Banking Awareness

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IN / 8146207241
2|P a g e W WW. E D U T AP . CO . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241
Contents
1 Introduction to Banking Awareness ...................................................................................................7
1.1 What is a Bank? .......................................................................................................................... 7
1.2 What is Banking? ........................................................................................................................ 7
1.3 History of banks in India ............................................................................................................. 7
1.3.1 Phase 1 - Pre-Independence Period (1786-1947) .................................................................8
1.3.2 Phase 2 - Post Independence Period (1947-1991) ................................................................ 9
1.3.3 Phase 3 - Liberalization Period (1991-Till Date) ....................................................................9
1.4 Nationalization of Banks in India ............................................................................................... 10
2 Case study based on Sanju and Kunju – Test 1 ................................................................................. 11
3 Indian Banking Sector ...................................................................................................................... 12
3.1 Robust Banking structure of India ............................................................................................. 12
3.2 Types of Banking Activities .......................................................................................................13
4 Types of Banks in India .................................................................................................................... 14
4.1 Central Bank – .......................................................................................................................... 14
4.2 Commercial Banks – ................................................................................................................. 15
4.2.1 Private Commercial bank – ................................................................................................ 15
4.2.2 Public Commercial bank – .................................................................................................15
4.2.3 Foreign commercial bank ..................................................................................................15
4.3 Regional Rural Banks ................................................................................................................ 16
4.4 Local Area Banks ....................................................................................................................... 16
4.5 Co-operative Banks................................................................................................................... 16
4.6 Differentiated Banks ................................................................................................................. 17
4.6.1 Payment Banks .................................................................................................................. 17
4.6.2 Small Financial Banks.........................................................................................................18
4.7 Development Bank ................................................................................................................... 19
5 Case Study on Sanju and Kanju – Test 2 ........................................................................................... 20
6 The Reserve Bank of India ............................................................................................................... 21
6.1 Origins of the Reserve Bank of India ......................................................................................... 23
6.2 Subsidiaries of RBI .................................................................................................................... 24
7 Functions of RBI ............................................................................................................................... 25
7.1 To Formulate and implement Monetary Policy .........................................................................25
7.1.1 The Goals of Monetary Policy ............................................................................................ 26
7.1.2 The Framework and the Monetary Policy Process ............................................................. 26
7.1.3 The Tools of Monetary Policy and Instruments of Monetary Policy ...................................26

7.1.4 Open and Transparent Monetary policy ............................................................................ 29
7.2 Regulation of Financial Markets and management of the foreign Exchange market ................. 30
7.2.1 Various Markets which are regulated and supervised by RBI ............................................. 30
7.2.2 Foreign Exchange Management Act (FEMA) ......................................................................31
7.2.3 Foreign Exchange Reserves of India ................................................................................... 32
7.3 Consumer protections and consumer awareness .....................................................................32
7.3.1 Recent Initiates ................................................................................................................. 33
7.4 Regulation and Enforcement by RBI.......................................................................................... 34
7.4.1 Regulation of Commercial Bank ......................................................................................... 35
7.4.2 Regulation of Cooperatives................................................................................................ 35
7.4.3 Regulation of Non-Banking Financial Companies (NBFCs) .................................................. 36
7.4.4 Enforcement by RBI ........................................................................................................... 36
7.5 Financial Inclusion and development ........................................................................................ 38
7.5.1 Priority Sector Lending ......................................................................................................38
7.5.2 Priority Sector Lending Certificates (PSLCs)........................................................................39
7.6 Currency Management ............................................................................................................. 40
7.6.1 Types of Money ................................................................................................................. 41
7.6.2 RBI Clean Note Policy ........................................................................................................41
7.6.3 Minimum Reserve System .................................................................................................42
7.7 Payment and Settlement System .............................................................................................. 42
7.7.1 NATIONAL PAYMENTS CORPORATION OF INDIA (NPCI) ..................................................... 42
7.7.2 Major Components of the payment and settlement system .............................................. 43
7.8 Debt Management ................................................................................................................... 47
7.8.1 Banker to the Central Government .................................................................................... 47
7.8.2 Banker to State Governments............................................................................................ 48
7.8.3 Bankers to Bank................................................................................................................. 48
7.8.4 Lender of Last Resort .........................................................................................................48
8 Case study based on Sanju and Kunju – Test .................................................................................... 49
9 What are NBFCs and What are different types of NBFCs ? ............................................................... 50
9.1 Features of NBFCs .................................................................................................................... 51
9.2 Different Types of NBFCs .......................................................................................................... 51
10 Functions of Bank......................................................................................................................... 53
10.1 Primary Functions of Bank ........................................................................................................54
10.1.1 Accepting of Deposits ........................................................................................................54

10.1.2 Granting of Loans & Advances ........................................................................................... 56
10.2 Secondary Functions of Bank ....................................................................................................58
10.2.1 Agency Functions of Bank ..................................................................................................58
10.2.2 Utility Functions of Bank ....................................................................................................59
10.2.3 Other Different Functions of Banks.................................................................................... 59
10.2.3.1 Issuing Cheque ................................................................................................................. 59
11 Various Rules and Regulations for banks ...................................................................................... 62
11.1 Regulation related to the Non-Performing Assets .....................................................................63
11.2 Prompt Correct Actions (PCA) ...................................................................................................63
11.3 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) .......................................................................................................................................... 65
11.4 NEGOTIABLE INSTRUMENTS ACT, 1881 .................................................................................... 66
11.5 Domestically Systematic Important Banks (D-SIB).....................................................................67
11.6 Basel Norms ............................................................................................................................. 67
11.6.1 Basel Norm one (I) ............................................................................................................. 67
11.6.2 Basel Norm two (II) ............................................................................................................ 68
11.6.3 Basel norm three (III) .........................................................................................................68
12 What is financial Inclusion and different schemes to promote it .................................................. 69
12.1 Pradhan Mantri Jan Dhan Yojana (PMJDY) ................................................................................ 69
12.2 Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) ..................................................................70
12.3 Pradhan Mantri Suraksha Bima Yojana (PMSBY) .......................................................................70
12.4 Atal Pension Yojana (APY) .........................................................................................................70
12.5 Pradhan Mantri Mudra Yojana .................................................................................................70
12.6 Stand Up India Scheme ............................................................................................................. 71
13 Legal Documents used in banking. ............................................................................................... 71
13.1.1 Universal Account Number (UAN) ..................................................................................... 71
13.1.2 International Securities Identification Number (ISIN) ......................................................... 72
13.1.3 Permanent Retirement Account Number (PRAN) .............................................................. 72
13.1.4 Permanent Account Number (PAN) ................................................................................... 72
13.1.5 Tax Deduction and Collection Account Number (TAN) : ..................................................... 73
13.1.6 Legal Entity Identifier (LEI) .................................................................................................73
14 All India Financial Institutions – In India ....................................................................................... 73
14.1.1 National Housing Bank ......................................................................................................74
14.1.2 Small Industries Development Bank of India (SIDBI) .......................................................... 74
14.1.3 Export and Import bank of India – ..................................................................................... 75

14.1.4 National Bank for Agriculture and Rural Development (NABARD) ......................................76
14.1.5 Insurance Regulatory and Development Authority of India (IRDAI) ....................................77
14.1.6 The Securities and Exchange Board of India (SEBI) ............................................................. 77
14.1.7 The International Financial Services Centres Authority (IFSCA) .......................................... 78
15 International Financial Institutions ............................................................................................... 79
15.1.1 World Bank........................................................................................................................ 79
15.1.2 International Monetary Fund ............................................................................................ 80
15.1.3 Asian Development Bank ...................................................................................................80
15.1.4 Asian Infrastructure and Investment Bank (AIIB) ............................................................... 81
15.1.5 New Development Bank ....................................................................................................81
15.1.6 Financial Action Task force (FATF) ..................................................................................... 82
16 Miscellaneous topics .................................................................................................................... 82
16.1 Important Committees related to banking ................................................................................ 82
16.2 Banks and their Taglines ........................................................................................................... 83
16.2.1 Public Sector Banks and their Taglines ............................................................................... 83
16.2.2 Private Sector Banks and their Taglines ............................................................................. 84
16.2.3 Small Finance Banks and their Taglines.............................................................................. 85
16.2.4 Payment Banks and their Taglines ..................................................................................... 85
16.3 Recent Banking Amalgamation .................................................................................................85
16.4 Major Provision of the Reserve Bank of India act, 1934 ............................................................ 86
16.5 Major Provision of the Banking Regulation Act, 1949 ............................................................... 88
16.6 Various Facts related to Banking. .............................................................................................. 89
16.7 Common Banking Terminologies .............................................................................................. 90
16.8 BANKING ABBREVIATIONS ........................................................................................................94

1 Introduction to Banking Awareness
Banking awareness is a part of the general awareness section in the bank exams. It comprises questions
related to the history of banks in India, the Banking Institutions, banking terms and the functions and
role of the banking industry in the financial system of the country. In this document we will cover each
and every aspect related to banking, so let’s first understand the basic meaning of a bank.
1.1 What is a Bank?

A bank is a financial institution licensed to receive deposits and make loans. Banks may also provide
financial services such as wealth management, currency exchange, and safe deposit boxes.
A bank has license to hold and lend money. It can provide many services like savings accounts, credit
cards, Debit cards, auto loans, personal loans, small business loans and many more.
A bank can also offer services such as cashier’s checks, money orders, wire transfers, safe deposit boxes,
currency exchange, and investing or wealth management. Therefore, banks form an integral part of the
financial system of the respective country.
1.2 What is Banking?

Section 5 (b) of the Banking Regulation Act, 1949, provides that “banking” means the accepting, for the
purpose of lending or investment, of deposits of money from the public, repayable on demand or
otherwise, and withdrawable by cheque, draft, and order or otherwise.
Banking company means any company which transacts in the business of banking.
“Banking policy” means any policy which is specified from time to time by the Reserve Bank in the
interest of the banking system or in the interest of monetary stability or sound economic growth.
1.3 History of banks in India

The History of Banking in India dates back to the time when India got independence in 1947.
The banking sector development can be divided into three phases:

Phase I: The Early Phase which lasted from 1770 to 1969
Phase II: The Nationalization Phase which lasted from 1969 to 1991
Phase III: The Liberalization or the Banking Sector Reforms Phase which began in 1991 and continues to
flourish till date
Let’s discuss about each phase now
1.3.1 Phase 1 - Pre-Independence Period (1786-1947)

The first bank of India was the “Bank of Hindustan”, established in 1770 and located in the then Indian
capital, Calcutta. However, this bank failed to work and ceased operations in 1832.
Following the path of Bank of Hindustan, various other banks were established in India. They were:
1. The General Bank of India (1786-1791)

2. Oudh Commercial Bank (1881-1958)
3. Bank of Bengal (1809)
4. Bank of Bombay (1840)
5. Bank of Madras (1843)
During the British rule in India, The East India Company had established three banks: Bank of Bengal,
Bank of Bombay and Bank of Madras and called them the Presidential Banks.
These three Presidential Banks were later merged into one single bank in 1921, which was called the
“Imperial Bank of India.”
Bank of
Madras
Bank of Bank of
Bengal Bombay
Imperial
Bank of
India

Do you know?
The Imperial Bank of India was later nationalized in 1955 and was named as, “The State Bank of India”,
which is currently the largest public sector Bank till today.
1.3.2 Phase 2 - Post Independence Period (1947-1991)

At the time when India got independence, all the major banks of the country were led privately which
was a cause of concern as the people belonging to rural areas were still dependent on money lenders
for financial assistance.
With an aim to solve this problem, the Government decided to nationalize the Banks. These banks were
nationalized under the Banking Regulation Act, 1949.
Nationalization is the process of taking privately controlled companies, industries, or assets and
putting them under the control of the government.
We will discuss about nationalization of Banks later in this document.
1.3.3 Phase 3 - Liberalization Period (1991-Till Date)

Once the banks were established in the country, regular monitoring and regulations need to be followed
to continue the profits provided by the banking sector. The last phase or the ongoing phase of the
banking sector development plays a hugely significant role.
Liberalization in Indian banking sector was begun since 1991, following the Narsimha Committee
Report (December 1991).
The 1991 report of the Narasimham Committee served as the basis for the initial banking sector
reforms. In the following years, reforms covered the areas of interest rate deregulation, directed credit
rules, statutory pre-emptions, and entry deregulation for both domestic and foreign banks.

1.4 Nationalization of Banks in India
Following it was the formation of State Bank of India in 1955 and there were 14 banks which were
nationalized between the time duration of 1969 to 1991. These were the banks whose national
deposits were more than 50 crores.
What is the meaning of Nationalization?
And as discussed, Nationalization is the process of taking privately controlled companies, industries, or
private assets and putting them under the control of the government.
Given below is the list of these 14 Banks nationalized in 1969, this is also called as phase 1 of the Bank
Nationalization.
1. Allahabad Bank
2. Bank of India
3. Bank of Baroda
4. Bank of Maharashtra
5. Central Bank of India
6. Canara Bank
7. Dena Bank
8. Indian Overseas Bank
9. Indian Bank
10. Punjab National Bank
11. Syndicate Bank
12. Union Bank of India
13. United Bank
14. UCO Bank
In the year 1980, another phase of the bank nationalization programme (phase2) was started, wherein
6 more banks were nationalized, taking the number to 20 banks.
These banks included:
1. Andhra Bank
2. Corporation Bank
3. New Bank of India
4. Oriental Bank of Comm.
5. Punjab & Sind Bank
6. Vijaya Bank
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2 Case study based on Sanju and Kunju – Test 1
Assume that there are two friends in a village, Sanju and Kunju
Sanju, challenges Kunju, that on every right answer, Sanju will offer Rs. 100 to Kunju and on every
wrong answer, Sanju will take Rs 50 from Kunju. Assume that you are Kunju. At the last of the game,
know your score and test your understanding.
Question 1 – Which is the oldest Bank of India?
Option A – Bank of Hindustan

Option B – Madras Bank
Option C – State Bank of India
Option D – Imperial Bank
Question 2 – Which of the following bank was not merged with the Imperial Bank of India?
Option A – Bank of Bengal

Option B – Bank of Bombay
Option C – Bank of Calcutta
Option D – Bank of Madras
Question 3 – In the phase 1 of the Bank Nationalization programme, how many banks were
nationalized?
Option A – 13
Option B – 14
Option C – 15
Option D – 16
Check your answers

1 – A, 2 – C, 3 – B
What your score?
Now calculate your score and if Kunju has more that Rs. 150, then you win this game. And if not, then
please revise the above-mentioned topics again and better luck next time.
Let’s move ahead now
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3 Indian Banking Sector
The existing banking structure in India has evolved over several decades, is elaborate and has been
serving the credit and banking services needs of the economy. There are multiple layers in today's
banking structure to cater to the specific and varied requirements of different customers and
borrowers. Now let’s go deep and let us together decode the Indian banking sector
3.1 Robust Banking structure of India

Indian banking industry has been divided into two parts, organized and unorganized sectors. The
following flow chart will help you to understand the banking sector of India.
Please note that, all organized sector is regulated and controlled by the Reserve Bank of India (RBI)
We will be discussing about different types of banks in the next upcoming section
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3.2 Types of Banking Activities
The structure of banking system differs from country to country depending upon their economic
conditions, political structure, and financial system. Banks can be classified on the basis of the volume of
operations, business pattern and areas of operations. They are termed as a system of banking.
The commonly identified banking systems are:
A. Unit Banking – Unit banking is originated and developed in the U.S.A. In this system, small
independent banks are functioning in a limited area or in a single town. It has its own board of
directors and stockholders. It is also called as “localized Banking”.
B. Branch Banking - The Banking system of England originally offered an example of the branch
banking system, where each commercial bank has a network of branches spread throughout the
country.
C. Correspondent Banking - The correspondent banking system is developed to remove the

difficulties in the unit banking system. The smaller banks deposit their cash reserve with bigger
banks. Therefore, correspondent banks are intermediaries through which all unit banks are
linked with bigger banks in financial centers. Through correspondent banking, a bank can carry-
out business transactions in another place where it does not have a branch.
D. Group Banking - Group Banking is the system in which two or more independently incorporated
banks are brought under the control of a holding company. The holding company may or may
not be a banking company. Under group banking, the individual banks may be unit banks, or
banks operating branches or a combination of the two.
E. Pure Banking - Under pure Banking, the commercial banks give only short-term loans to
industry, trade, and commerce. They specialize in short-term finance only. This type of banking
is popular in U.K.
F. Mixed Banking - Mixed banking is that system of banking under which the commercial banks
perform the dual function of commercial banking and investment banking. Commercial banks
usually offer both short-term as well as medium-term loans. The German banking system is the
best example of mixed Banking.
G. Relationship Banking - It refers to the efforts of a bank to promote personal contacts and to
keep continuous touch with customers who are very valuable to the bank. In order to retain
such profitable accounts with the bank or to attract new accounts, it is necessary for the bank
to serve their needs by maintaining a close relationship with such customers.
H. Narrow Banking - A bank may be concentrating only on the collection of deposits and lend or
invest the money within a particular region or certain chosen activity like investing the funds only
in Government Securities. This type of restricted minimum banking activity is referred to as
‘Narrow Banking’.
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I. Universal Banking - As Narrow Banking refers to restricted and limited banking activity,
Universal Banking refers to broad-based and comprehensive banking activities.
J. Regional Banking - In order to provide adequate and timely credits to small borrowers in rural
and semi-urban areas, Central Government set up Regional Banks, known as Regional Rural
Banks all over India jointly with State Governments and some Commercial Banks.
K. Wholesale Banking - Wholesale or corporate banking refers to dealing with limited large-sized
customers. Instead of maintaining thousands of small accounts and incurring huge transaction
costs, under wholesale banking, the banks deal with large customers and keep only large
accounts. These are mainly corporate customer.
L. Private Banking - Private or Personal Banking is banking with people — rich individuals instead of
banking with corporate clients. It attends to the need of individual customers, their preferences
and the products or services needed by them. This may include all-around personal services
like maintaining accounts, loans, foreign currency requirements, investment guidance, etc.’
M. Retail Banking - Retail banking is a major form of commercial banking but mainly targeted to
consumers rather than corporate clients. It is the method of banks’ approach to the customers
for sale of their products.
N. CORE (Centralized Online Real-time Exchange) banking - CORE banking is anywhere banking
with the same bank be it any location. All this can be done without sending the cheque
outstation for clearing the transaction. This saves on time and money for sending the cheque
for clearing to another city. Banking software and network technology allow a bank to centralize
its record keeping and allow access from any location.
O. Mobile Banking - Mobile banking is a service provided by a bank or other financial institution
that allows its customers to conduct financial transactions remotely using a mobile device such
as a smartphone or tablet. Unlike internet banking it uses software, usually called an app,
provided by the financial institution for the purpose. Mobile banking is usually available on a 24-
hour basis.
4 Types of Banks in India

Banking in India has been a backbone to so many businesses in the past as well as in the present times.
There are different types of banks which are present in India, now let’s discuss them in detail
4.1 Central Bank –

A central bank, reserve bank, or monetary authority is an institution that manages the currency and
monetary policy of a state or formal monetary union and oversees their commercial banking system.
In India, the Reserve Bank of India (RBI) act as a Central Bank. The Reserve Bank of India started its
operation on 1st April 1935. The powers of RBI are vested in Reserve Bank of India act. 1934.
In the later part of this document. We will discuss about the Reserve Bank of India and its functions
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4.2 Commercial Banks –
A commercial bank is a kind of financial institution that carries all the operations related to deposit and
withdrawal of money for the public, providing loans for investment, and other such activities. The two
primary characteristics of a commercial bank are lending and borrowing.
The Reserve Bank of India defines scheduled commercial banks in the 2nd Schedule of the RBI Act 1934.
These are banks which have paid up capital and reserves above 5 lakhs.
There are three types of commercial bank, which are as follows –
4.2.1 Private Commercial bank –

It is a type of commercial banks where private individuals and businesses own most of the share capital.
All private banks are recorded as companies with limited liability. Such as Housing Development Finance
Corporation (HDFC) Bank, Industrial Credit and Investment Corporation of India (ICICI) Bank, Yes Bank,
etc.
As of February 2022, there are 21 Private Sector Banks in India
4.2.2 Public Commercial bank –

It is a type of bank that is nationalized, and the government holds a significant stake. For example, Bank
of Baroda, State Bank of India (SBI), Dena Bank, Corporation Bank, and Punjab National Bank.
As of February 2022, there are 12 Public Commercial Banks
4.2.3 Foreign commercial bank

These banks are established in foreign countries and have branches in other countries. For instance,
American Express Bank, Hong Kong, and Shanghai Banking Corporation (HSBC), Standard & Chartered
Bank, Citibank, and more such banks.
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As of February 2022, there are 44 Foreign Banks in India
4.3 Regional Rural Banks

Regional Rural Banks are the Scheduled Commercial banks in India conducting banking activities for the
rural regions at the state level.
The first Regional Rural Bank (RRB) came into existence on Gandhi Jayanti in 1975 with the formation
of a Prathama Grameen Bank. The RRBs have the legislative backing from the Regional Rural Banks Act
1976
As of February 2022, there are 43 Regional Rural Banks in India
Do you Know?
M. Swaminathan is known as father of Regional Rural Bank (RRB) and Central Government, state
government and sponsor banks, contributes to the total equity in RRBs in the ratio of 50:15:35,
respectively.
4.4 Local Area Banks

Local Area Banks are set up in District Towns and are required to function within their own area which in
normal case does not exceeds three district towns.
As of February 2022, there are only 2 Local Area Banks in India, which are as follows
• Coastal Local Area Bank Ltd

