Banking Awareness: Important Topics Fiscal Policy and FRBM Act, 2003 for IBPS, SBI and Other Bank tests

Fiscal Policy and FRBM Act, 2003

Fiscal Policy
The part of the government policy, which is concerned with raising revenue through taxation and with deciding on the amount and purpose of government spending. Fiscal Policy is the means, by which a government adjust its level of revenue and spending in order to monitor and influence and nation's economy in a mixed economy, a part from the private sector, then is the government, which plays a very important role. The role of the government in promoting economic development came into vogue after "The great depression" and is essentially a Keynesian prescription. Later Dr. Parthsarthi Scheme Committee was appointed in this regard to form various guidelines and recommendations for GAAR Policy.

Fiscal Policy, essentially has a multidimensional role. However, in India, in the centre of indicative planning.It influences growth performance of economy mainly by influencing the resource mobilisation and influencing the efficiency of resources allocation. It has two objectives.

• 1) Improving the growth performance of the economy.
• 2) Ensuring social justice to the people.

FRBM Act, 2003

The Fiscal Responsibility and Budget Management Act, 2003 (FRBM Act) has been amended as part of the Finance Bill, 2012. It has introduced two concepts to reform the expenditure aspect of the fiscal policy. FRBM Act was passed by the Union Government to provide a legislative control over the fiscal situation of the country, which had deteriorated earlier. 

The Salient Features of FRBM:

Government to annually reduce revenue deficit by 0.5% and fiscal deficit by 0.3% of GDP starting from 2004-05. Prohibits RBI from printing money to lend to the government. Elimination of revenue deficit and reducing fiscal deficit 3% of GDP by 31st March, 2009. Annually present macro-economic frame work statement, medium term fiscal policy statement and fiscal policy strategy statement. Under exceptional circumstances government may breach the target, but the Finance Minister will be required to make a statement in both houses of Parliament explaining the reasons. While some success was achieved in containing fiscal deficit in the few years after passing this law, as the fiscal deficit came down to 2.5% of GDP by 2008, due to economic slowdown post 2008, deficit have again shot up and the government has been struggling to bring them under control.

Assessment of Government Deficits:

Assessment of Government deficits can be done on following basis

Fiscal Deficit: It is the difference between what the government earns and its total expenditure.

Fiscal Deficit = Revenue receipts (Net tax revenue + Non-tax revenue) + Capital receipts - Total expenditure (Plan and Non-plan)

Revenue Deficit: It is the difference between the revenue receipt on tax and non-tax side and the revenue expenditure. Revenue expenditure is synonymous with consumption and non-development.

Revenue Deficit = Revenue expenditure - Revenue receipts.

Banking Awareness: Important Banking Awareness Topics for IBPS, SBI and Other Bank tests

Important Banking Awareness Topis

Current Account:

Current account is that account, which records imports and exports of goods and services and uni-literal transfers. The current account is used to mark the inflow and outflow of goods and services into a country. Earnings on investments, both public and private, are also put into the current account.

Components of Current Account:

Current Account records the following transactions

• Export and import of goods (or of visible items)
• Export and import of services (or of invisible items)
• Uni-literal transfers from one country to the other.

In the context of current account Balance of Payment following are some important observations:

• All exports are recorded as positive (+) items as these result in the flow of foreign exchange into the country.
• All imports are recorded as negative (-) items as these cause the flow of foreign exchange out of the country.
• Balance occurring on account of export and import of goods is regarded as balance of visible trade.
• Balance occurring on account of export and import of services is recorded as balance of invisible trade.
• Receipts of uni-lateral transfers are recorded as positive items.
• Payments of uni-lateral transfers are recorded as negative items.

Capital Account:

It is that account, which records all such transactions between residents of a country and rest of the world, which causes a change in the asset or liability status of the residents of a country or its government. Investments (FDI and FII) and Borrowings (ECB etc) are part of the capital account.

