medical ins. for worker & family
1957 ECGC Export Credit Guarantee Corp. of India under Commerce
from day#1 of joining + Maternity Benefit to women employees +
Min. – ins. cover to exporters, & credit guarantee to Bank/NBFC
Monthly pension to family, if worker dies by employment related
loaning exporters.
injuries + Sickness benefit: partial wages during medical leave. +
1961 DICGC Act: banks must buy deposit ins. from DICGC (doesn’t
Monthly payment on disability + Unemployment allowance if
directly sell ins. policy to any individual/biz
involuntary loss of employment- through scheme ‘Atal Bimit Vyakti
1972 General Ins. Nzn Act: 107 (pvt) GI cos. taken over by GIC & its 4
Kalyan Yojna’ | One IP-2 Dispensaries = if insured person (IP) =
subsidiaries (viz. National ins., New India Assurance, United India Ins.,
migrant worker in Surat, while family in Bhubaneshwar - can benefit
Oriental Ins.).
in 2 hospitals Surat & Bhubaneshwar | E-Pehchan Digital id for ESIC
2002 Agri Ins. Co. Ltd. (formed with funding of GIC, 4 public sector
beneficiaries | Abhiyan Indradhanush - ensuring change of bed sheet
Gen. Ins. Cos & NABARD.)
everyday; | Nirman Se Shakti/ ESIC 2.0 ‘initiative to modernize
2018: Budget - merge National Ins. Co., United India Ins. Co., Oriental
infrastructure of ESIC hospitals | Project Panchdeep digitization &
India Ins. Co. - but plan not materialized yet.
automation of ESIC processes by WIPRO (2017) | Project Arrow
GI Biz (Nzn) Amendment Bill, 2021 Modernization of India Post (2008)
GI Nzn Act 1972 : 5 GI Cos brought under Govt control [GIC of India,
ESIC: 2022 reforms 15% share investment | ESIC invested
National ins., New India Assurance, United India Ins., Oriental Ins. |
subscribers premium/ corpus in upto 15% in equities (shares) & 85%
Major shareholding >51% w/ govt | GI Business (Nzn) Amendment
in G-Sec, Bond, FD etc fixed return debt instruments [Earlier NO
Bill, 2021 -> facilitate privatization of public sector/Govt owned GIs +
equity cirteria]
Removed >51% shareholding rule (pvt-ization = Professionalism,
Profitability, Customer responsiveness of Govt cos.]
Gen → Health Insurance Schemes Standalone health insurers
(SAHI) = Only health ins. No gen. ins. policies e.g. Aditya Birla Health
Seasonal establishment, Casual Worker & some other words
ESIC (Health EPFO Types of Health ins. policies: Individual Covers 1 person |
ins.) (Pension) Floater Health Ins. Cover person & family mem
Seasonal establishment = factory X covered Salient / not Fixed Benefit : Fixed payment based on illness – Ex- Policy
X working for whole yr ex- openly agreement ₹50L for cancer then despite only ₹10L on hospitalization
marriage orchestra, salt-pan on mentioned. – co. still pays ₹50L | Indemnity based : Upto to “Indemnity” (actual
seashore, horse-ride operators in hospitalization cost) from total insured sum + SUBTYPES: Cashless
hill station, sugarcane farms, policy – empanelled hospital – free treatment; No-cashless policy –
Diwali-firecrackers, tea plantation refund on bill submitted to Ins. co.
etc.
Casual worker = employed only Covered* Niramya Health Insurance for PH. – By dept. of Empowerment of
few days/weeks (ex- construction Person w/ disability (Oriental Ins. Co.) – Upto ₹1L health ins. for
worker, sugarcane mil ) handicapped + Premium: Orphan Minor PH= ZERO; Other PH: ₹250-
500, depending on poverty level

