Banking Awarness Meritshine Material

Banking Awareness & Financial Awareness
It’s a compilation of some important BA/FA questions you

may face in the IBPS PO 2019 interview (along with their
answers).
You may go through this playlist on our YouTube channel for

a more thorough understanding of the topics.
https://www.youtube.com/watch?v=rDVYYSo96Z0&list=PLhuF3CfgKa3YDSnu3gCuwXtjvUa3sUQvS
Q. What is a bank?
The word Bank is derived from the Italian word ‘Banca” and the French word
‘Banque” and both these words meaning a bench or a money exchange table.
The bank is a financial intermediary institution where people deposits there
money and banks can lend this money to earn the profit.
According to Section 5(1)(b) of the Banking Regulation Act, 1949, banking is
defined as ‘the accepting, for the purpose of lending or investment, of deposits
of money from the public, repayable on demand or otherwise and withdrawable
by cheque, draft, order or otherwise.’
Q. What are the types of banks in India?
In India, banking can be classified into 4 categories-

1. Reserve Bank of India
2. Commercial Banks
3. Co-operative Banks
4. Development Banks
Reserve Bank of India
Reserve Bank of India is the central bank and supreme monetary authority of
India. RBI Act was passed in 1934. It was established on 1 April 1935 with a
capital of Rs 5 crore on the recommendations of Hilton Young Commission.
The headquarters of RBI was initially in Kolkata but later in 1937, it was
permanently moved to Mumbai. It was nationalised on Jan 1, 1949. It is
administered by 14 directors in Central Board of Directors besides the
Governor, 4 Deputy Governors and one Government official. The Governor is
the Chairman of the board and Chief Executive of the RBI.
1st Governor - Sir Osborne Smith (1935-37)
1st Indian Governor - CD Deshmukh (1948-49)
Present Governor (25th) - Shaktikanta Das (2018-present)
2. Commercial Banks
Commercial Banks are those banks which are working for the profit motive.
Commercial banks are classified into 2 types-
i) Scheduled Commercial Banks
ii) Non - Scheduled Commercial Banks
2 (i). Scheduled Commercial Banks- Scheduled commercial banks are those

banks which are registered under the second schedule of RBI Act 1934. These
banks enjoy the special financial and remittance facilities from the RBI. Banks
have to fulfil two conditions to be registered under the second of RBI Act
1934-
a) The bank must have a paid-up capital and reserve of Rs 5 lakh.
b) The bank must not work against the interest of the customers.
Commercial Banks - Scheduled Commercial Banks - Public Sector Banks
Scheduled Commercial Banks can be further divided into 6 types-
1. Public Sector Banks- Public Sector Banks (PSBs) are those banks where
more than 50% stake is held by the government. Currently, there are 12
PSBs in India after the mergers and consolidations-
Note- () denotes these banks are merged in the bigger bank.
Commercial Banks - Scheduled Commercial Banks – Private Sector Banks
2. Private Sector Banks- Private sector banks are those banks where
government don’t hold the majority stake and the majority stake is held
by the private shareholders. Nedungadi bank founded in 1899 was the
first private sector bank in India. Private sector banks are further divided
into old private sector banks which were established prior to
nationalisation in 1968 and the new private sector banks which were
established after 1968.
Old Private Sector Banks in India
New Private Sector Banks in India
Commercial Banks - Scheduled Commercial Banks – Foreign Banks
3. Foreign Banks- Foreign Banks are those banks which have branches in
India but headquarters in other countries. As on 30 September 2019,
there are 46 foreign banks in India with branch presence and 37 foreign
banks in India with a representative office. These banks must have a
minimum paid-up capital of Rs 500 crores. Some foreign banks are HSBC
Bank, Deutsche Bank, Standard Chartered Bank.
4. Regional Rural Banks- Regional Rural Banks (RRBs) are those banks which
were established to develop the rural economy by facilitating the
development of agriculture, trade, commerce, industry and other
productive activities in rural areas. Though there were SBI and other
banks they used to lend money to big corporates only. Cooperative banks
were not able to serve the purpose as they were unprofessionally
managed and had corruption. Government of India felt that there should
be specialised institutions for rural lending. M. Narasimhan Working
Group recommended establishing state-level RRBs. Prathama Gramin
Bank (Now Prathama UP Gramin Bank) sponsored by Syndicate Bank was
the first RRB established on 2 October 1975 with an authorised capital of
Rs 5 crore. Regional Rural Banks Act was passed in 1976 to develop the
rural economy and to create a supplementary channel to the cooperative
credit structure with a view to enlarge institutional credit for the rural and
agricultural sector.
The paid-up capital structure of RRBs are as follows:
* Central Government- 50%
* State Government- 15%
* Sponsored Bank- 35%
Presently, there are 45 RRBs in India
Note: Three regional rural public sector banks namely Baroda Uttar Pradesh
Grameen Bank, Kashi Gomti Samyut Gramin Bank and Purvanchal Bank are
going to be merged on April 1, 2020 and constitute a single regional rural
bank which will be titled as Baroda UP Bank
5. Small Finance Banks- Small Finance Banks (SFBs) are those banks that
are established for the purpose to provide financial inclusion to MSMEs,
small and marginal farmers and other unorganised sector entities. They
are registered under Section 22 of the Banking Regulation Act, 1949.The
minimum paid-up capital for SFBs is Rs 100 crore. They are required to
give atleast 75% of its Adjusted Net Bank Credit (ANBC) to the priority
sectors and at least 50% of loans and advances should be up to Rs 25
lakh. Usha Thorat committee was set up to evaluate the license
applications of SFBs in 2015. There are 10 SFBs in India.
6. Payments Banks - (PBs) were set up after the recommendations of the
Nachiket Mor Committee on Comprehensive Financial Services for Small
Businesses and Low-Income Households. The purpose of payments banks
is to bring unbanked sections of the country and low-income households
into the formal financial system. PBs can accept deposits up to Rs 1 lakh
only and can not issue credit cards and loans. The minimum paid-up
capital to set up a PB should be Rs 100 crores.
There are currently 6 Payments Banks operation in India while NSDL
Payments Bank Limited is yet to be operational. Airtel Payments Bank is
the first payments bank of India.
Commercial Banks – Non-Scheduled Commercial Banks
1. Local Area Banks- Local Area Banks (LABs) were set up to bridge the gaps
in credit availability in the rural and semi-urban areas. These banks have
jurisdiction on a maximum of 3 districts and should have a minimum paid-
up capital of Rs 5 crore. There are only 3 LABs in India- Coastal LAB,
Krishna LAB and Subhadra LAB.
Co-Operative Banks
• Co-Operative Banks - Co-operative banks are those banks which are
formed by a community or a group which have common and shared
interests. They are registered under the Co-operative Societies Act, 1912
and functions on no profit no loss basis. They are subdivided into –
• Urban Co-operative Banks
• Rural Co-operative Banks
• Urban Co-operative Banks- Urban co-operative banks are set up in urban

areas and cater to the needs of the urban market. These banks are divided
into 2 types-
i) Multi-State Urban Co-Operative Banks- These banks have a presence in
more than one state. Eg. Punjab & Maharashtra Co-operative Bank.
ii) Single-State Co-Operative Bank- These banks have a presence in only
one state. Eg.- Saraswat co-operative Bank.
Co-Operative Banks
• Rural Co-operative Banks - Urban co-operative banks are set up in rural
areas and cater to the needs of the rural market. On the basis of short-term
structure, rural co-operative banks can be divided as-
• Primary Agriculture Co-operative Banks - These banks work at village/town
level.
• District Central Co-operative Banks - These banks work at the district level and
are the link between Primary Agriculture Co-operative Banks & State Co-
operative Banks.
• State Co-operative Banks - These banks work at the highest state level.
• On the basis of long-term structure, rural co-operative banks can be divided

as-
• State Co-operative Agriculture & Rural Development Banks- These banks work
at the state level.
• Primary Cooperative Agriculture and Rural Development Banks - These banks
work at the district or block level.
Development banks
• Development banks are financial institutions that provide long-term credit.
• They are also known as term-lending institutions or development finance
institutions.
• It generally supports capital-intensive investments spread over a long period
and yielding low rates of return. E.g. urban infrastructure, mining and heavy
industry, irrigation systems
• Such banks often lend at low and stable rates of interest to promote long-
term investments with considerable social benefits.
• IFCI, previously the Industrial Finance Corporation of India, was set up in
1949.
• This was probably India’s first development bank for financing industrial
investments. For more example, please refer to the link below:
http://www.economicsdiscussion.net/india/development-banks/examples-of-
development-banks-in-india/31373
Q. How commercial banks make money?
Commercial banks primarily engage in two core activities. One is to accept

deposits and the other one is to lend money. Deposits with the banks are the
liabilities for the banks as banks need to pay interest on these deposits to the
customers and this interest is termed as the cost of funds. The interest on
deposits varies with the type of deposits (fixed, current, savings, recurring,
bulk). Loans given by the banks are the assets of the banks as banks gets
interest on these loans and this interest is termed as income. The income on
loans varies with the type of loans (personal, corporate, mortgage, etc).
The difference between average income on loans and the average cost of funds
is the net margin of the bank and is referred to as the Net Interest Margin
(NIM).
NIM= Average Income on Loans- Average Cost of Funds.
Q. What is the role of RBI in the banking industry?
Main functions of RBI are:

1. Monetary Authority- RBI formulates, implements and monitors the
monetary policy of the country. It maintains price stability and ensures an
adequate flow of credit to productive sectors.
2. Regulator and supervisor of the financial system- RBI prescribes broad
parameters of banking operations within which the country’s banking and
financial system functions. Through this, RBI maintains public confidence
in the system, protect depositors’ interest and provide cost-effective
banking service to the public. The Department of Banking Supervision
(DBS) is responsible for the supervision of the scheduled commercial
banks. RBI also set up the Board for Financial Supervision (BFS) which is
a sub-committee of the Central Board of the RBI in 1994 which is an apex
body in all supervisory related matters.
3. Manager of Foreign Exchange- RBI manages the Foreign Exchange

Management Act, 1999 and the objective is to facilitate external trade and
payment and promote orderly development and maintenance of foreign
exchange market in India.
4. The issuer of currency - Section 22 of the RBI Act, 1934 authorises the
RBI as the sole authority to issue notes. RBI issues and exchanges or
destroy currency and coins which are not fit for circulation. RBI ensures
adequate quantity of supplies of currency notes and coins in good quality.
RBI has the power to issue currency notes up to Rs 10000 denomination.
The production of currency notes in India started with the establishment
of India’s first currency press at Nashik, Maharashtra. The other two
currency presses are in Mysore, Karnataka and Salboni, West Bengal
which are managed by the subsidiary of RBI, the Bharatiya Reserve Bank
Note Mudran Pvt. Ltd. (BRBNMPL).
Coins are minted by Government of India as per the Coinage Act, 1906. RBI
acts as an agent for distribution, issue and handling of coins. Coins in India
are minted in Mumbai, Noida, Kolkata and Hyderabad.
5. Banker to the Government- RBI performs merchant banking function for
the central and state governments (except Sikkim) and also acts as their
banker and debt manager.
6. Banker to banks- RBI maintains banking accounts of all scheduled banks.
In those accounts, banks maintain their portion of Net Demand & Time
Liabilities (NDTL). RBI also acts as a common banker and facilitates
smooth inter-bank transfers of funds.
7. Consumer Education and Protection- RBI works on the protection of

customer’s rights, enhancing the quality of customer service, spreading
awareness through campaigns like RBI Kehta Hai and strengthening the
grievance redressal mechanism in banks. An autonomous body Banking
Codes and Standard Board of India (BCSBI) was set up by the RBI for
promoting adherence to self-imposed codes by banks for committed
customer service.
8. Payments and Settlement Systems- RBI is the driving force in the
development of the national payments system and has taken several
steps for Safe, Secure, Sound, Efficient, Accessible and Authorised
payment in India. The Board of Regulation and Supervision of Payments
and Settlement Systems (BPSS) is the highest policy-making body on
payment systems in India. Payments and settlement systems are
regulated by the Payment and Settlement Systems Act, 2007 (PSS Act).
Q. What is a monetary policy? What is MPC?
Monetary policy is the macroeconomic policy laid down by the RBI. The aim of
the monetary policy is to manage the quantity of money in order to meet the
requirements of different sectors of the economy. RBI implements the
monetary policy through bank rates, Open Market Operations (OMO), reserve
system, credit control, moral persuasions and other instruments while keeping
in mind the objective of growth.
In May 2016, RBI Act, 1934 was amended to provide a statutory basis for the
implementation of the flexible inflation-targeting framework. The inflation
target till 31 March 2021 is +-4%, with the upper tolerance limit of 6% and the
lower tolerance limit of 2%. Monetary policy differs from the fiscal policy as
fiscal policy is made by the government and includes budget, taxation, public
revenue, public expenditure, debt, fiscal deficit etc.
Monetary policies can be of two types-

