Banking and finance special articles

 BANKING AND FINANCE 

● Bank of Hindustan was the first bank,

established in India in 1770.

● First bank with limited liability

managed by an Indian Board was the

Oudh Commercial Bank in 1881.

● First purely Indian bank was Punjab

National Bank (1894).

Nationalisation of Bank

● A step towards social banking was

taken with the nationalisation of 14

commercial banks on 19th July, 1969.

Six more banks were nationalised on

1980, total number of public sector

banks are 27.

● Later on, in the year 1993, the

government merged New Bank of India

with Punjab National Bank.

● Bhartiya Mahila Bank, India’s first

bank exclusively for women,

headquarters in New Delhi was

Inaugurated on 19th November, 2013.

It has been merged with SBI in 2017.

● IDBI Bank is an Indian financial

service company, formerly known as

Industries Development Bank of India,

head quartered in Mumbai, India.

● In September, 2004, the RBI incorpo-

rated IDBI as a scheduled bank under

the RBI Act, 1934.

In 2019, Oriental Bank of Commerce

and United Bank got merged with

Punjab National Bank. Syndicate Bank

is merged with Canara Bank while

Union Bank of India, Andhra Bank and

Corporation Bank got merged. Similarly

Indian Bank got merged with Allahabad

Bank.

Reserve Bank of India (RBI)

RBI was established in 1935, under RBI

Act, 1934. RBI is the Central Bank of

India. The main purpose of creating RBI

was to regulate money supply and credit in

the country. RBI was nationalised in 1949

and its first Indian Governor was CD

Deshmukh. Its headquarter is in Mumbai.

Functions of the RBI

● Monetary policy, regulation and

supervision of the banking and

non-banking financial institutions.

● Debt and cash management for Centre

and State Governments.

● Foreign exchange management, current

and capital account management.

● Management of foreign exchange

reserves.

● Currency management; oversight of the

payment and settlement systems.

● Development role.

● Research and statistics.

The RBI and Credit Control

Quantitative Credit Control

It is used to control the volume of credit

and indirectly to control the inflationary

and deflationary pressures. The

quantitative credit control consists of

● Bank Rate It is the rate, at which the

RBI gives finance to Commercial

Banks.

● Cash Reserve Ratio (CRR) Cash that

banks deposits with the RBI without

any floor rate or ceiling rate.

● 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 government

approved securities with itself.

● Repo Rate It is the rate, at which RBI

lends short-term money to the banks

against securities.

● Reverse Repo Rate It is the rate, at

which banks park short-term excess

liquidity with the RBI. This is always 100

base point, 1% less than Repo rate.

Qualitative/Selective/Direct

Credit Control

Qualitative measures are used to make sure

that purpose, for which loan is given is not

misused. It is done through

● credit rationing

● regulating loan to consumption etc.

New Bank Licence

In April 2015, Reserve Bank of India

provided licence for operation to two new

private banks namely Bandhan Financial

Services and Infrastructure Development

Finance Company (IDFC).

MUDRA Bank

Micro Units Development and Refinance

Agency Bank (MUDRA Bank) was launched

on 8th April, 2015. Bank set up under SIDBI

(Small Industries Development Bank of

India). Bank has launched 3 loan

instruments

● Shishu–Cover loans upto ` 50,000

● Kishore–Cover loan above ` 50,000 and

upto ` 5 lakh.

● Tarun–Cover loans above ` 5 lakh and

upto `10 lakh.

Indradhanush Scheme 2015

This is for the banking reforms in India. The

7 key reforms of Indradhanush Mission

includes. appointments de-stressing,

capitalisation, empowerment, framework of

accountability, governance reforms and

bank board bureau.

15th Finance Commission

The 15th Finance Commission was

constituted in accordance with the Article

280 of the Indian Constitution.

The first finance commission was headed by

KC Neogi and the 15th Finance

Commission is headed by NK Singh.

Stock Exchange of India

● Capital market is the market for long-terms

funds while money market is the market for

short-term funds.

● Capital market of India is regulated by SEBI

(Securities and Exchange Board of India,

1988).

● A Stock Exchange provides services for

brokers and traders to trade stocks, bonds,

and other securities.

● The Bombay Stock Exchange (BSE) is a

stock exchange located on Dalal Street,

Mumbai and is the oldest stock exchange in

Asia. The BSE has the largest number of listed

companies in the world established in 1875.

● The National Stock Exchange (NSE) is the

16th largest stock exchange in the world. It

is situated in Mumbai.

