THE COMPLETE – STATIC BANKING AWARENESS

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STATIC BANKING AWARENESS

S. No Table of Contents Page No

1. Introduction 08

a) Bank and its operations

b) Assets and Liabilities

c) Net Interest Margin

2. History of Banking and Mergers 09

3. Reserve Bank of India 11

a) Functions

b) Subsidiaries

c) Sections of RBI

4. Monetary Policy 15

a) Money flows in the banking systems

b) Policy Rates

c) Quantitative Credit Controls

d) Qualitative Credit Controls

e) Open Market Operations

5. Types of Accounts 18

a) Savings Account

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 THE COMPLETE – STATIC BANKING AWARENESS
b) Current Account

c) CASA Ratio

d) Inactive / Dormant Account

e) Fixed Deposit

f) Recurring Deposit

g) Bulk Deposit

h) Nomination facility

6. NRI Account 20

a) Classification (Tier 1 - Tier 6)

b) NRI

c) Bank Accounts for NRIs

d) NRO(Rupee Account)

e) NRE Account

f) FCNR(B) Account

g) LIBOR/DTAA

h) SNRR Account

i) Other Account

7. Financial Inclusion 22

a) No-Frill Account

b) BSBDA Account

c) PMJDY Account

d) Small Account

e) Lead Bank Scheme

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 THE COMPLETE – STATIC BANKING AWARENESS
f) Business Correspondents

8. Banking Ombudsman 24

9. Know Your Customer 24

10. ATM and its Types 25

a) Onsite/Offsite ATM

b) White label ATM

c) Brown label ATM

d) Green Label ATM

e) Orange Label ATM

f) Yellow Label ATM

g) Pink Label ATM

h) Biometric ATM

11. Priority Sector Lending 27

a) Priority Sector Lending

b) Agriculture

c) MSME

d) Export Credit

e) Education

f) Housing

g) Social Infrastructure

h) Renewable Energy

i) Others

j) PLSC(Priority Sector Lending Certificates)

12. Negotiable Instruments 29

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 THE COMPLETE – STATIC BANKING AWARENESS
a) Negotiable Instrument Act, 1881

b) Bill Of Exchange

c) Promissory Note

d) Cheque

e) Associated with cheque

f) MICR Code On Cheque

g) Types Crossing

h) Demand draft / cheque

i) CTS – 2010

13. NPA and its resolution 33

a) NPA

b) Substandard Assets

c) Doubtful Assets

d) Loss Assets

e) Action taken by bank against NPA

f) JLF

g) SDR

h) CDR

i) DRT

j) ARC(SARFAESI ACT)

k) Petition in Court Law

l) Criminal cases against willful defaulters

14. Prompt Corrective Action 35

15. Types of Banking 36

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 THE COMPLETE – STATIC BANKING AWARENESS
a) Branch Banking

b) Para Banking

c) Universal Banking

d) Narrow Banking

e) Shadow Banking

f) Unit Banking

g) Retail Banking

h) Wholesale Banking

i) Virtual Banking

j) Chain Banking

k) Offshore Banking

16. Basel Norms 37

17. Types of Risks in Banking Sector 39

18. Financial Institutions 40

a) RRB

b) NABARD

c) Co-operative banks

19. Differentiated Banks 42

a) NBFC

b) Payment banks and small finance banks

20. Financial Market 46

1. Money Market

a) Treasury bills

b) Commercial Paper

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 THE COMPLETE – STATIC BANKING AWARENESS
c) Certificate of deposit

d) Cash Management bills

2. Capital Market

a) Equity

b) Debentures

21. FDI & FPI 49

22. Types of Money 50

a) Dear Money

b) Barren Money

c) Hot Money

d) Hard Currency

e) Fiat Money

23. Concept of Loans and Advances 51

a) Loans and Advances

b) Index for loans

i) BPLR

ii) Base Rate

iii) MCLR

iv) External Bench Mark Rate( Repo Rate)

c) The Exception Category

d) DRI

e) Other exemptions

i) Crop loan

ii) Rupee export credit advances

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 THE COMPLETE – STATIC BANKING AWARENESS
f) ALMC(Asset Liability Management Committee)

g) Reverse Mortgage Loan

h) Secured Loan

i) Unsecured Loan

j) Term Loan / Revolving Credit

24. Types of Lending 53

a) Overdraft/Cash credit Account

b) Fixed and floating interest rate

c) EMI

d) Moratorium and Amortization

e) Collateral Security

f) Lessor and Lessee

g) Bailor and Bailee

h) Pledge, Hypothecation and Mortgage

25. Payment Types 57

a) Standing Instruction

b) Debit Card/Credit Card

c) Visa and Mastercard

d) NPCI and Its Operations

e) Products of NPCI

26. Payment and Settlements systems 58

a) UPI(Unified Payment Interface)

b) BHIM

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 THE COMPLETE – STATIC BANKING AWARENESS
c) NEFT

d) RTGS

e) IMPS

27. Numbers/Codes used in banking 61

a) IFSC Code

b) MICR

c) SWIFT

d) USSD

e) *99#

f) QSAM

28. Rating Agencies 62

29. Currency Notes and their dimensions 64

30. Digital Banking 65

31. Banking Terminologies 66

32. Abbreviations 72

33. Schemes related to banking 78

Topic - 1: Introduction
1. Bank and its operations
 A bank is a financial institution that accepts deposits from the public and creates Lending.
 RBI is the sole regulator for the banking sector in India.
2. Assets and liabilities
Assets: (yield / income)
 Lending activities are the best way to earn income for banks. Personal loan, corporate

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 THE COMPLETE – STATIC BANKING AWARENESS
loan, mortgage loan, housing loans will fetch a higher interest rate for the bank.
Liabilities: (cost fund )
 Deposits with the banks are liabilities for the banks. Because banks have to give
interest rate for the respective amount deposited by the customer.
3. Net Interest Margin
 Net interest margin is a gap between Assets and Liability. For example bank charges 9% interest rate
for loans. And it gives 4% interest for the deposits that lie with the banks. Now 9% - 4% = 5% will
be the profit for the banks. The 5% is a net interest margin for the banks.
 Net Interest Margin (NIM) is the important parameter for the survival of any banking system.
 At present, some new generation private sector banks along with SBI are able to achieve +3% NIM,
which is the benchmark for profitable banking operations.
But most of the public sector banks are struggling with NIMs of 2.2 to 2.7%. Hence these banks are
not able to achieve desired levels of profitability.
 To get high net interest margin banks should reduce the cost of funds.

Topic -2: History of Banking & Merger of Banks

 Banking system commenced in India with the foundation of Bank of Hindustan in Calcutta (now
Kolkata) in 1770 which ceased to operate in 1832.
Presidency Banks:
These banks were funded by the presidency government at that time.
 Bank of Bengal- Established in 1806.
 Bank of Bombay - Established in 1840.
 Bank of Madras - Established in 1843.
These three presidency banks were re-organized and amalgamated to form a single entity named “Imperial Bank of
India” on 27th January, 1927. It was later transformed into “State Bank of India” in 1955.
Some old Banks:
 Allahabad Bank was established in 1865 at Allahabad (Uttar Pradesh). It is the oldest joint stock bank
of our country functioning till today.
 Oudh Commercial Bank was established in 1881 at Faizabad (Uttar Pradesh).It is the First limited
liability Bank in India and also first joint stock bank by Indians. However it failed in 1958.
 Punjab National Bank was established in 1895 at Lahore (pakistan) and it was also the first bank to be
managed solely by Indians.
Swadeshi movement:
 Due to the “Swadeshi” movement many banks were established between 1906 and 1911. Many
local businessmen and strong political figures of India funded the banks for Indian community.
Some of the banks that were established are as follows:
Nationalization:
 19th July 1969, 14 major Banks were nationalized.
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 THE COMPLETE – STATIC BANKING AWARENESS
1. Central bank India.
2. Bank of Maharashtra.
3. Dena Bank.
4. Punjab national bank.
5. Syndicate bank.
6. United bank of India.
7. Indian bank.
8. Indian overseas bank.
9. Bank of Baroda.
10. Union bank.
11. Allahabad bank.
12. UCO bank.
13. Canara bank.
14. Bank of India.
In 1980 another 6 banks were nationalized:
1. Andhra bank.
2. Oriental bank of commerce.
3. New bank of india.
4. Corporation bank.
5. Punjab and sind bank.
6. Vijaya bank.
 There were 27 PSBs in 2017 and now there would be 12. This would result in creation
of seven large PSBs with each amalgamated entity having a business of over Rs 8 lakh crore,
and five smaller ones.
The five smaller PSBs are
1. Central Bank of India (CBI). [8th largest]
2. Indian Overseas Bank (IOB). [9th largest]
3. UCO Bank. [10th largest]
4. Bank of Maharashtra (BOM). [11th largest]
5. Punjab and Sind Bank. [12th largest]
The seven large PSBs (by size) are
1. State Bank of India (SBI)
2. Punjab National Bank (PNB)
3. Bank of Baroda (BOB)
4. Canara Bank
5. Union Bank of India (UBI)
6. Bank of India (BOI)
7. Indian bank
Recent merger announced by Finance ministry:

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 THE COMPLETE – STATIC BANKING AWARENESS
Anchor Bank Amalgamating bank’s Public sector banks by size

PNB (Punjab National Bank) Oriental bank of commerce + 2nd largest

United bank of India
Canara bank Syndicate bank 4th largest
Union bank of India Andhra bank + Corporation 5th largest
Bank
Indian bank Allahabad bank 7th largest
 The RBI has excluded six public sector banks, including OBC and Allahabad Bank, from the
Second Schedule of the RBI Act following their merger with other banks. The six banks are
Syndicate Bank, Oriental Bank of Commerce (OBC), United Bank of India, Andhra Bank,
Corporation Bank, and Allahabad Bank.

Topic 3- Reserve Bank of India

1. RBI (Reserve Bank of India):
 Reserve Bank of India (RBI) is the central bank of the country. RBI is a statutory body. It is
responsible for printing of currency notes and managing the supply of money in the Indian economy.
 Reserve Bank of India (RBI) is the highest monetary authority of India. RBI was established in 1935
by the RBI Act 1934.RBI works as a custodian of foreign reserve, banker’s bank, banker to the
government of India and controller of credit.
 Initially the ownership of almost all the share capital was in the hands of non-government
shareholders. So in order to prevent the centralization of the shares in few hands, the RBI was
nationalized on January 1, 1949.
 The Reserve Bank has adopted the Minimum Reserve System for issuing/printing the currency notes.
Since 1957, it maintains gold and foreign exchange reserves of Rs.200 Cr. of which at least Rs.115 cr.
should be in gold and remaining in the foreign currencies.

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 THE COMPLETE – STATIC BANKING AWARENESS

Functions of Reserve Bank:

1. Issue of Notes:
 The Reserve Bank has the monopoly for printing the currency notes in the country. It has the sole right
to issue currency notes of various denominations except one rupee note (which is issued by the
Ministry of Finance).
2. Banker to the Government:
 The second important function of the Reserve Bank is to act as the Banker, Agent and Adviser to the
Government of India and states. It performs all the banking functions of the State and Central
Government and it also tenders useful advice to the government on matters related to economic and
monetary policy. It also manages the public debt of the government.
3. Banker’s Bank:
 The Reserve Bank performs the same functions for the other commercial banks as the other banks
ordinarily perform for their customers. RBI lends money to all the commercial banks of the country.
4. Controller of the Credit:
 The RBI undertakes the responsibility of controlling credit created by the commercial banks. RBI uses
two methods to control the extra flow of money in the economy. These methods are quantitative and
qualitative techniques to control and regulate the credit flow in the country.
 When RBI observes that the economy has sufficient money supply and it may cause inflationary
situation in the country then it squeezes the money supply through its tight monetary policy and
vice versa.
5. Custodian of Foreign Reserves:
 For the purpose of keeping the foreign exchange rates stable, the Reserve Bank buys and sells the
foreign currencies and also protects the country's foreign exchange funds. RBI sells the foreign
currency in the foreign exchange market when its supply decreases in the economy and vice-versa.
Currently India has Foreign Exchange Reserve of around US$ 440bn (approx).
6. Other Functions:

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 THE COMPLETE – STATIC BANKING AWARENESS
 The Reserve Bank performs a number of other developmental works. These works include the
function of clearing house arranging credit for agriculture (which has been transferred to NABARD)
collecting and publishing the economic data, buying and selling of Government securities (gilt edge,
treasury bills etc)and trade bills, giving loans to the Government buying and selling of valuable
commodities etc. It also acts as the representative of Government in International Monetary Fund
(I.M.F.) and represents the membership of India.

Subsidiaries:

There are Four wholly owned subsidiaries of RBI.

1. Deposit Insurance and Credit Guarantee Corporation (DICGC):

 Establishment: July 15, 1978

 Authorized Capital: Rs.50crore
 Headquarters: Mumbai
 It is a wholly-owned subsidiary of the Reserve Bank of India (RBI). It provides deposit insurance that works
as a protection cover for bank deposit holders when the bank fails to pay its depositors.
 DICGC insures all bank deposits, such as saving, fixed, current, recurring deposits for up to the limit of
Rs.5,00,000 of each deposits in a bank.(According to Budget 2020-2021)
 The insurance covers principal and interest is now up to a maximum amount of 5 lakh.
 The DICGC does not directly charge any premium from the depositor on this insurance. So Now Banks will
pay a premium of 12paise against 10paise per Rs.100 deposit.
 All commercial banks including branches of foreign banks functioning in India, local area banks and regional
rural banks are insured by the DICGC.
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2. Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL):

 Establishment: February 3, 1995 under the Companies Act 1956

 Headquarters: Bengaluru
 Role: Augmenting the production of bank notes in India to enable the RBI to bridge the gap between the
supply and demand for bank notes in the country.
 Printing press: Mysore, Salboni in West Bengal, Nasik, Dewas
 Coin Minting Press: Mumbai, Hyderabad, Calcutta and Noida

3. Reserve Bank Information Technology Pvt Ltd (ReBIT):

 Establishment: 2016
 Role: To take care of the IT requirements, including the cyber security needs of the Reserve Bank and its
regulated entities.

4. Indian Financial Technology & Allied Services (IFTAS):

 Role: Designs, deploys & provides the essential IT-related services, required by the Reserve Bank of India,
banks, and financial institutions.

Sections of RBI:

Reserve Bank of India Act 1934 is the legislative act under which the Reserve Bank of India was formed.

There are total 61 sections in the Reserve Bank of India Act 1934.

Important Sections in Reserve Bank of India Act 1934

 Section 17. Business which the Bank may transact.