• Krishna Bhima Samruddhi Ltd
4.5 Co-operative Banks

Co-operative credit institutions are an important segment of the banking system, as they play a vital role
in mobilizing deposits and purveying credit to people of small means.
They form an important vehicle for financial inclusion and facilitate transactions. Traditionally, the co-
operative institutional structure in India is divided into two categories viz. ‘Rural’ and ‘Urban’ with the
rural cooperatives having a federal structure.
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4.6 Differentiated Banks
Differentiated banks are banking institutions licensed by the RBI to provide specific banking services and
products.
It is a system refers to the system of different licenses for different sub-components of the banking
sector such as Limited Banking License, Commercial Banking License etc. A differentiated license will
allow a bank to offer products only in select areas.
Main aim for giving license to differentiated banks is to promote financial inclusion and payments.
The term differentiated banks indicate that they are different from the usual universal banks. The
universal banks like SBI, Canara Bank etc. can give almost all products and services. On the other hand,
the differentiated banks can give only selected products like credit, payments, deposit etc., with RBI
regulations.
Differentiated banks licensing was launched in 2015. The differentiated banks are of two types-
payment banks and small finance banks.
4.6.1 Payment Banks

A payments bank is like any other bank but operating on a smaller scale without involving any credit risk.
In simple words, it can carry out most banking operations but can’t advance loans or issue credit cards.
It can accept demand deposits, offer remittance services, mobile payments/transfers/purchases and
other banking services like ATM/debit cards, net banking, and third-party fund transfers.
Conditions
1. The minimum paid-up equity capital for payments banks shall be Rs. 100 crores
2. Accept Deposits, Issue Debit Cards, Remittance services. Cannot issue credit cards.
3. They will not lend to customers, so it can accept only current saving deposits.
4. They will have to deploy their funds in government papers and bank deposits.
5. Acceptance of demand deposits-Payment’s bank will initially be restricted to holding a maximum
balance of Rs. 200,000 per individual customer.
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6. It cannot handle cross-border remittances and NRI deposits.
As of February 2022, there are 6 payments

banks in India
4.6.2 Small Financial Banks

Small finance banks are a type of niche banks in India. Banks with a small finance bank license can
provide basic banking service of acceptance of deposits and lending. The aim behind these to provide
financial inclusion to sections of the economy not being served by other banks, such as small business
units, small and marginal farmers, micro and small industries, and unorganized sector entities.
Conditions for setting up a small financial bank –
1. They can accept any deposit like savings, current, fixed deposits, and recurring deposits.
2. They will be allowed to lend money but not allowed to lend the deposited money to big
businesses or industries.
3. Small banks can undertake financial services like distribution of mutual fund units, insurance
products, pension products, and so on, but not without prior approval from the RBI.
4. A fundamental requirement is that it must have 25% of its branches set up in unbanked area
5. The minimum paid-up equity capital for Small Finance Banks shall be Rs. 200 crores.
As of February 2022, there are 12 Small Finance Banks -
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4.7 Development Bank
Development bank is essentially a multi-purpose financial institution with a broad development outlook.
A development bank may, thus, be defined as a financial institution concerned with providing all types
of financial assistance (medium as well as long-term) to business units, in the form of loans,
underwriting, investment and guarantee operations, and promotional activities — economic
development in general, and industrial development.
“In short, a development bank is a development-oriented bank.”
In India, National Bank for Agriculture and Rural Development (NABARD), Export-Import Bank of India
(EXIM), National Housing Bank (NHB) and Small Industries Development Bank of India (SIDBI) works as
the development banks.
For revision purpose, please use the following flow chart
For revision purpose, you can refer to the following picture
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5 Case Study on Sanju and Kanju – Test 2
Assume that there are two friends in a village, Sanju and Kunju
Sanju and Kunju, decided to visit Mumbai for their short holiday trip, Sanju being the big brother helped
Kunju to withdraw Rs. 9,000 from the local ATM. Assume that you are Kunju, each correct question will
enable ATM to disperse Rs. 1000.
Question 1 – Identify the banking activity, which explains that banking activities are broad-based, and
such activities include comprehensive banking activities
Option A – Narrow Banking

Option B – Moderate Banking
Option C – Universal Banking
Option D – Retail Banking
Question 2 – In the general banking terms, unit banking is also known as?
Option A – Small Banking

Option B – Localized Banking
Option C – Corner Banking
Option D – Retail Banking
Question 3 – As per the Indian banking system, how many types of schedule commercial banks are
there?
Option A – 4
Option B – 2
Option C – 5
Option D – 3
Question 4 – Identify the type of banks, which are set up in District Towns and are required to
function within their own area which in normal case does not exceeds three district towns.
Option A – Regional Rural Banks

Option B – Small Financial Banks
Option C – Local Area Banks
Option D – Private Commercial Banks
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Question 5 – As per the recent regulation, what is the upper limit for deposits in payments banks in
India?
Option A – 1 Lakh
Option B – 3 Lakh
Option C – 2 Lakh
Option D – 4 Lakh
Check your answers now
Question 1 – Option C
Question 2 – Option B
Question 3 – Option D
And now comes the time to calculate your score if you are able to withdraw Rs. 4000, then you win
this game, and if not, better luck next time.
Till now, we have tried to understand the basic components of the Indian banking industry and we
have also seen and discussed the Indian banking structure. Now comes the time to understand the
functions of the Reserve Bank of India.
6 The Reserve Bank of India

The origins of the Reserve Bank of India (RBI) can be traced to 1926, when the Royal Commission on
Indian Currency and Finance – also known as the Hilton-Young Commission – recommended the
creation of a central bank for India to separate the control of currency and credit from the
Government and to augment banking facilities throughout the country. The Reserve Bank of India
Act of 1934 established the Reserve Bank
The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the
Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in
Kolkata but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits
and where policies are formulated.
The evolution of central banks can be traced back to the seventeenth century when Riksbank, the
Swedish Central Bank was set up in 1668.
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Currently, the operations of Reserve Bank of India are seen by Governor and 4 deputy Governors
Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the
Government of India. RBI was nationalized on 1 January 1949.
The RBI has four zonal offices at Chennai, Delhi, Kolkata and Mumbai.
At present there is a 21-member central board of directors,
The governor; 4 Deputy Governors; 2 Finance Ministry representatives (usually the Economic Affairs
Secretary and the Financial Services Secretary), 10 government-nominated directors to represent
important elements of India's economy; and 4 directors to represent local boards headquartered at
Mumbai, Kolkata, Chennai and New Delhi
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6.1 Origins of the Reserve Bank of India
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6.2 Subsidiaries of RBI
Presently there are 5 Fully owned subsidiaries of RBI, which are as follows
A - Deposit Insurance and Credit Guarantee Corporation of India (DICGC)
Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence on July 15, 1978.
DICGC was established for providing insurance of deposits and guaranteeing of credit facilities. At
present, DICGC ensures each depositor of a registered insured bank up to a maximum of Rs.5 Lakh for
all bank deposits, such as saving, fixed, current, recurring deposits. DICGC’s Headquarter is in Mumbai.
B - Bhartiya Reserve Bank Note Mudran Private Limited (BRBNMPL)
Bhartiya Reserve Bank Note Mudran Private Limited (BRBNMPL) was established by Reserve Bank of
India (RBI) as its wholly owned subsidiary on 3rd February 1995. The BRBNMPL has been registered as a
Private Limited Company under the Companies Act 1956. Role of BRBNMPL is to augment the
production of bank notes in India to enable the RBI to bridge the gap between the supply and demand
for bank notes in the country. BRBNMP’s headquarter is located in the city of Bengaluru.
C - Reserve Bank Information Technology Private Limited (ReBIT)
ReBIT has been set up by the Reserve Bank of India, for its IT and cybersecurity needs and to ensure
cyber resilience of Indian banking. It was established in 2016. Major role involves, delivering and
managing IT projects of RBI; Assist RBI in performing risk-based supervision of regulated entities;
Safeguard RBI assets by detecting and responding to cyber-threats. ReBIT’s headquarter is located in
Navi Mumbai.
D - Indian Financial Technology and Allied Services (IFTAS)
Financial Technology and Allied Services (IFTAS) is a wholly owned subsidiary of the Reserve Bank of
India, mandated to design, deploy & support IT-related services to all Banks and Financial Institutions in
the country and to the Reserve Bank of India. It manages & operates the financial messaging platform
(SFMS) that comprising of Real-Time Gross Settlement and National Electronic Funds Transfer.
Established in 2015 and it’s headquartered in Mumbai
E - Reserve Bank Innovation Hub (RBIH)
The RBIH has been registered as a section 8 company under Companies Act 2013 having its registered
office at Hyderabad. The Reserve Bank of India has set up Reserve Bank Innovation Hub (RBIH) to
promote innovation across the financial sector by leveraging on technology and creating an
environment that would facilitate and foster innovation. RBIH would be guided and managed by a
Governing Council (GC) led by a chairperson, Shri Senapathy (Kris) Gopalakrishnan. Headquarter of RBIH
is in Bengaluru
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Understanding and decoding the logo of RBI
Before selecting any design, the RBI had to follow few guidelines. After looking various designs, they
came to the East India Company’s Double Mohur which depicts a lion with a palm tree behind it. This
design was selected as the base with some variations into it.
The lion was replaced by our national animal tiger, which is also native to India. Symbolically the tiger
stands for grace, strength, and power.
On the other hand, the palm tree signifies the truth, value, vitality, warmth, fertile, protection and
singleness of purpose. The name of the central bank in Devanagari and English is written around.
7 Functions of RBI
The Reserve Bank of India, plays a pivotal role in the development of the Indian economy and this
pivotal role is played via the performance of the various functions, following are some key functions and
roles of RBI
7.1 To Formulate and implement Monetary Policy

Monetary policy refers to the use of monetary instruments under the control of the central bank to
regulate magnitudes such as interest rates, money supply and availability of credit with a view to
achieving the ultimate objective of economic policy.
The Reserve Bank of India (RBI) is vested with the responsibility of conducting monetary policy. This
responsibility is explicitly mandated under the Reserve Bank of India Act, 1934.
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7.1.1 The Goals of Monetary Policy
The primary objective of monetary policy is to maintain price stability while keeping in mind the
objective of growth. Price stability is a necessary precondition to sustainable growth.
In May 2016, the Reserve Bank of India (RBI) Act, 1934 was amended to provide a statutory basis for the
implementation of the flexible inflation targeting framework.
The amended RBI Act also provides for the inflation target to be set by the Government of India, in
consultation with the Reserve Bank, once in every five years.
Do you Know?
The Central Government has decided to retain the inflation target of 4%, with a tolerance band of +/-
2 percentage points for the Monetary Policy Committee of the RBI for the coming five years up-to FY
2025-2026
7.1.2 The Framework and the Monetary Policy Process

The first Monetary Policy Committee (MPC) was constituted in 2016. The present MPC members, as
notified by the Central Government are -
1. Governor of the Reserve Bank of India
2. Deputy Governor of the RBI, who oversees Monetary Policy
3. One officer of the Reserve Bank of India to be nominated by the Central Board
4. External Member
5. External Member
6. External Member
(Members referred to at 4 to 6 above, will hold office for a period of four years or until further orders,
whichever is earlier.)
The MPC determines the policy interest rate required to achieve the inflation target
7.1.3 The Tools of Monetary Policy and Instruments of Monetary Policy
RBI as an institution monitors and regulates the monetary policy of the country stabilizes the price by
controlling Inflation.
The instruments of monetary policy used to control the money flow in the economy are of 2 types
broadly:
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Tools of
Monetary
Policy
Quantitative Quantitative
Instruments Instruments
7.1.3.1 Quantitative Instruments or General Tools

The Quantitative Instruments are also known as the General Tools of monetary policy. These tools are
related to the Quantity or Volume of the money and they are designed to regulate or control the total
volume of bank credit in the economy. These tools are indirect in nature and are employed for
influencing the quantity of credit in the country. The general tool of credit control comprises of
following instruments.
A - Reserve Ratios: The reserve ratio is expressed as a percentage of the bank's total deposits. The
reserve ratio exists to ensure that the bank is able to pay an unusually high number of withdrawals on
demand accounts should that event occur. It also helps ensure that the bank does not over-leverage
itself. There are two types of Reserve Ratio, first one being the cash reserve ratio and the other one
being the Statutory Liquidity Ratio (SLR)
A.1 - Cash Reserve Ratio (CRR): It is a certain percentage of bank deposits which banks are required to
keep with RBI. It is based on Net demand and time liabilities (NDTL) and it is maintained in pure cash
form.
Higher the CRR with the RBI, lower will be the liquidity in the system and vice versa
A.2 - Statutory Liquidity Ratio (SLR): Every financial institution must maintain a certain quantity of
liquid assets with themselves at any point of time of their NDTL. Here, the deposits can be maintained in
government securities, cash and gold assets.
Higher the SLR, lower will the banks be allowed to lend in the system and vice versa.
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Net Demand and Time Liabilities (NDTL)
The Net Demand and Time Liabilities or NDTL shows the difference between the sum of demand and
time liabilities (deposits) of a bank (with the public or the other bank) and the deposits in the form of
assets held by the other bank.
Example: Suppose a bank has deposited 5000 with the other bank and its total demand and time
liabilities (including the other bank deposit) is 10,000.
Then the net demand and time liabilities will be 5,000 (10,000-5,000).
Liabilities of a bank may be in the form of demand or time deposits or borrowings or other
miscellaneous items of liabilities.
As defined under Section 42 of RBI Act, 1934, liabilities of a bank may be towards banking system or
towards others. "Demand Liabilities" include all liabilities which are payable on demand. "Time
Liabilities" are those which are payable otherwise than on demand.
B - Open Market Operations (OMOs):
An open market operation is an instrument of monetary policy which involves buying or selling of
government securities from or to the public and banks. The RBI sells government securities to control
the flow of credit and buys government securities to increase credit flow and RBI sells the government
securities to sell decrease the credit flow.
C - Policy Rates
C.1 - Bank Rate: The bank rate, also known as the discount rate, is the rate of interest charged by the
RBI for providing funds or loans to the banking system Increase in Bank Rate will increase the cost of
borrowing by commercial banks and which will result in the reduction in credit volume to the banks
and which results in decline of the supply of money.
C.2 - Liquidity adjustment facility (LAF): It is a monetary policy which allows banks to borrow money
through repurchase agreements. It consists of, Repo rate, reverse repo rate and Marginal Standing
Facility.
C.3 - Repo Rate: Repo rate or repurchase rate is referred to as the rate at which the central bank
(RBI) lends money to the commercial banks for meeting short-term fund requirements in order to
maintain liquidity and control inflation. It is used to push in the liquidity into the system.
C.4 - Reverse Repo rate: Reverse repo rate is said to be that rate of interest at which the central
bank (RBI in India) borrows money from the commercial banks for a short term. It is used to push-
out the liquidity out of the system.
C.5 - Marginal Standing Facility (MSF): MSF or Marginal Standing Facility enables banks to borrow
funds from RBI (Reserve Bank of India) in emergency situations when their liquidity absolutely dries
up. This short-term borrowing scheme facilitates the scheduled banks to get funds from the central
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bank of India overnight in case of serious cash shortage by offering their approved government
securities. Liquidity shortfalls are often faced by banks resulted from the financial gap created due to
deposit and loan portfolio mismatch
7.1.3.2 Qualitative Instruments or Selective Tools

These tools are not directed towards the quality of credit or the use of the credit. They are used for
discriminating between different uses of credit.
A - Fixing Margin Requirements - The margin refers to the "proportion of the loan amount which is not
financed by the bank". A change in a margin implies a change in the loan size. This method is used to
encourage credit supply for the needy sector and discourage it for other non-necessary sectors.
B - Consumer Credit Regulation - RBI can control money supply by changing down -payment and
instalment (EMI) rules.
C - Selective Credit Control - Under this RBI can specifically instruct banks not to give loans to traders of
certain commodities.
D - Credit Rationing - Central Bank fixes credit amount to be granted. This can help in lowering banks
credit exposure to unwanted sectors and give credit more to credit deprived sector, for example –
Priority Sector Lending (PSL), we will discuss about PSL in the next upcoming sections.
E - Moral Suasion - It includes variety of informal methods used by the central bank to persuade
commercial banks to behave in a particular manner. There is no element of compulsion in it.
F - Direct action - This step is taken by the RBI against banks that don’t fulfil conditions and
requirements. RBI may refuse to rediscount their bills and securities.
7.1.4 Open and Transparent Monetary policy

Under the amended RBI Act, the monetary policy making is as under:
1. The MPC is required to meet at least four times in a year.

2. Each member of the MPC has one vote, and in the event of an equality of votes, the Governor
has a second or casting vote.
3. The resolution adopted by the MPC is published after conclusion of every meeting of the MPC in
accordance with the provisions of Chapter III F of the Reserve Bank of India Act, 1934.
4. On the 14th day, the minutes of the proceedings of the MPC are published
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Do you Know?
There are three stances or position which is taken by RBI in every monetary policy, they are
1. Accommodative Monetary Policy - Accommodative monetary policy is when central banks expand
the money supply to boost the economy.
2. Neutral Monetary Policy - A neutral stance means the bank is neither willing to step up money supply
in the economy nor it intends to cut the same to curb growth.
3. Contractionary Monetary Policy - A contractionary monetary policy is focused on contracting

(decreasing) the money supply in an economy. A contractionary monetary policy is implemented by
increasing key interest rates thus reducing market liquidity
7.2 Regulation of Financial Markets and management of the foreign Exchange market
The Reserve Bank derives statutory powers to regulate market segments from specific provisions of the
Reserve Bank of India Act, 1934. The prudential guidelines issued to eligible market participants form
the broad regulatory framework for Government securities, money market and interest rate
derivatives.
7.2.1 Various Markets which are regulated and supervised by RBI

A – Government securities market - The Government securities market, which trades securities issued
by Central and State Governments, has seen significant growth in the last two decades. Trading largely
takes place on the Negotiated Dealing System-Order Matching (NDS-OM), an anonymous order-
matching trading platform. NDS-OM has been developed and maintained by RBI.
B – Call money market - Uncollaterized call money market is restricted to banks and Primary Dealers
subject to prudential limits. The collaterised segments include Collaterised Borrowing and Lending
Facility (CBLO) and market repo transactions between banks and financial institutions. The money
market also includes Commercial Paper (CP) issuances by corporates, and financial institutions and
Certificates of Deposit (CD) issued by banks to institutional investors
C – Foreign exchange market - The Reserve Bank plays a key role in the regulation and development of
the foreign exchange market and assumes three broad roles relating to foreign exchange, firstly,
regulating transactions related to the external sector and facilitating the development of the foreign
exchange market. Secondly, ensuring smooth conduct and orderly conditions in the domestic foreign
exchange market and thirdly, Managing the foreign currency assets and gold reserves of the country.
D – Derivative Markets - In India, different derivatives instruments are permitted and regulated by
various regulators, like Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and
Forward Markets Commission (FMC). Broadly, RBI is empowered to regulate the interest rate
derivatives, foreign currency derivatives and credit derivatives market.
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The Reserve Bank of India (RBI) plays a key role in the Foreign Exchange Market and the RBI derives the
power from the Foreign Exchange Management Act, 1999.
7.2.2 Foreign Exchange Management Act (FEMA)
With the aim of facilitating external trade and payments to foreign countries and promoting the orderly
development of the foreign exchange market in India, the government of India passed the Foreign
Exchange Management Act, (FEMA) in 1999. This Act replaced the Foreign Exchange Regulation Act
(FERA), which had become unworkable following the pro-liberalization policies of the government. The
new Act enabled a new management regime, which was consistent with the World Trade Organisation.
Section 10 of the FEMA act empowers RBI to regulate and manage the foreign Exchange management
in India.
Now, let’s discuss about various routes and ways, via which an Indian citizen can transact with the
rest of the world.
7.2.2.1 Liberalized Remittance Scheme

The Liberalized Remittance Scheme (LRS) lays down the guidelines for outward remittances from India.
It is part of the Foreign Exchange Management Act (FEMA) 1999. The Reserve Bank of India (RBI), under
the LRS, the upper limit of remittance is $2,50,000 per financial year
7.2.2.2 Money Transfer Service Scheme (MTSS)

Money Transfer Service Scheme (MTSS) is a quick and easy way of transferring personal remittances
from abroad to beneficiaries in India. Only inward personal remittances into India such as remittances
towards family maintenance and remittances favoring foreign tourists visiting India are permissible. No
outward remittance from India is permissible under MTSS.
The system envisages a tie-up between reputed money transfer companies abroad known as Overseas
Principals and agents in India known as Indian Agents who would disburse funds to beneficiaries in India
at ongoing exchange rates. The Indian Agent is not allowed to remit any amount to the Overseas
Principal. Under MTSS the remitters and the beneficiaries are individuals only.
A cap of USD 2,500 has been placed on individual remittances under the scheme. In addition, thirty
remittances can be received by a single individual beneficiary under the scheme during a calendar year.
7.2.2.3 Rupee Drawing Arrangements (RDA)

Under the Rupee Drawing Arrangements (RDAs), cross-border inward remittances are received in India
through Exchange Houses situated in Gulf countries, Hong Kong, Singapore, Malaysia (for Malaysia only
under Speed Remittance Procedure) and all other countries which are FATF compliant only under
Speed Remittance Procedure.
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No cash disbursement of remittances is allowed under RDA. The remittances have to be credited to the
bank account of the beneficiary. There is no limit on the remittance amount as well as on the number of
remittances. However, there is an upper cap of Rs.15.00 lakh for trade related transactions. We will
discuss about FATF in the later part of the document.
For regular interventions in the foreign exchange market, RBI uses the national foreign exchange
reserves and RBI’s role to maintain and to act as a custodian of these foreign exchange reserves, now
let’s discuss about India’s foreign exchange reserves .
7.2.3 Foreign Exchange Reserves of India