1. Expansionary Monetary Policy- Expansionary monetary policy increases the
total supply of money. It is also termed as easy/cheap/dovish/accommodative
monetary policy. This is done by lowering the repo rate. The borrowing
becomes easier and people tend to consume more. RBI usually adopt this
policy to boost the slowing economy.
2. Contractionary Monetary Policy- Contractionary monetary policy decreases
the money supply. It is also termed as tight/dear/hawkish. This is done by
increasing the repo rate. This policy is adopted to control inflation.
RBI sometimes adopts the neutral stance which provides the flexibility to RBI to
move towards any monetary policy (expansionary or contractionary).
Monetary Policy Committee (MPC) is a six-member committee constituted by

the central government which consist of the following-
1. Governor of the RBI- Chairperson of MPC (Ex Officio)
2. Deputy Governor of the RBI- Member (Ex Officio)
3. Officer of the RBI nominated by the Central Board of the RBI- Member (ex
Officio)
4. Chetan Ghate, Professor, Indian Statistical Institute (ISI)- Member
5. Pami Dua, Director, Delhi School of Economics- Member
6. Dr Ravindra H. Dholakia7, Professor, IIM Ahmedabad- Member
Note- Members 4 to 6 are appointed for a period of 4 years or until further

orders.
The first MPC was held on 3-4 October 2016 to determine the Fourth Bi-
monthly Monetary Policy Statement, 2016-17. MPC determines the policy
interest required to achieve the inflation target. MPC is required to meet at
least four times in a year and minimum 4 members should be present at the
MPC meeting. Each member of the MPC has one vote and in case of ties, the
Governor has the casting vote. Once in every 6 months, the RBI is required to
publish Monetary Policy Report to explain the sources of inflation and the
forecast of inflation for 6-18 months ahead.
There are several instruments that are used for implementing monetary policy.
These are divided into direct and indirect instruments.
Direct Instruments
1. Cash Reserve Ratio (CRR)- CRR is the average daily balance that a bank is
required to maintain with the RBI as a share of such per cent of its Net demand
and Time Liabilities (NDTL).
2. Statutory Liquidity Ratio (SLR)- SLR is the share of NDTL that a bank is
required to maintain in safe and liquid assets such as government securities,
cash & gold.
Indirect Instruments
1. Bank Rate- Bank rate is the rate at which the RBI buy or rediscount bills of
exchange or commercial papers. Bank rate is defined under Section 49 of the
RBI Act, 1934. This rate is aligned to the MSF rate and changes automatically
as and when MSF rate changes alongside policy repo rate changes.
2. Repo Rate- Repo rate is the fixed interest rate at which the RBI provides
overnight liquidity to banks against the collateral of government and other
approved securities under the Liquidity Adjustment Facility (LAF).
3. Reverse Repo Rate- Reverse repo rate is the fixed interest rate at which the
RBI absorbs liquidity on an overnight basis from banks against the collateral
eligible government securities under the LAF.
4. Liquidity Adjustment Facility (LAF)- LAF consists of overnight as well as term

repo auctions. The aim of term repo is to develop the inter-bank term money
market, which in turn set market-based benchmarks for pricing of loans and
deposits. RBI also conducts variable interest rate reverse repo auctions as per
the market conditions.
5. Marginal Standing Facility (MSF)- MSF is a facility under which scheduled
commercial banks can borrow additional amount of overnight money from the
RBI by dipping into their SLR portfolio up to a limit at a penal rate of interest to
provide a safety valve against unanticipated liquidity shocks to the banking
system.
6. Corridor- MSF and reverse repo rate determines the corridor for daily
movement in the weighted average call money rate.
7. Open Market Operations (OMOs)- OMOs are the market operations
conducted by the RBI by way of sale/ purchase of Government Securities
to/from the market to adjust the rupee liquidity conditions in the market on a
durable basis. When the RBI feels that there is excess liquidity in the market, it
resorts to sale of securities thereby sucking out the rupee liquidity. Similarly,
when the liquidity conditions are tight, RBI may buy securities from the market,
thereby releasing liquidity into the market.
8. Market Stabilising Scheme (MSS)- MSS is the instrument through which
surplus liquidity is absorbed through sale of short-dated government securities
and treasury bills.
Important Numbers as on 22nd January 2020 (Source RBI website)
NABARD
Government of India constituted a committee under B. Sivaraman named

Committee to Review the Arrangements For Institutional Credit for Agriculture
and rural development (CRAFICARD) in 1979 that recommended setting up of
National Bank for Agriculture and Rural Development (NABARD) that would
focus on credit-related issues with rural development. NABARD Act was passed
in 1981 and NABARD was established on 12 July 1982 with an initial capital of
Rs 100 crore. The agricultural credit functions of RBI and refinance functions
of the Agricultural Refinance and Development Corporation (ARDC) were
transferred to NABARD. NABARD supervises Cooperative Banks and regional
rural banks and helps them to develop sound banking practices.
NABARD
NABARD is credited with Self Help Group Bank Linkage Project which is the
world’s largest microfinance project. Kisan Credit Card was also designed by
the NABARD. One-fifth of India’stotal rural infrastructure has been financed by
the NABARD. On 26 February 2019, following the recommendations of
Narasimhan Committee, RBI sold its entire stake in NABARD amounting to Rs
20 crore to the government making NABARD fully owned by the government
of India. RBI held 72.5% shares in NABARD and sold its 71.5% shares
amounting to 1430 crore in October 2010. The headquarters of NABARD is in
Mumbai and Dr Harsh Kumar Bhanwala is the Chairman of the NABARD.
IDBI
Industrial Development Bank of India (IDBI) was established on 1 July 1984

under the Industrial Development Bank of India Act, 1964 as a Development
Financial Institution (DFI) and continued to serve as a DFI for 40 years till 1
October 2004 when it was transformed into a bank. But, IDBI Bank was
struggling with high NPAs and the NPA ratio was the worst (28%) among the
public sector banks and posted Rs 5,663 crore loss in the last quarter of the
fiscal year 2017-18. LIC which acquired about 11% stake in the IDBI
completed the acquisition of 51% stake in the IDBI Bank on 21 January 2019
making it the majority shareholder of the bank. On 14 March 2019, the RBI re-
categorised IDBI Bank as Private Sector Bank with effect from 21 January
2019. The headquarters of the IDBI Bank is in Mumbai. M R Kumar is the
Chairman and Rakesh Sharma is the MD & CEO of the IDBI Bank.
SIDBI
Small Industries Development Bank of India (SIDBI) was set up on 2 April

1990 under an Act of Indian Parliament. It acts as the Principal Financial
Institution for Promotion, Financing and Development of the Micro, Small and
Medium Enterprise (MSME) sector as well as for coordination of functions of
institutions engaged in similar activities. SIDBI set up its subsidiary Micro Units
Development and Refinance Agency (MUDRA) in 2016. The primary aim of
MUDRA is to provide credit to Non-Corporate Small Business Sector (NCSB) as
more than 90% of NCSB doesn’t have the formal source of credit. SIDBI also
launched CriSidEx with credit rating agency CRISIL which is India’s first MSE
Sentiment Index. The headquarters of SIDBI is at Lucknow and Mohammad
Mustafa is the Chairman & Managing Director of the SIDBI.
IFCI
Industrial Finance Corporation of India (IFCI) is a public sector Non-Banking

Finance Company (NBFC). It was established in 1948 as a statutory
corporation. It provides financial support for the diversified growth of
industries across the spectrum such as airports, roads, telecoms, power,
power, real estate, manufacturing, service sector and such other allied
industries. The government of India placed a Venture Capital Fund of Rs 200
crore for Scheduled Castes (SC) to promote entrepreneurship among the SC to
provide concessional finance. It is headquartered at New Delhi and Emandi
Sankara Rao is the MD & CEO of IFCI.
EXIM
Export-Import Bank of India (EXIM) is the export finance institution of the

country that integrates foreign trade and investment. It was set up in March
1982 and the Export-Import Bank of India Act was passed in 1981. The main
aim of EXIM bank is to boost the businesses of industries and SMEs. It is
headquartered at Mumbai and David Rasquinha is the MD of the EXIM Bank.
NHB
National Housing Bank (NHB) was set up on 9 July 1988 under the National
Housing Bank Act, 1987. Dr C. Rangarajan Committee recommended setting
up of NHB as an apex level institution for housing finance. The entire paid-up
capital was contributed by the RBI but on 19 March 2019, RBI sold its entire
stake worth Rs 1450 crore to the government of India as per the
recommendations of the Narasimhan committee. NHB is a Public Financial
Institution and its major objective is to promote a sound, healthy, viable and
cost-effective housing finance system to cater to all segments of the
population and to integrate the housing finance system with the overall
financial system. NHB regulates the activities of housing finance companies.
NHB is headquartered at New Delhi and S.K. Hota is the MD of the NHB.
NBFC
NBFC- Non-Banking Financial Company (NBFC) is a financial institution that

