Indian Economics At A Glance
BANKING RATE (AS ON 16TH JUNE , 2008 )
market It refers to borrowing and lending. 2 parts organized and unorganized
sector â€“ Organized sector are State Bank, 7 associated banks, 19
Nationalised banks, RRB, Co-operative Banks, Non Governmental sector and other
Banks. Unorganized includes the moneylenders and indigenous bankers.
2.Development of Indian Banking: Bank of Hindusthan 1779 was first bank at
Calcuttaunder European management-Bank of Bengal 1806 , Bank of Bombay 1840,
bank of Madras 1843, were called Presidency banks. 1881- First Bank with
limited liability to be managed by Indian Board namely the Oudh Commercial
bank- 1894- First purely Indian bank was Punjab National bank- Later Imperial
bank 1921 by amalgamating the Presidency banks. RBI created in 1935-
nationalized in 1949 â€“ Imperial Bank, renamed as SBI in 1955- 14 Banks (50
crores) nationalized6-96 Banks (2 00crores) nationalized 1980 â€“ N.B.I.
merged with P.N.B. in 1993. 3.R.B.I: It has Governor and Board of Directors
apart from Central Board 4 local boards. It has following functions: -
Of Banks :
of Notes: followed Minimum Reserve System(MRS) â€“ 200 Crore(115Crore
gold+85Crore foreign exchange etc.)
2.Banker , Agent and Adviser to the Govt
3.Bankerâ€™s Bank : Banking Regulation Act 1949 - Lender to the last
resort.(loan to Commerlised Bank)
4.Controller of Credit & money supply
(i)Quantitative: Bank Rate, open Market operation, statutory Liquidity Ratio
(SLR), Cash Reserve Ratio (CRR
(ii)Qualitative (or) Selective: since 1956
1)Rationing of Credit
2)Regulation of Consumer credit
3)Variation in margin requirements.
4)Fixation of maximum limit of Credit given for a Special purpose.
5)Discriminatory interest rates on some special types of advances
5.Custodian of Foreign Reserves: RBI buys & sells the foreign currencies
6.Collecting and publishing the economic data.
7. Buying and selling of Govt. securities and trade bills
8.Representing the Govt in IMF.
9.Giving loans to the Govt to buying and selling of valuable commodities etc.
4.Techniques in credit control:
(a) Quantitative and Qualitative Credit Control â€“ Bank rate - SLR, CRR, open
marker operations etc., and variation in margin requirements publicity etc.,
(b)Qualitative or Selective Credit Control 1956 â€“ 3 points -fixing margin
requirements- maximum limit of credit and different interest rates.
Houses for slum, credit to formers for purchase, ordinary retailers etc., shall
be given priority at least 40% to them
Differential rate of interest â€“ less interest 4% rate for weaker sections. It
is for those whose income not more than per annum 6400/7200 in Rural and Urban
areas- for lands less than â€“ 2.5-acres/1 acre non irrigated and irrigated land
respectively. (c) New strategy for rural lending â€“ 1987 service area approach.
Of Nationalised Banks In India :
Bank of Baroda
Bank of India
Bank of Maharashtra
Central Bank of India
Indian Overseas Bank
Oriental Bank of Commerce (OBC)
Punjab and Sind Bank
Punjab National Bank (PNB)
Union Bank of India
United Bank of India (UBI)
Term Monetary and credit policy 2008-2009
Reserve Bank of India hikes the repo rate under the Liquidity Adjustment
Facility (LAF) by 25 basis points to 8.00%.
Reserve Bank of India credit policy announced on 29th April 2008, keeps repo
rates unchanged but CRR is hiked by 25 bps to 8.25%
The Reserve Bank of India on 28th April 2008 released the document
â€œMacroeconomic and Monetary Developments in 2007-08â€ to serve as a backdrop
to the Annual Policy Statement for 2008-09 being announced on April 29, 2008
Reserve Bank of India hikes cash reserve ratio (CRR) by 50 bps to 8% in two
NOTE: RBI announces the credit policy twice a year â€”- Generally in April and
in October. While in April it announces new policy initiatives, the October
pronouncement is a review of the April policy. RBI has now decided to have
quarterly reviews of monetary policy. Accordingly, First Quarter Review of the
Annual Statement on Monetary Policy was issued in July 2005.
Highlights of the RBI Annual Policy Statement for the Year 2008-09 (29th April
Bank Rate, Reverse Repo Rate and Repo Rate kept unchanged.