India’s Forex Reserve include:
A - Foreign Currency Assets (FCAs) - FCAs are assets that are valued based on a currency other than the
country's own currency. FCA is the largest component of the forex reserve. It is expressed in dollar
terms.
B - Gold reserves - A quantity of gold held by a central bank to support the issue of currency
C - Special Drawing Rights - The SDR is an international reserve asset, created by the IMF in 1969 to
supplement its member countries’ official reserves. The SDR is neither a currency nor a claim on the
IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. SDRs can be
exchanged for these currencies.
D - Reserve position with the International Monetary Fund (IMF) - A reserve tranche position implies a
portion of the required quota of currency each member country must provide to the IMF that can be
utilized for its own purposes.
7.3 Consumer protections and consumer awareness

The Reserve Bank’s approach to customer service focusses on protection of customers’ rights,
enhancing the quality of customer service, spreading awareness and strengthening the grievance
redressal mechanism in banks and also in the Reserve Bank.
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7.3.1 Recent Initiates
Some recent initiatives of the Reserve Bank in consumer education and protection are:
A - Charter of Customer Rights - The RBI has formulated a "Charter of Customer Rights" for banks based
on global best practices in consumer protection. The Charter enshrines broad, overarching principles for
protection of bank customers and enunciates the following five basic rights of bank customers
1. Right to Fair Treatment
2. Right to Transparency, Fair and Honest Dealing
3. Right to Suitability
4. Right to Privacy
5. Right to Grievances Redress and Compensation
B - Complaint Management System (CMS) - RBI launched the CMS on June 24, 2019, a state-of-the-art
web-based application integrating all stakeholders on one platform: customers, officials at Offices of the
RBI Ombudsman, CEPCs, CEPD and Regulated Entities for enabling end-to-end complaint processing
through digital mode. CMS provides real time status of complaints and also hosts comprehensive
material on e-learning based consumer education to enhance awareness on financial services and
consumer rights.
C – One Nation and One Ombudsman Scheme – This Scheme was announced by the RBI on 5th
February 2021. There are dedicated ombudsman schemes devoted to consumer grievance redressal in
banking, non-bank finance companies and digital transactions, respectively, are in operation from 22
ombudsman offices of the RBI located across the country. In line with the global initiatives on consumer
protection, RBI has taken various initiatives to strengthen the Grievance Redress Mechanism of
regulated entities. The adoption of the ‘One Nation One Ombudsman is an approach to make the
alternate dispute redressal mechanism simpler and more responsive to the customers of regulated
entities, it has been decided to implement, inter alia, integration of the three Ombudsman schemes in
one.
D - Financial Literacy Centres (FLCs) - Instructions have been issued to banks to open and
operationalize Financial Literacy Centres (FLCs) and also undertake financial education through the rural
bank branches across the country. Financial Support for the same is also made available from the
Financial Inclusion Fund managed by NABARD. Financial Education outreach through the Regional
Offices of RBI through the Financial Literacy Architecture for Regional Environment- Unified
Programme (FLARE-UP) guidelines and observing Financial Literacy Week (FLW) every year since 2016
to propagate financial education messages on a particular theme across the country. 
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Do you know?
National Strategy for Financial Education (NSFE)
The Reserve Bank of India has released a national strategy for financial education to be implemented in
the next five years. The multi-stakeholder led approach is aimed at creating a financially aware and
empowered India. It is the second NSFE , the first one being released in 2013.
The NSFE has been put together by the National Centre for Financial Education (NCFE) in consultation
with the four financial sector regulators (Reserve Bank of India, Securities and Exchange Board of India,
Insurance Regulatory and Development Authority of India and Pension Fund Regulatory and
Development Authority) and other relevant stakeholders.
Adopt a ‘5 C’ – Content, Capacity, Community, Communication and Collaboration – approach to

achieve the financial well-being of all Indians.
7.4 Regulation and Enforcement by RBI

Banks are fundamental to the nation's financial system. The central bank has a critical role to play in
ensuring the safety and soundness of the banking system-and in maintaining financial stability and
public confidence in this system.
RBI controls and regulates the following
1. Regulation of Commercial Banks

2. Regulation of Cooperatives
3. Regulation of NBFC and Non-Banking Activities
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7.4.1 Regulation of Commercial Bank
The Reserve Bank of India is the sole regulator of the commercial banks in India.
Mandate/Goals: Regulation aimed at protecting depositors’ interests, orderly development and

conduct of banking operations and fostering of the overall health of the banking system and financial
stability.
Perimeter: Commercial banks, Small Finance Banks, Payments Bank, All India Financial Institutions,
Credit Information Companies, Regional Rural Banks, and Local Area Banks.
Evolution: Regulatory functions have evolved with the development of the Indian banking system and
adoption of prudential norms based on international best practices.
7.4.2 Regulation of Cooperatives

This role of RBI includes ensuring credit availability to the productive sectors of the economy,
establishing institutions designed to build the country's financial infrastructure, expanding access to
affordable financial services, and promoting financial education and literacy
The rural co-operative credit system in India is primarily mandated to ensure flow of credit to the
agriculture sector. It comprises short-term and long-term co-operative credit structures.
The short-term co-operative credit structure operates with a three-tier system –
➢ Primary Agricultural Credit Societies (PACS) at the village level,

➢ Central Cooperative Banks (CCBs) at the district level and
➢ State Cooperative Banks (StCBs) at the State level.
Primary Agriculture Credit Societies (PACS) are outside the purview of the Banking Regulation Act, 1949
and hence not regulated by the Reserve Bank of India.
Primary Cooperative Banks (PCBs), also referred to as Urban Cooperative Banks (UCBs), cater to the
financial needs of customers in urban and semi-urban areas
Duality of Control Though the Banking Regulation Act came in to force in 1949, the banking laws were
made applicable to cooperative societies only in 1966 through an amendment to the Banking Regulation
Act, 1949. Since then, there is duality of control over these banks with banking related functions being
regulated by the Reserve Bank and management related functions regulated by respective State
Governments/Central Government.
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Do your Know?
Anyonya Co-operative Bank Limited (ACBL) located in the city of Vadodara (formerly Baroda) in
Gujarat was the first co-operative bank in India.
7.4.3 Regulation of Non-Banking Financial Companies (NBFCs)

Being financial intermediaries, NBFCs are engaged in the activity of bringing the saving and the investing
community together. In this role they are perceived to be playing a complimentary role to banks rather
than competitors, as majority population in the country does not yet have access to mainstream
financial products and services including a bank account. NBFCs especially NBFC-MFIs (Micro Finance
Institutions) have a complimentary role in the financial inclusion agenda of the country.
Regulating NBFCs
1996, in the wake of the failure of many NBFCs, the Reserve Bank tightened the regulatory structure
over the NBFCs, with rigorous registration requirements, enhanced reporting and supervision. The
Reserve Bank also decided that no additional NBFC will be permitted to raise deposits from the public.
Further, in 1999 capital requirement for fresh registration was enhanced from `25 lakh to `200 lakh.
Later when the NBFCs sourced their funding heavily from the banking system, it raised systemic risk
issues. At the same time, their growing size and interconnectedness also raise concerns on financial
stability. Sensing this, the Reserve Bank brought asset side prudential regulations onto the NBFCs. The
Reserve Bank’s endeavour has been to streamline NBFC regulation, address the risks posed by them to
financial stability, address depositors’ and customers’ interests, address regulatory arbitrage and help
the sector grow in a healthy and efficient manner.
Threshold for systemic significance has been redefined as Rs. 500 crores from the extant Rs. 100
crores in assets. Systemically important NBFCs along with deposit taking NBFCs would be subject to
inter alia, higher minimum Tier 1 capital, higher corporate governance standards and also stricter asset
classification norms.
7.4.4 Enforcement by RBI

Reserve Bank of India (the Bank) has the powers to impose penalties on Regulated Entities (REs) under
various statutes including the Banking Regulation Act, 1949, the Reserve Bank of India Act, 1934, the
Payments and Settlement Systems Act, 2007, the Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002, the Factoring Regulation Act, 2011, the National
Housing Bank Act, 1987 and the Credit Information Companies (Regulation) Act, 2005.
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7.4.4.1 Recent enforcement initiatives by RBI
A. Utkarsh 2022 –
It’s the Reserve Bank of India’s Medium-term Strategy Framework, in line with the evolving
macroeconomic environment, to achieve excellence in the performance of RBI’s mandates and
strengthening the trust of citizens and other institutions
B. Licensing of Universal Banks
Two banks viz., IDFC Bank Limited and Bandhan Bank Limited, were issued banking license in terms of
the 'Guidelines on Licensing of New Banks in the Private Sector dated February 22, 2013'. Based on the
experience gained from this licensing exercise, the Reserve Bank has moved towards accepting
applications for universal bank license on a continuous basis under the 'Guidelines for 'on tap' Licensing
of Universal Banks in the Private Sector dated August 1, 2016.
C. Licensing of Differentiated Banks
Guidelines for Licensing of Small Finance Banks and Payments Banks were issued on November 27,
2014. Banking licenses have been issued to Small Finance Banks and Payments Banks under these
guidelines. These banks are "niche" or "differentiated" banks, with the common objective of furthering
financial inclusion.
D. Minimum qualifications and experience for CFO and CTO:
A Chief Financial Officer (CFO) and Chief Technology Officer (CTO) would play a crucial role in
strengthening and sustaining the banks' risk governance framework in light of rapid innovations in
banking and technology. Therefore, minimum qualification and experience were stipulated for
adherence by banks while inviting applications for these positions.
E. Appointment of Chief Risk Officers in Banks
Banks are required to keep the credit risk management function separate from the credit sanction
process towards effective risk management. For bringing uniform approach and alignment of risk
management system with the best practices, banks are required to frame a Board-approved policy,
clearly defining the roles and responsibilities of the Chief Risk Officer (CRO) who shall not have any
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reporting relationship with business verticals or business targets. Under no circumstances, “dual
hatting” will be allowed i.e., CRO shall not function as CEO/COO/CFO/Chief of Internal Audit.
7.5 Financial Inclusion and development

This role encapsulates the essence of renewed national focus on Financial Inclusion, promoting
financial education and literacy and making credit available to productive sectors of the economy
including the rural and MSME sector.
Credit flow to priority sectors: Macro policy formulation to strengthen credit flow to the priority sectors.
Ensuring priority sector lending becomes a tool for banks for capturing untapped business opportunities
among the financially excluded sections of society
7.5.1 Priority Sector Lending

The Reserve Bank of India decides to allot funds to predetermined priority sectors of the economy that
may require credit and financial assistance, especially in cases where the lack of PSL will lead to the
heavy losses to the participants of that sector in some cases. Priority Sectors Lending is the role
exercised by the RBI to banks, imploring them to dedicate funds for specific sectors of the economy
like agriculture and allied activities, education and housing and food for the poorer population.
What are the Different Categories of the Priority Sector – in total 8 categories are there, which are
1. Agriculture
2. Micro, Small and Medium Enterprises
3. Export Credit
4. Education
5. Housing
6. Social Infrastructure
7. Renewable Energy
8. Others
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Applicability
The provisions of PSL Directions shall apply to every Commercial Bank [including Regional Rural Bank
(RRB), Small Finance Bank (SFB), Local Area Bank] and Primary (Urban) Co-operative Bank (UCB) other
than Salary Earners’ Bank licensed to operate in India by the Reserve Bank of India.
Allocation
According to priority sector norms, scheduled commercial banks must give 40% of their loans
(measured in terms of Adjusted Net Bank Credit or ANBC) to the identified priority sectors in accordance
with the RBI regulations.
Major Category wise allocation -
A. Agriculture sector allocation - 18% - Within the 18 percent target for agriculture, a target of 10
percent of ANBC is prescribed for Small and Marginal Farmers.
B. Micro, Small and Medium Enterprises - 7.5 percent of the total PSL lending
C. Social Infrastructure - Bank loans up to a limit of Rs 5 crore per borrower for building social
infrastructure for activities namely schools, health care facilities, drinking water facilities and
sanitation facilities in Tier II to Tier VI Centres.
D. Renewable Energy - Bank loans up to a limit of Rs 15 crore to borrowers (individual households-
Rs 10 lakh) including for public utilities viz. street lighting systems, and remote village
electrification.
7.5.2 Priority Sector Lending Certificates (PSLCs)
Priority Sector Lending Certificates (PSLCs) are a mechanism to enable banks to achieve the priority
sector lending target and sub-targets by purchase of these instruments in the event of shortfall. This
also incentivizes surplus banks as it allows them to sell their excess achievement over targets thereby
enhancing lending to the categories under priority sector. Under the PSLC mechanism, the seller sells
fulfilment of priority sector obligation, and the buyer buys the obligation with no transfer of risk or loan
assets.
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Do you know?
National Strategy for Financial Inclusion (2019-2024)
The Reserve Bank of India (RBI) has planned the National Strategy for Financial Inclusion (NSFI) for the
period 2019-2024. It is an ambitious strategy which aims to strengthen the ecosystem for various modes
of digital financial services in all Tier-II to Tier VI centres to create the necessary infrastructure to move
towards a less-cash society by March 2022.
Financial inclusion is a key driver of economic growth and poverty alleviation in the whole world
Vision is to create ‘A financially aware and empowered India’.
Objectives:
A. Create awareness and educate consumers on access to financial services, availability of various
types of products and their features.
B. A target has been set that every willing and eligible adult, who has been enrolled under the Prime
Minister Jan Dhan Yojana, will be enrolled under an insurance scheme and a pension scheme by
March 2020.
C. Change attitudes to translate knowledge into behaviour.
D. Make consumers understand their rights and responsibilities as clients of financial services.
E. Increase outreach of banking outlets to provide banking access to every village within a 5-km
radius or a hamlet of 500 households in hilly areas by March 2020.
F. Ensure that every adult had access to a financial service provider through a mobile device by
March 2024.
7.6 Currency Management

The Reserve Bank is the nation's sole note issuing authority. Along with the Government of India, RBI is
responsible for the design, production, and overall management of the nation's currency, with the
goal of ensuring an adequate supply of clean and genuine notes.
The Government of India is the issuing authority of coins and supplies coins to the Reserve Bank on
demand. The Reserve Bank puts the coins into circulation on behalf of the Central Government.
In consultation with the Government of India, RBI work towards maintaining confidence in the currency
by constantly endeavoring to enhance integrity of banknotes through new design and security features.
Printing presses print and supply banknotes. These are at Dewas in Madhya Pradesh, Nasik in
Maharashtra, Mysore in Karnataka, and Salboni in West Bengal.
The presses in Madhya Pradesh and Maharashtra are owned by the Security Printing and Minting
Corporation of India (SPMCIL), a wholly owned company of the Government of India. The presses in
Karnataka and West Bengal are owned by the Bharatiya Reserve Bank Note Mudran Private Limited
(BRBNMPL), a wholly owned subsidiary of the Reserve Bank.
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Coins are minted by the Government of India. The Reserve Bank is the agent of the Government for
distribution, issue and handling of coins. Four mints are in operation: Mumbai in Maharashtra, Noida in
Uttar Pradesh, Kolkata, and Hyderabad.
7.6.1 Types of Money

Money can be described as a generally accepted medium of exchange for goods and services. They are
divided into four types, they are commodity money, fiat money, fiduciary money, and commercial bank
money.
Commodity money: Commodity money is closely related to (and originates from) a barter system,
where goods and services are directly exchanged for other goods and services. Commodity money
facilitates this process, because it acts as a generally accepted medium of exchange. Examples of
commodity money include gold coins, beads, shells, spices, etc.
Fiat Money: Fiat money gets its value from a government order (i.e. fiat). That means, the government
declares fiat money to be legal tender, which requires all people and firms within the country to accept
it as a means of payment. Examples of fiat money include coins and bills.
Fiduciary Money: Fiduciary money depends for its value on the confidence that it will be generally
accepted as a medium of exchange. Unlike fiat money, it is not declared legal tender by the government,
which means people are not required by law to accept it as a means of payment. Instead, the issuer of
fiduciary money promises to exchange it back for a commodity or fiat money if requested by the bearer.
Examples of fiduciary money include cheques, bank notes, or drafts.
Commercial Bank Money: Commercial bank money can be described as claims against financial
institutions that can be used to purchase goods or services. It represents the portion of a currency that
is made of debt generated by commercial banks. At this point just note that in essence, commercial
bank money is debt generated by commercial banks that can be exchanged for “real” money or to buy
goods and services.
7.6.2 RBI Clean Note Policy

Education campaign on preferred way to handle notes: no stapling, writing, excessive folding and the
like, Timely removal of soiled notes: use of currency verification and processing systems and sorting
machines. Exchange facility for torn, mutilated or defective notes: at all branches of commercial banks.
Paisa bolta hai – An educative micro-site, which includes a film for public awareness about banknotes
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7.6.3 Minimum Reserve System
For the issue of currencies, the RBI follows Minimum Reserve System at present. The Minimum Reserve
System (MRS) is followed from 1956 onwards.
Under the Minimum Reserve System, the RBI has to keep a minimum reserve of Rs.200 crore comprising
of gold coin and gold bullion and foreign currencies. Out of the total Rs 200 crores, Rs.115 crore should
be in the form of gold coins or gold bullion. The purpose of shifting to MRS was to expand money supply
to meet the needs of increasing transactions in the economy.
7.7 Payment and Settlement System

