Professional Documents
Culture Documents
BANKING
TODAY
Subject
Banking policy and structural changes
General Banking / Branch Banking
General Advances
Foreign Exchange
Financial Inclusion and PS advances
Capital market, Insurance Market ,Pension
Markets regulated by RBI
Current Developments relating to banking
Books published by Bank House
Page No
1
6
7
8
12
16
18
16
22
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RBI provides both over night and term liquidity support to scheduled commercial
banks through its Liquidity Adjustment Facility [LAF]. Under LAF a bank can go for
overnight borrowing maximum boup to 0.25 % of its NDTL.
Term liquidity support is provided up to a period of 14 days. The total amount of such
support to the banking system is limited to 0.75% of NDTL of all banks.
RBI has stopped proving refinance to commercial banks against their export credits.
3) Formation of the IDFC Bank Ltd
IDFC Bank Ltd, the 9th new generation private sector bank came into existence on
Oct.1, 2015 with its head quarters in Mumbai.
The bank has been formed by demerger of IDFC to form a Non Operating Financial
Holding Company [NOHFC]; i.e. IDFC Financial Holding Company, of which the
IDFC Bank is a subsidiary.
The capital of the bank is held by the IDFC Financial Holding Company Ltd (53%)
and the existing share holders of IDFC (47%).
The tag line of this bank is hatke bank- i.e. a bank with a different approach.
The special features of this bank are (a) Bharat Banking (b) No ATM (d) Service at
door step by use of PoS through by relationship mangers (e) High end technology..
Under Bharat Banking the bank has planned opening branches first in few
districts and then covering in stages the other districts.
Out of the first lot of 23 branches opened by the bank16 branches are located tier-IV
centres (population of less than 10,000) in 4 districts of Madhya Pradesh: Indore,
Khandwa, Harda and Hosangabad and rest 7, in metros like Chennai, Kolkata, Delhi,
Bengaluru, Pune, Hyderabad and Ahmedabad.
The bank is headed by the Managing Director Shri Rajiv Lall.
The GoI will introduce soon the Indian Financial Code now in its draft form.
As per this code, the Credit and Monetary Policy will be formed as per the
recommendation of a Monetary Policy Committee [MPC]. Presently it is being done
by the Governor of RBI.
The formation of a Monetary Policy Committee was recommended by Urjeet Patel
committee.
The MPC will consist of seven members: four appointed by the GoI and three from
RBI (the Governor, one of the Deputy Governors, one officer of the bank).
Base Rate is the minimum rate of interest that can be charged by a bank for any credit
facility. The base rate is computed by the bank itself as per the guidelines provided by
Page 3 of 22
RBI. At present the Base Rate is computed based on the average cost of funds to the
bank. RBI wants to change this method of computation to from average cost of fund
to marginal cost of fund to the bank.
This will enable to banks to change their base rate in sync with changes in the policy
rates by RBI. And this in turn will bring the desired change in money supply and
inflation.
While a lot of work has been done on financial inclusion a lot more need be done in
systematic manner.
Towards this objective, RBI has appointed a committee headed by Deepak Mohanty,
ED of RBI with the task to come out with a medium term (five years) measurable
action plan for financial inclusion.
Section 20 of Banking Regulation Act, 1949 prohibits banks from granting any loan
or advance to any of its Directors except very small amounts.
However, RBI has now permitted banks to provide the following types of advances to
their directors without any reference to RBI. (a) Purchase of car, personal computer,
furniture; (b) Constructing / acquiring a house for personal use (c) Festival advance,
Credit limit under credit card facility.
For sanction of any other advance banks need prior approval of the RBI.
Commercial banks can provide to their Chief Executive Officer / Whole Time
Directors, all types of credit facilities, which form a part of their compensation /
remuneration policy approved by the Board of Directors or any committee of the
Board. They need not obtain prior permission of RBI for such sanction.