 Section 18. Power of direct discount.
 Section 18A. Validity of loan or advance not to be questioned.
 Section 20. Deals with the Obligation of the Bank to transact Government business.
 Section 21. Bank to have the right to transact Government business in India.
 Section 21A. Bank to transact Government business of States on agreement
 Section 22. Exclusive Rights to issue bank notes in India.
 Section 23. The issue of bank notes shall be conducted by the Bank in an Issue Department which shall be
separated and kept wholly distinct from the Banking Department
 Section 24. Denominations of notes.
 Section 25. Form of bank notes - The design, form the material of bank notes shall be such as may be
approved by the Central Government after consideration of the recommendations made by the Central
Board.

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 Section 26. Legal tender character of notes.
 Section 26A. Certain bank notes to cease to be legal tender.
 Section 27. Re-issue of notes which are torn, defaced or excessively spoiled.
 Section 28. Recovery of notes lost, stolen, mutilated or imperfect.
 Section 28A. Issue of special bank notes and special one rupee notes in certain cases.
 Section 29. Bank exempt from stamp duty on bank notes Powers of Central Government to supersede
Central Board
 Section 30. Powers of Central Government to supersede Central Board.
 Section 31. Issue of demand bills and notes.
 Section 37. Suspension of assets requirements as to foreign securities.
 Section 38. Obligations of Government and the Bank in respect of rupee coin.
 Section 39. Obligation to supply different forms of currency.
 Section 40. Transactions in foreign exchange.
 Section 42. Cash reserves of scheduled banks to be kept with the Bank.
 Section 43. Publication of consolidated statement by the Bank.
 Section 45B. Power of Bank to collect credit information.
 Section 45C. Power to call for returns containing credit information.
 Section 45-IA. Requirement of registration and net owned fund.
 Section 45-IB. Maintenance of percentage of assets.
 Section 45-IC. Reserve fund.
 Section 45J. Bank to regulate or prohibit issue of prospectus or advertisement soliciting deposits of
money.
 Section 45JA. Power of Bank to determine policy and issue directions.
 Section 45K. Power of Bank to collect information from non-banking institutions as to deposits and to
give directions.
 Section 45L. Power of Bank to call for information from financial institutions and to give directions.
 Section 45M. Duty of non-banking institutions to furnish statements, etc., required by Bank.
 Section 45MA. Powers and duties of auditors.
 Section 45MB. Power of Bank to prohibit acceptance of deposit and alienation of assets.
 Section 45ZA. Inflation target.
 Section 45ZB. Constitution of Monetary Policy Committee
 Section 45ZM. Monetary Policy Report.
 Section 46. Contribution by Central Government to the Reserve Fund.
 Section 58. Power of the Central Board to make regulations

Topic - 4: Monetary policy and RBI regulation

1. Money flows in the banking systems

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 THE COMPLETE – STATIC BANKING AWARENESS
 The Reserve Bank of India Act, 1934 has been amended by the Finance Act, 2016, to provide for a
statutory and institutionalized framework for a Monetary Policy Committee, for maintaining price
stability, while keeping in mind the objective of growth.
 When money is released by the RBI (Reserve Bank of India) into the economy, it goes into
circulation through transactions. The government may pay the people it employs, buy goods and
services, give subsidies, and so on.
 Part of this money is kept by the recipients and the rest goes back into bank accounts. A government
servant who receives a salary keeps a fraction of it at home and puts the rest in his bank account to
earn some interest.
 The businessmen who sell their goods or services to the government and get money in their bank
accounts use only a part of that to carry on their business, while the rest stays in the bank.
 One can see that most of the money released into the economy keeps going in and out of the
commercial banking system where businesses and households maintain their accounts. The banks
have to pay the depositors some interest for keeping their money with them.
 They too now need to earn some income to pay this interest. They do so by lending the money they
get to those who need it for various purposes.
 I may be setting up a plant to produce some items and may need long-term capital. I may need to set
up an office to provide services. I may need capital to pay wages to my workers and also to buy raw
material.
 A part of the profit earned by my business is paid to the banks as interest for the loan I have taken.
What this means is that a bank does not have the money that its depositors deposited with it. If all
the depositors come to a bank and want to withdraw their deposits, the bank would not be able to
pay them. This is called a “run” on a bank, and such a bank fails. This is where the RBI plays the
role of a banker to the banks, giving money to the banks.
2. Reserve ratio
i) CRR
 All Banks have to maintain a minimum CRR of Net Demand and Time Liabilities(Total deposits)
with RBI , as cash.
 It can be retained in the RBI currency chest.
 Earlier ceiling limits of 3 to 20% has been removed and RBI has no ceiling in prescribing this limit
 This is as per section 42(1) of the RBI Act, 1934.
{Amended through RBI (Amendment) Act, 2006}
 Scheduled Banks are required to maintain a certain percentage of NDTL in cash form with a special
account with RBI.
 For securing monetary stability in the country.
 No floor & No ceiling rate.
EX:-

 Each bank is required to deposit a certain amount of its deposits with the RBI. This is called the cash
reserve ratio (CRR). If a bank gets Rs100 in deposits and the CRR is 10%, then it has to deposit

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 THE COMPLETE – STATIC BANKING AWARENESS
Rs10 with the RBI. It now has Rs90 to lend. This Rs,90 is then given to a borrower, who pays it to
someone else who puts it in their bank. That bank then has to deposit Rs9 with the RBI and can now
lend Rs.81. This amount may be lent and may make its way to a third bank, which then has to
deposit Rs8.1 with the RBI.

ii) SLR
 All Banks have to maintain a portion of their total deposits with RBI either as cash or gold or
approved securities.
 This is as per section 24 of the Banking Regulation Act, 1949. {This was amended through the
Banking Regulation (Amendment) Act, 2007}
 No floor rate, but the ceiling is 40%.
 To be maintained in cash, gold & approved securities.
 To hold a certain percentage of NDTL in the above forms as prescribed from time to time.

3. Policy rate
i) Repo rate
 When banks sell security, banks promise to buy back the same security from RBI at a predetermined
date with an interest at the rate of REPO.
 It is actually a repurchase agreement. When RBI reduces the Repo Rate, the banks can borrow more
at a lower cost.
 Minimum amount of loan Rs. 5 cr.
 Repo rate actually short term lending( 1 to 90 days)
ii) Reverse repo rate
 In case RBI borrows money from banks and the interest paid by RBI to banks on such borrowing is
known as Reverse Repo Rate. It is the opposite of the Repo rate.
 An increase in this rate can cause the banks to transfer more funds to RBI due to their attractive
interest rates. Hence RBI uses this way to draw out excess money from the banks.
iii) MSF
 Minimum amount which can be accessed through MSF is Rs. 1 crore and can be in multiples of
Rs.1crore.
 While under Repo all member Banks are eligible to borrow, MSF provides for
Over night borrowing facility from RBI.

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 No additional security is required. With the securities provided for SLR, the
securities can be adjusted against SLR
 Only Scheduled commercial Banks are eligible
iv) Bank rate
 Bank rate is the interest rate at which the central bank lends money to domestic banks. Such loans are
given out either by direct lending or by rediscounting (buying back) the bills of commercial banks and
treasury bills.
 Thus, bank rate is also known as discount rate. In bank rate there is no need for collateral security.
 The interest rate which the RBI charges for its long term lending is known as bank rate.
 Bank Rate is a long term lending (upto 365 days)
Normally Banks, Financial institutions use this facility.
This has got direct bearing on the long-term lending activities of the financial system.

4. Open Marketing Operations(OMO)

 Open Market Operations means:
 RBI is purchasing Government securities to infuse liquidity
 RBI is selling Government securities to suck liquidity from the system.
5. Quantitative Credit Controls

6. Qualitative Credit Controls

Topic - 5: Types of Accounts and Nomination

1. Savings Account

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 THE COMPLETE – STATIC BANKING AWARENESS
 It is especially for individuals and small businesses. It creates the savings habits for people in the
country.
 Saving Account eligible for Resident Indians above 18 years age (for 10 to 18 years age group
account is allowed with some restrictions and for persons below 10 years, minor account with
guardian is to be opened)
 Saving Accounts Interest rates vary from 3.5% to 6% (Most of the banks offer 3.5% at present)
 Regular monthly payments through ECS are allowed for payment of house loans, personal loans
etc…(Electronic Clearing Service)
 From 1st April 2020 the interest is calculated on daily basis
 Minimum balance varies from bank to bank.
2. Current Account
 Firms and companies are eligible to open current account
 Basically meant for business men, to run businesses
 Normally firms / companies / trusts / association of persons can open them Current Account carries no
interest on deposits.
 Banks will charge service charges to account holders.
 Savings and current Accounts are called demand deposits. We can withdraw money at any time
3. CASA Ratio
 CASA Ratio is the ratio of the deposits in the form of current and savings accounts to the total
deposits.

 CASA Ratio of should be more than 40% for banks.

4. Inactive /Dormant Account

 If a customer has a current or a savings bank account and has not done any transactions through it for
more than 12 months, then it will be classified as an inactive account.
 And if you don’t do any transactions from a bank account for 24 months, then it will be classified as
dormant Account
 Such deposits unclaimed for more than 10years are to be transferred to RBI. Now, RBI will use this
amount for DEAF (Depositor Education Awareness Fund) Scheme to educate the depositors.

5. Fixed Deposit
 Account can be operated for a tenure ranging from 7 days to 10 years
 If the deposits are Rs.2crore or more, they come under the bulk deposits and interest rates may vary
further
 Interest will be paid at the contracted rate for the agreed period

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 Loan facility is available up to 90% of the outstanding principal and accrued interest.
Moreover, Tax Deduction at Source (TDS) will be ensured by the bank, if the interest income is more
than Rs.40,000/- in a financial year

 Once the tax is deducted, banks will give form no. 16 A to the depositor to show in their IT returns.
 If the depositor does not come in to the bracket of Income Tax purview, he can deposit form no. 15G
or 15H (for senior citizens) so as to avoid ‘TDS’ by bank.

 Interest rates should not be based on quantum of Money.

 Interest rates should be based on Tenure only.
6. Recurring Deposit
 Most of the features are like fixed deposits
 It is a monthly deposit with the bank for an agreed period
 Interest is credited on the accumulated balance at regular intervals
 These are designed to induce small savers to save regularly
 Maximum period is normally 120 months (10 years)

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 THE COMPLETE – STATIC BANKING AWARENESS
7. Bulk Deposit
 Deposits of Rs.2crore and above constitute bulk deposits
 Interest rates vary based on the quantum of deposit
 High interest rates, so the cost of funds is high
 Normally these deposits are obtained from High Net-worth Individuals
8. Nomination facility
 Banking Companies (Nomination) rules 1985 permit banks to pay dues to nominee in
the event of death of depositor(s) Without asking for succession certificate, Without verifying claims of legal heirs
 Nomination facility is normally available for Savings, Fixed and Recurring deposit accounts
 For Current account deposits, it is available only in few cases
 It is advisable to record ‘nominee’ for any bank transaction
 Nominee means “A person who is proposed or formally entered as the recipient of a grant or award”
Topic - 6: NRI Accounts and Payment facilities
1. Classification (Tier 1 - Tier 6)

CLASSIFICATION POPULATION
OF CENTRES

Tier 1 1,00,000 and above

Tier 2 50,000 to 99,999

Tier 3 20,000 to 49,999

Tier 4 10,000 to 19,999

Tier 5 5,000 to 9,999

Tier 6 Less than 5000

2. NRI(Non Resident Indian)

 An Indian citizen, who residing outside India and holds an Indian Passport
3. Bank Accounts for NRIs
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 NRO account(Non Resident Ordinary rupee/account)
 NRE account(Non Resident External rupee account)
 FCNR(B) account(Foreign Currency Non Resident (Bank) account)
4. NRO Account(Non Resident Ordinary Rupee Account)
 Account will be in Indian rupees and with banks authorized by RBI.
 Can be opened jointly with resident Indian
 If a citizen becomes an NRI, his existing account becomes NRO account
 Can be in the form of SA / CA / RD / FD
 Income tax will be deducted as per the rules
 There is a limit on the repatriation of funds. (Maximum of $ 1 million per year)
5. NRE Account(Non Resident External Rupee Account)
 Account will be in Indian rupees and with banks authorized by RBI.
 Can be opened as a joint account with another NRI.
 Amount to be deposited in this account is earned on foreign land only.
 Can be in the form of SA / CA / RD / FD
 Minimum tenure of term deposits will be 1 year.
 No income tax will be deducted in India.
 Fully repatriable to foreign countries.
6. FCNR(B) Account(Foreign Currency Non Resident (Bank account)
 Only fixed deposit accounts can be opened with banks authorized by RBI.
 Minimum term 1 year and maximum term 5 years.
 Can be maintained in approved foreign currencies.
 No income tax will be deducted in India.
 Fully repatriable to foreign countries.
7. LIBOR/DTAA
LIBOR DTAA

It is London Interbank Offered Rate It is Double Taxation Avoidance

Agreement

It is an agreement between two countries with

It is the primary benchmark, for short term an objective to avoid taxation of the same
interest rates around the world income in both countries.

Many financial institutions set their interest For availing DTAA benefit, the NRI has to
rates relative to it. submit “Tax Residency Certificate” (TRC) to
the bank annually.

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 THE COMPLETE – STATIC BANKING AWARENESS
8. SNRR Account (External Commercial Borrowing)
 Any Person residing outside India. Having a business, can open (SNRR account) with an authorized
dealer for the purpose of putting through bonafide transactions in rupee which are conformity.
9. Other Accounts:

Nostro Account:

 These accounts are held by Indian Banks in foreign Banks in foreign currency.
 Example- Indian Bank has an account in Bank of America in dollars.
Vostro Account:

 These accounts are held by foreign banks in India in Indian Rupees.

 Example: Bank of America has an account in Indian Bank in Indian Rupees.
DEMAT Account:

 DEMAT stands for Dematerialised Accounts.