Foreign Investment:

Foreign investment means a investment into production or business in a country by an individual or company in another country for profit earning. Typically, foreign investment denotes that foreigners take a some what active role in management as a part of their investment. Foreign investment typically works both ways, especially between countries of relatively equal economic stature. Foreign investment on the basis of nature can be categorised into two types

• Foreign Direct Investment (FDI)
• Foreign Portfolio Investment (FPI)

Foreign Institutional Investment (FII):

These are investments by entities from outside the country into the financial assets like debts and shares of companies from a different country, in which they are incorporated. FIIs (Foreign Institutional Investment) are required to register with SEBI (Security and Exchange Board of India) and any foreign individual wanting to invest into India has to come through one of these FIIs.

Participatory Notes(P-Notes):

These are financial instruments used by investors or hedge funds that are not registered with the securities and exchange board of India to invest in Indian securities. India-based brokerages buy notes to foreign investors. Any dividends or capital gains collected from the underlying securities go back to the investors.

Capital Account Convertibility in India:

Capital account convertibility (CAC) for Indian economy refers to the abolition of all limitations with respect to the movement of capital from India to different countries across the globe. According to the Tarapore Committee, capital account convertibility refers to the freedom to convert local financial assets into foreign financial assets and vice-versa at market determined rates of exchange. It is associated with changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on or by the rest of the world.

Banking Awareness: Expected Interview Topics Insurance and Banking for IBPS and SBI Interviews

Corporate Governance Guidelines for Insurance Companies

Corporate Government guidelines have been rolled out for insurance companies which are effective from 1st April, 2010.The guidelines broadly cover major structural elements of Corporate Governance in insurance companies. According to the same, a minimum lock-in period of 5 years from the date of certificate of commencement of business of an insurer is laid down on the promoters of the insurance company and no transfer of shares of the promoters would be permitted within this period. Guidelines further stipulates that the Board of the insurer should have practices in place for succession planning for the key senior functionaries through a process of proper identification and nurturing of individuals for taking over senior management positions.

Insurance are required to have a minimum of two independent directors on their Board as long as they are unlisted. Where the Chairmen of the Board is non-executive, the Chief Executive Officer should be a whole time director of the Board. Not more than one member of a family or a close relative as defined in the Companies Act or an associate (partner, director etc.,) should be on the Board of an Insurer. Directors of insurance companies have to meet the "fit and proper" criteria. Guidelines further stipulates formation of the following committees mandatory: Audit, investment, Risk Management, Asset Liability Management (in case of Life Insurance companies), Policyholder Protection, Optional committees to be formed are Remuneration, Nomination and Ethics.

Insurance and Banking:

The insurance companies in India are constantly collaborating with the banking institutions on the pattern of foreign countries to impart more efficiency in the entire venture insurance sector. More and more insurance companies are signing MoUs with the Indian banks in order to carry on their marketing activities through the branches of the banks, the prominent Indian banks that have already signed such Memorandum of Understanding (MoUs) include the Vysya Bank, the State Bank of India and the Jammu and Kashmir Bank.

In 2008, its wholly owned subsidiary was opened in Singapore. It also extends assistance for development of infrastructure facilities like housing, rural electrification, water supply, sewerage etc. In addition, it extends resource support to other " financial institutions through subscription to their shares and bonds" etc. In making investments, the major consideration is the protection of the interests of policy holders and the aim is to secure the highest possible yield consistent with the safety of capital. It is the single largest investor in the country. It subscribes to and underwrites the shares, bonds and debentures of various financial corporations and companies and provides term loans.

Banking Awareness: Agricultural Insurance Company of India Limited (AICIL) and Its Schemes for IBPS Interviews

Agricultural Insurance Company of India Limited (AICIL)

Agricultural Insurance Company of India Limited (AICIL) was established on 20th December, 2002 to promote crop insurance in order to protect the farmers against the crop losses suffers due to natural calamities. The GIC, NABARD and four public sector general insurance companies have contributed Rs. 200 crore towards the paid-up share capital out of the authorized capital of Rs. 1500 crore. The AICIL having received approval from IRDA commenced its business operations w.e.f 1st April, 2003. The total number of employees as on date is 198 all over the country. It has its Head Office in New Delhi and 17 Regional Offices in various State Capitals.