The interest rate to be charged cannot be less than that charged by the bank to its own
employees. It will not be linked to the Base Rate.
The numbering of bank notes in both the number panels is done in ascending order.
The features enabling the visually challenged persons to identify the notes have been
changed viz: 100 rupee notes carry 4 angular bleed lines 500 rupee notes 5 such
lines and Rs 1000 notes 6 such lines.
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At present there are few takers of long term bonds issued by companies and SPVs.
The insurance companies, pension funds, provident funds having large sum of long
term funds are not able to invest in such bonds due to low Credit Rating of such
instruments.
In order to improve the credit rating of these bonds, RBI has allowed banks to provide
partial credit enhancement (PCE).
Banks are permitted to provide PCE only by way of sanctioning a non-funded
irrevocable contingent line of credit i.e. irrevocable undertaking to provide credit in
case the company fails to honour the interest and principal when due.
The credit line will be utilised by the company in case of shortfall in cash flows for
servicing the interest of principal of the bonds.
Banks are selling many types of Govt saving schemes like PPF, KVP, Sukanya
Samridhi Yojana, Senior Citizen Deposit Scheme etc. These deposits can be
canvassed by small saving agents appointed by the Small Saving Officials and such
agents earn commission on the amount mobilised by them.
RBI has now advised banks to pay commission to these agents appointed by the
Postal Department. For this the agent has to present the Authority letter in original for
verification. The payment will be done by way of credit to SB account of the agent.
Page 5 of 22
GoI has started the mission for Housing for all by 2022 which now renamed as the
Prime Ministers Awas Yojana [PMAY].
The purpose of this scheme is to provide assistance / bank credit to people in EWS
[Income p.a not exceeding Rs 3 lakh] and LIG [income pa not exceeding Rs 6 lakh]
category for low cost housing.
In order to encourage banks to provide more credit for low cost housing, RBI has
changed the risk weight for the purpose of the calculation of CRAR.
So there will be three slabs for the purpose of risk weight.Slat1:Loans up to Rs 30
lakh, Slab2: Loans more than Rs 30 lakh and up to Rs 75 lakh, and Slab3: Loans
above 75 lakh.
Slab 1: Loans not exceeding Rs 30 lakh.
The maximum LTV ratio of 90% has been extended for loans up to Rs 30 lakh in
staed of Rs 20 lakh for the present.
The risk weight applicable for loans up to Rs 30 lakh is 35% if the LTV is up to 80%
or less and it is 50% if the LTV is more than 80% and up to 90%.
Slab 2: Loans exceeding Rs 30 lakh and up to Rs 75 lakh .
The risk weight applicable for loans up to Rs 75 lakh is 35% if the LTV is up to 75%
or less and or 50% if the LTV is more than 75 % and upto 80%.
Slab 3: Loans exceeding Rs 75 lakh .
In this case the LTV can be maximum 75% and risk weight irrespective of LTV is
75%.
The table given below summarises the same.
In case an account has been categorised under SMA-02 category, banks are required
to form a Joint Lenders Forum, prepare a Corrective Action Plan [CAP] and
implement the same in time.
To make the system more effective RBI has asked banks to form Joint Lenders
Forum Empowered Group (JLF EG) which will consist of six members for
taking decisions at a faster speed. This is meant to expedite the decision making
process.
18. Change in the owner ship of a company and change asset Classification
Under the Strategic Debt Restructuring [SDR] banks are permitted to convert their
credit outstanding to equity and take over the company and sell it new promoters.
After this the exposure to the company will be classified as standard asset.
Page 6 of 22
Now RBI has permitted banks that in cases other than SDRs, where banks are able to
bring in a change in ownership of a borrowing entity they can upgrade such credit
asset to Standard category subject to fulfilment of certain conditions. Some of
these are:
The new promoter/owner should not be from the existing promoter group.
The promoter must acquire at least 51 % of the paid up equity capital.
Banks can provide need based finance to the new promoter.