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
2023 On order of DL HC - IRDAI made it mandatory for GI cos. to
launch health ins. policies to cover people with mental illness,
physical disability, & HIV/AIDS.
Ayushman Bharat / PM Jan Aroyga Yojana (PMJAY)
2018 Budget -> Ayushman Bharat w/ 2 components = a) 1.5L Pri
Health Care Centres transform to Heath & wellness Centres w/ free
drugs, checkup, mother-child care … |b) PM Jan Arogya Yojana
(PMJAY) launched - “Swasthya Aapka, Saath Hamara” = subsumed
Rashtriya Swasthya Bima Yojana (RSBY) & Senior Citizen Health Ins.
Scheme (SCHIS).
PM Jan Arogya Yojana (PMJAY, 2018)? FREE ins. cover upto ₹ 5L/
family/ yr for secondary & tertiary hospitalization + All pre-existing
disease covered from day 1 + covers 3 days of pre-hospitalisation &
15 days of post-hospitalisation expenses + Cashless & paperless
access [NITI Aayog running web portal, with privacy protection]
Beneficiaries? Socio-Economic Caste Census (SECC) data → 8Cr rural +
2Cr urban = 10Cr families= ~ 50Cr people + No cap on family size or
age + Treatment? = All public hospitals & empaneled pvt hospitals
(by respective States) + Hospitals to have PM Aarogya Mitras
(receptionists) to help/guide patients - trained by Min of Skill Dt.
PM-JAY -> National health Authority
Originally it was “Agency”, then restructured & renamed into
“Authority” (2019) - oversees implementation of PM-JAY, operational
guidelines, collaborate w/ ins. cos. & IRDAI, running web-platform etc
+ attached office w/ health ministry [Health Ministry looks after
parliamentary matters like replying in Q hour, annual reports etc. =>
NHA more freedom in day to day functions.+ NHA - CEO status = GOI
Secretary + Above NHA → “Governing Board” composition: Chair -
Minister of Health & Family Welfare; Mem: NITI Ayog CEO, NHA-CEO
& other govt officials & experts + States represented in Governing
Board on rotational basis
PM-JAY State Health Agency (SHA) - Each State SHA for
implementation |Funding / Cost:sharing "Special Category States"
Union (90%):State (10%) – NER, HP, UK | “Other States”: (UP, BR, … &
UT w/ legislature PY, DL, JK) – 60:40 | UT w/o Legislature (A&N,
Ladakh) – 100% Union
PM-JAY- taxes to build
hospital? hospitals in
aspirational districts for
treatment of PM-JAY
beneficiaries = Hospital
construction Funding:
PPP model → Public
side’s funding using ₹₹
from health cess on
imported medical
devices.
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General Insurance → other than Health Insurance
PM Fasal Bima Yojana (2016)
Nodal Ministry: Agri Min → Public sector GI cos. & empanelled pvt
sector ins. cos. -> Against natural calamities, pests, diseases; +
Protects before, during & after harvest + Premium paid by farmers
against total insured amount: Rabi winter crops (1.5%) – Kharif
summer monsoon crops (2%) –Horticulture & Commercial crops other
than oilseed & pulses (5%). Remainder premium by Union: State Govt
[optional for States to join]
PM-FBY (2.0) reforms in 2020 Suppose kharif crop ins. premium =
₹100 -> Farmer pays ₹2 + Union pays only ₹25 irrigated - ₹30
unirrigated + State pay ₹68-73 [↑states’ burden – before 2020 it was
49:49] + Voluntary for farmers to buy [earlier was compulsory to take
crop loans] + Updated methodology for assessment of crop loss
Other Agri Ins. Schemes? Restructured Weather Based Crop Ins.
Scheme (RWBCIS, 2016) protects against weather (X pests/diseases)
Insurance to Banks on Exporters’NPA → NIRVIC (Niryat Rin Vikas)
Scheme (2019) Commerce Min → Export Credit Guarantee Corp.
(ECGC) = NIRVIC - Export Credit Ins. Scheme (ECIS) + Exporter takes
loan from bank – if defaulted - ECGC covers upto 90% principal +
interest losses to bank. (Before NIRVIC, only 60%) + Premium rates
depend on sector e.g. diamond, chemical etc
3rd Party Motor Ins. – Mandated for all motor vehicles by Motor
Vehicles Act (1988) + 3rd party (TP) ins. - When vehicle hits another
vehicle/ person/ property → victim (3rd party) registers case, gets
compensation. IRDAI regulates premium rates & other norms.
Own Damage Insurance (OD) protects owner of vehicle against
theft, vandalism, accident, fire
Free / Cashless treatment to road accident victims (2024)
2019: Motor Vehicle Act Amendment requires Govt to provide free
treatment to accident victims -> 2024: pilot started in Chandigarh ->
Cashless treatment to max. Rs 1.5L/ accident to victims + Under Min
of Road – Implementing agency NHA.
Tech-driven add-ons in Motor-OD (own damage) cover IRDAI
allowed ins. cos. to launch Tech-based add-ons in motor OD policies for 2-
wheelers & pvt. cars ex- "pay as you drive," "pay how you drive,"
De-tariffication in Chinese insurance sector (ES23)
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
Title Insurance 'Title' = legal doc. showing property ownership. 'Title
dispute': multiple persons claiming ownership of same land +
'Title Insurance' - protects new buyer wrt such legal disputes (by
refunding money spent in buying land, construction, legal expenses
etc). + Real Estate Regulation & Development Act 2016 (RERA)
requires builders to buy this type of insurance.
Clinical Trial Liability Ins. for pharma cos. - Type: GI Cover - To
protect pharma co. from legal expenses/lawsuits, if volunteer patient
suffers damage/death in clinical trials.
Bharat Griha Raksha & other: Standardized home/factory
insurance IRDAI ordered @GI cos. to sell Bharat Griha Raksha, Bharat
Sookshma Udyam Suraksha, Bharat Laghu Udyam Suraksha
Type? Standard Fire & Special Perils (SFSP) Policy.
Beneficiaries? protect homes & factories of MSMEs
Damages covered? fire, natural catastrophes, riot, strike/hartal,
malicious damages, terrorism,, etc upto ₹50 Cr.
Property insurance: traditional vs parametric
Traditional Property Ins. = Compensation as per actual loss + Ex- If
home destroyed in earthquake -> inspector checks damage - money
as per actual loss + Claim based on inspector’s assessment (complex,
lengthy)
Parametric Property Ins. = Compensation on defined parameters
(EQ, Cargo delay etc.) + Automatic compensation on home-damage
depending on EQ intensity ex- Richter scale “6” →₹10L; Richter “7”
₹25L + Transparent, predictable = Quick settlement.
(Proposed) Catastrophe Ins. Protects from natural & manmade
disasters.+ Presently, farmers’ crops protected from natural disasters
- PM-Fasal Bima + But, home destroyed in floods not covered →
