Reverse Repo(Repurchase) Rate

Rate at which RBI borrows money from commercial banks. When Banks have collected More Money from Public but Demand for Loans is Less then Banks mostly park their Money with RBI and Receives Interest(Reverse Repo Rate). Reverse Repo Rate is Dependent on Repo Rates as Reverse Repo Rate is set to Repo Rate -1%. RBI gives Government Securities as Collateral to Banks. Current rate is 6.75%

Officially Repo and Reverse Repo Rates Percentages are in Basis Points. So 1% means 100 Basis Points.

Marginal Standing Funding

By this mechanism commercial banks can get loans from RBI for their emergency needs. Under the Marginal Standing Facility (MSF), currently banks avail funds from the RBI on overnight basis against their excess SLR holdings.

Additionally, they can also avail funds on overnight basis below the stipulated SLR up to two per cent of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of second preceding fortnight.

With a view to enabling banks to meet the liquidity requirements of mutual funds under the RBI’s Special Repo Window announced on July 17, 2013, it has been decided to raise the borrowing limit below the stipulated SLR requirement under the MSF from 2 per cent of NDTL to 2.5 per cent of NDTL. This Facility is only

Available to Scheduled Commercial Banks. Under This Facility Banks can use securities from SLR quota. MSF Rate = Repo Rate +1%. Current is 8.75% 

Statutory Liquidity Ratio

Every financial institution has to maintain a certain quantity of liquid assets with themselves at any point of time of their total time and demand liabilities. These assets can be cash, precious metals, RBI approved securities like bonds, Shares etc. The ratio of the liquid assets to time and demand liabilities is termed as the Statutory liquidity ratio.

Some profits are earned through SLR by banks depending upon the asset. It is defined under Sec 24 of Banking Regulation Act 1949. It is maintained on daily basis by Banks.

Penalty for Not Maintaining SLR can be 3% above Bank Rate.

Its Minimum and Maximum value(can be 40%) is the discretion of RBI. It is maintained on Daily Basis. At Present The SLR is 22%. By Increasing SLR the Money Supply can be Reduced in Market thereby Controlling Inflation(Dear Money Policy) and by Decreasing it Money Supply can be Increased thereby promoting

Growth(Cheap Money Policy)

Repo(Repurchase) rate

It is the rate at which RBI lends money to commercial banks against securities in case commercial banks fall short of funds for Short Term. But Remember The banks cannot get money by mortgaging SLR quota securities to get money from RBI. It has

to have securities above the SLR quota to Buy Money. This rate is also known as “Policy Rate”under LAF(Liquidity Adjustment Facility).

Monetary Policy

Monetary Policy is a Policy made by the central bank(RBI) to control money supply in the economy and thereby fight both inflation and deflation. It helps maintain price stability and achieve high economic growth. To Combat Inflation RBI reduces Money

Supply (Tight/Dear Money Policy). To Combat Deflation RBI increases Money Supply (Easy/Cheap Money Policy).

RBI implements monetary policy using certain tools. These are Quantitative Tools and Qualitative Tools. Quantitative Tools are Reserve Ratios(CRR,SLR) , OMO(Open Market Operations) and Rates(Repo , Reverse Repo , Bank Rate , MSF).

Cash Reserve Ratio

Cash Reserve Ratio is a certain percentage of bank deposits (Net Time and Demand Liabilities) which banks are required to keep with RBI in the form  of reserves or balances .

Higher the CRR with the RBI lower will be the liquidity in the system and viceversa.

Other Grounds

A customer can also file a complaint on the following grounds of deficiency in service with respect to loans and advances:

1. The Banking Ombudsman may also deal with such other matter as may be specified by the Reserve Bank from time to time.

2. Without any valid reason non - acceptance of application of loans.

3. Any violation of the provisions of the fair practices code for lenders as adopted by the bank or Code of Bank's Commitment to Customers, as the case may be.

