Banking Awareness - IBPSGuide

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Important Banking Terminology
ATM (Automatic Teller Machines) One-hundredth of 1% point normally used for

They are machines that dispense cash, receive indicating cost of finance
cash, accept cheques, give balance details and Call Money
mini statements to the customers through It is a loan that is made for a very short period of
Computer network a few days only with a low rate of interest
Bancassurance Cheque
It is the distribution of insurance products and the It is written by an individual to transfer amount
insurance policies of insurance companies by between two accounts of the same bank or a
banks as corporate agents through their different bank and the money is withdrawn from
branches. Banks charge a fee for this service the account.
from insurance companies Core Banking
Bouncing of a cheque It is a general term used to describe the services
When an account has insufficient funds the provided by a group of networked bank branches
cheque is is not payable and is returned by the Core Banking Solutions (CBS)
bank with a reason “Exceeds arrangement” or In this all the branches of the bank are connected
“funds insufficient”. together and the customer can access his/her
Bank Account funds or transactions from any other branch.
It is account of nominal interest which can only CRR (Cash Reverse Ratio)
be used for personal purpose and which has the amount of funds that a bank keep with the
some restrictions on withdrawal RBI. If the percentage of CRR increases then the
Bank Rate amount with the bank comes down.
It is the rate of interest charged by a central bank Current Account
to commercial banks on the advances and the It is an account that can be opened generally for
loans it extends. business purposes with no restrictions on
Base rate withdrawals and no interest paid
It is the rate of interest on which banks base their Debit Card
lending rates. Usually loans are given at a rate It is a card issued by the bank so the customers
higher than the base rates and saving rate is can withdraw their money from their account
below the base rate electronically.
Basis Point Demat Account
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The way in which a bank keeps money in a It is a financial ratio which gives us an idea or a
deposit account in the same way the Depository measure of a company’s ability to meet its
company converts share certificates into financial losses.
electronic form and keep them in a Demat Liquidity
account. It is the ability of converting an investment
Dishonour of Cheque quickly into cash with no loss in value.
Non-payment of a cheque by the paying banker Market Capitalization
with a return memo giving reasons for the non- The product of the share price and number of
payment the company’s outstanding ordinary shares.
E-Banking Mortgage
It is a type of banking in which we can conduct It is a kind of security which one offers for
financial transactions electronically. RTGS, taking an advance or loan from someone.
Credit cards, Debit cards etc come under this Mutual Fund
category. These are investment schemes. It pools money
EFT – (Electronic Fund Transfer) from various investors in order to purchase
In this we use Automatic teller machine, wire securities.
transfer and computers to move funds between Monetary Policy
different accounts in different or same bank. it refers to the Central Government policy with
Fiscal Deficit respect to the quantity of money in the
It is the amount of Funds borrowed by the economy, the rate of interest and the exchange
government to meet the expenditures. rate
Inflation Non-bank ATM / White labeled ATM
It is an increase in the quantity of money in An ATM or cash machine that does not
circulation without any corresponding increase prominently display a bank’s name or logo. A
in goods thus leading to an abnormal rise in the fee will be charged for cash withdrawals in
price level these ATMs and they don’t accept deposits
Initial Public Offering (IPO) Non-performing Assets (NPAs)
It is the time when a company makes the first NPA or non-performing loans are loans given
offering of the shares to the pubic. by a bank on which repayments or interest
Kiosk Banking payments are not being made on time
Doing banking from a cubicle from which food, Permanent Account Number (PAN)
newspapers, tickets, etc are also sold PAN is a number issued by the Income Tax
Leverage Ratio Department to their tax payers.

Plastic Money Fund in an attempt to increase international

Plastic money is a name given to Credit cards, liquidity
Debit cards, ATM cards anf International Cards .SLR (Statutory Liquidity Ratio)
issued by banks It is amount that a commercial bank should
Point of Sale (PoS) have before giving credits to its customers
PoS refers to a location at which a payment of a which should be either in the form of
card transaction occurs gold,money or bonds.
Prime Lending Rate (PLR) Teller
Rate of interest at which a bank gives loan to its He/she is a staff member of the bank who
most reliable customer i.e., customer with ‘zero cashes cheques, accepts deposits and perform
risk’ different banking services for the general mass.
Pass Book Universal Banking
It is a book where all the bank transactions are When financial institutions and banks undertake
recorded.They are mainly issued to Current or activities related to banking like investment,
Savings Bank account holders. issue of debit and credit card etc then it is
Repo Rate known as universal banking.
Commercial banks borrow funds by the RBI if Virtual Banking
there is any shortage in the form of rupees. If Internet banking is sometimes known as virtual
this rate increases it becomes expensive to banking. It is called so because it has no bricks
borrow money from RBI and vice versa. and boundaries. It is controlled by the world
Reverse Repo Rate wide web.
It is the exact opposite of repo rate. It is the rate Wholesale Banking
at which RBI borrows money from banks when It is similar to retail banking with a slight
it feels there is too much money floating in the difference that it mainly focuses on the financial
banking system needs of the institutional clients and the
Special Drawing Rights (SDR) industry.
It is a reserve asset (Paper Gold) created within Zero Coupon Bond
the framework of the International Monetary It is a bond that is sold at good discount as it
has no coupon.

Roles and Function of RBI
INTRODUCTION:
 The Reserve Bank of India(RBI) was established on April 1, 1935
 The Central Office of the Reserve Bank was initially established in Calcutta but permanently moved
to Mumbai in 1937.
 The board is appointed by the Government of India in keeping with the Reserve Bank of India Act
 There are both Official and Non – Official directors
FUNCTIONS OF RESERVE BANK OF INDIA:-
There are seven major functions of the Reserve Bank of India. They are,
1. Issue of Bank Notes:
 The Reserve Bank of India has the right to issue currency notes except one rupee notes
which are issued by the Ministry of Finance.
 There are many advantages of Reserve Bank of India.

I. brings uniformity in notes issue
II. makes possible effective state supervision

III. easy to control and regulate with requirements in the economy.
IV. Keeps faith of the public in the paper currency.
2. Banker to Government:
 The Reserve Bank manages the banking needs of the Government.

 It has to maintain and operate the Government’s deposit accounts.
 It represents the Government of India as the member of the IMF and the World Bank.
3. Custodian of Cash Reserves of Commercial Banks:
 The Commercial banks hold deposits in the Reserve Bank and the latter has the custody of
the cash reserves of the commercial banks.

4. Custodian of country’s Foreign Currency Reserves:
 The Reserve Bank has the custody of the country’s reserves of international currency, and
this enables the Reserve Bank to deal with crisis connected with adverse balance of
payments position.

5. Lender of Last Resort:
 The commercial banks approach the Reserve Bank in times of emergency to tide over
financial difficulties, and the Reserve bank comes to save from their danger from higher
rate of interest.
6. Central Clearance and Accounts Settlement:
 It is easy to deal with each other and settle the claim of each on the other through book
keeping entries in the books of the Reserve Bank.
 The clearing of accounts has now become an essential function of the Reserve Bank.
7. Controller of Credit:
 The supply of money has important implications for economic stability and the importance
of control of credit becomes obvious
 Credit is controlled by the Reserve Bank in accordance with the economic priorities of the
Government.
MAJOR ROLES OF RESERVE BANK OF INDIA:-
 In every country there is one organization which works as the Central Bank.
 The function of the central bank of a country is to control and monitor the banking and
financial system of the country
 In, India the Reserve Bank of India (RBI) is the Central Bank.
 RBI is the Regulator of Financial System. The objectives of these regulation include:
 Controlling money supply in the system,
 Monitoring different key indicators.
 Maintaining people’s confidence in banking and financial system.
 RBI is the Controller and Supervisor of Banking systems. These banks may be:
 Public sector banks
 Private sector banks

 Foreign banks
 Co-operative banks, or

 Regional rural banks.
Important RBI Acts and its Functions

Umbrella Act:
 RBI Act, 1934: It governs the central bank’s functions.
 Banking Regulation Act, 1949: It governs the financial sector.
Acts Governing Specific Functions:

 Public Debt Act, 1944/Government Securities Act (proposed): Governs the government debt
market.
 Securities Contract (Regulation) Act, 1956: It regulates the government securities market.
 Indian Coinage Act, 2011: Governs laws related to currency and coins.
 Foreign Exchange Regulation Act, 1973/ Foreign Exchange Management Act, 1999:
Governs foreign exchange market.
 Payment and Settlement System Act, 2007: Provides for regulation and supervision of
payment systems in India.
 Government Securities Regulations, 2007.

Acts Governing Banking Operations:
 Companies Act, 2013: Governs banks as companies.
 Banking Companies (Acquisition and Transfer of Undertakings) Act 1970/1980: On

Nationalization of Banks.
 Bankers Books Evidence Act.

 Banking Secrecy Act.
 Negotiable Instruments Act, 1881.
Acts Governing Individual Institutions:

 State Bank of India Act, 1954.
 The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003.
 The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993.
 National Bank for Agriculture and Rural Development Act.
 National Housing Bank Act.

 Deposit Insurance and Credit Guarantee Corporation Act.
Highlights of RBI’s First Bi-Monthly Monetary Policy
 Short-term lending rate (repo) unchanged at 7.5%.
 Cash Reserve Ratio unchanged at 4%.

 Retains Statutory Liquidity Rate at 21.5%.
 Estimates GDP growth at 7.8% in financial year 2016, up from 7.5% in the year 2015.
 Forecasts CPI inflation at 5.8% by March 2016.

 CPI inflation to dip to 4% in August 2015.
 Hailstorms in March affected 17% of the rabi crop sown area.
 Future rate cuts will depend on interest rate reduction by banks.
 India better prepared to deal with volatility post US Federal Reserve rate action.
 State cooperative banks to be allowed to setup offsite/ mobile ATMs without prior approval
from RBI.
 RBI to formulate scheme for market making by primary dealers in semi-liquid and illiquid G-
Secs.
Types of Banks
There are seven types of Banks in India, and they are given below.
1.) Savings Banks:
A savings bank is a financial institution whose primary purpose is to accept savings deposits. It
may also perform some other functions. These banks are helpful for salaried people and low income
groups. The deposits collected from the customers are invested in bonds, securities etc,. At present,
most of the commercial banks carry out the functions of Savings Banks; Postal Department also
performs the functions of savings bank.
2.) Commercial Banks:

A Commercial Bank is an institution which accepts deposits, makes business loans and offers
related services. Commercial Banks also allow for a variety of deposit accounts, such as current,
savings and time deposit. These institutions are run to make profit. Commercial Banks provide various
services like collection cheques, bills of exchange, remitting money from one place to another place. In
India, Commercial Banks have been established under Companies Act, 1956. In 1969, 14 Commercial
Banks were nationalized by the Government of India.
3.) Industrial Banks/ Development Banks:
Development Banks are those financial institutions engaged in the promotion and development
of industry, agriculture and other key sectors. These banks react to the socio-economic needs. They
satisfy the developmental needs of the economy and their success is linked to the satisfactory growth
of the economy. The main objective of these banks is to provide long term loans for expansion and
modernization of industries. In India, such banks were established o a large scale after independence.
They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of
India (ICICI) and Industrial Development Bank of India (IDBI).

4.) Land Development Banks:
The Long term credit needs of the agricultural sector are met by another type of Cooperative
institution called as Land Development Banks. The structure of these banks is a two-tier one-at the
state level there are Central Land Development Banks and at the district or taluka level, there are
primary Land Development Banks. In a few States, e.g Gujarat, Jammu and Kashmir and UP, the
structure is unitary i.e., there are Apex Land Development Banks which operate directly through their
own branches at the district level.

5.) Indigenous Banks:
Indigenous Banks means money lenders and sahukars. They collect deposits from general
public and grant loans to the needy persons out of their own funds as well as from deposits. These
indigenous banks are popular in villages and small towns. They perform combined functions of trading
and banking activities. Certain well-known Indian communities like Marwaries and Multanis even today
run specialized indigenous banks.

6.) Central Bank:
Every country of the world has a Central Bank. In India, Reserve Bank of India; in USA

Federal Reserve and in UK, Bank of England are example of the Central Banks. These Central Banks
are the bankers of the other banks. They perform specialized functions, i.e., issue of paper currency,
work as bankers to governments, supervise and control foreign exchange. A Central Bank is a non-
profit making institution. It does not deal with the public but it deals with the other banks. The principal
responsibility of the Central Bank is thorough control on currency of a country.
7.) Co-operative Banks:
In India, Cooperative Banks are registered under the Cooperative Societies Act 1912. They
generally give credit facilities to small farmers, salaried employees, small scale industries, etc.
Cooperative banks are in rural as well as in urban areas. The functions of these banks are just similar
to that of Commercial Banks.

8.) Foreign Banks:
Standard Chartered Banks, City Bank, HSBC are the examples of Foreign Banks working in
India. These banks are mainly concerned with financial foreign trade. Following are the various
functions of Exchange Banks.

 Remitting money from one country to another country
 Discounting of foreign bills.
 Buying and selling gold and silver.

 Helping import and export trade.
Types of Accounts and its Functions
Types of Bank Accounts:
 Fixed Deposit Account or Time Deposit Accounts

 Current Account or Demand Deposit Account
 Saving Account
 Recurring Deposit Account

 Demat Account
Fixed Deposit Account or Time Deposit Accounts:

Cash is deposited in this account for a fixed period. This is not transferable. If the depositor
stands in need of the amount before the expiry of the fixed period, he can withdraw the same after
paying the penalty to the bank. This type of deposit attracts high rate of interest. Longer the period of
deposit higher is the rate of interest. It is also called Time Liability of the Bank.
Current Account or Demand Deposit Account:
A depositor can deposit his funds any number of times he likes and can withdraw the same any
number of times he wishes. Ordinarily businessmen deposit their funds in this account. No interest is
paid by the bank on this account. The bank demands some charges from the depositors if the amount
lying in the account falls below the minimum limit.
Saving Account:
In this account, interest is given now on per day basis between 10th and 30th of every month.
Recurring Deposit Account:
Under this account, a specified amount is deposited every month for a specific period, such as,
12, 24, 36, or 60 months it can be even for 120 months. This amount cannot be withdrawn before the
expiry of the given period except under exceptional circumstances. Interest on the amount deposited is
also credited to the account of the depositor. Like time deposit account, interest paid on this account is
higher than other accounts.

