Indian currency
·
Indian currency is also known as Fiat Money i.e.
money on the Fiat (order) of the government. It is also known as Legal Tender
Money.
·
Reserve bank of India manages the currency of India
while the responsibility of coinage vests with government of India.
·
Presently Indian currency system is based on the
“Minimum Reserve System”. This means of RBI is willing to print additional
currency, then after from considering technical front, it has to keep only a
minimum amount of reserve which will allow it to print as much currency as it
is willing to print since 1957, the minimum reserve shall be of Rs. 200 crore
which shall include Gold worth Rs. 115 crore and forex worth Rs. 85 crore.
Ø
Gresham’s
Law: Bad Money (worn- out notes and currencies) drives good money out of the
market.
Monetary
Aggregates
= Currency & coins in circulation+
demand deposits of banks +other deposits
of the public
with RBI
= + post office saving deposits
= + post office saving deposits
=
+
time deposits of the public with banks
=
+
total post deposits
New Monetary Aggregates
It
was suggested by the working group constituted in December 1997 under the
chairmanship of Dr. Y.B Reddy in 1998.
= Currency in circulation +demand
deposits with bank +other deposits with RBI
Ø
NOTE:
- RBI has two types of deposits. One is the one is the deposit of commercial
bank and other is the deposit of certain individuals such as Ex. Governors of
RBI who are permitted to use RBI like any commercial bank. President of India
can also open an account with RBI.
=
+
Time liabilities portion of saving deposit with banks + certificate of deposits
issued by banks + term deposits with banks maturing within one year (excluding
FCNR (B) deposits)
=
+
term deposits with banks (excluding FCNR (B) deposits over one year maturity +
call/term borrowing of banks
=
Abolished
=
Currency in circulation + other deposits with RBI +cash reserves of bank with
the bank itself and with the RBI
Important Nicknames
=
Reserve Money or Government Money
= Narrow Money
=
Broad Money
= Money Multiplier
BANKING
·
The first commercial bank was established
in 1770 by the Alexander & Company, named Bank of Hindustan. This was not
successful.
·
The Bank of Bengal was established in
1806 at Calcutta. The Bank of Bombay was established in 1840 at Bombay and Bank
Madras in 1843 at Madras. These three presidency banks were amalgamated on 27
January 1921 and imperial bank of India was established.
·
On July 1, 1955, the imperial bank of
India was partially nationalized and it was named State bank of India. In 2006,
state bank of India celebrated its 200th year of establishment as
the founder bank was established in 1806. At present, State Bank of India is
the largest commercial bank of India.
·
Punjab National Bank was established in
1894 and it is known as the first truly Indian bank as it was established by
Indians only.
·
As of 31st March, 2009 there
are 85 Regional Rural Banks in India.
Reserve Bank of India
·
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 of
India was initially established in Kolkata but was permanently moved to Mumbai
in 1937. There are four local boards of RBI in Delhi, Mumbai Kolkata and
Chennai
·
Reserve Bank of India (RBI) is the
Central Bank and Supreme monetary authority of India.
·
RBI was established with 5 crore as its
capital as a private shareholders bank.
·
RBI was nationalized on January 1, 1949.
·
Financial year of RBI is from July 1 to
June 30.
FUNCTIONS OF RBI
·
It acts as a central bank of India.
·
It acts as a banker to the central and
state Governments
·
It announces the Annual Policy Statement
(earlier known as monetary and credit policy) to take care of monetary credit
and other policy aspects of the economy. It announces the policy in april
9slack season) and review it in October (busy season)
·
It acts as an advisor to the government.
·
It acts as banker’s bank and supervisor.
·
RBI acts as the controller of money
supply and credit.
·
It manages the foreign exchanges.
·
RBI promotes commercial banking, rural
(agricultural) credit, industrial finance and export finance, etc.
·
RBI issue currency.
·
RBI acts as central clearing house for
inter bank transactions.
Scheduled Banks
·
Scheduled Banks are those banks which are
included in the second schedule of the RBI Act, 1934. These banks shall fulfill
following conditions.
(i) At least Rs. 5 lakh as
capital.
(II) Any activity of the bank
shall not be derogatory to the interest of the bank depositors.
·
Those banks which are not included in the
second scheduled are known as non scheduled banks.
Public Sector Banks
State Bank of India and
its Associates
·
SBI was established after the
nationalization of Imperial bank of India in July, 1955. The nationalization
was done on the recommendations of Rural
Credit Survey Committee.
·
In 1959, the State Bank of India (Associate
Banks) Act was passed which helped in creating State Bank Group.
·
State Bank Group is Comprised of State
Bank of India and five associates.
·
Originally there were eight associates,
but Bank of Bikaner was merged with Bank of Jaipur in 1963 to form Bank of
Bikaner & Jaipur.
·
State Bank of Saurashtra was, merged with
State Bank of India on August 13, 2008.
·
State Bank of Indore was merged with
State Bank of India on August 26, 2010.
·
Six Associates of SBI are:
(i)
State Bank of Hyderabad
(ii) State Bank of Mysore
(iii) State Bank of Travancore
(iv) State Bank of Patiala
(v) State Bank of Bikaner &
Jaipur
Other Nationalized
Banks
·
First nationalization took place on 19th
July 1969, of 14 large commercial banks which were having reserves more than 50
crore.
·
Second nationalization took place on
April 15, 1980 of those 6 banks which were having reserves more than 200
crores.
·
Presently there are only 19nationalised
banks (excluding SBI and associates) in the country because on 4th
September 1993, the New Bank of India was merged with Punjab National Bank.