4. Any type of violation of the instruction, guidelines, recommendations of the RBI

5. If any non - observance of Reserve Bank Directives on interest rates;

6. Any delays in sanction of loan applications

GROUNDS OF COMPLAINTS

ONE CAN FILE A COMPLAINT ON THE FOLLOWING GROUNDS OF COMPLAINTS:

1. Any excessive delay or non - payment of collection of cheques, drafts, bills etc.

2. Without any sufficient cause non acceptance of small denomination notes.

3. Charging any commission for acceptance of small denominations notes

4. Any delay in payment of inward remittances or non payment of inward remittances.

5. If any banking organization refuses to accept taxes or any delaying in accepting taxes (as required by RBI or Government of India).

6. Any delay in issuing government securities

7. Refusal to issue or redemption of government securities.

8. Without any sufficient reason, forced close the deposit accounts by bankers.

9. If any banker refuse to close the accounts

10. If any banker deliberately delaying in closing the accounts.

11. Non compliance of the provisions of Banking Codes and Standard Board of India.

12. If any banker commits non - observance of Reserve Bank of India's guidelines or instructions or any violation of the directives issued by the Reserve Bank in relation to banking or other services.

13. Without any sufficient cause, non acceptance of coins tendered or charging of commission in respect thereof.

SUPERVISORY FUNCTIONS

1. Granting Licence to Banks

RBI grants licence to banks for carrying its business. RBI also provide licence for opening extension counters, new branches even to close down existing branches.

2. Bank Inspection

RBI has power to ask for periodical information from banks on various components of assets and liabilities.

3. Control Over NBFIs

The non - bank financial institutions are not influenced by the working of a monitory policy. RBI has a right to issue directives to the NBFIs from time to time regarding their functioning. Through periodic inspection, it can control the NBFIs.

4. Implementation of Deposit Insurance Scheme

The RBI has set up the Deposit Insurance Guarantee Corporation in order to protect the deposit of small depositors. All bank deposits below Rs. 1 Lakh are insured with this corporation. The RBI work to implement the Deposit Insurance Scheme in case of a bank failure.

DEVELOPMENTAL FUNCTIONS OF RBI

1. Development of the Financial System

The financial systems includes - financial institutions, financial markets and financial instruments. The sound and efficient financial system is necessary for rapid economic development of the nation. RBI encourages the banking and non - banking institution for maintenance of sound and healthy financial system.

2. Development of Agriculture

As we know, India is an agrarian economy so RBI always give attention to agriculture sector by assessing credit needs of this sector. Regional Rural Banks (RRB), National Bank for Agriculture and Rural Development (NABARD) which are only for

agriculture finance comes under the control of the RBI.

3. Industrial Finance

For economic development of country, Industrial development is necessary. As we know industries includes small industries, middle industries, large scale industries etc all these industries development is necessary for overall economic development of

country. For this purpose RBI supports the industrial sector also. RBI had played the vital role for setting up of such industrial finance institutions like ICICI Limited, IDBI, SIDBI, EXIM etc.

4. Training Provision

RBI always tried to provide essential training to the staff of the banking industry. RBI has set up banker's training college at several places. The training institute namely National Institute of Bank Management (NIBM), Bankers Staff College (BSC), College of Agriculture Banking (CAB) etc.

5. Data Collection

RBI always collects important statistical data on several topics such as interest rates, inflation, savings, investment, deflation etc. This data is very much useful for policy makers and researchers.

Traditional Functions of RBI

1. Issue of Currency Notes

As per the provisions of the Section 22 of the Reserve Bank of India Act 1934 the RBI has sole right or authority to issue currency notes except one rupee note and coins of smaller denomination. RBI can exchange these currency notes for other denominations. RBI issues these currency notes ( 2, 5, 10, 20, 50, 100, 500, 1000)

against the security of gold bullion, foreign securities, rupee coins, exchange bills, promissory notes and government of India bonds etc.

2. Banker to other Banks

RBI also guide, help and direct other commercial banks in the country.RBI can control the volume of bank reserves. Every commercial bank has to maintain a part of their reserves with Its parent (RBI). If bank need fund they approach to RBI for fund,

that is calledLender of the Last Resort.