Demat Account:
Demat refers to a dematerialized account. Demat account is just like a bank account where
actual money is replaced by shares. Just as a bank account is required if we want to save money or
make cheque payments, we need to open a demat account in order to buy or sell shares.
Types of Cheques and its Categorization
1.) Open Cheque:
A Cheque is called “Open” when it is possible to get cash over the counter at the bank. The
holder of an open cheque can do the following,
 Receive its payment over the counter at the bank

 Deposit the cheque in his own account

 Pass it to someone else by signing on the back of a cheque.
2.) Crossed Cheque:

Since, open cheque is subject to risk of theft; it is dangerous to issue such cheques. This risk
can be avoided by issuing another type of cheque called “Crossed Cheque”. The payment of such
cheque is not made over the counter at the bank. It is only credited to the bank account of the payee. A
cheque can be crossed by drawing two transverse parallel lines across the cheque, with or without the
writing ‘Account Payee’ or ‘Not Negotiable’. These lines are usually drawn on the upper left hand corner
of the cheque.
3.) Bearer Cheque:
A Cheque which is payable to any person who presents it for payment at the bank counter is
called ‘Bearer Cheque’. A bearer cheque can be transferred by mere delivery and requires no
endorsement.
4.) Order Cheque:
An order cheque is one which is payable to a particular person. In such a cheque the word
‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. The payee can transfer an
order cheque to someone else by signing his or her name on the back of it.
Categorization of Cheques:
 Ante-dated cheques: Cheque in which the drawer mentions the date earlier to the date of
presenting it for payment. For example a cheque issued on 20th August, 2014may bear a
date 5th August 2014.
 Stale Cheque: A cheque which is issued today must be presented to the bank for payment
within a stipulated period. After expiry of that period, on payment will be made and it is then
called ‘Stale Cheque’.
 Mutilated Cheque: In case a cheque is torn into two or more pieces and presented for
payment, such cheque is called “Mutilated Cheque”. The bank will not make payment
against such a cheque without getting confirmation of the drawer. But is a cheque is torn at
the corners and no material fact is erased or cancelled, the bank may make payment
against such a cheque.

 Post-date Cheque: Cheque on which drawer mentions a date which is subsequent to the
date on which it is presented, is called ‘Post-dated Cheque’. For example, if a cheque
presented on 5th April 2015 bears a date of 20th April 2015, is is a post dated cheque. The
bank will make payment only mon or after 20th April 2015.
Types of Loans and its Operations
Types of Loans:
 Cash Credit
 Overdraft
 Loans and Advances
 Discounting of the Bill of Exchange
 Investment in Government Securities
Cash Credit:
The debtor is allowed to withdraw a certain amount against a given security. The debtor
withdraws the amount within this limit, as per his requirement and also repays it. Interest is charged by
the bank on the actually withdrawn.
Overdraft:
Clients who have current account with the bank get the sanction to withdraw more money than
is lying in the said account. It is called Overdraft. This facility is availability for short term to reliable
parties.
Loans and Advances:
These loans are given in the form of a fixed amount. Bank credits the amount of loan in the
account books of the debtor. The latter can withdraw it any time. The interest is chargeable on the
whole amount from the day; the loan is disbursed irrespective of the fact that the debtor withdraws the
whole amount or part of it.

Discounting of the Bill of Exchange:

Under this, banks give advance to their clients on the basis of their bills of exchange before the
maturity of such bills. (A deduction is made out of the not clear face value of the bill of the period the bill
is yet to run). This deduction is called Discounting to the Bill.
Investment in Government Securities:
Purchasing of government securities by the banks tantamount to advancing loans by them to
the government. Banks prefer to buy government securities as these are considered to be the safest
investment.
Negotiable Instruments
There are certain Documents used for payment in business transaction and are transferred
freely from one person to another. Such documents are called Negotiable Instruments like Cheque,
Bank Draft, bill of exchange, Promissory notes, etc.
Features of Negotiable Instruments:
 It is a written document.
 A Negotiable Instrument payable to bearer is transferable merely by delivery, whereas a
Negotiable Instrument payable to order is transferable by endorsement and delivery.
 The holder of a Negotiable Instrument can sue upon it in his own name.
 The consideration is not mentioned on the Negotiable Instrument. It is presumed that the
Negotiable Instrument has been drawn for a valuable consideration.
 It works in the same manner as money and like money; it may also be transferred from one
person to another.
 The transferor does not need to give notice to any person at the time of transferring the
instrument.
 It is the simplest and most convenient mode of assignment of a debt.

 The title to the instrument received by a bonafide transferee is not affected by any defected in
the title of the transferor.

Types of Negotiable Instruments:
 Promissory Note
 Bill of Exchange

 Cheque
 Exchequer Bill
 Circular Note
 Dividend Warrant
 Share Warrant
 Bearer Debenture
 Bank Note
 Bank Draft
Highlights of Negotiable Instruments (Amendment) Bill 2015
Lok Sabha has passed the Negotiable Instruments (Amendment) Bill, 2015 that amends
the Negotiable Instrument Act, 1881 that makes the Cheque-bounce filing cases more
convenient for cheque Payees (Person who receives the cheque).
Highlights of Negotiable Instruments (Amendment) Bill 2015:
 The main amendment is the stipulation that the offence of rejection/return of cheque
under the section 138 of Negotiable Instruments Act will be enquired into and tried only
by a court within whose local jurisdiction the bank branch of the payee, where the payee
presents the cheque for payment is situated.
 Section 138 of the Negotiable Act deals with the offence pertaining to dishonor of
cheque for insufficiency, etc of funds in the drawer’s account on which the cheque is
drawer for the discharge of any legally enforceable debt or other liability.
 The bill adds provision to specify the territorial jurisdiction of the courts in cases related
to bouncing of cheques which was not present in the parent Act.
 It says that cases in this regards need to be filed only in a court in whose jurisdiction the
bank branch of the payee lies.

 It also adds provision related to more than one case is filed against the same person
before different courts for bouncing of cheques. In this matter, the case will be
transferred to the court that has appropriate jurisdiction.
 The bill also amends the definition of cheque. Now it defines it as cheque in the
electronic form which is signed in a secure system with a digital signature or using
electronic system and drawn in electronic medium using any computer resource.
Credit Cards and its Types
1). A credit card is a payment card issued to users as a system of payment which allows the card
holder to pay for goods and services based on the holder’s promise to pay for them
2). The size of most of the credit cards are 85.60 × 53.98 mm according to the ISO/IEC 7810 ID-1
standard
3). The front of a typical credit card consists of the following parts:
 Issuing bank logo
 EMV chip
 Hologram
 Card number
 Card Network Logo
 Expiration Date
 Card Holder name
 Contactless Chip
4). Similarly the reverse side of a credit card consists of the following parts:
 Magnetic Strip
 Signature Strip
 Card Security Code

5). Important terminologies related to credit cards are as follows:
 Card holder – the consumer or the holder of the card

 Card – issuing bank – the financial institution or other organizations that issued the credit
card to the consumer

 Merchant – the individual or business accepting credit card payments for the products or
services sold to the consumer

 Acquiring Bank – the financial institution accepting the payment on behalf of the merchant
 Independent sales organization – resellers of the services of the acquiring bank
 Merchant account – it is the organization that the merchant deals with
 Credit card association – an association of the card issuing banks that set transaction terms
for merchants, card issuing banks and acquiring banks.
 Transaction networks – the system that implements the mechanics of the electronic
transactions
 Affinity partner – an institution that lends their names to an issuer to attract customers that
have a strong relationship with that institution and get paid a percentage of the balance for
each card issued using their name
6). The transaction steps that are involved in the usage of a credit card are as follows:
 Authorization – verification done by the acquiring bank on the card number, the transaction
type and the amount with the issuing bank
 Batching – the authorized transactions are stored in batches which are sent to the acquirer
 Clearing and Settlement – the acquirer sends the batch transactions through the credit card
association which debits the issuers for payment and credits the acquirer
 Funding – once the acquirer has been paid, the acquirer in turn pays the merchant
 Chargebacks – is an event initiated by the cardholder where the money in a merchant
account is held due to a dispute relating to the transaction

7). Types of Credit Cards
 Business credit cards – specialized credit cards issued in the name of a registered business
and can only be used typically for business purposes
 Secured credit cards – it’s a card that is secured by a deposit account owned by the
cardholder. The cardholder must deposit between 100% to 200% of the total amount of
credit needed
8). Advantages of credit card system to the banks
 Scope and potential for better profitability out of share earned from the merchant’s income

 Helps in banking relationship with new customers
 Provides additional customer service to the existing clients

 Savings of expenses on manpower to handle clearing transactions
9). Advantages of credit card system to the merchants
 Systematic accounting since sale receipts are routed through banking channels
 Assured and immediate settlement
 Avoids all costs and security problems involved in handling cash
 Development of a prestigious clientele base

 Increase in sale because of increased purchasing power of the cardholder due to the
unbilled credit available to him

 Advertising and promotional support on a national scale
10). Advantages of the credit card system to the cardholder
 It incorporates a sense of financial discipline in him/her
 Allows the cardholder to delegate spending powers to add-on members

 It extends additional facilities like insurance cover and discounts
 It provides proof of purchase through banking channels thus strengthening the cardholder’s
position in case of any disputes with the sellers
Letter of Credit (LC)
1). Letter of Credit (LC) is a document from a bank guaranteeing that a seller will receive payments in
full as long as certain delivery conditions have been met
2). If the buyer is unable to make payments on the purchase then the bank will cover the remaining
amount
3). LC are often used in international transactions where buyer and seller may not know each other and
are from different countries thus exposing the seller to credit and legal risks caused by
 Distance
 Differing laws
 Difficulty in knowing each party personally

4). The bank that writes the LC will act on behalf of the buyer and will make sure that all delivery
conditions have been met before making the payment to the seller
5). LC are governed by guidelines given by the International Chamber of Commerce known as Uniform
Customs and Practice for Documentary Credits (UCP)
6). LC is widely used in the importing and exporting companies and also in land development
7). To receive payments an exporter must present the documents required by the LC. The Payee
presents a document proving that the goods were sent instead of showing actual goods
8). Bill of lading (BOL) – is the document accepted by the bank as proof that goods have been shipped
9). Types of documents required by the LC are as follows
 Financial documents
a) Bill of exchange
b) Co-accepted draft
 Commercial documents
a) Invoice
b) Packing list
 Shipping documents
a) Transport document
b) Insurance certificate
c) Commercial, official or legal papers
 Official documents
a) License embassy legalization

b) Origin certificate
c) Inspection certificate
d) Phytosanitary certificate
 Transport documents
a) Bill of Lading
b) Airway bill
c) Lorry/truck receipt
d) Railway receipt

 Insurance documents
a) Insurance policy/certificate
10). The bank’s obligation is defined by the terms of the LC alone and the sale contract is irrelevant
according to the Article 4a of UCP
11). Article 5 of the UCP states that banks deal with documents only and they will not be accountable
for the goods
12). The different types of LCs are as follows
 Import/Export LC
a) For importer – Import LC
b) For exported – Export LC

 Revocable LC
a) The buyer and the bank that established the LC will be able to manipulate or make
corrections in the LC
b) This type of LC is obsolete

 Irrevocable LC
a) Any changes or cancellation of LC is done by the applicant through the issuing bank
b) It must be authorized and approved by the beneficiary

 Confirmed LC - A second bank will guarantee to honor a complying presentation at the
request of the issuing bank
 Unconfirmed LC - Does not acquire the other bank’s confirmation
 Restricted LC - Only one advising bank can purchase a bill of exchange from the seller
 Unrestricted LC – the confirmation bank is not specified that means the exporter can show
the bill of exchange to any bank and receive a payment
 Transferrable LC
a) It can be transferred to a second party at the request of the 1st beneficiary

b) A transferrable LC can be transferred to more than one alternate beneficiary as long
as it allows partial shipments

 Un-transferrable LC
a) The seller cannot assign all or part of LC to another party

b) In international commerce all credits are un-transferrable
 Deferred/Usance LC
a) A credit that is not paid immediately after the presentation but after an indicated
period that is accepted by both the seller and buyer
b) Seller allows buyer to pay the required money after taking the related goods and
selling them
 At Sight LC – a credit that the announcer bank immediately pays after inspecting the
carriage documents from the seller

 Back to Back LC
a) A pair of LCs in which one is to the benefit of a seller who is not able to provide the
corresponding goods for unspecified reasons
b) In that situation a second credit is opened for another seller to provide the desired
goods
c) It is issued to facilitate intermediary trade

 Standby LC
a) Operates like a Commercial LC except that it is retained as a standby instead of
being the intended payment mechanism

 Red Clause LC
a) The terms and conditions are particularly written in red ink
b) Before sending the products seller can take the pre-paid part of the money from
the bank
Money Market Instruments

The money market can be defined as a market for short-term money and financial assets that are near
substitutes for money.
The term short-term means generally a period up to one year and near substitutes to money is used to
denote any financial asset which can be quickly converted into money with minimum transaction cost.
Some of the important money market instruments are briefly discussed below;
1. Call/ Notice Money

2. Treasury Bills
3. Term Money
4. Certificate of Deposit
5. Commercial Papers
1. Call/Notice- Money Market: 1. Call/Notice money is the money borrowed or lent on demand for a
very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money.
Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and
repaid on the next working day, (irrespective of the number of intervening holidays) is “Call Money”.
Notice Money: When money is borrowed or lent for more than a day and up to 14 days, it is “Notice
Money”. No collateral security is required to cover these transactions.

2. Inter-Bank Term Money: Inter-bank market for deposits of maturity beyond 14 days is referred to as
the term money market. The entry restrictions are the same as those for Call/Notice Money except that,
as per existing regulations, the specified entities are not allowed to lend beyond 14 days.
3. Treasury Bills: Treasury Bills are short term (up to one year) borrowing instrument of the union
government. It is a promise by the Government to pay a stated sum after expiry of the stated period
from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the
face value, and on maturity the face value is paid to the holder. The rate of discount and the
corresponding issue price are determined at each auction.
4. Certificate of Deposits: Receipt issued by a depository institution (such as a bank, credit union, or a
finance or insurance company) to a depositor who opens a certificate account or time deposit account.
Issued in a negotiable or non-negotiable form, it states the (1) amount deposited, (2) rate of interest,
and (3) minimum period for which the deposit should be maintained without incurring early withdrawal
penalties.
5. Commercial Paper: An unsecured obligation issued by a corporation or bank to finance its short-term
credit needs, such as accounts receivable and inventory- Commercial paper is available in a wide
range of denominations, can be either discounted or interest- bearing, and usually have a limited have
or nonexistent secondary market.