Though the asset will be classified as standard asset the amount of provisions already
held for the asset will not be reversed.
Exporters can sell online (through e-commerce sites) to overseas buyers who make
online payment by way of credit card, debit card and net banking. As per RBI
guideline, the export value of such transaction should not exceed USD 10 000.
Similarly importers in India buy online from overseas sellers through e-commerce
sites. As per RBI guideline the value of such import cannot exceed USD 2,000.
The Online Payment Gateway Service Providers [OPGSP] are required to open in
case of export from India, an account with an AD bank called Nostro Collection
Account to be maintained overseas. All receipts out of such export are automatically
swept and pooled into such account.
All resident individuals, firms and companies, who have actual or anticipated foreign
exchange exposures, can book foreign exchange forward contracts and also FCY-INR
options contracts up to USD 1,000,000 (USD one million) without any requirement of
documentation rather based on a simple declaration.
Credits availed by an importer for purchasing the goods is called trade credit.
Trade credit can be (a) Suppliers Credit which means, the credit is provided by the
supplier of the capital asset (b) Buyers Credit which means the credit is arranged and
availed by the buyer from a foreign bank..
These credits used to be denominated in foreign currency. Now RBI has permitted
importers to denominate such credit in rupee terms.
The rupee denominated credit will have same terms and conditions as applicable to
foreign currency denominated credits. Some of such conditions are:
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Trade credit period : For import of non-capital goods can be up to one year from
the date of shipment or up to the operating cycle whichever is lower
Trade credit period for import of capital goods can be up to five years from the date
of shipment.
No roll-over / extension can be permitted by the AD Category - I bank beyond the
permissible period.
AD Category - I banks can permit trade credit up to USD 20 mn or equivalent per
import transaction without any reference to RBI.
AD Category - I banks are permitted to issue Letter of guarantee, Letter of
Undertaking or Letter of Comfort in respect of trade credit for a maximum period of
three years from the date of shipment
The all-in-cost of such Rupee (INR) denominated trade credit should be
commensurate with prevailing market conditions
The two funds namely (a) The Financial Inclusion Technology Fund and (b) The
Financial Inclusion Fund [FIF] formed in 2005 and maintained with NABARD have
been merged in 2015 to form The Financial Inclusion Fund and it will be maintained
with NABARD.
The FIF will be used for providing assistance to NGOs, SHGs, Farmer's Clubs,
Functional Cooperatives, I.T. enabled rural outlets of corporate entities, Wellfunctioning Panchayats, Rural Multipurpose kiosks / Village Knowledge Centers,
Common Services Centres (CSCs) established by Service Centre Agencies (SCAs)
under the National e-Governance Plan ( NeGP ) and Primary Agricultural Societies
(PACs) for addressing the key concerns of financial inclusion.
These organisations will be assisted for purposes like
(a) Setting up of and operation of Financial Inclusion & Literacy Centres [FILCs]
and, Financial Literacy Centres [FLCs] which in turn will impart; financial literacy
training, counselling services for financial inclusion, training of BCs in use of
technological devices / financial products to be offered to poor etc.
(b)Setting up of Standard Interactive Financial Literacy Kiosks [IFLK] for
financial education.
(c) Running Business & Skill Development Centres including R-SETIs to impart
skill for undertaking income generating activities and for providing forward linkages
for marketing activities.
Page 8 of 22
Banks have been asked to issue Mudra Credit Cards [MCC] under the Prime
Ministers Mudra Yojana [PMMY] to provide hassle free credit at cheaper interest..
Page 9 of 22
Mobile wallets are e-wallets operated by using a mobile app. One can open a wallet,
deposit e-money and transfer money to another bank account or wallet.
It helps in making remittances from one to another by using the IMPS service
introduced by NPCI and provided by many banks.
