Non-Banking Financial Corporation

(NBFC) is a company registered under the Companies Act, 2013 of India, engaged in the business of loans and advances,
acquisition of shares, stock, bonds hire-purchase, insurance business or chit business but does not include any institution
whose principal business includes agriculture, industrial activity or the sale, purchase or construction of immovable
property.

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few
differences as given below:
NBFC cannot accept demand deposits;
NBFCs do not form part of the payment and settlement system;
NBFCs cannot issue cheques drawn on itself;
Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs,
unlike in case of banks.

New Guidelines
Groups in the private sector that are owned and controlled by residents and have a successful track record for at least 10
years, provided that if such a group has total assets of Rs.5,000 crore or more, the non-financial business of the group does
not account for 40 per cent or more in terms of total assets in terms of gross income.

A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking
financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following:
i. it should be a company registered under Section 3 of the companies Act, 1956
ii. It should have a minimum net owned fund of 200 lakh.

NBFCs whose asset size is of 500 cr or more as per last audited balance sheet are considered as systemically
important NBFCs. The rationale for such classification is that the activities of such NBFCs will
have a bearing on the financial stability of the overall economy.

Housing Finance Companies are regulated by National Housing Bank,

Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities
and Exchange Board of India, and Insurance companies are regulated by Insurance Regulatory and Development
Authority. Similarly, Chit Fund Companies are regulated by the respective State Governments and Nidhi Companies are
regulated by Ministry of Corporate Affairs, Government of India.

I. Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on as its principal
business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe
machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose
industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting
economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.

II. Investment Company (IC) :

IC means any company which is a financial institution carrying on as its principal business the acquisition of securities,

III. Loan Company (LC): LC

means any company which is a financial institution carrying on as its principal business the providing of finance
whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset
Finance Company.

IV. Infrastructure Finance

Company (IFC): IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in
infrastructure loans, b) has a minimum Net Owned Funds of 300 crore, c) has a minimum credit rating of A or
equivalent d) and a CRAR of 15%.

V. Systemically Important Core

Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and
securities which satisfies the following conditions:-
it holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt
or loans in group companies; its investments in the equity shares (including instruments compulsorily convertible into
equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less
than 60% of its Total Assets; it does not trade in its investments in shares, debt or loans in group companies except
through block sale for the purpose of dilution or disinvestment; it does not carry on any other financial activity referred
to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments,
government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf
of group companies. Its asset size is 100 crore or above and It accepts public funds
VI. Infrastructure Debt Fund:
Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a company registered as NBFC to facilitate the flow of
long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated
bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.

VII. Non-Banking Financial

Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC having not less than
85% of its assets in the nature of qualifying assets which satisfy the following criteria:
loan disbursed
by an NBFC-MFI to a borrower with a rural household annual income not exceeding 1,00,000 or urban and semi-
urban household income not exceeding 1,60,000; loan amount does not exceed 50,000 in the first cycle and

1,00,000 in subsequent cycles;

total indebtedness of the borrower does not exceed 1,00,000; tenure of the loan not to be less than 24 months for
loan amount in excess of 15,000 with prepayment without penalty; loan to be extended without collateral; aggregate
amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs; loan is
repayable on weekly, fortnightly or monthly instalments at the choice of the borrower

VIII. Non-Banking Financial Company Factors (NBFC-Factors):

NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the
factoring business should constitute at least 50 percent of its total assets and its income derived from factoring
business should not be less than 50 percent of its gross income

IX. Mortgage Guarantee Companies (MGC) - MGC are financial institutions for which at least 90% of the business
turnover is mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business
and net owned fund is 100 crore.

X. NBFC- Non-Operative Financial Holding Company (NOFHC) is financial institution through which promoter /
promoter groups will be permitted to set up a new bank .Its a wholly-owned Non-Operative Financial
Holding Company (NOFHC) which will hold the bank as well as all other financial services companies regulated by RBI
or other financial sector regulators, to the extent permissible under the applicable regulatory prescriptions.

XI. Gold Loan NBFCs in India: Over the years, gold loan NBFCs witnessed an upsurge in Indian financial market,
owing mainly to the recent period of appreciation in gold price and consequent increase in the demand for gold loan by
all sections of society, especially the poor and middle class to make the both ends meet. Though there are many
NBFCs offering gold loans in India, about 95 per cent of the gold loan business is handled by three Kerala
based companies, viz., Muthoot Finance, Manapuram Finance and Muthoot Fincorp.

Some of the important regulations relating to acceptance of deposits by NBFCs are as under:

The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum
period of 60 months. They cannot accept deposits repayable on demand. NBFCs cannot offer interest rates
higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum. The
interest may be paid or compounded at rests not shorter than monthly rests.
NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors.
NBFCs should have minimum investment grade credit rating.
The deposits with NBFCs are not insured.
The repayment of deposits by NBFCs is not guaranteed by RBI.
Certain mandatory disclosures are to be made about the company in the Application Form issued by the company
soliciting deposits.

Banking Awareness 2017 - Important Tools & Rates of RBI - MCLR | Repo Rate | Monetary Policy

Repo Rate and Reverse Repo Rate

Repurchase Options or in short Repo, is a money market instrument, which enables collateralised short term
borrowing and lending through sale/purchase operations in debt instruments. This is an instrument used by the
Central Bank and banking institutions to manage their daily / short term liquidity.