High priority to price stability, well-anchored inflation expectations and
orderly conditions in financial markets while sustaining the growth momentum.
Swift response on a continuous basis to evolving adverse international and
domestic developments through both conventional and unconventional measures.
Emphasis on credit quality and credit delivery while pursuing financial
Bank Rate, Reverse Repo Rate and Repo Rate kept unchanged.
Scheduled banks required to maintain CRR of 8.25 per cent with effect from the
fortnight beginning May 24, 2008.
GDP growth projection for 2008-09 in the range of 8.0- 8.5 per cent.
Inflation to be brought down to around 5.5 per cent in 2008-09 with a preference
for bringing it close to 5.0 per cent as soon as possible. Going forward, the
resolve is to condition policy and perceptions for inflation in the range of
4.0-4.5 per cent so that an inflation rate of around 3.0 per cent becomes a
M3 expansion to be moderated in the range of 16.5-17.0 per cent during 2008-09.
Deposits projected to increase by around 17.0 per cent or Rs.5,50,000 crore
Adjusted non-food credit projected to increase by around 20.0 per cent during
Active demand management of liquidity through appropriate use of the CRR
stipulations and open market operations (OMO) including the MSS and the LAF.
Introduction of STRIPS in Government securities by the end of 2008-09.
A clearing and settlement arrangement for OTC rupee derivatives proposed.
Domestic crude oil refining companies would be permitted to hedge their
commodity price risk on overseas exchanges/markets on domestic purchase of crude
oil and sale of petroleum products based on underlying contract.
Currency futures to be introduced in eligible exchanges in consultation with the
SEBI; broad framework to be finalised by May 2008.
Indian companies to be allowed to invest overseas in energy and natural
Reserve Bank can be approached for capitalisation of export proceeds beyond the
prescribed period of realisation.
Loans granted to RRBs for on-lending to agriculture and allied activities to be
classified as indirect finance to agriculture.
The shortfall in lending to weaker sections would be taken into account for
contribution to RIDF with effect from April 2009.
RRBs allowed to sell loan assets to other banks in excess of their prescribed
priority sector exposure. The Reserve Bank to disseminate details of various
charges levied by banks.
Asset classification norms for credit to infrastructure projects relaxed. The
prudential guidelines for specific off-balance sheet exposures of banks to be
Reserve Bank to carry out supervisory review of banks' exposure to the commodity
The limit of bank loans to individuals for housing having lower risk weight of
50 per cent enhanced from Rs. 20 lakh to Rs. 30 lakh.
Consolidated supervision of financial conglomerates proposed. Working Group to
be set up for a supervisory framework for SPVs/Trusts. Inter-departmental Group
to review the existing regulatory and supervisory framework for overseas
operations of Indian banks.
All transactions of Rs. one crore and above made mandatory to be routed through
the electronic payment mechanism. Dispense with the extant eligibility norms for
opening on-site ATMs for well-managed and financially sound UCBs. Regulations in
respect of capital adequacy, liquidity and disclosure norms for systemically
important NBFCs to be reviewed.
(7) IMD- operated by SBI for NRI â€“ 5 years â€“ different interest rates - loan
8.5C Formula for Banks: Challenge, competition, credit, customer and control
prescribed by Ministry of Finance
. Scheduled Banks
Paid up capital not less than 5 lakhs and activity will not affect interest of
depositors.(ii)It has following facilities:-1.Eligible to get loan from RBI
2.Membership of clearing house 3. get rediscount in exchange bills
(b) Non Scheduled banks â€“ not included in scheduled but to follow CRR
conditions but no deposit with RBI and not eligible for loan from RBI.
9)Indian Banks Abroad: Bank of Baroda has the highest with 38 branches and SBI
with 22 branches and Bank of India have 18 branches. In U.K. 19 branches and
Fiji 9 branches.
10.New Banks in Private Sector:Created from 2000 based on Narasimham Committee
â€“ important are UTI, IIBL, ICIC, HDFC and IDBI. Amas Bank is the first private
bank established Europe by Indian National in 1994 and Hinduja Group has
established it at Geneva â€“ Local Area Banks in private sector allowed by RBI
in A.P, Maharashtra and Karnataka.