Banking Ombudsman Scheme

The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers
for resolution of complaints relating to certain services rendered by bans. The Banking Ombudsman
Scheme is introduced under Section 35A of the Banking Regulation Act, 1949 by RBI with effect from
1995.
Who is a Banking Ombudsman?
The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress
customer complaints against deficiency in certain banking services.
How many Banking Ombudsmen have been appointed and where are they located?
As on date, fifteen Banking Ombudsmen have been appointed with their offices located mostly in the
state capitals. The addresses and contact details of the Banking Ombudsman offices have been
provided in the annex.
Important Information about Nationalized Banks in India
Sno Important Points

1. Allahabad Bank is the oldest bank to start Joint Stock in India.
2. Central Bank of India is the first Indian bank to be fully owned by Indians.
3. Bank of India is the first bank to open its branch outside the India (at London, 1946).
4. Bank of Baroda has the largest number of branches in the abroad.
ICICI Bank is the largest Private Sector Bank in India to have Rs. One Trillion Market value. It is
5.
the first Universal Bank in India.
6. Punjab National Bank is the First Indian Bank to have unlimited liability.
7. Union Bank of India was inaugurated by Mahatma Gandhi in 1919.
8. Canara Bank has received ISO 9002 certificate to its one of the branch.
9. SBI is the largest commercial Bank in India, and Government holds 51% of Shares of the SBI.
Indian Postal Department has launched a Stamp in the name of the Central Bank of India
10.
celebrating its 100 years in 2011.

List of Nationalized Banks, Headquarters and Its Present CMDs
Sno Bank name Headquarters Heads

1. Allahabad bank Kolkata Rakesh sethi
2. Andhra bank Hyderabad C.V.R.Rajendaran
3. Bank of Baroda Mumbai Ranjan Dhawan
4. Bank of India Mumbai V.R IYER
5. Bank of Maharashtra Pune sushil muhnot
6. Bhartiya mahila bank Usha ananthasubramanian
7. Canara bank Bangalore V.S Krishna kumar
8. Central bank of India Mumbai Rajiv Rishi
9. Corporation bank Mangalore S.R Bansal
10. Dena bank Mumbai Ashwani kumar
11. IDBI Mumbai M.S.RAGHAVAN
12. Indian bank Chennai T.M Bhasin
13. Indian overseas bank Chennai R.koteeswaran
14. Oriental bank of commerce Delhi Animesh Chauhan
15. Punjab and Sind bank Delhi Jatinderbir Singh
16. Punjab National Bank Delhi Gauri Shankar
17. Syndicate Bank Manipal Arun Shrivastava
18. UCO BANK Kolkata Arun kaul
19. Union Bank of India Mumbai Arun Tiwari
20. United bank of India West Bengal P.Srinivas
21. Vijaya bank Bangalore Kishore Kumar Sansi
22. State bank of India Mumbai Arundhati Bhattacharya
State bank of Bikaner and
23. Rajasthan Jyoti Ghosh
jaipur
24. State bank of Hyderabad Hyderabad Santanu Mukherjee
25. State bank of Mysore Bangalore Sharad Sharma
26. State bank of Patiala Punjab M S Ramesh Rangan
27. State bank of Travancore Tiruvananthapuram Jivananand Das Narayan

List of Banking Abbreviations
Sno Abbreviations Full Forms

1. NABARD National Bank for Agricultural & Rural Development
2. RTGS Real Time Gross Settlement
3. NEFT National Electronic Fund Transfer
4. NAV Net Asset Value
5. NPA Non Performing Asset
6. ASBA Account Supported by Blocked Amount
7. BIFR Board for Industrial and Financial Reconstruction
8. CAMELS Capital Adequacy, Asset Quality, Management Earnings, Liquidity, Systems
&Controls
9. BCSBI Banking Codes & Standard Board of India
10. BIS Bank for International Settlement
11. BCBS Basel Committee on Banking Supervision
12. BOP Balance of Payment
13. BOT Balance of Trade
14. BPLR Benchmark Prime Lending Rate
15. CCIL Clearing Corporation of India Ltd
16. CIBIL Credit Information Bureau of India Ltd
17. CRISIL Credit Rating Information Services of India Ltd
18. CBLO Collateralised Borrowing & Lending Obligation
19. CPI Consumer Price Index
20. ADR American Depository Receipts
21. GDR Global Depository Receipts
22. ALM Asset Liability Management
23. ARC Asset Reconstruction Companies
24. FINO Financial Inclusion Network Operation
25. CTT Commodities Transaction Tax
26. CRM Customer Relationship Management

27. KYC Know Your Customer

28. SLR Statutory Liquidity Ratio
29. CRR Cash Reserve Ratio
30. MSF Marginal Standing Facility
31. REPO Repurchase Option
32. NBFC Non Banking Finance Companies
33. OSMOS Off-Site Monitoring & Surveillance
34. IFSC Indian Financial System Code
35. BSE Bombay Stock Exchange
36. NSE National Stock Exchange
37. SWIFT Society for Worldwide Interbank Financial Tele communication
38. FSLRC Financial Sector Legislative Reforms Commission
39. LAF Liquidity Adjustment Facility
40. DRT Debt Recovery Tribunals
41. REER Real Effective Exchange Rate
42. PPP Public Private Partnership & Purchasing Power Parity
43. QFI Qualified Foreign Investors
44. AMFI Association of Mutual Fund in India
45. TIEA Tax Information Exchange Agreement
46. FTA Free Trade Agreement
47. GAAR General Anti Avoidance Rule
48. FEMA Foreign Exchange Management Act
49. FII Foreign Institutional Investors
51. FRBMA Fiscal Responsibility and Budget
52. GIRO Government Internal Revenue Order
53. CRAR Capital to Risk-Weighted Assets Ratio
54. DICGC Deposit Insurance and Credit Guarantee Corporation
55. FIPB Foreign Investment Promotion Board
56. EFSF European Financial Stability Facility
57. DTAA Double Taxation Avoidance Agreement
58. TIN Tax Information Network
59. CAD Capital Account Deficit

60. AML Anti Money Laundering

62. ASBA Application Supported by Blocked Amount
63. CBS Core Banking Solution
65. OLTAS Online Tax Accounting System
66. InvITs Infrastructure Investment Trusts
67. CDR Corporate Debt Restructuring

Priority Sector Lending
 Priority Sector refers to those sectors of the economy which may not get timely and
adequate credit in the absence of this special dispensation
 Priority Sector Lending is an important role given by RBI to the banks for providing a
specified portion of the bank lending to few specific sectors like agriculture and allied
activities, micro and small enterprises, poor people for housing, students for education and
other low income groups and weaker sections
 The following are the categories of the Priority Sector
 Agriculture and Allied Activities (Direct and Indirect finance) - Direct finance to agriculture
shall include short, medium and long term loans given for agriculture and allied activities
directly to individual farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of
individual farmers without limit and to others (such as corporates, partnership firms and
institutions) up to Rs. 20 lakh, for taking up agriculture/allied activities
 Small Scale Industries (Direct and Indirect Finance) - Direct finance to small scale
industries (SSI) shall include all loans given to SSI units which are engaged in
manufacture, processing or preservation of goods and whose investment in plant and
machinery (original cost) excluding land and building
 Small Business / Service Enterprises - shall include small business, retail trade,
professional & self-employed persons, small road & water transport operators and other
service enterprises
 Micro Credit - Provision of credit and other financial services and products of very small
amounts not exceeding Rs. 50,000 per borrower to the poor in rural, semi-urban and urban
areas, either directly or through a group mechanism, for enabling them to improve their
living standards, will constitute micro credit
 Education loans - Education loans include loans and advances granted to only individuals
for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies
abroad, and do not include those granted to institutions
www.ibpsguide.com | mock.ibpsguide.in | www.sscexamguide.com Page 2

 Housing loans: Loans up to Rs. 28 lakh in metropolitan cities where population is above
Rs.10 lakh and Rs. 20 Lakh at other center s for construction/purchase of a dwelling unit
per family provided total cost of the unit in metropolitan centres and at other centres does
not exceed Rs. 35 Lacs and Rs. 25 Lacs respectively
Important Types Of Banking
Central Banking
 The duty of central banks is to maintain financial stability, otherwise a country's
economy will not operate properly
 They act as regulators of their country's interest rates by controlling the amount of
money in circulation and buying and selling currencies
 They act as lenders of last resort, should another bank get into trouble
 They exist as a separate entity from all the other banks
Retail Banking
 Retail banks are the high street banks
 They take deposits from individuals, provide saving facilities and pay interest on these
accounts
 They also lend money to individuals, in the form of loans and overdrafts, and charge
interest on the money they lend
 They provide a range of other financial services
Commercial Banking
 Commercial banks, or divisions of banks, provide banking services to businesses, from
small companies through to corporate banking directed at large corporations
 They help companies raise finance to expand their businesses and to maintain their
cash-flow by lending them money
Investment Banking

 Investment banks distribute and underwrite (guarantee the sale of) share and bond
issues
 They trade securities on the financial markets and advise corporations on capital market
activities such as mergers and acquisitions
 Investment banks originally developed in the US and these banks have now taken over
many roles that were previously carried out by UK merchant banks
Important Codes Used In Banking
IFSC (Indian Financial System Code):
 Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-
branch participating in the NEFT system
 This is an 11 digit code with the first 4 alpha characters representing the bank, the 5th
character is 0 (zero) and the last 6 characters representing the bank branch
 IFSC is used by the NEFT system to identify the destination banks and also to route the
messages appropriately to concerned bank
MICR – Magnetic ink character Recognition:
 MICR is 9 digit numeric code that uniquely identifies a bank branch participating in
electronic clearing scheme
 It is used to identify the location of a bank branch
 City (3 digits), Bank (3 digits) and Branch (3 digits)
 The MICR code is allotted to a bank branch is printed on the MICR band of cheques
 MICR used for electronic credit system
SWIFT Code:
 Society for worldwide Interbank financial tele-communication

 India was 74th nation to join SWIFT Network
 SWIFT Code is a standard format of bank Identifier code

 This code is used particularly in International transfer of money between banks

 A majority of FOREX related message are sent to correspondent banks abroad through
SWIFT
 SWIFT Code consist 8 or 11 character when code is 8 digit, It is referred to primary
office
 4 digits – bank code, 2 digits – country code, 2 digits – location code and 3 – branch
code (optional)
NEFT And RTGS
 National Electronic Funds Transfer (NEFT) system is a nationwide funds transfer system to
facilitate transfer of funds from any bank branch to any other bank branch
 The Step by Step operation of NEFT is as follows
 Step-1: The remitter fills in the NEFT Application form giving the particulars of the
beneficiary (bank-branch, beneficiary's name, account type and account number)
and authorises the branch to remit the specified amount to the beneficiary by raising
a debit to the remitter's account. (This can also be done by using net banking
services offered by some of the banks)
 Step-2: The remitting branch prepares a Structured Financial Messaging Solution

(SFMS) message and sends it to its Service Centre for NEFT.
 Step-3: The Service Centre forwards the same to the local RBI (National Clearing
Cell, Mumbai) to be included for the next available settlement. Presently, NEFT is
settled in six batches at 0930, 1030, 1200, 1300, 1500 and 1600 hours on weekdays
and 0930, 1030 and 1200 hours on Saturdays
 Step-4: The RBI at the clearing centre sorts the transactions bank-wise and
prepares accounting entries of net debit or credit for passing on to the banks
participating in the system. Thereafter, bank-wise remittance messages are
transmitted to banks.
 Step-5: The receiving banks process the remittance messages received from RBI
and affect the credit to the beneficiaries' accounts.

 Real Time Gross Settlement(RTGS) - the continuous (real-time) settlement of funds
transfers individually on an order by order basis
 Real Time - the processing of instructions at the time they are received rather than
at some later time
 Gross Settlement - the settlement of funds transfer instructions occurs individually
 The Differences between NEFT and RTGS are as follows
 The fundamental difference between RTGS and NEFT, is that while RTGS is based
on gross settlement, NEFT is based on net-settlement
 Gross settlement is where a transaction is completed on a one-to-one basis without
bunching with other transactions. As for a Deferred Net Basis (DNS), or net-
settlement, this is where transactions are completed in batches at specific times.
Here, all transfers will be held up until a specific time. RTGS transactions are
processed throughout the working hours of the system
 RTGS transactions involve large amounts of cash, basically only funds above Rs
100,000 may be transferred using this system. For NEFT, any amount below Rs
100,000 may be transferred, and this system is generally for smaller value
transactions involving smaller amounts of money
 RTGS processes in real-time (‘push’ transfer), while NEFT processes in cycles
during the given working day. This causes a NEFT transaction that is initiated later
than the last cycle to be completed the next day
Deposit Insurance and Credit Guarantee Corporation of India
 Deposit Insurance and Credit Guarantee Corporation ( DICGC) is a subsidiary of Reserve
Bank of India(RBI) established on July 15, 1979 under Deposit Insurance and Credit
Guarantee Corporation Act, 1961 for the purpose of providing insurance of deposits and
guaranteeing of credit facilities

 Objective – to provide for the benefit of depositors in bank, insurance against the loss of all
of their deposits in all branches of a bank to a maximum of Rs. 100,000
 Head Office – Mumbai
 It has four branches in Delhi, Chennai, Kolkata and Nagpur
 The management of the Corporation consists of a Board of Directors, of which a Deputy
Governor of the RBI is the Chairman. The Board consist of the following members besides
the Chairman
 one Officer (normally in the rank of Executive Director) of the RBI
 one Officer from the Central Government
 five Directors nominated by the Central Government in consultation with the RBI
a) three of whom are persons having special knowledge of commercial banking,
insurance, commerce, industry or finance
b) two of whom shall be persons having special knowledge of, or experience in
co-operative banking or co-operative movement
 four Directors, nominated by the Central Government in consultation with the RBI,
having special knowledge or practical experience in respect of accountancy,
agriculture and rural economy, banking, co-operation, economics, finance, law or
small scale industry or any other matter which may be considered to be useful to
the Corporation
 The Corporation maintains the following 2 separate funds which are funded by the premium
and guarantee fees received
 Deposit Insurance Fund
 Credit Guarantee Fund
 One more fund called General Fund is maintained which holds the capital of the
Corporation, the staff establishment and administrative expenses
 The following are the types of deposits covered DICGC insures all bank deposits

 Saving
 Fixed
 Current
 Recurring
 The following are the deposits which are not covered by DICGC
 Deposits of foreign Governments