The AICIL is implementing National Agricultural Insurance Scheme (NAIS), a central sector crop insurance programme of Government of India and also implementing the Pilot Weather Based Crop Insurance Scheme (WBCIS) throughout the country along with its other commercial crop insurance products. A Pilot on Modified NAIS has also been started by AICL initially covering 50 districts.

The objectives of MNAIS are as under:

• Actual rate-marketing, with district level crop insurance premium rates.
• Probable yield based on moving average of last 7 years.
• Reduction of the insurance unit to the Gram Panchayat level, where feasible.
• Partial on-account settlement of claims during cropping season.
• Up-front partial premium subsidies based on commercial premium rate slabs for both food and commercial crop paid by the centre and respective State Government.

1) AICIL's own Commercial Insurance Products:

Beside the above Government supported crop insurance schemes, AIC has designed and is implementing a few crop specific products to cater to the needs of diverse farming community of India to meet their diversified risks. These products are supplementing the coverage already available for the crops covered under NAIS and WBCIS. These are Varsa Bima, Rainfall Insurance, Wheat Insurance, Rabi Weather Insurance, Mango Weather Insurance, Rainfall Insurance Scheme-Coffee (RISC), Bio-Fuel Insurance, Potato Contract Farming Insurance, Cardamom Insurance etc.

2) National Agricultural Insurance Scheme(NAIS):

The Government of India introduced the scheme from 1999-2000 seasons to protect the farmers against  to crop failure losses on account of all natural calamities so as to restore the credit worthiness of loaned farmers. The scheme is available to non-loaned farmers as well. The scheme, at present covers 73 different crops during the year which includes food crops cereals, millets and pulses and oilseed etc.

3) Pilot Weather Based Crop Insurance Scheme (WBCIS): 

WBCIS aims to mitigate the hardship of the insured farmers against the likelihood of financial loss on account of anticipated crop loss resulting from incidence of adverse conditions of weather parameters like rainfall, temperature, forest, humidity etc. It is started form 2007-2008 Union Budget. While NAIS specifically indemnifies the cultivator against shortfall in crop yield, WBCIS is built upon the fact that weather conditions affect crop production even when a cultivator has taken all the care to ensure good harvest.

Banking Awareness: Monetary Standards and Important Bank Terms for coming IBPS Exams and Interviews

Monetary Standards and Important Bank Terms

Monetary Standards:

It refers to the commodity that fixes the value of the standard money used in a country. Monetary standard, on the other hand, relates to the commodity by which the standard money unit is determined.

A sound monetary standard aims at the following.

• Stability in the internal value of the currency through internal price stability.
• Stability of the external value of the currency through exchange rate stability.

Monetary Standards in India

These are classified in to two parts

i) Gold Exchange Standards:

I year 1898, Fowler Committee 1898 was appointed and on their recommendations, gold standard was established in India. At that time, 15 Indian rupee were rural to 1 British sovereign. Gold standard was there till 1914-15, as after First World War was ended.

ii) Paper Currency in India:

Reserve Bank of India was established in 1935 as Central Bank of India and controller of credit. British Government had given right of issuing of currency notes to Bank of Bengal, but from 1st April, 1935, the only right of issue currency was given to India.

Frequently Asking  Bank Terms in Interviews

Important Bank Terms
1) Money Market:	It refers to the market for short-term requirements and deployment of funds.
2) Call Money:	Money lent for 1 day
3) Notice Money:	Money sent for a period exceeding 1 day
4) Term Money:	Money lent for 15 days or more in inter-bank market.
5) Held Till Maturity:	Securities, which are not meant for sale and shall be kept till mature.
6) Yield to Maturity:	Expected rate of return on an existing security purchased from the market.
7) Coupon Rate:	Specified interest rate on a fixed maturity, security fixed at the time of issue.
8) Treasury Operations	Trading in government securities in the market. An investor bank can purchase these securities in the primary market. Tracking takes place in the secondary market.

