Cash Reserve Ratio: Every commercial/Scheduled bank in India has to keep certain minimum amount of cash reserves with

RBI. RBI uses CRR as a tool to increase or decrease the reserve requirement depending on whether RBI wants to increase or decrease the money supply. RBI can vary CRR rate between 3% and 15%. An increase in CRR will make it mandatory for the banks to hold a large proportion of their deposits in the form of deposits with RBI. This will reduce the amount of Bank deposits and they will lend less as they have fewer amounts as their reserve. This will in turn decrease the money supply. If RBI wants to increase money supply it may reduce the rate of CRR and it will allow the banks to keep large amount of their deposit with themselves and they will lend more money.

RBI Rates RBI controls the liquidity in Indian market by changing its policy rates and reserve rations. RBI has three rates: Bank Rates, CRR and SLR

Bank Rate: Currently it is 9% It is the rate at which RBI allows finance/liquidity to commercial/scheduled banks within the territory of India. RBI uses bank rate as a tool for short term measures. Any upward revision in Bank Rate is an indication that banks should also increase the deposit rates as well as the Prime Lending Rate. Any revision in bank rate indicates more or less interest on your deposits and also an increase or decrease in your EMI.

This is the rate at which RBI lends money to other banks or financial institutions. If the bank rate goes up, long term interest rates also tend to move up and vice versa. This it can be said that if bank rate is hiked, in all likelihood banks will hike their own lending rates to ensure that they continue to make profit. Statutory Liquidity Ratio: Current rate is 23%

What is SLR? Apart from the Cash Reserve Ratio, scheduled banks in India are required to maintain, at the close of business every day, a minimum proportion of their Net Demand and time liabilities, liquid assets in the form of gold, cash and approved securities. The ratio of liquid assets to demand and time liabilites is known as SLR. RBI is empowered to increse SLR up to 40%. An increase in SLR also reduces their capacity to grant loans and advances, thus it is an anti inflationary impact.

This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. It is ratio of cash and other approved to liabilities. Repo (Repurchase) rate is the rate at which the RBI lends short term money to the banks. When the repo rates increases, borrowing from RBI becomes more expensive. Therefore we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate and vice versa

Reverse Repo rate is the rate at which banks part their short term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the RBI will borrow money from the banks at higher rate of interest. As a result, banks would prefer to keep their money with RBI

The banking, non banking and financial system in India comprises of the following type of institutions 1. Commercial Banks

There are four types of commercial banks in India a) Public Sector Banks b) Private Sector Banks c) Foreign Sector d) Cooperative Banks/Institutions Cooperative banks are of three types a)Urban cooperative banks b)State cooperative banks c)Central cooperative banks

2. Financial Institutions

There are three types of financial institutions in India and they are a) All India Financial Institutions (AIFI) b) State Financial Corporation (SFC)

c) State Industrial Development Corporations (SIDC)

3. Non banking financial companies (NBFC)

NBFC are fast emerging as an important segment of Indian financial system. This group performs financial intermediation in many ways. The most important part is that these companies raise funds from public directly or indirectly and lend them to the ultimate spenders.

Structure of Commercial Banking in India

Commercial banks are the institutions that accept deposits from the people and advance loans. In India such banks are called commercial banks which are established in accordance with the provision of the Banking Regulation Act 1949.

Commercial banks may be scheduled banks or non scheduled banks. Scheduled banks are classified into two categories based on the ownership of the bank. 1. Public Sector Banks a. Nationalized Banks b. SBI and its Associate group c. Regional Rural Banks. 2. Private Sector Banks a. Old Private Banks b. New Private Banks c. Foreign Banks

Public sector banks in India

Public sector banks are the major player in the Indian Banking Sector with 92% under its control.

State Bank Group This group consists of SBI and Five Associates. The RBI owns the majority of the share of SBI and some of its associates. SBI is the first public sector bank in India. Imperial Bank of India was acquired in 1955 to form SBI. In 1959 the SBI subsidiary act was passed and by the virtue of which seven princely state banks was made the subsidiary of SBI.

Nationalized Bank In 1969, the GOI effected the nationalization of 14 scheduled commercial banks in order to expand the branch network followed by six more banks in 1980. In 1993 New Bank of India was merged with PNB.

Regional Rural Banks In 1975, the state bank group and nationalized banks were required to sponsor and set up Regional Rural banks in partnership with individual states to provide low cost financing and credit facilities to rural masses. So in 1975 five regional rural banks were established.

State Bank of India: Important Points

SBI is the largest bank in India. HQ is in Mumbai.

Presidency Banks during British Raj:

Bank of Bengal: 1806. First presidency Bank of India Bank of Bombay: 1840 Bank of Madras: 1843

These three banks were private share holder's bank mostly Europeans. After 1823, they were given monopoly of Govt banking.

1861 Paper currency act. They received the exclusive rights to print currency. Presidency banks were amalgamated into the Imperial Bank of India on 27 Jan 1921.

After Independence

According to the parliamentary act, SBI ACT 1955, Imperial bank was acquired by the RBI. On 30 April 1955, RBI renamed IBI and SBI. SBI subsidiary acts passed in 1959. SB of Bikaner SB of Jaipur SB of Hyderabad SB of Indore SB of Saurashtra SB of Mysore SB of Travancore SB of Patiala 1963: Bikaner and Jaipur were merged to form SBBJ 2008: Saurashtra merged with SBI 2010: Indore was merged with SBI SBI has about 25000 ATMs SBI group has about 45000 ATMs SBI has 26500 branches, including the associate branches

Slogans of SBI 1. With you all the way

2. Pure banking nothing else 3. The banker to every Indian 4. The Nation banks on us

NABARD: Apex development bank in India CRAFICARD: Committee to Review Arrangements for Institutional Credit for Agricultural and Rural Development was set up by RBI. NABARD was established on 12 July 1982 by special act of Parliament. GOI 99% RBI 1% Established on the recommendations of Shivaraman Committee.

Non Performing Assets (NPA) Brief Concept

A NPA is defined as a credit facility in respect of which the interest and or installment of principal has remained past due for a specified period of time. NPA is one of the talking points of banks in their performance reports.

Categories of NPA:

1. Substandard Assets: An asset which remained a NPA for a period less than or equal to 12 months 2. Doubtful Assets: An asset would be classified as doubtful assets if it has remained as substandard assets for more than 12 months. 3. Loss Assets: A loss asset is one where the bank or auditors or the RBI inspection has identified the loss but the amount has not been written of wholly.

Gross Domestic Product (GDP) GDP is the market value of all final goods and services produced within a country in a given period of time. GDP is the meaure of the country's economic performance over a given period. GDP is measured by three basic approaches 1. Expenditure approach 2. Income approach 3. Value based approach Types of GDP: Real GDP Nominal GDP

Real GDP is the production of goods and services valued at constant prices whereas nominal GDP is the production of goods and services valued at current prices But why we need to measure both real and nominal GDP? When the total spending increases in a given period, it points towards two happenings. Either the inflation has increased or the total output of goods and services have increased. So to identify the real cause economists measure the real GDP which allows them to find whether the production of goods and services has increased or not

Components of GDP: GDP = C+I+G+NZ C=total consumption I=gross investment G=government spending NX=Exports less imports