 Deposits of Central/State Governments
 Inter-bank deposits
 Deposits of the State Land Development Banks with the State co-operative banks
 Any amount due on account of and deposit received outside India
 Any amount which has been specifically exempted by the corporation with the
previous approval of the RBI
Financial Inclusion
1). Financial inclusion or inclusive financing is the provision of financial services to low income
and disadvantaged sections of the society at affordable costs. Financial Inclusion Committee is
headed by Deepak Mohanty.
2). Globally about 2 billion working age adults have no access to any type of formal financial
services delivered by the financial institutions
3). The goals of Financial inclusion as defined by the United nations is as follows
 To provide sound and safe institutions governed by clear regulation and industry
performance standard
 To provide financial services like savings, deposit, payments, transfer, credit and
insurance services at a reasonable cost to all
 To facilitate financial and institutional sustainability

 To ensure continuity and certainty of investments

4). Alliance for Financial Inclusion (AFI) – world’s largest and most prominent network of
financial inclusion
 AFI was founded in 2008
 It is a Bill & Melinda Gates foundation funded project supported by AusAid to speed
up the development of smart financial inclusion policy in developing countries
 Its main aim is to adopt and expand effective inclusive financial policies in
developing nations to uplift 2.5 billion impoverished and unbanked citizens
 AFI has over 105 institutions in 88 countries
 It hosts annual Global Policy Forum(GPF) as an event for membership
 In 2011 GPF, AFI adopted Maya Declaration – a set of principles and goals for
financial inclusion policy development
 AFI uses Polylateral Development model – to contrast and compare successful
financial inclusion
5). In partnership with NABARD the United Nations aims to increase financial inclusion of the
poor by developing appropriate financial products
6). UN’s financial inclusion is financed by United Nations Development Program
7). In India the term financial inclusion was 1st used in the Annual Policy Statement presented
by Y. Venugopal Reddy former Governor of RBI
8). Some of the services provided under the term Financial Inclusion in India
 Mangalam – 1st village in India where all households were provided banking facilities
 Norms of banks were relaxed for people intending to open accounts with annual
deposits less than Rs. 50,000
 General Credit Cards(GCC) were issued to poor and the disadvantaged to help
them with easy access to credit
 RBI asked the commercial banks in different regions to start 100% financial inclusion
campaign
 Pondicherry, Himachal Pradesh and Kerala announced 100% financial inclusion

 Pradhan Mantri Jan Dhan Yojna – a national financial inclusion mission which aims
to provide bank accounts to low income people
9). Deposit Penetration – key driver of financial inclusion, the number of savings account - 624
million, is 4 times the number of loan accounts -160 million
10). The top three states/ union territories which tops in financial inclusion are as follows
 Pondicherry
 Chandigarh
 Kerala
11). Top 3 districts are as follows
 Pathanamthitta – Kerala
 Karaikal – Pondicherry
 Thiruvananthapuram – Kerala
White Label ATMs
1). When Automated Teller Machines (ATM) are owned and operated by private non-banking
companies they are known as White Label ATMs
2). Reserve Bank of India (RBI) has given permission to non-banking companies with minimum
net worth of Rs. 100 crore to apply for setting up White Label ATMs
 As per RBI norms, non-bank company that owns white labeled ATMs should provide
banking services to customers based on cards issued by banks
3). RBI issued guidelines for white label ATMs in 2012
4). In 2013 RBI started issuing license for setting up White Label ATMs to non-bank
companies
5). Tata Communications Payment Solutions Ltd. – 1st company to receive license from RBI to
open White Label ATMs, they started their business under the brand name of ‘Indicash’
6).The following organizations plays an important role in the functioning of the White Label
ATMs

 RBI – it provides license to open White Label ATMs under the Payment and
Settlement Systems Act, 2007
 Non-Bank Company or the White Label ATM Company
a. Rents the venue to set up the ATM
b. Maintains and services the machine
 Sponsor Bank
a. Loads cash in the White Label ATM
b. Ensures that counterfeit currency notes are not circulated through these
ATMs
 Payment Network Operator (PNO) provides technical connectivity in the system.
Some examples of PNOs are as follows
a. Visa
b. Mastercard
c. National Financial Switch (NFS) of National Payment Corporation of India
(NPCI)
7). Features of a White Label ATM are as follows
o Any customer belonging to any bank can carry out transactions in White Label
ATMs
o Every month the 1st 5 transactions are free of cost
o Users can withdraw a maximum amount of Rs. 10,000 per transaction
o Value added services like mobile recharge and utility bill payments can also be
done
8).On 9th September 2015, Union Cabinet approved 100% Foreign Direct Investment (FDI)
under the automatic route for White Label ATM Operations (WLAO)
9). Before the approval of the government FDI in WLAO was allowed through government
approval route which was time consuming leading to delay in projects

10).This approval will make FDI inflows in WLAO easier thus promoting financial inclusion in
the country including Pradhan Mantri Jan Dhan Yojana (PMJDY)
11).Some important non-bank companies that own and operate White Label ATMs in India are
as follows
 Muthoot Finance
 Srei Infrastructure
 Vakrangee Software
 Prizm Payments
Basel 1, 2 and 3 committee
1). On 26 June 1974 a number of banks had released Deutschmarks (the German currency) to
the Herstatt Bank in exchange for dollar payments deliverable in New York
2). Due to differences in the time zones, Herstatt Bank ceased operations between the times of
the respective payments and before the dollar payments could be effected in New York, the
Herstatt Bank was liquidated by German regulators
3). The G-10 nations responded to this incident by forming the Basel Committee on Banking
Supervision in late 1974, under the Bank for International Settlements (BIS) located in Basel,
Switzerland
BASEL-I
1). In1988 the Basel Committee on Banking Supervision (BCBS) in Basel published a set of
minimum capital requirements for banks known as Basel I norms
2). Features of Basel I
 It mainly focused on credit or default risk i.e., the risk of counter party failure
 It defined the capital requirement and structure of risk weights for banks
3). Assets of banks were classified and grouped in five categories according to credit risk,
carrying the following risk weights

 0% - cash, bullion, home country debt like Treasuries
 20% - securitizations such as mortgage-backed securities (MBS) with the highest
AAA rating
 50% - municipal revenue bonds, residential mortgages
 100% - most corporate debt
4). Banks with an international presence are required to hold capital equal to 8% of their risk-
weighted assets (RWA).
 At least 4% in Tier I Capital
 More than 4% in Tier I and Tier II capital
5).From 1988 this framework was introduced within the G-10 nations initially and then over 100
countries adopted the rules prescribed by the Basel I
BASEL II
1). Basel II was introduced in 2004 with more refined definitions for capital adequacy, risk
management and disclosure requirements
2). It used external rating agencies to set the risk weights for corporate and banks
3). Disclosure requirements allowed market participants to access the capital adequacy of the
institution based on information on the following aspects
 Scope of application
 Capital
 Risk exposure
 Risk assessment processes
4). In Basel II norms Operational Risk has been defined as the risk of loss resulting from
inadequate or failed internal processes, people and systems
5). Basel II uses a "three pillars" concept namely
 minimum capital requirements

a. The credit risk component can be calculated in three different ways of varying
degree of sophistication, namely standardized approach, Foundation IRB,
Advanced IRB and General IB2 Restriction. IRB stands for "Internal Rating-
Based Approach"
b. For operational risk, there are three different approaches – basic indicator
approach or BIA, standardized approach or TSA, and the internal
measurement approach
c. For market risk the preferred output its value at risk
 supervisory review
a. This is a regulatory response to the first pillar, giving regulators better 'tools'
over those previously available
b. It also provides a framework for dealing with systemic risk, pension risk,
concentration risk, strategic risk, reputational risk, liquidity risk and legal risk,
which the accord combines under the title of residual risk
c. Banks can review their risk management system
d. The Internal Capital Adequacy Assessment Process (ICAAP) is a result of
Pillar 2 of Basel II accords
 Market discipline - it supplements regulation as sharing of information facilitates

assessment of the bank by others, including investors, analysts, customers, other
banks, and rating agencies, which leads to good corporate governance
BASEL III
1). The Basel II regulations did not have any explicit norm on the debt that banks could take
but focused on financial institutions ignoring the systematic risks
2). Therefore to ensure that banks don’t take excessive debt and not rely on short term funds
the Basel III norms were proposed in 2010

3). Basel III promoted a more resilient banking system on the following 4 important banking
parameters namely
o Capital
o Leverage
o Funding
o Liquidity
4). Requirements of common equity and Tier 1 capital will be 4.5% and 6% respectively
5). Leverage ratio calculated by dividing Tier 1 capital by the bank’s average total consolidated
assets will be greater than 3%
6). The minimum Liquidity Coverage Ratio (LCR) will reach upto 100% by 1st January 2019 to
prevent situations like Bank Run
Gold Monetization Scheme
1). The Union Finance Minister Arun Jaitley announced several steps for monetizing gold in
the Budget 2015-16 speech, one of them being Gold Monetization Scheme (GMS)
2).As per the Budget speech the stocks of gold in India were estimated to be over 20,000
tonnes but most of this gold is neither traded nor monetized
3).The Gold Monetization Scheme will replace the already existing Gold Deposit and Gold
Metal Loan Schemes
4). Objectives of the Gold Monetization Scheme are as follows
 To mobilize the gold held by households and institutions in the country
 To provide a push up to the gems and jewellery sector in the country by making gold
available as raw material on loan from the banks
 To be able to reduce the dependency on import of gold over time to meet the
domestic demand
5). Features of GMS are as follows

 It facilitates the depositors of gold to earn interest on their metal accounts
 Once the gold is deposited in metal account, it will start earning interest on the same
 The banks would also be able to monetize the gold under this scheme
6). When a customer takes gold to deposit in a specified bank or agency the purity of the gold
is determined by a preliminary test which includes melting the gold and checking with the
consent of the customer
7). A preliminary XRF machine test is also conducted to tell the customer the approximate
amount of pure gold
8). If the customer agrees then he will have to fill a Know Your Customer (KYC) form to allow
the melting of gold
9). A fire array test will be conducted and the gold will be melted in the presence of the
customer to remove dirt or studs in the gold
10).The removed dirt or studs will be handed over to the customer and the purity of the gold
will be informed. After which the customer will be given a choice if he/she is willing to deposit
the gold or take it back
11). If the customer is willing to deposit the gold in the metal account then he/she will be given
a certificate by the Collection Center certifying the amount and purity of the deposited gold
12).The minimum quantity of gold that can be deposited by a customer is set as 30gms to
encourage even small depositors
13).The deposited gold will lent by the banks to jewelers at an interest rate little higher than the
interest paid to the customers
14).Both the principal and interest to be paid to the depositors of gold will be valued in gold
15).The tenure of gold deposits is likely to be for a minimum of 1 year. The customers will have
a choice to take cash or gold on redemption as per the preference stated at the time of deposit

Payments Bank
1). A Payments bank is a type of non-full service niche bank in India
2). On 23rd September 2013, RBI formed a Committee on Comprehensive Financial Services
for Small Businesses and Low Income Households under the chairmanship of Nachiket Mor
3). The Nachiket Mor Committee submitted its report on 7th January 2014 recommending the
formation of a new category of bank called payments bank
4). On 27th November 2014 RBI released the final guidelines for payments banks
5). 41 entities had applied to the RBI for Payments bank license and an External Advisory
Committee(EAC) headed by Nachiket Mor evaluated the applications
6). During the presentation of the Union Budget it was announced that the India Post will use
its large network to run payments bank
7). On 19th August 2015 RBI gave in-principle licenses to 11-entities to establish payments
bank with a validity period of 18 months. The following are the 11-entities which were granted
licenses
 Aditya Birla Nuvo
 Airtel M Commerce Services
 Cholamandalam Distribution Services
 Department of Posts
 FINO Pay Tech
 National Securities Depository
 Reliance Industries
 Dilip Shanghvi – founder of Sun Pharmaceuticals
 Vijay Shekhar Sharma – CEO of Paytm
 Vodafone M-Pesa
 Tech Mahindra
8). The RBI will consider to grant full licenses under Section 22 of the Banking Regulation Act
1949 after it is satisfied that all the conditions have been satisfied the above entities

9). Payments bank can only receive deposits and provide remittances
10). It cannot carry out lending activities
11). The payments bank targets at
 Migrant laborers
 Low income households
 Small businesses
 Unorganized sector entities
12). The minimum capital requirement to establish a payments bank is Rs. 100 crore
13). For the 1st 5 years the stake of the promoter should be 40% minimum
14). The voting rights in payments bank are regulated by the Banking Regulation Act 1949
15). The voting right of any shareholder is capped at 10%, it can be increased to 26% by the
Reserve Bank of India(RBI)
16). RBI also regulates any acquisition over than 5%
17). Foreign investments will be allowed in these banks as per the rules of FDI in private banks
of India
18). Payments bank can accept utility bills but cannot form subsidiaries to undertake non-
banking activities
19). Initially the deposits will be capped at Rs. 1,00,000 per customer but can be raised by the
RBI based on the performance of the bank
20). 25% of branches of payments banks should be in the unbanked rural areas
21). A bank will be licensed as ‘Payments bank’ by the RBI under the Section 22 of the
Banking Regulation Act 1949 and will be registered as Public Limited Company under the
Companies Act 2013

Bandhan Bank
Bandhan Bank appoints its Chairman, Boards of Directors:
Bandhan Bank Ltd on 9 July 2015 appointed its Chairman and Board of Directors. The bank
will commence its operations in India from 23 August 2015. It will be the first bank to be
established in Eastern India post Independence. Ashok Kumar Lahiri, former Chief Economic
Advisor to the Union Government, was appointed as the Chairman of the bank. While,
Chandra Shekhar Ghosh, Founder of Bandhan Financial Services Ltd, was appointed as the
Managing Director and Chief Executive Officer of the bank. They both will be in the board of
directors as well.
Bandhan Bank Logo of Bandhan Bank Ltd
Apart from appointing the directors, the bank unveiled its logo as well, an image of the
traditional Indian ‘Diya’. The extensive use of the colour red in the logo is associated with all
that’s auspicious. The flame or the Diya symbolizes a ray of hope, a new morning.
Between the red colour and the flame, the Bandhan Bank logo holds the promise of good
things to look forward to.
About Bandhan Bank Ltd
Micro-lender Bandhan Financial Services in June 2015 received approval from the Reserve
Bank of India to set up a universal bank.”Bandhan Bank will have 630 branches across 27
States. Nearly 247 of these new branches are expected to be in West Bengal.
The bank will have two distinct wings. One will cater to the micro-banking segment, targeting
the rural and un-banked areas. The other will look at general banking.
Non – Banking Financial Companies (NBFC)
1). Non Bank Financial Companies (NBFCs) are financial institutions that provide banking
services without meeting the legal definitions of a bank

