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Bank Rate
What is Bank rate?
Bank Rate is the rate at which central bank of the country, in
India it is the Reserve Bank of India (RBI),allows
finance/liquidity to commercial/scheduled banks within the
territory of India. RBI uses Bank Rate asa tool for short-term
measures. ny u!ward revision in Bank Rate is an indication that
banks should alsoincrease the de!osit rates as well as the "rime
#endin$ Rate. ny revision in the Bank rate indicatesmore or less
interest on your de!osits and also an increase or decrease in your
%&I.
What is Bank Rate (Non Bankers Point of View) ?
'his is the rate at which RBI lends money to other banks or
financial institutions. If the bank rate $oes u!,lon$-term interest
rates also tend to move u!, and If the bank rate $oes down,
lon$-term interest ratesalso tend to move down. 'hus, it can said
that in case bank rate is hiked, in all likelihood banks will
hikestheir own lendin$ rates to ensure and they continue to make a
!rofit.
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Current Rates of RBI
Reserve Bank of India (RBI) is the central bankin$ institution
of India. RBI controls the monetary !olicyRu!ee as a sole
controller. RBI also controls the liquidity (flow of money) in
Indian &arket by chan$in$ its"olicy rates and Reserve
ratios.
%ncoura$ed by softenin$ inflation, the RBI on .*. decided to cut
the benchmark interest rate by *.+!er cent to . !er cent with a
view to boost $rowth.
RBI Policy Rates: (As of January !" #$!)
• Bank Rate .
• Re!o Rate - .
• Reverse Re!o Rate - 0.
• &ar$inal 1tandin$ 2acility (&12) - .
Reser%e Ratios: (As of January !" #$!)
• 3ash Reserve Ratio - 4
• 1tatutory #iquidity Ratio - ++
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&en'in Rate: (As of January !" #$!)
• Base Rate - *.** - *.+
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Present o%ernor of RBI an' *e+uty o%ernor of RBI
'he e5ecutive head of Reserve Bank of India (RBI) is known as
the 6overnor, the $overnor is assisted byfour 7e!uty 6overnors
o%ernor:
Newly A++ointe' o%ernor of Reser%e Bank of In'ia (RBI) is
Rahura, Ra-an who re+lace'*u%%uri .u//arao on .e+te,/er 0" #$12
• 8ame9 Ra$huram Ra:an (8ew !!ointment, Re!laced 7.
1ubbarao)
• !!ointed on9 4 1e!tember +*;.&ist of *e+uty
o%ernor:
. 8ame9 1hri ri:it "atel (8ew !!ointment, Re!laced 1ubir
6okarn.)
;. 8ame9 1hri R. 6andhi (!!ointed on !ril ;, +*4.)
4. 8ame9 1hri 1.1. &undra. ? Re!laced 7r. =.3.3hakrabarty
who de!arted early from his !ost on !ril +,+*4).
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Central Boar' of Reser%e Bank of In'ia
'he Reserve Bank@s affairs are $overned by a 3entral Board of
7irectors. 'he board is a!!ointed by the6overnment of India in
kee!in$ with the Reserve Bank of India (RBI) ct, A;4.
.tructure of Central Boar' of *irectors:
• !!ointed/nominated for a !eriod of 2>R years
• 3onstitution93fficial *irectors
• 2ull-time 9 ne 6overnor and not more than four 7e!uty
6overnors.Non43fficial *irectors
• 8ominated by 6overnment9 'en 7irectors from various fields and
one $overnment official
(6enerally from &inistry of 2inance)
• thers9 2our 7irectors one each from four local boards. ne each
for the four re$ions of the
country in &umbai, 3alcutta, 3hennai and 8ew 7elhi.5he
6unction of Central Boar' of RBI:
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'he main function of 3entral Board of RBI is 6eneral
su!erintendence and direction of the Bank@s affairs.'he local
boards advises the 3entral Board on local matters and to re!resent
territorial and economicinterests of local coo!erative and
indi$enous banksC to !erform such other functions as dele$ated
by3entral Board from time to time.
