From the ancient times in India, an indigenous banking system has prevailed. The businessmen called Shroffs, Seths, Sahukars, Mahajans, Chettis etc. had been carrying on the business of banking since

Central Bank of India was dreams come true of Sir Sorabji Pochkhanawala, founder of the Bank. Sir Pherozesha Mehta was the first Chairman of this Bank. Many more Indian banks

The first major step was Nationalization of the Imperial Bank of India in 1955 via State Bank of India Act. State Bank of India was made to act as the

The Cash Reserve Ratio is the amount of funds that the banks are bound to keep with Reserve bank of India, with reference to the demand and time liabilities (NDTL)

The most important committee was Narasimham Committee on banking Sector Reforms. It was set up in 1991. Please note that there were two Narasimham Committees. Narasimham Committee –I was formed

We all know that Capital refers to the assets which are capable of generating income and which have themselves been produced. This is one of the four factors of production

CRAR is the acronym for capital to risk weighted assets ratio, a standard metric to measure balance sheet strength of banks. BASEL I and BASEL II are global capital adequacy

Basel Committee on Banking Supervision is an institution of Governors of the Central Banks of "G-10" nations and was formed in 1974. It has 27 members viz. Argentina, Australia, Belgium,

The Basel-I defined two tiers of the Capital in the banks to provide a point of view to the regulators. The Tier-I Capital is the core capital while the Tier-II

The Risk weighted assets refer to the fund based assets such as Cash, Loans, Investments and other assets. This means that they are the total assets owned by the Banks,

The Basel III Guidelines are based upon 3 very important aspects which are called 3 pillars of the Basel II. These 3 pillars are as follows: Minimum Capital Requirement Supervisory

Let's have a view on the risks associated with the banking business. There are three kinds of Risks associated with the Banking: Credit Risk Market Risk Operational Risk The above

IFRS is principles based set of accounting standards developed by the International Accounting Standards Board (IASB), an independent group of 15 experts. IFRS is steadily becoming the global standard for

What is the relevancy of IFRS? The IFRS is relevant to the extent that the financial statements as per the international standards would make the comparisons of the Indian companies

CRISIL CRISIL is India's first credit rating agency, incorporated in 1987 and was promoted by the erstwhile ICICI Ltd, along with UTI and other financial institutions. It commenced operations from

The first step towards rating of banks in India was taken up in 1995, when the Reserve Bank of India established the S Padmanabhan Committee to take a fresh look

Asset Liability Mismatch or ALM is considered to be a comprehensive and dynamical framework for measurement, monitoring and managing the market risk of the Banks. Asset Liability Mismatch arises in

This is basically management of the structure of the balance sheet (which comprises the assets and liabilities) in such a way that interest gain is maximized and risk is minimized.

The much-awaited take-out financing products from India Infrastructure Finance Co (IIFCL) have recently started picking up. On October 12, 2010 Finance Minister Pranab Mukherjee said that: "Development of adequate and

In India, ever since espousing of financial reforms following the recommendations of First Narasimham Committee, the contemporary financial landscape has been reshaped steadily. Banks have been striding into several new

In simple words, Universal Banking means that Financial Institutions (FIs) and Banks are allowed to undertake all kinds of activity of banking , financing and related businesses. As per the

Before we move ahead, just give a thought to this question: Consider the following statements: In Narrow Banking, Banks just accept deposits and provide loans. In Narrow Banking, there is

In simple words, the assets of the Banks which don't perform (means don't bring any return) are called Non Performing Assets. In more general sense they are "bad Loans". Any

Classification of the NPAs: The above is a general definition of the Non Performing Assets. Here, please note that the Banks are required to classify nonperforming assets further into three

Willful default means that a party does not make a payment out of its will. The Willful default is defined as follows: The party defaults in meeting its payment obligations

'The Financial Activities Tax' and 'Financial Stability Contribution' were propsoed by G-20. The Interim Report of the G-20 on Fair and Substantial Contribution by the Financial Sector of April 2010

The RBI established by RBI Act 1934 in 1935 and nationalized in 1949 is the central banking and monetary authority of India. It acts as a regulator and supervisor of

The scheduled banks are of two types Scheduled Commercial banks Scheduled Co-operative Banks They are further divided as follows: Current Number of Nationalized Banks: There are 26 Nationalized Banks in

Please note that if we count the number of the bank branches including the cooperative and local area banks, the number is around 82000. Out of this, the share of

The nationalization of the banks was a turning point in the financial history of the country. It boosted the faith of the public and since then the banks have been

There are two types of deposits: Demand deposits: The money we keep in our saving accounts is like a medium of exchange and this is called Demand deposits. This is

The idea behind the Deposit Insurance is to boost the faith of the public in the banking system, and provides protection against the loss of deposits to a significant extent.