engages in the business of loans and advances, acquisition of
shares/stocks/bonds/debentures/securities issued by Government or local
authority or other marketable securities. NBFCs defers from banks on these
bases -
1. NBFCs can’t accept the demand deposits.
2. NBFCs are not part of the payment and settlement system and can’t issue
cheques drawn on itself.
3. The deposit insurance facility of Deposit Insurance and Credit Guarantee
Corporation (DICGC) is not available to the depositors of NBFCs.
NBFC
NBFCs whose asset size is of Rs 500 crore or more are considered as
systematically important NBFCs. Different types of NBFCs are as follows-
1. Asset Finance Company (AFC)- An AFC is a financial institution that finances
the physical assets of productive/economic activity, such as automobiles,
tractors, lathe machines, generator sets, earthmoving and material handling
equipment, moving on own power and industrial machines. Investment
Company (IC)- IC is a financial institution carrying on as its principal
business the acquisition of securities.
2. Loan Company (LC)- LC is a financial institution that provides finance
whether by making loans or advances or otherwise for any activity other
than its own but does not include an Asset Finance Company.
3. Infrastructure Finance Company (IFC)- IFC is an NBFC that deploys at least
75 per cent of its total assets in infrastructure loans. It has a minimum Net
Owned Funds of ₹ 300 crores and has a minimum credit rating of ‘A ‘or
equivalent with a CRAR of 15%.
NBFCs
1. Systematically Important Core Investment Company (CIC-ND-SI)- CIC-ND-
SI is an NBFC that deals with the acquisition of shares and securities.
2. Infrastructure Debt Fund: Non-Banking Financial Company (IDF-NBFC)-
IDF-NBFC is an NBFC that facilitates the flow of long term debt into
infrastructure projects. It raises resources through issue of Rupee or Dollar
denominated bonds of minimum 5-year maturity.
3. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI)-
NBFC-MFI is a non-deposit taking NBFC having 85% or more of ist assets in
the nature of qualifying assets.
NBFCs
4. Non-Banking Financial Company - Factors (NBFC-Factors)- NBFC-Factor is
a non-deposit taking NBFC engaged in factoring. Factoring is a type of
finance in which business sells its invoices to a third party or factor at a
discounted price.
5. Mortgage Guarantee Companies (MGC)- MGC are financial institutions
whose net owned fund is Rs 100 crore and for at least 90% of business
turnover or gross income is from mortgage guarantee business.
6. NBFC- Non-Operative Financial Holding Company (NOFHC)- NBFC-NOFHC
is a financial institution through which promoter(s) are permitted to set up
a new bank.
Banking Ombudsman
The RBI had first introduced the Banking Ombudsman Scheme in 1995 to
provide an expeditious and inexpensive forum to bank customers for resolution
of their complaints relating to deficiency in banking services. The Banking
Ombudsman is a senior official appointed by the RBI to redress customer
complaints against deficiency in certain banking services covered under the
grounds of complaint specified under Clause 8 of the Banking Ombudsman
Scheme 2006 (Amended in 2017). There are currently 22 Banking Ombudsman
offices in India. All Scheduled Commercial Banks, Regional Rural Banks and
Scheduled Primary Co-operative Banks are covered under this scheme. One can
file a complaint before the Banking Ombudsman if the reply is not received from
the bank within a period of one month after the bank concerned has received
one's complaint, or the bank rejects the complaint, or if the complainant is not
satisfied with the reply given by the bank.
Banking Ombudsman
The Banking Ombudsman does not charge any fee for filing and resolving
customers’ complaints. The amount, if any, to be paid by the bank to the
complainant by way of compensation for any loss suffered by the complainant is
limited to the amount arising directly out of the act or omission of the bank or
Rs 20 lakhs, whichever is lower and also, the Banking Ombudsman may award
compensation not exceeding Rs 1 lakh to the complainant for mental agony and
harassment. The customer and bank also have the option to file an appeal
before the Appellate Authority which is the Deputy Governor of the RBI under
the Scheme.
The RBI introduced the Ombudsman Scheme for Digital Transactions, 2019 for
the resolution of complaints regarding digital transactions undertaken by
customers of the system participants as defined in the scheme. The Scheme is
being introduced under Section 18 of the Payment and Settlement Systems Act,
2007 with effect from 31 January 2019.
SEBI
The Securities and Exchange Board of India was established on 12 April 1992
under the Securities and Exchange Board of India Act, 1992. The objective of
SEBI is to protect the interest of the investors and to promote the development
and regulation of the securities market. It is headquartered at Mumbai and Ajay
Tyagi is the Chairman of the SEBI.
IRDA
Insurance Regulatory and Development Authority (IRDA) was constituted as an
autonomous body in 199 by the recommendations of the Malhotra Committee.
To regulate and develop the insurance industry. It was incorporated as a
statutory body in April 2000. The objectives of the IRDA is to promote
competition to enhance customer satisfaction through increased customer
choices and lower premiums. IRDA opened the insurance market for foreign
companies in August 2000 and foreign companies were allowed ownership up to
26%. The FDI limit was raised to 100% for insurance intermediaries in the
Budget 2019. IRDA is headquartered at Hyderabad and Dr Subhash C. Khuntia
is the Chairman of the IRDA.
Differentiated banks
Differentiated banks are the niche banks that have a specific purpose to fulfil.
Regional Rural Banks (RRBs) are the first differentiated bank in India as it
concentrates on agriculture in a narrowly defined area. Following the
recommendations of Nachiket Mor Committee, payments banks and small
finance banks were set up with the common objective of financial inclusion.
Lead banks
Lead Bank Scheme was introduced by the RBI in December 1969 following the
recommendations of the Nariman Committee. Under this scheme, a particular
bank is assigned ‘Lead Bank’ responsibility. The lead back is expected to assume
a leadership role for coordinating the efforts of the credit institutions and the
government. The major objective is to enhance the flow of bank finance to the
priority sectors and to promote the bank’s role in the overall development of the
rural sector.
NPCI
National Payments Corporation of India (NPCI) is an umbrella organisation for
operating retail payments and settlement systems in India. It is an initiative of
Reserve Bank of India (RBI) and Indian Bank’s Association (IBA) under the
provisions of the Payment and Settlement Systems Act, 2007, for creating a
robust Payment & Settlement Infrastructure in India.
Various products of NPCI are as follows-

BHIM Aadhaar Pay- It is an Aadhaar based payments interface which allows
real-time payments to merchants using Aadhaar number/Virtual ID of
customer & authenticating him/her through his/her biometrics.
NPCI
UPI- Unified Payments Interface (UPI) is a system that powers multiple
bank accounts into a single mobile application (of any participating bank),
merging several banking features, seamless fund routing & merchant
payments into one hood 24*7*365.The pilot launch was on 11 April 2016 by
Dr Raghuram G Rajan, Governor, RBI at Mumbai. Banks have started to
upload their UPI enabled Apps on Google Play store from 25th August 2016
onwards.
RuPay- RuPay is a new card payment scheme launched by the NPCI, has
been conceived to fulfil RBI’s vision to offer a domestic, open-loop,
multilateral system which will allow all Indian banks and financial
institutions in India to participate in electronic payments. RuPay cards are
also accepted in Singapore, Bhutan, UAE, Maldives, Bahrain, Saudi Arabia.
NPCI
BHIM- Bharat Interface for Money (BHIM) is an app that lets you make
simple, easy and quick payment transactions using UPI. You can make
instant bank-to-bank payments and Pay and collect money using just mobile
number or Virtual Payment Address (UPI ID).
IMPS- IMmediate Payment Service (IMPS) launched in November 2010 is a

robust & real time fund transfer which offers an instant, 24X7X365,
interbank electronic fund transfer service that could be accessed on multiple
channels like mobile, internet, ATM, SMS, branch and USSD(*99#). IMPS is
an emphatic service which allow transferring of funds instantly within banks
across India which is not only safe but also economical.This facility is
provided by NPCI through its existing NFS.
NPCI
NETC- National Electronic Toll Collection (NETC) is a program to meet the
electronic tolling requirements of the Indian market. It offers an
interoperable nationwide toll payment solution including clearing house
services for settlement and dispute management. It encompasses a
common set of processes, business rules and technical specifications which
enable a customer to use their FASTag as payment mode on any of the toll
plazas irrespective of who has acquired the toll plaza.
FASTag was made compulsory from 15 December 2019. Vehicles without
FASTag would be charged doubled the toll amount. FASTag is a device that
employs Radio Frequency Identification (RFID) technology for making toll
payments directly while the vehicle is in motion. FASTag (RFID Tag) is
affixed on the windscreen of the vehicle and enables a customer to make
the toll payments directly from the account which is linked to FASTag.
NPCI
BHarat BillPay- The Bharat bill payment system is a RBI conceptualised
system driven by NPCI. It is a one-stop ecosystem for payment of all bills
providing an interoperable and accessible “Anytime Anywhere” bill payment
service to all customers across India with certainty, reliability and safety of
transactions.The current key utilities part of Bharat BillPay are electricity,
telecom, DTH, gas-pipedline & LPG and water.
BHIM- Bharat Interface for Money (BHIM) is an app that lets you make
simple, easy and quick payment transactions using UPI. You can make
instant bank-to-bank payments and Pay and collect money using just mobile
number or Virtual Payment Address (UPI ID).
NPCI
IMPS- IMmediate Payment Service (IMPS) launched in November 2010 is a
robust & real time fund transfer which offers an instant, 24X7X365,
interbank electronic fund transfer service that could be accessed on multiple
channels like mobile, internet, ATM, SMS, branch and USSD(*99#). IMPS is
an emphatic service which allow transferring of funds instantly within banks
across India which is not only safe but also economical.This facility is
provided by NPCI through its existing NFS.
NFS- National Financial Switch (NFS) ATM network was taken over by NPCI
from Institute for Development and Research in Banking Technology
(IDRBT) on 14 December 2009.NFS ATM network has grown many folds and
is now the leading multilateral ATM network in the country. As on 31 July
2019, there were 1,140 members that includes 110 direct, 966 sub
members, 56 RRBs and 8 White Label ATM Operators (WLAOs) using NFS
network connected to more than 2.41 Lac ATM.
NPCI
NACH- National Automated Clearing House (NACH) is a centralised system,
launched with an aim to consolidate multiple Electronic Clearing Systems
(ECS) running across the country and provides a framework for the
harmonization of standard & practices and removes local barriers/inhibitors.
The NACH system facilitates the member banks to design their own
products and also addresses specific needs of the banks & corporates
including a refined Mandate Management System (MMS) and an online
Dispute Management System (DMS) coupled with strong information
exchange and customised MIS capabilities.
NPCI
NACH’s Aadhaar Payment Bridge (APB) System, developed by NPCI has
been helping the government and government agencies in making the
Direct Benefit Transfer (DBT) scheme a success. APB System has been
successfully channelizing the government subsidies and benefits to the
intended beneficiaries using the Aadhaar numbers. The APB System links
the Government Departments and their sponsor banks on one side and
beneficiary banks and beneficiary on the other hand.
AEPS- Aadhaar Enabled Payment System (AEPS)- AePS is a bank led model
which allows online interoperable financial inclusion transaction at PoS
(MicroATM) through the Business Correspondent (BC) of any bank using the
Aadhaar authentication. The only inputs required for a customer to do a
transaction under this scenario are IIN (Identifying the Bank to which the
customer is associated), Aadhar number and fingerprint captured during
Aadar enrollment.
Q. What is on-Tap Licensing
On-Tap Licensing refers to the acceptance and license granting for
banks.throughout the year by the central bank. In India on-tap licensing is done
by the RBI. Raghuram Rajan, the former governor of RBI started on-tap
Licensing for universal banks in the year 2016. He believed in free-market
strategy. Prior to that RBI used to invite applications for bank license for a
particular period. RBI invited and permitted new private banks in 1993, 2004
and 2014 only. Only 23 banks have got the license post liberalisation in 1991
and only 2 Banks got the license from 2004-2014. In contrast, the USA with a
population of about 40 crores opened more than 2000 banks between 1991 and
2008 as the on-tap licensing facility was available to the people interested to
open new banks.
Q. What is on-Tap Licensing
There are more than 20,000 banks in the USA while India with a humungous
population of over 30 crores has about 1600 banks (Scheduled commercial+co-
operative) with many of them dysfunctional. RBI released new guidelines for on-
tap licensing of Small Finance Banks in which existing NBFCs, payment banks,
micro-financial institutions and local area banks in the private sector can opt for
conversion into small finance banks throughout the year. This was introduced to
give much-needed relief to the payment banks which are struggling due to their
flawed revenue model. They can’t grant loans, they can’t accept deposits above
1 lakh and were relying only on low yielding government bonds. They even
failed to attract customers by giving the same interest rates as mainstream
banks. 11 entities were granted Payments Bank license by the RBI in 2015. But
today, only 5 payment banks Fino, Indian Post, Jio, Paytm and Airtel are still in
operation and most of these wanted to convert into small finance banks.
GDP
GDP- Gross Domestic Product (GDP) is the total monetary value of all the
finished goods and services produces within a country’s borders in a specific
time period. Nominal GDP is measured by converting a country’s currency to the
current value of dollars while Purchasing Power Parity (PPP) GDP gives a better
result as it compares a basket of similar goods produced in a country and
evaluates a country’s currency by what it can buy in that country and not
through any exchange rates. PPP GDP gives a true picture of the cost of living in
a particular country. Real GDP is that GDP in which inflation is also adjusted. In
nominal GDP, the accurate measure of output could not be deduced while real
GDP gives a much better picture of an economy.
GDP
GDP per capita is the GDP of a country divided by the total population. It gives
the true picture of a country’s economy. Eg.- According to the International
Monetary Fund’s (IMF) World Economic Outlook Report 2019, India’s nominal
GDP stands at $2.9 Trillion and it was the fifth-largest economy of the world
while its nominal GDP per capita stands at a little over $2000 and it was at
141st position out of 186 countries.
The USA is the largest economy with a GDP of $21.4 Trillion. Luxembourg has
the highest nominal per capita GDP while Qatar has the highest PPP GDP per
capita
GNP and NI
GNP- Gross National Product (GNP) is the total monetary value of all the
finished goods and services produced by a country’s citizens. It differs from GDP
as in GDP the location is bounded but in GNP normal Indian persons/firms
working in abroad also are counted while MNCs whose headquarters or origin is
in another country is not counted in GNP.
National Income- National income is the total sum value of all incomes earned
in a country. India follows the expenditure method to calculate the national
income as data regarding the expenditure of government and industries are
available but the data on personal expenditure of an individual is not available in
India. In India, National Income is the nominal Net National Income (NNI) or
National Income at Current Price.
Deficits
Revenue deficit- Revenue deficit is a situation in which revenue expenditure is
more than the revenue receipts. Revenue receipts are those receipts which do
not create any liability for the government and also no reduction in assets. Eg-
Taxes.
Revenue expenditure is those expenditures in which there is no decrease in
liability and there will be no asset created. Eg- salary, pensions.
Fiscal deficit- Fiscal deficit is a situation in which the total expenditure of the
government is in excess than the total revenues. For the fiscal year 2019-20,
the government is aiming to restrict the fiscal deficit at 3.3% of the GDP and
estimated the fiscal deficit to be Rs 7.03 lakh crore.
FRBM
The Fiscal Responsibility and Budget Management (FRBM) Act was enacted in
2003 which set targets for the government to reduce the fiscal deficit. NK Singh
Committee was set up the review the FRBM Act in 2016 and recommended the
government to set the target of fiscal deficit of 3% of the GDP till 31 March
2020 and further reduce it to 2.8% in 2020-21 and 2.5% by 2023.
Disinvestment
Disinvestment is the sale or liquidation of the assets lying with the government.
The government undertakes disinvestment to reduce the fiscal deficit or to raise
money for specific needs. Disinvestment is also done to privatise the entity.
Disinvestment encourages private ownership and promotes competition in the
market. Department of Investment and Public Asset Management takes care of
the disinvestment in India. Disinvestment targets are set in each Union Budget.
According to Union Budget 2019, the disinvestment target for the Fiscal Year
2019-20 is Rs 1.05 lakh crore.
Budget
Budget or Annual Finacial Statement (AFS) is the document that estimates
receipts and expenditure of the government in the current or next financial year.
It also shows the estimates and actual expenditure for the previous fiscal year.
The receipts and expenditure are shown under three heads in which accounts of
the government are kept-
1. The consolidated fund of India- The consolidated fund of India consists of
all revenues received by the government, loans raised by it and receipts
from recoveries of loans granted by it. No amount can be drawn from the
consolidated fund without due authorisation from the parliament.
2. The contingency fund of India- The contingency fund of India is kept to
meet the expenditure unforeseen circumstances. Parliament approval, as
well as the approval of President of India, is required to use the funds. The
corpus of the contingency funds stands at Rs 500 crore.
Budget
3. The public account of India- The public account of India includes provident
funds, small savings collections, the income of government set apart for
expenditure on specific objects. Public account funds that do not belong to
the government and have to be paid back to the persons concerned need
not require the approval of the parliament. However, the approval is
required for expenditure on specific objects.
The Union Budget consists of the revenue and capital budget. Revenue budget
consists of the revenue receipts and expenditure while the capital budget
consists of the capital receipts and expenditure.
Budget
The budget is made through consultations of various stakeholders like the
Ministry of Finance, NITI Aayog and other ministries. The Budget Division of
the Department of Economic Affairs in the Ministry of Finance is the nodal
body responsible for producing the budget. The Secretary-General of the Lok
Sabha Secretariat seeks approval of the President after the Speaker agrees to
the date suggested by the government which is usually the 1 February. The
finance minister presents the budget in the Lok Sabha. The budget is tabled in
the parliament after the speech of the finance minister.
Trade Deficit and Balance of payment
Trade Deficit- Trade deficit is the excess in the monetary value of imports over
exports in an economy. It is also known as a negative balance of trade. India’s
trade balance is negative and stands at $ 12.12 billion till November 2019.
Balance of Payment- Balance of Payment (BOP) is a statistical statement that