Banking Awareness: Importance of Co-Operative Marketing and Foreign Trade for Bank Interviews

Co-Operative Marketing and Foreign Trade

1) Co-operative Marketing Mechanism:

NAFED (National Agricultural Co-operative Marketing Federation India Limted):

It was established on 2nd October, 1958. It is registered under the Multistate Co-operative Societies Act. NAFED was set-up with objective marketing of agricultural produce to benefit farmers. It organise, promote and develop marketing, processing and storage of agricultural, horticultural and forest produce.

TRIFED (Tribal Co-operative Marketing Development Federation of India Limited):

It come into existence on 6th August, 1987 and got registered under the multistate co-operatice societies Act, 1984, (How the Multistate Co-operative Societies Act, 2002). The main objectives of TRIFED is to serve the interest of its member in more than one state for the social and economic betterment of its member by conducting its affair in professional democratic and autonomous manner through self help and mutual co-operation for undertaking marketing development of the tribal products.

2) Meaning of Foreign Trade:

The Exchange of goods and services between the two countries is termed as foreign trade. The purpose of foreign trade lies in meeting the domestic demands for goods and services.

There are two components of foreign trade:

Exports: When goods and services are sold to the foreign country for the motive of earning more profit, it is called Exports.

Imports: When purchasing goods and services from a foreign country to meet the domestic needs in the country is known as imports.

Foreign Trade Policy:

It is set of guidelines and instructions established by the Director General of Foreign Trade (DGFT) in matter related to the import and export of goods in India. 

Foreign Trade Policy 2009-2014

In India, at central level the foreign trade policies are administered by the Ministry of Commerce and Industry. In post liberalisation era the condition of foreign trade and India's share in global trade is improving significantly. Commerce Minister Mr. Anand Sharma on 27/08/2009 released the Foreign Trade Policy for the period of 2009-2014. This policy aims at achieving an annual export growth  of 15 percent with an annual target of 200 billion dollars. In new trade policy government extended two schemes for exporters, the Export Promotion Capital Goods Scheme (EPCGS) and the Duty Entitlement Passbook Scheme (DEPS). 

    

Banking Awareness: Important Topic Base Rate System and Basel Norms for Coming IBPS Tests and Interviews

Major Efforts of International Banking

Base Rate System

• Base Rate System introduced in banking sector by the RBI with effect 1st July, 2010. 
• Base Rate System will replace Benchmark Prime Lending Rate (BPLR) introduced in 2013.
• Base Rate System introduced on the recommendation of Deepak Mohanty Committee aims at enhancing transparency in lending rate of banks and enabling better transmission of monetary policy.

Basel Norms:

Basel norms are set by Bank of International Settlement (BIS) in Basel, Switzerland. 55 countries Central Bank's are members to the BIS.

Basel II Norms:

It is guide to capital adequacy standards for lenders. The aim of Basel II is to better align the minimum capital required by Regulators with risk.

Basel III Norms:

• It will become operational from 1st January, 2013 in a phased manner.
• Banks to increase their core tier-one capital ratio to 4.5%.
• Provision for a counter-cyclical capital conservation buffer of 2.5% by 2019.
• The total CRAR required Basel III is proposed at 10.5%.

Rules for Basel III :

Reserve Bank of India released its guidelines on Basel III capital regulation on 2nd May, 2012.

Guidelines for Basel III :

• Indian bank have to maintain. Tier-I capital or core capital at least 7% of their risk weighted assets or ongoing basis.
• The total capital ratio including tier-I and tier-II must be at least 9%.
• For tousle year ending 31st March, 2013 bank will have to disclose capital ratio computed under existing guidelines.

Banking Awareness: All about State Bank of India and its Associate Banks for Coming Bank Tests and Interviews

State Bank of India and its Associate Banks

On the recommendation of All India Rural Credit Survey Committee, Imperial Bank was nationalised to become State Bank of India on 1st July, 1955. Its 92% capital is owned by the Reserve Bank and 8% by the old shareholders of Imperial Bank and others. This bank is thus, not totally a Government Bank, but it is almost fully under the control of the government. On 1st January, 1997 on the direction of government of India and Reserve Bank.