Union & State Govts forced to use taxpayers' money for paying
compensation to victims of floods, cyclones etc. + IRDAI studying to
launch catastrophe ins.(or CAT cover) for poor.
Catastrophe Bonds, Surety Bonds: Pillar#1C2
GI → Cyber Insurance - covers losses wrt malware attack, phishing
& data, identity theft, ransom payment demand made by hackers,
data restoration costs, biz interruption losses due to cyberattacks.
loss of reputation, damage to mental health etc. + Ex- Bajaj Allianz
eIA: e-Ins. A/C : Like hares/Bonds stored in DEMAT A/C.
Likewise, Ins. policies - stored digitally in e-Insurance A/C like NSDL's
National Insurance Repository (NIR). Benefit? convenience esp. if
bought policies from diff cos. + easy track date/ renewal in 1 portal.
Re-insurance DICGCI Act (1961) banks must take deposit ins. from
DICGCI. => Similarly, Insurance Act (1938) – ins. cos. must take ‘re-
insurance’ on their biz. + Previously, only GIC was sole-reinsurer, 2015
norms liberalized -> Allowed pvt re-insurance (incl. foreign re-
insurers) => Broke GIC’s monopoly wrt re-insurance premium + ins
cos’ ↓op. cost => biz. expansion, launch innovative products etc.
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PANDEMIC RISK POOL proposal by IRDAI = To help ins. cos. in
future pandemic – funds contribution by ins. cos. & govt [Aftermath
of COVID – ins. co. large compensations -> Stress on insurance & re-
insurance cos.
IRDAI: insurance sector regulator
Org: 1996: IRDA setup→ 1999 statutory status -> 2014 name changed
to Insurance Regulatory & Development Authority of India (IRDAI) +
HQ: @Hyderabad, TL [RBI & SEBI @Mumbai]
Structure 1 Chair (5yr/ 65yr) + 9 mem (5yr/62yr) = 10 + can reappoint
Functions separate licenses for life, general & re-insurance cos. +
norms for ins. cos. wrt accounting, solvency, audit, commission to
agents etc. + penalize cos., suspend/ cancel registration. Appeal →
Securities appellate Tribunal (SAT) + Norms for agents & brokers,
banks selling products (Bancassurance), Surveyor/ Loss Assessor, &
Third-Party Administrators (e.g. Hospital) + Consumer grievance
redressal via Insurance Ombudsman + IRDAI = member of Financial
Stability & Development Council (FSDC)
Domestic Systemically Important Insurers (D-SIIs) list by IRDAI +
List : LIC; GIC; New India Assurance Co. Ltd. (NIACL)
IRDAI Reforms 30 day free-look period rule→ client can try/
review ins. policy for 30d - can seek a refund of premium within 30d +
not have to pay penalty (called ‘surrender charges’) during 30d, if
subscription cancelled.
IRDAI Reforms Bima Vahak - Village level salesmen (2023–
24)→ Individual person/ co. register as Bima Vahak -> sell ins. policies
@gram Panchayat level, esp. with help of women. + 1 Bima Vahak can
become a salesman for multiple ins. cos @same time + will also help
ins. cos.collect KYC documents & assist clients with
claims/compensation.
IRDAI Reforms Bima Vistaar (2024): All-in-1 standard insurance
product -> life, health, property coverage - yet to be launched. IRDAI
working on guidelines.
IRDAI Reforms - Bima Sugam, 1 stop digital portal (2023)
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Insurance for all at Gram Panchayat Level - IRDAI (2024)- PENSION Person eligible to receive monthly ₹ ₹ when he retires &
2024: IRDAI draft Rural, Social Sector, Motor 3rd Party Obligations when he dies – usually wife receive - When she dies, scheme stops.
Regulations + Applicable on : Life, health, & motor vehicle ins. + Insurance: person/family eligible to receive ₹ ₹ if death / damage. e.g.
requires Ins. cos cover Min X% popln in Y # of Gram Sabha in Z yrs. Ex- PM Jeevan Jyoti: ₹ 2L on death.
for life ins.cos.
Employee Provident Fund Org. 1951-52: EPFO setup initially by
Insurance progress indicators ordinance & then Act. + Nodal: Labour Min + governed by Tri-partite
Ins. penetration (%) =
𝑃𝑟𝑒𝑚𝑖𝑢𝑚
| Ins. Density (%) =
𝑃𝑟𝑒𝑚𝑖𝑢𝑚 “Central Board of Trustees” - Govt (Union + state) – 15 nominees +
𝐺𝐷𝑃 𝑝𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛 Employers (industrialists) - 10 nominees + Employees (workers) – 10
nominees = make policy decision wrt where to invest money (usually
G-sec>C-Bonds>Shares; with min & max slabs) & interest to be paid to
subscribers.
1952 - Employee Provident Fund (EPF) - Principal + interest returned
upon retirement/ death + Interest: 8.5%(2020-21) → ↓ed to 8.1%
(2022-23, lowest in last 40 yrs.) → ↑ed to 8.25% (2023-24) + Partial
withdrawal upto “X%” allowed for education, marriage, illness &
house construction.
1976 - Employees Deposit Linked Insurance Scheme (EDLI) Boss pays
Premium. If worker dies → family gets insurance.
For India, indicators low compared to Malaysia many developing countries
1995 - Employee Pension Scheme (EPS) Monthly pension on
retirement (@58 yrs) / permanent disability
FDI limits in Insurance sector? Foreign Direct Investment FDI =
>10% equity/share investment by foreign entity into Indian Co. –
objective – management / production of Indian Co. [not linked with SHAREMARKET performance (unlike NPS scheme) + If
worker dies before retirement (=while in job) → min. guaranteed
pension to spouse = ₹ 1k/month] + EPF Commutation = can partially
withdraw pension in advance before retiring -> EPFO pays less after
actual retirement.
EPFO covers both permanent employees & casual/temporary
employees (= employed only for a few days/weeks/months.) + EPFO
Act X apply to coop. society w/ <50 workers, if such coop. society not
using power (electricity, coal etc). + EPFO subscriber worker has UAN
(Universal Account Number)
Factory owner/Employer has LIN (Labour Identification Number)-
FDI limits in insurance sector→ Before -> After (Automatic route) which is used while uploading EPFO doc on Shramsuvidha webportal
State owned/public sector Life ins. NO RULE -> 20% (in 2022) of Labour Min
corp. i.e. LIC EPFO & ESIC transactions can be done through: PSB, PvSB, UMANG
Ins. co. itself (except LIC) 49% -> 74%** (in 2021) App (of MeitY
Ins. intermediaries - agent/broker, 49% -> 100% (in 2020)
surveyor/loss-assessor, 3rd party
administrators (hospital - treating
health ins. clients)
** 💼Bud-2021: amend Insurance Act, 1938 -> to ↑ FDI limit w/
safeguards: Majority Directors on Board & key mgmt = Resident
Indians + >50% Independent directors + Some % of profits must be
retained as general reserve