Insurance

● Insurance industry includes two sectors,

life Insurance and General Insurance.

● LIC was established on 1st September, 1956.

● Insurance Regulatory and Development

Authority of India (IRDAI) was set-up on

19th April, 2000 to regulate the Insurance

Sector IRDA has changed its name to

Insurance Regulatory and Development

Authority of India in December 2014.

Foreign Trade

Balance of Trade (BoT)

The difference between a nation’s imports of

goods and services and its exports of them is

known as Balance of Trade. There are three

possibilities in the Balance of Trade (BoT)

which are as follows

1. Balance BoT i.e. Exports = Imports

2. Adverse BoT i.e. Exports < Imports

3. Favourable BoT i.e. Exports > Imports

Balance of Payment (BoP)

BoP records the transactions in goods,

services and assets between residents of

a country with the rest of the world for a

specified time period typically a year.

There are two main accounts in the BoP

: the current account and the capital

account. In addition to that BoP

includes errors and omissions and

change in foreign exchange reserves.

Foreign Direct Investment

(FDI)

It is an investment in a foreign country

through the acquisition of a local

company or the establishment of an

operation on a new greenfield site.

Direct investment implies control and

managerial and perhaps technical, input.

CENSUS 2011

Total Population 1210569573

Male 623121843 (51.47%)

Female 587447730 (48.53%)

Density 382 per sq km

Sex Ratio 943

Child Sex Ratio 914

Population Trend in India

1891-1921 Stagnant population

1921-1951 Steady growth

1951-1981 Rapid high growth (stage of

population explosion)

1981-2001 High growth rate with definite

ECONOMIC TERMS

Assets Property of any kind.

Balance of Trade (BoT) The difference

between the exports and imports of two

countries in trade with each other is called

Balance of Trade.

Balance Sheet It is a statement of

accounts, generally of a business

concern, prepared at the end of a year.

Banker’s Cheque A cheque by one bank to

another.

Bank Rate It is the rate of interest charged

by the Reserve Bank of India for lending

money to commercial banks.

Barter To trade by exchanging one commo-

dity for another.

Bearer This term on cheques and bills

denotes that any person holding the same,

has the same right in respect of it, as the

person who issued it.

Black Money It means unaccounted money,

concealed income and undisclosed

wealth. The money which thus remains un-

accounted for, is called the black money.

Bond A legal agreement to pay a certain

sum of money (called principal) at some

future date and carrying a fixed rate of

interest.

Budget An estimate of expected revenues

and expenditure for a given period, usually

a year, item by item.

Budget Deficit When the expenditure of the

government exceeds the revenue, the

balance between the two is the budget

deficit.

Bulls Speculators in the stock markets who

buy goods, in some cases without money

to pay with, anticipating that prices will go

up.

Buyer’s Market An area in which the supply

of certain goods exceeds the demands so

that purchasers can drive hard bargains.

Commercial Banks Financial institutions

that create credit accept deposits, give

loans and perform other financial functions.

Call Money Loan made for a very short

period. It carries a low rate of interest.

Deflation It is a state in monetary market

when money in circulation has decreased.

Depreciation Reduction in the value of fixed

assets due to wear and tear.

Devaluation Official reduction in the foreign

value of domestic currency. It is done to

encourage the country’s exports and

discourage imports.

Dividend Earning of stock paid to

shareholders.

Dumping Sale of a commodity at different

prices in different markets, lower price

being charged in a market where demand

is relatively elastic.

Exchange Rate The rate at which Central

Banks will exchange one country’s

currency for another.

Excise Duty Tax Imposed on the

manufacture, sale and consumption of

various commodities, such as taxes on

textiles, cloth, liquor, etc.

Fiscal Policy Government’s expenditure,

tax policy and borrowing.

Gross Domestic Product (GDP) A measure

of the total flow of goods and services

produced by the economy over a specific

time period, normally a year.

Repo Rate The rate at which banks borrow

from RBI. It injects liquidity into the market.

Inflation A sustained and appreciable

increase in the price level over a

considerable period of time.

Monopoly Singlesellersellingsingleproduct.

Monopolistic Competition Existence of

too many sellers selling differentiated

products.

Bilateral Monopoly Existence of single

buyer and single seller.

Monopsony Single buyer buying product

being unique.

Oligopoly Existence of few sellers and few

products. Price war is a common feature.

Reverse Repo Rate The rate at which RBI

borrows from banks for a short-term. It

withdraws liquidity into the market.

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