Negotiable Instruments Act 1881 had been passed in 1882 and was modified in 1989 and 2002, as some more sections were added into the age old law. This act is

Holder: Holder is the person who is entitled in his own name to the possession of a negotiable instrument. Normally a payee or endorsee is a holder. Please note that

PN means a paper with a writing which has a promise. But it does not mean that we write "I owe You" and it becomes a PN. PN is always

There are 3 parties in the bill of Exchange. BEO is a written negotiable Instrument which contains an unconditional order which is Signed by the Maker Directs a certain person

A cheque is also a Bill of Exchange A cheque is a bill of exchange in which one party (Drawee) is a Bank. So a Drawer (account Holder) draws the

The section 15 of the Negotiable Instruments Act 1881 defines endorsing as "signing on the face or an instrument for the purpose of negotiating a negotiable instrument (such as Cheque)."

A person who signs the cheque and transfers the instrument is an endorser and in whose favor it is transferred is endorsee. The endorsee acquires a right to negotiate the

The NI act was amended in 2002 and after that Cheque also means a Cheque in electronic form. The clearing of checks on the basis of electronic checks is called

Demand draft is discussed in section 85(A) of the NI Act. A Demand draft is an order to pay money drawn at one office of a Bank upon another office

Cheque has been defined in Negotiable Instruments Act 1881 section 6. A cheque is a bill of exchange drawn on a specified bank and not expressed to be payable otherwise

The main characteristic of retail banking , very much similar to retail trade, is that banks directly execute transactions with consumers rather than other banks or corporations. The retail banking

When an existing customer is offered and sold ancillary / additional services it is cross selling. Cross selling is taken as a transaction based activity but more as a relationship

As per the "Trends and Progress of Banking in India 2009-10" recently released by the Reserve Bank of India, Retail credit growth including personal loan portfolio of banks had shown

The share of the retail loans in total loans and advances of the Scheduled Commercial Banks was 21.3% in 2008-09. This has marginally come down to 19.0% by end of

Credit card allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. Its usage started in 1920s in US for

The following table shows the picture of the Credit card Business in India. The above table shows that: In the recent years, the amount spent on cards as increased steadily.

Credit Card Grievances The Reserve Bank of India (RBI) had issued the notification of Banking Ombudsman Scheme in 2006, after that an aggrieved credit card user can now apply to

Introduction to Kisan Credit Card Scheme KCC scheme was introduced in the Banks in August 1998 . The aim of Kisan Credit Card Scheme (KCC) is to provide adequate and

Priority sector was first properly defined in 1972, after the National Credit Council emphasized a few years back that there should be a larger involvement of the commercial banks in

At present the domestic banks have to disburse 40% of the Net Bank Credit to Total Priority sector, out of which 18% should be total agricultural advances. The Foreign banks

What is the Basic Objective of Priority sector lending? The basic objective of setting priority sector targets has been to ensure greater flow of credit to certain sectors where credit

Microcredit is the small credit given to poor and comes under the micro finance services. The commercial banks are encouraged by the RBI for expansion of the microcredit in India.

What is SHG? Self Help Groups means a group which represents a financial intermediation, but the financial intermediation is not the only primary objective of the groups. The idea is

A pilot SHG-post office linkage programme was launched by NABARD in December 2003. This programme envisaged credit linking 200 SHGs in select 5 districts of Tamil Nadu, viz., Sivaganga, Pudukottai,

Gadgil Committee and Genesis of Lead bank Scheme Prior to the Nationalization of the Banks, a National Credit Council was set up in Dec. 1967 to determine the priorities of

What went wrong with the Scheme? The scheme could not fully achieve its targets due to Shift in policies, complexities in operations and issues shifting to the Financial Inclusion. Lack

The Usha Thorat committee recommended that Lead Bank Scheme should prevail and continue. In this context, after a long period, in March 2010, RBI released the guideline for Lead Bank

Narasimham Committee and Genesis of RRBs We all know that the first stage of nationalization that took place in 1969 boosted the confidence of the public in the Banking system

Originally, the Regional Rural Banks were conceived as low cost institutions having a rural ethos, local feel and pro poor focus, but these original assumptions were belied as within a

Some of the very important measures to improve the Financial Viability of RRBs since 1990s till 2009 are as follows: In 1993, RBI gave permission to RRBs to relocate branches

What is the Current Number of RRBs in India? Government of India initiated the process of structural consolidation, in consultation with State Governments and Sponsor Banks, by amalgamating RRBs of

The Inclusive Meaning of Financial Inclusion Financial Inclusion or Inclusive Finance refers to the delivery of financial services (Not only Banking) at an affordable cost to the vast sections of

Does it mean that every individual should use the above services? No. Financial Inclusion does mean that every eligible person uses these services but they should be able to choose

