Reserve Bank of India:

RBI is the Central Bank of India, which acts as a banker to the government

It is also called as “Bankers bank”, because all banks will have accounts with RBI. It provides funds to all banks hence it is called as BANKERS BANK

RBI was established by an act of Parliament in 1934

It has four zonal offices at Mumbai, Kolkata, Chennai and Delhi and 19 regional offices

Current Governor: Dr. Raghuram Rajan

Deputy Governors: H R Khan, Dr Urjit Patel, R Gandhi and S S Mundra

Head office: Mumbai

Functions:

 Issues currency notes

Acts as bankers bank

Maintain foreign exchange reserves

Maintains CRR and SLR

Its affairs are regulated by 21-member central board of directors: Governor (Dr. Raghuram Rajan), 4 deputy Governors, 2 Finance Ministry representatives, 10 Government-nominates directors,4 directors to represent local boards

Policy Rates, Reserve Ratios, Lending and Deposit Rates as of July 15, 2014

Bank Rate: 9:00%

Repo Rate: 8:00%

Reverse Repo Rate: 7:00%

Cash Reserve Ratio (CRR): 4%

Statutory Liquidity Ratio (CRR): 22.00%

Base Rate: 10.00%-10.25%

Savings Deposit Rate: 4%

Term Deposit Rate: 8.00%-9.5%

Currency notes other than one rupee notes are issued by RBI

The initial share capital for RBI was Rs. 5 Crores

Scheduled Commercial Banks:

Scheduled Commercial banks are

State Bank of India and its associates (State bank of India has got 7 subsidiaries they are State bank of Hyderabad, State bank of Mysore, State bank of Travancore, State bank of Indore, State bank of Sourashtra, State bank of Bikaneer, State bank of Jaipur

Nationalized Banks

Private Sector Banks

Regional Rural Banks

Urban Cooperative Banks

State Cooperative Banks

Public Sector Banks: State Bank of India and associate banks + 20 nationalized banks are called public sector banks

Nationalized Banks:

Nationalized banks are the banks which are owned and run by government of India

There are total of 20 nationalized banks

In 1969, 14 banks were nationalized

In 1980, 6 banks were nationalized

Nationalized banks are Allahabad bank, Andhra bank, Bank of Baroda, Bank of India, Bhartiya Mahila bank, Canara bank, Central Bank of India, Corporation bank, Dena bank, IDBI bank, Indian bank, Indian Overseas bank, Oriental Bank of Commerce, Punjab National bank, Punjab & Sind bank, Syndicate bank, UCO bank, Union bank of India, United bank of India, Vijaya bank

Private Banks:

Private Banks are the banks which are owned and run by individuals

Private banks are split into two groups by financial regulators in India they are

Old Private sector banks: The banks which were not nationalized at the time of bank nationalization that took place during 1969 and 1980 are known as old private sector banks.

New Private Sector Banks: Banks which came in operation after 1991, with the introduction of economic and financial sectors reforms are called “new private-sector banks”

These banks were formed as per RBI guidelines 1993

These banks should have a minimum net worth of Rs.200 Crores

The promoters holding should be a minimum of 25% of the paid-up capital

Within 3 years of the starting of the operations, the bank should offer shares to public and their net worth must increased to 300 Crores.

New private-sector banks in India are Axis Bank, Bank of Punjab, Centurian Bank, Development Credit Bank, SBI Bank, ICICI Bank, IndusInd Bank, Kotak Mahindra Bank, Yes Bank, Times Bank (Merged with HDFC Bank Ltd.), Global Trust Bank (Merged with Oriental Bank of Commerce), Balaji Corporation Bank Limited

Foreign Banks:

Banks which are foreign originated are called foreign banks

Regional Rural Banks (RRB’S)

Regional rural banks were established on 26th September, 1975

RRB’S comes under scheduled commercial banks

Main aim of RRBs is financial resources for rural/semi-urban areas and providing loans to small and marginal farmers, agricultural labourers and rural artisans.

RRB works under supervision of NABARD (National Bank for Agricultural and Rural Development)

Functions of RRBs:

Providing banking facilities to rural and semi-urban areas

Carrying out government operations like disbursement of wages of MGNREGA workers, distribution of pensions etc.

Providing Para-Banking facilities like locker facilities and credit cards

Share Capital in RRB’s: Central Government: 50%

                                           Sponsored bank: 35%

                                           State government: 15%

Co-operative Banks:

The main purpose of co-operative banks is to co-operate small scale industries, and to provide small loans

Industrial Banks:

The main purpose of Industrial banks is provide big loans to large scale industries,

Some of the Industrial banks are IDBI bank, Industrial bank of India etc.

Some Basic Economic Terms

Interest Rate Swaps:  An interest rate swap is the transfer of contractually agreed between two counterparties of their respective interest rate obligation. Interest rate swaps are commonly used as a means of converting fixed rate to floating rate debt and vice versa.