shows all international trade and financial transactions between an economy
and the rest of the world. BOP has three components-
1. Current Account- It measures international trade, net income on
investments and direct payments. The current account is in surplus in which
a country exports more goods, services and capital than it imported while it
is in deficit in which a country imports more goods, services and capital
than it exported. Current Account Deficit (CAD) is a situation when a nation
relies on foreigners to invest and spend. India’s CAD is delining and
narrowed to $14.3 billion or 2% of the GDP in the first quarter of the fiscal
year 2020.
2. Financial Account- It measures the change in international ownership of
assets.
3. Capital Account- It measures the financial transactions that don’t affect the
nation’s output. The capital account is in surplus when money is flowing in
our country while CAPITAL Account Deficit (KAD) is a situation when more
money is flowing out of the country to acquire assets and rights abroad.
The sum of the current account and capital account in BOP is always zero.
Any surplus or deficit in the current account is matched and cancelled out
by an equal surplus or deficit in the capital account. (If statistical
discrepancy ignored)
BOP depicts whether a country saves enough to pay for the imports and
whether a country produces enough output to pay for its growth. India was in
severe BOP crisis when in June 1991, India had less than $1 billion foreign
reserves which was just enough to meet three weeks of imports.
20 tonnes of gold was pledged to Zurich and 47 tonnes with England to raise
$240 million and $600 million respectively. In July, PV Narasimha Rao took
charge as Prime Minister and along with Dr Manmohan Singh, they initiated a
four-pronged strategy to put the economy back on track-
1. Fiscal Correction- Export subsidies were abolished and other subsidies
were trimmed to reduce the budget deficit that contributed to high current
account deficit and double-digit inflation by creating extra demand.
2. Trade Policy Reforms- The rupee was devalued by about 20% to make
exports competitive and regulations and licensing on exports were eased.
3. Industrial Policy Reforms- Licensing and Inspector Raj was rampant in
India. Measures were taken to spur investments, ease domestic supply and
make the industry competitive.
4. Public Sector Reforms- The public sector was given more operational
freedom to scale up and make bigger contributions to the economy.
Foreign Exchange Reserve (FER)
Foreign exchange reserves in India comprises of Foreign Currency Assets
(FCAs), gold reserves, Special Drawing Rights (SDRs) and India's reserve
position with the International Monetary Fund (IMF). Countries use their
foreign exchange reserves to keep the value of their currencies at a fixed rate.
For example- China devalues its currency (yuan)0 against the US dollar. When
China stockpiles dollars, it raises the dollar value compared to that of the yuan.
That makes Chinese exports cheaper than US-made goods, increasing the sales
of Chinese products. The US officially labelled China as the currency
manipulator in August 2019. Foreign exchange is also used to maintain liquidity
in case of an economic crisis as India pledged its 20 tonnes of gold to Zurich
and 47 tonnes with England to raise $240 million and $600 million respectively
during the economic crisis of 1991. The RBI also supplies foreign currencies to
keep markets steady and reserves are also needed to meet India’s external
obligations which include international payment obligations, sovereign and
commercial debts. Indian forex reserves stand at $461.214 bn (10th Jan 2020)
Special Drawing Right (SDR)
Special Drawing Right (SDR) is an international reserve asset, created by the
International Monetary Fund (IMF) in 1969 to supplement its member
countries’ official reserves. So far SDR 204.2 billion (equivalent to about
US$291 billion) has been allocated to members, including SDR 182.6 billion
allocated in 2009 in the wake of the global financial crisis. The value of the SDR
is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese
renminbi, the Japanese yen, and the British pound sterling. The SDR serves as
the unit of account of the IMF and some other international organizations. The
SDR is neither a currency nor a claim on the IMF. Rather, it is a potential claim
on the freely usable currencies of IMF members. SDRs can be exchanged for
these currencies.
Balance Sheet
Balance Sheet- Balance Sheet is the financial statement of a company which
includes assets on one side, and liabilities on the other. For the balance sheet
to reflect the true picture, both heads (liabilities & assets) should tally (Assets
= Liabilities + Equity). It is usually calculated at the end of the financial year.
Assets are something that an entity owns, get benefits, or has use of, in
generating income. They are listed from top to bottom on the basis of their
liquidity which is the ease of convertibility of these assets into cash. Assets are
divided into 2 parts-
1. Current Assets- It can be converted into cash within a year. Eg- Cash and
cash equivalents, marketable securities, inventories, prepaid expenses.
2. Long-Term or Non-Current Assets- It can’t be converted into cash within a
year. Eg- long term investments, fixed assets, intangible assets.
Intangible assets are those assets which can’t be touched such as intellectual
property, goodwill etc.
Balance Sheet
Marketable securities are those securities or debts that can be sold or redeem
within a year.
Liabilities are the financial debts or obligations that an entity owes to outside
parties. Liabilities are of two types-
1. Current Liabilities- Current liabilities are due within a year and are listed on
the balance sheet in order of the due date.eg- wages payable, dividends
payable, rent, tax, bank indebtedness etc.
2. Long-Term Liabilities- Long-term liabilities are due beyond one year. Eg- long
term debt, deferred tax liability etc.
Deferred tax liability are taxes accrued but not paid within a year.
A contingent liability is a liability that may arise depending on the outcome of a
specific event. Eg.- potential lawsuits, product warranties etc.
Thee below picture reflects the balance sheet of the SBI from the fiscal year 2015 to 2019.
What is Priority Sector Lending?
Priority sectors are those sectors which are considered important for the
development of the basic needs of the country and should be given priority
over other sectors. The banks are mandated to encourage the growth of
priority sectors with sufficient credit.
Priority Sector includes the following categories-
1. Agriculture- Activities under agriculture are classified into Farm credit,
Agricultural infrastructure and Ancilliary activities.
2. MSME- No limit for bank loans are prescribed under priority sector.
3. Export Credit
4. Education- Bank loans up to Rs 10 lakh per borrower could be provided
under priority sector.
5. Housing- Bank loans up to Rs 35 lakh in metropolitan centres (with
population of ten lakh and above) & bank loans up to Rs 25 lakh in other
centres are eligible to be considered as priority sector provided the overall cost
of the dwelling unit in the metropolitan centre and at other centres does not
exceed Rs 45 lakh and Rs 30 lakh, respectively. Housing loans to bank’s own
employees are not eligible for classification under priority sector.
6. Social Infrastructure- Bank loans up to Rs 5 crore per borrower could be
provided under social infrastructure that includes schools, hospitals, toilets etc.
7. Renewable Energy- Bank loans up to Rs 15 crore for the renewable energy
industry and for individuals households the limit is Rs 10 lakhs under priority
sector.
8. Others- It includes weaker sections which are listed below-
- Small and Marginal Farmers
- Artisans, village and cottage industries where bank loan limit do not
exceed Rs 1 lakh
- Beneficiaries under Government Sponsored Schemes such as National Rural
Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM) and
Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS)
- Scheduled Castes and Scheduled Tribes
- Beneficiaries of the Differential Rate of Interest (DRI) scheme
- Self Help Groups (SHGs)
- Distressed farmers indebted to non-institutional lenders
- Distressed persons other than farmers, with loan amount not exceeding Rs
10 lakh per borrower to prepay their debt to non-institutional lenders
- Individual women beneficiaries up to Rs 10 lakh per borrower
- Persons with disabilities
- Overdraft limit to PMJDY account holder up to Rs 10,000 with age limit of
18-65 years.
- Minority communities as may be notified by Government of India from time
to time.
Various Targets under the priority sector
Note- Within the 18% target for agriculture, a target of 8% of ANBC or Credit
Equivalent Amount of Off-Balance Sheet Exposure, whichever is higher is
prescribed for Small and Marginal Farmers. Domestic banks have been directed
to ensure that their overall direct lending to non-corporate farmers does not
fall below the system-wide average of the last three years achievement.
What are the Basel norms?
Basel norms are the global norms to set common standards for banks across
countries. The Basel norms are framed by the Bureau of International
Settlement (BIS), that facilitates co-operation among the central banks with a
common goal of financial stability and common standards of banking
regulations. BIS is headquartered at Basel, Switzerland. Basel accords were
formulated by 27 member nations of the Basel Committee on Banking
Supervision (BCBS). The purpose of the accord is to ensure that financial
institutions have adequate capital to meet obligations and absorb unexpected
losses. India has accepted Basel accords and the RBI has prescribed stricter
norms as compared to the norms prescribed by the BCBS.
Basel 1- Basel 1 norms were introduced in 1988 in which the BCBS introduced a
capital measurement system called the Basel capital accord or Basel 1. Its main
focus was on credit risk and the minimum capital requirement was fixed at 8%
of Risk-Weighted Assets (RWA).
RWA are the assets that determine the minimum amount of capital that must
be held by banks to reduce the risk of insolvency. India adopted Basel 1
guidelines in 1999.
Basel 2- Basel 2 norms were introduced in 2004. The norms are based on three
pillars-
1. Capital Adequacy Requirements- Banks should maintain a minimum Capital
Adequacy Ratio (CAR) or Capital-to-Risk weighted Assets Ratio (CRAR) of
8%. CAR is the measurement of the bank’s available capital as a
percentage of its RWA. The available capital is divided into three tiers (
Basel 2 consist of only Tier 1 and Tier 2)-
Tier1- It is the core capital which consists of paid-up capital, statutory
reserves, disclosed reserves, capital reserves and certain intangible assets.
Tier 2- it consists of Tier 1 instruments plus undisclosed reserves, provision
and loss reserves, bonds, long term unsecured loans and certain capital
instruments.
Tier 3- It consists of Tier 2 plus short term unsecured loans.
2. Supervisory Review- Banks were needed to develop and use better risk
management techniques in monitoring and managing credit, market and
operational risks.
3. Market discipline- Banks should strictly adhere to disclosure norms in
which they need to disclose their CAR, risk exposure etc. to the central
bank of the country.
India adopted Basel 2 guidelines in 2009.