Composite license & reduce GST – (2023) Parliamentary

committee on finance suggestions |Present sys -> Insurance Act,
1938 & IRDAI’s rules disallow single co. to run life, general, health ins.
=> separate licenses for each | 18% GST on ins. products
Suggested reforms - Permit composite license - Single company can
offer all 3 services w/ single license + ↓ GST to 5%

INSURANCE INTERMEDIARIES: BANKERS, AGENTS, BROKERS

Insurance Agent - Sells policies of single co. ex- LIC
Insurance Broker - Sells policies of multiple ins. cos. ex- Policybazaar
Direct Broker - sells life/general/health policies of multiple cos.
Reinsurance Broker - sells re-insurance of multiple cos.
Composite Broker – doing both above
Bancassurance - when banker becomes Insurance agent

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Pension for Govt Employees & Middle Class? = NPS Pension for Poor People WITH capacity to INVEST?
Atal Pension Yojana (APY) PM Shram-Yogi Maandhan
By Dept of Fin. Services, 2015 By labor Ministry, 2019
Only 18-40yr - Indian resident Ineligible [Income Tax-payer,
citizen NPS, EPFO, ESIC –subscribers]
No min/max income limits. Unorganized sector workers w/
[max. pension is ₹5k/month = monthly income <₹15k ex- 18-
target-audience poor people, 40 yr old street vendors,
unorganized workers outside rickshaw pullers, construction
EPFO security. workers, rag pickers, agri
Govt Employees (from 2004) : 2004: New Pension Scheme →(2009) workers, beedi workers…
Monthly pay ₹42-210 till age Monthly invest ₹55-200
renamed into National Pension System. + Subscriber? who joined
60yrs (depending on age of joining).
govt. service on or after 01/01/2004 (except Armed forces) +
Govt co-contribute equal
Mechanism? Employees (10 % of basic pay) + Govt. contri (14% of
amount. Till age of 60yrs
basic pay: since Interim-Budget-2019) → goes to PFRDA →NPS Trust
₹1k-5k monthly pension- Fixed ₹3k pension/ month after
→ empaneled NPS-Fund-manager → Invested G-sec, Corporate Bonds
depends on @which age 60.
& Shares depending on your preference in Tier1/Tier2 A/Cs
joined, how much
Middle Class (from 2009 - Govt employee-NPS made open for all
contributed?
citizens (& NRIs) 18-55yrs on voluntary basis. Contribute money till
age 60, as per capacity →invested → pension. If subscriber dies after 60, If subscriber dies after 60,
NPS subscribers have PRAN: Permanent Retirement Account Number then spouse receive same spouse gets ₹1500pm as family
amt. pension. – If both die pension. – If both die Nominee
NPS : penny drop verification made mandatory by PFRDA
then Nominee (e.g. child) get nothing.
(2023) = pension co. transferring ₹1 -> to subscriber’s bank a/c receives entire principal
before crediting entire amount -> Error, remaining money withheld. (premium) back.
NPS-Lite (Swavlamban) (2010) If unorganized sector worker joined
NPS, then govt contribute ₹1k/yr for 5yrs in their A/C. 1 person-1-subscription account only.
1) Atal Pension Yojana 2) PM Jivan Jyoti Yojana & 3) PM Suraksha
Pension: NPS: Minimum Assured Return Scheme (MARS)
Bima Yojana are collectively known as PM Jansuraksha Schemes.
suppose you contribute ₹100 & PFRDA gave MARS of 8% on NPS
account -> if NPS unable to give 8% return on ₹60 of subscription then
all loss - will be paid by PFRDA/other org to subscriber.

T V Somanathan committee (2023) by Fin Min to review NPS

Jeevan Pramaan (2014)

Previously, pensioner - submit physical life certificate in NOV each yr
to prove that he’s alive = hardship, bribery -> 2014 MEITY – “Jeevan
Pramaan" –"Aadhar-based Digital Life Certificate“ - Pensioner's
Aadhar + biometric reading device→ PC, Mobile→ “Digital Life
Certificate”→ submit to authority → pension released. + 2020: also
expanded to EPFO subscribers + 2022: EPFO allows facial recognition
as difficult to scan finger-print/iris in v. old subscribers
Pension for Senior Citizens WITH CAPACITY to Invest?
PM Vaya Vandana Yojana (2017-Dept Fin Services, LIC)
Pension: 3 Maan Dhan Yojanas | 18-40 Age; ₹ 55-200 fees;
Pension @60=3000 → family pension ₹ 1500 + 1 person can join only
1 type of below scheme + Income Taxpayers & those who joined
EPFO/ESIC are not eligible for any of these schemes | LIC Fund
manager & This Ministry co-contributes
Labour Min. : PM-Shram Yogi Maan dhan (feb’19) unorganized
sector workers with monthly income upto ₹15k | PM laghy Vyapari
Maan-dhan (jul’19) – also called ‘NPS-traders’ - Small trader /
shopkeepers whose annual turnover < Rs 1.5 Cr, based on self-
declaration.
Agri Min. : PM-KISAN-Maan-dhan (Aug’19) - small / marginal farmers
with upto 2ht land.