Payment and settlement systems play an important role in improving overall economic efficiency. They
consist of all the diverse arrangements that we use to systematically transfer money-currency, paper
instruments such as cheques, and various electronic channels.
Oversight of the payment and settlement systems is a central bank function whereby the objectives of
safety and efficiency are promoted by monitoring existing and planned systems, assessing them against
these objectives and, where necessary, inducing change. By overseeing payment and settlement
systems, central banks help to maintain systemic stability and reduce systemic risk, and to maintain
public confidence in payment and settlement systems.
The Payment and Settlement Systems Act, 2007 and the Payment and Settlement Systems Regulations,
2008 framed thereunder, provide the necessary statutory backing to the Reserve Bank of India for
undertaking the Oversight function over the payment and settlement systems in the country.
The initiatives taken by the Reserve Bank focused on technology-based solutions for the improvement
of the payment and settlement system infrastructure, coupled with the introduction of new payment
products by taking advantage of the technological advancements in banks. The Payment and
Settlement Systems Act, 2007 led to the formation of NPCI in India.
7.7.1 NATIONAL PAYMENTS CORPORATION OF INDIA (NPCI)
National Payments Corporation of India (NPCI) is an umbrella organization for all retail payments system
in India, which aims to allow all Indian citizens to have unrestricted access to e-payment services.
NPCI is a not-for-profit Organisation registered under section 8 of the Companies Act 2013.
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It was set up in December 2008 with the guidance and support of the Reserve Bank of India (RBI) and
Indian Banks’ Association (IBA).
The core objective was to consolidate and integrate the multiple systems with varying service levels
into nation-wide uniform and standard business process for all retail payment systems.
NPCI has ten core promoter banks namely, State Bank of India, Punjab National Bank, Canara Bank, Bank
of Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank, and HSBC
7.7.2 Major Components of the payment and settlement system
A. National Electronic Funds Transfer (NEFT) System
In November 2005, a more secure system was introduced for facilitating one-to-one funds transfer
requirements of individuals / corporates. Available across a longer time window, the NEFT system
provides for batch settlements at half-hourly intervals, thus enabling near real-time transfer of funds.
From December 2019, it is available 24x7 throughout the year with half-hourly settlements. NEFT has no
limit - either minimum or maximum - on the amount of funds transferred
B. Prepaid Payment Instruments
Prepaid Payment Instrument (PPIs) are payment instruments that facilitate purchase of goods and
services, including financial services, remittance facilities, etc., against the value stored on such
instruments. PPIs may be loaded / reloaded by, cash, debit to a bank account, credit and debit cards,
and other PPIs. The electronic loading / reloading of PPIs shall be through these payment instruments
issued only by regulated entities in India and shall be in INR only.
C. National Automated Clearing House (NACH)
NACH is a centralized ECS system operated by NPCI. NACH was formed to consolidate multiple
Electronic Clearing Service systems running across the country into one centralised system. It operates
both NACH Credit and NACH Debit payment systems.
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D. Real Time Gross Settlement (RTGS) System
RTGS is a funds transfer systems where transfer of money takes place from one bank to another on a
"real time" and on "gross" basis. Settlement in "real time" means payment transaction is not subjected
to any waiting period. "Gross settlement" means the transaction is settled on one-to-one basis without
bunching or netting with any other transaction. Once processed, payments are final and irrevocable.
This System of payment was introduced in in 2004 and settles all inter-bank payments and customer
transactions above ₹2 lakh.
E. Magnetic Ink Character Recognition (MICR)
Since paper-based payments occupy an important place in the country, Reserve Bank had introduced
Magnetic Ink Character Recognition (MICR) technology for speeding up and bringing in efficiency in
processing of cheques. The MICR code is a 9-digit code, which is printed at the bottom of a cheque and
in the right-hand side of the cheque number. A MICR code is unique to each bank branch. Thus, a MICR
code can be used to uniquely identify any bank branch. It also uniquely identifies a bank and a branch
participating in an Electronic Clearing System (ECS).
F. Cheque Truncation System
Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project of the
Reserve Bank of India (RBI), commencing in 2010, for faster clearing of cheques. CTS is based on a online
image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition
(MICR) data are captured at the collecting bank branch and transmitted electronically. Cheque
truncation means stopping the flow of the physical cheques issued by a drawer to the drawee branch
G. White Label ATMs (WLAs)
Non-bank entities that intend setting up, owning and operating ATMs, are called "White Label ATM
Operators" (WLAO) and such ATMs are called "White Label ATMs" (WLAs). They provide the banking
services to the customers of banks in India, based on the cards (debit / credit / prepaid) issued by banks.
The WLAO's role is confined to acquisition of transactions of all banks' customers and hence they need
to establish technical connectivity with the existing authorized shared ATM Network Operators / Card
Payment Network Operators.
H. Cash Withdrawal using point-of-sale terminals
Customers can also use point-of-sale terminals to withdraw a maximum of Rs.1,000 in Tier I and II
Centres and Rs.2,000 in Tier III to VI Centres.
I. Mobile Banking Services
Mobile phones, as a medium for extending banking services, have attained greater significance because
of their ubiquitous nature. Banks which are licensed, supervised and having physical presence in India,
are permitted to offer mobile banking services (through SMS, USSD or mobile banking application) after
obtaining necessary permission from Reserve Bank of India and are to be made available to bank
customers irrespective of the mobile network. ‘Mobile Banking transaction’ means undertaking banking
transactions using mobile phones by bank customers that involve accessing / credit / debit to their
accounts and / or, debit / credit cards issued as per the extant RBI guidelines.
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J. Bharat Bill Payment System
Bharat Bill Payment System (BBPS) is an integrated bill payment system that offers interoperable and
accessible bill payment services with a single brand image, providing convenience of ‘anytime anywhere’
bill payment to customers. BBPS facilitates collection of repetitive (monthly, bi-monthly, quarterly etc.)
payments for everyday utility services provided by utility service providers in categories like electricity,
telecom, DTH, gas, water bills, etc.
K. Trade Receivables Discounting System
Trade Receivables Discounting System (TReDS) is a scheme for setting up and operating institutional
mechanism for facilitating the financing of trade receivables of MSMEs from corporate and other
buyers, including Government Departments and Public Sector Undertakings (PSUs), through multiple
financiers. TReDS facilitate the discounting of both invoices as well as bills of exchange.
L. IFSC (Indian Financial System Code)
IFSC or Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-branch
participating in the NEFT system. This is an 11-digit code with the first 4 alpha characters representing
the bank, the 5th character is 0 (zero) and the last 6 characters representing the branch.
All the banks have also been advised to print the IFS code of the branch on cheques issued by branches
to their customers.
M. MMID (Mobile Money Identifier) Code
Mobile Money Identifier is a 7-digit number, issued by banks. MMID is one of the inputs which when
clubbed with mobile number facilitates fund transfer. Combination of Mobile no. & MMID is uniquely
linked with an Account number and helps in identifying the beneficiary details.
N. Immediate Payment Service (IMPS)
IMPS is an innovative real time inter-bank electronic funds transfer system in India. Banks are allowed to
set their own limit for IMPS. IMPS offers an inter-bank electronic fund transfer service through mobile
phones. Unlike NEFT and RTGS, the service is available 24/7 throughout the year including bank
holidays. And recently, IMPS maximum limit has been increased to Rs. 5 Lakhs.
This service is offered by National Payments Corporation of India (NPCI) that empowers customers to
transfer money instantly through banks and RBI authorized Prepaid Payment Instrument Issuers (PPI)
across India.
QSAM (Query Service on Aadhaar Mapper) – This service helps user in knowing their Aadhaar Seeding
status with their bank account.
Both banked as well as un-banked customer can avail IMPS. However, unbanked customer can initiate
IMPS transaction using the services of Pre-Paid Payments instrument issuer (PPI)
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O. Unified Payment Interface
Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile
application (of any participating bank), merging several banking features, seamless fund routing &
merchant payments into one hood.
It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per
requirement and convenience.
UPI is built over Immediate Payment Service (IMPS) for transferring funds. Per Transaction limit is Rs.
2 Lakh.
And the limit for Initial Public Offer (IPO) application (with UPI) is 2 Lakhs per transaction on UPI
It uses Virtual Payment Address (a unique ID provided by the bank), Account Number with IFS Code,
Mobile Number with MMID (Mobile Money Identifier), Aadhaar Number, or a one-time use Virtual ID.
P. BHIM (Bharat Interface for Money)
BHIM is a mobile app developed by National Payments Corporation of India (NPCI), based on the Unified
Payment Interface (UPI). Launched in the year 2016. The app supports all Indian banks which use UPI
platform, which is built over the Immediate Payment Service infrastructure and allows the user to
instantly transfer money between bank accounts of any two parties.
It can be used on all mobile devices. BHIM allow users to send or receive money to or from UPI payment
addresses, or to non-UPI based accounts (by scanning a QR code with account number and IFSC code or
MMID (Mobile Money Identifier Code)
At present, there is no charge for transactions from Rs.1 to Rs.1 lakh. Currently the fund transfer limit
has been set to a maximum of Rs.20,000 per transaction
Q. Rupay Card
RuPay is an Indian domestic card scheme conceived and launched by the National Payments
Corporation of India (NPCI) on 26 March 2012. Banks in India are authorized to issue RuPay debit cards
to their customers for use at ATMs, PoS terminals, and e-commerce websites. It has been incorporated
as a Section 25 company under Companies Act 1956 and more recently under the Section 8 of the
Companies Act 2013 and is aimed to operate for the benefit of all the member banks and their
customers. Its headquarters is located in Mumbai, Maharashtra.
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7.8 Debt Management
Managing the government's banking transactions is a key RBI role. Like individuals, businesses and
banks, governments need a banker to carry out their financial transactions in an efficient and effective
manner, including the raising of resources from the public
The Reserve Bank of India Act, 1934 requires the Central Government to entrust the Reserve Bank with
all its money, remittance, exchange and banking transactions in India and the management of its public
debt. The Government also deposits its cash balances with the Reserve Bank.
The Reserve Bank may also, by agreement, act as the banker and debt manager to State Governments.
Currently, the Reserve Bank acts as banker to all the State Governments in India (including Union
Territory of Puducherry), except Sikkim. For Sikkim, it has limited agreement for management of its
public debt.
RBI act a banker to the following institutions
➢ Banker to the Central Government

➢ Banker to the State Government
➢ Banker to the Banks
7.8.1 Banker to the Central Government
Under the administrative arrangements, the

Central Government is required to maintain a
minimum cash balance with the Reserve Bank.
Currently, this amount is Rs.10 crore on a
daily basis and Rs.100 crore on Fridays, as also
at the annual account closing day of the
Centre and the Reserve Bank (end of March
and June).
As banker to the Government, the Reserve Bank works out the overall funds position and sends daily
advice showing the balances in its books, Ways and Means Advances granted to the government and
investments made from the surplus fund.
What are Ways and Means Advances ?
WMA is a mechanism used by Reserve Bank of India (RBI) under its credit policy by which to provide to
States banking with it to help them to tide over temporary mismatches in the cash flow of their receipts
and payments.
This is guided under Section 17(5) of RBI Act, 1934, and are repayable in each case not later than three
months from the date of making that advance'.
There are two types of WMA – Normal and Special. While Normal WMA are clean advances, Special
WMA are secured advances provided against the pledge of government of India–dated securities.
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7.8.2 Banker to State Governments
All the State Governments are required to maintain a minimum balance with the Reserve Bank, which
varies from state to state depending on the relative size of the state budget and economic activity. To
tide over temporary mismatches in the cash flow of receipts and payments, the Reserve Bank provides
Ways and Means Advances/Overdraft to the State Governments.
7.8.3 Bankers to Bank

Like individual consumers, businesses and Organisation of all kinds, banks need their own mechanism to
transfer funds and settle inter-bank transaction-such as borrowing from and lending to other banks-and
customer transactions. As the banker to banks, the Reserve Bank fulfills this role.
Banks are required to maintain a portion of their demand and time liabilities as cash reserves with the
Reserve Bank. For this purpose, they need to maintain current account with the Reserve Bank. The
current account of the banks is opened by the Banking Departments of the Reserve Bank’s Regional
offices.
7.8.4 Lender of Last Resort

As a Banker to Banks, the Reserve Bank also acts as the ‘lender of the last resort’. It can come to the
rescue of a bank that is solvent but faces temporary liquidity problems by supplying it with much
needed liquidity
when no one else is willing to extend credit to that bank. The Reserve Bank extends this facility to
protect the interest of the depositors of the bank and to prevent possible failure of the bank, which in
turn may also affect other banks and institutions and can have an adverse impact on financial stability
and thus on the economy.
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8 Case study based on Sanju and Kunju – Test
Case study based on Sanju and Kunju – Test 3
Sanju and Kunju, decided to start a business venture and they are looking to raise some money from
the domestic investors. Therefore, they decided to visit a TV show, known as Whale Tank. They are
planning to raise 5 lakh rupees for 20% stake in their business. Assume that you are Sanju, below are
some questions, each correct question will offer 1 lakh rupee to Sanju and Kunju,
Can you help Sanju and Kunju to raise Rs. 5 Lakh for their business?
Question 1 – Which of the following is the website or initiative was launched by RBI for currency
awareness?
Option A – Paisa Important Hai!

Option B – Paisa Kaha Hai?
Option C – Paisa Bolta Hai!
Option D – Paisa Awareness programme
Question 2 – What was the initial paid up capital of RBI in 1935?
Option A – 2 crores
Option B – 3 Crores
Option C – 4 Crores
Option D – 5 Crores
Question 3 – With the aim of facilitating external trade and payments to foreign countries and
promoting the orderly development of the foreign exchange market in India, the government of India
passed the Foreign Exchange Management Act, (FEMA) in which year?
Option A – 1997
Option B – 1998
Option C – 1999
Option D – 2005
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Question 4 – A bank can lend loans under the Priority Sector Lending (PSL) to how many sectors?
Option A – 7
Option B – 8
Option C – 9
Option D – 5
Question 5 – Identify the stance of the monetary policy, wherein central banks decide to expand the
money supply to boost the economy.
Option A – Stringent Monetary Policy

Option B – Accommodating Monetary Policy
Option C – Neutral Monetary Policy
Option D – None of the above
Check your answers now!
Answers
1 – C, 2 – D, 3 – C, 4 – B, and 5 – B
What’s your score?
Were you able to help Sanju and Kunju to raise Rs. 4 lakhs?
If yes, then you win this game and if you are able to clear all the test, then your preparations are on
the right track.
If not, then you will have to buck up and try to revise each concept again, because with revision only
you can ace the upcoming exams.
In the next section will be covering different types of functions of the Indian banks and we will also
see the different banking products which are offered by the Indian banks, and we will also see what
are NBFCs.
9 What are NBFCs and What are different types of NBFCs ?
Non-banking financial company (NBFC) is a company which is registered under the companies act, 2013
and they also have to attain the license from RBI as explained in section 45-I of Reserve Bank of India
Act, 1934.
For a layperson, NBFC is financial companies that provide a different kind of banking services, but they
do not have a Banking License. Role of NBFC in recent times has become important according to its size
in the Indian economy
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RBI has differentiated NBFCs based on different activities which they perform and whether they accept
deposit or not. RBI licenses different types of Non-Banking Financial Companies. Following are some
major types of NBFCs
9.1 Features of NBFCs

1. NBFCs cannot accept demand deposits from public depositors or investors as it is not authorized
by law.
2. The minimum time period for which the public deposits can be taken by the company is 12
months, while the maximum tenure can be 60 months.
3. The Reserve Bank of India will not guarantee the repayment of any amount which is taken by
the NBFCs.
4. The Company cannot charge an interest rate which is more than the rate prescribed by the
Reserve Bank of India.
5. NBFCs cannot issue cheques to their customers in order to make payments or settlements.
6. The depositors of the NBFCs cannot avail the securing facility of the Deposit Insurance and Credit
Guarantee Corporation (DICGC).
7. NBFCs do not form the part of the Payment and settlement system.
8. NBFCs cannot issue passbook to their customer
9.2 Different Types of NBFCs
Serional Type of NBFCs Nature of work Qualifying Criteria

Number
1. Investment and Credit i) Lending (erstwhile Loan Does not qualify (or has not
Company (ICC) companies) registered) to be in any other
category
ii) Financing of physical
assets including
automobiles, tractors and
generators (erstwhile Asset
Finance Companies)
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iii) Acquisition of securities
(erstwhile Investment
Companies)
2. Infrastructure Finance Providing long term loans (i) Infrastructure loans should
Company (IFC) for Infrastructure be at least 75 per cent of total
development assets.
(ii) Minimum NOF of ₹ 300
crore
(iii) Minimum credit rating of
‘A’
(iv) CRAR of 15 per cent with
min. Tier 1 of 10 per cent
3. Core Investment Company Investing in / lending to i) 90 per cent of total assets
(CIC) group companies to be investments in group
companies and 60 per cent of
investments in group
companies to be in equity
shares of group companies
(ii) Does not trade in its

investments in shares, bonds,
debentures, debt/loans of
group companies except
through block sale for
dilution/disinvestment.
(iii) Does not carry out any

other financial activity
4. Infrastructure Debt Fund Refinancing existing debt of (i) Minimum NOF of ₹ 300
(IDF) infrastructure companies crore
(ii) Invests only in Public

Private Partnerships (PPP)
and post commencement of
operations date (COD) in
infrastructure projects which
have completed at least one
year of satisfactory
commercial operation and
becomes a party to a
Tripartite Agreement
5. Micro Finance Institutions Collateral free loans to small (i) Minimum NOF of ₹5 crore
(MFI) borrowers (for North East: ₹ 2 crore)
(ii) Invests only in Public 85

per cent of assets to be in
qualifying assets criteria
6. NBFC – Factors Factoring business i.e. (i) Minimum NOF of ₹5 crore
financing of receivables.
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Registered under section 3 (ii) Financial assets in
of the Factoring Act factoring business at least 50
per cent of total assets and
income derived there from
not less than 50 per cent of
total income.
7. Non-Operative Financial For setting up new banks in Should have first received an
Holding Company private sector through its inprincipal approval for
(NOFHC) promoter/promoter groups setting up a commercial bank
from RBI
8. Account Aggregators (AA) Providing service of Can only provide account

retrieving, consolidating, aggregation services. Only
organising and presenting those financial assets that are
financial information of its under the regulatory ambit of
customer (with explicit financial sector regulators can
consent). be aggregated.
These aggregators cannot

support the transactions of
customers and cannot take
services of third-party service
providers
9. Peer-to-Peer (P2P) Carries on the business of a Can only provide platform. No
Lending Platforms P2P lending platform i.e. lending from its own books
providing loan facilitation
services to participants on Minimum NOF – 2 Crore
the platform.
10. Housing Finance Company Registered under section Minimum NOF – 20 crore
(HFC) 29A the NHB Act to carry on
the business of providing
finance for housing and
housing projects
11. NBFC – Non Deposit NBFC-NDs not accepting An NBFCs-ND is categorized
Taking (NBFC-ND) public funds / not intending as systemically important (i.e.
to accept public funds in the NBFC-ND-SI) if its asset size is
future and not having ₹ 500 crore or more.
customer interface / not
intending to have customer
interface in the future.
10 Functions of Bank
The Indian banks are world famous for providing different types of banking related products and
services, but let’s simply the various functions which a bank performs
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Functions
of a bank
Primary Secondary
Functions Functions
Acceptance Loans and Agency Utility

of Deposits Advances Functions Functions
10.1 Primary Functions of Bank

Primary functions can be defined as the most important functions which a bank performs. All banks
must perform two major primary functions namely -
1. Accepting of deposits
2. Granting of loans and advances
10.1.1 Accepting of Deposits

A very basic yet important function of all the commercial banks is mobilizing public funds, providing safe
custody of savings and interest on the savings to depositors. Bank accepts different types of deposits
from the public such as:
1. Saving Deposits: Via such deposits a bank encourages saving habits among the public. It is
suitable for salary and wage earners. The rate of interest is low. There is no restriction on the
number and number of withdrawals. The account for saving deposits can be opened in a single
name or in joint names. The depositors just need to maintain minimum balance which varies
across different banks. Also, Bank provides ATM cum debit card, cheque book, and Internet
banking facility.
2. Fixed Deposits: Also known as Term Deposits. Money is deposited for a fixed tenure. No
withdrawal money during this period allowed. In case depositors withdraw before maturity,
banks levy a penalty for premature withdrawal. As a lump-sum amount is paid at one time for a
specific period, the rate of interest is high but varies with the period of deposit.
3. Current Deposits: They are opened by businessmen. The account holders get an overdraft facility
on this account. These deposits act as a short-term loan to meet urgent needs. Bank charges a
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high-interest rate along with the charges for overdraft facility to maintain a reserve for unknown
demands for the overdraft.
4. Recurring Deposits: A certain sum of money is deposited in the bank at a regular interval. Money
can be withdrawn only after the expiry of a certain period. A higher rate of interest is paid on
recurring deposits as it provides a benefit of compounded rate of interest and enables depositors
to collect a big sum of money. This type of account is operated by salaried persons and petty
traders.
5. Non-Resident Indian (NRI) Accounts - To fulfil the bank requirements of a Non-Residential Indian
or a Person of India Origin, the option of NRI account is available. The NRI Accounts are further
divided into three types:
5.1. NRO (Non-Resident Ordinary Rupees) Account – This shall allow you to transfer your
foreign earnings easily to India. It can be opened in the form of an FD/RD/Current/Savings
account. These accounts can be opened by an individual or jointly opened
5.2. NRE (Non-Resident External Rupees) Account – When an Indian citizen moves abroad to
work there, his/her account needs to be converted into an NRE account. This account can be
jointly opened with an Indian resident
5.3. FCNR (Foreign Currency Non-Resident) Account – This type of account can be opened to
manage an international currency. It can only be in the form of Term deposit and can be
withdrawn after the maturity period only
6. While doing international transactions, a bank has to maintain three different types of accounts,
they are NOSTRO, VOSTRO and LORO accounts, now let’s discuss them –
Nostro Accounts – Such accounts are generally held in a foreign country (with a foreign bank), by a
domestic bank (from our perspective, our bank). It obviates that account is maintained in that foreign
currency. For example, SBI account with HSBC in U.K.
Vostro Accounts – Such accounts are generally held by a foreign bank in our country (with a domestic
bank). It generally maintained in Indian Rupee (if we consider India). For example, HSBC account is held
with SBI in India.
Loro Accounts - Loro accounts are generally held by a third party bank, other than the account
maintaining bank or with whom account is maintained.
For example, BOI wants to transact with HSBC, but doesn't have any account, while SBI maintains an
account with HSBC in U.K. Then BOI could use SBI account. In this case, for SBI this account is known as
Nostro account and for BOI it is known as Loro Account
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10.1.2 Granting of Loans & Advances
The deposits accepted from the public are utilized by the banks to advance loans to the businesses and
individuals to meet their uncertainties. Bank charges a higher rate of interest on loans and advances
than what it pays on deposits. The difference between the lending interest rate and interest rate for
deposits is bank profit.
Bank offers the following types of Loans and Advances:
1) Bank Overdraft: This facility is for current account holders. It allows holders to withdraw money
anytime more than available in bank balance but up to the provided limit. An overdraft facility is
granted against collateral security. The interest in overdraft is paid only on the borrowed amount for
the period for which the loan is taken and it is very useful for the business community of India.
2) Cash Credits: A short-term loan facility up to a specific limit fixed in advance. Banks allow the
customer to take a loan against a mortgage of certain property (tangible assets and / guarantees).
Cash credit is given to any type of account holders and also to those who do not have an account
with a bank. Interest is charged on the amount withdrawn in excess of the limit. Through cash credit,
a larger amount of loan is sanctioned than that of overdraft for a longer period.
3) Loans: Banks lend money to the customer for short term or medium periods of say 1 to 5
years against tangible assets. Nowadays, banks do lend money for the long term. The borrower
repays the money either in a lump-sum amount or in the form of instalments spread over a pre-
decided time period. Bank charges interest on the actual amount of loan sanctioned, whether
withdrawn or not. The interest rate is lower than overdrafts and cash credits facilities.
4) Discounting the Bill of Exchange: It is a type of short term loan, where the seller discounts the bill
from the bank for some fees. The bank advances money by discounting or purchasing the bills of
exchange. It pays the bill amount to the drawer(seller) on behalf of the drawee (buyer) by deducting
usual discount charges. On maturity, the bank presents the bill to the drawee or acceptor to collect
the bill amount. And in general banking parlance it is also or called as receivable financing.
5) Term Loan - Term loan is a short-term or long-term loan approved and disbursed by any financial
institution. The offered loan amount shall be repaid in regular payments, such as Equated Monthly
Instalments (EMIs) over a defined period of time. Term loans can be offered in both fixed and
floating rate of interest. Following are the types of loans which are offered by banks.
A. Short-term Loan - Short term loans are loans often repaid within 12 month
B. Long-term Loan - Long term loans are loans that can be repaid in longer time durations that
range between 5 years. In some special cases the repayment tenure may exceed up to 6 years
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C. Secured Loan - In a secured loan, a borrower pledges some asset as collateral like property, car
etc. A mortgage loan is a type of secured loan used by a customer. In a secured loan, a money is
using to purchase a property.
D. Unsecured loan - In the unsecured loan, a loan is not secured against any of property of the
borrower. This type of loan is available from the financial institutions like banks, NBFCs and other
private institutions. In unsecured loan interest rate depends on the lender and the borrower and
the rate of interest in an unsecured loan is always higher than a secured loan.
E. Demand Loan - Demand loans, as the name suggests, are short term loans. Short term loan
means there is no fixed time to repay an amount it means it can be repaid at any time. A
demand loan uses the floating rate of interest to charge an interest.
F. Subsidized loan - In a subsidized loan, an interest rate is reduced by subsidy and this type of
loans is given to the students for education purpose.
G. Concessional loan - A concessional loan is also called as a "soft loan". A concessional loan is
given either through below market interest rates, by grace periods or a combination of both
6) Working Capital Loan: Businesses that require instant funds to maintain the cash flow or to meet
day-to-day business expenditure opt for working capital loans. Working capital loans are usually
termed as short-term loans and are repaid within 12 months from the date of loan disbursal.
7) Factoring - These loans are quite similar to accounts receivable financing. However, there is one
difference between the two that the amount of the loans is based on future credit receipts. It is a
process of arranging some chosen accounts payable and selling them to the party who provides
funding to the business. The accounts payables are sold at a decreased amount than their actual
value. The “factor party” here also collects the amount from the debtors of the company whom it is
financing. This loan is either with recourse or without it. In the case of recourse, the risks are borne
by the firm if debtors don’t pay the amount. Factoring plays a very important role for the MSMEs.
8) Bank Guarantee - Bank guarantee refers to the financing responsibilities of a bank which are not
based on money or any types of funds. A firm can acquire it for decreasing the number of risks that
can arise due to any third party. The risks can either be about the non-payment on the part of the third
party or receiving any services. However, this guarantee can only be bought by a seller when there is
a non-performance of any of these tasks. A minimal commission is charged by the bank in addition to
some collateral. Bank Guarantees are generally issued for a minimum period of 6 months.
9) Letter of Credit - Letter of Credit is another type of working capital finance similar to Bank
Guarantee, acquired by a borrower. The difference in both forms of loans is that; in Letter of Credit,
as and when the opposite party delivers according to the defined terms the bank will pay for it.
Hence, a borrower would purchase a Letter of Credit which would be sent to the seller with some
terms and conditions written on it. As the seller performs the services according to the agreement,
he would get the money by the bank and the purchaser would pay his dues to the bank.
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Current Account Savings Account (CASA)
CASA deposit is the amount of money that gets deposited in the current and savings accounts of bank
customers. It is the cheapest and major source of funds for banks. The savings accounts portion pays
more interest compared to current accounts.
A CASA operates like a normal bank account in which funds may be utilized at any time. Because of
this flexibility, a CASA has a lower interest rate than a term deposit because the bank does not have a
guarantee that all the funds are available to lend for a specific period of time.
These deposits can move out of banks’ books anytime, leading to asset liability mismatches. While in
case of term deposits, banks are almost certain that the depositor may not withdraw money before
the maturity of the deposit and may also renew the deposit on maturity.
CASA Ratio - The CASA ratio shows how much deposit in a bank has in the form of current and saving
account deposits in the total deposit.
10.2 Secondary Functions of Bank