 These accounts are used to transact shares in electronic format.
Dormant Account:

 A Dormant Account is a banking term that refers to an account of a customer which was without any activity
for a period of two years other than posting interest.
Escrow Account:

 It is the temporary pass through an account held by third parties during the transaction between two parties.
GILT Account:

 These accounts are maintained by investors with the Primary dealers for holding their Government securities
and Treasury bills in the Demat form.
Topic 7: Financial Inclusion
1. No-Frill Account(Nov 2005)
 It is a zero balance account. No other facilities available.
 On August 2012, all the ‘No-Frills’ accounts converted to Basic Savings Bank Deposit Accounts
(BSBDAs)
2. BSBDA Account
 Facility of ATM cum debit card at free of cost.
 No limit on the number of times for depositing the amounts.
 Only four withdrawals per month at branch or at ATMs.
 Banks can decide about the price structure, if more than the above facilities are required KYC norms
are to be followed.
 However, if proper KYC norms are not satisfied, then the account should be treated as “BSBDA –
SMALL ACCOUNT”.
 Customer can have only one BSBDA in one bank
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 THE COMPLETE – STATIC BANKING AWARENESS
3. PMJDY Account
 No minimum balance.
 Interest on deposit.
 Accident insurance covers of Rs.2,00000/- to all the account holders.
 Life Insurance cover of Rs.30,000/- to all the account holders(However, the Govt. stated that this is
applicable for the accounts opened up to 26th jan 2015)
 After satisfactory operation of the account for 6 months, overdraft facility of
Rs.10,000/- to one member of the family (Preferably, the lady of the household)
 Rupay card at free of cost
 Age Limit- 18 to 65 years.

4. Small Account
 When the customer is not able to satisfy KYC norms. This account has got several restrictions.
 Aggregate of all deposits shall not exceed Rs.1 lakh per annum
 Aggregate of all withdrawals and transfers in a month shall not exceed Rs.10,000/-
 Maximum balance at any point of time shall not exceed Rs.50,000/-
 However, small accounts are valid for a period of 12 months initially, which may be extended by
another 12 months, if the person provides proof of having applied for an Officially Valid Document
(OVD).
5. Lead Bank Scheme
 After the nationalization of 14 banks in 1969, Govt. initiated steps to extend banks reach to the
rural areas.
 “National Credit Council” study group headed by Prof. D.R. Gadgil, first recommended “Area”
approach.
 The Committee of Bankers (Nariman Committee) appointed by RBI accepted the ‘Area’ approach
and gave the name “Lead Bank Scheme”.
 In 1969 itself, 380 districts in the country were identified with Lead Bank Scheme, later on
extended to all the rural districts of the country.
6. Business Correspondents
 Business Correspondents are retail agents engaged by banks for providing banking services at
locations other than a bank branch/ATM.
 Business correspondents are accountable for handling receipt and delivery of small value
remittances/ other payment instruments.
 They are responsible for disbursing small loans like entrepreneurial loans, agricultural loans, group
loans, etc. depending on the partner banks guidelines.
Topic 8: Banking Ombudsman
Banking Ombudsman
 Senior official appointed by RBI to redress customer complaints against deficiency in
certain banking services.
 Under section 35a of the Banking Regulation Act 1949
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 THE COMPLETE – STATIC BANKING AWARENESS
 The Banking Ombudsman Scheme was first introduced in 1995.
 The Current scheme became operative from 1st January 2006
 At present 22 banking ombudsman are being operated mostly in state capitals.
 All scheduled commercial banks (including RRB’S, cooperative banks) are covered
 Customer can complaint against
 Non-payment or inordinate delay in payment of cheques, drafts, bills etc…
 Also RBI has later included the facility for net-banking, digital transactions,
mobile banking, Debit card, Credit card, ATM related etc…
HOW TO COMPLAIN?
 First we should approach the bank for any grievance.
 If the grievance is not settled by the bank in 30 days (If not replied / rejection by bank / reply does
not satisfy the customer), then we can approach the banking Ombudsman within 1 year.
 Complaints can be lodged on plain paper or by sending e-mail requests.
 No charges involved.
 Maximum limit of award is Rs.20 lakhs. (Rs 1 lakh in case of credit card related complaints)
 If a customer is not satisfied, either of the parties can approach appellate authority within 30 days.
Appellate authority vested with a deputy governor of RBI.
Topic 9: Know Your Customer
1. KYC(Know Your Customer)
 This is customer identification process, prior to the opening of accounts
 This involves ‘identity” and “address”
 To prevent banks being used (intentionally / unintentionally ) for money laundering
 RBI issued guidelines to banks under section 35A of the Banking Regulation Act
1949 and rule 7 of the money laundering rules 2005 to prevent banks from misuse
It involves (i) “Legal Name Verification”
(ii) “Correct Permanent Address”
 KYC is to be verified periodically, schedule is given separately for customers
Classified as
i) Low Risk
ii) Medium Risk
iii) High Risk
PERIODICAL VERIFICATION OF KYC
 Periodical verification of KYC is done by banks as per the following schedule
Low risk customers  once in 10 years
Medium risk customers  once in 8 years
High risk customers  once in 2 years
 If the person is not able to provide KYC Documents (OVD) to the bank, he can still open a
bank account, which is known as a small account.
Officially Valid Documents required for KYC:

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 THE COMPLETE – STATIC BANKING AWARENESS

 Passport Driving License

 Voters' Identity Card
 PAN Card
 Aadhar Card issued by UIDAI
 NREGA Card
 Letter from the National Population Register containing details of name and address

Topic 10: ATM and its Types

ATM Services
 It is the facility of accessing the account for dispensing cash and to carry out financial and non-
financial transactions without the need to actually visit their bank branches.
RBI GUIDELINES ON SERVICE AT ATMs:

 Banks should resolve within 7 working days of complaint

 If not, banks should pay Rs.100/- per day for delay beyond 7 days
(But customer should complain within 30 days of transaction)

 If a customer is not satisfied, one can approach the banking ombudsman.

2. Types of ATM

3. Onsite/Offsite ATM
 Onsite Atm’s are atm within the bank premises.
4. White label ATM
 RBI permitted NBFCs/FIs to establish ATMs with their own brand name
 These are known as White Label ATMs
 Tata Communications Payment Solutions (TCPS), a wholly owned subsidiary of Tata
Communications launched first white label ATM (WLA).
Ex : Indicash, India One

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 THE COMPLETE – STATIC BANKING AWARENESS
5. Brown label ATM
 Brown label' ATM are those Automated Teller Machines where hardware and the lease of
the ATM machine is owned by a service provider, but cash management and connectivity to
banking networks is provided by a sponsor bank whose brand is used on the ATM.
6. Green Label ATM
 ATM is provided for Agricultural Transaction
7. Orange Label ATM
 It is Provided for Share Transactions
8. Yellow Label ATM
 These are Provided for E commerce
9. Pink Label ATM
 Such ATM are monitored by guards who ensure that only women access these ATM. The sole
purpose of such ATM is to mitigate the problem of women standing in long queues of ATM
10. Biometric ATM
 ATMs which uses security features like fingerprint scanner and eye scanner of the customer to access
the bank details.

Topic - 11: Priority Sector Lending

1. Priority Sector Lending
 Priority sector refers to the sectors of the economy which may not get timely and adequate credit in
the absence of this special dispensation.
 Priority sector lending comprises small value loans to agriculture and allied sectors, micro, small
and medium enterprises, social infrastructure, renewable energy, housing for poor people, students
and weaker sections
 All the public sector banks and private banks will have to maintain 40% of their lending to the
priority sector lending.
 Based on Dr. K.S. Krishnaswamy committee recommendations, banks were advised to achieve
the target of 40% for priority sector lending by 1985.
 The provisions of directions of RBI on priority sector advances shall apply to every Scheduled
Commercial Bank {excluding Regional Rural Banks (RRBs) and Small Finance Banks (SFBs)}
licensed to operate in India by the Reserve Bank of India.
 These targets are the percentage of ANBC or credit equivalent amount of Off-Balance Sheet
Exposure, whichever is higher(ANBC- Adjusted Net Bank Credit)
 In the revised PSL Guidelines, the Reserve Bank of India has included some fresh categories
eligible for finance under priority sector. These include loans to farmers for installation of solar
power plants; loans for establishment of Compressed Bio Gas (CBG) plants; and bank finance to
start-ups of up to Rs 50 crore.

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 THE COMPLETE – STATIC BANKING AWARENESS
 Total Priority Sector:
 1) Domestic scheduled commercial and foreign banks with 20 branches and above: 40 per cent of
Adjusted Net Bank Credit (ANBC) or Credit Equivalent Amount of Off-Balance Sheet Exposure
(CEOBE) , whichever is higher.
 2) Foreign banks with less than 20 branches: 40 per cent of ANBC or CEOBE whichever is higher;
out of which up to 32% can be in the form of lending to Exports and not less than 8% can be to any
other priority sector

2. Agriculture(18% of ANBC)
 Within the 40% priority sector lending 18%allocated to the agriculture.
 Where as 8% sub-target is kept for small and marginal farmers.
 Marginal Farmer - have land upto 2.5 acres
 Small Farmer - have land upto 2.5 to 5 acres
3. MSME(7.5% of ANBC)
 Within the 40% priority sector lending 7.5%allocated Micro Small Medium Enterprises..
Classification of MSMEs

Type of Activity Investment Turn Over

Micro Upto 1 crore Below 5 crore

Small Upto 10 crore Below 50 crore
Medium Upto 50 crore Below 250 crore
.

4. Export Credit(2% of ANBC)

 The existing guidelines for domestic scheduled commercial banks to classify 'Incremental export
credit over corresponding date of the preceding year, upto 2% of ANBC or Credit Equivalent Amount
of Off-Balance Sheet Exposure, whichever is higher'
 RBI Enhances Limit For Classification Of Export Credit Under Priority Sector Lending To
Rs.40Crore From Rs.25Crore(Sep 2019)

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 THE COMPLETE – STATIC BANKING AWARENESS
5. Education
 Under Priority Sector Lending (PSL), the 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.
6. Housing
 Reserve Bank of India has notified them to enhance housing loan limits to individuals up to Rs 35 lakh
in metropolitan centers (which would have a population of over 10 lakhs) and Rs 25 lakh in other
centers, under Priority sector Lending (PSL).
 The total cost of the dwelling unit in the metropolitan center should not exceed Rs.45 lakh and at
other centers should not go beyond Rs.30 lakh for them to be eligible for classification under PSL.
7. Social Infrastructure
 Bank loans up to a limit of Rs. 5 crore per borrower for building social infrastructure like schools,
health care centres, drinking water facilities in Tier II to Tier VI centres.
8. Renewable Energy
 Bank loans up to a limit of Rs.15crore per borrower for building renewable energy projects like
solar based power generation, wind mills etc.
9. Others
Weaker section (10% of ANBC)
 There is no change in the target of 10 percent of ANBC or Credit Equivalent Amount Off-Balance
Sheet Exposure, whichever is higher, for Weaker Sections.
 Small and Marginal Farmers.
 Artisans, village and cottage industries, where individual credit limits do not exceed Rs.1 lakh.
 Beneficiaries of Differential Rate of Interest (DRI) scheme.
 Individual women beneficiaries up to Rs. 1 lakh per borrower.
 Persons with disabilities.
 Minority communities may be notified by the Government of India from time to time.
Self Help Groups (SHGs)
10. PLSC(Priority Sector Lending Certificates)
 These certificates are recommended to help those banks which do not achieve PSL targets.
 Priority Sector Lending Certificates (PSLCs) scheme was first suggested in the report of former
governor of RBI Dr. Raghu Ram Rajan led Committee on Financial Sector Reform
 RBI issued guidelines on purchase and sale of Priority Sector Lending Certificates.
 The central bank also launched a platform for trading of the certificates through its Core Banking
Solution (CBS) portal named e- Kuber.
 All Scheduled Commercial Banks (including Regional Rural Banks), Urban Co-operative
Banks, Small Finance Banks and Local Area Banks are eligible to participate in the trading.
Types of PSLCs:
There are four kinds of PSLCs:–
1.PSLC Agriculture
2.PSLC S&MF(small and marginal farmers)
3.PSLC Micro Enterprises
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 THE COMPLETE – STATIC BANKING AWARENESS
4.PSLC General
Topic -12: Negotiable Instruments
1. Negotiable Instrument Act, 1881
 These are written documents.
 Transferable from one person to another merely by delivery in case of “bearer instrument” and
transferable by endorsement in case of “order instrument”.
 The owner is the “bonafide holder for value”.
2. Bill of Exchange
 It must be in writing and duly signed by its drawer.
 It should contain an order to pay.
 The parties to the transaction must be certain.
 A bill of exchange is used in transactions pertaining to goods as well as services. It is signed by a party
who owes money (called the payer) and given to a party entitled to receive money (called the payee or
seller), and thus, this could be used for fulfilling the contract for payment.
3. Promissory Note
 A promissory note is an unconditional commitment made in writing and signed by a debtor to make
payment to a specified person or to the order within a specified period.
 It is always in writing. No verbal promise is accepted.
 It is drawn for specified duration for specified sum of money.

4. Cheque
 A cheque is an negotiable instrument. It contains an unconditional order to pay a certain sum of
money.
 It contains instructions in writing given by the account holder to his bank for payment of money from
his account. There is a statutory obligation on the part of a banker to make payment if,
 It is drawn by the drawer.
 It is drawn upon a specified banker.
 It is payable on demand to a specific person or his order or to the bearer of the instrument. Cheque
should be properly dated.
 It should be signed by the maker/drawer
 There are three parties in the cheque transaction
Drawer
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 THE COMPLETE – STATIC BANKING AWARENESS
Drawee
Payee
 If it is self-cheque, payee will be the drawer only.
CHEQUE ISSUED TO ANOTHER PERSON

5. Associated with cheque

Order cheque ------> A cheque payable to a particular person or his order.
Bearer cheque -------> A cheque payable to a person who so ever bears.
Blank cheque -------> Except signature, all other columns are blank.
Stale cheque -------> Which is more than three months old.
Mutilated cheque ---->The cheque is torn into two or more pieces.
Post-dated cheque----->A cheque which bears a date later than the date of issue.
Open cheque ----> Cheque which has not been crossed.
Crossed cheque -----> Cheque which carries two parallel transverse lines across the face of the cheque.
6. MICR Code On Cheque
 It is Magnetic Ink Character Recognition (MICR).
 It is a 9 digit code.
 First three digits … city / district
 Next three digits … name of bank
 Last three digits … location of branch / branch name

0 5 9 7 3 1 0 5 2

MUMBAI ICICI Rohit Nagar Branch

7. Crossing of Cheque
 This is to prevent the possibility of the cheque falling into the hands of wrong or unauthorized parties.
Hence crossing is required.

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 THE COMPLETE – STATIC BANKING AWARENESS
 If a cheque is crossed direction to the bank not to pay across the counter in cash, but should be paid to
the account holder only
Types of Crossing of Cheque:

 General Crossing – cheque bears across its face an addition of two parallel transverse lines.

 Special Crossing – cheque bears across its face an addition of the banker’s name.

 Restrictive Crossing – It directs the collecting banker that he needs to credit the amount of cheque only
to the account of the payee.

 Non-Negotiable Crossing – It is when the words ‘Not Negotiable’ are written between the two parallel
transverse lines.