2).The NBFC is a financial institution which carries out the following operations as their
principle business
 Hire purchase finance
 Housing finance
 Investment
 Loan
 Equipment leasing
3). According to the RBI (Amendment Act) 1997, a NBFC is an institution which can be defined
as
 A financial institution which is a company
 A non-banking institution which has its principle business as the receiving of
deposits
4). The Reserve Bank of India (Amendment Act) 1997 demands compulsory registration with
the RBI of all the NBFCs irrespective of their public deposits for commencing and carrying out
business
5). Norms to be followed by the NBFCs operating in India
 They should maintain a portion of their deposits in liquid assets
 They should create a Reserve Fund and transfer 20% of profit after tax annually to
the fund
 No NBFC can carry on business without obtaining a Certificate of Registration
(COR) from the RBI
 A new NBFC seeking registration with the RBI should satisfy the entry point norm of
Rs. 2 crores as the minimum Net Owned Fund (NOF)
6). Based on their Liability Structure NBFCs are divided into 2 categories as follows
 Category A – NBFCs accepting public deposits (NBFCs-D)
 Category B – NBFCs not accepting public deposits (NBFCs-ND)

7). NBFCs operating in India fall under the following categories based on their businesses

 Hire Purchase Finance Company – a company which carries on hire purchase
transactions as its principle business where loans for purchase of goods and
services are provided under an installment plan
 Housing Finance Company – a company which provides finance for acquisition of
houses and plots. It also helps in construction of houses and development of plots
 Investment Company – a company which carries out acquisition of securities as its
principle business. They provide finance mainly to companies associated with
business organizations
 Loan Company – a small partnership company which obtain funds in the form of
deposits from the public and give loans to wholesale, retail traders, small scale
industries and self-employed individuals
 Equipment leasing company – a company which lease out equipments or provide
finances for leasing business. They raise fund from other companies, banks and the
financial institutions in addition to their NOF
 Mutual Benefit Finance Company – any company that comes under the Section
620A of the Companies Act 1956. The main source of funds are share capital and
deposits from their members and public
 Chit Fund Company – a company which collects subscriptions from the public
periodically and in turn distributes the same as prizes back to them. These
companies are governed by Chit Fund Act 1982
8). Some important NBFCs operational in India are as follows
 HDFC – established in 1977 provides mortgages, life Insurance, mutual funds and
Micro Finance
 Power Finance Company – established in 1986 provides financial consulting,
investment banking and loan management
 Reliance Capital – 1986 – provides asset management, insurance, broking and

distribution, commercial finance and mutual funds

 Infrastructure Development Finance Company – 1997 – provides finance for
infrastructure projects, corporate finance, mutual funds and investment banking
 Rural Electricity Corp. – 1969 – provides investment and private banking and asset
management
 Shree Ram Transport Finance – 1974 – provides consumer vehicle finance, city
union finance and micro finance
 Bajaj Holdings – 2007 – Asset management, loans and micro finance
 M & M financial – 1991 – financial services, micro finance and asset management
Securities and Exchange Board of India (SEBI)
1). The Securities and Exchange Board of India (SEBI) is the regulator for the securities
market in India
2). It was established by the Government of India in 1988 as a replacement of the Controller of
Capital Issues (CCI) which was the regulatory authority before SEBI
3). CCI acquired its authority from the Capital Issues (Control) Act, 1947
4). Initially SEBI was a non-statutory body without any statutory power but in 1995 the
government added statutory power to SEBI through the Securities and Exchange Board of
India Act, 1992
5). SEBI Headquarters – Bandra Kurla Complex, Mumbai, Maharashtra
6). Chairman – Upendra Kumar Sinha
7).The main objectives of SEBI are as follows
 Regulating activities of stock exchange
 To protect the rights of investors and ensure the safety of their investment
 To prevent malpractices by balancing its self regulating business and statutory
regulations
 To regulate and develop a code of conduct for intermediaries

8). SEBI is responsible for the needs of the following three groups

 Issuers – SEBI provides a market place in which the issuers can raise finance fairly
 Investors – SEBI provides protection and supply of accurate and correct information
 Intermediaries – SEBI provides a competitive professional market
9). The SEBI is managed by its following members
 The chairman nominated by Union Government - Upendra Kumar Sinha
 2 members – Officers from the Union Finance Ministry
a. Prakash Chandra – Joint Secretary, Ministry of Finance
b. Naved Masood – Secretary, Ministry of Corporate Affairs
 1 member from the Reserve Bank of India – Anand Sinha (Deputy Governor, RBI)
 5 members nominated by the government out of them at least 3 shall be full-time
members
a. Nishant Rathi – full-time member
b. Rajeev Kumar Agarwal – full-time member
c. S. Raman – full-time member
d. V. K. Jairath Magya – Part-time member
e. Raje Kumar – part-time member
10). Functions of SEBI are as follows
 Protective Functions are performed to protect the interest of investors and provide
safety for their investment
a. It involves to keep a check on Price Rigging i.e., manipulation of prices of
securities with the main objective of creating inflation
b. It involves prevention of insider trading i.e., a person from the company with
sensitive information that can affect the prices of securities uses that
information to make profit
c. To prohibit Fraudulent and Unfair Trade Practices i.e., not allowing the
companies to make misleading statements which will induce the sale of

purchase of securities by any other person

 Developmental Functions are performed by the SEBI to promote and develop the
activities of the stock exchange and increase its business
a. It promotes training of intermediaries of the securities market
b. SEBI promotes the activities of the stock exchange by adopting flexible and
adoptable ways like internet trading and initial public offer of primary market
 Regulatory Functions are performed by SEBI to regulate the business in stock
exchange
a. SEBI regulates the working of mutual funds and takeover of companies
b. It conducts inquiries and audit of stock exchanges
c. It frames rules and regulations and a code of conduct to regulate the
intermediaries
11).The committees formed by SEBI for its functioning are as follows
 Technical Advisory Committee
 Committee for review of structure of market infrastructure institutions
 Advisory Committee for the SEBI Investor Protection and Education Fund
 Takeover Regulations Advisory Committee
 Primary Market Advisory Committee (PMAC)
 Secondary Market Advisory Committee (SMAC)
 Mutual Fund Advisory Committee
 Corporate Bonds and Securitization Advisory Committee
National Housing Bank
1). National Housing Bank (NHB) is an apex financial institution for housing and wholly owned
subsidiary of Reserve Bank of India (RBI)
2). It was established on 9th July 1988 under the National Housing Bank Act, 1987

3). High Level Group under the Championship of Dr. C. Rangarajan, the then Deputy Governor
of RBI, recommended the setting up of the National Housing Bank as an autonomous housing
finance institution
4). The National Housing Bank Bill (91 of 1987) provided the legislative framework for the
establishment of NHB was passed in the Parliament
5). NHB was established to achieve the following objectives
 To make housing credit more affordable
 To augment resources for the sector and channelize them for housing
 To promote a network of dedicated housing finance institutions to adequately serve
various regions and income groups
 To provide an effective housing finance system to all segments of the population
 To integrate the housing finance system with the overall financial system
 To regulate the activities of housing finance companies based on regulatory and
supervisory authority derived under the Act
 To encourage public agencies to emerge as facilitators and suppliers of serviced land
for housing
 To encourage augmentation of supply of buildable land and building materials
 To upgrade the housing stock in the country
6).The following are the Board of Directors of NHB
 Sriram Kalyanaraman – Managing Director & Chief Executive Officer
 Dr. Urjit R. Patel – Deputy Governor of RBI
 G. M. Rao – Director, Central Board of Directors, RBI
 Alok Tandon – IAS, Joint Secretary to the Government of India, Ministry of Finance
 Vijaya Srivastava – IAS, Joint Secretary to the Government, Ministry of Rural
Development
 Sanjeev Kumar – IAS, Joint Secretary (RAY) to Government of India and Mission
Dirtector (JNNURM), Ministry of Housing and Urban Poverty Alleviation

7). Vision of NHB – Promoting inclusive expansion with stability in housing finance market
NABARD
1). National Bank for Agriculture and Rural Development (NABARD) is an apex development
bank in India
2). Headquarters – Mumbai
3). It was established by the Committee set up by RBI to Review Arrangements for Institutional
Credit for Agriculture and Rural Development (CRAFICARD) under the Chairman Shri. B.
Sivaraman on 12th July 1982
4). Its main aim is to uplift rural India by increasing the credit flow for evaluation of agricultural
and rural farm sector
5). Chairman – Dr. Harsh Kumar Bhanwala
6). The government of India now holds 99% of NABARD’s shares which were sold by RBI
7). NABARD is active member of Alliance for Financial Inclusion
8). NABARD replaced the following organizations
 Agricultural Credit Department
 Rural Planning and Credit Cell
 Agricultural Refinance and Development Corporation
9). The initial capital of NABARD was Rs. 100 crore
10). Present share details of NABARD are as follows
 Government of India – Rs.4680 crore – 99%
 RBI – Rs. 20 crore – 1%
11). NABARD takes measures towards institutions which help in improving absorptive capacity
of the credit delivery system including
 Monitoring
 Formulating rehabilitation schemes

 Restructuring of credit institutions

 Training of personnel
12). It coordinates the rural financing activities of the
 Government of India
 State Governments
 Reserve Bank of India
 Other national institutions concerned with policy formulation
13). NABARD refinances financial institutions which finance the rural sector. These refinances
are availed by the following organizations
 State Co-operative Agriculture and Rural Development Bank (SCARDB)
 State Co-operative Banks(SCB)
 Regional Rural Banks(SCBs)
 Commercial Banks(CB)
 Other financial institutions approved by RBI
14). It has 336 District offices across the country including 1-sub office at Port Blair and one
special cell at Srinagar
15). It has 6 training establishments
16). NABARD is also known as Self Help Group (SHG) Bank Linkage Programme. About 22
lakh SGHs were credited through this programme
17). NADARD has a portfolio of Natural Resource Management Programmes in the following
fields
 Watershed development
 Tribal development
 Farm innovation
18). The RBI and NABARD has laid out guidelines for commercial, Regional Rural and
Cooperative banks to provide data regarding loans given by banks to the microfinance
institutions

MICRO UNITS DEVELOPMENT & REFINANCE AGENCY (MUDRA) BANK
Headquarters New Delhi

February 2015, in Union Budget of India 2015 by Finance
Announcement
Minister Arun Jaitley.
Launched on April 2015 by Prime Minister Narendra Modi
Chief Executive Officer Mr. Jiji Mammen, previously worked as the Chief General
(CEO) Manager of NABARD.
IMPORTANT THINGS TO KNOW:
1.) MUDRA bank is a public sector financial institution that provides loans at low rates to
microfinance institutions and non-banking financial institutions.
2.) This bank comes under the Pradhan Mantri MUDRA Yojana scheme to provide services to
small entrepreneurs outside the service area of regular banks.
3.) Initial capital fund allotted for the bank is 20,000 crore.
4.) Credit guarantee fund is 3000 crore.
5.) Initially the bank functions as non-banking financial company and a subsidiary of the Small
Industries Development Bank of India(SIDBI).
6.) Will act as a regulator for the micro finance institutions(MFI), providing refinancing services
and guidelines to MFI.
7.) MUDRA bank classifies its customers in 3-categories.
 Shishu – can avail loans upto Rs.50,000
 Kishore – can avail loans upto Rs.5,00,000
 Tarun – can avail loans upto Rs.10,00,000
8.) Additional fund of Rs.1,00,000 crore was allotted to MUDRA increasing the percentage of
loans provided to its customers as follows.
 40% to Shishu
 35% to Kishore

 25% to Tarun
9.) Customers who are eligible to avail loans from MUDRA bank are as follows.
 Small manufacturing units
 Shopkeepers
 Fruits or vegetable vendors
 Artisans
International Monetary Fund
1). The International Monetary Fund (IMF) is an international organization of 188 countries
working together to
 Foster global monetary co-operation
 Secure financial stability
 Facilitate international trade
 Promote high employment and sustainable economic growth
 Reduce poverty around the world
2). It was formed in 1944 at the Bretton Woods Conference
3). Established on 27th December 1945, with 29 member countries initially
4). Headquarters – Washington DC
5). Managing Director – Christine Lagarde
6). Regional offices – Paris and Geneva
7). It was formed with the following objectives
 To stabilize exchange rates
 Assist the reconstruction of the world’s international payment system post the World
War II
8). Now the role of IMF is much more active managing the economic policy instead of just
exchange rates

9). Low income countries can borrow on concessional terms i.e., there is a period of time with
no interest rates through the
 Extended Credit Facility(ECF)
 Standby Credit Facility(SCF)
 Rapid Credit Facility(RCF)
10). IMF also provides non-concessional loans which has interest rates as follows
 Standby Arrangements(SBA)
 Flexible Credit Line(FCL)
 Precautionary and Liquidity Line(PLL)
 Extended Fund Facility(EFF)
11). IMF provides emergency assistance to all its members facing urgent balance of payment
needs through the newly introduced Rapid Financing Instrument(RFI)
12). To become a member of IMF, a country must apply and then be accepted by a majority of
the existing 188 members
 Each member is assigned a quota based on its relative size of their economy upon
joining
 A member’s quota determines the maximum amount of financial resources
 A member must pay its subscription – 25% to be paid in the IMF’s own currency
called as Special Drawing Rights(SDR) and the remaining 75% in the member’s own
currency
13). Each member of IMF has 250 Basic votes and one additional vote for each SDR 100,000
of quota.
Top 5-members of IMF based on their voting power are as follows
 United states – 16.75% - 421,961 votes
 Japan – 6.23% - 157,022 votes
 Germany – 5.81% - 146,392 votes

 France – 4.29% - 108,122 votes

 United kingdom – 4.29% - 108,122 votes
14). India has 58,952 votes with 2.34% voting power
15). Palau is the last member country having voting power of 0.01% and 281 votes
16). The amount of finance that a member can obtain from IMF is based on its quota. There
are two types of loans which are as follows
 Stand-By loans – 200% of its quota
 Extended arrangements loans – 600% of its quota
New Development Bank (BRICS Bank)
1). New Development Bank or the BRICS Development Bank is a multilateral development
bank operated by the BRICS states
2). An alternative to the existing
 World Bank
 International Monetary Fund
3). Aims to mobilize resources for infrastructure and sustainable development projects in
BRICS and other emerging economies and developing countries
4). Headquarters in Shanghai, China
5). Participant countries:
 Brazil
 Russia
 India
 China
 South Africa
6). None of the above country has veto power
7). Each country holds equal number of shares and equal voting rights
8). Idea for setting up NDB – 4th BRICS summit 2012, Delhi
9). Leaders agreed to set up NDB – 5th BRICS summit 2013, Durban, South Africa

10). BRICS states signed the Agreement of Articles for NDB – 6th BRICS summit 2014, Brazil
11). Initial capital for NDB – 100 billion, of which 12.5% to be paid by each member in 1st 7
years
12). Separate agreement for 100 billion reserve currency pool was also signed
13). 1st President of NDB from India – K. V. Kamath – former non-executive chairman of ICICI
bank
14). Main organs of Articles of Agreement:
 Board of ministers or governors
 Board of Directors
 President, Vice President
15). NDB will allow new member to join but the BRICS capital share cannot fall below 55%
16). For all the BRICS states
 Number of shares – 100,00
 Shareholding capacity – 20%
 Voting right – 20%
 Authorized capital – 10 billion USD
Asian Development Bank
1). Asian Development Bank is a regional development bank which facilitates the economic
development in Asia
2). It was formed on 22nd August 1966
3). Headquarters – Metro Manila, Philippines
4). Members include the non-regional developed countries and members of United Nations
Economic and Social Commission for Asia and the Pacific
5). Consists of 67 member countries out of which
 48-countries within Asia and the Pacific

 19-outside Asia-Pacific region

6). Major Organs of Bank
 Board of Governors
 Board of Directors and Managers
 President
7). President – Takehiko Nakao from 2013
PRESIDENTS DATES
Takeshi Watanabe 1966-1972
Shiro Inoue 1972-1976
Taroichi Yoshida 1976-1981
Masao Fujioka 1981-1989
Kimimasa Tarumizu 1989-1993
Mitsuo Sato 1993-1999
Tadao Chino 1999-2005
Haruhiko Kuroda 2005-2013
8). Important projects undertaken by Asian Development Bank
Afghan Diaspora Project.
Earthquake and Tsunami Emergency Support Project in Indonesia.