     Kashinath Seth Bank Ltd has been amalgamated with the State Bank in 2008 the government took over the stake held by the Reserve Bank of India. State Bank of India (SBI) was previously called Imperial Bank of India in 1921 which was created by amalgamation of 3 Presidency Banks viz, Bank of Bengal, Bank of Bombay and Bank of Madras. It was nationalised in 1955. SBI is ranked 292 in the fortune 500 companies.

State Bank of India Associate Banks:

• State Bank of Hyderabad
• State Bank of Mysore
• State Bank of Patiala
• State Bank of Bikaner and Jaipur
• State Bank of Travencore

Share Holding in State Bank of India:

Government of India held around 62% equity shares in SBI. Over 800000 individual shareholders hold approx 5.7% of its shares. Life Insurance Corporation of India is the largest non-promoter shareholder in the company with 10.9% shareholding.

Share Holders in State Bank of India
S.No	Shareholders	Shareholding
1	Promoters Government of India	62.31%
2	Insurance Companies	11.90%
3	Foreign Institutional Investors	09.79%

Functions of State Bank of India:

The function of State Bank of India can be grouped under two categories, viz., the Central Banking functions and ordinary banking functions. Central Banking Functions The SBI acts as agent of Reserve Bank of India at the places where the Reserve Bank has no branch.

General Banking Functions:

Based the specialised functions, the SBI renders the following functions under Section 33 of the Act

• Accepting deposits from the public under current, savings, fixed and recurring deposit accounts.
• Advancing, lending money and opening cash credits on the security of stocks.
• Investing funds on special type of securities.
• Discounting, Buying, accepting, drawing and selling of bills and other negotiable articles.

General Awareness: Inflation and Classification of Inflation for Civils, UPSC, SSC Exams

Inflation and Classification of Inflation

It is defined as a continuous increase in the general level of prices for goods and services. It is measured as an yearly percentage increase. Inflation is the percentage change in the value of the Wholesale Price Index (WPI) on a year basis.

Classification of Inflation:

Inflation is classified on the basis of increase in price. In some countries, inflation occurs even in the state of peace while in some countries, inflation occur during the time of war.


i ) Creeping Inflation:

This inflation is a slow inflation. In this type of inflation, price increases about at the rate of 2% per year, so, slow increase in price is not taken as bad.


ii ) Moderate Inflation:

This can be differently defined around the world, given the different inflation histories. As an indication only, one could consider an inflation as moderate when it rages from 5% to 25 or 30%. For some countries, the higher part of this range is also called as a  "High Inflation".

iii ) Demand Pull Inflation:

It is asserted to arise when accumulated demand in an economy outpaces cumulative supply. It involves inflation rising as real gross domestic product rises and unemployment also falls.

Main causes of demand pull inflation are:

• Quick increase in consumption and investment.
• Sudden increase in exports.
• A lot of government spending.
• Excessive monetary growth.

iv ) Galloping Inflation:

When inflation rise to 10% or more, it wreaks absolute havoc on the economy. Money  value loses very  fast that business and employee income does not  keep up with costs and prices. Foreign investors also avoid the country. The economy becomes unstable and government will lose credibility.Galloping inflation must be prevented.

v )Suppressed Inflation:

Existing inflation by government price controls or other interferences in the economy such as subsidies. Such suppression, can only be temporary because no government  measure can completely contain accelerating inflation in the long-run. Also called repressed inflation.

vi ) Hyper Inflation:

Hyper inflation is when the prices skyrocket more than 50% a month. It is fortunately very rare. In fact, most examples of hyper inflation have occurred when the government printed money recklessly to pay for war. 

Banking Awareness: Money and Characteristics of Money for Bank Tests and Interviews

Money and Characteristics of Money

It is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given socio-economic context of country. Any kind of object or secure variable record that fulfils these functions can be considered as money.

Credit Money:

Any future monetary claim against an individual or nor that can be used to buy goods and services.