Endorsement of Cheque:

Endorsement means signature of the holder (An individual who has lawfully received possession) made
with object of transferring the document. The signature & message on the back of a cheque to either cash
it, deposit it or to handover the rights of the cheque to someone else.

8. Demand draft/ cheque

 It is a Bill of Exchange drawn by a bank on another bank or by itself to its other branch to pay to the
third party.
 It is not mentioned in the Negotiable Instruments Act.
 Due to its nature, it is classified under Bill of Exchange.
 Demand drafts along with cheques are commonly used by the customers of banks.
CHEQUE
DEMAND DRAFT

Drawer is individual account holder Drawer is normally a scheduled bank

No certainty of payment Payment is certain

Drawer can stop it by issuing order No one can stop it

Defined in NI Act, 1881 Not defined in NI Act, 1881

9. CTS - 2010
 It is Cheque Truncation System – 2010
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 Truncation is the process of stopping the flow of the physical cheque.
 The physical instrument will be truncated at some point enroute to the drawee branch and it will be
verified digitally.
 Hence the need to move the cheque physically will be eliminated.

Topic - 13: NPA and its resolution

1. NPA
 “An asset(mostly loan) becomes non-performing, when it ceases to generate income for the bank”
 Interest and / or installment of principal remain overdue for a period of more than 90 days in respect
of a term loan.
 If the cash credit account or overdraft account becomes out of order.
 Committee on Financial System (CFS) headed by Shri M. Narasimham was constituted in the year
1991 and the committee gave recommendations in line with the international practices.
 RBI introduced norms for IRAC - Income Recognition Asset Classification
 The policy of income recognition should be objective.
 Banks are urged to ensure realistic repayment schedules on the basis of cash flows with borrowers.
 In spite of these precautions taken by banks, NPAs are on the rise either due to reasons beyond their
control or willful defaulting.
 Interest and / or installment of principal remain overdue for a period of more than 90 days in respect
of a term loan.
 If the cash credit account or overdraft account becomes out of order.
NPA Measured under three categories

 Substandard Asset
 Doubtful Asset
 Loss Asset
2. Substandard Asset
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 THE COMPLETE – STATIC BANKING AWARENESS
 Which remained NPA for a period less than or equal to 12 months.
 Indicates distinct possibility that banks may sustain loss.
3. Doubtful Assets
 Which remained in the substandard category for a period of 12 months.
4. Loss Assets
 Where loss has been identified by the bank or internal or external auditors or during RBI inspection
but the amount has not been written off.
5. Actions Taken banks against NPA
i) If it is a genuine reason for non-repayment

 Banks offer Restructuring of loans

 Longer repayment period
 Provide Moratorium period
 Additional loan
 Reduction in interest rate.
 Appoint a member from bank to help borrowers business
ii)If it is not a genuine reason for non-repayment

 Referring the matter to Debt Recovery Tribunals (DRTs)

 Referring the matter to Asset Reconstruction Companies (ARCs) as per SARFAESI Act, 2002
 Filing winding up petitions in court of law
 By filing criminal cases against the willful defaulters
If a loan becomes NPA, Banks Classify them as Special Mention Accounts
SMA-0 (up to 30 days)
SMA-1 (31 to 60 days)
SMA-2 (61 to 90 days). so as to take corrective action.
6. JLF(JOINT LENDERS’ FORUM)
 It is mandatory to constitute Joint Lenders’ Forum (JLF) at SMA-2 stage, if the loan exposure is
Rs.100crores or more. It is a formed group of lender banks.
7. SDR(STRATEGIC DEBT RESTRUCTURING)
 Converting debt into equity i.e., banks will assume the role of management (ownership) to look for
turn around of the company.
8. CDR(Corporate Debt Restructuring )
 It is part of restructuring of loan by banks.
 Implemented by RBI from August 2001.
 Aimed at corporates affected by certain genuine internal and external factors.
 It covers only multiple banking accounts, consortium accounts / syndicated loan accounts,
 where the outstanding exposure is Rs.10crores or more.
CDR mechanism banks can allow
i) Extension of repayment period.
ii) Reduction in interest rate.
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 THE COMPLETE – STATIC BANKING AWARENESS
iii) Moratorium for some period.
iv) Additional loan.
 CDR is approved, if at least 75% of the banks by value of the loan and 60% by number agree to
the proposal.
 Restructured loans will go out of the books of NPAs
 The biggest worry is that more and more cases are coming up for restructuring, sometimes without
genuine reasons.
9. DRT(DEBT RECOVERY TRIBUNALS)
 These are established in various cities under the “Recovery of Debts Due to Banks and Financial
Institutions (RDDBFI) Act, 1993”.
 Banks or FIs can file an application with DRT to recover dues from persons / companies.
 As per the Act, the issue is to be settled in 6 months.
 So far, the success rate is around 20% to 30%.
10. ARC(SARFAESI ACT)
 These are formed as per the “Securitization and Reconstruction of Financial Assets and
Enforcement of Security Interest (SARFAESI) Act, 2002”.
 It empowers Banks & FIs to recover NPAs without the intervention of the court.
 This was brought to circumvent the inefficiency of DRTs.
 Banks have got powers to sell the “declared bad loans.”
 This is applicable for loans with outstanding of Rs. 1 Lakh and above.
 RBI has power to issue licences to ARCs and Asset Reconstruction Company (India) Ltd (ARCIL) is
the first ARC established in India.
11. Petition in court Law
 Criminal cases can be filed against the borrower, if the bank feels that the non- repayment of debt is
due to “willful default.”
 But, it is rarely resorted to by the banks.
12. Criminal cases against willful defaulters
 Winding up petitions can be filed, if the borrower fails to pay back the loan, under the Companies
Act.
 “Official liquidator” will be appointed by the competent authority, if there is genuine reason.
 It is a long drawn procedure in courts and has not given satisfactory results to Banks.
Topic 14: Prompt Corrective Action
Introduced in: 2002
Aim: It aims to check the problem of Non-Performing Assets (NPAs) in the Indian banking sector.

 Prompt Corrective Action or PCA is a framework under which banks with weak financial metrics are put
under watch by the RBI.
 The PCA framework deems banks as risky if they slip below certain norms on three parameters — capital
ratios, asset quality and profitability.

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 It has three risk threshold levels (1 being the lowest and 3 the highest) based on where a bank stands on these
ratios.
 PCA is intended to help alert the regulator as well as investors and depositors if a bank is heading for trouble.

The salient features of revised PCA Framework for Banks

1. Capital, asset quality and profitability continue to be the key areas for monitoring in the revised
framework.
2. Indicators to be tracked for Capital, asset quality and profitability would be CRAR/ Common Equity Tier I
ratio1, Net NPA ratio2 and Return on Assets3 respectively.
3. Leverage would be monitored additionally as part of the PCA framework.
4. Breach of any risk threshold (as detailed under) would result in invocation of PCA.

What will a bank do if PCA is triggered?

1. Banks are not allowed to renew or access costly deposits or take steps to increase their fee-based income.

2. Banks will also have to launch a special drive to reduce the stock of NPAs and contain generation of fresh NPAs.

3. They will also not be allowed to enter into new lines of business. RBI will also impose restrictions on the bank on
borrowings from interbank market

Topic 15: Types of Banking

Branch Banking
 It involves business of banking via branches.
 The advantage is that it helps in better management, more inclusion and risk diversification.
Para Banking
 The financial services undertaken by banks such as credit cards, smart cards, mutual funds, primary
dealers, pension funds comes under Para Banking activities
Universal Banking
 These can undertake multiple financial activities under one roof.
 Universal Bank participates in many kinds of banking activities. It is both a commercial bank and
investment bank as well as providing other financial services such as insurance. These are also called
full service financial firms providing wealth and asset management, trading, underwriting, researching
as well as financial advisory.
Ex: ICICI Bank.
Narrow Banking
 The obsession of the banks to invest more in risk free securities like Govt. securities or Govt. approved
securities.
Shadow Banking

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 The activities / services undertaken by NBFCs / Unincorporated bodies, similar to the activities
undertaken by banks.
 They are unregulated / loosely regulated and hence the risks associated with shadow banking are very
high in the financial system.
 Credit intermediation involving activities outside the banking system
 Like house loans, gold loans, vehicle finance etc
 These are called NBFCs
Unit Banking
 It is a type of banking in which where banks operate only from a single branch taking care of a small
community.
Retail Banking
 Retail Banking means banking where transactions are held directly with customers and there are no
transactions with other banks or corporations.
 The banks provide all types of personal banking services such as Saving accounts, personal loans,
mortgages, Debit and Credit cards, Transactional accounts etc.
Wholesale Banking
 Wholesale banking involves banking services for high net worth clients like Corporates, Commercial
banks, mid size companies etc.
Virtual Banking
 Virtual banking is performing banking operations online.
Chain Banking
 Chain Banking system refers to the type of banking when a group of persons come together to own
and control three or more independently chartered banks.
Offshore banking:
 The deposit of funds by a company or an individual in a bank that is located outside their national
residence.
Green banking:

 To address sustainable development concerns and creating awareness among people about
environmental responsibility.

Merchant banking:

 It is the combination of banking and consultancy service. Consultancy means to provide advice,
guidance and service for a fee.

Neo Banking:

 Neo banks are digital and operate online, and they do not have any physical branches. They are
usually mobile-first, leveraging technology to minimise operating costs and offer a customer-
friendly interface.

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Topic 16: BASEL NORMS

 The Basel Committee on Banking Supervision (BCBS) was formed in 1974 by a group of central
bank governors of G-10 countries. It was established on 17th march, 1930.Head office in Basel,
Switzerland. It acts as Bank to Central Banks.

BASEL 1 Norms
 Introduced in 1988(India adopted Basel 1 guidelines in 1999)
 Started capital measurement system called Basel capital accord also called Basel 1
 The minimum capital requirement was fixed at 8% of risk-weighted assets (RWA)
 RWA - the minimum amount of capital that must be held by banks to reduce the risk of insolvency
(insolvency is the situation where a bank cannot raise enough cash to meet its obligations)
BASEL 2 Norms
 Introduced in 2004
 Acknowledged as refined and reformed versions of Basel I accord
 Basel II norms in India and overseas are yet to be fully implemented.
 The guidelines were based on three parameters, which the committee calls it as 3 pillars
3 PILLARS OF BASEL 2 NORMS
 Capital Adequacy Requirements - Banks should maintain a minimum capital
 adequacy requirement of 8% of risk assets
 Supervisory Review - According to this, banks were needed to develop and use better risk
management techniques in monitoring and managing all the three types of risks that a bank faces, viz.
credit, market, and operational risks
 Market Discipline-This need increased disclosure requirements. Banks need to
 mandatory disclose their CAR, risk exposure, etc to the central bank
 BASEL – II failed because, it could not cover systemic risk.
 It could not prevent 2008 financial crisis
 BASEL – III was proposed after 2008 financial crisis.
BASEL 3 Norms
 Introduced in 2010.(In India it was implemented in March 31st, 2019)
 These guidelines were proposed in acknowledgment to the financial emergency of 2008.
 BASEL – III recommended that the Capital Adequacy Ratio(CAR) was 8% internationally, while in
India it is 9%.
 A need was thought to further extend the system as banks in the developed economies were under-
capitalized, over-leveraged and had a greater faith in short-term funding
 The guidelines aim to promote a more flexible banking system by focusing on four vital banking
parameters
1) Capital Adequacy
2) Leverage Ratio
3) Net Stable Funding Ratio
4) Liquidity Coverage Ratio
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Topic 17: Types of Risks in Banking

Financial Risk:
 Financial Risk develops from the business transactions done by the Banks which is exposed to
potential Loss.
Market Risk:
 Market Risk is a type of risk in which losses in on- or off-balance sheet positions that arise from
movement in market prices. Market risk is the most prominent for banks present in investment
banking.
Credit Risk:
 Credit Risk is the potential that a bank borrower/counter party fails to meet the obligations on agreed
terms. There is always scope for the borrower to default from his commitments for one or the other
reason resulting in crystallization of credit risk to the bank. Credit risk is inherent to the business of
lending funds to the operations linked closely to market risk variables
Interest Rate Risk:
 Interest Rate Risk is the type of risk arises due to fluctuation in interest rate. Changes in interest rate
affect earnings, value of assets, liability off-balance sheet items and cash flow. Earnings side involves
analysing the impact of changes in interest rates on accrual or reported earnings in the near term.
Liquidity Risk:
 This kind of Risk arises due to inability of bank to meet its obligations when any asset may not be
realized into cash. Also, we can say that, it is a mismatch of assets and liabilities. Liquidity is the
ability to efficiently accommodate deposit as also reduction in liabilities and to fund the loan growth
and possible funding of the off-balance sheet claims.
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Operational Risk:
 This risk arises due to failure of day to day activities, system or people. It includes both internal and
external frauds like failures related to policies, laws, regulations, documentation or any technological
risks. It is defined as any risk that is not categorized as market or credit risk, is the risk of loss arising
from inadequate or failed internal processes, people and systems or from external events.
Capital Risk:
 This type of risk arises where the capital comes under risk partially or the whole in some cases
emergencies.
Foreign Exchange Risk:
 Forex risk is the risk that a bank may suffer loss as a result of adverse exchange rate movement during
a period in which it has an open position, either spot or forward or both in same foreign currency.
Systemic Risk:
 Systemic risk refers to the risk of a breakdown of an entire system rather than simply the failure of
individual parts. In a financial context, if denotes the risk of a cascading failure in the financial sector,
caused by linkages within the financial system, resulting in a severe economic downturn
Reputational risk

 Reputational risk implies the public’s loss of confidence in a bank due to a negative perception or
image that could be created with/without any evidence of wrongdoing by the bank.
 Reputational value is often measured in terms of brand value.