Basel 3- Basel 3 norms were released in 2010 in response to the sub-prime
crisis of 2008. It was felt that Basel 2 norms were inadequate in capturing the
systematic risk as subprime loans started impacting financial institutions and
became a systematic problem. A subprime loan is a loan offered to people who
do not qualify for a loan due to low income or poor credit history. Exposure to
risky assets in the form of subprime loans result in major losses and the bank’s
capital was not adequate enough to absorb those losses. The quantity and
quality of capital under Basel 2 were insufficient to absorb any risk. Basel 3
norms made most banking activities more capital-intensive. The norms focused
on four important banking parameters which are capital, leverage, funding &
liquidity
Salient features: Basel 3
Some salient features introduced under Basel 3 are-
Enhanced Capital Requirements- Minimum Tier 1 capital was raised from 4%

to 6% and Tier 1 capital was divided into Common Equity Tier 1 (CET1) and
Additional Tier 1 (AT1). AT1 consist of equity and in case of losses, losses can
be absorbed from this capital. CET1 was increased to 4.5%.
Capital Conservation Buffer- Capital Conservation Buffer was introduced in
which additional reserves of 2.5% of RWA in the form of common equity which
made the CET1 requirement to be 4.5+2.5= 7% and the total tier 1 capital to
be 8.5%.
Counter-Cyclical Capital Buffer- Counter-Cyclical Capital Buffer is the buffer in
which banks are required to add capital at a time when credit is growing at a
rapid pace and to reduce capital in case of slow credit growth. It should be 0-
2.5% of RWA.
Liquidity- Liquidity Ratio which is the ratio of high-quality liquid assets to total
net liquidity outflows over a 30 days period should be equal to or more than
100%. Net Stable Funding Ratio which is the ratio of available stable funding to
required stable funding should be more than 100%.
Leverage- Leverage Ratio which is the ratio of tier 1 capital to the total
exposure should be equal to or more than 3%.
Counterparty Credit Risk- Counterparty Credit Risk is the risk arising from the
possibility that counterparty can default on a derivative position.
In India, RBI mandated Indian banks to maintain the capital needs of 1%
higher than the mandated norms as per Basel 3. On 24 October 2017, the then
Finance Minister Arun Jaitley announced 2.11 lakh crore recapitalisation
package for the Public Sector Banks to meet the Basel 3 norms out of which
1.35 lakh crore will be issued from recapitalisation bonds. Recapitalisation
bonds are issued by banks in which they lent money to the government at a
fixed interest rate. PSBs would get interest as well as the capital. Indian banks
are expected to adopt Basel 3 norms by 31 March 2020.
Q. What is NPA?
Non-Performing Asset (NPA) is a loan or advance where interest or instalment
of the principal amount remains overdue for a period of more than 90 days for
term loans or remains overdue for two crop seasons for short duration crops or
remains overdue for one crop season for long duration crops.
NPA can be classified into three categories based on the period for which the
asset has remained non-performing-
1. Sub-Standard Asset- A substandard asset is that asset which remains NPA
for a period less than or equal to 12 months. A provision of 15% should be
made on total outstandings for these assets.
2. Doubtful Asset- A doubtful asset is that asset which remains substandard
for a period less than or equal to 12 months. A provision ranging from 25%
to 100% of the secured portion is made and 100% for the unsecured
portion.
Q. What is NPA?
3. Loss Asset- A loss asset is that asset where loss has been identified by the
internal or external auditors or the RBI inspection but the amount s not
been written off wholly. A provision of 100% of the total outstanding
should be made if loss assets are not written off. 100% of the total
outstanding should be made if loss assets are not written off.
NPA crisis in India originated with the boom of a large number of bad loans
during the period 2006-2008 when economic growth was strong and previous
infrastructure projects such as power plants had been completed in time. Over-
confident bankers and did little due diligence and independent analysis and
were excessively relied on SBI Caps and IDBI to do the necessary due
diligence. This weakened the system and multiplied the possibilities for undue
influence. The boom comes to an end in 2008 with the bursting of the global
credit bubble that led to a change in the growth expectations.
Q. What is NPA?
Situations became worse when RBI switched from massive monetary easing
post the global financial crisis to significant tightening to bring down inflation
from double-digit levels. Financing costs soared to a record high as repo rate
almost doubled from 4.75% in September 2009 to 8.5% in December 2011.
The debt servicing ability of the Indian corporate sectors declined enormously
from 2013 onwards. Financial institutions resorted to restructuring and
evergreening of stressed assets to postpone the recognition of higher NPAs.
Evergreening of loans means lending to a company to pay off another bank’s
loan. This was, the second bank can save an account from going bad & thus
reduce its NPA and the cycle continues. Dr Raghuram Rajan, the 23rd
governor of RBI asked the banks to recognise the NPAs through Asset Quality
Review (AQR) exercise from 2015 onwards which determined the true
situation of the Indian financial system. The PSBs were the biggest
contributor to NPAs and almost 80% of NPAs were there in PSBs only.
Q. What is NPA?
NPA increased at a rapid pace from 13.2% in the first quarter of the fiscal
year 2016 to 19.4% in the first quarter of 2017. According to the Financial
Stability Report, 2019 released by the RBI NPA stood at 9.3% as on 31 March
2019 and expected to be 9% by 31 March 2020. According to RBI, the
primary reasons for high NPAs and stressed assets are aggressive lending
practices, wilful defaults, frauds, corruption and economic slowdown.
The Economic Survey of 2016 highlighted the twin balance sheet problem of
banks and corporates. Twin balance sheets problem refers to the stress of
NPAs on the balance sheets of banks on one hand and heavily indebted
corporates on the other. Economic Survey recommended four R- Recognition,
Recapitalisation, Resolution and Reform. Recognition of banks assets to the
true value as emphasised by the RBI so that their capital position is
safeguarded via recapitalisation for which the banks are demanding.
Q. What is NPA?
The stressed assets in the corporate sector must be sold or rehabilitated as
the government wants for resolution and reforms through future incentives for
the private sector and corporates must be set-right to avoid a repetition of the
problem.
Sunil Mehta committee on restructuring stressed assets were formed and it
recommended Project Sashakt which includes a five-pronged strategy to
resolve bad loans. It states that bad loans of up to Rs 50 crore will be
managed at the bank level with a deadline of 90 days. For bad loans from Rs
50-500 crore banks will enter an Inter-Creditor Agreement (ICA) authorising
the lead bank to implement a resolution plan in 180 days or refer to National
Company Law Tribunal (NCLT). For loans above Rs 500 crore, an independent
Asset Management Company (AMC) should be set up by funding through the
Alternative Investment Fund (AIF).
Q. What is NPA?
Following the recommendations, Sashakt India AMC was incorporated in
November 2018. 35 banks have signed an ICA to resolve through Bank-Led
Resolution Approach (BLRA) Jet airways debt was the first account to come
under the ambit of Project Sashakt. As a result of these steps by the
government, NPAs have been declined by more than 1 crore in 1 year from 31
March 2018 to 31 March 2019.
There are Asset Reconstruction Companies (ARCs) are registered companies
with the RBI that buy NPA from banks and try to extract maximum money
from it. Asset Reconstruction Company India Limited is the first and the
largest ARC in India.
The Insolvency and Bankruptcy Code (IBC)
The Insolvency and Bankruptcy Code (IBC), 2016 was enacted to provide a
mechanism for the insolvency resolution of debtors in a time-bound matter to
enable maximisation of the value of their assets. Insolvency is the financial
state where entities are not able to pay their debts while bankruptcy is the
official declaration of insolvency. The code separates commercial aspects of
insolvency and bankruptcy proceedings from judicial aspects and empowers the
stakeholders to decide the matter within their respective domain. Under IBC,
an insolvent entity can approach National Company Law Tribunal (NCLT) which
is a special court and can file for bankruptcy and further proceedings.
The Insolvency and Bankruptcy Code (IBC)
NCLT has 2 resolution options. One is to make a turnaround for the company
and make it profitable and the second one is the liquidation of the company.
The government amended the IBC in 2019 and empowered RBI to bring
stressed NBFCs and HFCs worth of at least Rs 500 crores under Section 227 of
the IBC. The Insolvency and Bankruptcy Board of India (IBBI) is the regulator
of the IBC proceedings and was established on 1 October 2016. Dr M.S. Sahoo
is the chairperson of the IBBI.
DRT and SARFAESI
Prior to 1990, banks had a tough time to recover bad loans. So, the
government enacted The Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (RDDBFI Act) which provides speedy redressal to lenders
and borrowers through the filing of Original Applications (OAs) in Debt
Recovery Tribunals (DRTs) and appeals in Debt Recovery Appellate Tribunals
(DRATs).
The Securitisation and Reconstruction of Financial Asset & Enforcement of
Security Interest Act, 2002 (SARFAESI Act) provide access to banks and
financial institutions covered under the Act for recovery of secured debts from
the borrower without the intervention of the courts at the first stage.
Securitisation Appeals (SAs) can be filled with the DRTs by those aggrieved
against the action taken by secured creditors under the SARFAESI Act.
Loan: Write off and Waiver
Writing of a loan means clearing the balance sheet by considering that the loan
does not have future value or no longer serves the purpose. An NPA is written
off when all avenues of recovery of due loan are over. It serves a dual purpose
for the banks as it cleans their balance sheet and achieves tax efficiency.
Borrowers of such loans remain liable for payment. PSBs wrote off Rs 3.165
lakh crore in 4 years from April 2014 to April 2018.
Loan waiver is the cancellation of recovery from claiming the dues. No recovery
will be made after the waiver. Loan waivers are generally given to farmers who
are in severe distress and could not pay back their loans.
Negotiable instruments
Negotiable instruments are those instruments which are used for making
payments and are transferable from one person to another. All negotiable
instruments are defined under the Negotiable Instruments Act 1881 that was
framed by Lord Ripon. Section 13 of the NI Act states that “ Negotiable
instrument means promissory note, bill of exchange or cheque wither to order
or to bearer”. Some features of the negotiable instruments are-
- These are written documents.
- These can be transferred from one person to another in case of bearer
instrument and transferred by endorsement in case of order instruments.
- The owner of the negotiable instrument is entitled to the value mentioned on
the negotiable instrument. That means he/she is the bonafide holder for value.
- There is no need to give prior notice before transferring the negotiable
instrument.
Bill of Exchange
Bill of exchange is an instrument in writing containing an unconditional order
signed by the drawer to the drawee to pay money to or the order of payee. The
maker of a bill of exchange is called the drawer, the person directed to pay is
the drawee and the person to whom or to whose order the money by the
instrument to be paid is the payee. Some features of bills of exchange are-
- They must be in writing and duly signed by the drawer.
- They should contain an order to pay.
- The order must be unconditional.
- The sum payable and parties involved in the transaction must not be vague
and should always be certain.
Promissory Note
Promissory note is a written 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 drawn for a specified duration and for a specified
sum of money.
Indian currency note is not a promissory note though it contained a note by the
RBI Governor that, “ I promise to pay the bearer a sum of ____ Rupees”.
Indian currency note can be used again and again whereas promissory note
can not be reused. Also, currency notes are not defined under the NI Act, 1881
as they are governed by the Indian Currency Act.
Demand Draft
A demand draft is a pre-paid negotiable instrument in which the drawee bank
undertakes to make payment in full when the instrument is presented by the
payee for the payment. Demand draft is payable on a specific branch at
specified centres. In order to obtain payment, the beneficiary has to either
present the instrument directly to the branch or have it collected by his/her
bank through the clearing mechanism.
Cheque
Cheque is a bill of exchange drawn on a specified banker and not expressed to
be payable otherwise on demand. Some features of cheques are-
- It can be further negotiated by means of an endorsement.
- It has to be presented for payment by the payee or acceptor or maker or
drawer.
- It contains an unconditional order to pay a certain sum of money.
- It should be properly dated.
- It should be signed by the maker/drawer.
- In the case of self cheque, the payee would be the drawee.
- Full signature is required in case of alterations/rectifications.
- Amount written in words should be paid irrespective of the amount written
in figures if there is any mismatch.
- Cheques drawn by arrested/under trial/convicted persons should be
honoured.
Cheque
Various kinds of cheques are as follows-
1. Order Cheque- An order cheque is that cheque which is payable to a
particular person or his order.
2. Bearer Cheque- A bearer cheque is that cheque which is payable to a
person who presents it to the bank for encashment.
3. Blank Cheque- A blank cheque is that cheque in which all the columns are
blank except the signature.
4. Stale Cheque- A stale cheque is that cheque which is more than three
months old.
5. Ante Dated Cheque- An ante-dated cheque is that cheque which bears
more than one date in the cheque.
6. Mutilated Cheque- A mutilated cheque is that cheque which is torn into two
or more pieces.
7. Post-Dated Cheque- A post-dated cheque is that cheque which bears a date
later than the date of issue.
Cheque
8. Crossed Cheque- A cross cheque is that cheque on which two parallel
transverse lines are drawn across the face of the cheque that signifies it
can not be encashed and payable in the account specified only. The
crossing can be of two types-
- General Crossing- Cheque to be paid in a general account.
- Special Crossing- Cheque to be paid to the banker specified in the
crossing only.
9. Open Cheque- An open cheque is that cheque which has not been
crossed.
10. Dishonoured Cheque- A cheque can be dishonoured in these following
conditions-
Cheque
- If the account balance of the drawer or drawee falls short of the amount
specified on the cheque.
- If it is a stale cheque.
- If it is a post-dated cheque.
- If it is a mutilated cheque.
- If it is an ante-dated cheque.
- If it is crossed to two banks.
- If the cheque is missing the seal of the firm.
- If the drawer dies before the payment is made
- If the customer is declared insolvent.
- If the firm associated with the account is in the process of liquidation.
- If the customer is insane
- If the bank received the instructions to stop the payment from the drawer.
MICR
Magnetic Ink Character Recognition (MICR) is a 9 digit code present on the