Pension for Poor People WITHOUT capacity to INVEST?

Other similar schemes: Senior Citizen Savings Scheme, LIC Varistha
Pension Bima Yojana

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

For BPL people, Rural Dt Ministry’s National Social Assistance Social Justice: distribution of wealth, opportunities, & privileges
Programme (NSoAP) in 1995 - direct money w/o any premium from within a society- through reservation in jobs, admissions & election &
beneficiary = core of the core scheme + 100% cost is paid by Union. + through legal safeguards for protection of civil rights, prevention of
optional for state govt. - may contribute to enhance features. atrocity & personnel laws.
NSoAP Components 🧔Union State Collectively, (FI,SS,SJ) help in human dt, inclusive economic growth &
(Optional to SDGs
give extra ₹₹)
& rename
Indira Gandhi Old ₹200-500* Samajwadi
age pension @60 (depends on age) Pension (UP)
Indira Gandhi UP Vidhva
Widow pension Pension @1k
(@40 onwards) ₹300-500
Indira Gandhi (depends on age) GJ: Sant Surdas
Disability pension: Scheme
(@ 18 onwards)
National Family Death of bread winner: GJ: Sankat
Benefit INSURANCE ₹20k Mochan
Annapurna (2001) If BPL senior citizens not receiving old age
pension => Free 10kg grain / pm Fin. inclusion: Bank accounts for Everyone
Nationalization of Banks (1955, ‘69, ’80) -> 1961: DICGC Act -> 1966
Pension types: Defined Contribution vs Defined Benefit Coop. Banks under RBI -> 1969 Lead Bank Scheme (SCB:Pvt or Public)
Defined Contribution - Pension depends on performance of share
given lead role in district - prepared credit plan with ‘Service Area
mkt. Ex- NPS, Pvt pension cos. investment plans
Approach’, & coordinate w/ efforts of Govt, banks & NBFCs.
Defined Benefit - Pension is fixed. [ X depend on sharemkt] Ex- EPS
1971: State level Bankers’ Committee to monitor progress of financial
(scheme of EPFO), OPS (Old pension scheme for govt employees), Atal
inclusion -> 1976: Regional Rural Bank (RRB) Act -> RBI req.
Pension scheme (APY), Shram Yogi Maan-dhan, NSoAP
commercial banks to set >25% branches in unbanked rural areas ->
2005: RBI permitted no-frills savings A/c w/ 0 penalties on 0 balance -
PFRDA, the Pension Funds’ Regulator
> 2006: RBI permitted BCAs (Banking Biz Correspondent Agents) ->
2003: Executive order to setup PFRDA- Pension Fund Regulatory &
2011: Govt’s Swabhiman to ↑ banking presence in rural area -> 2013:
Development Authority -> 2013: given statutory status. HQ: DL (like
e-KYC permitted -> 2014: JanDhan A/C -> new Pvt Commercial Banks
IBBI) |Structure: 1 Chair (5yrs / 65age) + 5 mem (5/62 age) = 6 mem +
(Bandhan, IDFC First) -> 2015: SFBs & Payment Banks -> 2017-18:
Re-appointment possible |Functions : Implement National pension
India Post Payment Bank
system (NPS), select its fund-managers. + Regulate all public & private
pension funds except EPFO, Seaman, Coal miners, Assam tea Pradhan Mantri Jan Dhan Yojana (PMJDY) 2014 - by FinMin →
plantations related pension schemes (separate acts / mechanisms for
Dept of Financial Services + Scheme in 2 phases, 6 objectives:
them) + Protect Clients, Pensioners + Prescribe liquidity, auditing,
PM JDY Phase 1 (2014-15) – Financial Literacy, Banking within 5km,
investment norms for Pension funds. + Powers of civil court. +
A/c for every family with overdraft, with Rupay ATM-cum-DEBIT Card
financial awareness generation website pensionsanchay.org.in +
+ Phase 2 (2015-18) : Credit Guarantee Fund (For Overdraft defaults),
Pension FDI linked w/ insurance FDI (49%) => NOT decided by PFRDA.
DBT, Sell Micro insurance & pension products through bank.
PM-JDY bank A/C can open in any Commercial or Coop. Bank [Bank
Social Security for Overseas Indians (Pension / Insurance)
must have CBS & bank tied w/ Rupay Payment Gateway] + Basic
Pravasi Bharatiya Bima Yojana, 2017 Some nations - NO strict Savings Bank Deposit A/C - Age 10/>; 0 balance- no penalty +
laws regulating entry, employment or safety of foreign workers => Chequebook only with “balance” + restrictions on max. withdrawals
GOI classifies them under Emigration Check Required (ECR) countries. per month. + Overdraft upto ₹ 10k (originally ₹5k) depends on history
e.g. Saudi, Qatar, UAE, Libya, Malaysia, etc. = compulsory for Indian of 6 months + Overdraft on only 1 A/C holder in household
workers going ECR nations to join Pravasi Bharatiya Bima Yojana [of (preferably woman) + Overdraft Money - returned w/ interest 3yrs
Mo External Affairs]. + Insurance cover of Rs. 10L if accidental EVERY Jan Dhan A/C = FREE Accident Ins. (₹1L -Premium paid by NPCi
death/permanent disability while abroad + Maternity expenses for + Ineligiblity : Union Govt employees, & income tax payers) +
women worker, Family Hospitalization etc. Significance? JAM trinity (JanDhan, Adhar, Mobile) for targeted &
direct transfer of subsidies, scholarship & payments to beneficiaries.
FINANCIAL INCLUSION
2020: ATMANIRBHAR→ PM GaribKalyan → ₹500 pm to 20Cr women
Financial Inclusion: providing access to banking, investment, pension, Jan Dhan A/C for 3 months. 2023: Total money deposited in PM-JDY
insurance & credit (loan) facilities to each citizen = ensures social, crosses ₹2 trillion.
economic & transaction security (S-E-T), improves social harmony,
Fin inclusion: Investments other than Bank If poor / lower
women empowerment, helps “LESS CASH Economy”.
middle-class wants better returns than bank deposit? =may opt for …
Social Security : sys of payments / assistance by govt to ill,
Act -> Small Savings Schemes |Govt Savings Bank Act 1873 -> Post Office
handicapped, poor, aged or unemployed citizens + Constitution – schemes: monthly, 5 yr, savings, time deposit |Govt Savings Bank Act 1873
DPSP Art 41 “State to provide public assistance to its citizens in case -> Senior Citizen Savings (2004) |Government Savings Certi Act ’59 ->
of unemployment, old age, sickness & disablement”; Article 42- National Savings Scheme (NSC)’59 & Kisan Vikas Patra 1988-11, 2014 |PPF
“State shall make provision for securing just & humane conditions of Act 1968 -> Public Provident Fund (PPF) |No Act -> Sukanya Samriddhi
work & for maternity relief” Yojana ‘2015

