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Banking and Financial Institutions With MCQs RBI Important Act By Navdeep Kaur
Main Functions Monetary Authority: . Formulates, implements and monitors the monetary policy Objective: maintaining price stability while keeping in mind the objective of growth Regulator and supervisor of the financial system: banking and fimandia operations banking and financial system functions. Objective: maintain public confidence in the system, protect depositors' interest Prescribes broad parameters of banking operations within which the country's and provide cost-effective banking services to the public. Manager of Foreign Exchange Manages the Foreign Exchange Management Act, 1999. Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
Issuer of currency: . Issues and exchanges or destroys currency and coins not fit for circulation. Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. Developmental role . Performs a wide range of promotional functions to support national objectives. Related Functions Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker. Banker to banks: maintains banking accounts of all scheduled banks.
Offices . Has 20 regional offices, most of them in state capitals and 11 Sub-offices. Training Establishments Has five training establishments Two, namely, College of Agricultural Banking and Reserve Bank of India Staff College are part of the Reserve Bank Others are autonomous, such as, National Institute for Bank Management, Indira Gandhi Institute for Development Research (IGIDR), Institute for Development and Research in Banking Technology (IDRBT) Subsidiaries Fully owned: Deposit Insurance and Credit Guarantee Corporation of India(DICGC) Bharatiya Reserve Bank Note Mudran Private Limited(BRBNMPL), National Housing Bank(NHB)
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Banking and Financial Institutions With MCQs RBI Methods of credit control By Navdeep Kaur
Methods of credit control by central bank. Methods of Credit Control Quantitative or General Methods Qualitative or Selective Methods 1. Credit Rationing 2. Direct Action 3. Moral Persvasion 4. Publicity 5. Regulation of Consumer's Credit 6. Regulating the Margnal Requirements 1. Bank Rate 2. Open Market Operations 3. Variable Cash Reserve Ratio on Security Loans.
Quantitative Method: (i) Bank Rate: The bank rate, also known as the discount rate, is the rate payable by commercial banks on the loans from or rediscounts of the Central Bank. A change in bank rate affects other market rates of interest. An increase in bank rate leads to an increase in other rates of interest and conversely, a decrease in bank rate results in a fall in other rates of interest. Aelberate manipulation of the bank rate by the Central Bank to influence the flow of credit created by the commercial banks is known as bank rate policy. It does so by affecting the demand for credit the cost of the credit and the availability of the credit.
An increase in bank rate results in an increase in the cost of credit; this is expected to lead to a contraction in demand for credit. In as much as bank credit is an important component of aggregate money supply in the economy, a contraction in demand for credit consequent on an increase in the cost of credit restricts the total availability of money in the economy, and hence may prove an anti-inflationary measure of control. Likewise, a fall in the bank rate causes other rates of interest to come down. The cost of credit falls, i. e., and credit becomes cheaper. Cheap credit may induce a higher demand both for investment and consumption purposes. More money, through increased flow of credit, comes into circulation. A fall in bank rate may, thus, prove an anti-deflationary instrument of control. The effectiveness of bank rate as an instrument of control is, however, restricted primarily by the fact that both in inflationary and recessionary conditions, the cost of credit may not be a very significant factor influencing the investment decisions of the firms.
(i) Open Market Operations: Open market operations refer to the sale and purchase of securities by the Central bank to the commercial banks. A sale of securities by the Central Bank, i.e., the purchase of securities by the commercial banks, results in a fall in the total cash reserves of the latter. A fall in the total cash reserves is leads to a cut in the credit creation power of the commercial banks. With reduced cash reserves at their command the commercial banks can only create lower volume of credit. Thus, a sale of securities by the Central Bank serves as an anti-inflationary measure of control
Likewise, a purchase of securities by the Central Bank results in more cash flowing to the commercials banks. With increased cash in their hands, the commercial banks can create more credit, and make more finance available. Thus, purchase of securities may work as an anti-deflationary measure of control. The Reserve Bank of India has frequently resorted to the sale of government securities to which the commercial banks have been generously contributing. Thus, open market operations in India have served, on the one hand as an instrument to make available more budgetary resources and on the other as an instrument to siphon off the excess liquidity in the system
(iii) Variable Reserve Ratios: Variable reserve ratios refer to that proportion of bank deposits that the commercial banks are required to keep in the form of cash to ensure liquidity for the credit created by them. A rise in the cash reserve ratio results in a fall in the value of the deposit multiplier. Conversely, a fall in the cash reserve ratio leads to a rise in the value of the deposit multiplier.