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3%er'raft
n overdraft occurs when money is withdrawn from a bank
account and the available balance $oes belowDero. In this situation
the account is said to be EoverdrawnE. If there is a !rior
a$reement with the account!rovider for an overdraft, and the amount
overdrawn is within the authoriDed overdraft limit, theninterest is
normally char$ed at the a$reed rate. If the ne$ative balance
e5ceeds the a$reed terms, thenadditional fees may be char$ed and
hi$her interest rates may a!!ly.
'he first overdraft facility was set u! in + by the Royal Bank
of 1cotland.
Reasons for 3%er'raft
verdrafts occur for a variety of reasons. 'hese may include9
• Intentional short4ter, loan - 'he account holders finds
themselves short of money and
knowin$ly makes an insufficient-funds debit. 'hey acce!t the
associated fees and cover the overdraft
with their ne5t de!osit.
• 6ailure to ,aintain an accurate account reister -
'he account holder doesnFt accurately
account for activity on their account and overs!ends throu$h
ne$li$ence.
• A57 o%er'raft - Banks or '&s may allow cash
withdrawals des!ite insufficient availability of
funds. 'he account holder may or may not be aware of this fact
at the time of the withdrawal. If the
'& is unable to communicate with the cardholderFs
bank, it may automatically authoriDe a
withdrawal based on limits !reset by the authoriDin$ network.•
5e,+orary *e+osit 8ol' - de!osit made to the account can be
!laced on hold by the bank.
'his may be due to Re$ulation 33 (which $overns the !lacement of
holds on de!osited checks) or
due to individual bank !olicies. 'he funds may not be
immediately available and lead to overdraft
fees.
• 9ne+ecte' electronic with'rawals - t some !oint in the
!ast the account holder may have
authoriDed electronic withdrawals by a business. 'his could
occur in $ood faith of both !arties if the
electronic withdrawal in question is made le$ally !ossible by
terms of the contract, such as the
initiation of a recurrin$ service followin$ a free trial !eriod.
'he debit could also have been made as a
result of a wa$e $arnishment, an offset claim for a ta5in$
a$ency or a credit account or overdraft with
another account with the same bank, or a direct-de!osit
char$eback in order to recover an
over!ayment.
• 7erchant error - merchant may im!ro!erly debit a
customerFs account due to human error. 2or
e5am!le, a customer may authoriDe a G.** !urchase which may !ost
to the account for G**.**.
'he customer has the o!tion to recover these funds throu$h
char$eback to the merchant.
• Chare/ack to ,erchant - merchant account could receive a
char$eback because of makin$
an im!ro!er credit or debit card char$e to a customer or a
customer makin$ an unauthoriDed credit or
debit card char$e to someone elseFs account in order to E!ayE
for $oods or services from the
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merchant. It is !ossible for the char$eback and associated fee
to cause an overdraft or leave
insufficient funds to cover a subsequent withdrawal or debit
from the merchantFs account that
received the char$eback.
• Authori;ation hol's - Hhen a customer makes a !urchase
usin$ their debit card without usin$
their "I8, the transaction is treated as a credit transaction.
'he funds are !laced on hold in the
customerFs account reducin$ the customerFs available
balance.
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Bankin 8istory in In'ia: Pre4In'e+en'ence Bankin 8istory
in In'iaBankin$ history of India is divided into 'wo ma:or
cate$ories9
• "re-Inde!endence Bankin$ !!er India established in 0; but
this
bank was become defunct in A;.
•
In , udh Co,,ercial Bank was established at 2aiDabad it was
the first Bank of India with#imited #iability to be mana$ed by
Indian Board. fter Inde!endence, In A this bank failed.
• In A Pun-a/ National Bank was established in #ahore in
"un:ab !rovince of >ndivided India.
It was the first bank !urely mana$ed by Indian. "8B has not only
survive but also become the
second lar$est !ublic sector bank in India.
• 'he first In'ian co,,ercial /ank which was wholly owne' an'
,anae' /y
In'ians was Central Bank of In'iawhich was established in
A.
• 3entral bank of India was also called India@s 2irst 'ruly
1wadeshi bank.
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• 'he 1wadeshi movement ins!ired local businessmen and !olitical
fi$ures to found banks of and
for the Indian community. 'he !eriod between A*0 and A thousands
of Banks were established
in India. &any of those banks established then have survived
to the !resent such as Bank of India,
3or!oration Bank, Indian Bank, Bank of Baroda, 3anara Bank and
3entral Bank of India.