11. Co-operative Banks: It has 3 tier - state and district primary.
12. Regional Rural Banks (RRB)Â®1975 established under RRB Act 1976 Capital
Source: Central Govt. 50% , State Govt. 15%, Sponsered Public Sector Commercial
1)Rural Development especially in Remote Rural Areas
2)loan to weaker section (concessional rate of interest)
3)mobilise rural savings
*83% of branches in Rural Areas (except Sikkim)
*since 1987, no new RRB has been opened (Kelkar committee) increased capital
Rs.25 lakh to 1 Crore
1994-95 M.C.Bhandari Committee: to invest NON â€“ SLR surplus fund in profitable
1995-96 â€“K.Basu Committee: Re-organisation of selected RRBâ€™s
Narasimham committee recommended to give more freedom to RRB
committee 1991 financial reforms.
b.Goiporria Committee â€“ 1990 â€“ improvement of consumer service in banking
c.Janakiraman Committee â€“ 1992 high-level enquiry on irregularities in
d.J.P.C. Shares scam in 1992.
(e) Chandrashekar Committee:
1997 transfer of
(f) Pherwani Committee: 1991 established National Stock Exchange.
14.Banking Ombudsman â€“ RBI introduced 1995 â€“ 11 already appointed all except
RRB included. Time limit one month.
15) Commercial Banks
A)Scheduled Banks :
1)Listed in 2nd scheduled of RBI Act 1934
2)Paid up capital not less than Rs.5lakhs
3)Any Activity of the bank will not adversely affect the interest of depositors.
1)Eligible for obtaining debts/Loans on BR from RBI
2)Membership of clearing house
3)Rediscount of first class exchange bills from RBI
1.Not listed in the 2nd Schedule
2)No. of NSBs are continuously declining
3)CRR condition must be followed
4)Not eligible for having loan from RBI But eligible in Emergency conditions.
D)Nationaliation of Banks :
*Jan 1st 1949 - RBI, * 1955-SBI
* July 19th 1969 - 14 large commercial banks whose reserves were more than Rs.50
*1980 April 15 â€“ 6 Private Sector banks whose reserves were more than Rs.200
*1993 the New Bank of India (1980) merged with Punjab National Bank (1969)
*There are 19 banks which are nationalised
E)Co-operative Banks (State list)
State co-operatiave banks(SCB) â€“ state level, apex co-operative bank of the
stateCaptial Source: Refinance facility from RBI and shares & Loans
Central Co-operative banks(CCB or DCB): District level, Two types
I.Co-operative Banking union: Loans only to PACS
II.Mixed central Co-op Bank : Loans to Both PACS & individuals
Primary agricultural credit Societies(PACS) â€“ Village level
1. Provide short term loan(normally 1 year, Maximum 3years) 2.minimum 10 persons
needed for establishment 3.No.of PACSdecreasing 4.Mobilise deposits and savings
16)Some important banking Institutions:
a) IDBI- 1964-To provide financial assistance to industrial enterprises and to
promote institutions engaged in industrial development.
b) IFCI: 1948 Act -To arrange medium and long term credit for varuois industrial
enterprises- 1993 corpn was converted into a company
c) ICICI: 1955-Developing medium and small industries â€“2002 merged with ICICI
d) UTI: 1964- Biggest mutual fund- peopleâ€™s savings and reinvestment. It
started UTI bank in 1994 at Ahenmedabad.
Various Funds of UTI:
1) India Fund-1986 (ii) India Growth Fund 1988 (iii) India
Access Fund 1997 (iv) India Debt Fund 1997 (v)Master Value- Index Fund 2 in
e) EXIM bank: 1982- For financing, facilitating and promoting foreign trade in
f) NHB: 1988-wholly owned by RBI.Apex institution for housing finance,
SURVEY POINTS- MOST IMPORTANT
1M3 grew by 14 percent â€“ last year 16.6%
2) BANK CREDIT sector increase of 20.4
3)M0GREW 14.1 â€“ LAST YEAR 16.7%
4)Total bank credit increased by 14.2%
RIDF_ setup1995 1996 maintained By NABARD _mainobjective to provide loans to
6)Kisan credit cards 1998 99-operated through Co-operative bank
commercial bank andRRB 414 lakhs cards iissue, 4.35 Crores
7) Finance to self
help gropu started in 1992-90% to women group
8) AIFI-iicicimerged with ICICI
Bank in march 2002-IDBI Limitedand IDBI Bank merged â€“ working group on
development financing headed by N.SATHASIVAM