Reputational risk could stem from:

 The inability of the bank to honor government/regulatory commitments

 Nonobservance of the code of conduct under corporate governance
 Mismanagement/Manipulation of customer records
 Ineffective customer service/after sales services

Topic - 18: Financial Institutions

1. RRB
 After nationalization, of banks in 1960 there were problems which made it difficult for commercial
banks even under government ownership to lend to farmers.
 Government set up the Narasimham Working Group in 1975.
 On the basis of this committee’s recommendations, a Regional Rural Banks Ordinance was
promulgated in September 1975, which was replaced by the Regional Rural Banks Act 1976.
 First RRB: Prathama Grameen Bank
The RRBs were owned by three entities with their respective shares as follows:
 Central Government → 50%
 State government → 15%
 Sponsor bank → 35
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 THE COMPLETE – STATIC BANKING AWARENESS
2. NABARD
 NABARD is an apex development bank, established in 1982 by a Special Act of the Parliament
 It has power to deal with all matters concerning policy, planning as well as operations in giving credit
for agriculture and other economic activities in the rural areas.
 Committee to Review the Arrangements For Institutional Credit for Agriculture and Rural
Development” under the Chairmanship of B. Sivaraman.
 Based on the recommendations, NABARD (National Bank for Agriculture and Rural
Development) started functioning from 12th July, 1982.
 Authorized Capital : RS.30,000crore/-
 A refinancing agency for those institutions that provide investment and production credit for
promoting the several developmental programs for rural development.
 Improving the absorptive capacity of the credit delivery system in India, including monitoring,
formulation of rehabilitation schemes, restructuring of credit institutions, and training of personnel.
 Co-ordinates the rural credit financing activities of all sorts of institutions engaged in developmental
work at the field level.
 Promotes research in rural banking, and the field of agriculture and rural development
3. Refinance/Direct finance
Refinance :

 Development Financial Institutions like NABARD will arrange finance to the banks up to the extend.
Banks are giving loans to customers. This is Refinance.
Direct finance :

 Banks will finance customers directly.

4. Service Area Approach
 Main aim is to act as coordinator for credit deployment in the district.
 Act as a leader to bring about coordination among Co-op Banks, RRBs, SCBs and other financial
institutions to bring about rapid economic development in rural areas.
 Identify unbanked areas and prepare a phased programme for branch expansion.
 To inculcate dynamic relationships between various financial institutions.
5. Co-operative banks
 Banks in India can be broadly classified under two heads — commercial banks and co-operative
banks. While commercial banks (nationalized banks, State Bank group, private sector banks, foreign
banks and regional rural banks) account for an overwhelming share of the banking business, co-
operative banks also play an important role.
It can be divided into 2 broad segments
i) Urban Cooperative Banks
ii) Rural Cooperative Banks
Urban Cooperative Banks
 Urban Cooperative Banks are scheduled and non-scheduled.

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 Banking activities of Urban Cooperative Banks are monitored by RBI. Registration and Management
activities are managed by Registrar of Cooperative Societies (RCS). These RCS operate in single-state
and Central RCS (CRCS) operate in multiple state.
Rural Cooperatives Banks
 Rural cooperative Banks are short-term and long-term structures.
 Short-term cooperative banks are three tiered operating in different states.
State Cooperative Banks: Operate at the apex level in states
District Central Cooperative Banks: Operate at the district levels
Primary Agricultural Credit Societies: Operate at the village or grass-root level.
 As per the new guideline, the SFBs should have Rs.200crores minimum capital except for such small
finance banks which are converted from Urban Co-operative Banks (UCBs). UCB’s should initially
have at least Rs.100crores from the start of the operation, however, it should make it to Rs.200crores
capital within 5 years, from the date of commencement of business.
6. MUDRA( Micro Units Development and Refinance Agency)
 It is a public sector financial Institution in India and provides loans at low rates to micro finance
Institutions and NBFCs which then provide to MSMEs.
 These banks are set up under Pradhan Mantri MUDRA Yojana Scheme by Prime Minister Narendra
Modi.
Types of MUDRA Loan:

Name of the Scheme Loan Amount

Shishu Up to Rs.50,000

Kishor Rs.50000 to Rs.5 lakh

Tarun Rs.5 lakh to Rs.10 lakh

Topic -19: Differentiated banks

1. NBFC

 It is engaged in the business of loans and advances, acquisition of bonds/debentures/securities issued

by Government or local authority or other marketable securities, leasing, hire-purchase, insurance
business, chit business but does not include any institution whose principal business is that of
agriculture activity, industrial activity, purchase or sale of any goods or providing any services and
sale or purchase of immovable property
Difference between Banks & NBFCs

 NBFC cannot accept demand deposits

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 THE COMPLETE – STATIC BANKING AWARENESS
 NBFCs do not form part of the payment and settlement system and cannot issue cheques
drawn on itself deposit insurance facility of Deposit Insurance and Credit Guarantee
Corporation is not available to depositors of NBFCs, unlike in case of banks.
TYPES OF DEPOSITS BANKS & NBFCs

 There is an Ombudsman for hearing complaints against NBFCs. But, it should be a

deposit taking NBFC.
NBFC Ombudsman:
 The NBFC Ombudsman is a senior official appointed by the Reserve Bank of India to redress
customer complaints against NBFCs for deficiency in certain services covered under the grounds
of complaint specified under Clause 8 of the Scheme.
 There are currently four NBFC ombudsman offices in Chennai, Kolkata, Mumbai and Delhi where customer
complaints from across the country are monitored and resolved.
 The compensation amount from NBFC Ombudsman if the case is not resolved is Rs.10 lakhs.

2. Payment banks and Small finance banks

 With a need for financial inclusion in the country, RBI and government has taken many steps at
different times. Taking a further step, RBI gave differentiated licenses for specific activities to new
set of banks named Payment Banks and Small Banks.
Payment banks :

 Payments banks are a new model of banks conceptualized by the Reserve Bank of India (RBI).
These banks can accept a restricted deposit which is currently limited to INR 1 lakh per customer.
 Initial Capital - 100crore
 Payments Banks Formation - Nachiket Mor Committee
 For the first five years, the stake of the promoter should be 40% minimum.
 Foreign shareholding will be allowed in these banks as per the rules for FDI in private banks in
India on 19 August 2015, the Reserve Bank of India gave "in-principle" licenses to eleven entities
to launch payments banks. Under Section 22 of the Banking Regulation Act, 1949.
Small finance banks :
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 THE COMPLETE – STATIC BANKING AWARENESS
 Small finance banks are a type of niche banks in India. Banks with a small finance bank license can
provide basic banking service of acceptance of deposits and lending. The aim behind these to provide
financial inclusion to sections of the economy not being served by other banks, such as small business
units, small and marginal farmers, micro and small industries and unorganized sector entities.
Small Finance Bank Payment Bank

Capital requirement is Rs.200crore Paid-up equity capital requirement of Rs.100crore

The bank shall primarily undertake basic banking Payment Banks will initially be restricted to
activities of accepting deposits and lending to holding a maximum balance of 1 lakh rupees per
small farmers, small businesses, micro and small individual customer. It can issue ATM or debit
industries, and unorganized sector entities. It cards but not credit cards.
cannot set up subsidiaries to undertake non-
banking financial services activities.

a) Professionals with 10 years in financial Card Issuers, Finance Companies, Business

services or promoter group with 5 year Correspondents, Telecom Companies, Retailers etc
track record.

b) Existing Non-Banking Finance Companies

(NBFCs), Micro Finance Institutions (MFIs), and
Local Area Banks (LABs) that are owned and
controlled by residents can also opt for
conversion into small finance banks.

Promoter’s initial contribution should be 40% Promoters should retain a 40% stake for the first
lowered to 26% in 12 years. five years.

*The maximum loan size and investment limit No credit lending is allowed
exposure to single/group borrowers/issuers

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would be restricted to 15 percent of capital funds

* Loans and advances of up to Rs 25 lakhs,

primarily to micro enterprises, should constitute
at least 50 percent of the loan portfolio.

For the first three years, 25 percent of branches No such Rules

should be in unbanked rural areas.

The small finance banks will be required to Lending is not allowed in payment banks
extend 75 percent of its Adjusted Net Bank
Credit (ANBC) to the sectors eligible for
classification as priority sector lending (PSL)
by the Reserve Bank.

The foreign shareholding in the small finance bank The foreign shareholding in the should be as per
would be as per the Foreign Direct Investment the Foreign Direct Investment (FDI) policy for
(FDI) policy for private sector banks as amended private sector banks as amended from time to time.
from time to time.

These banks will be subject to all prudential norms These banks also should maintain CRR with the
and regulations of RBI as applicable to existing Reserve Bank, it will be required to invest
commercial banks including requirement of minimum 75 percent of its demand deposit
maintenance of Cash Reserve Ratio (CRR) and balances in Statutory Liquidity Ratio (SLR) with
Statutory Liquidity Ratio (SLR). No forbearance maturity up to one year and hold maximum 25
would be provided for complying with the statutory per cent in current and time or fixed deposits
provisions. with other scheduled

commercial banks for operational purposes and

liquidity management.

These Banks can offer all types of Deposits as like Payments banks can only offer Savings and Current
commercial Banks be it savings, Current, Fixed as accounts.
well as Recurring.

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Small Finance Banks : Payment Banks :

1. AU small finance bank- Jaipur, Rajasthan 1.Paytm payments bank- Noida

2. Capital small finance bank- Jalandhar, Punjab 2.Airtel payments bank – New Delhi

3. ESAF small finance bank- Thrissur, Kerala 3.Jio payments bank- Mumbai

4. Equitas small finance bank- Chennai, Tamil 4.India Post payments bank- New Delhi
Nadu
5.Fino payments bank- Mumbai
5. Fincare small finance bank- Bengaluru,
Karnataka 6.Aditya payments bank- Mumbai

6. Jana small finance bank- Bengaluru, Karnataka

7. North East small finance bank- Guwahati,

Assam

8. Suryoday small finance bank- Navi Mumbai

9. Ujjivan small finance bank- Bengaluru,

Karnataka

10. Utkarsh small finance bank- Varanasi, UP

Topic -20: Financial Market

Financial market:

 It is not a tangible market but it refers to a group of entities which participate in borrowing and lending.
 The products are classified as bonds, equities, currencies and derivatives.
 It is a medium channel between depositor and borrowers.
Financial market are classified as:
1. Money market
2. Capital market
(i) Money market:
 It is used for short term credit.
 Borrowing and lending money is upto one year (1 day to 365 days).
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 It includes Rbi, commercial banks, except rrbs, some Nbfcs, cooperative banks, primary dealers, etc.
 T-bills, commercial papers, certificates of deposits traded in this market(banks and primary dealers)
to lend and borrow money when there is a mismatch of funds.
Call money: money is borrowed or lent for 1 day.
Notice money: money is borrowed or lent for 2 to 14 days.
Term money: money is borrowed or lent for exceeding 14 days to 365days.
 In call money and notice money, both the borrowers and lenders need to maintain a current account
with RBI because trading happens for very short tenure.
1. Treasury bills(T-bills):
 It was implemented by 1986. It is also known as T-bills.
 In the money market, if we talk about the lowest risk instrument then it is T-bills.
 It is issued by the central government with fixed date and fixed time.
 They are highly liquid, bill holders can transfer or get discounts at any time from RBI.
 They are issued as well as auctioned by RBI only but can purchased by individuals, firms, institutions
and banks.
 T- bills are available at a denomination of 25000 and multiples of it.
 Its maturity periods are 91, 182, 364 days.
2. Commercial paper(CP):
 It was introduced in 1990.It is issued in the form of promissory note.
 In this, the net worth of the company is not less than 4crore.
 All India financial institutions, primary dealers, big companies are permitted to issue commercial
paper to enable them to meet their short term financing requirements.
 The tenure of CP is 7 days to one year.
 CP is issued under the denomination of 5 lakh and multiple of it.
3. Certificate of deposits(CD):
 It was introduced in 1989.
 Scheduled commercial banks (except Rrb, local area banks), all india financial institutions are
permitted by Rbi to purchase the CD.
 The tenure of CD is 7 days to one year.
 Financial institutions can not issue less than 1 year and not exceeding 3 years.
 The denomination of CD is 1 lakh and multiple of it.
4. Cash management bills:
 It is a short term instrument issued by the central government to meet the temporary cash flow
mismatches of the government.
 The announcement of the auction of bills made by Rbi.
 The tenure is less than 91 days.
(ii) Capital market:
 It is used for long term credit.
 Borrowing and lending are above 1 year.
 It includes stock exchanges, housing finance companies, insurance companies, etc.
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 All institutions listed in the capital market are called NBFC.
Capital market comprising both
(i) Equity
(ii) Debts are issued and traded.
 This also includes private placement sources of debt and equity as well as organised markets like
stock exchanges.
1. Primary market (IPO):
 It is a market which deals with trading and issuance of stocks and other securities.
2. Secondary market(FPO):
 It is a market comprising equity and debt markets. It deals with the exchange of existing or previously
issued securities.
Composition of capital market:
(i) Security market
 It deals with shares and debt instruments. These instruments are used for fundraising. In share
instruments, we include equity share, preferential shares, derivatives. Investors have
 In debt instruments, we include bonds, debentures, etc. In these instruments, we need to pay
interest to debt instrument holders regardless of profit or loss.
Equity shares:
 Holder has claimed over the capital, profit or loss.
Debentures:
 In this, the lender lends money to companies with some surety (may be plant, machinery). But bonds
lent by without any surety.
Preferential shares:
 Holder entitled to a fixed amount of dividend.
 In case of closing of the company preferential shareholders have the preference rights to get back the
capital.
 For trading securities, we have primary(new issue) and secondary (old issue) markets
(ii) Development financial institutions
 They provide long term loan, entrepreneurial assistance(technical advice etc)
Ex: IDBI, EXIM bank
(iii) Financial intermediaries
Rbi regulated:

 Asset finance company

 Loan company
 Investment company
Sebi regulated:

 Venture capital fund, angel capital fund

 Merchant banking companies.
 Stock broking companies
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Bill discounting:

 Advanced selling of bills to an intermediary before it is due to be paid.

Topic 21: Foreign Direct Investment and Foreign Portfolio Investment
Foreign Direct Investment

 Foreign Direct Investment involves establishing a direct business interest in a foreign country, such as
buying or establishing a manufacturing business, building warehouses, or buying buildings
 Due to the significantly higher level of investment required, foreign direct investment is usually
undertaken by multinational companies, large institutions, or venture capital firms
 The investment may result in the transfers of funds, resources, technical know -how, strategies, etc.
There are several ways of making FDI i.e. creating a joint venture or through merger and
acquisition or by establishing a subsidiary company.

Foreign Portfolio Investment

 Foreign Portfolio Investment refers to investing in the financial assets of a foreign country, such as
stocks or bonds available on an exchange.
 It does not provide the investor with direct ownership of a company's assets and is relatively liquid
depending on the volatility of the market.
 Along with foreign direct investment (FDI), FPI is one of the common ways to invest in an overseas
economy. FDI and FPI are both important sources of funding for most economies.
 These include investments via equity instruments (stocks) or debt (bonds) of a foreign enterprise
which does not necessarily represent a long-term interest.

Difference Between FDI and FPI

Parameters FDI FPI

Definition FDI refers to the investment FPI refers to investing in the
made by foreign investors to financial assets of a foreign
obtain a substantial interest in country, such as stocks or bonds
the enterprise located in a available on an exchange.
different country.