• t least A4 banks in India failed between A; and A due to
economic crisis durin$ Horld Har
I.• In +th anuary, A+ Bank of 3alcutta, Bank of &adras and
Bank of Bombay were amal$amated
to form Im!erial Bank of India.
• In A+0 Bank Nationalisation in In'ia
In India, the Bankin$ 1ector has been dominated by 6overnment or
"ublic 1ector Banks ("1Bs) for last04 years. In A4 the ll India
Rural 3redit 1urvey 3ommittee submitted its re!ort recommendin$
creation
of a stron$, inte$rated, state-s!onsored, state-!artnered
commercial bankin$ institution with an effectivemachinery of
branches s!read all over the country. 'he recommendation of this
committee led toestablishment of first "ublic 1ector Bank in the
name of 1tate bank of India on uly *, A by acquirin$the substantial
!art of share ca!ital by Reserve Bank of India, of then Im!erial
Bank of India. 1imilarlydurin$ A0-A, as a result of reor$aniDation
of !rincely states, the 1tate Bank of India associate Bankcame into
fold of "ublic sector bankin$.
n uly A, A0A, the 6ovt. !romul$ated Bankin$ 3om!anies
(cquisition and 'ransfer of >ndertakin$s)ordinance A0A to
acquire 4 bi$$er commercial banks with with de!osits over * crores.
'he main
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ob:ective behind this bank nationalisation was to s!read bankin$
infrastructure in rural India and makechea! finance available to
Indian farmers.
'he second !hase of bank nationalisation took !lace in A* durin$
the !rime ministerial tenure of Indira6andhi, in which 0 more banks
were nationalised with de!osits over +** crores.
&ist of Nationalise' Banks in In'ia:
. Allaha/a' Bank
+. An'hra Bank
;. Bank of Baro'a
4. Bank of In'ia
. Bank of 7aharashtra
0. Canara Bank
. Central Bank of In'ia
. Cor+oration Bank
A. *ena Bank
*. In'ian Bank
. In'ian 3%erseas Bank
+. 3riental Bank of Co,,erce
;. Pun-a/ an' .in' Bank
4. Pun-a/ National Bank
. .yn'icate Bank
0. 9C3 Bank
. 9nion Bank of In'ia
. 9nite' Bank of In'ia
A. Vi-aya Bank
Bank &i/erali;ation in In'ia > &i/erali;ation in
Banks
#iberalisation in bankin$ sector in India noticed in early AA*s@
when India ado!ted a new economic !olicyfor the develo!ment of the
nation. 8arasimha Rao $overnment embarked on a !olicy of
liberaliDation,licensin$ a small number of !rivate banks. 2or the
first time in India new !rivate banks $ot license for!rovidin$
bankin$ service. 'hese banks came to be known as the 8ew 6eneration
tech-savvy banks.
'he first bank in India set u! after the ada!tation of new
liberaliDation !olicy in bankin$ sector was 6lobal'rust Bank. It
was later amal$amated with riental Bank of 3ommerce. 'he list of
banks set u! after newliberaliDation !olicy includes 6lobal 'rust
Bank, >'I Bank (8ow known as 5is Bank), I3I3I Bank and
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'he &icro 1mall L &edium %nter!rises 7evelo!ment
(&1&%7) ct +**0 was become o!erational from+nd ctober +**0.
'he ct re!laces the conce!t of MIndustryN with M%nter!risesN.
5he 'efinition of ,icro" s,all an' ,e'iu, enter+rises is as
un'er:
(a)
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N35
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were lost, $ave a boost to insurance and the first fire
insurance com!any, called the 2ire ffice, wasstarted in 0*.
Pur+ose an' Nee' of Insurance
ssets are insured, because they are likely to be destroyed
or made nonfunctional before the e5!ectedlife time, throu$h
accidental occurrences. 1uch !ossible occurrences are called
!erils. 2ire, floods,breakdowns, li$htnin$, earthquakes, etc, are
!erils. If such !erils can cause dama$e to the asset, we saythat
the asset is e5!osed to that risk. "erils are the events. Risks are
the consequential losses or dama$es. 'he risk to a owner of a
buildin$, because of the !eril of an earthquake, may be a few lakhs
or a few crores of ru!ees, de!endin$ on the cost of the
buildin$, the contents in it and the e5tent of dama$e.