cheque in which first 3 digits signifies district, next three the name of the bank
and last three signifies the location of branch or bank name. MICR code is
needed for Electronic Clearing Service (ECS) which is the electronic mode of
payment/receipt for transactions that are repetitive in nature. MICR-based
cheque processing has been discontinued across the country,
CTS
Cheque Truncation System (CTS) was introduced by the RBI in New Delhi with
effect from 1 February 2008 which was later implemented throughout the
nation phase-wise. Truncation is the process of stopping the flow of the
physical cheque issued by a drawer at some time by the presenting bank in
transit to the paying bank branch. Instead, the electronic image of the cheque
is transmitted to the paying branch through the clearinghouse, along with
relevant information like data on the MICR band, date of presentation, etc. This
system eliminates the cost involved in the movement of the physical cheques,
reduces the time required for the collection, is highly secured, fear of loss of
cheque en route is eliminated and brings elegance in the Payments System
arena. Currently, banks are advised to issue CTS-2010 standard cheques to the
customers, Cheques not complying with CTS-2010 standards are cleared once
in a month only.
Cheque and a Demand Draft
What is the nationalisation of banks?
The Indira Gandhi government through the Banking Companies (Acquisition
and Transfer of Undertakings) Ordinance, 1969 nationalised the 14 largest
commercial banks on 19 July 1969. These lenders held over 80% of the bank
deposits. The parliament passed the Banking Companies (Acquisition and
Transfer of Undertaking) Bill and it received presidential approval on 9 August
1969.
The credit disbursal to the rural areas and small scale borrowers was far less as
compared to the big industries despite the Banking Regulation Act, 1949. The
loans by commercial banks to industries nearly doubled between 1951-1968
from 34% to 68%, even as the agriculture received less than 2% of the credit.
The government of the time believed that the banks failed to support its socio-
economic objectives and hence, it should increase its control over them.
Moreover, in 1969, only Bombay, Calcutta, Delhi, Madras and Ahmedabad
accounted for 44% of all bank deposits and 60% of total bank credit in the
country. It had become clear that without a structural break in the banking
system, the goals of development planning would get undermined.
Bank nationalisation aimed to attain three primary objectives:

1- To break the nexus between the banks and the big businesses who were
disproportionately cornering bank finance for their narrow, selfish ends and
rapidly expand the banking network to the unbanked regions, especially rural
areas and deliver institutional credit to the farmers, small businesses and other
weaker sections of society, many of whom were caught in a vicious trap of
usury. Usury is the lending money at a very high-interest rate.
2- To ensure the balanced flow of credit to all the productive sectors, across
various regions and social groups of the country.
3- To provide stability to the banking system by preventing bank failures and
speculative activities.
The banks that were nationalised are Allahabad Bank, Bank of Baroda, Bank of
India, Bank of Maharashtra, Central Bank of India, Canara Bank, Dena Bank,
Indian Bank, Indian Overseas Bank, Punjab National Bank, Syndicate Bank,
UCO Bank, Union Bank and United Bank of India. Thereafter, in 1980, 6 more
banks Punjab and Sind Bank, Vijaya Bank, Oriental Bank of India, Corporate
Bank, Andhra Bank and New Bank of India were nationalised.
The positive impacts of bank nationalisation could be seen in the increase in
bank branches brought about by the 22 public sector banks in just five years.
Half of the 10,543 new bank branches opened between 1969 and 1975 were in
rural areas, increasing the share of rural branches from 17% to 36%. By 1990,
total bank branches numbered 59,752, with over 58% share of rural branches.
The share of agriculture in total credit went up from 2.2% in 1967 to over 9%
in 1975; it stood at 15.8% in 1989 thanks to the priority sector lending norms.
Financial inclusion
Financial inclusion is the process of ensuring access to financial services and
timely & adequate credit to vulnerable groups such as weaker sections and
low-income groups at an affordable cost. Financial inclusion broadens the
resource base of the financial system by developing a culture of savings among
a large segment of the rural population and plays its own role in the process of
economic development. Further, by bringing low-income groups within the
perimeter of the formal banking sector; financial inclusion protects their
financial wealth and other resources in exigent circumstances. Financial
inclusion also mitigates the exploitation of vulnerable sections by the usurious
money lenders by facilitating easy access to formal credit.
Financial inclusion
The Government of India and the RBI have been making concerted efforts to
promote financial inclusion as one of the important national objectives of the
country.
Some of the major efforts made in the last five decades include -
nationalization of banks, building up of robust branch network of scheduled
commercial banks, co-operatives and regional rural banks, introduction of
mandated priority sector lending targets, lead bank scheme, formation of self-
help groups, permitting BCs/BFs to be appointed by banks to provide doorstep
delivery of banking services, zero balance BSBD accounts, etc. The
fundamental objective of all these initiatives is to reach the large sections of
the financially excluded Indian population.
Financial inclusion
According to the first Global Findex Database was released by the World Bank
in 2011, only 40% of adult Indians had bank accounts. This number doubled to
80% in 2018. Pradhan Mantri Jan Dhan Yojana (PMJDY) played a huge role in
increasing the number of bank accounts in India. PMJD under the National
Mission for Financial Inclusion was launched by the PM Narendra Modi on 28
August 2014 to ensure access to financial services in an affordable manner.
Under this scheme, a bank account can be in any bank branch or Business
Correspondent (BC) outlet with zero balance.
Cards
1. Credit Card- It is a card that allows anyone to borrow money as per the
credit limit based upon the income of the cardholder. Banks/NBFCs approved by
the RBI may issue credit cards that includes co-branded credit cards, corporate
credit cards to the employees of their corporate customers, as well as add-on
credit cards. Co-branded credit cards are credit cards in which a bank ties up
with a particular brand. Eg- IRCTC SBI Platinum Card. The add-on card is a
privilege offered to the spouse, parents or children of the primary credit
cardholder. Banks/NBFCs can charge interests from the credit cardholders.
2. Debit Cards- It is a card that allows anyone to withdraw the money from a
bank’s account within the available balance. Banks can issue debit cards or co-
branded debit cards without the approval of the RBI subject to some
conditions. Unlike credit cards, the customers can not withdraw more money
beyond their account balance. Generally, a Personal Identification Number
(PIN) or One Time Password (OTP) is used to make payments or withdraw
money through the Automatic Teller Machines (ATM).
Cards
The RBI mandated banks to replace magstripe based old ATM cum debit cards
with new EMV (Europay, MasterCard and Visa) chip-based till 31 December
2018. EMV cards are chip-based payment cards with enhanced safety features
that are designed to prevent fraudulent practices such as card skimming and
cloning. The old credit and debit cards store your data on the magnetic stripe
found on the reverse side of your card. This makes it easy for a fraudster to
copy your data when you swipe the card. EMV cards, in contrast, store your
data on a microprocessor chip embedded in the card.
The Card Verification Value (CVV) number or Card Security Code (CSC) is a 3 or
4 digit number on the reverse side of the credit card or debit card. It is a 3 digit
number on VISA, MasterCard, Discover and RuPay branded credit and debit
cards. On your American Express branded credit or debit card it is a 4 digit
numeric code. Providing the CVV number to an online merchant proves that the
person actually has the physical credit or debit card and helps to keep the
transactions safe while reducing fraud.
Cards
PIN is the numeric password which is separately mailed/handed over to the
customer by the bank while issuing the card. Most banks require the customers
to change the PIN on the first use. Customer should not disclose the PIN to
anybody, including to bank officials. Customers should change the PIN at
regular intervals.
3. Prepaid Card- Prepaid cards/smart cards are the cards issued by the
banks/NBFCs which are issued against an advanced payment of a sum to the
issuing entity. The maximum limit is Rs 50,000 and can be used to withdraw
cash from ATMs, online purchases, purchases through Point Of Sale (POS) or to
transfer funds. However, prepaid cards issued by the NBFCs can only be used
to transfer funds.
Cards
POS is a place where a customer can pay for the goods and services through
debit and credit cards by swiping on POS machines or contactless using Near
Field Communication (NFC) or Radio Frequency Identification (RFID)
technology. The current limit for contactless payments is Rs 2,000. Cash can
also be withdrawn through POS machines with the limit being Rs 1000 per day
in Tier I and II centres and Rs 2,000 per day in Tier III to VI centres.
All these cards are known as plastic cards or plastic money.