Apart from remittances it helps in: payments of utility bills, commerce sites, to buy
goods online/e-commerce sites or Over the Counter, pay for cab services provided
by taxi aggregators like Uber and Ola, charge mobile through free recharge etc.
Wallets provided by banks are called open wallets and are different from wallets
provided by others on the following counts.(a) No limit of outstanding (b) Cash can
be withdrawn (c) Balance can be credited to bank account (d) Amount can be drawn
at ATMs (e) Balance earns interest. So for all practical purposes it provides many
facilities which a SB account with a bank provides.
Wallets provided by organisations other than banks are called semi-closed wallets
and are different from wallets provided by banks on the following counts.(a) The
Page 10 of 22
Now many banks have come up with mobile wallets. Some of the well known are:
SBI- SBI buddy, HDFC Bank - Payzaap, ICICI Bank --- Pocket, Axis bank ----LIME
e.
It is a technology standard which will enable different wallets to connect with each
other and hence money can be transferred from wallet provided by one company to
that of another company.
f.
mVisa
Provided by ICICI bank, developed by Visa.
It is payment through a device (smart phone) and not through the use of credit / debit
cards. maintain the POS, it has to only retain a printed QR Code.
It does not require POS.
Payment is made by scaning / taking photograph of a static QR code [Quick Response code].
Page 11 of 22
QR Code
As opposed to Bar Code which is uni-dimensional, it is a two dimensional bar code i.e. a
machine-readable optical label that contains information about the item to which it is attached.
[can be seen in labels used in e-commerce operators like Flip kart etc.
A QR code consists of black modules (square dots) arranged in a square grid on a white
background, which can be read by an imaging device (such as a camera, scanner, smart mobile
phome etc.)
The required data are then extracted from patterns that are present in both horizontal and vertical
components of the image.
g. Ping Pay
Introduced by Axis Bank, Ping Pay is a payment app. which helps to send or ask for
money and mobile recharge across social sites like Facebook, Whatsapp, Twitter,
Linked in etc.
The person-to-person fund transfers through Ping Pay is done by the bank using the
IMPS, Immediate Payment Service (IMPS).
The Axis bank has presently put the transaction limit at Rs. 50,000 for payment
through Ping Pay.
Section F:
Capital Market, Insurance Market, Pension Market
31. Important terms used in Mutual Fund Industry [for examination purpose]
Page 12 of 22
Close ended fund means no fresh unit will be issued under the scheme while in open
ended funds units can be issued at any point of time.
ETF: Exchange Traded Fund are schemes whose units are listed and traded like
shares in stock exchanges.
SIP: Systematic Investment Plan: Like monthly instalment in RD in banks, here the
investor invests certain amount in MF at regular intervals.
KRA: KYC Registration Agency means an entity approved by SEBI to do KYC
verification of an investor and issue a KYC verification acknowledgement letter
which the investor can use for KYC purposes for all types investments in Mutual fund
and other capital market instruments.
AMFI
SEBI [Securities and Exchange Board of India] is the regulator of capital market.]
is the regulator for equity market(share market), corporate bond market/ debt
market(long term borrowing instruments also called debentures), Derivative
market, Mutual funds and all institutions connected to these markets.
Derivatives
Derivative is a financial instrument which represents financial contracts to deliver
in future any item like shares or commodities or foreign exchange etc on future
date at the price fixed at the time of the contract.
Examples of derivative instruments are; Futures, Options, Swaps etc.
Derivatives are bought and sold in the derivative segment of the stock exchanges
Page 13 of 22
Depositories
Open and maintain Demat accounts in the name of investors in shares, MFs.There are tow
depositories in India.
NSDL : National Securities Depository Ltd.
CSDL: Central Depository Services Ltd.
Banks and other institutions act as DPs (Depository Participants), i.e. agents of
depositories to open Demat accounts.
Book Building
Mechanism to fix issue price of shares by asking for bids in case of public issue of shares.
IRDAI: [Insurance Regulatory and Development Authority of India]- the regulator of the
insurance market. A statutory body. HQ- Hyderabad.