The statutory liquidity ratio refers to that proportion of aggregate deposits which the commercial banks are required to keep with themselves in a liquid form. The commercial banks generally make use of this money to purchase the government securities. Thus, the statutory liquidity ratio, on the one hand is used to siphon off the excess liquidity of the banking system, and on the other it is used to mobilise revenue for the government. The Reserve Bank of India is empowered to raise this ratio up to 40 percent of aggregate deposits of commercial banks. Presently, this ratio stands at 25 per cent. The cash reserve ratio refers to that proportion of the aggregate deposits which the commercial banks are required to keep with the Reserve Bank of India. Presently, this ratio stands at 9 percent.
II. Qualitative Method: The qualitative or selective methods of credit control are adopted by the Central Bank in its pursuit of economic stabilisation and as part of credit management. (i) Margin Requirements: Changes in margin requirements are designed to influence the flow of credit against specific commodities. The commercial banks generally advance loans to their customers against some security or securities offered by the borrower and acceptable to banks
(iv) Moral Suasion: Moral suasion and credit monitoring arrangement are other methods of credit control. The policy of moral suasion will succeed only if the Central Bank is strong enough to influence the commercial banks In India, from 1949 onwards, the Reserve Bank has been successful in using the method of moral suasion to bring the commercial banks to fall in line with its policies regarding credit. Publicity is another method, whereby the Reserve Bank marks direct appeal to the public and publishes data which will have sobering effect on other banks and the commercial circles.
(v) Method of Publicity: In modern times, Central Bank in order to make their policies successful, take the course of the medium of publicity. A policy can be effectively successful only when an effective public opinion is created in its favour Its officials through news-papers, journals, conferences and seminar's present a correct picture of the economic conditions of the country before the public and give a prospective economic policies. In developed countries Commercial Banks automatically change their credit creation policy. But in developing countries Commercial Banks being lured by regional gains. Even the Reserve Bank of India follows this policy.
(vi) Direct Action: Under this method if the Commercial Banks do not follow the policy of the Central Bank, then the Central Bank has the only recourse to direct action. This method can be used to enforce both quantitatively and qualitatively credit controls by the Central Banks. This method is not used in isolation; it is used as a supplement to other methods of credit control. Direct action may take the form either of a refusal on the part of the Central Bank to re-discount for banks whose credit policy is regarded as being inconsistent with the maintenance of sound credit conditions. Even then the Commercial Banks do not fall in line, the Central Bank has the constitutional power to order for their closure. This method can be successful only when the Central Bank is powerful enough and has cordial relations with the Commercial Banks. Mostly such circumstances are rare when the Central Bank is forced to resist to such measures.
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NABARD was established on the recommendations of B.Sivaraman Committee, (by Act 61, 1981 of Parliament) on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981. 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) Capital structure: The initial corpus of NABARD was Rs.100 crores. Consequent to the revision in the composition of share capital between Government of India and RBI, the paid up capital as on 31 May 2017, stood at Rs.6,700 crore with Government of India holding Rs 6,700 crore (100% share). The authorized share capital is Rs.30,000 crore.
NABARD partakes in development of institutions which help the rural economy. NABARD also keeps a check on its client institutes. . Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, state governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation Undertakes monitoring and evaluation of projects refinanced by it. NABARD refinances the financial institutions which finances the rural sector. It regulates the institutions which provide financial help to the rural economy. . It provides training facilities to the . institutions working in the field of rural upliftment It regulates the cooperative banks and the RRB's, and manages talent acquisition through IBPS CWE.