ATM
Automated Teller Machine (ATM) is a computerized machine that provides the
customers of banks the facility of accessing their account for dispensing cash
and to carry out other financial & non-financial transactions without the need
to visit a bank branch.c. using their debit/credit/prepaid card or through the
bank’s mobile app.
First ATM was set up in London, England in 1967 and in India in 1987 at
Mumbai by the HSBC bank.
The major types of ATMs are-
1. White Label ATM- They are owned and operated by the NBFCs. From March
2019, they aren’t dependent on sponsor banks for procurement of cash.
The RBI has allowed them to source cash from any scheduled bank.
2. Brown Label ATM- They are owned and maintained by a service provider
while cash management and networking are maintained by the sponsor
bank.
ATM
3. Green Label ATM- They are used for agricultural transactions.
4. Orange Label ATM- They are used for the stock market transactions.
5. Yellow Label ATM- They are used for e-commerce transactions.
6. Pink Label ATM- They are specifically dedicated to promoting banking
transactions by the woman.
7. On-Site ATM- They are within the premises of the banks.
8. Off-Site ATM- They are outside the premises of the bank.
9. Mobile ATM- They are movable ATMs in remote areas where ATM
machines are not yet installed.
10. Cash Dispenser- They are used only for cash withdrawals, balance
enquiries and mini statements
Bank Accounts
There are mainly 4 types of bank accounts-
1. Current Account- Current account is an account opened by businesses or
organisations who need to access their accounts frequently. There is no
limit for daily transactions. No interest is paid by the bank in current
accounts. Overdraft facility is provided in a savings account. The minimum
average balance is usually higher than the savings account.
2. Savings Account- Savings account is an account that allows limited
transactions. Interest is paid by the banks on the deposits. Overdraft
facility is not provided and the minimum average balance is usually lower
than the current account. It can be opened by an eligible individual in a
single name or jointly with others and by certain organisations/agencies
approved by RBI. The prospective customer needs to comply with the
Know Your Customer (KYC) guidelines which are mandatory.
Bank Accounts
The objective of KYC guidelines is to prevent misuse of the banking system
intentionally or unintentionally for criminal purposes/ money laundering and
other fraudulent activities. The KYC guidelines also help banks to understand
their customers better. The customer identification will be on the basis of
documents provided by the customer as (a) Proof of identity and (b) Proof of
address. The customer has to submit the prescribed application form along
with the photographs in all cases.
(a) Proof of identity (any of the following with authenticated photographs
thereon): Passport., voter ID card, PAN Card, Govt./Defence ID card, ID cards
of reputed employers, Driving Licence, Aadhar Card
(b) Proof of current address (any of the following)- Credit Card Statement,
Salary slip, Income/Wealth Tax Assessment Order, Electricity Bill, Telephone Bill,
Bank account statement, Letter from reputed employer, Letter from any
recognized public authority, Ration Card, Aadhar Card.
Bank Accounts
No frills Account:- Branches may open accounts for those customers who are
in no position to submit the above-mentioned documents provided they
intend to maintain balances not exceeding rupees fifty thousand (Rs. 50,000)
in all their accounts taken together and the total credit summation in all the
accounts taken together should not exceed rupees one lakh (Rs. 1,00,000/-)
in a year
3. Recurring Deposit (RD) Account- RD account is an account which allows
people to make regular deposits and earn decent returns on the
investment. Due to the regular deposit factor and an interest component,
it often provides flexibility and ease of investments to users/individuals.
The term of the RD account ranges between 6 months to 10 years.
4. Fixed Deposit (FD) Account- It is an account offered by the banks as well
as the NBFCs in which people can deposit a lump sum of money for a
specific period to earn interest higher than the interest on savings bank
account deposits. It can be withdrawn prematurely with a penalty.
Sukanya Samriddhi Yojana
Sukanya Samriddhi Yojana is a small deposit scheme of the government
launched by the PM Narendra Modi on 22 January 2015 exclusively for a girl
child and is launched as a part of Beti Bachao Beti Padhao Campaign. The
scheme is meant to meet the education and marriage expenses of a girl child.
Any girl up to the age of 10 can open a Sukanya Samridhi Account. The
account cannot be opened for more than two girl children in a single-family.
The minimum amount that can be invested is Rs 250 while the maximum is Rs
1.5 lakh. The interest rate as per the November 2019 quarter is 8.5% It comes
with a maximum tax benefit of Rs 1.5 lakh under section 80C of the Income-tax
Act. Further, the interest accrued and maturity amount are exempt from tax.
Types of Loans
Different types of loans are as follows-
• Home Loan- Home loans are a secured mode of finance, that give the
funds to buy or build the home. The following are the type of home loans
available in India-
- Land purchase loan- Purchase land for a new home
- Home construction loan- Build a new home
- Home loan balance transfer- Transfer the balance of the existing home
loan at a lower interest rate
- Top up loan- can be used to renovate an existing home or have the
latest interiors for a new home
• Loan Against Property- Loan against property is one of the most common
forms of a secured loan where a person can pledge any residential,
commercial or industrial property for availing the funds required. The loan
amount disbursed is equivalent to a certain percentage of the property’s
value and varies across lenders.
Types of Loans
 Loan Against Insurance Policies- Insurance policies, such as endowment
and money-back policies, which have a maturity value can be used to avail
loans. One can opt for a loan against endowment and money-back policies
only after they’ve acquired a surrender value. These policies acquire a
surrender value only after paying regular premiums continuously for 3
years.
 Gold Loan- A gold loan requires a person to pledge gold jewellery or coins
as collateral. The loan amount sanctioned is a certain percentage of the
gold’s value pledged. Gold loans are generally used for short-term needs
and have a short repayment tenor compared to home loans and loan
against property.
 Loan Against Mutual Funds and Shares- Mutual funds and shares can also
be pledged as collateral for a loan. One can pledge equity or hybrid funds
to the financial institution for availing a loan.
Types of Loans
 Loan Against Fixed Deposits- FD can also be used to obtain a loan from the
bank. The loan can’t be more than the FD’s tenor.
 Personal Loan- A personal loan is an unsecured mode of finance in which
the interest rates are higher compared to secured loans. A good credit
score along with high and stable income is necessary to avail this loan at a
competitive rate of interest
 Short-Term Business Loans- A short-term business loan is used to meet
their expansion and daily expenses by various entities and organizations.
 Flexi Loans- In Flexi loans, one can avail funds from your approved limit
and as when required and pay interest only on the amount used. They can
withdraw on your loan limit, any number of times and prepay when they
have extra cash, at no extra cost.
Types of Loans
 Education Loans- Education loans cover the basic fees of the course along
with allied expenses such as the accommodation, exam fee, etc. In this
loan, the student is the main borrower while parents, siblings and spouse
are co-applicants.
 Vehicle Loans- Vehicle loan helps to buy a particular vehicle and are
offered either on purchase of a new vehicle or a used one.
Questions
Q. What is retail banking and corporate banking?
Ans. Retail banking or personal banking refers to banking directly with
individuals. They contribute to the deposits which enable banks to make loans
to their retail and business customers.
Corporate banking or business banking refers to banking with businessmen or
corporate customers. They get loans which enable businesses to grow and
employ people, contributing to the growth of the economy.
Questions
Q. What are KYC norms?
Ans. The RBI has made the Know Your Customer (KYC) procedures mandatory
while opening and operating the accounts. This is to prevent fraudsters using
the name address and forged signature of others for doing fraudulent
transactions; Benami transactions; encashment of stolen cheques, drafts
dividend warrants etc. For this purpose, the customer has to submit the Official
Valid Documents (OVDs) according to his/her profile. Officially Valid Documents
(OVDs) for KYC purpose include Passport, driving licence, voters’ ID card, PAN
card, Aadhaar letter issued by UIDAI and Job Card issued by NREGA signed by
a State Government official. KYC exercise should be done at least every two
years for high-risk customers, every eight years for medium risk customers and
every ten years for low-risk customer.
Questions
Q. What is narrow banking? `
Ans. Narrow banking is that form of banking in which a bank doesn’t lend and
just accept deposits from the customers. They use their deposits to buy
government bonds as there is minimal risk in these bonds. The Tarapore
Committee in 1997 recommended creation of narrow banks to counter the
menace of NPAs. Payments banks in India is an example of narrow banking.
Q. What is a single window in a bank?