Now let’s discuss the secondary functions of bank, Like Primary Functions of Bank, the secondary
functions are also classified into two parts:
1. Agency functions
2. Utility Functions
10.2.1 Agency Functions of Bank

Banks are the agents for their customers; hence it has to perform various agency functions as
mentioned below:
Transfer of Funds: Transferring of funds from one branch/place to another.
Periodic Collections: Collecting dividend, salary, pension, and similar periodic collections on the clients’
behalf.
Periodic Payments: Making periodic payments of rents, electricity bills, etc on behalf of the client.
Collection of Cheques: Like collecting money from the bills of exchanges, the bank collects the money of
the cheques through the clearing section of its customers.
Portfolio Management: Banks manage the portfolio of their clients. It undertakes the activity to
purchase and sell the shares and debentures of the clients and debits or credits the account.
Other Agency Functions: Under this bank act as a representative of its clients for other institutions. It
acts as an executor, trustee, administrators, advisers, etc. of the client.
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10.2.2 Utility Functions of Bank
These functions are like add on facilities of the bank, they help the customer by offering various other
services. Example of utility functions are as below
1. Undertaking safe custody of valuables, important documents, and securities by providing safe
deposit vaults or lockers.
2. Providing customers with facilities of foreign exchange dealings
3. Underwriting of shares and debentures
4. Dealing in foreign exchanges
5. Social Welfare programmes
6. Project reports
7. Standing guarantee on behalf of its customers.
10.2.3 Other Different Functions of Banks

Apart from other mentioned functions there are some vital functions which an Indian bank perform,
now let’s cover them
10.2.3.1 Issuing Cheque
A cheque is a piece of document/paper which orders the bank to transfer money from the bank account
of an individual or an Organisation to another bank account. The person who writes the cheque is called
the “drawer” and the person in whose name the cheque has been issued is called the “payee”. The
amount of money that needs to be transferred, payee’s name, date and signature of the drawer are all
mentioned in a cheque.
There are certain points to remember regarding cheques which are mentioned below:
1) A cheque can only be issued against a current or savings bank account

2) A cheque without date shall be considered invalid
3) Only the payee, in whose name the cheque has been issued, can encash it.
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4) A cheque is only valid 3 months from the date it has been issues
5) A 9-digit MICR (Magnetic Ink Character Recognition) code is mentioned at the bottom of the
cheque. This makes the clearance of cheques easier for the banks.
Different types of cheques which are issued by the Indian banks are
1) Bearer Cheque - The bearer cheque is a type of cheque in which the bearer is authorized to get
the cheque encashed. This means the person who carries the cheque to the bank has the
authority to ask the bank for encashment. This type of cheque can be used for cash withdrawal.
This kind of cheque is endorsable. No kind of identification is required for the bearer of the
cheque.
2) Order Cheque - This type of cheque cannot be endorsed, i.e., only the payee, whose name has
been mentioned in the cheque is liable to get cash for that amount. The drawer needs to strike
the “OR BEARER” mark as mentioned on the cheque so that the cheque can only be encased to
payee.
3) Crossed Cheque - In this type of cheque, no cash withdrawal can be done. The amount can only
be transferred from the drawer’s account to the payee’s account. Any third party can visit the
bank to submit the cheque. In case of a crossed cheque, the drawer must draw two lines at the
left top corner
4) Account Payee Cheque - This is the same as the account payee cheque but no third-party
involvement is required. The amount shall be transferred directly to the payee’s account
number. To ensure that it is an account payee cheque, two lines are made on the left top corner
of the cheque, labelling it for “A/C PAYEE”.
5) Stale Cheque - In India, any cheque is valid only until 3 months from the date of issue. So, if a
payee moves to the bank to get withdrawal for a cheque which was signed 3 months ago, the
cheque shall be declared a stale cheque. For example: If a cheque is dated January 1, 2021, and
the payee visits the bank for withdrawal on May 1, 2021, his/her request shall be denied, and the
cheque is declared stale.
6) Post Dated Cheque - If a drawer wants the payee to apply for withdrawal or transfer of money
after the present date, then he/she can fill a post dated cheque. For example: If the date on
which the drawer is filling the cheque is May 10, 2021, but he wants the payment to be done
later, he/she can fill the cheque dates as May 30, 2021. It shall be called a post-dated cheque.
7) Ante Dated Cheque - If the drawer mentions a date prior to the current date on the cheque, it is
called ante dated cheque. For example: If the current date is January 30, 2021, and the drawer
dates the cheque as January 1, 2021. It shall be considered as an ante-dated cheque.
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8) Mutilated Cheque - If a cheque reaches the bank in a torn condition, it is called a mutilated
cheque. If the cheque is torn into two or more pieces and the relevant information is torn, the
bank shall reject the cheque and declare it invalid, until the drawer confirms its validation. If the
cheque is torn from the corners and all the important data on the cheque is intact, then the bank
may process the cheque further.
10.2.3.2 Issuing Different types of Cards?
Cards can be classified based on their issuance, usage and payment by the card holder. There are mainly
three types of cards which are issued by the banks, they are debit card, credit card and prepaid cards.
1) Debit Card - A debit card is a type of payment card that's linked to an account in the cardholder's
name. It allows the user to make purchases with money they have in their account or access the
cash via a withdrawal. Debit cards work similarly to checks in that they allow bank account
holders to access the money they have in their account. You can use a debit card to make
purchases online or in-person, though in-person transactions often require that you enter your
personal identification number (PIN).
2) Credit Card - A credit card is a payment card issued to users (cardholders) to enable the
cardholder to pay a merchant for goods and services based on the cardholder's accrued debt
(i.e., promise to the card issuer to pay them for the amounts plus the other agreed charges).[1]
The card issuer (usually a bank or credit union) creates a revolving account and grants a line of
credit to the cardholder, from which the cardholder can borrow money for payment to a
merchant or as a cash advance.
3) Prepaid Card - Prepaid cards can be used to make purchases, similar to a debit card. But when
you get a prepaid card, it comes with a balance that acts as your spending limit. Once you’ve
spent the balance, the card becomes unusable until you add more money to it.
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10.2.3.3 Establishing and maintaining Automated Teller Machines (ATM)
An automated teller machine (ATM) is an electronic banking outlet that allows customers to complete
basic transactions without the aid of a branch representative or teller. Anyone with a credit card or
debit card can access cash at most ATMs.
ATMs are convenient, allowing consumers to perform

quick self-service transactions such as deposits, cash
withdrawals, bill payments, and transfers between
accounts. Fees are commonly charged for cash
withdrawals by the bank where the account is located,
by the operator of the ATM, or by both. Some or all of
these fees can be avoided by using an ATM operated
directly by the bank that holds the account.
ATMs are known in different parts of the world as

automated bank machines (ABM) or cash machines
After more than 50 years since its adoption, ATM remains a core banking touchpoint with the consumer.
What was first introduced as just a convenient cash withdrawal unit has now become the second most
important self-service channel after mobile and online banking.
There are different types of ATMs, which are discussed as below
1) Onsite ATM - These ATMs are inside the bank compound and hence are known as Onsite ATMs.
2) Offsite ATMs - These ATMs are located in various places except inside the bank premises and
thus named as Offsite ATMs.
3) White Label ATM - These ATMs are set up & owned by Non-Banking Financial Companies and
offer all the services are known as White Label ATMs.
4) Yellow Label ATM - These ATMs are mainly installed to provide for E-Commerce facility.
5) Brown Label ATM - These ATMs are not owned by the bank instead they are taken on lease to
provide the service to the customer.
6) Orange Label ATM - These ATMs are used in the share market transaction.
7) Pink Label ATM - These ATM are meant only for Women usage.
8) Green Label ATM - These ATMs are installed for the transaction related to agriculture
11 Various Rules and Regulations for banks

The Indian banking sector is regulated by the Reserve Bank of India Act 1934 (RBI Act) and the Banking
Regulation Act 1949 (BR Act). The Reserve Bank of India (RBI), India’s central bank, issues various
guidelines, notifications and policies from time to time to regulate the banking sector. In addition, the
Foreign Exchange Management Act 1999 (FEMA) regulates cross-border exchange transactions by Indian
entities, including banks.
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In the section we will understand about the various rules and regulations which have been issued by the
Reserve Bank of India (RBI) and we will also see some schemes which are launched by the Government
of India, to promote financial inclusion.
11.1 Regulation related to the Non-Performing Assets

Non-performing assets (NPA) refer to the classification of loans and advances in the books of a lender
(usually banks) in which there is no payment of interest and principal have been received and are “past
due.” In most cases, debt has been classified as NPAs where the loan payments have been outstanding
for more than 90 days.
Moreover, NPA is generally classified on the bank’s balance sheet, and the percentage of NPA out of the
total advances becomes a vital ratio for the banks to check before making the results public. More than
90 days where payment is due to the banks’ loans and advances move to NPA.
Now let’s see classification of assets
Types of Assets Definition Time

Standard Asset Standard asset for a bank is an 0-89 days
asset that is not classified as
an NPA.
Non-Performing Asset It is a loan or advance for which 90 days
the principal or interest
payment remains overdue for a
period of 90 days
Sub-Standard Asset Assets which have remained NPA After declaring the asset as NPA,
for a period less than or if it still remains unpaid for less
equal to 12 months than 12 months
Doubtful Asset An asset would be classified as After declaring the asset as NPA,
doubtful if it has remained. NPA if it still remains unpaid for more
for a period exceeding 12 months than 12 months
Loss Asset Loss assets are those where loss -
has been identified by the bank
and remains uncollectable
11.2 Prompt Correct Actions (PCA)

PCA framework is one of such supervisory tools, which involves monitoring of certain performance
indicators of the banks as an early warning exercise and is initiated once such thresholds as relating to
capital, NPA ratio and asset quality are breached. The Reserve Bank has emphasized that the PCA
framework has been in operation since December 2002.
Prompt Corrective Action is a system of RBI under which it can initiate a corrective action in case of a
bank which is found to be having low capital adequacy or high Non-performing Assets. These are called
Trigger Points. RBI takes such action when Capital Adequacy Ratio goes down to less than 9% and Non-
Performing Assets go up to more than 10%. Further, if return on assets us below 0.25%.
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Do you know?
Mission Indra-Dhanush
Many of the measures are suggested by the PJ Nayak Committee on the banking reforms. The 7
components of the Mission (symbolic of 7 colours of the rainbow) plan to address the challenges faced by
the Public Sector Banks.
1. Appointments: Besides induction of talent from the Private Sector into the public banks,
separation of the posts of Chief Executive Officer and the Managing Director, in order to check the
excessive concentration of power and smooth functioning of the banks.
2. Bank Boards Bureau: The appointments Board of the Public Sector Banks would be replaced by
the Bank Boards Bureau (BBB). Advice would be rendered to the banks in the matters of raising
funds, mergers, and acquisitions by the BBB. It would also hold the bad assets of the Public Sector
Banks. The BBB separates the functioning of the PSBs from the government by acting as a
middleman.
3. Capitalization: Due to the high NPAs and the need to meet the provisions of the Basel III norms,
capitalization of banks by inducing Rs. 70000 crore was planned.
4. De-stressing: Solving issues arising in the infrastructure sector in order to check the stressed
assets in the banks by strengthening the asset reconstruction companies. Development of a
vibrant debt market for PSBs.
5. Empowerment: Providing greater flexibility and autonomy to PSBs in hiring manpower.
6. Framework of Accountability: The assessment of the banks would be based on a few key
performance indicators. It would be inclusive of
o Quantitative Parameters such as Non-Performing Assets Management, growth,
diversification, return on capital, financial inclusion and
o Qualitative Parameters such as steps taken in improving asset quality, human resources
initiatives etc.
o Governance Reforms: Banker’s Retreat or the Gyan Sangam conferences between the
bankers and the government officials for resolving the banking sector issues and deciding
the future course of action.
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11.3 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI)
SARFAESI Act, 2002 is a legislation that helps financial institutions to ensure asset quality in multiple
ways. The Act promotes the setting up of asset reconstruction Companies (ARCs) and asset
securitization companies (ASCs) to deal with NPAs accumulated with the banks and financial institutions.
The Act provides three methods for recovery of NPAs, that are Securitization, Asset Reconstruction and
Enforcement of Security without the intervention of the Court.
Conditions: SARFAESI is effective only for secured loans where bank can enforce the underlying security
example being - Hypothecation, pledge and mortgages.
A. This law does not apply to unsecured loans, loans below Rs.100,000 or where remaining debt is
below 20% of the original principal.
B. The Debt has been classified under Non-Performing Assets by the banks.
C. This act is not applicable to an agricultural land.
Hypothecation - It is used for creating charge against the security of movable assets, but here the
possession of the security remains with the borrower itself. Thus, in case of default by the borrower, the
lender (i.e. to whom the goods/security has been hypothecated) will have to first take possession of the
security and then sell the same.
Pledge - It is used when the lender (pledge) takes actual possession of assets (i.e. certificates, goods).
Such securities or goods are movable securities. In this case the pledgee retains the possession of the
goods until the pledgor (i.e. borrower) repays the entire debt amount. In case there is default by the
borrower, the pledgee has a right to sell the goods in his possession and adjust its proceeds towards the
amount due (i.e. principal and interest amount).
Mortgages - It is used for creating charge against immovable property which includes land, buildings or
anything that is attached to the earth or permanently fastened to anything attached to the earth
(However, it does not include growing crops or grass as they can be easily detached from the earth). It is
defined in Section 58 of the Transfer of Property Act 1882
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11.4 NEGOTIABLE INSTRUMENTS ACT, 1881
An Act to define and Law relating to negotiable instruments which are Promissory Notes, Bills of
Exchange, and cheques. Various other paper instruments like a Banker's cheque, Payment order,
Payable 'At Par' cheques (Interest/Dividend warrants, refund orders, gift cheques etc.), are also used to
cater to the specific payment needs. The statutory basis for these instruments was provided by the
Negotiable Instruments Act, 1881 (NI Act).
Bank Holidays are declared by Central/State Governments/ Union Territory under the Negotiable
Instruments (NI) Act, 1881.
Some of the important sections of the Act:
• Section 4 - Promissory note

• Section 5 - Bill of exchange
• Section 6 – Cheque
• Section 15 - Endorsement
Promissory Note - A "promissory note" is an instrument in writing (not being a bank-note or a currency-
note) containing an unconditional undertaking, signed by the maker, to pay a certain sum of money only
to, or to the order of, a certain person, or to the bearer of the instrument. Bank notes are frequently
referred to as promissory notes, a promissory note made by a bank and payable to bearer on demand.
Bill of exchange - A Bill of Exchange is an instrument in writing containing an unconditional order, signed
by the maker, directing a certain person to pay a certain sum of money only to, or to the order of, a
certain person or to the bearer of the instrument. The bill of exchange is defined as written order for
payment issued by the creditor to his debtor.
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11.5 Domestically Systematic Important Banks (D-SIB)
Domestic Systemically Important Banks (D-SIB) means banking institutions that are critical for the
uninterrupted availability of essential banking services to the country’s real economy even during crisis.
A few banking institutions assume systemic importance due to their size, cross-jurisdictional activities,
complexity, lack of substitutability and interconnectedness. The disorderly failure of these banking
institutions has the propensity to cause significant disruption to the essential services provided by the
banking system, and in turn, to the overall economic activity.
How are D-SIBs determined?
Since 2015, the RBI has been releasing the list of all D-SIBs. They are classified into five buckets,
according to their importance to the national economy. In order to be listed as a D-SIB, a bank needs to
have assets that exceed 2 percent of the national GDP. The banks are then further classified on the
level of their importance across the five buckets list.
Currently, only 3 banks are categorized as D-SIB, they are State Bank of India, HDFC banks and ICICI
bank
ICICI Bank and HDFC Bank are in bucket one while SBI falls in bucket three, with bucket five representing
the most important D-SIBs.
11.6 Basel Norms
At the end of 1974, the Central Bank Governors of the Group of Ten countries formed a committee of
banking supervisory authorities. As this Committee usually meets at the Bank of International
Settlement (BIS) in Basel, Switzerland, this Committee came to be known as the Basel Committee. It is
also called as BCBS (Basel Committee on Banking Supervision). In the meetings of Basel Committee,
Basel accords or Basel norms are the international banking regulations issued by the Basel Committee
on Banking Supervision (BCBS). The BCBS is the primary global standard setter for the prudential
regulation for banks.
The Basel Committee has issued three sets of regulations which are known as Basel- I, II, and III, which
are explained as follows –
11.6.1 Basel Norm one (I)
Basel one was introduced in 1988 and firstly it focussed on credit risk and later (in 1996) it was extended
to market risk as well. Credit risk is the possibility of a loss resulting from a borrower's failure to repay a
loan or meet contractual obligations and Market risk is the risk of losses on financial investments caused
by adverse price movements.
According to Basel norm 1, the risk exposure of the particular bank will decide the capital of the bank
and it is decided by the Capital to Risk weighted Asset (CRAR) ratio. It is defined as the ratio of capital
to structure of Risk Weights Assets (RWA). RWA means assets with different risk profiles. For example,
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an asset backed by collateral would carry lesser risks as compared to personal loans, which have no
collateral.
As per Basel 1 norms, The minimum capital requirement was fixed at 8% of risk weighted assets (RWA)
but in India RBI has recommended minimum capital requirement at 9% for Indian banks.
11.6.2 Basel Norm two (II)
The Basel committee in 2004 decided to expand the Basel norms because the committee wanted to
include other type of risk and also wanted to focus on the internal and supervisory controls of a bank.
The committee gave three parameters which are known as “pillars”.
Pillar 1 - Minimum Capital Adequacy Ratio (CAR) - Banks should maintain a minimum capital adequacy
requirement of 8% of risk assets. Moreover, the Basel Norm 2, considered operational risk, market risk
and credit risk for calculating capital requirement. Operational risk can be defined as risk of loss
resulting from failed internal processes, people and system.
Pillar 2 - Supervisory Review process - Banks were needed to develop and use better risk management
techniques in monitoring and managing the risk which a bank faces. Therefore, The Basel committee
introduced the concept of Internal Capital Adequacy Process (ICCAP). ICAAP is a useful tool to strength
the governance and organizational effectiveness around risk and capital management.
Pillar 3 - Market Discipline – Banks need to increase their disclosure requirements. Banks need to focus
on two types of disclosure, first is the core disclosure which revolves around the vital information and
second is the supplementary disclosures, it revolves around the operation of market discipline with
respect to particular institution.
11.6.3 Basel norm three (III)
In the aftermath of the Global Financial Crisis, the Basel Committee felt the need for micro management
of the financial entities. Therefore the Basel Committee introduced Basel Norm III in 2010.
The guidelines focused on four banking parameters viz. capital, leverage, funding and liquidity.
Capital of the bank was decided by the Capital Adequacy Ratio (CAR). Basel Committee suggested to
have minimum of 8% as the minimum CAR. For leverage, the committee introduced leverage ratio, it
can be defined as a ratio of a bank’s tier-1 capital to average total consolidated assets. The leverage
ratio has to be at least 3 %.
For funding the committee introduced the Liquidity Coverage Ratio (LCR). The LCR highlighted that the
bank should hold High Quality of Liquid Assets (HQLA) to cover the total cash outflow for 30 days and
the LCR has to be at least 100%.
In addition, Capital Conversation Buffers (CCB) was introduced. CCB ensures that banks have an
additional capital that can be drawn down when heavy losses are incurred. The limit decided for CCB
was 2.5%.
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12 What is financial Inclusion and different schemes to promote it
Financial inclusion may be defined as the process of ensuring access to financial services and timely and
adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at
an affordable cost.
In a diverse country like India, financial inclusion is a critical part of the development process. Since
independence, the combined efforts of successive governments, regulatory institutions, and the civil
society have helped in increasing the financial-inclusion net in the country.
Major Schemes to Promote Financial Inclusion in India
12.1 Pradhan Mantri Jan Dhan Yojana (PMJDY)