Greater Mekong Subregional Program.
ROC Ping Hu Offshore Oil and Gas Development.
Colombo Harbour Expansion Project.
Trans-Afghanistan Gas Pipeline Feasibility Assessment.
9). ADB offers two type of loans
Hard loans – from Ordinary Capital Resources (ORC) and Asian Development Fund(ADF).
Soft loans – from special fund resources including 50% paid-in and callable elements.
10). Top 5-share holders of ADB

 Japan – 15.67%

 United States – 15.56%
 China – 6.47%
 India – 6.35%
 Australia – 5.81%
11). Top five countries voting power in %
 Japan – 12.84%
 China – 5.47%
 India – 5.38%
 Australia – 4.94%
Asian Infrastructure Investment Bank
IMPORTANT POINTS TO KNOW
1). Asian Infrastructure Investment Bank (AIIB) is an international financial institution focused
on crediting infrastructure construction in the Asian-Pacific region
2). Was proposed by China in 2013, supported by
 37 – regional members
 20 – non-regional members
3). AIIB to compete with
 World Bank of India
 Asian Development Bank
4). AIIB headquarters in Beijing, China
5). Initially consisted of
 1 – Founding member(FM) – Burma
 56 – Prospected Founding Members(PFM)
6). General Secretary – Jin Liqun – Former Finance Minister of China

7). On July 2015, 57 PFMs were supposed to become FMs by

 Signing the 60-Articles of Agreement in 2015
 Ratifying the 60-Articles of Agreement in 2015 or 2016
8). 7-countries from the PFM did not sign the Articles of agreement. They are
 Denmark
 Malaysia
 Kuwait
 Holland
 Philippines
 South-Africa
 Thailand
9). Shares are based on the size of each member country’s economy
10). 3- categories of votes exist:
 Basic votes: equal for all members and constitute 18% of the total votes
 Share votes: equal to the number of shares
 Founding Member votes: each FM gets 600 votes
11). China is the highest share holder with 30.34% and voting share 26.06%
12). India 2nd highest share holder with 8.52% and voting share of 7.5%
13). Russia 3rd highest share holder with 6.66% and voting share of 5.92%
14). Maldives is the smallest PFM
WORLD BANK
1). The World Bank is an international financial institution that provides loans to developing
countries for capital programs
2). It comprises of 2-institutions
 International Bank for Reconstruction and Development (IBRD) – 188 countries
 International Development Association (IDA) – 172 countries

3). The World Bank’s official goal is the reduction of poverty

4). It was established in 1944
5). Headquarters – Washington DC, United States
6). Founders – Lord Keynes and Harry Dexter White – Fathers of both the World Bank and the
International Monetary Fund
7). Parent Organization – World Bank Group (WBG)
8). President – same as the President of WBG – presently Jim Yong Kim
9). Objectives of World Bank
 To provide guarantee for loans granted to small and large units and other projects of
member countries
 To ensure the implementation of development projects so as to bring about a
smooth transference from a war-time to peace economy
10). It has 2-types of members:
a. Founder members
b. General members
11). India is a founder member
12). Voting right of every member is based on the member country’s share in the total capital
of the Bank
13). Every member of the IMF is automatically a member of World Bank
14). Any member can be debarred from World Bank under the following conditions
 By written notice to the bank, but such country has to repay the granted loans on
terms and conditions decided at the time of sanctioning the loan
 Any country working against the guidelines of Bank can be debarred by the Board of
Governors
15). Top 5-member countries with voting powers are as follows:
 Japan – 6.84%
 China – 4.42%

 Germany – 4%
 United Kingdom – 3.75%
16). The initial authorized capital of the World Bank was 10,000 million which was divided into
1lakh shares each
17). The authorized capital of the Bank has been increased from time to time with the approval
of the member countries. The member countries repay the share amount to the World Bank in
the following ways:
 2% allotted share are repaid in gold, US dollar or SDR
 18% of the country’s capital share in its own currency
 Remaining 80% share is deposited by the member country on the demand of World
Bank
18). World Bank can grant loans up to 20% of the member country’s share paid up as capital
19). World Bank takes guidance of the following international institutions
 FAO
 WHO
 UNESCO
 UNIDO
20). 75% of its total loans are sanctioned to developing countries while 25% to developed
countries
E-Banking Systems
1). E-banking is an electronic payment system that enables customers of a financial institution
to conduct financial transactions on a website operated by a bank or financial institution
2). E-banking is also referred to as
 Internet banking
 Virtual banking
 Online banking

3). A customer with internet access would need to register with the bank or financial institution
to access its online banking facilities
4). They should set up some password for customer verification
5). To access e-banking a customer should log-in to the online banking facility using the
customer number and password given to him/her by the bank
6). The common features of e-banking comes under 6-categories as follows
 A bank customer can perform non-transactional tasks like
a) Viewing account balances
b) Viewing recent transactions
c) Downloading bank statements
d) Viewing images of paid cheques
e) Ordering cheque books
f) Download periodic account statements
g) Downloading applications for mobile banking
 A customer can carry out banking tasks through online banking like
a) Funds transfer between the customer linked accounts
b) Paying 3rd parties like bill payments
c) Investment purchase or sale
d) Loan applications and transactions
e) Credit card applications
f) Register utility billers and make bill payments
 Financial institution administration
 Management of multiple users having varying levels of authority
 Transaction approval process
 Personal financial management support like importing data into personal accounting
software
7). Advantages of e-banking for both the banks and the customers are as follows

 Permanent access to the bank
 Lower transaction costs
 Access from anywhere
8). Some potential threats on e-banking for deceiving the user to steal login data and valid
Transaction authentication number(TAN) are as follows
 Phishing – an attempt to acquire sensitive information such as password, usernames
and credit card details for malicious reasons
 Pharming – a cyber attack intended to redirect a website’s traffic to another fake site
 Cross-site scripting(XSS) – a type of computer security vulnerability typically found in
web applications which enables attackers to inject client-side script into web pages
viewed by other users
 Keystroke logging – is an action of recording the keys struck on a keyboard in a
covert manner so that the person using the keyboard is unaware that their actions
are being monitored
9). Some of the counter-measures that can be implemented to avoid such threats are as
follows
 Digital certificate – an electronic document used to prove the ownership of a public
key is used againt phishing and pharming
 Use of ‘Secoder’ card readers can avoid the manipulation of the transaction data
 Virus scanners can be used to protect the customer’s account details against Trojan
horses
 Usage of PIN/TAN system where
a) Personal Identification number(PIN) – represents a secured password used
for login
b) Transaction Authentication Number(TAN) – represents a one-time passwords
to authenticate transactions

 A signature based online banking can be used where all the transactions are signed
and encrypted digitally
RuPay CARD SYSTEM
1). RuPay is an Indian domestic card scheme launched by National Payments Corporation of
India (NPCI)
2). NPCI – Managing Director & CEO – A. P. Hota
3). RuPay enables the electronic payments at all Indian banks and financial institutions
4). It was initially conceived as the IndiaPay scheme by NPCI to compete with the MasterCard
and Visa card schemes
5). It was later renamed as RuPay scheme to avoid name conflicts with other financial
institutions
6). It was created to enable the RBI’s desire to have a domestic, open loop and multilateral
system of payments in India
7). The RuPay card was launched on 26th March 2012
8). RuPay was dedicated to India by President Pranab Mukherjee at Rashtrapati Bhavan, New
Delhi on 8th May 2014
9). All banks of India are authorized to issue RuPay debit cards to their customers for usage at
 ATMs
 Point of Sale (PoS) terminals
 E-commerce websites
10). About 240 banks including all major public sector banks and 200 cooperative and rural
banks issued RuPay cards to promote financial inclusion
11). RuPay cards are accepted at all the ATMs across India under National Financial Switch
12). Details of ATMs, PoS and e-commerce websites are as follows
 ATMs – 145,270
 PoS terminals – 875,000

 E-commerce websites – 10,000
13). NPCI entered into partnership with Discover Financial Services(DFS) for enabling the
acceptance of RuPay globally as RuPay Global Cards on DFS’s payment network outside
India
14). RuPay chip cards launched by NPCI for high security transactions have an embedded
microprocessor circuit containing information about the card holder
15). RuPay chip cards use EMV(Europay, Mastercard, Visa) chip technology
16). RuPay enables the banks to issue a unified Kisan Card for farmers under the Kisan Credit
Card scheme
17). The Punjab Grains Procurement Corporation Ltd.(PUNGRAIN) pays the commission
agents through the RuPAy Debit Card
18). 75 cooperative societies of AMUL in regions of Burdwan and Hooghly of West Bengal
were enabled to get their payments directly into their bank accounts on the same day of sale of
milk through an initiative taken by the Kotak Mahindra Bank in partnership with RuPay
Important Banking Terminology
ATM (Automatic Teller Machines) When an account has insufficient funds the
They are machines that dispense cash, receive cheque is is not payable and is returned by the
cash, accept cheques, give balance details and bank with a reason “Exceeds arrangement” or
mini statements to the customers through “funds insufficient”.
Computer network Bank Account
Bancassurance It is account of nominal interest which can only
It is the distribution of insurance products and the be used for personal purpose and which has
insurance policies of insurance companies by some restrictions on withdrawal
banks as corporate agents through their Bank Rate
branches. Banks charge a fee for this service It is the rate of interest charged by a central bank
from insurance companies to commercial banks on the advances and the
Bouncing of a cheque loans it extends.
Base rate

It is the rate of interest on which banks base their It is a card issued by the bank so the customers
lending rates. Usually loans are given at a rate can withdraw their money from their account
higher than the base rates and saving rate is electronically.
below the base rate Demat Account
Basis Point The way in which a bank keeps money in a
One-hundredth of 1% point normally used for deposit account in the same way the Depository
indicating cost of finance company converts share certificates into
Call Money electronic form and keep them in a Demat
It is a loan that is made for a very short period of account.
a few days only with a low rate of interest Dishonour of Cheque
Cheque Non-payment of a cheque by the paying banker
It is written by an individual to transfer amount with a return memo giving reasons for the non-
between two accounts of the same bank or a payment
different bank and the money is withdrawn from E-Banking
the account. It is a type of banking in which we can conduct
Core Banking financial transactions electronically. RTGS,
It is a general term used to describe the services Credit cards, Debit cards etc come under this
provided by a group of networked bank branches category.
Core Banking Solutions (CBS) EFT – (Electronic Fund Transfer)
In this all the branches of the bank are connected In this we use Automatic teller machine, wire
together and the customer can access his/her transfer and computers to move funds between
funds or transactions from any other branch. different accounts in different or same bank.
CRR (Cash Reverse Ratio) Fiscal Deficit
the amount of funds that a bank keep with the It is the amount of Funds borrowed by the
RBI. If the percentage of CRR increases then the government to meet the expenditures.
amount with the bank comes down. Inflation
Current Account It is an increase in the quantity of money in
It is an account that can be opened generally for circulation without any corresponding increase
business purposes with no restrictions on in goods thus leading to an abnormal rise in the
withdrawals and no interest paid price level
Debit Card Initial Public Offering (IPO)
It is the time when a company makes the first
offering of the shares to the pubic.