 Operating Ratio: A ratio that shows the efficiency of a company’s management by comparing operating expense to net sales. Calculated as

Operation ratio = Operating expense/net sales

Wholesale Price Index (WPI): WPI is taken into consideration while calculating the inflation. A change has recently been made in the WPI. Its present base year will be taken as 2004-05 earlier it was 1993-34. Base year mean (2004-05 = 100). Total articles taken into consideration will be 676 earlier these were 435.676 include 102 Primary Articles, 19 fuel & power, and 555 of Manufacturing Products. Earlier WPI was calculated on Weekly basis but now it is calculated on Monthly Basis. First time inflation was calculated in August 2010 (on new system).

Consumer Price Index (CPI) : Most advanced nations base their policies on retail price inflation but India uses wholesale price inflation, CPI is largely a segmental and is superior to the WPI, CPI capture consumption price both at urban and rural centers, as in WPI 676 items are covered and base year is taken as – 2004-05 and for macroeconomic policies. Whereas in CPI 320 items are taken from (CPI-IW) CPI industrial workers and 260 items are taken from both CPR rural laborers and CPI agricultural laborers and the base year for calculation is taken as 2010.

Coupon Rate: Specified interest rate on a fixed maturity security fixed at the time of issue. The coupon rate of a bond is the amount of interest paid per year as a percentage of the face value or principal.

NRO (Non Resident Ordinary a/c) : In this account , a person cannot repatriate income without RBI approval but can remit Interest thereof.

NRNR (Non Resident Non Repatriable A/c ) : Under this account Principal amount in not permissible to repartriate but interest can be.

NRE (Non Resident External) : In this account Funds and interest both can be remitted without RBI permission. On NRE deposits the maximum ceiling is Libor rate + 175 basis points (Now there is no such Ceiling).

NPA (Non Performing Assets) : Interest or Installment of Principal remains overdue for a period of more than 90 days in respect of a Term Loan/ overdraft/ Cash credit.

Teaser Rate of Interest : This rate is typical low then the prevalent rate in the market. This is just to allure the customer. This rate is charged only for a little time. And after that it gradually touch the index rate or even more than that. This is a technique to attract customers.

Appropriation Bill : It is presented to parliament for its approval, so that the government can withdraw from the Consolidated fund the amounts required for meeting the expenditure charged on the Consolidated Fund. No amount can be withdrawn from the Consolidated Fund till the Appropriation Bill is voted is enacted.

Call Money: Itner Bank call market is a part of the domestic money market from where banks borrowed and lent for one day called as Money at call and for a period more than 1day & upto 14days is called Short notice or Notice money without any collateral security. Money lend for 15days or more is called Term money.Normally funds are borrowed for 1 day and upto 3 days on weekends just to balance the Cash Reserve Ratio.

Nostro Account: When national bank is opened in foreign with currency is known as Nostro a/c. e.g. State bank india branch in USA.

CIBIL {Credit Information Bureau (India) Limited} :  An effective mechanism for exchange of information between banks and Financial Institutions for curbing the growth of NPAs.

Currency War: This is the other form of Protectionism. In this the tendency of every nation is that the value of their currency should not appreciate. The big example of this is CHINA that is holding their currency since 2008. It could be a cause of future Trade war.

Capital Budget: It consists of capital receipts and payments. It also incorporates transactions in the Public Account. It has two components  Capital Receipts and Capital Expenditure.

Repo Rate: Repo rate means a purchase and sale of agreement. It is a contract to buy securities and then sell them back at an agreed future date and price. It is thus revenue for short term investment of surplus funds. From RBI point of view it is called a short term lending and from banks point of view it is called short term borrowing.

Reverse Repo rate :  Reverse Repo Rate is an instrument of borrowing funds for a short period and involves selling a security and simultaneously agreeing to repurchase it at a stated future date for slightly higher price. From RBI point of view it is called a short term borrowing and from banks point of view it is called a short term lending.

Group Company : As per RBI for the purpose of FDI, two or more enterprise which , directly or indirectly , are in position to exercise 26% or more of voting rights in other enterprise or appoint more than 50% of the members of the board of directors in the other enterprises.

Branch Vs Subsidiary: A subsidiary is a separate legal entity from the parent company, although owned by parent company, has a same legal identity as its parent company , from liability , on the other hand branch is not a separate legal entity of the parent company and liability wise there is no limit to the parents company’s liability , RBI has permitted to Foreign Banks to change from Branch Mode to the Wholly Owned Subsidiaries.

NFS (National Financial Switch): It facilitates interconnectivity between banks’ switches and interbank payment Gateway for authentication & routing the payment details of various E-commerce & E-Govt. activities (Retail Banking). Now NFS has been overtaken by NPCI (National Payment Corporation of India).