3. Banter to The Government

RBI works as an agent of the central and stat e governments. On the behalf of government it makes payments, taxes and deposits etc. It also represent the government at international level also. It maintains government accounts and provide financial advice to the government. It also manages government public debts and maintains foreign exchange reserves on behalf of the government. RBI also provides overdraft facility to the government in case of financial shortage.

4. Exchange Rate Management

For maintenance of the external value of rupee, RBI prepares domestic policies. Also it need to prepare and implement the foreign exchange rate policy which will help in attaining the exchange rate stability. For maintenance of exchange rate stability it has to bring demand and supply of foreign currency (U.S.) dollar close to each other.

What CBS offers to a customer?

It offers invariably all information that a bank's customer would need if he/she visits a bank branch in person.

These are as herein follows:-

1. To make enquiries about the balance or debit or credit entries in the account.

2. To obtain cash payment out of his account by tendering a cheque.

3. To deposit a cheque for credit into his account.

4. To deposit cash into the account.

5. To deposit cheques / cash into account of some other person who has account in a CBS branch.

6. To get statement of account.

7. To transfer funds from his account to some other account – his own or of third party, provided both accounts are in CBS branches.

8. To obtain Demand Drafts or Banker’s Cheques from any branch on CBS – amount shall be online debited to his account.

9. Customers can continue to use ATMs and other Delivery Channels, which are also interfaced with CBS platform.

Top CBS Application Software Providers

1-Infosys Technologies Ltd. Finnacle is the universal banking solution from Infosys.

2-I-flex solutions Ltd. since late 2005 it is owned by Oracle

3-TCS FNS (Financial Network Services Limited) is an Australian developer and

supplier of banking application software, operating in world markets. Now owned and

managed by TCS.

Thus, CBS is a step towards enhancing customer convenience through anywhere and anytime banking.

RECENT BANKING AND FINANCIAL DEVELOPMENTS IN INDIA

 K.V. Kamath noted banker of India was on 11 May 2015 appointed as the first President of the $100-billion New Development Bank (NDB) of the BRICS countries, to be based in China’s financial hub Shanghai.

 Lok Sabha on 13 May 2015 passed The Negotiable Instruments

(Amendment) Bill, 2015 by a voice vote. The Bills amends the Negotiable Instruments Act, 1881 in order to make cheque-bounce filing of cases more convenient for check payees (person who receives the cheque).

 According to the data released by the Reserve Bank of India (RBI), the number of outstanding credit cards at the end of December was 20.29 million.

 Mangaluru-headquartered Corporation Bank recently dropped plans to take over the assets and liabilities of a Maharashtra-based cooperative bank namedRupee co-operative bank license was cancelled by the RBI in 2013.

 Private-sector Federal Bank on 18 May 2015 ventured into credit card segment with the launch of a co-branded credit card with SBI.

 The new Gold Monetisation Scheme (GMS) was announced in the Union Budget 2015-16 with the aim of replacing both the present Gold Deposit and Gold Metal Loan Schemes. The new scheme will allow the depositors of gold to earn interest in their metal accounts and the jewellers to obtain loans in their metal account. 

 The Union Finance Ministry announced that it was able to contain the fiscal deficit for 2014-15 at 4% of GDP against 4.1% set to be achieved in the Union Budget.

 The revenue deficit was estimated at 2.8% of the as against the revised estimate of 2.9% of GDP, marking a sharp improvement over 3.2% for 2013- 14.

 The Companies (Amendment) Bill, 2014 was passed by the Rajya Sabha on 13 May. The amendments to the Companies Act, 2013, which came into effect from 1 April 2015, are designed to address some issues raised by stakeholders.

 India’s largest banking entity State Bank of India (SBI) has launched Online Customer Acquisition Solution (OCAS), an online platform to apply for loans.

 India’s largest private sector lender Industrial Credit and Investment Corporation of India (ICICI) Bank has launched voice password facility for users.

 India’s largest public sector lender, State Bank of India (SBI) has signed memorandum of understanding (MoU) with e-commerce giant Amazon. The MoU seeks to identify and tap the potential areas of collaboration for payments and commerce solutions between both signatory parties.