Role of Investors Active Passive

Type Direct Investment Indirect Investment
Degree of Control High Very low
Term Long term Short term
Management of Projects Efficient Comparitively less efficient
Investment Done on Physical assets of the Done on Financial assets of the
foreign country foreign country
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Entry & Exit Difficult Relatively Easy
Risks involved Stable Volatile
Leads to Transfer of funds, technology Capital inflows to the foreign
and other resources to the country
foreign country

Topic 22: Types of Money

1. Dear Money
 “The money which is available at high interest rates and hence restricts expenditure by companies.”
 “ Due to restricted money supply, interest rates will be pushed up. Hence, it is very difficult to raise
money during this period of dear money.”
2. Barren Money
 Money which is not earning any interest
 Money which is not invested anywhere
 Money which is kept in a safe deposit locker
3. Hot Money
 Hot money refers to funds that are controlled by investors who actively seek short-term returns. These
investors scan the market for short-term, high interest rate investment opportunities. A typical short-
term investment opportunity that attracts "hot money" is the certificate of deposits.
 Hot currency is the currency which is easily available in the market and can be converted into another
currency. And it flows easily in and out of the market in terms of investment
4. Hard Currency
 Hard currency, safe-haven currency or strong currency is any globally traded currency that serves as a
reliable and stable store of value.
5. Fiat Money
 Fiat money is one that is declared legal tender. This includes any form of currency in circulation such
as paper money or coins. Fiat money is backed by a country's government instead of a physical
commodity.
Measures of Money Supply:

Money supply, like money demand, is a stock variable. The total stock of money in circulation among the public at a
particular point of time is called money supply. RBI publishes figures for four alternative measures of money supply,
viz. M1, M2, M3 and M4. They are defined as follows:

 Reserve Money M0 = Currency in circulation + Bankers’ deposits with the RBI + ‘Other’ deposits with the
RBI
 Narrow Money M1 = Currency with the public + Demand deposits with the banking system + ‘Other’
deposits with the RBI

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 Intermediate Money M2 = M1 + Short-term time deposits of residents (including and up to the contractual
maturity of one year).
 Broad Money M3 = M2 + Long-term time deposits of residents + Call/Term funding from financial
institutions.
Topic - 23: Concept of Loans and Advances
1. Loans and Advances
 Loans and advances are given by banks for various purposes such as
i) Home loans
ii) Personal loans
iii) Car loans
iv) Loans against securities
v) Agriculture loan
vi) Corporate loans
vii) Mortgage loans
2. Index for loans
i) BPLR (2003)
 It is a Benchmark Prime Lending Rate. It is not transparent in nature.it resulted in one borrower
getting a loan at lower interest than the other.
 RBI constituted a working group under the Chairmanship of Shri Deepak Mohanty to review the
rate.
 The committee suggested changes to make credit pricing more transparent and submitted a
report in October 2009.
Hence, Base rate came into effect.
ii) Base Rate (2009)
 “It is the interest rate below which scheduled commercial banks will lend no loans to its customers”
 Now all categories of loans are priced with reference to base rate only, except some exemptions.
Main components of calculating this base rate were :
1. Cost of funds
2. Operating expenses to run the banks
3. Profit
4. Negative carry on CRR and SLR
 So as you see, REPO RATE is not considered while calculation of base rate. So any cut or decrease
in repo rate by RBI was not being forwarded by the banks to their customers
iii) MCLR (2016)
 MCLR stands for Marginal Cost of Funds based Lending Rate which was introduced on 1st April,
2016. It is aimed to help borrowers avail several kinds of advances including home loans.
 MCLR replaced the base rate in order to benefit borrowers by cutting down the actual lending rates.
 Marginal Cost of Lending Rate consists of the following components.
1. Marginal cost of funds
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2. Negative carry on account of CRR
3. Operating costs
4. Tenor premium
iv) External Bench Mark Rate ( Repo Rate)

 The Reserve Bank had constituted an Internal Study Group (ISG) to examine various aspects of
the marginal cost of funds-based lending rate (MCLR) system.
 The ISG observed that internal benchmarks such as the Base rate/MCLR have not delivered
effective transmission of monetary policy.
 RBI has announced that all new floating rate personal or retail loans and floating rate loans to
Micro and Small Enterprises extended by banks from October 1, 2019 shall be linked to external
benchmarks.
 Once in 3 months banks have to change their external benchmark rate effectively.
3. The Exception Category

1. Loans granted under DRI (Differential Rate of Interest) scheme.

2. Loans to own employees of the bank, including retired employees.

3. Loans to depositors of the bank against their own deposits.

4. DRI
 Differential Rate of Interest (DRI) is a lending programme launched by GOI in 1972.
 All the Scheduled Commercial Banks (except RRBs) have to lend 1% of the total advances of the
previous year to the “poorest among the poor”
 The interest rate will be 4% per annum.
 It is the need based financial assistance to those who intend to take up any productive activity.
Groups covered are SCs/STs, Adivasis engaged in agricultural operations, physically handicapped,
orphanages, women's homes etc.
5. Other exemptions
i) Crop loan
 In case of crop loans up to Rs 3 lakh.
 Interest rates are as specified by the Govt. of India
 Interest subvention is given by Govt. of India to banks.
ii) Rupee export credit advances
 In case of rupee export credit advances.
 Interest rates can be below base rate to the extent of interest subvention available.
6. ALMC(Asset Liability Management Committee)
 When the period base base rate was effective, Base rate was to be reviewed at least once in a quarter
with the approval of the Board or Asset Liability Management Committee (ALMC) as per the bank’s
practice.
 Banks should convey the change in base rates to the general public through appropriate channels.
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 Banks can choose fixed or floating rates.
 Banks are free to determine service charges for any type of transaction.
7. Reverse Mortgage Loan
 It is primarily intended for senior citizens (60+ age).
 Married couples are also eligible. One should be (60+age) and the other should not be below 55 years
of age.
 House owned by the senior citizen will be mortgaged to the bank/lender and the lender will pay money
to the senior citizen on a monthly basis or on agreed terms.
 Max. period is 20 years normally.
 After the borrower‘s death, the loan will be repaid through sale of property and any surplus will
be paid to the heirs.
8. Secured loan
 A secured loan is a loan where the borrower pledges an asset as collateral for the loan
 Some property as collateral
 Lender will have lien over that property
 Interest rates will be less
Ex: Vehicle loan, Home loan
9. Unsecured loan
 An unsecured loan is one in which the borrower does not have to pledge any collateral/ security/
guarantor to secure it.
 No collateral
 Risky from the lenders point of view
 Given based on the credit worthiness of the borrower
 Also called signature loan
 Interest rate will be high
Ex: Personal Loan
10. Term loan/ Revolving Credit
 A revolving credit is a line of credit where the customer pays a commitment fee and is then allowed to
use the funds when they are needed. It is usually used for operating purposes, fluctuating each month
depending on the customer's current cash flow needs.
 Resolving lines of credit can be taken out by both corporations and individual
Topic - 24: Types of Lending
1. Overdraft/Cash credit Account
 A borrower can withdraw funds as and when needed, upto the credit limit given by the banker.
 Borrower can repay the amount as per the terms and conditions, and the interest will be charged
over the amount borrowed only.
 (If the credit limit is Rs.30 lakhs, and the borrower withdraws only Rs. 15 lakhs, he is required to pay
interest only for Rs.15 lakhs up to the date of repayment)

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 It gives flexibility to the borrower.

 Difference between these two accounts:
 The distinction between an Overdraft and a Cash Credit is in the nature of the security.
 When the advance is secured by the pledge/hypothecation of goods or produce, it is treated as a
Cash Credit Account.
2. Fixed and floating interest rate
FIXED INTEREST FLOATING INTEREST

Interest is fixed for the whole tenure of the It is normally fixed as effective Rate
loan period (15 to 20 years) + Certain %

Normally, interest will be slightly higher than As the effective changes quite frequently, the
the floating interest as it is difficult to floating interest rate changes
analyse the economic situation for the entire
loan period.

Fixed interest rate will be slightly higher than Normally, banks vary the repayment period
the floating interest by keeping the EMI constant.

3. EMI
 It is an Equated Monthly Installment.
 It is the fixed amount paid by the borrower to the lender on the specified date every month.
 EMI is normally constant.
 It includes both interest and principal.
 The schedule indicating the components of principal and interest is known as the Amortization
Schedule.

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 Amortization means spreading payments over multiple periods.
4. Moratorium and Amortization
 Moratorium period means the period one will not be required to pay back the loan. Normally known
as grace period given by the banks.
 For example, there is the situation of flood, genuine reason for the loss of business.

 This gives an illustration of Amortization/Moratorium.

5. Collateral Security
 Fixed property or other assets the borrower offers to the lender to secure a loan.
 Since the lender can recoup losses in case the borrower fails to repay, the interest rates will be
less in comparison to unsecured loans.
 Hence, the interest rates on personal loans, interest rates on the balances of credit card
transactions beyond the grace period are more because of no collateral security.
 If there is no collateral security, the loan is known as unsecured loan or signature loan

6. Lessor and Lessee

 Lessor / Landlord is the rightful owner of the property.
 By making onetime / periodic payments, the Lessee got the right to use it.
 The lease agreement is for a specified period only.

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7. Bailor and Bailee

 Bailment is the contractual transfer of possession of asset or property for a specific objective
 Ownership lies with the Bailor
 Bailee cannot use the property
 Bailee is responsible for safe keeping and eventual return

Hypothecation:

 Hypothecation is legal term that refers to the granting of a hypothec to a lender by a borrower.
 In practice, the borrower pledges an asset as collateral for a loan, while retaining ownership of the assets and
enjoying the benefits therefrom.

Pledge:

 Pledge is used when the lender (pledgee) takes actual possession of assets (i.e. certificates, goods).
 Such securities or goods are movable securities.
 In this case the pledgee retains the possession of the goods until the pledgor (i.e. borrower) repays the entire
debt amount.
 In case there is default by the borrower, the pledgee has a right to sell the goods in his possession and adjust
its proceeds towards the amount due (i.e. principal and interest amount).
 Some examples of pledge are Gold /Jewellery Loans, Advance against goods,/stock, Advances against
National Saving Certificates etc.

Mortgage:

 It is used for creating charge against immovable property which includes land, buildings or anything
that is attached to the earth or permanently fastened to anything attached to the earth (However, it does
not include growing crops or grass as they can be easily detached from the earth).

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 The best example when mortgage is created is when someone takes a Housing Loan / Home Loan.
 In this case house is mortgaged in favour of the bank / financer but remains in possession of the
borrower, which he uses for himself or even may give on rent.

Topic - 25: Payment Types

1. Standing Instruction
 It is an instruction/order a bank account holder gives to his/her bank to pay a set of amount at regular
bank intervals to another account.
 Ex: Salary payments, payments of bills, electricity bills, repayment of loan, inter account transfer of
funds
2. Debit Card/Credit Card
 Both are plastic cards, that work on some financial platforms like Visa, MasterCard, RuPay
 They are the instruments to facilitate financial transactions, without the need for carrying cash.
 Liquidity is assured on a 24x7 basis.
Credit Card Debit Card
Eligibility Criteria Need to be fulfilled No Criteria
Maximum Limit Determined on Credit score, Less than savings or current
Credit history etc.. account balance to which the
card is linked
Interest Charged or levied on amount Paid to you on the account
utilized balance
Debt Instrument Yes No
Utilization Summary Monthly Credit statement Monthly Bank Statement

3. Visa and Mastercard

 VISA (Visa International Service Association) and MasterCard are Payment processing institutions
and several financial institutions use these platforms to facilitate services through Debit cards and
Credit cards and for other electronic transactions across the world.
 Both VISA and MASTERCARD are accepted at several merchant outlets.
 NPCI DEVELOPED RUPAY PLATFORM (Developed by India)
4. NPCI and Its Operations
 It is the National Payments Corporation of India.
 It is incorporated in December 2008 (Under section 25 of the Companies Act)
 Authorized capitalRs.300crores
 Paid up capitalRs.100crores
Products of NPCI:
1. National Financial Switch (NFS)
2. Automated Clearing House
3. Immediate Payment Service
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4. Cheque Truncation System
5. Aadhar Payment Bridge System
6. Rupay Card
 National Financial Switch (NFS): The National Financial Switch facilitates routing of ATM transactions
through inter-connectivity between the Bank's Switches, thereby enabling the citizens of the country to utilize
any ATM of a connected bank. It was designed, developed and deployed by the Institute for Development and
Research in Banking Technology in 2004, with the goal of inter-connecting the ATMs in the country and
facilitating convenience banking.
 National Automated Clearing House: NACH, or the National Automated Clearing House, was a system
introduced by the National Payments Corporation of India, for interbank, high volume, electronic transfers,
which were periodic in nature. The NPCI introduced NACH as an improvement over the existing Electronic
Clearing System (ECS), and consolidate multiple ECS systems running all over the country. The NACH
system is used for bulk towards the distribution of subsidies, dividends, interest, salary, pension, etc. and also
for bulk transactions towards the collection of payments for telephone, electricity, water, loans, investments in
mutual funds, insurance premium, etc.
 Immediate Payment Service: It is a money transfer mechanism made available by the apex bank of the
country, the Reserve Bank of India and the National Payments Corporation of India (NPCI). IMPS offers
instant, 24X7, interbank electronic fund transfer service from one person to other using mobile number and
Mobile Money Identifier (MMID).
 Cheque Truncation System: Cheque truncation system is an arrangement which facilitates the electronic
processing of a cheque with the use of Magnetic Ink Character Reader (MICR) data and the scanned image of
the instrument without involving any physical exchange or movement of the financial instrument.
 Aadhar Payment Bridge System (ABPS): ABPS uses Aadhaar number as a central key for electronically
channelizing the Government benefits and subsidies in the Aadhaar Enabled Bank Accounts (AEBA) of the
intended beneficiaries.
 Rupay Card: Rupay was introduced in 2012 by NPCI and functions within the domestic boundaries. Rupay
cardholders can use the service for ATM withdrawals, online transactions, and card payments. Rupay card has
a comparatively lower processing cost and processing time in comparison to Visa and MasterCard.
Topic 26: Payments and Settlements System
UPI (Unified Payment Interface)
 Unified Payments Interface (UPI) is an instant payment system developed by the National Payments
Corporation of India (NPCI), an RBI regulated entity.
 UPI is built over the IMPS infrastructure and allows you to instantly transfer money between any two
parties' bank accounts.
 A Virtual Payment Address (VPA) is a unique identifier which you can use to send and receive money
on UPI.
 Although the transaction limit per UPI transaction is ₹1 lakh, the upper limit depends on bank-to-bank.
 The transaction limit per day for UPI transactions is ₹1 Lakh.
 The maximum number of UPI transactions is limited to 20.
 [#UPI Chalega] is a campaign by NPCI to promote the UPI payment system.
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 NPCI, National Payment Corporation of India is trying to drive up the digital payment system by this
campaign.(Google pay and Phone pe are promoting upi effectively)

BHIM (Bharat Interface money)

 Bharat Interface for Money (BHIM) is a payments app that facilitates simple and quick transactions
using Unified Payments Interface. It allows you to make direct bank payments to any bank account on
UPI with the help of UPI ID and PIN. In another case, you can scan a QR code with the BHIM app to
transfer money.
 The BHIM app was developed by National Payments Corporation of India (NPCI). It was
launched by the Prime Minister of India, Narendra Modi on 30 December 2016 to realize a digitally
empowered society.
 BHIM is a UPI based payment interface which allows real time fund transfer using a single identity
like your mobile number or name.
 Currently it is available in 16 languages, i.e., Hindi, English, Tamil, Telugu, Malayalam, Bengali,
Odia, Kannada, Punjabi, Assamese, Urdu, Marathi, Gujarati, Haryanvi, Bhojpuri and Konkani.
 Dial *99# to avail features of BHIM without internet on any mobile phone.
 A user can send up to Rs.40,000 per transaction and a maximum of Rs.40,000 per day for one
bank account.
 This limit is available per bank account linked on BHIM.
 There is no limit to the amount of money you can receive via BHIM.