NABARD's refinance is available to state co-operative agriculture and rural development banks (SCARDBs), state co-operative banks (SCBs), regional rural banks (RRBs), commercial banks (CBs) and other financial institutions approved by RBl. While the ultimate beneficiaries of investment credit can be individuals, partnership concerns, companies, State-owned corporations or co-operative societies, production credit is generally given to individuals. NABARD has its head office at Mumbai, India. NABARD Regional Office[RO] has a Chief General Manager [CGMs] as its head, and the Head office has several top executives viz the Executive Directors[ED], Managing Directors[MD], and the Chairperson.lt has 336 District Offices across the country, one special cell at Srinagar. It also has 6 training establishments.
NABARD is also known for its 'SHG Bank Linkage Programme' which encourages India's banks to lend to self-help groups (SHGs). Largely because SHGs are composed mainly of poor women, this has evolved into an important Indian tool for microfinance. By March 2006, 22 lakh SHGs representing 3.3 core members had to be linked to credit through this programme NABARD also has a portfolio of Natural Resource Management Programmes involving diverse fields like Watershed Development, Tribal Development and Farm Innovation through dedicated funds set up for the purpose.
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Regional Rural Banks are local level banking operating in different States of India. They have been created with a view to serve primarily the rural areas of India wit!h basic banking and financial services. However, RRBs may have branches set up for urban operations and their area of operation may include urban areas too. The area of operation of RRBs is limited to the area as notified by Government of India covering one or more districts in the State. RRBs also perform a variety of different functions. RRBs perform various functions in following heads: 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, debit and credit cards.
Organizational structure The organizational structure for RRB's varies from branch to branch and depends upon the nature and size of business done by the branch. The Head Office of an RRB normally had three to seven departments. The following is the decision making hierarchy of officials in a Regional Rural Bank. Board of Directors Chairman & Managing Director General Manager Chief Manager/Regional Managers Senior Manager Manager Officer / Assist.
Functions of the RRB: The functions of the RRB are as follows: (1) Granting of loans and advances to small and marginal farmers and agricultural labourers, whether individually or in groups, and to co-operative societies, agricultural processing societies, co-operative farming societies, primarily for agricultural purposes or for agricultural operations and other related purposes; (2) Granting of loans and advances to artisans, small entrepreneurs and persons of small means engaged in trade, commerce and industry or other productive activities within its area of co-operation; and (3) Accepting deposits.
Amalgamation Currently, RRB's are going through a process of amalgamation and consolidation. 25 RRBs have been amalgamated in January 2013 into 10 RRBs. This counts 67 RRBs till the first week of June 2013. This counts 56 as of March 2015. On 31 March 2016, there were 56 RRBs (post-merger) covering 525 districts with a network of 14,494 branches All RRBs were originally conceived as low cost institutions having a rural ethos, local feel and pro poor focus. However, within a very short time, most banks were making losses. The original assumptions as to the low cost nature of these institutions were belied. This may be again amalgamated in near future. At present there are 56 RRBs in India.
IFCI, previously Industrial Finance Corporation of India, is an Indian government owned development bank to cater to the long-term finance needs the industrial sector. It was the first development finance institution established by the Indiarn government after independence. Until the establishment of ICICI in 1991, IFCI remained solely responsible for implementation of the government's industrial policy initiatives. In 1993 it was reconstituted as a company to impart higher degree of operational flexibility. IFCI was allowed to access the capital markets directly.