Repo Rate

Repo Rate (Repurchased Option): When RBI provides loan to the bank for 1 to 90 days, RBI takes some interest i.e. called Repo Rate.

Reverse Repo Rate: When bank deposit his excess money in RBI then RBI provides some interest to that bank. This interest is known as Reverse Repo Rate.

Right issue share: Issues on discount, but only for existing share holder.

Share Market

 Long term market or above 1 year market

 Governing body of share market is SEBI (securities and exchange Board of India)

 SEBI was established in 1988 with its head office at Mumbai. Its chairman is Sh. U. K. Sinha.

SLR –(Statutory Liquidity Ratio) : Bank have to maintain some part of their deposits in itself in the form of cash/foreign exchange, mutual fund.

But in India Government security is the popular form of SLR.

 SLR maximum can be 40%

 No minimum limit of SLR

Sweat equity Share: Issued on discount, but only for employees.

T-Bill : Treasury Bill. T-Bill is issued by RBI on behalf of Govt.

Convertible Debenture

Such type of debenture can be converted into shares, but only in equity shares.

Debenture: Debenture holder is the creditor of company, when company borrows money from public.

Equity Shares

 Equity share holder is the real owner of the company.

 Equity share holder has voting rights.

Future Market

 Commodity market

 In this market dealing is for future.

 Commodities & metals are traded in this market

 This market is regulated by Forward Market Commission under the Forward Contract Regulation Act (FCRA).

Gilt Edge market

 This is the government security market where government securities are traded.

 This is low profit market but low risk market.

 This market is not open for public but on the recommendation of government or RBI opened for public for some time.

For example:

Before some time, the RBI issued the Inflation Index Board (IIB) in this market. This bond had a maturity period of 3 years.

IPO (Initial Public Offer)

 When a company issues its share for the first time, it is known as IPO.

 This is a part of primary market.

 IPO can be the cheapest share of the company.

 IPO can be more beneficial than any other shares.

 IPO can be issued by unlisted company.

FPO (Follow on Public Offer)

When a company launch the share after IPO, it is known as FPO.

MSF – (Marginal Standing Facility) : The facility in which RBI provide loan to the bank only for one day

 MSF interest Rate is always equal to Bank Rate

 By using MSF facility bank can borrow:

 Maximum 2% of their total deposit in RBI and 1 crore

NFO (New Fund Offer)

 When a group of companies launch the share or when a company launch the share for a different scheme than its original one, it is known as NFO.

 For example, Closed ended funds: these are traded for a specific period of time.

P- Note (Participatory Note):

 P-note is issued by FII (Foreign Institutional Investor) on the recommendation of SEBI in India.

 Without P- Notes, any foreign cannot investor cannot invest.

IMPORTANT BANKING TERMS

Amortization – Adjusting expenses for intangible assets over a long span of time is

amortization.

Balloon Payment - as a balloon looks very little before filling air and seems bigger after filling with air. same way the payment will be very little at initial stage and later it will big enough.

Bank Rate - When RBI provides loan to the bank for long term (90 to 365 days).On that amount of loan RBI takes some interest i.e. called Bank Rate.

According to modern banking definition of BR (Bank Rate): Bank Rate is used by RBI to provide discount on his securities. So, Bank Rate is known as Discount or Exchange Rate.

Base Rate - This is the minimum lending rate, below this rate bank cannot provide loan to anyone.

Call Money - When one bank borrow money from another bank.

a. Valid for only one day

b. It is used to full fill the one day need of bank

CAMEL : CAMEL is the international model of rating the banks

 C – Capital Adequacy

 A – Assets

 M – Management

 E – Earning Profit

 L – Liquidity

MICRO, SMALL & MEDIUM ENTERPRISES

DEFINITION OF MICRO, SMALL & MEDIUM ENTERPRISES

In accordance with the provision of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two Classes:

1 Manufacturing Enterprises

The enterprises engaged in the manufacture or production of goods pertaining to any industry or employing plant and machinery in the process of value addition to the final product having a distinct name or character or use. The Manufacturing Enterprise are defined in terms of investment in Plant & Machinery

2. Service Enterprises

The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment

What is Sensex ?