The report of the Rangarajan Committee is summarized as follows: Extent of Exclusion: As per the NSSO data, 45.9 million farmer households in the country (51.4%), out of a total

The Rangarajan Committee had placed its report in mid 2008. In order to further financial inclusion, the Government, NABARD and the Reserve Bank are pursuing several initiatives. Two funds namely

In 1926, the Royal Commission on Indian Currency and Finance which is also known as the Hilton-Young Commission recommended the creation of a central bank. The idea was twofold: To

The Reserve Bank of India is wholly owned by the Government of India. Its structure is simply represented by the following: Central Board of Directors Committee of the central Board

D. Subba Rao: Governor Dr. D. Subba Rao is 22nd Governor of Reserve Bank of India. He is an IAS of 1972 Batch of Andhra Pradesh Cadre. Born in Vijayawada

With a view to integrating the functions of deposit insurance and credit guarantee, the Deposit Insurance Corporation and Credit Guarantee Corporation of India were merged and the present Deposit Insurance

Currency Framework: As per the provisions of the Section 22 of the Reserve Bank of India Act 1934, Reserve Bank of India has the sole right to issue Bank notes

In 1935, Reserve Bank of India, on its inception became the Banker and Debt Manager to the Government and this is a very important function. As per the Reserve Bank

Now, we know that RBI works as a banker to the State Governments by agreement. But there is no fixed minimum reserve balance for the State Governments. All state Governments

RBI is bank of all banks in India. As per the Banking Regulations Act 1949, Banks have to keep a portion of their demand and time liabilities as cash reserves

RBI not only regulates the Indian banking system but also to the development financial institutions (DFIs), non-banking financial companies (NBFCs), primary dealers, credit information companies and select segments of the

To do a business of commercial banking in India, whether it is India or Foreign, a license from RBI is required. Opening of Branches is handled by the Branch Authorization

What is Cooperative Movement The co-operative movement involves autonomous association of persons united voluntarily to meet their common economic, social and cultural needs through a jointly owned and democratically controlled

We all know that India entered into the era of economic planning in 1951. The monetary and Fiscal Policies had to be adjusted to the requirements of the planned development

Objectives of the monetary policy in India have gone through a process of gradual evolution and have included price stability, ensuring adequate flow of credit to various productive sectors of

During the 1970s RBI introduced the Money Stock Measures. These were appropriately changed on the recommendation of the Y B Reddy Committee in the late 1990s. Supply of Money The

The question arises is that what is the difference between Narrow Money (M1), Broad Money (M3) and Reserve Money? This is very important question. When we say that Reserve Money

Open market Operation refers to the purchase and sale of the Government securities by the Reserve bank of India from / to public on its account. But in India, as

Here is a brief description of the qualitative and quantitative measures. The quantitative measures of credit control are : Bank Rate Policy: The bank rate is the Official interest rate

When a person borrows some money from another person, this money comes at an interest which can also be called the "Opportunity Cost" of the money. The amount lent is

Base Rate is the minimum lending rate that banks can charge their customers from July 1, 2010. Prior to this all lending rates were pegged to a Bank's Prime Lending

In the compound interest rate, the future value is calculated with the following formula. Future Value = Present Value x (1 + R) n Where R is the Rate of

The interest rates get determined in the money markets. There are two kinds of markets where borrowing and lending of money takes place. These are short term markets and long

Repo is a short term borrowing for dealers in the Government securities. In India, Repo and Reverse Repo transactions are done only in Mumbai and only between the parties approved

Liquidity Adjustment Facility Liquidity Adjustment Facility is the primary instrument of Reserve Bank of India for modulating liquidity and transmitting interest rate signals to the market. The Committee for Banking

ICD market is used for short term cash management of the large corporates. As per the RBI Guidelines, the Minimum period of ICDs is 7 days which can be extended

The Commercial papers are "Unsecured" Promissory Notes. Since these papers are Unsecured and don't have any collateral security, only highest credit rated firms are able to sell their CPs at

There is no difference between a Commercial Paper (CP) and Certificate of Deposits (CD) except the CD is issued by the Commercial banks and Finance Institutions. Using the CDs banks

T-Bills mean Treasury Bills or the bills issued by the Government. The T-Bill is issued by the Government to fulfill its short term money needs. The T-bills are again issued

The maturity of the Fixed income markets is longer than 1 year. There are two kinds of instruments in the Fixed Income Markets viz. Bonds and Debentures. Bonds: Bond is

The Government Securities are of the following types. Dated Securities Zero Coupon Bonds Floating rate Bonds Call / Put Option Bonds Dated Securities: Dated Securities have fixed maturity and are

Please note that Coupon amount is the sum of money the bond holder receives as an interest payment at fixed intervals. Coupon Yield is the return that investor receives on

Derivative is a product whose value is derived from the value of one or more basic variables. The basic variables are underlying assets, index or may be a reference rate