Legal Money:

It is a type of payment that can lawfully be used to meet financial obligations. Money, as legal tender, is a commodity or asset or an officially issued currency or coin that can be legally exchange for something of equal value such as a good or service,or that can be used in payment of a debt.

Adjacent Money:

It is not exact money, but near to money. Because it's nature of liquidity is more in comparison to others like bond, government debenture and more.

Different Types of Money:

Now, we will discuss the different types of money. Broadly speaking, there exist three main types of money in a modern economy days  they are Metallic Money, Paper Money and Credit Money. Economists, however, further classify money into many.

The important types of money are explained below

1) Metallic Money:

Money made-up of any metal is called metallic money. It refers to coins that are made-up of various metals like Gold, Silver, Nickel, Copper etc. The right of minting coins, is the monopoly of the state.

Metallic Money is further classified into two types. They are:

i ) Standard Money:

Standard Money or full bodied money is that money whose face value is equal to the intrinsic value. Standard Money/ Coins are generally made up of Gold ans Silver.

ii ) Token Money:

Token Money is that money whose face value is greater that its intrinsic value. Token money / coins are generally made up of cheaper metals like copper, nickel etc.

2) Paper Money:

Money made-up of paper is called Paper Money. Paper Money consists of currency notes issued by the government or the Central Bank of a country.

Paper Money is further classified into four types they are:

• i ) Representative Paper Money: The Paper Money which is fully backed by gold and silver reserves is called representative paper money.

• ii ) Convertible Paper Money: It is that paper money which is convertible into standard coins.

• iii ) Inconvertible Paper Money: It is that paper money which is not convertible into standard coins or valuable metals

• iv ) Fiat Money: Paper money which circulates on the authority of the government is fiat money. Fiat money is created and issued by the state. It is only a variety of inconvertible paper money.

3) Acceptable Money:

On the basis of general acceptability, money can be categorised into legal tender money and non-legal tender money.

i ) Legal Tender Money: It refers to that money which the state and the people accept as the means of payment in discharge of debts. It is classified in to two sub parts they are:
                    

                    a) Limited Legal Tender Money  and   b)Unlimited Legal Tender Money

ii ) Non-Legal Tender Money: It is also known as optional money. It refers to that money which may or may not be accepted as a means of payment. Optional money has no legal sanction.

Banking Awareness: Money Market and Functions of Money Market for UPSC, SSC and Bank Tests

Money Market

The cluster of financial institutions that deal in short-term securities and loans, gold and foreign exchange are termed as money market. Money has a time value and therefore, the use of it, is bought and sold against payment f interest. Short-term money is bought and sold in the money market is bought and sold in the money market and long-term money in the capital market.

Functions of Money Market

• It provides an equilibrating mechanism for demand and supply of short-term funds. 
• It enables borrowers and lenders of short-term funds to fulfil their borrowing and investment requirements at an efficient market clearing price.
• It provides an avenue for Central Bank intervention in influencing both quantum and cost of liquidity in the financial system, thereby transmitting Monetary Policy impulses to the real economy.

Efficient functioning of the money market is important for the effectiveness of Monetary Policy. The Reserve Bank carries out regulation and development of money Market instruments such as call /notice /term money market, repo market, certificate of deposit commercial paper and Collateralised Borrowing and Lending Obligations (CBLO). The Call /notice /term money market operations are transacted/report on the Negotiated Dealing System Call (NDS Call) platform.

Types of Money Market:

In Indian money market, Reserve Bank of India plays the central role, as it regulates and controls the money market.

1 ) Organised Sector:

It comprises of all the public sector banks and foreign exchange banks except Reserve Bank of India.

2 ) Un-organised Sector:

It comprises of domestic bankers money lenders. They don't have been given any financial validity or certification by any financial institution. They are commonly found in underdeveloped areas.

Banking Awareness: Functioning of RBI and The Rates Determined by RBI for Banking and Competitive Exams

Functioning of RBI and The Rates Determined by RBI

Working of bank is mentioned in the 1934 Reserve Bank of India Act. Working of Reserve Bank of India can be categorised in the following group.