Ans. A single window is a system where all facilities are available at a single
place. Single window system in banks refers to checking account balances of
various banks accounts at a single place. Suppose, a person having 3 accounts
in SBI, HDFC and ICICI then he/she don’t need to open separate app/website
to check the balances. All his balance would be available at a single platform.
Questions
Q. What are inactive, frozen and dormant accounts?
Ans. Frozen Account- It is an account where no transactions can take place.
RBI, SEBI, court orders and income tax authorities have rights to freeze an
account. Banks can freeze the account in case of a suspicious transaction. Tax
dues, unpaid loans, illegal activity, suspicious activities are the various reasons
why an account is frozen.
Inactive Account- It is an account in which transactions have not taken place
for more than 12 months. One won’t be able to request a debit card or cheque
book, use internet banking or get user id and password.
Dormant Account- It is an account in which transactions have not taken place
for more than 24 months. Besides the restrictions applicable on an inactive
account, one won’t be allowed to change the address, contact number, email
address, and do transactions through ATMs, internet and phone banking. The
dormant accounts can not be frozen but the frozen accounts can be made
dormant.
Questions
Q. What is upselling and cross-selling?
Ans. Upselling is a sales technique to encourage customers to purchase a
higher-end product or increase the number of products than the one demanded
by the customer. Eg- HDFC Bank can offer Savings Max Account which has
some premium features to a person who just wants to open a regular savings
account.
Cross-selling encourages customers to buy complementary items along with the
products. Eg- Selling a credit card to customers who are applying for new
savings or current account.
Questions
Q. What is consortium banking and multiple banking?
Ans. Consortium Banking- Several banks or financial institutions pool their
funds to finance a single borrower. The participating bank forms a new
consortium bank. There is a contractual relationship between various
participating banks. The loan amount and the risk is divided as per their
proportion. Bank taking the highest risk would be the lead bank of the
consortium. It is safer than multiple banking. Eg- A consortium of 14 banks led
by the SBI gave nearly Rs 9,4323 crores to Vijay Mallya led Kingfisher Airlines.
Multiple Banking- A borrower takes loans from various banks. No borrower is
aware of the loans taken from other banks by the person. There is no
contractual agreement between the participating banks. It is very prone to
frauds.
Questions
Q. What is FDI, FII and FPI?
Ans. FDI- Foreign Direct Investment is a direct investment in domestic
companies made by a person residing in a foreign country. It is usually a long
term instrument which boosts the economy of the domestic country. Funds
along with resources, technologies, strategies are also transferred in FDI. The
investor gets a managerial control and influence over the company.
FII- Foreign Institutional Investment (FII) is an indirect investment where
foreign investors pool their money to invest in the domestic stock market.
Investments can be made for a long or short term. The investors don’t get
managerial control or influence over the company.
Government of India merged the categories of FII, sub-accounts of FII and
Qualified Foreign Investors (QFI) to Foreign Portfolio Investment (FPI)
Questions
Q. What is inflation? What are the various stages and types of inflation?
Ans. Inflation is the increase in the prices of goods and services. Various stages
and types of inflation are-
1. Creeping Inflation- Creeping or mild inflation is a stage where prices
increase at 3% or less in a year. This inflation helps in the expansion of the
economy as it boosts demand.
2. Walking Inflation- Walking inflation is a stage wh\ere prices increase
between 3 and 10% in a year. It is harmful to the economy as the supply
of goods can’t match up with the demand as people tend to buy more than
they need to avoid higher prices in future.
3. Galloping Inflation- Galloping inflation is a stage where prices increase
more than 10% a year. It is disastrous for the economy as the money
starts losing its value. Foreign investments dried up and the economy
becomes unstable.
Inflation related other terms
1. Hyperinflation- Hyperinflation is a stage where prices increase more than
50% in a month. It is a rare case and it erodes the real value of the local
currency making people switch to a more stable currency. Poor economic
policies of the government often lead to such scenarios. Zimbabwe
experienced a 500 billion % inflation rate in 2008 where US$ 1 was equal
to Z$ 2,621,984,228.
2. Stagflation- Stagflation is a stage of rising prices and declining GDP. The
economy faces a slowdown and unemployment rate is high.
3. Core Inflation- Core inflation does not include items related to food and
energy sector as their prices are volatile. It indicates rising prices on
consumer income.
Inflation related other terms
4. Deflation- Deflation is the opposite of inflation in which the prices fall.
Deflation can turn a recession into a depression. A recession is an
economic slowdown that lasts for at least 6 months and up to 18 months
due to poor consumer demand while depression is a severe decline that
lasts for many years. There has been only one depression that is known
as The Great Depression 1929 that lasted for almost 10 years.
Questions
Q. What is bancassurance?
Ans. Bancassurance refers to the selling of insurance products through banks.
Banks and insurance company come up in a partnership wherein the bank sells
the tied insurance company's insurance products to its clients.
Q. What are the salient features and the difference between NRI, NRO and
FCNR (B) Account?
Ans. Non-Resident Indian (NRI) and Person of Indian Origin (PIO) can open
these types of accounts-
1. Non-Resident (Ordinary) Rupee Account (NRO)
2. Non-Resident (External) Rupee Account (NRE)
3. Foreign Currency Non-Resident (Bank) Account- FCNR (B) Account.
Repatriablity is the ability to move liquid financial assets from a foreign country to an investor’s country of origin.
Questions
Q. What is the difference between Bank Guarantee (BG) and Letter of Credit
(LC)?
Bank Guarantee (BG) and Letter of Credit (LC) are the facilities offered by
banks in huge transactions to mitigate credit risk.
Questions
Q. What is demonetisation?
Demonetisation is the withdrawal of the legal tender status of the currency
notes. There were 3 instances where demonetisation was done in India-
1. 1946- The legal tender of currency note of Rs 1,000 and Rs 10,000 were
revoked. The demonetisation didn’t have much impact as these notes were
not accessible to the common people. Both the notes were re-introduced in
1954 along with Rs 5,000 note.
2. 1978- The then PM of India Morarji Desai announced the demonetisation of
Rs 1000, Rs 5,000 and Rs 10,000 notes to curb the black money. The High
Denomination Bank Notes Act 1978 was passed. It didn’t have much effect
on the common people.
3. 2016- The PM Narendra Modi on 8 November announced the withdrawal of
the legal tender status of Rs 500 and ₹ Rs 1,000 denominations of
banknotes to tackle counterfeiting Indian banknotes, to effectively nullify
black money hoarded in cash and curb funding of terrorism.
Questions
Common people were largely affected by this move. More than 105 people had
died in the post-demonetisation rush for cash across the country.
Demonetisation also hit small-scale businesses. According to the Centre for
Monitoring Indian Economy (CMIE), demonetisation caused the loss of about
15 lakh jobs. GDP which was at 7.3% in the second quarter of 2016 dropped to
7% in the third quarter. RBI Annual Report 2018 revealed that out of Rs 15.41
lakh crore demonetised notes, only Rs 10,720 crore (0.7%) did not reach to the
banks or the RBI. RBI spent close to Rs 13,000 crore to remonetise Indian
money market in post-demonetisation phase.
Questions
Q. What is cryptocurrency?
Cryptocurrency is a digital representation of value that can be digitally traded
and functions as a medium of exchange but it is not considered legal tender in
most of the countries including India. All cryptocurrencies use Distributed
Ledger Technologies (DLT) which refers to technologies that involve the use of
independent computers (also referred to as nodes) to record, share, and
synchronise transactions in their respective electronic ledgers. Keeping such
distributed ledgers obviates the need for keeping the data centralised, as is
done in a traditional ledger. Blockchain is a specific kind of DLT that came to
prominence after Bitcoin, a cryptocurrency that used it, became popular.
Cryptocurrencies such as Bitcoin use codes to encrypt transactions and stack
them up in blocks, creating Blockchains. It is the use of codes that
differentiates cryptocurrencies from other virtual currencies. In 2008, a paper
titled Bitcoin appeared online via the Cryptography Mailing List.
Questions
The author (or authors) of the paper identified himself as Satoshi Nakamoto,
an identity that has never been confirmed. The paper came in the aftermath of
the 2008 financial crisis and stemmed from inherent trust problems that the
crisis had laid bare in the traditional banking system. The Inter-Ministerial
Committee (IMC) constituted in 2017 on cryptocurrencies validity
recommended that all private cryptocurrencies, except any cryptocurrency
which may be issued by the government, be banned in India. The draft law
proposed by the committee entails that any direct or indirect use of
cryptocurrency shall be punishable with a fine or imprisonment which shall not
be less than one year but which may extend up to 10 years. The fine could be
three times the loss or harm caused by the person or three times the gain
made by a person or up to Rs 25 crore. Cryptocurrencies can undermine and
destroy macroeconomic and financial stability. It can also be misused for
money laundering, terror financing and have the potential of being a Ponzi
scheme. Ponzi scheme is a fraudulent investment promising a high return.
Questions
Q. What is a payment gateway?
Ans. A Payment Gateway (PG) is an online tunnel that connects the bank
account to the platform where a person need to transfer your money. It
authorises you to conduct an online transaction through different payment
modes like net banking, credit card, debit card, UPI or online wallets. It focuses
on creating a secure pathway between a customer and the merchant to
facilitate payments securely. It involves the authentication of both parties from
the banks involved and allows millions of users to use it at the same time.
Questions
Q. What are mutual funds and stock market?
Mutual funds collect the money from investors and invests the money on their
behalf by charging a nominal fee. The SEBI has categorised mutual funds in
India into-
1. Equity Mutual Funds- Invest directly in stocks or shares.
2. Debt Mutual Funds- Invest in debt securities.
3. Hybrid Mutual Funds- Invest in a mix of equity and debt mutual funds.
4. Solution-Oriented Mutual Funds- Devised for a particular purpose like
retirement.
The total expenses incurred by the mutual fund scheme are collectively called
the expense ratio. The expense ratio measures the per-unit cost of managing a
fund. The Association of Mutual Funds in India (AMFI) which is the association
of SEBI manages the mutual funds in India. N. S. Venkatesh is the Chief
Executive of AMFI.
Questions
Q. What are mutual funds and stock market?
Stock market/equity market/share market is a place where shares of pubic
listed companies are traded. Share is a unit of ownership of a company and is
offered for sale in the market when a company needs to raise money for
further growth. There are two types of the stock market-
1. Primary Market- Where companies offer their shares to the general public
through an Initial Public Offering (IPO).

2. Secondary Market- Once new securities have been sold in the primary
market, they are traded in the secondary market, where one investor buys
shares from another investor at the prevailing market price or at whatever
price both the buyer and seller agree upon. The secondary market or the
stock exchanges are regulated by the regulatory authority which is the
SEBI
Questions
Q. What are stock exchanges?
Stock Exchange- Shares of the companies are traded on a stock exchange.
Most prominent stock exchanges in India are-
1. NSE- National Stock Exchange (NSE) was incorporated in 1992. It was
recognised as a stock exchange by SEBI in April 1993 and commenced
operations in 1994. Nifty is the combination of two words National and
Fifty. It is an equity benchmark of NSE introduced in 1996 and consists of
50 actively traded stocks. It reflects the strength of the stock market. Girish
Chandra Chaturvedi is the Chairman of NSE while Vikram Limaye is the MD
& CEO.
Questions
2. BSE- Bombay Stock Exchange (BSE) is the first-ever stock exchange in
Asia established in 1875 and the first in the country to be granted
permanent recognition under the Securities Contract Regulation Act,
1956. It is the Fastest Stock Exchange in the world with a speed of 6
microseconds and in 2017 BSE become the 1st listed stock exchange of
India. The S&P BSE Sensitivity Index or Sensex introduced in 1996 consist
of 30 largest actively traded stocks. Justice Vikram Sen is the chairman of
the BSE and Ashishkumar Chauhan is the MD & CEO of the BSE.
Stock exchanges are regulated by the regulatory authority which is the SEBI.
Stock Brokers are intermediaries through which the general public can
purchase or sell the shares.
Questions
Q. What is a Demat Account?
Demat Account or dematerialisation account was introduced in 1996 is an
electronic account which makes the process of holding investments like shares,
bonds, government securities, mutual funds, insurance and ETFs easier, doing
away the hassles of physical handling and maintenance of paper shares and
related documents. SEBI made it mandatory for shareholders to have a demat
account to transfer the shares from 1 April 2019.

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Banking Awareness & Financial Awareness

It’s a compilation of some important BA/FA questions you

You may go through this playlist on our YouTube channel for

In India, banking can be classified into 4 categories-

2 (i). Scheduled Commercial Banks- Scheduled commercial banks are those

Scheduled Commercial Banks can be further divided into 6 types-

• Urban Co-operative Banks- Urban co-operative banks are set up in urban

• On the basis of long-term structure, rural co-operative banks can be divided

Commercial banks primarily engage in two core activities. One is to accept

Main functions of RBI are:

3. Manager of Foreign Exchange- RBI manages the Foreign Exchange

7. Consumer Education and Protection- RBI works on the protection of

Monetary policies can be of two types-

Monetary Policy Committee (MPC) is a six-member committee constituted by

Note- Members 4 to 6 are appointed for a period of 4 years or until further

4. Liquidity Adjustment Facility (LAF)- LAF consists of overnight as well as term

Government of India constituted a committee under B. Sivaraman named

Industrial Development Bank of India (IDBI) was established on 1 July 1984

Small Industries Development Bank of India (SIDBI) was set up on 2 April

Industrial Finance Corporation of India (IFCI) is a public sector Non-Banking

Export-Import Bank of India (EXIM) is the export finance institution of the

NBFC- Non-Banking Financial Company (NBFC) is a financial institution that

Various products of NPCI are as follows-

IMPS- IMmediate Payment Service (IMPS) launched in November 2010 is a

Balance of Payment- Balance of Payment (BOP) is a statistical statement that

India adopted Basel 2 guidelines in 2009.

Enhanced Capital Requirements- Minimum Tier 1 capital was raised from 4%

Magnetic Ink Character Recognition (MICR) is a 9 digit code present on the

Bank nationalisation aimed to attain three primary objectives:

All these cards are known as plastic cards or plastic money.

Q. What is a single window in a bank?

2. Debt Mutual Funds- Invest in debt securities.

4. Solution-Oriented Mutual Funds- Devised for a particular purpose like

through an Initial Public Offering (IPO).

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