Hon’ble Prime Minister announced Pradhan Mantri Jan Dhan Yojana as the National Mission on
Financial Inclusion in his Independence Day address on 15th August 2014, to ensure comprehensive
financial inclusion of all the households in the country by providing universal access to banking facilities.
Under this, a person not having a savings account can open an account without the requirement of any
minimum balance and, in case they self-certify that they do not have any of the officially valid
documents required for opening a savings account, they may open a small account. PMJDY, has laid a
key importance in opening up of Basic Saving Bank Deposit Account (BSBDA) accounts.
What is BSBDA?
The Basic Savings Bank Deposit Account or BSBDA is a Savings Account that does not have a minimum
balance. In contrast, a BSBDA has a maximum account balance that has to be maintained. The BSBDA
holder will get an ATM cum Debit Card as a part of the account opening formalities. The holder will also
get passbook services for free and not be charged for a non-operative account. The bank allows a
certain number of deposits and withdrawals in the month that are free of cost.
Conditions on a BSBDA Account:
Since the BSBDA is a no frills zero balance account, there are a few conditions placed on it. The idea is
for the account to serve someone from the economically weaker section, and keeping those customers
in mind, the conditions are valid.
A. An upper monetary limit to the balance that can be maintained in this account i.e Rs. 50,000
B. An upper monetary limit to the total of credits made to this account in a year, i.e Rs. 1,00,000
C. An upper monetary limit to the withdrawals made in a particular month i.e Rs. 10,000
D. A maximum of 4 withdrawals in a particular month
In case the account doesn’t satisfy these conditions, the bank can convert it to a Regular Savings
Account as well.
Thus, PMJDY offers unbanked persons easy access to banking services and awareness about financial
products through financial literacy programmes. In addition, they receive a RuPay debit card, with
inbuilt accident insurance cover of Rs. 2 lakh, and access to overdraft facility upon satisfactory
operation of account or credit history of six months
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12.2 Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY)
Launched in 2015, the PMJJBY is available to people in the age group of 18 to 50 years having a bank
account who give their consent to join / enable auto-debit. Aadhar is the primary KYC for the bank
account. The life cover of Rs. 2 lakh is for the one year period stretching from 1st June to 31st May and
is renewable. Risk coverage under this scheme is for Rs. 2 lakh in case of death of the insured, due to
any reason. The premium is Rs. 330 per annum which is to be auto-debited in one installment from the
subscriber’s bank account as per the option given by him on or before 31st May of each annual coverage
period under the scheme. The scheme is being offered by the Life Insurance Corporation and all other
life insurers who are willing to offer the product on similar terms with necessary approvals and tie up
with banks for this purpose.
12.3 Pradhan Mantri Suraksha Bima Yojana (PMSBY)
Launched in 2015, this Scheme is available to people in the age group 18 to 70 years with a bank
account who give their consent to join / enable auto-debit on or before 31st May for the coverage
period 1st June to 31st May on an annual renewal basis. Aadhar would be the primary KYC for the bank
account. The risk coverage under the scheme is Rs. 2 lakh for accidental death and full disability and Rs.
1 lakh for partial disability. The premium of Rs.12 per annum is to be deducted from the account
holder’s bank account through ‘auto-debit’ facility in one installment. The scheme is being offered by
Public Sector General Insurance Companies or any other General Insurance Company who are willing to
offer the product on similar terms with necessary approvals and tie up with banks for this purpose.
12.4 Atal Pension Yojana (APY)
APY was launched on 9th May, 2015 by the Prime Minister. APY is open to all saving bank/post office
saving bank account holders in the age group of 18 to 40 years and the contributions differ, based on
pension amount chosen. Subscribers would receive the guaranteed minimum monthly pension of Rs.
1,000 or Rs. 2,000 or Rs. 3,000 or Rs. 4,000 or Rs. 5,000 at the age of 60 years. Under APY, the monthly
pension would be available to the subscriber, and after him to his spouse and after their death, the
pension corpus, as accumulated at age 60 of the subscriber, would be returned to the nominee of the
subscriber. The minimum pension would be guaranteed by the Government, i.e., if the accumulated
corpus based on contributions earns a lower than estimated return on investment and is inadequate to
provide the minimum guaranteed pension, the Central Government would fund such inadequacy.
Alternatively, if the returns on investment are higher, the subscribers would get enhanced pensionary
benefits.
12.5 Pradhan Mantri Mudra Yojana
The scheme was launched on 8th April 2015. Under the scheme a loan of upto Rs. 50,000 is given under
sub-scheme ‘Shishu’; between Rs. 50,000 to 5.0 Lakhs under sub-scheme ‘Kishore’; and between 5.0
Lakhs to 10.0 Lakhs under sub-scheme ‘Tarun’. Loans taken do not require collaterals. These measures
are aimed at increasing the confidence of young, educated or skilled workers who would now be able to
aspire to become first generation entrepreneurs; existing small businesses, too, will be able to expand
their activates.
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12.6 Stand Up India Scheme
Government of India launched the Stand-Up India scheme on 5th April, 2016. The Scheme facilitates
bank loans between Rs.10 lakh and Rs.1 crore to at least one Scheduled Caste/ Scheduled Tribe
borrower and at least one-Woman borrower per bank branch for setting up greenfield enterprises. This
enterprise may be in manufacturing, services or the trading sector activities allied to agriculture. The
scheme which is being implemented through all Scheduled Commercial Banks is to benefit at least 2.5
lakh borrowers. The scheme is operational, and the loan is being extended through Scheduled
Commercial Banks across the country.
Stand Up India scheme caters to promoting entrepreneurship amongst women, SC & ST category i.e
those sections of the population facing significant hurdles due to lack of advice/mentorship as well as
inadequate and delayed credit. The scheme intends to leverage the institutional credit structure to
reach out to these underserved sectors of the population in starting greenfield enterprises. It caters to
both ready and trainee borrowers.
To extend collateral free coverage, Government of India has set up the Credit Guarantee Fund for
Stand-Up India (CGFSI). Apart from providing credit facility, Stand Up India Scheme also envisages
extending handholding support to the potential borrowers.
13 Legal Documents used in banking.
13.1.1 Universal Account Number (UAN)
The UAN is a 12-digit number allotted to employee who is contributing to Employee Provident Fund will
be generated for each of the Provident Fund member by Employees Provident Fund Organisation.
The UAN will act as an umbrella for the multiple Member Ids allotted to an individual by different
establishments and also remains same through the lifetime of an employee. It does not change with the
change in jobs.
The idea is to link multiple Member Identification Numbers (Member Id) allotted to a single member
under single Universal Account Number.
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13.1.2 International Securities Identification Number (ISIN)
An International Securities Identification Number (ISIN) uniquely identifies a security. Its structure is
defined in ISO 6166.
The ISIN code is a 12-character alphanumeric code that serves for uniform identification of a security
through normalization of the assigned National Number, where one exists, at trading and settlement.
All internationally traded securities issuers are urged to use the ISIN numbering scheme, which is now
the accepted standard by virtually all countries.
13.1.3 Permanent Retirement Account Number (PRAN)

The National Securities Depository Limited (NSDL) is the Central Recordkeeping Agency (CRA) for
National Pension Scheme (NPS). Therefore, application for PRAN is made on the NSDL portal. Every
subscriber is allotted a unique 12-digit Permanent Retirement Benefit Number for a lifetime and can be
accessible from any location in India.
Two types of account in PRAN, Tier I Account: This is a non-withdrawable account meant for savings for
retirement. Tier II Account: This is simply a voluntary savings facility. The subscriber is free to withdraw
savings from this account whenever subscriber wishes. No tax benefit is available on this account.
It is mandatory for all subscribers to the NPS are required to have a PRAN
13.1.4 Permanent Account Number (PAN)

Permanent Account Number (PAN) is a code that acts as an identification for individuals, families and
corporates (Indian and Foreign as well), especially those who pay Income Tax.
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It is a unique, 10-character alpha-numeric identifier, issued to all judicial entities identifiable under the
Indian Income Tax Act, 1961. The Income Tax PAN code and its linked card are issued under Section
139A of the Income Tax Act. It is issued by the Indian Income Tax Department under the supervision of
the Central Board for Direct Taxes (CBDT) and it also serves as an important proof of identification.
An example of a PAN code number would be in the form of AAAPL1234C. The PAN structure is as
follows: AAAPL1234C: The five (5) first characters are letters, followed by four (4) numerals, and the last
(10th) character is a letter.
13.1.5 Tax Deduction and Collection Account Number (TAN) :

In India, a Tax Deduction and Collection Account Number (TAN) is a 10-digit number issued to persons
who are required to deduct or collect tax on payments made by them under the Indian Income Tax Act,
1961.
TAN is required to be quoted in all TDS/TCS returns, all TDS/TCS payment challans and all TDS/TCS
certificates to be issued. TDS/TCS returns will not be accepted if TAN is not quoted and challans for
TDS/TCS payments will not be accepted by banks.
Failure to apply for TAN or not quoting the same in the specified documents attracts a penalty of
Rs.10,000.
13.1.6 Legal Entity Identifier (LEI)

The Legal Entity Identifier (LEI) code is conceived as a key measure to improve the quality and accuracy
of financial data systems for better risk management post the Global Financial Crisis.
LEI is a 20-digit unique code to identify parties to financial transactions worldwide. These directions
are issued under Section 21 and Section 35(A) of the Banking Regulation Act, 1949.
Entities can obtain LEI from any of the Local Operating Units (LOUs) accredited by the Global Legal Entity
Identifier Foundation (GLEIF) – the entity tasked to support the implementation and use of LEI. In
India, LEI code may be obtained from Legal Entity Identifier India Ltd (LEIIL), a subsidiary of the
Clearing Corporation of India Limited (CCIL), which has been recognized by the Reserve Bank.
14 All India Financial Institutions – In India
All India Financial Institutions (AIFI) is a group composed of financial regulatory bodies that play a pivotal
role in the financial markets. Also known as "financial instruments", the financial institutions assist in the
proper allocation of resources, sourcing from businesses that have a surplus and distributing to others
who have deficits - this also assists with ensuring the continued circulation of money in the economy.
Possibly of greatest significance, the financial institutions act as an intermediary between borrowers and
final lenders, providing safety and liquidity. This process subsequently ensures earnings on the
investments and savings involved.
Now let’s about All India financial institutions operating in India,
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14.1.1 National Housing Bank
National Housing Bank (NHB) was established in 1988, under the provisions of NHB act 1987. The long-
term vision of the NHB has been to serve the housing needs of all segments of the population with
special focus on low and moderate-income housing.
The Committee of Secretaries considered’ the recommendation and set up the High-Level Group under
the Chairmanship of Dr. C. Rangarajan, the then Deputy Governor, RBI to examine the proposal and
recommended the setting up of National Housing Bank as an autonomous housing finance institution.
The recommendations of the High-Level Group were accepted by the Government of India
NHB has its headquarter in New Delhi.
The major functions of the NHB are as follows
A. Development of the housing sector -For households below the poverty line, the institutional credit
will have to consider the employment and poverty alleviation programmes, which have an element
of subsidy and for the same issue, NHB is encouraging the financial institutions to lend through its
refinance programmes.
B. Regulation of the housing sector -The housing finance system is still developing in the country and
thus there needs to be a great amount of stability in terms of resource development and institution
building. Therefore, NHB as in institution is providing the much-needed handholding support all Housing
Finance Companies (HFC)
C. Sustainable financing –NHB provides continuous and sustainable finance to the housing projects
and in this regard recently, NHB has provided the refinancing facilities to different institutions and
recently in this regard, NHB has provided Rs. 30,000 crores for Prime Minster Awas Yojana (PMAY).Since
1987, The initiatives of NHB have provided holistic development of the housing sector of the Indian
economy and Moreover, NHB has been successful in the addressing the housing needs of the 1.3 billion
Indian citizens.
Since 1987, The initiatives of NHB have provided holistic development of the housing sector of the
Indian economy and Moreover, NHB has been successful in the addressing the housing needs of the 1.3
billion Indian citizens.
14.1.2 Small Industries Development Bank of India (SIDBI)

(Small Industries Development Bank of India (SIDBI) was established in 1990, under the provision of
SIDBI act 1989. SIDBI’s major role revolves around sustainable credit flow to the MSME (Micro, Small
and Medium Enterprises) sector.
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SIDBI headquarter is located in the city of Lucknow
Major functions of the SIDBI are –
A- Financing the MSMEs – SIDBI looks after the financing needs of the MSMEs operating in India and
therefore SIDBI provides the much-needed collateral free loans. SIDBI also refinance loans extended by
the primary lending institutions to small scale industrial units.
B- Support to the Small-scale industries - SIDBI provides support to National Small Scale Industries
Corporation (NSIC). SIDBI also extends seeds capital / soft loan assistance under National Equity Fund
and Mahila Udyam Nidhi.
C-Support to the Indian start-ups – SIDBI as an institution mentor the young Indian start-ups and SIDBI
is one of the key implementing agencies of the Start-up India mission, which was started by government
of India in 2016.
MSME sector contributes 30% to the Indian GDP and MSME sector contributes 50% to the Indian
exports too, therefore the role of SIDBI is very important in the development of MSMEs which are
operating in India.
14.1.3 Export and Import bank of India –

Export and Import Bank of India (EXIM) was established in 1982, under the provision of the EXIM act,
1981. EXIM’s major role is to provide export-related credit for Indian exporters and EXIM also looks after
the development of the export-oriented infrastructure. Major function of EXIM is to globalize the Indian
business and other major function of Exim bank are
EXIM’s bank headquarter is located in the city of Mumbai.
A. Financing export and imports of India –EXIM provides the direct lending, bill discounting and
guarantees to the Indian traders. The Bank also extends Buyers' credit and Suppliers' credit to finance
and promote country's exports. To promote hi-tech exports from India, the Bank has a lending
programme to finance research and development (R&D) activities of export-oriented companies.
B. Line of Credit (LOC) -The Exim bank provides line of credit to foreign importers so that exports from
India can increase. Under line of credit, Exim-bank will provide finance to the Central bank of the
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borrowing country which in turn will provide to the commercial bank and ultimately the credit will
reach the importer and EXIM bank recently extended LOC of $40 Million to the Government of Maldives
for creation of durable assets.
C. Consultative services to the Indian exporters –The Exim bank also provide technical, administrative,
and other assistance to exporters. Export projects are analyzed by the Exim bank from the point of view
of technical, managerial, marketing, and financial feasibility. When it finds a project viable, on the above
grounds, it will not hesitate to fund.
EXIM bank is also looking to develop new state-of-the-art exports infrastructure for the Indian economy,
Moreover, EXIM bank will play a very pivotal role in achieving the target of$5 trillion economy by FY
2024-2025.
14.1.4 National Bank for Agriculture and Rural Development (NABARD)

National Bank for Agriculture and Rural Development (NABARD) was established in 1982 under the
provision of NABARD act 1981. NABARD’s long-term vision is of rural prosperity.
NABARD was established on the recommendations of B. Sivaraman Committee, (by Act 61, 1981 of
Parliament) on 12 July 1982 to implement the National Bank for Agriculture and Rural 1981
Development Act with initial corpus of Rs 100 crore.
Major functions of NABARD are
A- Development function – NABARD prepares district level credit for bank, and NABARD also organizes
training of handicraft artisans and provide them a marketing platform too and NABARD, also looks after,
the Famers Producers Organizations (FPOs).
B -Supervision function -NABARD is the sole supervisor for the RRBs and cooperative banks moreover,
NABARD also help in developing sound banking practices and onboarding them to the Core
Banking Solutions (CBS) platform.
C –Financial function -NABARD has created Funds like Rural Infrastructure Development Fund (RIDF)
and NABARD Infrastructure Assistance Fund (NIDA). These funds provide, liquidity support to various
development projects in the rural areas.
Mahatma Gandhi quoted, “India resides in its villages” and NABARD has truly believed and worked
under the same quoted notion. In future, NABARD’s responsibility will be to answer all the needs of
rural India’s population and thus making sure that rural India is self-reliant in its own needs.
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14.1.5 Insurance Regulatory and Development Authority of India (IRDAI)
Insurance Regulatory and Development Authority of India (IRDAI) was formed

in 2000 under the provision of IRDAI act 1999. IRDIA looks after overall
supervision and development of the Insurance sector in India.
IRDAI headquarter is located in the city of Hyderabad
Major Functions of IRDAI are
A. Issuing the license for the new entities –IRDAI has the main responsibility of Granting, renewing,
modifying, and spending the registration certificates of the insurance companies.
B. Protecting the interests of the policyholder -IRDAI makes sure that consumer interest is taken on the
priority basis and in this regard, IRDAI looks after the matters concerning nomination terms and
conditions of the insurance policy
C. Regulation of insurance sector –IRDAI is the sole regulator of the insurance business, and it plays
many roles as a regulator like Specifying code of conduct for various entities.
Since 1999, The initiatives of IRDAI, have provided the much-needed holistic development of the
Insurance industry and in future IRDAI will have to use the new technology to make sure that insurance
as product, reaches to all the remote parts of India.
14.1.6 The Securities and Exchange Board of India (SEBI)

The Securities and Exchange Board of India (SEBI) was established in the year 1988, under the provision
of SEBI act 1992. The main mission of SEBI is to regulate and look after the development of securities
market of India.
SEBI headquarter is located in the city of Mumbai.
Major functions of SEBI are
A - Promotion and development of the stock market - SEBI, as an institution, looks after market
operations, organizational structure, and administrative control of the stock exchanges and it also
regulates of the working hours of stock markets.
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B – Regulation of the stock market – SEBI via its regulatory powers looks after the Prohibition of
fraudulent and unfair trade practices in the securities market and it has also issued norms for
prohibition of Insider Trading.
C - Investor Protection - SEBI has taken various for investor protection, measures such as screen-based
trading system, dematerialization of securities, T+2 rolling settlement, and framed various regulations to
regulate intermediaries of insurance sector.
SEBI’s future efforts will be focused on increasing the retail participation from the common masses and
because of SEBI’s continuous efforts, Indian stock markets (BSE and NSE) have clearly seen a V-shape
growth.
14.1.7 The International Financial Services Centres Authority (IFSCA)

The International Financial Services Centres Authority (IFSCA) has been established on April 27, 2020,
under the International Financial Services Centres Authority Act, 2019. The first IFSCA unit was
established in the City of Gandhi-Nagar, Gujarat
Major functions of the IFSCA are–
A - Intra-regulatory coordination - The IFSCA has been established as a unified regulator with a vision to
promote ease of doing business and provide world class regulatory environment. Moreover, ISFCA also
coordinates with other financial regulatory bodies too.
B - Integrate Global Economy - The main objective of the IFSCA is to develop a strong global connect and
focus on the needs of the Indian economy as well as to serve as an international financial platform for
the entire global economy.
C. Foreign funding for start-ups - With establishment of ISFCA, Indian start-ups now can easily access to
External Commercial Borrowings (ECB) route. ECB helps the young Indian start-ups to access the foreign
funding which can provide the much-needed push for start-ups’ liquidity.
Since 2019, ISFCA has improved the ease of doing business with foreign nations and it also led to
increase in the diversification options for Indian domestic investors. Thereby it is appropriate to say
that ISFCA has successfully integrated global financial market.
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15 International Financial Institutions
15.1.1 World Bank

The Bretton Woods Conference, officially known as the United Nations Monetary and Financial
Conference, was a gathering of delegates from 44 nations that met from July 1 to 22, 1944 in Bretton
Woods, New Hampshire (USA), to agree upon a series of new rules for international financial and
monetary order after the conclusion of World War II.
The two major accomplishments of the conference were the creation of the International Bank for
Reconstruction and Development (IBRD) and International Monetary Fund (IMF).
Founded in 1944, the International Bank for Reconstruction and Development (IBRD) — soon called
the World Bank — has expanded to a closely associated group of five development institutions.
The headquarters of the World Bank is situated in Washington DC, United States.
With 189 member countries, the World Bank Group is a unique global partnership: five institutions
working for sustainable solutions that reduce poverty and build shared prosperity in developing
countries.
Together, the International Bank for Reconstruction and Development (IBRD) and International
Development Association (IDA) form the World Bank, which provides financing, policy advice, and
technical assistance to governments of developing countries.
While the World Bank Group consists of five development institutions.
1. International Bank for Reconstruction and Development (IBRD) provides loans, credits, and
grants.
2. International Development Association (IDA) provides low- or no-interest loans to low-income
countries.
3. The International Finance Corporation (IFC) provides investment, advice, and asset
management to companies and governments.
4. The Multilateral Guarantee Agency (MIGA) insures lenders and investors against political risk
such as war.
5. The International Centre for the Settlement of Investment Disputes (ICSID) settles investment-
disputes between investors and countries.
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All of these efforts support the Bank Group’s twin goals of ending extreme poverty by 2030 and
boosting shared prosperity of the poorest 40% of the population in all countries.
15.1.2 International Monetary Fund