This is a frequently asked questions in Bank interviews. Everybody know that these are stock indexes. But interviewers expect you to speak little more about this.

What is Sensex and Nifty ?

Sensex is is an index of top 30 stocks in Bombay stock exchange (BSE) and Nifty is an index of top 50 stocks in National stock exchange (NSE) 

How value of Sensex is calculated

Value of Sensex is calculated using "Free Float Market Capitalization" method.

TYPES OF BANK ACCOUNTS

Current Account :

Current account are opened for business transactions , on the name of firm or company .Banks offered no rate of interest on money held in current account but provide extra features as compared to current account like there is not limit on deposit or withdrawal in current account but no passbook is issued for current account holder. Minimum deposit needed to open current account is Rs5000 or depends on respective bank. Many facilities are provided to current account holder like overdraft facility, statement of account.

Recurring Deposit Account or R.D.

In recurring deposit account is a saving feature that bank offers to their customers, who can save only small amount of money per month. In recurring deposit account a person deposit a fixed sum of money for fixed period like a person deposit Rs 500 per month for one year bank pays interest on the deposit money every month after the completion of fixed period bank pay the deposit money along with interest to his customer.

Recurring deposit account are generally meant for salary earning people who can save a fixed sum of money every month.

Fixed Deposit Account or Term Deposit Account

In fixed deposit account , a person deposit a fixed sum of money one time only for the fixed period bank pays the rate of interest on the fixed deposit account depends on tenure of deposit account , after the completion of period bank pay the amount along with rate of interest incurred on the amount .banks also charge penalty is premature withdrawal is done if person need money before the completion of fixed period .

Forex Reserves

 The term ‘forex reserves’ is used to denote the foreign currency reserve of a central banks or governments of countries.

 So what goes into forex reserves? – Well, you could have foreign currency notes, deposits from foreign countries, foreign treasury bills other government securities etc.

 So basically forex reserves in a countries ‘reserve’ of money held in foreign currency or currency equivalent.

 Where does all the foreign currency come from? – from Exports, Foreign Loans, Grants, foreign investments in India – when tourists come to India!

 And the reserves are used to pay for imports, repay international loans and dues, or give international grants – when you go abroad!

 A country and its central bank has many international monetary obligations – forex reserves are used for that – when this reserve runs low the IMF or World Bank comes to rescue.

 Also a country’s strong forex position can impact its exchange rate and international trade relations!

 For India – most of the forex is used to pay for oil imports as you all probably know – so having a strong forex reserve is extremely important.

 Forex reserves are managed by the RBI in India.

Big Mac Index

The Economist, one of the leading economics magazine introduced Big Mac Index to compare purchasing power of various currencies around the world by comparing price of a standard Big Mac.

McDonald's is an international fast food chain and it has 35,000 restaurateurs 119 countries around the world.

Indian version of Big Mac is Maharaja Mac

So value of US$ is near about Rs 20 in terms of real purchasing power.

Many of the engineers and migrants from Punjab flaunts about their salaries in US and UK. Many of my friends are getting $3000 to $4000 a month. By converting US$ 4000 into INR 4000*60 (Approx) = Rs 2,40,000, this looks good money. But to know

how much you can actually buy, simply divide it by 3, so it Rs80,000.

So a person making $4000 in USA has an equal standard of living as a person earning Rs 80,000 in India.

Forex Trading

 Forex Trading takes place in ‘Forex Market’.

 Forex market operates for 24 hours a day and 5 days a week! Why 24 hours?

Simply because of the time differences in different parts of the world!

 Forex market is also known as currency market, as currencies from all over the world are traded; it is the largest market in the world only because of the sheer volume of transactions!

 Forex market is not a physical market – it is a term used to denote the worldwide ‘market’ where currencies from all over the world are traded – it is not limited by geographical constraints.

 Any person from any country can trade in the forex market; participants can be international banks, companies and individuals engaging in hedging or speculative transactions.