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Instead of Rs12 per year one can pay Rs201 to get life time cover.
Under this scheme mediclaim policy is provided to poor people for an amount of Rs
30 000 p.a. under a floater policy which covers the head of the family, spouse and
three children.
Premium: Rs 30 per annum which is paid by the GoI / State Govt on 50:50 basis,
Page 15 of 22
MIBOR (Mumbai Interbank Offer Rate): The indicative rate of interest at which short
term money is available in the interbank market of Mumbai.
MIBID (Mumbai Interbank Bid Rate): The indicative rate of interest at which banks
are prepared to borrow in the interbank market of Mumbai.
FBIL (Financial Benchmarks India Pvt Ltd (FBIL): Is the Benchmark setting organisation
which calculates MIBOR-overnight.
CCIL ( Clearing Corporation of India):
Formed by RBI.
Provides platform [NDS-Call] for online borrowing of call money.
Provides NDS [National Dealing System] platform for online sell and purchase of
Govt bonds.
Acts as the settlement agency for such trades.
Acts as the Counter party for both the the seller and buyer for performance of the
contract (i.e both legs of trade.) which eliminates counter party risk in such trades.
Money Market:
The market which deals with borrowing and lending is made for periods ranging from
one day to one year. Money market instruments include: Call Money, Repo, CP, CD,
TB,CBLO, PCs. The money markets borrowing and lending is generally done by
banks and other financial institutions
Call Money
Inter-bank overnight / borrowing for one day without any security at rate of interest
which is determined by market supply and demand.
Repo from RBI under LAF
Borrowing by banks from RBI for period from 1 day to maximum 14 days by selling
securities to RBI under arrangement to buy back the same after the period.
CBLO:
Collaterised Borrowing and lending Obligation
Provided by CCIL .acts is money market instruments to borrow money for any period
from 1 day to 1 year against security of Govt bonds.
CP: Commercial Paper:
Issued by well rated companies [having net worth of minimum Rs 4 crore]. Period of
the instrument minimum 7 days to maximum 1 year. Minimum amount/ denomintain
Rs 5 lakh. Issued in demat format and also physical format. CPs are usance
promissory notes, issued at a discount, are transferable by endorsement and delivery
(negotiable instruments).
CDs: Certificate of Deposits; Issued by scheduled commercial banks. Other points
same as given above.
TBs: Treasury Bills. Issued by GoI. Minimum period 14 days. Minimum amount Rs
25 000. Maximum tenor- 364 days.
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[These are(i) Aditya Birla Nuvo Limited; (ii) Airtel M Commerce Services
Limited;(iii) Cholamandalam Distribution Services Limited(iv) Department of
Posts; (v) Fino Pay Tech Limited; (vi) National Securities Depository Limited; (vii)
Reliance Industries Limited; (viii) Shri Dilip Shantilal Shanghvi; (ix) Shri Vijay
Shekhar Sharma; (x) Tech Mahindra Limited; and (xi) Vodafone m-pesa Limited.]
e.
10 entities given in principle approval: These include one Local Area Bank namely
Capital Local Area Bank Ltd., Jalandhar,
A small bank can do many activities like a commercial bank but at least 50 % of its loan
portfolio should constitute loans and advances of less than Rs. 25 lakh.
Page 17 of 22
[and 9 NBFC-MFIs (1) ESAF Microfinance and Investments Private Ltd., Chennai, (2)
RGVN (North East), Microfinance Limited, Guwahati, (4) Suryoday Micro Finance
Private Ltd., Navi Mumbai(5) Janalakshmi Financial Services Private Limited,
Bengaluru (6) Disha Microfin Private Ltd., Ahmedabad (7) Au Financiers (India) Ltd.,
(8) Jaipur Equitas Holdings P Limited, Chennai (9) Ujjivan Financial Services Private
Ltd., Bengaluru.]