The formation of the IMF was initiated in 1944 at the Bretton Woods Conference. IMF came into
operation on 27th December 1945 and is today an international organization that consists of 189
member countries. Headquartered in Washington, USA.
IMF focuses on fostering global monetary cooperation, securing financial stability, facilitating and
promoting international trade, employment, and economic growth around the world. The IMF is a
specialized agency of the United Nations.
IMF mainly focuses on supervising the international monetary system along with providing credits to the
member countries. The functions of the International Monetary Fund can be categorized into three
types:
A. Regulatory functions: IMF functions as a regulatory body and as per the rules of the Articles of
Agreement, it also focuses on administering a code of conduct for exchange rate policies and
restrictions on payments for current account transactions.
B. Financial functions: IMF provides financial support and resources to the member countries to
meet short term and medium term Balance of Payments (BOP) disequilibrium.
C. Consultative functions: IMF is a centre for international cooperation for the member countries.
It also acts as a source of counsel and technical assistance.
15.1.3 Asian Development Bank

Asian Development Bank (ADB) was established in the year 1966,
with head office at Manila (Philippines). It has 67 members from the
Asia Pacific region. This bank was modeled on the lines of the world
bank.
The aim of the ADB is social development by reducing poverty in the

Asia Pacific with inclusive growth, sustainable growth, and regional
integration. This is carried out through an 80% investment in the public sector.
ADB invests in infrastructure, health, public administration system, helping nations to reduce the impact
of climate change and to manage natural resources.
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15.1.4 Asian Infrastructure and Investment Bank (AIIB)
AIIB was formed in the year of December 2015. Its function is to support the building of infrastructure in
the Asia-Pacific region. The bank has 50 member states (all "Founding Members") and was proposed as
an initiative by the government of China
Its headquarter is in Beijing, China
The objectives of the AIIB are listed below:
1. Promoting sustainable economic development, creating wealth and augmenting infrastructure

connectivity in Asia by investing in infrastructure & other productive sectors.
2. Fostering regional partnership & cooperation to address developmental challenges by working in
tandem with other bilateral and multilateral developmental institutions.
3. Enhancing investment in private & public capital for development purposes.
4. Using the resources at its disposal for funding development in the region, including projects that
will contribute to the balanced economic growth of the region.
5. Promoting private investment in enterprises, activities, and projects contributing to economic
development in the region wherever private capital is not available.
15.1.5 New Development Bank
The NDB is a multilateral financial institution established by the BRICS countries, namely, Brazil,
Russia, India, China and South Africa.
The purpose of NDB is to fund sustainable

development projects and infrastructure projects
in the BRICS countries and other developing
countries and emerging markets.
The NDB is projected as a developmental financial

institution that can complement western
dominated global financial institutions (such as the World Bank and the International Monetary Fund),
rather than as a challenge to them.
It was formerly known as the BRICS Development Bank and NDB was founded in 2014.
Moreover, to fulfill its purpose, the Bank supports public or private projects through loans, guarantees,
equity participation and other financial instruments.
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It offers technical assistance for projects and conducts information, cultural and personnel exchanges
with the objective of contributing to the attainment of social and environmental sustainability.
It is headquartered in Shanghai, China. There are regional offices in all other member countries except
in India.
15.1.6 Financial Action Task force (FATF)

The Financial Action Task Force (FATF) is an intergovernmental organization founded in 1989 on the
initiative of the G7 to develop policies to combat money laundering. In 2001 its mandate expanded to
include terrorism financing.
There are two special list which is maintained and operated by FATF
Meaning of Blacklist: Only those countries are included in this list that FATF considers as uncooperative
tax havens for terror funding. These countries are known as Non-Cooperative Countries or Territories
(NCCTs). In other words; countries that are supporting terror funding and money laundering activities
are placed in the Blacklist. Currently, two countries, North Korea and Iran are on the black list
Meaning of Grey List: Those countries which are not considered as the safe haven for supporting terror
funding and money laundering; included in this list. The inclusion in this list is not as severe as
blacklisted.
16 Miscellaneous topics
16.1 Important Committees related to banking
Serial Number Head of the committee Area of Concern

1. A C Shah Committee For Reforms Relating To Non-Banking
Financial Companies (NBFC)
2. Abid Hussain Committee For Small Scale Industries For
Development of Capital Market
3. Bhandari Committee For Reconstruction Of RRBs
4. Bimal Jalan Panel Economic Capital framework of RBI
5. B Sambamurthy Committee For Mobile Banking
6. B Siaraman Committee Institutional Credit for Agricultural and
Rural Development
7. C Rangarajan Committee For Poverty Scale Estimates In The
Country For. Mechanization in the
Banking Industry (1984)
8. Damle Committee (1982) Introducing MICR/OCR Technology for
Cheque Processing
9. Damodaran Committee For Improvement Of Customer
Services In Banks
10 Deepak Mohanty Committee Data And Information Management In
The Rbi
11. Gadgil Committee (1969) L Lead Banking System
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12. J Reddy Committee Reforms inn Insurance Sector
13. James Raj Committee Functioning Of Public Sector Banks
14. K Madhav Das Committee Urban Cooperative Banks
15. K.V.Kamath Panel To Examine The Financial Architecture
For Micro, Small And Medium
Enterprises
16. Kelkar Committee For Tax Structure Reforms
17. Narasimham Committee For Banking Sector Reforms
18. N. K Singh Committee To Review, Fiscal Responsibility And
Budget Management Ac
19. P J Nayak Committee Governance Of Boards Of Bank In India
20. Pillai Committee For Pay Scales of Bank Officers
21. R. V. Easwar Committee Simplify Income Tax Act, 1961
22. Usha Thorat Committee Offshore Rupee stability
23. Vyas Committee Rural Credit
24. Siddique Committee Introduction of CIBIL
25. Urjit Patel Committee Changes in the monetary policy and
flexible inflation targeting framework.
16.2 Banks and their Taglines
16.2.1 Public Sector Banks and their Taglines

Serial Number Name of the bank Tagline Headquarter
1. Bank of Baroda India’s International Bank Vadodara, Gujarat
2. Bank of India Relationship Beyond Mumbai, Maharashtra
Banking
3. Bank of Maharashtra Ek Parivar Ek Bank Pune, Maharashtra
One Family One Bank
4. Canara Bank Together We Can Bangalore, Karnataka
5. Central Bank of India 1) Build A Better Life Mumbai, Maharashtra

Around Us
2) Central To You Since
1911
6. Corporation Bank Prosperity For All Mangalore, Karnataka
7. Indian Bank 1) Banking That’s Twice As Chennai, Tamil Nadu
Good
2) Your Own Bank
8. Indian Overseas Bank Good People To Grow Chennai, Tamil Nadu
With
9. Punjab and Sind Bank Where Service Is A Way Of New Delhi, India
Life
10. Punjab National Bank 1) Bade Desh Ka Bada New Delhi, India
Bank
2) The Name You Can
Bank Upon
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11. State Bank of India ) A Bank Of The Common Mumbai, Maharashtra
Man
2) Pure Banking Nothing
Else
3) The Banker To Every
Indian
4) The Nation Banks On Us
5) With You All The Way
6) You Can Always Bank
On Us
12. UCO Bank Honours Your Trust Kolkata, West Bengal
13. Union Bank of India Good People To Bank Mumbai, Maharashtra

With
14. United Bank of India The Bank that begins with Kolkata, West Bengal
“U”
15. Vijaya Bank A Friend you can bank Bangalore, Karnataka
upon
16. IDBI Bank Limited Aao Sochein Bada / Mumbai, Maharashtra
Banking for all
17. Syndicate Bank Faithful and Friendly Manipal, Karnataka
Financial Partner
18. Oriental Bank of Where Every Individual is Gurugram, Haryana
Commerce committed
16.2.2 Private Sector Banks and their Taglines

Serial Number Name of the bank Tagline Headquarter
1. Axis Bank Ltd. Badhti Ka Naam Zindagi Mumbai, Maharashtra
2. City Union Bank Ltd. Trust and Excellence since Tanjavur, Tamil Nadu
1904
3. Bandhan Bank Limited Aapka Bhala, Sabki Bhalai Kolkata, West Benga
4. Dhanlaxmi Bank Ltd. Tann. Mann. Dhan Thrissur, Kerala
5. The Federal Bank Kochi, Kerala Your Perfect
Ltd. Banking Partner
6. HDFC Bank Ltd. Mumbai, Maharashtra We understand your
world
7. IDFC Bank Limited Mumbai, Maharashtra Banking Hatke
8. ICICI Bank Ltd. Mumbai, Maharashtra Khayaal Apka
9. IndusInd Bank Ltd. Mumbai, Maharashtra We make you feel richer
10. Jammu and Kashmir Bank Srinagar Serving to Empower
Ltd.
11. Karnataka Bank Ltd. Mangalore, Karnataka Your family bank across
India
12. Karur Vysya Bank Ltd. Karur, Tamil Nadu Smart way to bank
13. Kotak Mahindra Bank Ltd. Mumbai, Maharashtra Let’s make money simple
14. Lakshmi Vilas Bank Ltd. Chennai, Tamil Nadu The Changing Face of
Prosperity
15. RBL Bank Ltd Mumbai, Maharashtra Apno Ka Bank
16. South Indian Bank Ltd. Thrissur, Kerala Experience next
generation banking
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17. The Catholic Syrian Bank Thrissur, Kerala Support all the way
Ltd.
18. Yes Bank Ltd Mumbai, Maharashtra Experience Our Expertise
16.2.3 Small Finance Banks and their Taglines

Serial Number Name of the bank Headquarter Tagline
1. AU Small Finance Bank Jaipur, Rajasthan Chalo Aage Badhe
2. Capital Small Finance Jalandhar, Punjab Viswas se Vikas tak
Bank. [India’s first small
finance bank]
3. Equitas Small Finance Chennai, Tamil Nadu Its Fun Banking
Bank
4. ESAF Small Finance Bank Thrissur, Kerala Joy of Banking
5. Suryoday Small Finance Navi Mumbai, A bank of smiles
Bank Maharashtra
6. Ujjivan Financial Services We belive in your belief/
Private Ltd. Bangalore, Karnataka Aap ke Bharose Par
7. Fincare Small Finance Bangalore, Karnataka Banking On More
Bank
8. Jana Small Finance Bank Bangalore, Karnataka Paise Ke Kadar
9. North East Small Finance Guwahati, Assam Your Door Step Banker
Bank
10. Utkarsh Small Finance Varanasi, Uttar Pradesh Aap Ki Umeed ka Khata
Bank
16.2.4 Payment Banks and their Taglines

Serial Number Name of the bank Headquarter Tagline
1. Airtel Payments Bank New Delhi 1) Banking Is Now At Your
Fingertips
2) India’s First Payment
Bank
2. India Post Payments Bank New Delhi Aapka Bank Aapke Dwar
3. Jio Payments Bank Mumbai 1) Banking And Financial
Needs
2) Your Everyday Bank For
All Of Your Payments
4. NSDL Payments Bank Mumbai Technology Trust And
Reach
5. Paytm Payments Bank Noida Simplifying Payments For
India
6. Aditya Birla Payment Bank Worli, Mumbai Get To Know Us Better
16.3 Recent Banking Amalgamation

Serial Number Amalgamated Banks Anchor Banks
1. Punjab National Bank (PNB), Oriental Bank PNB
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of Commerce (OBC), and United Bank of
India
2. Canara Bank and Syndicate Bank Canara Bank
3. Union Bank of India, Andhra Bank, and Union Bank of India
Corporation Bank
4. Indian Bank and Allahabad Bank Indian Bank
After Amalgamation, the total number of PSBs after consolidation has come down to 12 from 27 in
2017. The earlier mergers were:
Vijaya Bank and Dena Bank with Bank of Baroda (BoB) – effective from April 01, 2019
State Bank of India absorbed five of its associates and the Bharatiya Mahila Bank in 2017.
Current Scenario of PSBs - After entire merger exercises, the next-generation PSBs of India can now be
ranked according to their business size, as follows:
Top 3 Public Sector Banks
Name of the Bank Rank by Size of total Assets

State Bank of India 1st
Punjab National Bank 2nd
Bank of Baroda 3rd
16.4 Major Provision of the Reserve Bank of India act, 1934

Reserve Bank of India Act, 1934 is the legislative act under which the Reserve Bank of India was formed.
This act along with the Companies Act, which was amended in 1936, were meant to provide a
framework for the supervision of banking firms in India.
The First schedule of the RBI Act 1934 defines the 4 areas under which the Indian states should come.
The 4 areas are Western Area, Eastern Area, Northern Area, and Southern Area.
The Second schedule of the Act lists all the Scheduled Banks in India (Sections 2(e) and 42)
Section Number Description

Section 3 Establishment of Reserve Bank of India for taking over the management of the
currency from Central Government and of carrying on the business of banking
in accordance with the provisions of this Act
Section 4 Section 4 of the RBI Act defines the capital of RBI which is Rs. five crore
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Section 5 Increase or decrease of share capital
Section 6 Offices, branches and agencies.
Section 7 Section 7 of the RBI Act empowers the central government to issue directions
in public interest from time to time to the bank in consultation with RBI
Governor.
Section 8 Composition of the Central Board, and term of office of Directors
Section 17 This section deals with the daily functioning of RBI.
Section 18 This section describes emergency loans to banks
Section 19 This section deals with the business which RBI cannot do or cannot operate
Section 20 Obligation of the Bank to transact Government business.
Section 21 This section assigns RBI the duty of being banker to the central government
and manage public debt.
Section 22 This section grants power to RBI to issue the currency
Section 24 This section has provision that highest denomination note could be ₹10,000
Section 26 Describes the legal tender character of Indian bank notes.
Section 27 Re-issue of notes
Section 28 This section empowers the RBI to form laws concerning the exchange of
damaged and imperfect notes
Section 31 This section provides that in India RBI and central government only can issue
and accept promissory notes that are due on request
Section 42(1) This section provides that every scheduled bank need to hold an average daily
balance with the RBI
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16.5 Major Provision of the Banking Regulation Act, 1949
The Banking Regulation Act, 1949 is a legislation in India that regulates all banking firms in India. Passed
as the Banking Companies Act 1949, it came into force from 16 March 1949 and changed to Banking
Regulation Act 1949 from 1st March 1966. Initially, the law was applicable only to banking companies.
But 1965 it was amended to make it applicable to cooperative banks and to introduce other changes. It
is applicable only in Jammu and Kashmir in 1956 but now applicable throughout India.
The Act provides a framework using which commercial banking in India is supervised and regulated. The
Act supplements the Companies Act, 1956.
Primary Agricultural Credit Society and cooperative land mortgage banks are excluded from the Act
Section Number Description

Section 6 Form of business in which banking companies may engage.
Section 7 Use of words “bank”, “banker”, “banking” or “banking company
Section 8 Prohibition of Trading Section
Section 9 Disposal of non-banking assets
Section 11 Requirement as to minimum paid- up capital and reserves
Section 12 Regulation of paid-up capital, subscribed capital and authorised capital and
voting rights of shareholders
Section 13 Restriction on commission, brokerage, discount, etc. on sale of shares
Section 10 BB Power of Reserve Bank to appoint chairman of the Board of directors
appointed on a whole-time basis or a managing director of a banking company
Section 14 Prohibition of charge on unpaid capital
Section 17 Mandatory Reserve Fund
Section 18 Cash reserve to be maintained with RBI
Section 20 Restrictions on loans and advances.

Section 21 Power of Reserve Bank to control advances by banking companies
Section 22 Licensing of banking companies
Section 26 Return of unclaimed deposits
Section 26A Establishment of Depositor Education and Awareness Fund
Section 30 Audit of the bank

Section 33 Display of audited balance-sheet by companies incorporated outside India
Section 35AB Power of Reserve Bank to issue directions in respect of stressed assets
Section 45 Power of Reserve Bank to apply to Central Government for suspension of
business by a banking company and to prepare scheme of reconstitution or
amalgamation
Section 45R Power to call for returns and information.
Section 46 Penalties imposed
Section 49B Change of name by a banking company
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16.6 Various Facts related to Banking.
The Indian banking history is deep and interesting, there are various facts to which a student should
remember, some of them are
1. First bank established in India: Bank of Hindustan in 1770.

2. Second Bank: General Bank of India, 1786
3. Central Bank of India was the first public bank to introduce credit card.
4. Central Bank of India is the first commercial bank which was managed by Indians.
5. ICICI Bank was the first bank to provide Mobile ATM
6. First Indian Bank started solely with Indian capital investment is PNB (Punjab National Bank).
Founder of Punjab National Bank is Lala Lajpat Rai.
7. First Governor of RBI: Mrs. Osborne Smith
8. First Indian Governor of RBI: Mr. C. D. Deshmukh
9. First Bank to introduce Cheque System in India: Bengal Bank in 1833
10. First Bank to introduce Internet Banking: ICICI Bank
11. First Bank to introduce Mutual Fund: State Bank of India
12. Largest Commercial Bank in India – State Bank of India
13. First RRB named Prathama Grameen Bank was started by Syndicate Bank.
14. First Bank to introduce ATM in India: HSBC in 1987, Mumbai
15. Various Indian Currency Denominations
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16.7 Common Banking Terminologies
1. Plastic Money – This is a reference to currency used by individuals other than hard cash. Mostly
it is used to refer to debit and credit cards.
2. Cash Reserve Ratio (CRR) – RBI has mandated all banks to maintain a certain percentage of the
total bank deposits in cash. This percentage with regard to the total deposits is called cash
reserve ratio.
3. Statutory Liquidity Ratio (SLR) – The minimum reserve required by the bank to maintain in the
form of gold and other securities is called statutory liquidity ratio.
4. Bank Rate – This is the rate of interest that the RBI levies penalties on banks.
5. Basis Point – This is one hundredth of a percentage. This is usually used to indicate change in
interest rates.
6. Capital Gain – This is a profit or gain attained by a bank by sale of investments or properties.
7. Debtor – A debtor is an individual or organization that owes money to the bank or any other
financial institution.
8. Creditor - A creditor is an entity that extends credit, giving another entity permission to borrow
money to be repaid in the future.
9. Joint Account – A joint account is an account where in two or more people have equal rights and
liabilities of a single account.
10. Application supported By Blocked Amount (ASBA) – ASBA is a process developed by the India’s
Stock Market Regulator Securities and Exchange Board of India (SEBI) for applying to IPO. In
ASBA, an IPO applicant’s account doesn’t get debited until shares are allotted to them.
11. Bank Ombudsman – A bank ombudsman is the authority to look into complaints if in case other
modes of complaints haven’t worked out for the customer.
12. Credit Rating – This is an assessment of an individual’s past credit history equated into a number
between 300 and 900. This is usually the main determinant of whether an individual attains a
loan or not. Credit bureaus collect this data on all individuals that have a history of credit.
13. Micro Finance – Small loans provided to the poor in urban, rural and sub-urban parts of the
country in order to help them raise their income level is known as micro financing.
14. Mobile Banking – Availing banking services with the help of a mobile phone is referred to as
mobile banking
15. Credit History – Credit history is the past behavioral patterns of a customer with regard to loans.
A credit bureau will collect the information of a customer and then translate it to a number
between 300 and 900. This is known as your credit score and the higher the credit score, the
better your chances are to avail a loan or a credit card.
16. Collateral – Any security provided to the bank in exchange for a loan is known as collateral. A
collateral can be in the form of land, gold, etc. This is called a secured loan and is less risky than
an unsecured loan for the lender. In case of secured loans, the lender may auction off the
collateral if the borrower fails to pay off his/her loan.
17. Documentation Fee – Before lending money, lenders have to gauge the credit worthiness of a
customer. Customers will usually be charged for this service, also known as documentation fee.
18. Fixed Rate – A fixed rate is when the rate of interest for a loan remains constant throughout the
entire tenure.
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19. Floating Rate – Opposite of fixed rate, a floating rate of interest are interest rates that change
during the tenure of the loan. These interest rates change as per the changes of interest rates in
the economy.
20. No-frills Account – This is a rudimentary savings account that requires no minimum balance to
enjoy benefits like net banking, online fund transfer, etc.
21. Electronic Clearing Service – This is a technology used by banks wherein a certain amount of
money is directly debited from your account on a specified date every month towards the
payment of a loan, mutual fund account, etc.
22. Processing Fee – In order to process a loan application of a customer, banks usually charge a fee.
This fee is known as a processing fee.
23. KYC – KYC (Know Your Customer) is a procedure that all banks undergo in order to establish the
correct identity of a customer. This is to ensure that no fraudulent operations are taking place in
the bank.
24. Routing Number – This is a number that can identify your bank based on the geographical
location of the institution. Bigger banks may have several routing numbers while smaller ones
have only one.
25. Accrued Interest - Interest that has been earned but not yet paid. See related questions about
Interest-Bearing Accounts and FDIC Insurance.
26. Amortization - The process of reducing debt through regular installment payments of principal
and interest that will result in the payoff of a loan at its maturity.
27. Banking Day - A business day during which an office of a bank is open to the public for
substantially all of its banking functions. See related question about Funds Availability.
28. Bankrupt - A bankrupt person, firm, or corporation has insufficient assets to cover their debts.
The debtor seeks relief through a court proceeding to work out a payment schedule or erase
debts. In some cases, the debtor must surrender control of all assets to a court-appointed
trustee.
29. Bankruptcy - The legal proceedings by which the affairs of a bankrupt person are turned over to
a trustee or receiver for administration under the bankruptcy laws. There are two types of
bankruptcy:
Involuntary bankruptcy- one or more creditors of an insolvent debtor file a petition having the
debtor declared bankrupt.
Voluntary bankruptcy-the debtor files a petition claiming inability to meet financial obligations and
willingness to be declared bankrupt.
30. Business Day - Any day on which offices of a bank are open to the public for carrying on
substantially all of the bank's business. See related questions about Funds Availability.
31. Charge-Off - The balance on a credit obligation that a lender no longer expects to be repaid and
writes off as a bad debt. See related question about Charge Off.
32. Deferred Payment - A payment postponed until a future date.
33. Draft - A signed, written order by which one party (the drawer) instructs another party (the
drawee) to pay a specified sum to a third party (the payee), at sight or at a specific date. Typical
bank drafts are negotiable instruments and are similar in many ways to checks.
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34. Drawee - The person (or bank) who is expected to pay a check or draft when it is presented for
payment.
35. Drawee Bank - The bank upon which a check is drawn.
36. Drawer - The person who writes a check or draft instructing the drawee to pay someone else
37. Escrow accounts- A financial instrument held by a third party on behalf of the other two parties
in a transaction. The funds are held by the escrow service until it receives the appropriate
written or oral instructions-or until obligations have been fulfilled. Securities, funds, and other
assets can be held in escrow.
38. Gilt Account - A "Gilt Account" means an account opened and maintained for holding
Government securities, by an entity or a person including ‘a person resident outside India’ with a
"Custodian" permitted by the Reserve Bank of India to open and maintain Constituent Subsidiary
General Ledger Account with the Public Debt Office of the Reserve Bank of India.
39. Inactive account - If you have a current or a savings bank account and have not done any
transactions or debit through it for more than 12 months, then it will be classified as an inactive
account
40. Dormant account - As per Reserve Bank of India (RBI) guidelines, an account becomes dormant if
a customer does not initiate transactions such as withdrawal of cash at a branch or Automated
Teller Machine (ATM), payment by cheque, transfer of funds through Internet banking, phone
banking or ATMs
41. Demand Draft - A bank issues a demand draft to a client (drawer), directing another bank
(drawee) or one of its own branches to pay a certain sum to the specified party (payee).
42. Fiduciary - Undertaking to act as executor, administrator, guardian, conservator, or trustee for a
family trust, authorized trust, or testamentary trust, or receiver or trustee in bankruptcy. See
related questions about Trusts.
43. Guarantor - A party who agrees to be responsible for the payment of another party's debts
should that party default.
44. Inactive Account - An account that has little or no activity; neither deposits nor withdrawals
having been posted to the account for a significant period of time. See related questions about
Inactive Accounts.
45. Joint Account - An account owned by two or more persons. Either party can conduct
transactions separately or together as set forth in the deposit account contract. See related
questions about Joint Account Liability.
46. Leasing - A contract transferring the use of property or occupancy of land, space, structures, or
equipment in consideration of a payment (e.g., rent).
47. Lender - An individual or financial institution that lends money with the expectation that the
money will be returned with interest.
48. Lien - Legal claim against a property. Once the property is sold, the lien holder is then paid the
amount that is owed.
49. Line of Credit - A pre-approved loan authorization with a specific borrowing limit based on
creditworthiness. A line of credit allows borrowers to obtain a number of loans without re-
applying each time as long as the total of borrowed funds does not exceed the credit limit. See
related questions about Home Equity Lines of Credit.
50. SWIFT (Society for Worldwide Interbank Financial Telecommunication) CODE - A SWIFT code is
an international bank code that identifies particular banks worldwide. It's also known as a Bank
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Identifier Code (BIC) and Bank uses SWIFT codes to send money to overseas banks. A SWIFT code
consists of 8 or 11 characters.
51. Loan-to-Value Ratio (LTV) - The ratio of the loan principal (amount borrowed) to the appraised
value (selling price). For example, on a $100,000 home, with a mortgage loan principal of
$80,000, the loan-to-value ratio is 80 percent. The LTV will affect programs available to the
borrower; generally, the lower the LTV, the more favorable the program terms offered by
lenders.
52. Call/Notice/Term Money Market - The call/notice/term money market facilitates lending and
borrowing of funds between banks and entities like Primary Dealers. An institution which has
surplus funds may lend them on an uncollateralized basis to an institution which is short of
funds. Money market transactions are categorized as follows:
• Call Money - Borrowing/Lending for 1 day