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NEFT
 It is a nation wise payment system facilitating one to one funds transfer.
 No limit for minimum or maximum amount of transfer. (However, for amounts of Rs.2 Lakh and
above, RTGS is used.)
 It works on the system of STP - Straight Through Processing
 With a view to promote digital transactions, the Reserve Bank of India (RBI) has allowed the round-
the-clock (24×7) transactions facility under the National Electronic Funds Transfer (NEFT) system to
customers on all days including weekends and holidays from December 16,2019
 NEFT Operates on 48 half and hourly basis.
 No Charge for NEFT Transaction as per RBI's latest guidelines
RTGS
 Real-time gross settlement (RTGS) refers to a funds transfer system that allows for the instantaneous
transfer of money and/or securities.
 RGTS is the continuous process of settling payments on an individual order basis without netting
debits with credits across the books of a central bank
 Real Time Gross Settlement System (RTGS), used for large value transactions, will be made available
round-the-clock from December 2020.
 Earlier, RTGS was available for customers from 7.00 am to 6.00 pm on all working days of a week,
except second and fourth Saturdays of every month.
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 Minimum Limit- 2 lakh, Maximum Limit- No
IMPS

 IMPS stands for Immediate Payment Service in Indian banking system terminologies.
 The major feature of IMPS is that it is available at all times for usage.
 It transfers funds instantly and is a great banking platform in case of emergencies.
 The transaction charges of this platform are also very nominal and the transfer limit is also
considerable, approximately Rupees 2 lakhs per day.
 Moreover, IMPS is available on mobile too which makes it super-convenient

Topic 27: Codes Used in Banking

MICR (Magnetic Ink Character Recognition)
 A MICR code is a 9-digit code that uniquely identifies a bank and a branch participating in an Electronic
Clearing System (ECS).
 First 3 digit= city code Middle 3 digit = bank code Last 3 digit = branch code
 One can locate the MICR code at the bottom of a cheque leaf, next to the cheque number.
 It is also normally printed on the first page of a bank savings account passbook.
IFSC Code
 It is Indian Financial System Code.
 It is alpha – numeric code which identifies any branch under the NEFT system
 IFSC code is must for NEFT and RTGS transactions
 It is 11 digit code

4 Alpha Characters 0 Last 6digits

 First 4 characters represents bank name

 Fifth digit buffer
 Last six digits are represents bank branch

SWIFT Code

 SWIFT stands for Society for Worldwide Interbank Financial Telecommunication

 SWIFT Code is a standard format of Bank Identifier code.
 This code is used particularly for interbank transfer of money between banks & majority of FOREX
related message are sent to correspondent banks abroad with the help of SWIFT code.
 SWIFT Code consists 8 or 11 character when the code is 8 digits, it refers to the primary office.
4 digits – Bank code
2 digits – Country code
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2 digits – Location code
3 digits – Branch code (optional)
 On November 14, 2019 India, China and Russia have partnered together to explore an alternative to
the SWIFT (Society for Worldwide Interbank Financial Telecommunication) payment mechanism
in-order to smoothen the trade with countries that face American sanctions
 As India doesn’t have its own domestic financial payments system, it is in plan to link the Central
Bank of Russia’s platform with a service that is under development.

Unstructured Supplementary Service Data (USSD)

 USSD refers to unstructured supplementary service data.

 It is a platform that allows transfer of money between two bank accounts using a feature phone/smart phone
without internet connection by dialing USSD code

*99#

 The telecom service providers will charge to use services.

 The transactions limit for *99# banking is set to ₹ 5000 per transaction by RBI.

Query Service of AADHAAR Mapper (QSAM)

 NPCI has launched QSAM, a USSD based serviced that lets the user know their AADHAAR seeding status.
 Since the service works on USSD, it is available across all handsets and very convenient to use.
 In QSAM users can dial *99*99# from their handset and can know the AADHAAR seeding status by
inputting their AADHAAR number.

Topic 28- Rating Agencies

Credit ratings play a key role in the financial system. A credit rating agency is a company that assigns credit ratings,
which rate a debtor's ability to pay back debt by making timely interest payments and the likelihood of default. An
agency may rate the creditworthiness of issuers of debt obligations, of debt instruments, and in some cases, of the
servicers of the underlying debt, but not of individual consumers.
CAMELS – for domestic banks
C- Capital adequacy ratio
A- Asset quality
M- Management effectiveness
E- Earnings
L- Liquidity
S-System & control
CALCS- for foreign banks
C- Capital adequacy ratio

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A- Asset quality
L- Liquidity
C- Compliance
S- System & control
CRISIL:
 Credit Rating Information Services of India Limited is the largest credit rating agency of India.
 CRISIL’s majority shareholder is Standard & Poor's, a division of McGraw Hill Financial and provider of
financial market intelligence.
 It was founded in 1987.
 Headquarter- Mumbai, Maharashtra
CIBIL:
 Credit Information Bureau of India Limited. CIBIL collects and maintains the records of individuals’ payment
pertaining to loans and credit cards.
 This agency was founded in 2000 and was first credit Information Company.
 Maintains and submit records to banks and credit institutions.
 Information is used to create credit information report (CIR).
 Headquarter- Mumbai
ICRA:
 Investment Information and Credit Rating Agencies is Indian independent and professional investment
information and credit rating agency was founded in 1991.
 The international Credit Rating Agency Moody’s Investors Service is ICRA’s largest shareholder.
 Headquarter- Gurugram, Haryana.
International Credit Rating Agencies:
Fitch rating:
 Fitch Ratings Inc. is one of the three nationally recognized statistical rating organizations (NRSRO)
designated by the U.S. Securities and Exchange Commission in 1975.
 Fitch Ratings' long-term credit ratings are assigned on an alphabetic scale from 'AAA' to 'D'.
 For e.g., AAA: the best quality companies, reliable and stable, AA: quality companies, a bit higher
risk than AAA, A: economic situation can affect finance.
 Headquarters- New York City, United States
Moody's Investors Service:
 Moody's Investors Service provides international financial research on bonds issued by commercial
and government entities.
 Moody's was founded by John Moody in 1909 to produce manuals of statistics related to stocks and
bonds and bond ratings.
 Headquarters- New York City, United States
Standard & Poor's Financial Services:
 S&P is an American financial services company. It is a division of S&P Global that publishes financial
research and analysis on stocks, bonds, and commodities.
 Headquarters- New York, United States
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Topic 29: Currency Notes and their Dimensions

Currency Notes and their dimensions:

Currency Notes Dimensions Base Colour Motif(image)

1 Rupee Note 97mm X 63 mm Pink Green Sagar Samrat

10 Rupee Note 63 mmX123 mm Chocolate Brown Sun Temple(odisha)

20 Rupee Note 63 mmX147 mm Greenish Yellow Ellora Caves

(maharashtra)

50 Rupee Note 66 mmX135 mm Fluorescent Blue Hampi with Chariot

(karnataka)

100 Rupee Note 66 mmX142 mm Lavender Rani Ki vav

(gujarat)

200 Rupee Note 66 mmX146 mm Bright Yellow Sanchi Stupa

(madhya pradesh)

500 Rupee Note 66 mmX150 mm Stone Grey Red Fort(Delhi)

2000 Rupee Note 66 mmX166 mm Magenta Mangalyaan

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Topic 30: Digital Banking

POS Terminal(POINT OF SALE TERMINALS)
 It is a terminal at a store, where customers make purchases using a debit card / credit card / prepaid card.
 Card needs to be swiped and the data embedded in the card is electronically validated and gets authorized, if it
is in order.
 It is the payment gateway of the merchant acquirer.
 The merchant establishment is required to hold an operative account with the acquirer bank to avail this
service.
 POS terminals are a good source of “Non Interest Income” for banks
Mobile Wallets:
 Mobile wallets have eliminated the need to remember four-digit card pins or enter CVV details or carry loose
cash.
 Mobile wallets store bank account and card credentials to easily add funds to the wallet and make payments to
other merchants with similar applications. Popular mobile wallets are Paytm, Freecharge, Mobiwik, etc.
Internet Banking:
 Commonly known as e-banking, internet banking refers to obtaining certain banking services over the
internet, such as fund transfers, and opening and closing accounts.
 Internet banking is a subset of digital banking because internet banking is only limited to core functions.
Similarly, mobile banking is availing banking services through mobile-based applications.

Topic 31: Banking Terminologies

Differentiated bank (niche)
 Payment banks
 Small finance banks
(for the first time, in principle approval is given by RBI for differentiated banks in 2015)
 They can undertake only a limited range / narrow range of activities.
 They are also called “niche” banks.
Green field/ Brown field
Green field:
 Starting project afresh, without any link to the previous project.
Brown field:
 Expanding / modifying / upgrading / extending the existing project.
Bridge loan
 A bridge loan is a type of short term finance that aims to “bridge the gap” between the purchase of a
property and its sale.
 A short term financing, normally up to one year, until the company secures permanent / long term
financing or to tide over current obligations
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Channel finance
 Working capital finance to dealers having business relationships with large companies

Insolvency
 Insolvency is a financial state where an entity is not able to repay its debt that it owes to its financial or
operational creditors.
 Insolvency is a financial status: your debts are greater than the fair market value of your assets &
you're unable to pay your debts as they generally become due.
 State of being not able to pay back the liabilities.
 Condition of having more debts (liabilities) than total assets.

Bankruptcy
 Bankruptcy is a legal procedure for liquidating a business or property owned by an individual, which
can't fully pay its debts out of its current assets.
 Bankruptcy is a legal status: it's a legal procedure whereupon an insolvent person files for protection
from her creditors so that they cannot commence or continue legal proceedings (like a wage
garnishment) against her to recover their debts.
 In return for this protection, she surrenders her assets to the bankruptcy trustee who becomes the legal
owner of her assets. The trustee then sells her assets and distributes the sale proceeds amongst her
creditors.
 And if she has no assets in the first place, her creditors end up getting nothing. They then write off
their debts against her as a business loss.
Liquidation
 Liquidation is a term which is given to the process of dissolving or winding up of the company. This is
done by selling off all the assets of the companies and paying the proceeds gathered to any of the
outstanding creditors of the company.

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 THE COMPLETE – STATIC BANKING AWARENESS
Asset

 Any resource that has economic value that an individual or corporation owns. Assets are generally
viewed as resources that produce cash flow or bring added benefit to the individual or company.

Actuaries

 A person with expertise in the fields of economics, statistics and mathematics, who helps in risk
assessment and estimation of premiums etc for an insurance business, is called an actuary.

Accounts Receivable

 The amount of money owed by customers or clients to a business after goods or services have been
delivered and/or used.

Amortization

 It is an accounting technique by which intangible assets are written off over a period of time.

Accounts Payables

 The amount of money a company owes creditors (suppliers, etc.) in return for goods and/or services
they have delivered.

Annuity

 It is an investment scheme under which investor makes recurring investments and lump sum payment
is made to him at the end.

Arbitrage

 It is the process of simultaneous buying and selling of an asset from different platforms, exchanges or
locations to cash in on the price difference.

Bancassurance

 Bancassurance means selling insurance products through banks.

 Banks and insurance company come up in a partnership wherein the banks sells the tied insurance company’s
insurance products to its clients.

Balance of payment

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 THE COMPLETE – STATIC BANKING AWARENESS
 It is the difference between a country’s exports and imports.

Bank Rate

 It is the rate charged by the central bank for lending funds to commercial banks.

Basis Point :

 One- hundredth of 1% point normally used for indicating cost of finance.

Balance Sheet:

 A financial report that summarizes a company's assets (what it owns), liabilities (what it owes) and
owner or shareholder equity at a given time.

Bitcoin:

 Bitcoin is a virtual currency or cryptocurrency and a payment system. It can be defined as a decentralized
means of tracking and assigning wealth or economy, it is a software protocol.

Bond:

 A debt instrument used by corporations, governments (including Federal, State and City) and many other
institutions that are used to generate capital.

Capital:

 A financial asset or the value of a financial asset, such as cash or goods.

 Working capital is calculated by taking your current assets subtracted from current liabilities—basically the
money or assets an organization can put to work.

Core Banking Solutions (CBS):

 It is a networking of branches which enables customers to operate their accounts and avail banking services
from any branch of the bank on CBS network, regardless of where he maintains his account.

Credit:

 An accounting entry that may either decrease assets or increase liabilities and equity on the company balance
sheet, depending on the transaction.
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 When using the double-entry accounting method there will be two recorded entries for every transaction: A
credit and a debit.

Dividend:

 It is the amount per share paid by a company to its shareholders.

 Dividend value is based upon company’s profitability.

Demat Account:

 The way in which a bank keeps money in a deposit account in the same way the depository company
converts share certificates into electronic form and keep them in a demat account.

Deflation:

 When the overall price level decreases so that inflation rate becomes negative is called deflation.

Diversification:

 The process of allocating or spreading capital investments into varied assets to avoid over-exposure to risk.

Depreciation

 The monetary value of an asset decreases over time due to use, wear and tear or obsolescence. This decrease
is called depreciation.

Equity

 Equity= Total assets- Total liabilities

EMI:

 EMI or Equated Monthly Installment, as the name suggests , is one part of the equally divided monthly
outgoes to clear off an outstanding loan within a stipulated time frame.