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

Sukanya Samriddhi -> Money (usually) goes into National Small Credit Guarantee
Savings Fund (NSSF)→ loans to Union & (selected States), with Organization Credit Guarantee Fund Loans covered
technical norms -> interest rates decided quarterly by FinMin’s DEA. SIDBI + Govt Credit Guarantee fund Loans to Micro &
trust for Micro & Small Small Enterprise
Small Savings: Mahila Samman Bachat Patra (2023) Enterprise (CGTMSE)
new small savings certificate scheme announced in Budget-2023. Dept. of National Credit Guarantee Mudra, ECLGS,
Tenure: 2yr upto 2025 March + Max. Deposit upto ₹2L per girl or Financial Trustee Company (NCGTC) Stand up India, Skill
woman + Interest 7.5% Services & Edu loans (upto
Rs.7.50L backed by
Small Savings: Senior Citizen Savings Scheme limits hiked from DFS)
15L to 30L (after budget 2023)
NCGTC Credit Guarantee Scheme Loans given by
for MFIs (CGSMFI) (2021) Microfinance
Sukanya Samriddhi Yojana (2015)
institutions to poor.
Parents open (FD type) bank A/C in name of 0-10 yrs girl child, &
NCGTC Credit Guarantee Fund Loans for skill
deposit annually ₹ 250 to ₹ 1.5L till she reaches 14yrs + FinMin’s DEA
Scheme for Skill development.
announces interests (originally 9.1%, presently ~8.5%) + Money
Development (CGFSSD)
(principal & interest) can be withdrawn @18-21yrs depending on
whether married or not = [indirectly prevents child marriages & Commerce Export Credit Guarantee Exporters
empowers grown-up daughter w/ money to pursue edu, small biz, … Ministry Corporation of India fund
1 daughter = ONLY 1 account can be opened in this scheme. + Max 2 (ECGC)
daughters can be enrolled by parents/legal guardians. Credit Guarantee = if borrower defaults -> Banks/ NBFC losses
covered by credit guarantor => confidently lending w/o collaterals +
Five Star Village scheme by Dept of Post (2020) under Ministry Earlier DICGC - guarantee for PSL - but now done by above org.
of Communications -> Post offices - spread awareness, enrol villagers
in following schemes: Small saving schemes (Post office Savings Bank Credit Guarantee Fund for Education Loans (CGFEL)
A/C, National small savings certificate Kisan Vikas Patra, Sukanya
Samridhi A/C, PPF) + Ins. schemes (Rural Postal Life Ins. Policy, PM
Suraksha Bima Yojana Account, PM Jeevan Jyoti Bima)

Sampoorna Bima Gram Yojana (2017) by Dept of Post -> In

every district, atleast 1 village identified → cover all households with
min. 1 RPLI (Rural Postal Life Ins.) policy

Model Insurance Villages (MIV) proposal by IRDAI (2021) for

complete insurance coverage to village wrt life, health, farm/crop,
animal (livestock), tractor/vehicle ins…. + Funding/Subsidy by Union,
State, CSR Funds, NABARD & other AIFIs

Chit Funds collective investment scheme + Mem contribute every

month -> mem given loan from this Chit fund = type of “contract” =
subject to Concurrent list [Union & State laws]; Scams lax supervision