• Notice Money - Borrowing/Lending for 2-14 days
• Term Money - Borrowing/Lending for more than 14 days
53. Loan Contract - The written agreement between a borrower and a lender in which the terms and
conditions of the loan are set.
54. Loan Fee -A fee charged by a lender to make a loan (in addition to the interest charged to the
borrower).
55. Mutual Fund - A fund operated by an investment company that raises money from shareholders
and invests it in stocks, bonds, options, commodities, or money market securities. These funds
offer investors the advantages of diversification and professional management. To participate,
the investor may pay fees and expenses. (Mutual funds are not covered by FDIC insurance).
56. Outstanding Check - A check written by a depositor that has not yet been presented for payment
to or paid by the depositor's bank.
57. Overdraft - When the amount of money withdrawn from a bank account is greater than the
amount actually available in the account, the excess is known as an overdraft, and the account is
said to be overdrawn. See related questions about Overdraft Protection Programs.
58. Overdraw - To write a check for an amount that exceeds the amount on deposit in the account.
59. Overlimit - An open-end credit account in which the assigned dollar limit has been exceeded.
60. Payoff - The complete repayment of a loan, including principal, interest, and any other amounts
due. Payoff occurs either over the full term of the loan or through prepayments.
61. Phishing - The activity of defrauding an online account holder of financial information by posing
as a legitimate entity.
62. Point of Sale (POS) - A point-of-sale (POS) transaction is what takes place between a merchant
and a customer when a product or service is purchased, commonly using a point-of-sale system
to complete the transaction.
63. Refinancing - A way of obtaining a better interest rate, lower monthly payments, or borrow cash
on the equity in a property that has built up on a loan. A second loan is taken out to pay off the
first, higher-rate loan.
64. Debt Recovery Tribunals (DRTs) - Debt Recovery Tribunals were established to facilitate the debt
recovery involving banks and other financial institutions with their customers like NPA. DRTs
were set up after the passing of Recovery of Debts due to Banks and Financial Institutions Act
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(RDBBFI), 1993. For a case to be accept by DRT, the amount involved should be more than 20
lacks.
65. Foreign Direct Investment - Foreign direct investment (FDI) is an investment made by a firm or
individual in one country into business interests located in another country. Generally, FDI takes
place when an investor establishes foreign business operations or acquires foreign business
assets, including establishing ownership or controlling interest in a foreign company.
66. Foreign Portfolio Investment - A foreign portfolio investment is a grouping of assets such as
stocks, bonds, and cash equivalents. Portfolio investments are held directly by an investor or
managed by financial professionals. In economics, foreign portfolio investment is the entry of
funds into a country where foreigners deposit money in a country's bank or make purchases in
the country's stock and bond markets, sometimes for speculation.
16.8 BANKING ABBREVIATIONS

Starting with “A”
1) ACF – Auto-Correlation Function

2) AD – Authorized Dealer
3) ADB – Asian Development Bank
4) ADR – American Depository Receipt
5) ADSL - Asymmetric Digital Subscriber Line
6) AEOI – Automatic Exchange of Information
7) AEPS – Aadhaar Enabled Payment System
8) AFS – Annual Financial Statement
9) AGM – Annual General Meeting
10) AIIB – Asian Infrastructure Investment bank
11) ASSOCHAM – Associated Chambers of Commerce and Industry of India AMFI – Association of Mutual
Funds in India
12) AML – Anti Money Laundering
13) AMRUT - Atal Mission for Rejuvenation and Urban Transformation
14) ALM – Asset Liability Management
15) APBS - Aadhaar Payment Bridge System
16) ASBA - Application Supported by Blocked Amount
17) ATM – Automated Teller Machine
Starting with “B”
1) BACS - Bankers Automated Clearing System

2) BBB – Bank Boards Bureau
3) BHIM – BHarat Interface for Money
4) BIS – Bank for International Settlements
5) BoP – Balance of Payments
6) BCBS – Basel Committee on Banking Supervision
7) BCSBI - Banking Codes and Standards Board of India
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8) BSR – Basic Statistical Returns
9) BSE – Bombay Stock Exchange
Starting with “C”
1) CAD – Capital Account Deficit

2) CAG – Comptroller and Auditor General of India
3) CAR – Cash Adequacy Ratio
4) CARE - Credit Analysis and Research Limited
5) CBS – Core Banking Solution
6) CCEA – Comprehensive Economic Cooperation Agreement
7) CCT – Conditional Cash Transfer
8) CDBS – Committee of Direction of Banking Statistics
9) CDR- Corporate Debt Restructuring
10) CEPA – Comprehensive Economic Partnership Agreement
11) CFMS - Centralized Funds Management System
12) CFRA – Combined Finance and Revenue Accounts
13) CGRA – Currency and Gold Revaluation Account
14) CIBIL – Credit Information Bureau of India Limited
15) CII – Confederation of Indian Industries
16) CMIS - Currency Management Information System
17) CPI – Consumer Price Index
18) CRR – Cash Reserve Ratio
19) CRAR - Capital to Risk (Weighted) Assets Ratio
20) CNP- Card Not Present
21) CVV – Card Verification Value
Starting with “D”
1) DEAF- Depositor Education and Awareness Fund

2) DICGC – Deposit Insurance and Credit Guarantee Corporation
3) DRAT - Debt Recovery Appellate Tribunal
4) DTAA – Double Taxation Avoidance Agreement
Starting with “E”
1) EBT – Electronic Benefit Transfer

2) EBRD - European Bank for Reconstruction and Development.
3) ECB – External Commercial Borrowings
4) ECS – Electronic Clearing Service
5) EDFC – Eastern Dedicated Freight Corridor
6) EEFC – Exchange Earner’s Foreign Currency
7) EESS- Equity Linked Saving Scheme
8) EFSF – European Financial Stability Facility
9) EIB - European Investment Bank.
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10) ETF – Exchange Traded Funds
11) EFTPOS- Electronic Funds Transfer at Point Of Sale
12) EPS - Earning per Share
13) EXIM – Export-Import Bank of India
Starting with “F”
1) FATCA – Foreign Account Tax Compliance Act

2) FATF – Financial Action Task Force
3) FCA – Foreign Currency Assets
4) FCNRA – Foreign Currency Non-Resident Account
5) FCNR - Foreign Currency Non-Repatriable account
6) FDI – Foreign Direct Investment
7) FERA – Foreign Exchange Regulation Act
8) FICCI – Federation of Indian Chambers of Commerce and Industry
9) FII – Foreign Institutional Investor
10) FIMMDA – Fixed Income Money Markets and Derivatives Association
11) FINO – Financial Inclusion Network Operation
12) FIPB – Foreign Investment Promotion Board
13) FPI – Foreign Portfolio Investment
14) FRA – Financial Redressal Agency
15) FSSAI – Food Safety & Standard Authority of India
16) FSDC – Financial Stability and Development Council
17) FSLRC – Financial Sector Legislative Reforms Commission
18) FSR – Financial Stability Report
19) FTA – Free Trade Agreement
Starting with “G”
1) GAAR – General Anti Avoidance Rule

2) GDP – Gross Domestic Product
3) GDR – Global Depository Receipt
4) GFD – Gross Fiscal Deficit GIRO – Government Internal Revenue order GMS - Gold Monetisation
Scheme GSTN - Goods and Services Network
Starting with “I”
1) IBBI - Insolvency and Bankruptcy Board of India

2) IBRD - International Bank for Reconstruction and Development
3) IBU - International Banking Unit
4) ICICI – Industrial Credit and Investment Corporation of India
5) IDBI – Industrial Development Bank of India
6) IDRBT - Institute for Development and Research of Banking
7) IFI – International Financial Institution
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8) IIB - International Investment Bank
9) IFSC – Indian Financial System Code
10) IMF – International Monetary Fund
11) IMPS - Immediate Payment Service / Interbank Mobile Payment Service
12) IMT - Instant Money Transfer
13) IPPB - India Post Payments Bank
14) IPR – Intellectual Property Rights
15) IRBI - Industrial Reconstruction Bank of India
16) IRDAI- Insurance Regulatory and Development Authority of India
17) IPO – Initial Public Offering
Starting with “K”
1) KCC - Kisan Credit Card

2) KVIC - Khadi and Village Industries Corporation
3) KVP - Kisan Vikas Patra
4) KYC - Know Your Customer
Starting with “L”
1) LAF – Liquidity Adjustment Facility

2) LDB - Land Development Bank.
3) LIBOR – London Inter Bank offered Rate
4) LTN - Long Term Note
5) LTV – Loan To Value
Starting with “M”
1) MAT- Minimum Alternate Tax

2) MCLR - Marginal Cost of Funds based Lending Rate
3) MDR - Merchant Discount Rate
4) MFDF - Micro Finance Development Fund
5) MFI – Micro Financial Institution
6) MFSS – Mutual Fund Service System
7) MIBOR – Mumbai Inter – Bank Offer Rate
8) MICR - Magnetic Ink Character Recognition
9) MMID - Mobile Money Identifier
10) MSS - Market Stabilization Scheme
11) MTN - Medium Term Note
12) MUDRA - Micro Units Development and Refinance Agency
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Starting with “N”
1) NABARD – National Bank of Agricultural and Rural Development

2) NACH – National Automated Clearing House
3) NASSCOM – National Association of Software and Services Companies
4) NAV - Net Asset Value.
5) NBFC – Non-Banking Financial Company
6) NDA - Net Domestic Asset
7) NDS - Negotiated Dealing Systems
8) NDTL - Net Demand and Time Liability
9) NECS - National Electronic Clearing Service
10) NEFT – National Electronic Funds Transfer System
11) NFA - No Frills Account.
12) NFC – Near Field Communication
13) NFS - National Financial Switch
14) NGN – New Generation Network
15) NHB - National Housing Bank
16) NITI Aayog – National Institution for Transforming India Aayog
17) NPA – Non- Performing Assets
18) NPCI - National Payments Corporation of India
19) NPS – National Pension Scheme
20) NPV - Net Present Value
21) NRE - Non-Resident External
22) NSFDC - National Scheduled Castes Finance and Development Corporation
23) NSSF – National Small Savings Fund
24) NSE – National Stock Exchange
Starting with ”O”
1. OCAS – Online Customer Acquisition Solution

2. OCB - Overseas Corporate Bodies
3. ODIs- Offshore/Overseas Derivative Instruments
4. OECD- Organisation for Economic Cooperation and Development
5. OLP – Online Learning Portal
6. OLTAS- Online Tax Accounting System
7. OMO – Open Market Operations
8. OTCEI - Over the Counter Exchange of India
9. OTP - One-Time Password
Starting with “P”
1. PACS - Primary Agricultural Credit Societies

2. PAN - Permanent Account Number
3. PCA - Prompt Corrective Action
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4. PCR – Provision Coverage Ratio / Public Credit Registry
5. PDO - Public Debt Office
6. PFRDA - Pension Fund Regulatory and Development Authority
7. PGS - Payment Gateway System
8. PIN - Personal Identification Number
9. PIS - Portfolio Investment Scheme
10. PLR – Prime Lending Rate
11. P Notes - Participatory Notes
12. PoA - Power of Attorney
13. PoS - Point of Sale
14. P2P – Peer to Peer
15. PPF - Public Provident Fund
16. PPI – Prepaid payment Instrument
17. PPP – Public Private Partnership and Purchasing Power Parity
18. PRSF - Partial Risk Sharing Facility
Starting with “R”
RBI - Reserve Bank of India

RBS - Royal Bank of Scotland.
RDBMS - Relational Database Management System
RDDBFI - Recovery of Debt due to Banks and Financial Institutions
REC - Rural Electrification Corporation
REER – Real Effective Exchange Rate
RERA - Real Estate Regulation Act
RFC - Resident Foreign Currency
RFID – Radio Frequency Identifier
RIDF - Rural Infrastructure Development Fund
RTGS – Real Time Gross Settlement
RoA - Return on Assets
RoE - Return on Equity
RRB - Regional Rural Bank.
RSOC – Rapid Survey on Children
RWA - Risk Weighted Assets
Starting with S
1. SARFAESI- Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest
SBI - State Bank of India
2. SCB - Scheduled Commercial Bank
3. SDBS - Service Discharge Benefit Scheme
4. SDR - Special Drawing Rights
5. SDR – Strategic Debt Restructuring
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6. SEAC - Standing External Advisory Committee
7. SEPA - Single Euro Payment Area.
8. SFMS - Structured Financial Messaging Services
9. SGB - Sovereign Gold Bond
10. SIDBI – Small Industries and Development Bank of India
11. SIDC - State Industrial Development Corporation
12. SIFI - Systematically Important Financial Intermediaries
13. SIP - Systematic Investment Plans
14. SIPS - Systemically Important Payment System
15. SJSRY - Swarna Jayanthi Shahari Rozgar Yojana
16. SLR - Statutory Reserve Ratio
17. SLRS - Scheme for Liberation and Rehabilitation of Scavengers
18. SME - Small and Medium Industries
19. SMERA - SME Rating Agency of India Limited
20. SMILE - SIDBI Make in India Loan for small Enterprises
21. SPNS - Shared Payment Network System.
22. SSC – Selective Credit Control
23. SSI - Small Scale Industries
24. SSSBE - Small Scale Service and Business Enterprises
25. SWIFT - Society For Worldwide Inter Bank Financial Telecommunication.
26. SHGs – Self Help Groups
27. SEBI – Securities and Exchange Board of India
28. SECC – Socio Economic & Caste Census
Starting with “T”
1. TDS - Tax Deducted at Source

2. TIN - Tax Information Network
Starting with “U”
1. UBIN - Unique Business Identification Number

2. UCB - Urban Cooperative Bank.
3. UCT – Unconditional Cash Transfer
4. UCNs - Uniform Code Numbers
5. UEBA - Universal Electronic Bank Account.
6. UIDAI - Unique Identification Authority of India
7. ULIP – Unit Linked Insurance Plan
8. UPI – Unified Payments Interface
9. UPIN - Unique Property Identification Numbers.
10. USB - Ultra Small Branch.
11. USD - United States Dollar.
12. USSD - Unstructured Supplementary Service Data
13. UTI - Unit Trust of India

8146207241
Starting with “V”
1. VAT – Value Added Tax

2. VDBS - Vertically Differentiated Banking System.
3. VPA - Virtual Payment Address
4. VVPAT - Voter Verifiable Paper Audit Trail
Starting with “W”
1. WBCIS - Weather Based Crop Insurance Scheme.

2. WCTL - Working Capital Term Loan
3. WL ATM - White Label ATM.
4. WMA - Ways and Means Advances
5. WPI – Wholesale Price Index

8146207241

Banking Awareness

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1|P a g e W WW. E D U T AP . CO . I N QUERY? HELLO@EDUTAP.CO.

3|P a g e W WW. E D U T AP . CO . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241

4|P a g e W WW. E D U T AP . CO . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241

5|P a g e W WW. E D U T AP . CO . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241

6|P a g e W WW. E D U T AP . CO . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241

1.1 What is a Bank?

1.2 What is Banking?

1.3 History of banks in India

The banking sector development can be divided into three phases:

7|P a g e W WW. E D U T AP . CO . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241

Let’s discuss about each phase now

1.3.1 Phase 1 - Pre-Independence Period (1786-1947)

1. The General Bank of India (1786-1791)

8|P a g e W WW. E D U T AP . CO . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241

1.3.2 Phase 2 - Post Independence Period (1947-1991)

We will discuss about nationalization of Banks later in this document.

1.3.3 Phase 3 - Liberalization Period (1991-Till Date)

9|P a g e W WW. E D U T AP . CO . I N QUERY? HELLO@EDUTAP.CO.IN / 8146207241

What is the meaning of Nationalization?

These banks included:

Question 1 – Which is the oldest Bank of India?

Option A – Bank of Hindustan

Option A – Bank of Bengal

Check your answers

What your score?

Let’s move ahead now

3.1 Robust Banking structure of India

The commonly identified banking systems are:

C. Correspondent Banking - The correspondent banking system is developed to remove the

4 Types of Banks in India

4.1 Central Bank –

There are three types of commercial bank, which are as follows –

4.2.1 Private Commercial bank –

As of February 2022, there are 21 Private Sector Banks in India

4.2.2 Public Commercial bank –

As of February 2022, there are 12 Public Commercial Banks

4.2.3 Foreign commercial bank

4.3 Regional Rural Banks

As of February 2022, there are 43 Regional Rural Banks in India

4.4 Local Area Banks

• Coastal Local Area Bank Ltd

4.5 Co-operative Banks

4.6.1 Payment Banks

As of February 2022, there are 6 payments

4.6.2 Small Financial Banks

Conditions for setting up a small financial bank –

As of February 2022, there are 12 Small Finance Banks -

“In short, a development bank is a development-oriented bank.”

For revision purpose, please use the following flow chart

For revision purpose, you can refer to the following picture

Option A – Narrow Banking

Option A – Small Banking

Option A – Regional Rural Banks

Check your answers now

6 The Reserve Bank of India

At present there is a 21-member central board of directors,

A - Deposit Insurance and Credit Guarantee Corporation of India (DICGC)

B - Bhartiya Reserve Bank Note Mudran Private Limited (BRBNMPL)