Important Functions of the Reserve Bank of India
As a Central Bank	As an Ordinary Bank
Note Issuing Authority	Granting short-term loans
Banker of Government	Recovery short-term loans
Banker’s Bank	Buying/Selling of bills
Collects and Publishes Banking Data	Accepting deposits
Custodian of Foreign Exchange Reserve	Buying selling of agricultural bills
Provision of Agricultural Credit	Dealing with foreign securities
Provision of Industrial Credit	Dealing with costly metals
Training Facilities	Dealing with banks of other countries
Controller of Credit
Clearing House Function

Important Rates Determined by RBI

i ) Bank Rate: It is also called the re discount rate. It is the rate at which the RBI allows finance to commercial banks. Currently it is at 9%

ii ) Repo Rate: It was introduced in December, 1992 by RBI. It is the rate at which RBI lends short-term money to the banks against securities. It is currently at 8%.

iii ) Reserve Repo Rate: It was introduced in November, 1996. It is the rate at which banks park short-term excess liquidity with on RBI. It is currently at 7%.

iv ) Cash Reserve Ratio: It is the amount of funds that banks have to keep with RBI. If RBI increses CRR, the available amount with banks comes down, RBI uses it to drain out excessive money from the banks.

v ) Statutory Liquidity Ratio: It is the amount which a commercial banks is required to maintain in the form of cash or gold or government approved securities before providing credit to its customers. SLR is used to control inflation and promote growth.

vi ) Marginal Standing Facility: It is the rate at which scheduled banks could borrow funds overnight from RBI. In MSF, banks can use the securities under "SLR" to get loans from RBI. MSF rate is 1% higher than repo rate.

Banking Awareness: Departments in RBI and Hierarchy of Central Board of Members for Banking Exams and Interviews

Departments of RBI

i) Department of Currency Management:

It has the responsibility of administering the functions of currency management, a core function of the Reserve Bank in terms of the Reserve Bank of India Act, 1934.

ii ) Department of Banking Operations and Development:

It is entrusted with the responsibility of regulation of Commercial Banks under the regulatory provisions contained in the BR Act, 1949 and RBI Act, 1934 beside enunciation of banking policies.

iii ) Rural Planning and Credit Department:

It formulates policies relating to rural credit and monitors timely and adequate flow of credit to the rural population for agricultural activities and rural employment programmes.

iv ) Foreign Exchange Department:

With the introduction of the Foreign Exchange Management Act, 1999 (FEMA) with effect from 1st June, 2000, the objective of the Foreign Exchange Department has shifted from conservation of foreign exchange to facilitating external trade and payment and promoting the orderly development and maintenance of foreign exchange market in India.

v ) Inspection Department:

This Department would act as the eyes and ears of the top management and discharge its duties with utmost professionalism as the principal provider of independent and objective feedback on the working of the bank to the top management to enable it to ensure that the organisation functions efficiently and effectively.

Hierarchy of Central Board of Members:

Banking Awareness: Functions of Reserve Bank of India for Banking Interviews and other Competitive Exams

Functions of Reserve Bank of India

Quantitative Credit Control by Reserve Bank of India:

To control the flow of quantum of credit, Reserve Bank adopts all those measures that are generally adopted by the Central Banks in different countries.

Bank Rate:

Rate of interest that the Reserve Bank charges from other scheduled banks on the loans given to them is called bank rate. Policy of bank rate has not been used as a weapon to check price rise.

Differential Rates of Interest:

In October 1960 the Reserve Bank started differential rates of interest programme. According to this programme, if any bank borrows from the Reserve Bank beyond the quota fixed for it, it has to pay higher interest rate than the prevailing bank rate.

Open Market Operation:

It means that the bank controls the flow of credit through the sale and purchase of government securities in the open market.

Cash Reserve Ratio(CRR):

It is amount of funds that the banks have to keep with RBI. If RBI decides to increase this rate the available amount with the banks comes down. RBI uses this method (increase of CRR rate), to drain out the excessive money from the banks.