Banning of Unregulated Deposit Schemes Act, 2019

If entity is soliciting public to deposit /invest -> then it could be
regulated by RBI (Bank, NBFC-D, Home loan NBFCs etc), SEBI (MF,
ReITs, InvITs etc), IRDAI & PFRDA, MCA (NIDHI), State Govts (chit MSME Classification changed in ATMANIRBHAR (2020)
fund), EPFO, etc. + Deposit-taking scheme = ‘unregulated’ if person Composite criteria : Investment & Annual Turnover
Classification Micro Small Medium
asking to deposit/invest but not registered w/ any regulators Ex-
Mfg. & Investment <1Cr <10Cr <50Cr
builders, jewellers, etc. + Act prohibits advertisement & money Services Turnover <5Cr <50Cr <250 Cr
collection in it. + Penalty < ₹50Cr or 10yr jail- may attach assets to
2006: Micro, Small & Medium Enterprises Development (MSMED)
refund depositors within prescribed timelines. + Union to setup an
Act, 2006 gave definition of MSMEs -> Changed in 2020
online central database of deposit-taking activities in IND.
MSME Non-NPA borrower → ECLGS 1.0 (Emergency Credit Line
Financial inclusion: Credit (Loans) [PSL, Microfinance]
Guarantee Scheme during covid in Atmanirbhar → Credit guarantee
by NCGTC (National Credit Guarantee Trustee Co. Ltd. – Under Dept
Refinance When AIFI (or MUDRA) -> new finance to Banks/NBFCs
based on quantum of finance they (Bank/NBFC) have already given to of financial services – FinMin) → ECLGS 2.0 later in 2020 for stressed
end-borrowers = Usually works via securitization of previous loans. sectors. Continues till 2024.

MSME NPA borrower → Subordinate Debt For MSME in NPA/

stressed category -> subordinate loan Upto ₹75L to revive biz -> →
Credit guarantee by CGTMSE (Credit Guarantee Trust for Micro &
Small enterprises, org funded by SIDBI + Govt).

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 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER
MSME → Equity infusion via Govt’s Fund of Funds (Corpus ₹10k Cr)
-> FoF will invest in daughter funds (who’ll supply ₹40k cr from their
funds). So, total 10k+40k=50k equity funding/infusion to MSME
NBFC → Mudra (2015, 100% SIDBI subsidiary)
Micro Units Development & Refinance Agency.-> indirect lending via
SCB, RRB, Coop. Banks, MicroFinance Inst & other NBFCs. + It receives
funding from PSL-shortfalls via RBI, & budgetary support via Dept of
Fin. Services. -> For Micro Enterprises: Agri-allied, mfg & service
sector - Not registered under companies act = Non-corporate type.
PM MUDRA Yojana : Loans Shishu <50k Kishor <5L Tarun < 10L
MUDRA Rupay Card - ATM cum Debit - against MUDRA A/c - For
working capital + Mudra loans = collateral-free + Defaults -> Credit
Guarantee Fund for Micro Units [CGFMU] operated by NCGTC (a pvt.
ltd co. by Dept of Financial Services - FinMin
Stand Up India Scheme, 2016 FinMin’s Dept of Financial Services +
Objective? Each SCB bank branch to give Greenfield Loans 10L to 1Cr
to at least 1 SC/ST & atleast 1 Woman entrepreneur w/ 7 yr tenure.
Bank can ask collaterals -> If NO collaterals -> Credit Guarantee Fund
for Standup India (CGFSI) by NCGTC + extended till 31/3/2025.
Margin money = amount bizman has to arrange from own savings for
given biz-project & Remaining as loan by bank + Bud-2021: 1)margin
money requirement from 25% to 15%. 2) Agri-biz eligible.
Self-help group (SHG) → Credit |SHG = informal gp (10-20) locals
- combine savings -> biz activity like weaving, agarbatti … + not
registered as firm / co. under partnership act or companies act … +
1992: NABARD SHG-Bank linkage program - SHG loans w/o collateral.
SHGs - formed under govt schemes like National rural livelihood
mission (NRLM) + Bud-2019: 1 woman in each SHG - eligible for ₹1L
loan under Mudra scheme. + ATMANIRBHAR → PM GaribKalyan →
Women SHGs given ₹20L collateral free loans + Govt procure masks &
sanitizers by SHG = ₹₹ income for poor.
PM Street Vendors’s AtmaNirbhar Nidhi Scheme (PM-
SVANidhi): MoHUA: Tenure 1 yr – Monthly Repayment @7.25% & if
vendor repays on time → govt gives 7% interest subsidy in A/c & can
apply for more loans.
PM-SVANidhi → Main Bhi Digital (2021) MoHUA to give ₹₹ to
Urban Local Bodies (ULBs) -> spread digital literacy among street
vendors of SVANidhi Loans & Connect food-street vendors with e-
commerce players (Swiggy-Zomato etc) -> help street-vendors’ sales
PM-SVANidhi → Rashtriya Udyamita Vikas Pariyojana (2024)
Also called PM Svanidhi National Entrepreneurship Dt Project -> Mo
Skill Dt & Entre. -> PM-Svanidhi Street vendors = 22 weeks biz training
(online/offline/hybrid) + stipend & certificate to trainees + Training
partners: Flipkart, Indian Institute of Entrepreneurship (IIE-Guwahati),
National Institute for Entrepreneurship & Small Business
Development (NIESBUD, Noida)
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PM VISHWAKARMA SCHEME FOR LOAN & SKILL TRAINING
(2023-SEPT) -> MSME ministry : 18 trades - (i) Carpenter
(Suthar/Badhai); (ii) Boat Maker; (iii) Armourer; (iv) Blacksmith
(Lohar); (v) Hammer & Tool Kit Maker; (vi) Locksmith; (vii) Goldsmith
(Sonar); (viii) Potter (Kumhaar); (ix) Sculptor (Moortikar, stone
carver), Stone breaker; (x) Cobbler (Charmkar)/ Shoesmith/Footwear
artisan; (xi) Mason (Rajmistri); (xii) Basket/Mat/Broom Maker/Coir
Weaver; (xiii) Doll & Toy Maker (Traditional); (xiv) Barber (Naai); (xv)
Garland maker (Malakaar); (xvi) Washerman (Dhobi); (xvii) Tailor
(Darzi); & (xviii) Fishing Net Maker. = Entitlements Recognition
through PM Vishwakarma certificate & ID card + registered as
’entrepreneurs’ in Udyam Assist Portal. + Skill Upgradation Training +
e-vouchers for Toolkit purchase + Marketing Support + Collateral free
‘Enterprise Development Loans’ <₹ 3L
Kisan Credit Card (1998) Launched by RBI +NABARD -> Farmer
credit card from PSB, RRB, State Coop Banks for farm inputs (seeds,
fertilizers, pesticides etc.) + Investment credit for agri + Working
capital for maintenance of farm assets + Post-harvest expenses +
Consumption requirements of farmer household + Can withdraw cash
(as loan) | Money to be repaid w/ interest + Accidental ins. given
Bud-2018: extended to Animal Husbandry & Fisheries farmers
Interest Subvention to KCC
Financial inclusion: Insurance & Pension
Insurance: Postal Life, ESIC, PM Jeevan Jyoti & Surkasha Bima (₹2
lakh), PM-JAY (₹5 lakh annual health insurance per family), PM-Fasal
Bima (1.5-5% premium);
Pension: EPFO, NPS, Atal Pension (1-5k), PM Shram Yogi Mandhan
(3k), PM Vay-Vandana (8%@LIC), Maan-Dhan Yojanas (3k/pm)
Micro Insurance - Life / General Ins. w/ very low premium ->
small sum insured (upto ₹50k) & target audience is poor+ may be
individual / group based ins. Intermediaries (NGO, SHG, MFI) help in
selling such policy. Policy/ Contracts in local language. Ex- LIC’s
Jeevan Madhur & Jeevan Mangal
Gig Workers’ social security code
Informal workers =no formal job contracts w/ employers (Domestic
Maids, Brick Kiln Workers, Construction Labourers, Chowkidar,
Dhaabaa cooks/waiters etc.)
Gig workers = freelancers / independent contractors hired by startup
or digital companies for short-term engagements (Uber Drivers,
Amazon/Zomato Delivery, Urbanclap’s repair, Unacademy Educators
etc.) -> may have written contract to deliver services to company, but
not “regular employees” = not eligible for EPFO, ESIC etc.
2019-Sept: Labour Min drafting “social security code for all informal &
gig workers” -> ‘insurance on death/disability/sickness’, maternity
benefit, pension, scholarship for their children etc.
 INDIAN ECONOMY (MRUNAL) PILLAR # 1 – SUMMARIZER