·
The list of Nationalized banks is as
follows:
(i) Allahabad Bank
(ii) Andhra Bank
(iii) Bank of Baroda
(iv) Bank of India
(v) Bank of Maharashtra
(vi) Canara Bank
(vii) Central Bank of India
(viii) Corporation Bank
(ix) Dena Bank
(x) Indian Bank
(xi) Indian Overseas Bank
(xii)Oriental Bank of Commerce
(xiii) Punjab and Sind Bank
(xiv) Punjab National Bank
(xv) Syndicate Bank
(xvi) UCO Bank
(xvii) Union Bank of India
(xviii) United Bank of India
(xix) Vijaya Bank
Ø NOTE: - Bank of Baroda is having the largest concentration of the branches
abroad followed by SBI.
Regional Rural Bank
(RRB)
·
Regional Rural Banks (RRB) were established
in 1975 under the provision of the Ordinance promulgated on the 26th
September 1975 and the Regional Rural Banks Act, 1976 with a view to developing
the rural economy as well as to create an alternat9ive channel to the
‘cooperative institutional credit for the rural and agriculture sector.
·
RRB are jointly owned by Government of
India, the concerned state Government and sponsor Banks (27 Scheduled
Commercial Banks and one state Cooperative Bank) in the proportion of 50%, 15 %
and 35 % respectively.
·
The area of operation of the majority of
RRB is limited to a notified area comprising a few districts in the states.
·
The RRB grants loans and advances mostly
to small and marginal farmers, agricultural laborers and ruler artisans.
·
The government initiated a process of
structural consolidation of RRB by amalgamating RRB sponsored by the same bank
within a state. As a result of the amalgamation, the number of RRB has been
reduced from 196 in September 2005 to 82 and one new RRB was established in
March, 2008 in the union territory of Pondicherry, thereby totaling the number
of RRB to 83 as on 1st January, 2010. There are 15155 branches of
RRBs on 31st March, 2009 in 615 districts in the country.
·
RRB is working in every state of India except
Sikkim and Goa
Bank Rate
·
It has been defined as the standard rate
at which RBI is prepared to buy or rediscount bills of exchange or other
commercial papers eligible for purchase under RBI Act.
·
But, practically Bank Rate is the rate at
which RBI extends credit to other commercial banks. From April 1997onwards,
Bank Rate is the reference rate for general refinance provide by the RBI.
·
Bank rate is also called discount rate.
·
Bank rate is generally raised during a
period of inflation, which is known as Dear Money Policy. It is lowered at the
time of recession which is known as Cheap Money policy.
OPEN MARKET OPERATIONS
(OMO)
·
As defined by RBI, under OMO, RBI
purchase and sells the variety of assets such as foreign exchange, gold,
government securities and even company shares. However, in practice OMO are
confined to purchase and sale of Government securities only. RBI generally
conducts these operations through banks and financial institutions.
·
Government securities may be short term
or long term securities. Treasury bills of 91 days and 364 days are the short
term securities of 3 years, 5 years or more upto 30 years.
·
If RBI purchases the securities interest
rate will come down and more money will come into market. If RBI sells
securities, interest rate will go up as money supply will be reduced.
CASH RESERVE RATIO
(CRR)
·
SCHEDULED COMMERCIAL BANKS ARE REQUIRED
TO KEEP CERTAIN PERCENTAGE OF THEIR TOTAL DEPOSITE (Net Demand and Time
Liability) in the form of cash reserves with RBI.
·
Credit Squeeze or Tight Money policy
means increase in CRR. Liberal Money Policy means decrease in CRR.
STATUTORY LIQUIDITY
RATIO (SLR)
·
It is the ratio of total deposits of a
commercial bank which it has to keep with itself in the form of liquid assets.
Liquid assets may consist of cash in hand, gold, reserves, government
securities and other encumbered securities, etc.
·
SLR was for the first time imposed in
1949 at 20%. It was 38.5% in 1991. As per the recommendations of Narsimhan
Committee, the SLR has been brought down to 25% of net demand and time
liability of the bank. Banking regulation Act, 1949 stipulates 25% as the
minimum SLR rate.
·
Since 1997, the SLR is at 25% level
Repo and Reverse Repo
·
With effect from Oct 29, 2004, RBI has
switched over to international usage of the term Repo and Reverse Repo. As per
these terms absorptions of liquidity by the RBI is termed as Reverse Repo and
injection of liquidity is termed as Repo 9earlier these were having the meaning
reverse to this.)
Important Committees
Committees
Appointed
For
Ghosh
Committee …………………………………………................................... Bank frauds
Goiporia
Committee……………………………………………………... Bank customer services
Omkar
Goswami Committee………… ………. Industrial sickness and corporate
re-structuring
Jilani
committee……………………………..Internal control and inspection/ Audit System in
Banks
Janakiraman
Committee……………………Securities transaction of the banks and financial
institutions
Malhotra
Committee……………………………………………. Insurance sector Reforms
Dr.
Mehta Committee…………………………………..Integrated Rural Development Programme
Nadkarni
Committee……………………………………………………Financial/ Banking sector reforms
IInd
Narasimham Committee………………………………Financial/ Banking sector Reform
Nayak
Committee……………………………………………… Credit to small scale industry sector
W.
S saraf Committee…………………………………………Technology issue in the banking
industry
Sodhani
Committee…………………………………………………..NRI investment and forex markets
S.S Tarapore Committee……………………………………………..Capital
Account Convertibility
Verma
Committee………………………………………………………………...Problem of weak Banks
R.V
Gupta Committee…………………………………Agriculture credit through commercial banks
J.J
Irani Committee………………………………………………………… Company reforms
S.S
Kohli Committee……………………………………...Rehabilitation of sick small scale
industries
Y.V.
Reddy Committee………………………………………………………….Reforms in small savings
Raja
Chelliah Committee……………………………………………………………….. Tax Reforms
Raghavan
Committee………………………………………………........…………….. Competition Law
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