Kiosk Banking NPA or non-performing loans are loans given

Doing banking from a cubicle from which food, by a bank on which repayments or interest
newspapers, tickets, etc are also sold payments are not being made on time
Leverage Ratio Permanent Account Number (PAN)
It is a financial ratio which gives us an idea or a PAN is a number issued by the Income Tax
measure of a company’s ability to meet its Department to their tax payers.
financial losses. Plastic Money
Liquidity Plastic money is a name given to Credit cards,
It is the ability of converting an investment Debit cards, ATM cards anf International Cards
quickly into cash with no loss in value. issued by banks
Market Capitalization Point of Sale (PoS)
The product of the share price and number of PoS refers to a location at which a payment of a
the company’s outstanding ordinary shares. card transaction occurs
Mortgage Prime Lending Rate (PLR)
It is a kind of security which one offers for Rate of interest at which a bank gives loan to its
taking an advance or loan from someone. most reliable customer i.e., customer with ‘zero
Mutual Fund risk’
These are investment schemes. It pools money Pass Book
from various investors in order to purchase It is a book where all the bank transactions are
securities. recorded.They are mainly issued to Current or
Monetary Policy Savings Bank account holders.
it refers to the Central Government policy with Repo Rate
respect to the quantity of money in the Commercial banks borrow funds by the RBI if
economy, the rate of interest and the exchange there is any shortage in the form of rupees. If
rate this rate increases it becomes expensive to
Non-bank ATM / White labeled ATM borrow money from RBI and vice versa.
An ATM or cash machine that does not Reverse Repo Rate
prominently display a bank’s name or logo. A It is the exact opposite of repo rate. It is the rate
fee will be charged for cash withdrawals in at which RBI borrows money from banks when
these ATMs and they don’t accept deposits it feels there is too much money floating in the
Non-performing Assets (NPAs) banking system
Special Drawing Rights (SDR)

It is a reserve asset (Paper Gold) created within issue of debit and credit card etc then it is
the framework of the International Monetary known as universal banking.
Fund in an attempt to increase international Virtual Banking
liquidity Internet banking is sometimes known as virtual
.SLR (Statutory Liquidity Ratio) banking. It is called so because it has no bricks
It is amount that a commercial bank should and boundaries. It is controlled by the world
have before giving credits to its customers wide web.
which should be either in the form of Wholesale Banking
gold,money or bonds. It is similar to retail banking with a slight
Teller difference that it mainly focuses on the financial
He/she is a staff member of the bank who needs of the institutional clients and the
cashes cheques, accepts deposits and perform industry.
different banking services for the general mass. Zero Coupon Bond
Universal Banking It is a bond that is sold at good discount as it
When financial institutions and banks undertake has no coupon.
activities related to banking like investment,
Roles and Function of RBI
INTRODUCTION:
 The Reserve Bank of India(RBI) was established on April 1, 1935
 The Central Office of the Reserve Bank was initially established in Calcutta but permanently moved
to Mumbai in 1937.
 The board is appointed by the Government of India in keeping with the Reserve Bank of India Act
 There are both Official and Non – Official directors
FUNCTIONS OF RESERVE BANK OF INDIA:-
There are seven major functions of the Reserve Bank of India. They are,
1. Issue of Bank Notes:

 The Reserve Bank of India has the right to issue currency notes except one rupee notes
which are issued by the Ministry of Finance.

 There are many advantages of Reserve Bank of India.

I. brings uniformity in notes issue
II. makes possible effective state supervision

III. easy to control and regulate with requirements in the economy.
IV. Keeps faith of the public in the paper currency.
2. Banker to Government:
 The Reserve Bank manages the banking needs of the Government.
 It has to maintain and operate the Government’s deposit accounts.
 It represents the Government of India as the member of the IMF and the World Bank.
3. Custodian of Cash Reserves of Commercial Banks:
 The Commercial banks hold deposits in the Reserve Bank and the latter has the custody of
the cash reserves of the commercial banks.
4. Custodian of country’s Foreign Currency Reserves:
 The Reserve Bank has the custody of the country’s reserves of international currency, and
this enables the Reserve Bank to deal with crisis connected with adverse balance of
payments position.
5. Lender of Last Resort:
 The commercial banks approach the Reserve Bank in times of emergency to tide over
financial difficulties, and the Reserve bank comes to save from their danger from higher
rate of interest.
6. Central Clearance and Accounts Settlement:
 It is easy to deal with each other and settle the claim of each on the other through book
keeping entries in the books of the Reserve Bank.
 The clearing of accounts has now become an essential function of the Reserve Bank.
7. Controller of Credit:
 The supply of money has important implications for economic stability and the importance
of control of credit becomes obvious

 Credit is controlled by the Reserve Bank in accordance with the economic priorities of the
Government.

MAJOR ROLES OF RESERVE BANK OF INDIA:-

 In every country there is one organization which works as the Central Bank.
 The function of the central bank of a country is to control and monitor the banking and
financial system of the country
 In, India the Reserve Bank of India (RBI) is the Central Bank.
 RBI is the Regulator of Financial System. The objectives of these regulation include:
 Controlling money supply in the system,

 Monitoring different key indicators.
 Maintaining people’s confidence in banking and financial system.

 RBI is the Controller and Supervisor of Banking systems. These banks may be:
 Public sector banks
 Private sector banks
 Foreign banks
 Co-operative banks, or
 Regional rural banks.
Important RBI Acts and its Functions

Umbrella Act:
 RBI Act, 1934: It governs the central bank’s functions.
 Banking Regulation Act, 1949: It governs the financial sector.

Acts Governing Specific Functions:
 Public Debt Act, 1944/Government Securities Act (proposed): Governs the government debt
market.
 Securities Contract (Regulation) Act, 1956: It regulates the government securities market.
 Indian Coinage Act, 2011: Governs laws related to currency and coins.
 Foreign Exchange Regulation Act, 1973/ Foreign Exchange Management Act, 1999:
Governs foreign exchange market.

 Payment and Settlement System Act, 2007: Provides for regulation and supervision of
payment systems in India.

 Government Securities Regulations, 2007.
Acts Governing Banking Operations:
 Companies Act, 2013: Governs banks as companies.
 Banking Companies (Acquisition and Transfer of Undertakings) Act 1970/1980: On
Nationalization of Banks.
 Bankers Books Evidence Act.

 Banking Secrecy Act.
 Negotiable Instruments Act, 1881.

Acts Governing Individual Institutions:
 State Bank of India Act, 1954.
 The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003.
 The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993.
 National Bank for Agriculture and Rural Development Act.
 National Housing Bank Act.
 Deposit Insurance and Credit Guarantee Corporation Act.
Types of Banks
There are seven types of Banks in India, and they are given below.
1.) Savings Banks:
A savings bank is a financial institution whose primary purpose is to accept savings deposits. It
may also perform some other functions. These banks are helpful for salaried people and low income
groups. The deposits collected from the customers are invested in bonds, securities etc,. At present,
most of the commercial banks carry out the functions of Savings Banks; Postal Department also
performs the functions of savings bank.
2.) Commercial Banks:

A Commercial Bank is an institution which accepts deposits, makes business loans and offers
related services. Commercial Banks also allow for a variety of deposit accounts, such as current,
savings and time deposit. These institutions are run to make profit. Commercial Banks provide various
services like collection cheques, bills of exchange, remitting money from one place to another place. In
India, Commercial Banks have been established under Companies Act, 1956. In 1969, 14 Commercial
Banks were nationalized by the Government of India.
3.) Industrial Banks/ Development Banks:
Development Banks are those financial institutions engaged in the promotion and development
of industry, agriculture and other key sectors. These banks react to the socio-economic needs. They
satisfy the developmental needs of the economy and their success is linked to the satisfactory growth
of the economy. The main objective of these banks is to provide long term loans for expansion and
modernization of industries. In India, such banks were established o a large scale after independence.
They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of
India (ICICI) and Industrial Development Bank of India (IDBI).

4.) Land Development Banks:
The Long term credit needs of the agricultural sector are met by another type of Cooperative
institution called as Land Development Banks. The structure of these banks is a two-tier one-at the
state level there are Central Land Development Banks and at the district or taluka level, there are
primary Land Development Banks. In a few States, e.g Gujarat, Jammu and Kashmir and UP, the
structure is unitary i.e., there are Apex Land Development Banks which operate directly through their
own branches at the district level.

5.) Indigenous Banks:
Indigenous Banks means money lenders and sahukars. They collect deposits from general
public and grant loans to the needy persons out of their own funds as well as from deposits. These
indigenous banks are popular in villages and small towns. They perform combined functions of trading
and banking activities. Certain well-known Indian communities like Marwaries and Multanis even today
run specialized indigenous banks.

6.) Central Bank:
Every country of the world has a Central Bank. In India, Reserve Bank of India; in USA

Federal Reserve and in UK, Bank of England are example of the Central Banks. These Central Banks
are the bankers of the other banks. They perform specialized functions, i.e., issue of paper currency,
work as bankers to governments, supervise and control foreign exchange. A Central Bank is a non-
profit making institution. It does not deal with the public but it deals with the other banks. The principal
responsibility of the Central Bank is thorough control on currency of a country.
7.) Co-operative Banks:
In India, Cooperative Banks are registered under the Cooperative Societies Act 1912. They
generally give credit facilities to small farmers, salaried employees, small scale industries, etc.
Cooperative banks are in rural as well as in urban areas. The functions of these banks are just similar
to that of Commercial Banks.

8.) Foreign Banks:
Standard Chartered Banks, City Bank, HSBC are the examples of Foreign Banks working in
India. These banks are mainly concerned with financial foreign trade. Following are the various
functions of Exchange Banks.

 Remitting money from one country to another country
 Discounting of foreign bills.
 Buying and selling gold and silver.

 Helping import and export trade.
Types of Accounts and its Functions
Types of Bank Accounts:
 Fixed Deposit Account or Time Deposit Accounts

 Current Account or Demand Deposit Account
 Saving Account
 Recurring Deposit Account

 Demat Account
Fixed Deposit Account or Time Deposit Accounts:

Cash is deposited in this account for a fixed period. This is not transferable. If the depositor
stands in need of the amount before the expiry of the fixed period, he can withdraw the same after
paying the penalty to the bank. This type of deposit attracts high rate of interest. Longer the period of
deposit higher is the rate of interest. It is also called Time Liability of the Bank.
Current Account or Demand Deposit Account:
A depositor can deposit his funds any number of times he likes and can withdraw the same any
number of times he wishes. Ordinarily businessmen deposit their funds in this account. No interest is
paid by the bank on this account. The bank demands some charges from the depositors if the amount
lying in the account falls below the minimum limit.
Saving Account:
In this account, interest is given now on per day basis between 10th and 30th of every month.
Recurring Deposit Account:
Under this account, a specified amount is deposited every month for a specific period, such as,
12, 24, 36, or 60 months it can be even for 120 months. This amount cannot be withdrawn before the
expiry of the given period except under exceptional circumstances. Interest on the amount deposited is
also credited to the account of the depositor. Like time deposit account, interest paid on this account is
higher than other accounts.

Demat Account:
Demat refers to a dematerialized account. Demat account is just like a bank account where
actual money is replaced by shares. Just as a bank account is required if we want to save money or
make cheque payments, we need to open a demat account in order to buy or sell shares.
Types of Cheques and its Categorization
1.) Open Cheque:
A Cheque is called “Open” when it is possible to get cash over the counter at the bank. The
holder of an open cheque can do the following,
 Receive its payment over the counter at the bank

 Deposit the cheque in his own account

 Pass it to someone else by signing on the back of a cheque.
2.) Crossed Cheque:

Since, open cheque is subject to risk of theft; it is dangerous to issue such cheques. This risk
can be avoided by issuing another type of cheque called “Crossed Cheque”. The payment of such
cheque is not made over the counter at the bank. It is only credited to the bank account of the payee. A
cheque can be crossed by drawing two transverse parallel lines across the cheque, with or without the
writing ‘Account Payee’ or ‘Not Negotiable’. These lines are usually drawn on the upper left hand corner
of the cheque.
3.) Bearer Cheque:
A Cheque which is payable to any person who presents it for payment at the bank counter is
called ‘Bearer Cheque’. A bearer cheque can be transferred by mere delivery and requires no
endorsement.
4.) Order Cheque:
An order cheque is one which is payable to a particular person. In such a cheque the word
‘bearer’ may be cut out or cancelled and the word ‘order’ may be written. The payee can transfer an
order cheque to someone else by signing his or her name on the back of it.
Categorization of Cheques:
 Ante-dated cheques: Cheque in which the drawer mentions the date earlier to the date of
presenting it for payment. For example a cheque issued on 20th August, 2014may bear a
date 5th August 2014.
 Stale Cheque: A cheque which is issued today must be presented to the bank for payment
within a stipulated period. After expiry of that period, on payment will be made and it is then
called ‘Stale Cheque’.
 Mutilated Cheque: In case a cheque is torn into two or more pieces and presented for
payment, such cheque is called “Mutilated Cheque”. The bank will not make payment
against such a cheque without getting confirmation of the drawer. But is a cheque is torn at
the corners and no material fact is erased or cancelled, the bank may make payment
against such a cheque.

 Post-date Cheque: Cheque on which drawer mentions a date which is subsequent to the
date on which it is presented, is called ‘Post-dated Cheque’. For example, if a cheque
presented on 5th April 2015 bears a date of 20th April 2015, is is a post dated cheque. The
bank will make payment only mon or after 20th April 2015.
Types of Loans and its Operations
Types of Loans:
 Cash Credit
 Overdraft
 Loans and Advances
 Discounting of the Bill of Exchange
 Investment in Government Securities
Cash Credit:
The debtor is allowed to withdraw a certain amount against a given security. The debtor
withdraws the amount within this limit, as per his requirement and also repays it. Interest is charged by
the bank on the actually withdrawn.
Overdraft:
Clients who have current account with the bank get the sanction to withdraw more money than
is lying in the said account. It is called Overdraft. This facility is availability for short term to reliable
parties.
Loans and Advances:
These loans are given in the form of a fixed amount. Bank credits the amount of loan in the
account books of the debtor. The latter can withdraw it any time. The interest is chargeable on the
whole amount from the day; the loan is disbursed irrespective of the fact that the debtor withdraws the
whole amount or part of it.

Discounting of the Bill of Exchange:

Under this, banks give advance to their clients on the basis of their bills of exchange before the
maturity of such bills. (A deduction is made out of the not clear face value of the bill of the period the bill
is yet to run). This deduction is called Discounting to the Bill.
Investment in Government Securities:
Purchasing of government securities by the banks tantamount to advancing loans by them to
the government. Banks prefer to buy government securities as these are considered to be the safest
investment.
Negotiable Instruments
There are certain Documents used for payment in business transaction and are transferred
freely from one person to another. Such documents are called Negotiable Instruments like Cheque,
Bank Draft, bill of exchange, Promissory notes, etc.
Features of Negotiable Instruments:
 It is a written document.
 A Negotiable Instrument payable to bearer is transferable merely by delivery, whereas a
Negotiable Instrument payable to order is transferable by endorsement and delivery.
 The holder of a Negotiable Instrument can sue upon it in his own name.
 The consideration is not mentioned on the Negotiable Instrument. It is presumed that the
Negotiable Instrument has been drawn for a valuable consideration.
 It works in the same manner as money and like money; it may also be transferred from one
person to another.
 The transferor does not need to give notice to any person at the time of transferring the
instrument.
 It is the simplest and most convenient mode of assignment of a debt.

 The title to the instrument received by a bonafide transferee is not affected by any defected in
the title of the transferor.