Page 18 of 22
Introduced the APB (Aadhaar Payment Bridge) a link for r Direct Benefit Transfer [
DBT] from Govt depts. On one end banks maintaining accounts of beneficiaries in
another end.
d. Pre-paid Cards
PPI-MTS (Pre-paid Card-Mass Transit System) will be issued by metro and transport
companies. Maximum amount that can be loaded Rs 2000. These are contact less
cards.
e. Contact less card
Alco called: tap and go card / Near Field Technolgy Cards.
Maximum amount of balance Rs2000.
ICICI Bank launched the countrys first contactless debit and credit cards that use
the near-field communication technology [also called NFT Card].
f. Point of Sale
Maximum Cash payment in semi urban and rural centres in POS - Rs 2000.
g. Simply CLICK Card:
Introduced by SBI Cards in association with BI Card, a leading credit card issuer.
For this new credit card, SBI Card has partnered Amazon India, Book MyShow,
Cleartrip, Fab Furnish, Food Panda, Lens Kart and Ola Cabs all frontrunners in
their respective e-commerce market.
On September 11, 2015, the GoI for the first time appointed Managing Directors in
public sector banks from outside. The two banks in which such appointments are
made are Bank of Baroda and Canara Bank.
Bank of Baroda is now headed by Mr , Jayakumar who was the Co-founder and CEO
of VBHC (Value Budget Housing Corporation).
Canara Bank is headed by Shri Ramesh Sharma, .
Page 19 of 22
Chanda Kochhar and Arundhati Bhattacharya have been ranked as top two in a list of
most powerful women in Asia-Pacific prepared by the global magazine Fortune.
Presently private sector banks can recruit employees can draw talents from different
sources like campus interview but PSBs are not permitted to do so.
GoI has appointed a high-level panel headed by Justice AP Shah, former chairman
of the Law Commission, to examine the situation and recommend the action
enabling public sector banks to draw talents at the level of officers.
Vidya Lakshmi, is the name of the web site the GoI has started for online sanction
of education loans by banks to students seeking educational loans
50. CERSAI
CERSAI [Central Registry of Securitisation Asset Reconstruction and Security
Interest of India] formed as per the SARFAESI Act.]
Banks /other lenders have to inform the particulars of immovable property taken as
security while sanctioning loans.
51. e-KYC
Page 20 of 22
e-KYC is means obtaining the Aadhar Details by logging into the UIDAI after taking
biometric authentication from the person wanting to open accounts with a bank.
E-KYC is an Officially Valid Document for identity proof for KYC for opening
accounts.
ICICI Bank has launched a new digital safe deposit locker service called ; Smart
Vault.
Smart Vault is Indias first automated locker facility with robotic technology.
A customer can gain access to this locker room by swiping his debit card and
validating identity through biometric authentication.
DEAF (Depositors Education and Awareness Fund) is held by RBI, representing the
proceeds of unclaimed accounts of banks transferred to this account by banks on a
monthly basis.
RBI has selected 20 entities for providing grant of financial assistance from this fund
to 20 entities which among others include Consumer Education and Research Society
(Ahmedabad), Consumer Unity & Trust Society (Jaipur), Xavier Labour Relations
Institute (Jamshedpur), and Indian School of Microfinance for Women (Ahmedabad)
etc.
Page 21 of 22
Investment into Demat (Dematerialised) Govt issued gold bonds expressed in terms
of gold and interest will be paid in terms of gold and not in rupees.
Bonds denominations of 2, 5 and 10 grams of gold.
Maximum Investment per person/ entity per year: 500 grams .
NCMC will be pre-paid card, to be used for all types of mass transit system.
It will be EMV Open Loop Card with stored value. [ EMV- Europay, Master Card
and Visa] .
The bank which is involved in Rs 6100 crore foreign exchange fraudulent remittance
for import is Bank of Baroda.(Branch: Ashok Vihar).
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