SLR (Statutory Liquidity Ratio): This is a minimum Reserve which every bank has to maintain with itself in the most liquid form to meet any demand of the depositors. Normally Government securities are purchased to maintain SLR.

Prime Lending Rate (PLR): The term originally indicates the rate of interest at which a bank lends to favored customers, i.e. those with high credibility, though this is no longer always the case. Some variable interest rates may be expressed as a percentage above or below prime rate.

Sub Prime Rate: In India when money is lent below the PLR is known as Sub Prime Rate whereas in USA when money is lent at rate above the PLR is known as Sub Prime rate.

Base Rate: As per recommendation of Mr. Deepak Mohanty of RBI to bring a complete transparency in Bank’s lending system, in Indian Banking system the loan were sanctioned to the large corporate houses even below the PLR and some time it were fixed very low without any justification. A Base rate recommends that no bank will lend any money below the base rate. With this there shall be no extra benefits to the large corporate houses. Base rate will be beneficial for the regulator RBI. Now all Banks will either lend at Base rate or will park money with RBI, under LAF system. Base rate has been implemented from 1st july, 2010.

GDRs (Global Depository Receipts): It is a dollor denominated instrument, an easy way of raising funds from foreign countries. It is a mechanism that allows foreign investor to invest in Indian Companies. Represents a certain number of equity shares on Indian companies. GDRs are issued by depository usually American Banks & Indian shares are held by custodian in India (like ICICI). Traded in stock exchanges in Europe or in US or both.

IPO (Initial Public Offer): 1st sale of stock by a company to the public .IPOs offer issued by smaller younger co. seeking the capital to extend. It can also be done by large company.

FPO (Follow on Public Offer ) : A public company already listed on an exchange, a supplementary shares made by a company that is already publicly listed & has gone thru the IPO process, it is also called as secondary public offering subsequent to the company’s IPO.

Zero Liability Protection: It is a bank guarantee. If your card is lost or stolen you may not be responsible for unauthorized purchases made with your card if you report the theft promptly. The Zero liability protection facility is free & automatically available on all bank consumer Credit Cards.

Vostro Account: When a foreign Bank is opened in the India with Indian Currency is known as Vostro account e.g. Standard Chartered Bank in India.

SWAPS: It is a transaction where the bank purchases or sells the foreign currency simultaneously, for different maturities, say purchases of spot and sale of forward or vice versa. Swap contracts obligate 2 parties to swap or exchange certain specified intervals. Swaps are not the instruments for raising funds rather they allow better management of existing funds.

List of Banks in India

Banks are of three types

(1)   Public Sector Banks

(2)   Private Sector Banks

(3)   Foreign Banks

Under Public sector banks

(1)   Nationalized Banks

(2)   State Bank of India and their subsidiaries

(3)   Regional Rural Banks

Important Details about Nationalized Banks in India

Sl.NO Name of the Bank Chairman Head OfficeYear of Commencement

1 Allahabad Bank Shubhalakshmi Panse Kolkata 1865

2 Andhra Bank B.A. Prabhakara Hyderabad20th November, 1923

3 Bank of Baroda S.S. MundraBaroda (Vadodara)

20th July, 1908

4 Bank of India V R Iyer Mumbai7th September, 1906

5 Bank of Maharashtra Narendra Singh Pune 1935

6 Canara Bank Rajiv Kishore Dubey Bangalore 1906

7 Central Bank of India Shri. Rajeev Rishi Mumbai 21 December, 1911

8 Corporation Bank Shri S.R. Bansal Mangalore 1906

9 Indian Bank T.M. Bhasin Chennai 1907

10 Indian Overseas Bank Shri M. Narendra Chennai February 10th, 1937

11Oriental Bank of Commerce

Shri S.L. Bansal New Delhi February 19th, 1943

12 Punjab National Bank Shri K.R Kamath New Delhi 1895

13 Punjab & Sind Bank SH. Devinder Singh New Delhi 1908

14 Syndicate Bank Shri Sudhir Kumar Jain Mani pal 1925

15 UCO Bank Shri Arun Kaul Mumbai 6th January, 1943

16 Union Bank of India Shri D. Sarkar Kolkata11th November, 1919

17 United Bank of India Ms. Archana Bhargava Kolkata 1950

18 Vijaya BankShri. H.S. Upendra Kamath

Bangalore 1931

19 IDBI bank Mr. M.S. Raghavan Mumbai July, 1964

20 Dena Bank Shri. Ashwani Kumar Mumbai 1938

21 ECGC Shri N Shankar Mumbai 30th July, 1957

Important Details about State Bank of India and their Subsidiaries

State Bank of India has 5 associate banks State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Mysore, State Bank of Patiala and State Bank of Travancore. State Bank of Saurashtra and State Bank of Indore are merged into SBI. On October 7th , 2013 Arundhati Bhatacharya is appointed as the first lady chairperson for SBI.