UNORGANISED WORKERS’ SOCIAL SECURITY ACT, 2008

Requires union to setup National Social Security Board under Labour
Minister + Similar boards in States - social security of unorganised
sector workers + National Social Security Fund for unorganised sector
workers - initial allocation Rs. 1000 crore. [Similar @State lvl] +
requires union govt to enact schemes for life & disability cover; health
& maternity benefits; old age protection for these workers.
Total 10 Social Security Scheme under the Act -> Noteworthy are 1.
Indira Gandhi National Old Age Pension Scheme (under NSoAP); National
Family Benefit Scheme (under NSoAP); Janani Suraksha Yojana (BPL women
money to deliver child @hospital); Aam Admi Bima Yojana (LIC + GOI)

Financial Inclusion: Customer Protection

RBI: Bank/NBFC -> Ombudsman: Bank, NBFC, Digital Transaction
SEBI: Share/Bond -> SCORES Portal→ SEBI→SAT
IRDAI: Insurance -> Ins. Ombudsman via IRDAI Act ‘1999 (hears
matters upto ₹30L + If higher then consumer courts -> Higher appeal
against IRDAI → SAT
PFRDA: Pension -> NPS: NSDL→ PFRDA; If pvt sector pension co.’s
scheme: PFRDA → SAT [*If EPFO -> by internal machinery Not PFRDA]

RBI’s 3 Ombudsman: BEFORE: RBI 3 types for consumer complaints:

(i) Banking (ii) NBFC (iii) Digital Transaction Ombudsman -> 2021 all
integrated Ombudsman -> 3 into a One Nation One Ombudsman

FINANCIAL INCLUSION: VARIOUS PORTALS

psbloansin59minutes.com (2018) - by SIDBI & 5 PSBs. GST-registered
MSME loans 10L - 1 cr. W/o collaterals
Jan Samarth Portal (2022) – FinMin’s single portal -> help apply for Govt
loan schemes for Edu, Agri, Biz Activity (livelihood) Loans, etc. + connects
borrower w/ 125+ banks & NBFCs for loan application
SARTHI (Insurance) Portal for farmers & villagers (2024) – Agri Min w/
help of UNDP-India -> Helps farmers/villagers buy ins. for crop/ life/ health/
tractor/ shop …
PM-SURAJ loan portal for weaker section (2024-Mar) - Min of SJ &
Empow + PM Samajik Utthan & Rozgar Adharit Jankalyan’ (PM-SURAJ) portal
Target? loans to 1L entrepreneurs from SC/ST/OBC/Nomadic tribes -> Loan by
Bank/NBFC -> interest subsidy/credit guarantee by SJ Min

Financial Inclusion: various reports

Global Microscope Report - The Economist Magazine’s Economist
Intelligence Unit, Accion global NGO & partners like Bill & Melinda
Gates Foundation, Metlife foundation etc.
Global Findex Database - World Bank with help of Bill & Melinda
Gates Foundation
Global Pension Index - Mercer CFA Institute, Canada
Indian Govt’s Financial Inclusion Index – FinMin DFS
Financial Inclusion Index – RBI (2021) - Parameters: Access, usage
& quality of financial services in area; India score: 60.1% (2023)
National Strategy for Financial Inclusion – RBI

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