Types of Negotiable Instruments:
 Promissory Note
 Bill of Exchange

 Cheque
 Exchequer Bill
 Circular Note
 Dividend Warrant
 Share Warrant
 Bearer Debenture
 Bank Note
 Bank Draft
Credit Cards and its Types
1). A credit card is a payment card issued to users as a system of payment which allows the card
holder to pay for goods and services based on the holder’s promise to pay for them
2). The size of most of the credit cards are 85.60 × 53.98 mm according to the ISO/IEC 7810 ID-1
standard
3). The front of a typical credit card consists of the following parts:
 Issuing bank logo

 EMV chip
 Hologram
 Card number
 Card Network Logo
 Expiration Date
 Card Holder name
 Contactless Chip
4). Similarly the reverse side of a credit card consists of the following parts:
 Magnetic Strip
 Signature Strip
 Card Security Code

5). Important terminologies related to credit cards are as follows:
 Card holder – the consumer or the holder of the card
 Card – issuing bank – the financial institution or other organizations that issued the credit
card to the consumer

 Merchant – the individual or business accepting credit card payments for the products or
services sold to the consumer
 Acquiring Bank – the financial institution accepting the payment on behalf of the merchant
 Independent sales organization – resellers of the services of the acquiring bank
 Merchant account – it is the organization that the merchant deals with
 Credit card association – an association of the card issuing banks that set transaction terms
for merchants, card issuing banks and acquiring banks.
 Transaction networks – the system that implements the mechanics of the electronic
transactions
 Affinity partner – an institution that lends their names to an issuer to attract customers that
have a strong relationship with that institution and get paid a percentage of the balance for
each card issued using their name

6). The transaction steps that are involved in the usage of a credit card are as follows:
 Authorization – verification done by the acquiring bank on the card number, the transaction
type and the amount with the issuing bank

 Batching – the authorized transactions are stored in batches which are sent to the acquirer
 Clearing and Settlement – the acquirer sends the batch transactions through the credit card
association which debits the issuers for payment and credits the acquirer
 Funding – once the acquirer has been paid, the acquirer in turn pays the merchant
 Chargebacks – is an event initiated by the cardholder where the money in a merchant
account is held due to a dispute relating to the transaction
7). Types of Credit Cards
 Business credit cards – specialized credit cards issued in the name of a registered business
and can only be used typically for business purposes
 Secured credit cards – it’s a card that is secured by a deposit account owned by the
cardholder. The cardholder must deposit between 100% to 200% of the total amount of
credit needed

8). Advantages of credit card system to the banks
 Scope and potential for better profitability out of share earned from the merchant’s income
 Helps in banking relationship with new customers
 Provides additional customer service to the existing clients
 Savings of expenses on manpower to handle clearing transactions
9). Advantages of credit card system to the merchants
 Systematic accounting since sale receipts are routed through banking channels
 Assured and immediate settlement

 Avoids all costs and security problems involved in handling cash
 Development of a prestigious clientele base

 Increase in sale because of increased purchasing power of the cardholder due to the
unbilled credit available to him
 Advertising and promotional support on a national scale
10). Advantages of the credit card system to the cardholder

 It incorporates a sense of financial discipline in him/her
 Allows the cardholder to delegate spending powers to add-on members
 It extends additional facilities like insurance cover and discounts

 It provides proof of purchase through banking channels thus strengthening the cardholder’s
position in case of any disputes with the sellers
Letter of Credit (LC)
1). Letter of Credit (LC) is a document from a bank guaranteeing that a seller will receive payments in
full as long as certain delivery conditions have been met

2). If the buyer is unable to make payments on the purchase then the bank will cover the remaining
amount
3). LC are often used in international transactions where buyer and seller may not know each other and
are from different countries thus exposing the seller to credit and legal risks caused by
 Distance

 Differing laws
 Difficulty in knowing each party personally

4). The bank that writes the LC will act on behalf of the buyer and will make sure that all delivery
conditions have been met before making the payment to the seller
5). LC are governed by guidelines given by the International Chamber of Commerce known as Uniform
Customs and Practice for Documentary Credits (UCP)
6). LC is widely used in the importing and exporting companies and also in land development
7). To receive payments an exporter must present the documents required by the LC. The Payee
presents a document proving that the goods were sent instead of showing actual goods
8). Bill of lading (BOL) – is the document accepted by the bank as proof that goods have been shipped
9). Types of documents required by the LC are as follows
 Financial documents
a) Bill of exchange
b) Co-accepted draft
 Commercial documents
a) Invoice
b) Packing list
 Shipping documents
a) Transport document
b) Insurance certificate
c) Commercial, official or legal papers

 Official documents
a) License embassy legalization
b) Origin certificate
c) Inspection certificate
d) Phytosanitary certificate
 Transport documents
a) Bill of Lading
b) Airway bill

c) Lorry/truck receipt
d) Railway receipt
 Insurance documents
a) Insurance policy/certificate
10). The bank’s obligation is defined by the terms of the LC alone and the sale contract is irrelevant
according to the Article 4a of UCP
11). Article 5 of the UCP states that banks deal with documents only and they will not be accountable
for the goods

12). The different types of LCs are as follows
 Import/Export LC
a) For importer – Import LC
b) For exported – Export LC
 Revocable LC
a) The buyer and the bank that established the LC will be able to manipulate or make
corrections in the LC
b) This type of LC is obsolete
 Irrevocable LC
a) Any changes or cancellation of LC is done by the applicant through the issuing bank
b) It must be authorized and approved by the beneficiary
 Confirmed LC - A second bank will guarantee to honor a complying presentation at the
request of the issuing bank

 Unconfirmed LC - Does not acquire the other bank’s confirmation
 Restricted LC - Only one advising bank can purchase a bill of exchange from the seller
 Unrestricted LC – the confirmation bank is not specified that means the exporter can show
the bill of exchange to any bank and receive a payment

 Transferrable LC
a) It can be transferred to a second party at the request of the 1st beneficiary

b) A transferrable LC can be transferred to more than one alternate beneficiary as long
as it allows partial shipments

 Un-transferrable LC
a) The seller cannot assign all or part of LC to another party

b) In international commerce all credits are un-transferrable
 Deferred/Usance LC
a) A credit that is not paid immediately after the presentation but after an indicated
period that is accepted by both the seller and buyer
b) Seller allows buyer to pay the required money after taking the related goods and
selling them
 At Sight LC – a credit that the announcer bank immediately pays after inspecting the
carriage documents from the seller

 Back to Back LC
a) A pair of LCs in which one is to the benefit of a seller who is not able to provide the
corresponding goods for unspecified reasons
b) In that situation a second credit is opened for another seller to provide the desired
goods
c) It is issued to facilitate intermediary trade
 Standby LC
a) Operates like a Commercial LC except that it is retained as a standby instead of
being the intended payment mechanism
 Red Clause LC
a) The terms and conditions are particularly written in red ink

b) Before sending the products seller can take the pre-paid part of the money from
the bank
Money Market Instruments

The money market can be defined as a market for short-term money and financial assets that are near
substitutes for money.
The term short-term means generally a period up to one year and near substitutes to money is used to
denote any financial asset which can be quickly converted into money with minimum transaction cost.

Some of the important money market instruments are briefly discussed below;
1. Call/ Notice Money

2. Treasury Bills
3. Term Money
4. Certificate of Deposit
5. Commercial Papers
1. Call/Notice- Money Market: 1. Call/Notice money is the money borrowed or lent on demand for a
very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money.
Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and
repaid on the next working day, (irrespective of the number of intervening holidays) is “Call Money”.
Notice Money: When money is borrowed or lent for more than a day and up to 14 days, it is “Notice
Money”. No collateral security is required to cover these transactions.
2. Inter-Bank Term Money: Inter-bank market for deposits of maturity beyond 14 days is referred to as
the term money market. The entry restrictions are the same as those for Call/Notice Money except that,
as per existing regulations, the specified entities are not allowed to lend beyond 14 days.
3. Treasury Bills: Treasury Bills are short term (up to one year) borrowing instrument of the union
government. It is a promise by the Government to pay a stated sum after expiry of the stated period
from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the
face value, and on maturity the face value is paid to the holder. The rate of discount and the
corresponding issue price are determined at each auction.
4. Certificate of Deposits: Receipt issued by a depository institution (such as a bank, credit union, or a
finance or insurance company) to a depositor who opens a certificate account or time deposit account.
Issued in a negotiable or non-negotiable form, it states the (1) amount deposited, (2) rate of interest,
and (3) minimum period for which the deposit should be maintained without incurring early withdrawal
penalties.
5. Commercial Paper: An unsecured obligation issued by a corporation or bank to finance its short-term
credit needs, such as accounts receivable and inventory- Commercial paper is available in a wide
range of denominations, can be either discounted or interest- bearing, and usually have a limited have
or nonexistent secondary market.

Banking Ombudsman Scheme

The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers
for resolution of complaints relating to certain services rendered by bans. The Banking Ombudsman
Scheme is introduced under Section 35A of the Banking Regulation Act, 1949 by RBI with effect from
1995.
Who is a Banking Ombudsman?
The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress
customer complaints against deficiency in certain banking services.
How many Banking Ombudsmen have been appointed and where are they located?
As on date, fifteen Banking Ombudsmen have been appointed with their offices located mostly in the
state capitals. The addresses and contact details of the Banking Ombudsman offices have been
provided in the annex.
Important Information about Nationalized Banks in India
Sno Important Points

1. Allahabad Bank is the oldest bank to start Joint Stock in India.
2. Central Bank of India is the first Indian bank to be fully owned by Indians.
3. Bank of India is the first bank to open its branch outside the India (at London, 1946).
4. Bank of Baroda has the largest number of branches in the abroad.
ICICI Bank is the largest Private Sector Bank in India to have Rs. One Trillion Market value. It is
5.
the first Universal Bank in India.
6. Punjab National Bank is the First Indian Bank to have unlimited liability.
7. Union Bank of India was inaugurated by Mahatma Gandhi in 1919.
8. Canara Bank has received ISO 9002 certificate to its one of the branch.
9. SBI is the largest commercial Bank in India, and Government holds 51% of Shares of the SBI.
Indian Postal Department has launched a Stamp in the name of the Central Bank of India
10.
celebrating its 100 years in 2011.

List of Banking Abbreviations
Sno Abbreviations Full Forms

1. NABARD National Bank for Agricultural & Rural Development
2. RTGS Real Time Gross Settlement
3. NEFT National Electronic Fund Transfer
4. NAV Net Asset Value
5. NPA Non Performing Asset
6. ASBA Account Supported by Blocked Amount
7. BIFR Board for Industrial and Financial Reconstruction
8. CAMELS Capital Adequacy, Asset Quality, Management Earnings, Liquidity, Systems &
Controls
9. BCSBI Banking Codes & Standard Board of India
10. BIS Bank for International Settlement
11. BCBS Basel Committee on Banking Supervision
12. BOP Balance of Payment
13. BOT Balance of Trade
14. BPLR Benchmark Prime Lending Rate
15. CCIL Clearing Corporation of India Ltd
16. CIBIL Credit Information Bureau of India Ltd
17. CRISIL Credit Rating Information Services of India Ltd
18. CBLO Collateralised Borrowing & Lending Obligation
19. CPI Consumer Price Index
20. ADR American Depository Receipts
21. GDR Global Depository Receipts
23. ARC Asset Reconstruction Companies
25. CTT Commodities Transaction Tax
26. CRM Customer Relationship Management
27. KYC Know Your Customer

28. SLR Statutory Liquidity Ratio

29. CRR Cash Reserve Ratio
31. REPO Repurchase Option
32. NBFC Non Banking Finance Companies
33. OSMOS Off-Site Monitoring & Surveillance
34. IFSC Indian Financial System Code
35. BSE Bombay Stock Exchange
36. NSE National Stock Exchange
37. SWIFT Society for Worldwide Interbank Financial Tele communication
38. FSLRC Financial Sector Legislative Reforms Commission
39. LAF Liquidity Adjustment Facility
40. DRT Debt Recovery Tribunals
41. REER Real Effective Exchange Rate
42. PPP Public Private Partnership & Purchasing Power Parity
43. QFI Qualified Foreign Investors
44. AMFI Association of Mutual Fund in India
45. TIEA Tax Information Exchange Agreement
46. FTA Free Trade Agreement
47. GAAR General Anti Avoidance Rule
48. FEMA Foreign Exchange Management Act
49. FII Foreign Institutional Investors
51. FRBMA Fiscal Responsibility and Budget
52. GIRO Government Internal Revenue Order
53. CRAR Capital to Risk-Weighted Assets Ratio
54. DICGC Deposit Insurance and Credit Guarantee Corporation
55. FIPB Foreign Investment Promotion Board
56. EFSF European Financial Stability Facility
57. DTAA Double Taxation Avoidance Agreement
58. TIN Tax Information Network
59. CAD Capital Account Deficit
60. AML Anti Money Laundering


62. ASBA Application Supported by Blocked Amount
63. CBS Core Banking Solution
65. OLTAS Online Tax Accounting System
66. InvITs Infrastructure Investment Trusts
67. CDR Corporate Debt Restructuring

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Important Banking Terminology

ATM (Automatic Teller Machines) One-hundredth of 1% point normally used for

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Plastic Money Fund in an attempt to increase international

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Roles and Function of RBI

 There are both Official and Non – Official directors

FUNCTIONS OF RESERVE BANK OF INDIA:-

 There are many advantages of Reserve Bank of India.

II. makes possible effective state supervision

 The Reserve Bank manages the banking needs of the Government.

the cash reserves of the commercial banks.

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5. Lender of Last Resort:

keeping entries in the books of the Reserve Bank.

MAJOR ROLES OF RESERVE BANK OF INDIA:-

 Maintaining people’s confidence in banking and financial system.

 Private sector banks

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 Regional rural banks.

Important RBI Acts and its Functions

Acts Governing Specific Functions:

payment systems in India.

 Government Securities Regulations, 2007.

 Banking Companies (Acquisition and Transfer of Undertakings) Act 1970/1980: On

 Bankers Books Evidence Act.

Acts Governing Individual Institutions:

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 Deposit Insurance and Credit Guarantee Corporation Act.

Highlights of RBI’s First Bi-Monthly Monetary Policy

 Short-term lending rate (repo) unchanged at 7.5%.

 Cash Reserve Ratio unchanged at 4%.

 Forecasts CPI inflation at 5.8% by March 2016.

2.) Commercial Banks:

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3.) Industrial Banks/ Development Banks:

India (ICICI) and Industrial Development Bank of India (IDBI).

own branches at the district level.

run specialized indigenous banks.

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to that of Commercial Banks.

functions of Exchange Banks.

 Buying and selling gold and silver.

Types of Accounts and its Functions

Types of Bank Accounts:

 Fixed Deposit Account or Time Deposit Accounts

 Recurring Deposit Account

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higher than other accounts.

Types of Cheques and its Categorization

1.) Open Cheque:

 Receive its payment over the counter at the bank

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 Pass it to someone else by signing on the back of a cheque.

2.) Crossed Cheque:

date 5th August 2014.