Sl.NO Name of the Bank Chairman Head OfficeYear of Commencement

1 State Bank of IndiaArundhati Bhattacharya

Mumbai 1st July, 1955

2State Bank of Hyderabad

Pratip Chaudhuri Hyderabad 8th August, 1941

3 State Bank of Mysore Pratip Chaudhuri Bangalore 2nd October, 1913

4 State Bank of Patiala Pratip Chaudhuri Patiala 1st April, 1960

5State Bank of Bikaner & Jaipur

Pratip Chaudhuri Jaipur 1963

6State Bank of Travancore

Pratip Chaudhuri Thiruvananthapuram12th September, 1945

7State Bank of Saurashtra

Merged into SBI on 13th August, 2013

8 State Bank of Indore Merged into SBI on 2010

Important Points about NABARD

NABARD is an apex development bank in India established on 12 July, 1982 with an aim of providing services to rural India by increasing the credit flow for evaluation of agriculture & rural non form sectors.

It was set up by the Reserve Bank of India (RBI) under the chairmanship of Shri B. Sivaraman.

NABARD is a development bank for providing and regulating credit and other facilities for the promotion and development of cottages, small scale industries, development of agriculture, village industries, handicrafts and other rural crafts

With a view of promoting rural development and securing rural areas, NABARD is entrusted with

1.      Providing refinance to lending institutions in rural areas

2.      Bringing about or promoting institutional development and

3.      Evaluating, monitoring and inspecting the client banks

RBI sold its stake in NABARD to the Government of India, which now holds 99% STAKE. NABARD is active in developing financial inclusion policy.

Important Points about NABARD

Head Quarters: Mumbai

Established on: 12 July, 1982

Chairman: Dr. Harsh kumar Bhanwala           

NABARD completed its 25 years on 12 July, 2007

NABARD is active in developing Financial Inclusion

It is India’s specialized bank developed by Shivaramans committee to provide credit in rural areas. It replaced the Agricultural Credit Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve bank of India, and Agricultural Refinance and Development Corporation (ARDC).

NABARD undertakes the monitoring and evolution of projects will be refinanced by it

It provides training for the institutions working for the rural development.

NABARD keeps a check on client institutions

It regulates the cooperative banks and RRB’s

It takes measures for improving credit delivery system, monitoring, schemes credit institutions, and training of personnel

Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development

BANKING OMBUDSMAN

Banking Ombudsman is a quasi judicial authority functioning under Banking Ombudsman Scheme 2006.It provides independent, expeditious and inexpensive forum to aggrieved/Un-satisfied Bank customers. RBI introduced this Scheme under powers granted U/s 35-A of Banking Regulation Act.

Complaints are accepted only if they are made within one year after the complaint has received the reply from bank.

Types of Complaints :

1.      Non-payment or inordinate delay in the payment or collection of cheques, drafts ,bills etc.

2.      Non-acceptance, without sufficient cause, of coins tendered and for charging of commission for this service.

3.      Non-acceptance without sufficient cause of small denomination notes tendered for any purpose and for charging of commission for the service.

4.      Failure to issue or delay in issue, of drafts pay orders or bankers cheque.

5.      Non-adherence to prescribed working hours.

6.      No payment or delay in payment of inward remittances.

7.      Failure to honor guarantee or letter of credit commitments.

8.      Failure to provide or delay in providing a banking facility promised in writing by a bank or its direct selling agents.

9.       Delays, non-credit of proceeds to parties’accounts, non-payment of deposit or non-observance of the Reserve Bank directives, if any applicable to rate of interest on deposits in any savings, current or other account maintained with a bank.

10.  Delays in receipts of export proceeds, handling of export bills, collection of bills etc. for exporters provided the said complaints pertain to the Banks operations in India.

11.  Refusal to open deposit accounts without any valid reason for refusal.

12.  Levying of charges without adequate prior notice to the customers.

13.  Non-adherence by the bank or its subsidiaries to the instructions of Reserve Bank on ATM/debit card operations or credit card operations.

14.  Non-disbursement or delay in disbursement of pension to the extent the grievance can be attributed to the action on the part of the Bank concerned but not with regard to its employees.

15.   Refusal to accept or delay in accepting payment towards taxes, as required by Reserve Bank/Government.

16.  Customers should have complained to the concerned Bank first and wait for one month. Complaint to Ombudsman can be writing or in electronic mode.

Award :

Ombudsman can give maximum award upto Rs.10 Lacs.

Appeal :

Any party can file appeal within 30 days on receiving appeal award or the Ombudsman rejecting his complaint to Appellate authority. If the appeal is the bank, it should be made with approval of CMD or ED or CEO only.