Statutory Liquidity Ratio (SLR):

It is the ratio of liquid asset, which all Commercial Banks have to keep in the form of cash, gold and unencumbered approved securities equal to not more than 40% of their total demand and time deposits liabilities.

Direct Action:

According to the 1949 Act, Reserve Bank can stop any Commercial Bank from any type of transaction. In case of defiance of the orders of Reserve Bank, it can resort to direct action against the member bank. It can stop giving loans and even recommend the closure of the member bank under pressing circumstances.

Credit Authorisation Scheme:

In 1965, Credit Authorisation Scheme was adopted. It aims at regularising of the credit given by the banks. Before sanctioning a credit limit of Rs. 2 crore or more to any one debtor, every bank will have to get authorisation from the Reserve Bank. Even after the authorisation the creditor bank can inspect the account books of the debtor to ascertain the use of the credit.

Liquidity Adjustment Facility (LAF):

It is the primary instrument of Reserve Bank of India for modulating liquidity and transmitting interest rate signals to the market. Liquidity Adjustment Facility was introduced for the first time for June, 2000 onwards. Subsequent revisions were made in 2001 and 2004.

Click Here for Current Policy Rates(CRR, SLR, REPO) of the Reserve Bank of India

Banking Awareness Topic: Organisation and Management of RBI for Banking Interviews and other Competitive Exams

Organisation and Management of RBI

Reserve Bank of India is managed by the Central Board of Directors. Presently, this board consists of 21 members. Besides Governor and four Deputy Governors, four directors are nominated, each by the four Local Boards. Besides, ten directors and two government officer are  nominated by the Government of India. These boards have been established, in Mumbai, Kolkata, Chennai and New Delhi respectively.

According to the Reserve Bank of India Act, the term of nominated members is for 4 years. Governor and Deputy Governors are appointed by the government for a period of 5 years. Central Board of Directors must hold at least one meeting in 3 months. Bank's Head Office is located in Mumbai. The bank has 28 regional offices, most of which are in state capital.

Structure of RBI Organisation:

RBI is wholly owned by the government in India. Central Board of directors oversees the Reserve Bank's Business.

Central Board:

The Central Board has primary authority for the oversight of the Reserve Bank. It delegates specific functions through its committees and sub-committees. It includes the Governor, Deputy Governors and a few Directors of relevant local boards. Currently Dr. Raghuram Rajan is the Governor.

Committee of Central Board Overseas:

The current business of the Central Bank and typically meets every week, on Wednesdays. The agenda focusses on current operations, including approval of the weekly statement of accounts related to the issue and banking departments.

Board of Financial Supervision:

It regulates and supervises Commercial Banks, Non-Banking Finance Companies (NBFCs), development finance institutions, urban Co-operative Banks and primary dealers.

Board for Payment and Settlement Systems:

Regulates and supervises the payment and settlement systems.

Sub-Committees of Central Board:

It includes those on inspection and audit, staff and building. Focus of each sub-committee is on specific areas of operations.

Local Boards:

In Chennai, Kolkata, Mumbai and New Delhi, representing the country's four regions. Local board members appointed by the Central Government for 4 year terms, represent regional and economic interests and the interests of Co-operative and Indigenous Banks.

Training Centres:

The Reserve Bank Staff College at Chennai addresses the training needs of RBI Officers, the College of agricultural banking at Pune trains staff of Co-operative and Commercial Banks, including Regional Rural Banks. The zonal training centres, located at regional offices, train non-executive staff.

Research Institutes:

RBI- funded institutions to advance training and research on banking issues, economic growth and banking technology, such as, National Institution of Bank Management (NIBM) at Pune, Indira Gandhi Institute of Development Research (IGIDR) at Mumbai and Institute for Development and Research in Banking Technology (IDRBT) at Hyderabad.

Subsidiaries:

Fully-owned subsidiaries include National Housing Bank (NHB), Deposit Insurance and Credit Guarantee Corporation (DICGC), Bharatiya Reseve Bank Note Mudran Private Limited (BRBNMPL). The Reserve Bank also has a majority stake in the National Bank of Agriculture and Rural Development (NABARD).