Exchange Rate:

 It is the price of one currency in terms of another currency.

Face value
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 THE COMPLETE – STATIC BANKING AWARENESS
 The amount mentioned on face of a bond certificate.

Fiscal Deficit :

 The difference between total revenue and total expenditure of the government is termed as fiscal deficit.

Inflation

 It is an increase in the quantity of money in circulation without any corresponding increase in goods thus
leading to an abnormal rise in the price level.

Insolvency

 A state where an individual or organization can no longer meet financial obligations with lenders when their
debts come due.

Initial Public Offering (IPO)

 An initial public offering is when a private company or corporation raises investment capital by offering its
stock to the public for the first time.

Liquidity

 Liquidity means how quickly you can get your cash on your hands. In simple terms, liquidity is to get your
money whenever you need it.

Marginal Standing Facility :

 MSF is a window for banks to borrow from RBI in an emergency situation when inter bank liquidity dries up
completely.

Market Capitalisation

 It is the aggregate valuation of the company based on its current share price and the total number of
outstanding stocks.
 It is calculated by multiplying the current market price of the company’s share with the total outstanding
shares of the company.

Mortgage

 A legal agreement that conveys the conditional right of ownership on an asset or property by its owner to a
lender as security for a loan.
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 THE COMPLETE – STATIC BANKING AWARENESS
Mutual fund

 A mutual fund is a professionally managed investment fund that pools money from many investors to
purchase securities.

Open Market Operations

 It is the sale and purchase of government securities and treasury bills by RBI. The objective of OMO is to
regulate the money supply in the economy. When the RBI wants to increase the money supply in the
economy, it purchases the government securities from the market and it sells government securities to suck
out liquidity from the system.

Plastic Money

 Generic term for all types of bank cards, credit cards, debit cards, smart cards etc..

Prime Rate

 Determined by the federal funds rate (the overnight rate at which banks lend to one another) the prime rate is
the best rate available to a bank’s most credit-worthy customer.

Prime Lending Rate

 The interest rate charged by banks to their largest, most secure, and most credit worthy customers on short
term loans.

Recession

 An economic condition defined by a decline in GDP for two or more consecutive quarters. During a
recession, the stock market usually drops, unemployment increases, and the housing market declines.

Special Drawing Rights

 It is a reverse asset created within the framework of the International Monetary Fund in an attempt to increase
international liquidity.

Yield

 The annual rate of return for an investment expressed as a percentage.

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 THE COMPLETE – STATIC BANKING AWARENESS

Topic 32: Banking Abbreviations

Acronym Abbreviation
ACS Automated Clearing System
ADR American Depository Receipt
AEPS Aadhar Enabled Payment System
AFS Annual Financial Statement
AIF Alternative Investment Fund
ALCO Asset Liability Committee
ALM Asset Liability Management
ALM Asset Liability Management
AMFI Association of Mutual Funds in India
ANBC Adjusted Net Bank Credit
APBS Aadhar Payment Bridge System
ARC Asset Reconstruction Companies
ASBA Application Supported by Blocked Amount
ATM Automated Teller Machine
BBPS Bharat Bill Payment System
BCBS Basel Committee on Banking Supervision
BCSBI Banking Codes and Standards Board of India
BHIM Bharat Interface for Money
BIS Bank of International Settlements
BOP Balance of Payments
BPLR Benchmark Prime Lending Rate
BRBNM PL Bharatiya Reserve Bank Note Mudran Private Limited
BSBDA Basic Savings Bank Deposit Account
CAD Capital Account Deficit
CAD Current Account Deficit
CAGR Compound Annual Growth Rate
CAR Capital Adequacy Ratio
CARE Credit Analysis and Research Ltd
CASA Current Account Saving Account
CBLO Collateralized Bank Lending Obligations

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 THE COMPLETE – STATIC BANKING AWARENESS

CBS Core Banking Solutions

CCEA Cabinet Committee on Economic Affairs
CCF Credit Conversion Factor
CCL Cash Credit Limit
CCL Cash Credit Limit
CDR Corporate Debt Restructuring
CDS Credit Default Swap
CEPA Comprehensive Economic partnership Agreement
CEPA Comprehensive Economic Partnership Agreement
CIBIL Credit Information Bureau of India Ltd
CIDR Central Identities Data Repository
CII Confederation of Indian Industries
CMIS Currency Management Information System
CPI Consumer Price Index
CPI Consumer Price Index
CRAR Capital to Risk- Weighted Assets Ratio
CRILC Central Repository of Information on Large Credits
CRIS Comparative Rating Index of Sovereign
CRISIL Credit Rating Information Services of India Ltd
CRR Cash Reserve Ratio
CSR Corporate Social Responsibility
CSR Corporate Social Responsibility
CTS Cheque Truncation System
CVV Card Verification Value
CVV Card Verification Value
DEAF Depositor Education and Awareness Fund
DICGC Deposit Insurance and Credit Guarantee Corporation of India
DII Domestic Institutional Investor
DNS Domain Name System
DPG Deferred Payment Guarantee
DPN Demand Promissory Note
DRAT Debt Recovery Appellate Tribunal
DRI Differential Rate of Interest

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 THE COMPLETE – STATIC BANKING AWARENESS

DRI Differential Rate of Interest

DRI Deferential Rate of Interest
DSCR Debt Service Coverage Ratio
DTAA Double Taxation Avoidance Agreement
ECB External Commercial Borrowings
ECGC Export Credit Guarantee Corporation
ECR Export Credit Refinance
ECS Electronic Clearing System
EDI Electronic Data Interchange
EDP Entrepreneurship Development Programme
EEFC Exchange Earners Foreign Currency
EFSF European Financial Stability Facility
EFTPOS Electronic Funds Transfer at Point of Sale
ELSS Equity Linked Savings Scheme
EMI Equated Monthly Installment
EPOS Electronic Point of Sale
EPS Earnings Per Share
ETF Exchange Traded Fund
FCA Foreign Currency Assets
FCCB Foreign Currency Convertible Bond
FCNRA Foreign Currency Non Resident Account
FCNRD Foreign Currency Non-Repatriable Deposit
FDI Foreign Direct Investment
FEMA Foreign Exchange Management Act
FERA Foreign Exchange Regulation Act
FICCI Federation of Indian Chambers of Commerce and Industry
FII Foreign Institutional Investor
FIMMDA Fixed Income Money Markets and Derivatives Association
FINO Financial Inclusion Network Operation
FIPB Foreign Investment Promotion Board
FIPB Foreign Investment Promotion Board
FPI Foreign Portfolio Investment
FPI Foreign Portfolio Investment

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 THE COMPLETE – STATIC BANKING AWARENESS

FPO Follow on Public Offer

FRA Forward Rate Agreement
FRBM Fiscal Responsibility Budget Management Act
FRBMA Fiscal Responsibility and Budget Management Act
FRN Floating Rate Note
FSLRC Financial Sector Legislative Reforms Commission
GAAR General Anti Avoidance Rule
GFD Gross Fiscal Deficit
GIRO Government Internal Revenue Order
GMS Gold Monetization Scheme
GNFV Gross Negative Fair Value
HCE Host Card Emulation
IBA Indian Banks Association
IBRD International Bank for Reconstruction and Development
ICAAP Internal Capital Adequacy Assessment Process
ICRA Indian Credit Rating Agency
ICRA Investment Information and Credit Rating Agency of India Limited
IDRBT Institute for Development and Research of Banking
IEPF Investors Education and Protection Fund
IFSC Indian Financial System Code
IIB International Investment Bank
IIP Index of Industrial Production
IMPS Immediate Mobile Payment Service
IMT Instant Money Transfer
INFINET Indian Financial Network
IPO Initial Public Offering
IRBI Industrial Reconstruction Bank of India
IRO Interest Rate Options
ISCI International Standard Industrial Classification
KCC Kisan Credit Card
KVP Kisan Vikas Patra
KYC Know Your Customer
LAF Liquidity Adjustment Facility

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LAMPS Large Sized Adivasi Multipurpose Societies

LCR Liquidity Coverage Ratio
LIBOR London Interbank Offered Rate
LRS Liberalised Remittance Scheme
LTCG Long Term Capital Gains
MAMP Minimum Average Maturity Period
MCLR Marginal Cost of Lending Rate
MFI Micro Finance Institutions
MIBOR Mumbai Interbank Offered Rate
MICR Magnetic Ink Character Recognition
MSF Marginal Standing Facility
MSS Market Stabilisation Scheme
MUDRA Micro Units Development and Refinance Agency
NABARD National Bank for Agriculture and Rural Development
NACH National Automated Clearing House
NAS National Accounts Statistics
NBFC Non Banking Finance Companies
NDS Negotiated Dealing System
NDTL Net Demand Time Liabilities
NEFT National Electronic Funds Transfer
NFA No Frills Account
NFS National Financial Switch
NPA Non Performing Assets
NPCI National Payments Corporation of India
NPS National Pension Scheme
NPV Net Present Value
NRE Non Resident External Account
NRO Non Resident Ordinary Account
OLTAS Online Tax Accounting System
OMO Open Market Operations
OTCEI Over the Counter Exchange of India
OTCEI Over the Counter Exchange of India
P- Notes Participatory Notes

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P2P Peer to Peer

PACS Primary Agricultural Credit Societies
PCA Prompt Corrective Action
PCR Public Credit registry
PFRDA Pension Fund Regulatory Development Authority
PGS Payment Gateway System
PIN Personal Identification Number
PIO Persons of Indian Origin
PIS Portfolio Investment Scheme
POA Power of Attorney
PPF Public Provident Fund
PPIs Prepaid Payment Instruments
PPP Public Private Partnership
PPP Purchasing Power Parity
PRSF Partial Risk Sharing Facility
PRSF Partial Risk Sharing Facility
RDBMS Relational Database Management System
RDDBFI Recovery of Debt due to Banks and Financial Institutions
RIDF Rural Infrastructure Development Fund
RLA Recoveries of Loans & Advances
ROA Return on Investment
RTGS Real Time Gross Settlement
RWA Risk Weighted Assets
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest
SARFAESI Act
SDR Special Drawing Rights
SFMS Structured Financial Messaging Services
SGB Sovereign Gold Bond
SHG Self Help Group
SIFI Systematically Important Financial Intermediaries
SIP Systematic Investment Plans
SIPS Systematically Important Payment System
SLR Statuatory Liquidity Ratio
SMERA SME Rating Agency of India Limited
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SMILE SIDBI Make in India Loan for small Enterprises

SPNS Shared Payment Network System
SPNS Shared Payment Network System
STRIPS Separate Trading of Registered Interest and Principal of Securities
SWIFT Society for Worldwide Interbank Financial Telecommunication
TDS Tax Deducted at Source
TIN Tax Identification Network
UEBA Universal Electronic Bank Account
UIDAI Unique Identification Authority of India
UPI Unified Payments Interface
UPIN Unique Property Identification Number
USSD Unstructured Supplementary Services Date
UTI Unit Trust of India
VCF Venture Capital Fund
VPA Virtual Payment Address
WCTL Working Capital Term Loan
WCTL Working Capital Term Loan
WMA Ways and Means Advances
WPI Wholesale Price Index
YTM Yield To Maturity

Topic 33: Schemes Related to Banking

Pradhan Mantri Jan Dhan Yojana

 It was launched by PM Modi on 2014 with an aim to provide access to various financial services such as
savings, insurance, Pension, Credit, Remittance etc. in an affordable manner.
 Pradhan Mantri Jan Dhan Yojana is a financial inclusion campaign which provides universal access to
banking facilities. It also ensures to provide financial literacy with at least one basic banking account for
every household in India.
 With the outbreak of Covid-19 in India, the Finance Minister of India, Nirmala Sitharaman made an
announcement to provide Rs. 500 per month to every Women Jan-Dhan Account Holders for the next three
months. This announcement was made on 26th March, 2020 as an initiative towards the loss caused by the
outbreak.

Atal Pension Yojana

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Launched in 9th May 2015
Launched by Prime Minister Narendra Modi
Aim To provide social and financial security to people in their old age by enabling them to make
regular savings during their productive years.
Eligibility To avail benefits from the Atal Pension Yojana, you must fulfil the below requirements:

1. Must be a citizen of India.

2. Must be between the age of 18-50
3. Should make contributions for a minimum of 20 years.
4. Must have a bank account linked with your Aadhar
5. Must have a valid mobile number

Those who are availing benefits of Swavalamban Yojana will be automatically migrated to
Atal Pension Yojana.
Ministry Finance
Minimum Pension Rs5000
Maximum Pension Rs10000

Pradhan Mantri MUDRA Yojana

Launched in 2015
Launched by PM Modi
Eligibility In order to avail the benefits of the PMMY Scheme, the person should be a citizen of India.
The loans are basically for people having a business plan in a Non-Farming
Sector with Income generating activities like the following:

 Manufacturing
 Processing
 Trade
 Service Sector
 Or any other fields whose credit demand is less than ₹10 lakhs.
The Indian Citizen seeking MUDRA Loans under the PMMY Scheme will have to approach
either an MFI, Bank or NBFC to avail it.

Aim To enable Micro Finance Institutions (MFIs), Non-Banking financial institutions/Companies

(NBFCs), Small Finance Banks, RBRs, Commercial Banks, Cooperative Banks, etc. to
provide Low Rate Loans to eligible entities.
Types of MUDRA Shishu: Upto 50,000
Loan
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 THE COMPLETE – STATIC BANKING AWARENESS
Kishor:50,000 to 5 lakh

Tarun: 5 lakh to 10 lakhs

Kisan Credit Card

Launched in 1998
Ministry Finance
Recommendation R.V Gupta Committee
Aim The Kisan Credit Card Scheme aims to provide timely and adequate credit to farmers to meet
their needs at the time of crop production (cultivation expenses) and meeting contingency
expenses. It also covers expenses related to ancillary activities through simplified procedures
in obtaining loans as and when needed.
Eligibility  Farmers – individual/joint borrowers who are owner cultivators;
 Tenant farmers, oral lessees & share croppers;
 Self Help Groups (SHGs) or Joint Liability Groups (JLGs) of farmers including tenant
farmers, share croppers etc.

Who can issue Commercial Banks, RRBs, Small finance Banks, Cooperatives

Small Savings Scheme

Small Savings Scheme Annual Interest Rate

1.Public Provident Fund (PPF) 7.1 %

2.National Savings Certificate (NSC) 6.8 %

3.Kisan Vikas Patra (KVP) 6.9 %(124 months maturity)

4.Sukanya Samriddhi Account 7.6 %

5.Senior Citizen Savings Scheme 7.4 %

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