8ow insurance works
"eo!le facin$ common risks come to$ether and make their small
contributions to a common fund. 'hecontribution to be made by each
!erson is determined on the assum!tion that while it may not be
!ossibleto tell beforehand, which !erson will suffer, it is
!ossible to tell, on the basis of !ast e5!eriences, howmany
!ersons, on an avera$e, may suffer losses.
8u,an Asset
human bein$ is an income $eneratin$ asset. ne@s income
$eneratin$ ability de!ends on one@s skills,(manual, !rofessional,
!roblem solvin$, entre!reneurial, etc). 'hese are the assets. 'he
value of theasset can be measured by considerin$ the income that is
$enerated by the !erson concerned. 'heconce!t of
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%quity contribution of owners. 'he basic a!!roach of ca!ital
adequacy framework is that a bank shouldhave sufficient ca!ital to
!rovide a stable resource to absorb any losses arisin$ from the
risks in itsbusiness. 3a!ital is divided into different tiers
accordin$ to the characteristics / qualities of each
qualifyin$instrument. 2or su!ervisory !ur!oses ca!ital is s!lit
into two cate$ories9 'ier I and 'ier II.
5ier I Ca+ital
term used to refer to one of the com!onents of re$ulatory
ca!ital. It consists mainly of share ca!ital anddisclosed reserves
(minus $oodwill, if any). 'ier I items are deemed to be of the
hi$hest quality becausethey are fully available to cover losses
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Asset Reconstruction Co,+any (ARC)
P 8"s are sub:ected to resold but the !uchaser can only be
R3.
com!any which is set u! with the ob:ective of takin$ over
distressed assets (8") from banks or financial institutions
and to reconstruct or re-!ack these assets to make those assets
saleable.
'o buy out troubled loans from banks and make s!ecial efforts at
recoverin$ value from the assets, if necessary by s!ecial
le$islation, with s!ecial !owers for recovery.
Restructurin$ of weak banks to divest the bad loan
!ortfolio.
India@s first R3 with an initial equity of Rs.* crore with I3I3I
bank, I7BI and 1BI.
Incor!orated as a !ublic limited com!any on 2ebruary , +**+.
&3 A*A&A5
'o settle dis!utes involvin$ account in MdoubtfulN and MlossN
cate$ory.
utstandin$ balance of Rs.+* lakhs for com!romise
settlement."roved to be quite effective for s!eedy :ustice and
recovery of small loans."ro$ress throu$h this channel is e5!ected
to !ick u! in the comin$ years.
*e/t Reco%ery 5ri/unal (*R5)
'o recover their bad 7ebt quickly and efficiently.
;; 7ebt Recovery 'ribunal and 7ebt Recovery !!ellate
'ribunal
It is the s!ecial court established by central $overnment for
the !ur!ose of bank or any financialinstitutions recovery.
'he :ud$es of this court are the retired :ud$es of hi$h
court.
In this court only the recovery cases of Rs.* lakhs and above
can be filed.
Non Perfor,in Assets (NPA)
In sim!le words, 'he assets of banks which do not !erform (means
do not brin$s any return) are called8".In more $eneral sense it
known as bad loan.
ccordin$ to RBI9 ny amount to be recived remains overdue
for the !eriod of more than A* days.
E 1o A* days is a thumb rule for decidin$ 8".E
E 2or a$riculture loan (2or decidin$ 8")9
- If 0 month cro! than, + cro! seasons.+- If one year cro! ,
than cro! season.
Classification 3f NPA
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1>B1'87R7 11%'19- + month
7>B'2># 11%'1 9- 8e5t + month
#11 11%'19- 8e5t + month (But uncertain time)
.AR6A
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It is the s!ecial court established by central $overnment for
the !ur!ose of bank or any financialinstitutions recovery.
'he :ud$es of this court are the retired :ud$es of hi$h
court.
In this court only the recovery cases of Rs.* lakhs and above
can be filed.