At the time of independence in 1947, India's capital market was relatively under-developed. Although there was significant demand for new capital, there was a dearth of providers. Merchant bankers and underwriting firms were almost non-existent and commercial banks were not equipped to provide long-term industrial finance in any significant manner. It is against this backdrop that the government established The Industrial Finance Corporation of India (IFCI) on July 1, 1948, as the first Development Financial Institution in the country to cater to the long-term finance needs of the industrial sector. The newly-established DFI was provided access to low-cost funds through the central bank's Statutory Liquidity Ratio or SLR which in turn enabled it to provide loans and advances to corporate borrowers at concessional rates.
Liberalization conversion into company in 1993 By the early 1990s, it was recognized that there was need for greater flexibility to respond to the changing financial system. It was also felt that IFCI should directly access the capital markets for its funds needs. It is with this objective that the constitution of IFCI was changed in 1993 from a statutory corporation to a company under the Indian Companies Act, 1956. Subsequently, the name of the company was also changed to "IFCI Limited" with effect from October 1999.
Activities of the IFCI 1. Soft Loan Assistance: This scheme provides soft loan assistance to existing industries in small and medium sector for developing technology through in-house research and development. 2. Entrepreneur Development: IFCI provides financial support to EDPs (Entrepreneur Development Programmes) conducted by several agencies all-over India. In co-operation with Entrepreneurship Development Institute of India. 3. Industrial Development in Backward Areas: IFCI also take measures to promote industrial development in backward areas through a scheme of concessional finance.
Working of the IFCI: The working of the IFCI came in for a large measure of criticism. In the first place, the rate of interest which the corporation charged was extremely high. Secondly, there was a great delay in sanctioning loans and in making the amount of the loans available. Thirdly, the corporation's insistence on the personal guarantee of managing directors in addition to the mortgage of property was considered wrong In the last two decades the corporation had entered into new lines of activity, viz, underwriting debentures and shares and guaranteeing of deferred payment in respect of imports from abroad of plant an equipment by industrial concerns and subscribing to stocks and shares of industrial concerns directly Besides, the performance of IFCl together with the work of other public sector financial institutions has been extremely credit worthy in the last two decades.
IDBI Bank is an Indian government-owned financial service company, formerly known as Industrial Development Bank of India, headquartered in Mumbai, India. It was established in 1964 by an Act of Parliament to provide credit and other financial facilities for the development of the fledgling Indian industry. IDBl Bank is on a par with nationalized banks and the SBI Group as far as government ownership is concerned. It is one among the 27 commercial banks owned by the Government of India. IDBl bank is considered as government of India owned bank. It is currently 10th largest development bank in the world in terms of reach. It has an authorised capital of 3000 cr.
History Industrial Development bank of India (IDBI) was constituted under Industrial Development bank of India Act, 1964 as a Development Financial Institution (DFI) and came into being as on July 01, 1964 as a wholly owned subsidiary of RBl. In 1976, the ownership of IDBI was transferred to the Government of India and it was made the principal financial institution for coordinating the activities of institutions engaged in financing, promoting and developing industry in India. It was regarded as a Public Financial Institution in terms of the provisions of Section 4A of the Companies Act, 1956. It continued to serve as a DFI for 40 years till the year 2004 when it was transformed into a Bank. Industrial Development Bank of India Limited: In response to the felt need and on commercial prudence, it was decided to transform IDBl into a Bank. For the purpose, Industrial Development bank (transfer of undertaking and Repeal) Act, 2003 [Repeal Act] was passed repealing the Industrial Development Bank of India Act, 1964. In terms of the provisions of the Repeal Act, a new company under the name of Industrial Development Bank of India Limited (IDBI Ltd.) was incorporated as a Govt. Company under the Companies Act, 1956 on September 27, 2004. Thereafter, the undertaking of IDBI was transferred to and vested in IDBI Ltd. with effect from October 01, 2004. In terms of the provisions of the Repeal Act, IDBI Ltd. has been functioning as a Bank in addition to its earlier role of a Financial Institution.