 Forex markets operate on ‘Over the Counter’ (OTC) form – just like a medical store – over the counter – ask for the currency which you want and pay according to the existing rate of the currency.

 Then when you want to sell them – take ‘em back and sell ‘em over the counter!

TYPES OF ATM’S

White Label ATM

White Label ATMs are those ATMs which set up, owned and operated by non-bank entities, which have been incorporated under Companies Act 1956, and after obtaining RBI’s approval.

Brown Label ATMs

These ATMs are owned and maintained by service provider whereas bank whose brand is used on ATM takes care of cash management and network connectivity.

Online ATM

Online ATMs: These ATMs are connected to the bank’s database at all times and provide real time transactions online. The withdrawal limits and account balances are constantly monitored by the bank. Online ATMs are always watching out for you!

Offline ATM

Offline ATMs: These ATMs are not connected to bank’s database- hence they have a predefined withdrawal limit fixed and you can withdraw that amount irrespective of the balance in your account.

So if you did not have balance in your account, and you went to a ‘offline ATM’ and withdrew money more than the balance – you’ll still get the cash at that time, and later on will run afoul with your bank balance! Where banks may charge some penalty for exceeding your balance!

Stand Alone ATM

Stand Alone ATMs are not connected with any ATM network- hence their transactions are restricted to the ATM’s branch and link branches only.

The opposite of Stand alone ATMs are Networked ATMs, which are connected on the ATM Network.

VARIOUS PAYMENTS SYSTEMS IN BANKS IN INDIA

1. RTGS: Real Time Gross Settlement

 It is a centralized payment system through which inter bank payment instructions are processed and settled, on GROSS basis, in REAL TIME.

 Which simply means, that the transactions are settled as they happen.

 Minimum amount is Rs. 2 lacs and there is no limit to maximum amount.

 A ‘service charge’ is charged by the banks for outwards transactions (making an RTGS) and nil for inwards transactions (receiving an RTGS).

 RTGS is used by banks to settle their inter-bank account transactions as well as customer’s high value transactions.

 It uses INFINET (Indian Financial Network) platform to operate.

2. NEFT: National Electronic Funds Transfer

 It is a nation-wide funds transfer system which facilitates fund transfer from any bank’s branch to any other bank’s branch.

 The difference between NEFT and RTGS is that NEFT settlements happen in batches, and on net settlement basis. Where as RTGS is real time and gross settlement.

 Net Settlement means, that transaction pertaining to a particular bank branches are kept on hold and accumulated and then processed together in a batch with the ‘net’ amount, which would either be incoming or outgoing transfer.

 There is no limit to minimum/maximum transaction value.

 NEFT cannot be used for foreign remittances.

3. AEPS: AADHAR Enabled Payment System

 It is a payment system which uses Aadhar card number and an individuals online UIDAI authentication, which are linked to a customers Bank account.

 A customer will have to register his/her Aadhar number to their existing bank account, provided their bank is AEPS enabled.

 Through AEPS, customer can withdraw or deposit cash, make balance enquiry, and transfer funds.

 The maximum amount of transaction per account per day is Rs.50,000.

 These transactions are normally conducted by Business Correspondents (BCs) service centres.

Banking Awareness Guide

In Indian scenario – SEBI, the Stock Exchange regulator – recognizes only three stock

exchanges:

 SENSEX = Sensitive index, which is the index given by BSE or Bombay Stock Exchange.

 It was founded in 1875 by Premchand Roychand and is the oldest stock exchange in India – of the three!

 It is Head Quartered at the famous Dalal Street in Mumbai.

 CEO is Ashish Chauhan.

 It uses free float market capitalization method = value of shares which are available for trading = the value taken into the index.

 It consists of 30 major companies listed with the BSE.

Some of them are – SBI, ICICI Bank, Axis Bank, HDFC, Wipro, Infosys,

TCS, ONGC, Airtel, HAL, BHEL, BEL, Coal India, Tata Motor etc.

 Sensex is India’s foremost stock market indicator.