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.