Merger of IDBI Bank Ltd. with IDBI Ltd. Towards achieving the faster inorganic growth of the Bank, IDBI Bank Ltd., a wholly owned subsidiary of IDBl Ltd. was amalgamated with IDBI Ltd. in terms of the provisions of Section 44A of the Banking Regulation Act, 1949 providing for voluntary amalgamation of two banking companies. The merger became effective from April 02, 2005 Change of name of IDBI Ltd. to IDBI Bank Ltd.: In order that the name of the Bank truly reflects the functions it is carrying on, the name of the Bank was changed to IDBl Bank Limited and the new name became effective from May 07, 2008 upon issue of the Fresh Certificate of Incorporation by Registrar of Companies, Maharashtra. The Bank has been accordingly functioning in its present name of IDBI Bank Limited Narsimham Committee: In order to make the IDBI's coordinating role more effective, the Narsimham Committee (1991) has suggested that the IDBl should give up its direct financing function and perform only promotional apex and refinancing role in respect of other institutions like SFCs and SIDBI. The direct lending function should be entrusted to a separate finance company especially set up for this purpose.
Banking and Financial Institutions With MCQs SIDBI By Navdeep Kaur
SIDBI Mission History "To facilitate and strengthen credit flow to MSMEs and address both financial and developmental gaps in the MSME eco-system"April 2, 1990 under an Act of Small Industries Development Bank of India (SIDBI), set up on Indian Parliament, acts as the Principal Financial Institution for the Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) Vision To emerge as a single window for meeting the financial and developmental needs of the MSME sector to make it strong, vibrant and globally competitive, to position SIDBI Brand as the preferred and customer friendly institution and for enhancement of share holder wealth and highest corporate values through modern technology platform sector and for Co-ordination of the functions of the institutions engaged in similar activities.
Important functions performed by of SIDBl include: 1. To initiate steps for technological up-gradation and modernisation of existing units. 2. To expand the channels for marketing the products of SSI sector in domestic and international markets. 3. To promote employment oriented industries especially in semi-urban areas to create more employment opportunities and thereby checking migration of people to urban areas. The SIDBI's financial assistance to small-scale industries is channelised through the existing credit delivery system comprising State Financial Corporation, State Industrial Development Corporations, Commercial Banks, and Regional Rural Banks.
In 2005, a merger of lIBI, IDBI and IFCI was considered, but IIBl refused and it was decided in 2006-2007 to close the bank As of 2011, the bank operated from its sole remaining office in Kolkata. Deloitte and Touche was appointed to dispose of lIBI's Non-Performing assets. The bank's closure was announced in the Budget 2012. The clientele of the bank included Videocon, Dr Morepen, Perfect Threads, Clutch Auto Limited, JSW Ispat and LML Motors.
State Finance Corporations The State Finance Corporations (SFCs) are the integral part of institutional finance structure in the country. SEC promotes small and medium industries of the states. Besides, SFCs are helpful in ensuring balanced regional development, higher investment, more employment generation and broad ownership of industries. states. Besides, SFcs At present there are 18 state finance corporations (out of which 17 SFCs were established under SFC Act 1951). Tamil Nadu Industrial Investment Corporation Ltd. established under Company Act, 1949, is also working as state finance corporation.
Functions: Organisation and Management: The State Finance Corporations management is vested in a Board of ten directors. The State Government appoints the managing director generally in consultation with the Reserve Bank and nominates three other directors. (i) The SFCs grant loans mainly for acquisition of fixed assets like land, building, plant and machinery (ii) The SFCs provide financial assistance to industrial units whose paid-up capital and reserves do not exceed Rs. 3 crore (or such higher limit up to Rs. 30 crore as may be specified by the central government) The insurance companies, scheduled banks, investment trusts, co-operative banks and other financial institutions elect three directors. Thus the majority of the directors are nominated by the government and quasi-government institutions. (iii) The SFCs underwrite new stocks, shares, debentures etc., of industrial concerns. (iv) The SFCs provide guarantee loans raised in the capital market by scheduled banks, industrial concerns, and state co-operative banks to be repayable within 20 years