Interest Rate Swap is basically a contractual arrangement between two parties which are called "Counterparties". Commonly the counterparties are a Financial Institution and an issuer. These counterparties agree to exchange

Unlike the OTC instruments, these are traded over an exchange. So in these contracts Exchange play an intermediately to all transactions. There is a third party in ETD and that

Abhijit Sen Committee (2002) : Long Term Food Policy Abid Hussain Committee: On Small Scale Industries Ajit Kumar Committee : Army Pay Scales Athreya Committee: Restructuring Of IDBI Basel Committee:

Hum Hai Na:ICICI Good People To Grow With: Indian Overseas Bank Good people to grow:State Bank Of India Tradition Of Trust:Allahabad Bank Trusted Family BankDena Bank Good People To Bank

What is the main function of Competition Commission of India?CCI is an independent body which become operational w.e.f. May 20, 2009 and is responsible for investigating the mergers, market shares

The money market is a mechanism that deals with the lending and borrowing of short term funds or debt securities (bankers acceptances, commercial paper, repos, negotiable certificates of deposit, and

This Post is in Continuation with our previous post List of Various Committees & Their Focus AreaHere is the list of various Committees and their main Focus Areas A C

Rupay is being tagged as India's answer to MasterCard and Visa. It has been launched from June 20, 2011 and Bank of India became the first bank to give out

SBI (State Bank of India,) raised its base rates by 0.25% to 9.5% This move by SBI to raise rates comes as a Result of ICICI Bank raising rates by

SBICI Bank Ltd. is a wholly owned subsidiary of SBI, which was set up in 1994 after taking over the Indian operations of the erstwhile Bank of Credit & Commerce

What is Quantitative Easing? We all know that the central banks of the countries usually stimulate a slowing economy by cutting interest rates. When interest rates are cut, people are

The Concept Back-to-Back loan is also known as Parallel Loan or Credit Swap Loan. To understand this concept we need to imagine the following: An Indian Parent company having a

The RBI raised the RR (Repo Rate) and the RRR (Reverse Repo Rate) by 25 basis points on October 25, 2011. The Reserve Bank of India raised the repurchase rate

The Reserve Bank of India will shortly put into circulation coins of fifty paise, one rupee, two rupees, five rupees and ten rupees denominations. The coins of fifty paise, one

The committee, headed by former SEBI chief M Damodaran, has proposed a slew of consumer-friendly measures. The committee was set up by RBI and if the recommendations are accepted, Bank

The new RBI guidelines on Financial Inclusion have shifted the onus from "'one district-many banks" to "'one district-many banks-one leader bank". The new operational guidelines are for the implementation of

Ms. K J Udeshi is a former Deputy Governor of RBI. The K J Udeshi Panel was constituted by RBI in May on Forex dealings. Seeking improvement in individual foreign

Parliament passed a Bill that attempt to shift powers to the Central Government from the RBI w.r.t. to State Bank of Hyderabad (a SBI subsidiary) The Lok Sabha accepted the amendment

Spain: Credit rating downgraded by S&P Standard & Poor's (S&P) has cut Spain's long-term credit rating by one notch, from AA to AA-, the rating has been revised in wake

Demat refers to a dematerialised account. Just as we open a bank account to hold money and make payments, we need to open a Demat account now to buy and

After the rating of SBI were downgraded by Moody's citing rising stress on the loan portfolio and capital constraints. The Government of India is set to provide funds to the

Recently, the Reserve Bank of India has completely deregulated the interest rates. The Interest on Savings Banks Account was the last administered pricing imposed by the banking regulator and now

From April 1, 2012, the cheques and bank drafts will have a life of just three months instead of the earlier six months. RBI has recently issues a notification that

The Government has recently accepted the recommendations of former RBI deputy governor Shyamala Gopinath panel which would help investors earn higher interest on small savings schemes such as public provident

The RBI raised the RR (Repo Rate) and the RRR (Reverse Repo Rate) by 25 basis points on October 25, 2011. The Reserve Bank of India raised the repurchase rate

Definition: OLTAS refers to On-line Tax Accounting System (OLTAS) for Direct Taxes. Please note that direct taxes include the Income Tax and Corporate Taxes, which are directly levied from the

Background: The Reserve Bank began exiting from the crisis driven expansionary policy in October 2009. Between January 2010 and October 2011, the Reserve Bank cumulatively raised the cash reserve ratio

What is Shadow Banking: If we go to read the Wikipedia page on Shadow Banking, we shall have a dismal picture as they have been related to the "sub prime

Strong Fundamentals: The IBA-FICCI-BCG Report (August 2011), says that India's Gross Domestic Product (GDP) growth will make the Indian banking industry the third largest in asset size in the world

What is Know your Customer? Know your customer (KYC) is a bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information