Legally it is
"repo" means an instrument for borrowing funds by selling securities with an agreement to repurchase the securities
on a mutually agreed future date at an agreed price which includes interest for the funds borrowed;

"reverse repo" means an instrument for lending funds by purchasing securities with an agreement to resell the
securities on a mutually agreed future date at an agreed price which includes interest for the funds lent."

This is the general definition of Repo and Reverse Repo in India. The securities transacted here can be either
government securities or corporate securities or any other securities which the Central bank permits for transaction.
Non-sovereign securities are used in many global markets for repo operations. Unlike them, Indian repo market
predominantly uses sovereign securities, though repo is allowed on corporate bonds and debentures.

The Repo transaction, as adopted in India, has two legs:- in the first leg seller sells securities and receives
cash while the purchaser buys securities and parts with cash. In the second leg, securities are repurchased by the
original holder. He pays to the counter party the amount originally received by him plus the return on the money for
the number of days for which the money was used by him, which is mutually agreed. All these transactions are
reported on the electronic platform called the Negotiated Dealing System (NDS).

Types of Repos based on Maturity

There are basically four types of repos based on its maturity period.

Overnight refers to repos with a single-day maturity (eg. Additional repos conducted in the Indian market on the
reporting Fridays (i.e., the Fridays on which banks have to report to RBI on the fortnightly position on CRR and
SLR). Indian Repo market is predominantly an overnight repo market.

Term Repos refers to repos that have a fixed maturity longer than one day. If the period is fixed and agreed in
advance, it is a term repo, where either party may call for the repo to be terminated at any time, though it may require
one or two days' notice.

Market Stabilization Scheme

Market Stabilization scheme (MSS)

is a monetary policy intervention by the RBI to withdraw excess liquidity (or money supply) by selling
government securities in the economy. The MSS was introduced in April 2004. Main thing about MSS is that it is
used to withdraw excess liquidity or money from the system by selling government bonds.

When MSS is to be used?

MSS is used when there is high liquidity in the system.

What securities to be sold under MSS?

The issued securities are government bonds and they are called as Market Stabilisation Bonds (MSBs). Thus, the
bonds issued under MSS are called MSBs. These securities are owned by the government though they are issued by
the RBI.
The securities or bonds/t-bills issued under MSS are purchased by financial institutions. They will get an interest for
purchasing the securities.

Statutory Liquidity Ratio

The Statutory Liquidity Ratio (SLR) is a prudential measure under which (as per the Banking Regulations Act
1949) all Scheduled Commercial Banks in India must maintain an amount in one of the following forms as a
percentage of their total Demand and Time Liabilities (DTL) / Net DTL (NDTL);
[i] Cash.
[ii] Gold; or
[iii] Investments in un-encumbered Instruments that include;

(a) Treasury-Bills of the Government of India.

(b) Dated securities including those issued by the Government of India from time to time under the market
borrowings programme and the Market Stabilization Scheme (MSS).
(c) State Development Loans (SDLs) issued by State Governments under their market borrowings programme.
(d) Other instruments as notified by the RBI.

SLR rate = (liquid assets / (demand + time liabilities)) 100%

Usage:
to control the expansion of bank credit. By changing the level of SLR, the Reserve Bank of India can increase or
decrease bank credit expansion.
to ensure the solvency of commercial banks.
to compel the commercial banks to invest in government securities like government bonds.

If any Indian bank fails to maintain the required level of Statutory Liquidity Ratio, then it becomes liable to pay penalty
to Reserve Bank of India. The defaulter bank pays penal interest at the rate of 3% per annum above the Bank Rate,
on the shortfall amount for that particular day. But, according to the Circular, released by the Department of Banking
Operations and Development, Reserve Bank of India; if the defaulter bank continues to default on the next working
day, then the rate of penal interest can be increased to 5% per annum above the Bank Rate. This restriction is
imposed by RBI on banks to make funds available to customers on demand as soon as possible. Gold and
government securities (or gilts) are included along with cash because they are highly liquid and safe assets

Both Cash Reserve Ratio (CRR) and SLR are instruments in the hands of RBI to regulate money supply in the hands
of banks that they can pump into the economy.
Traditionally the amount to be held thus was stipulated to be no lower than 25 percent and not exceeding 40
percent of the banks total DTL. However, effective from January, 2007 the floor of 25 percent on the SLR was
removed following an amendment of the Banking Regulation Act, 1949.

Liquidity Adjustment Facility (LAF)

LAF is a facility extended by the Reserve Bank of India to the scheduled commercial banks (excluding
RRBs) and primary dealers to avail of liquidity in case of requirement or park excess funds with the RBI in case of
excess liquidity on an overnight basis against the collateral of Government securities including State Government
securities. Basically LAF enables liquidity management on a day to day basis.
Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through repurchase
agreements or repos.

Marginal Cost of Funds Based Lending Rate

The marginal cost of funds based lending rate (MCLR) refers to the minimum interest rate of a bank below
which it cannot lend, except in some cases allowed by the RBI.

It is an internal benchmark or reference rate for the bank. MCLR actually describes the method by which the
minimum interest rate for loans is determined by a bank - on the basis of marginal cost or the additional or incremental
cost of arranging one more rupee to the prospective borrower.

Reasons for introducing MCLR

RBI decided to shift from base rate to MCLR because the rates based on marginal cost of funds are more sensitive to
changes in the policy rates.
This is very essential for the effective implementation of monetary policy. Prior to MCLR system, different banks were
following different methodology for calculation of base rate /minimum rate that is either on the basis of average cost
of funds or marginal cost of funds or blended cost of funds.

Calculation of MCLR

The MCLR is a tenor linked internal benchmark (tenor means the amount of time left for the repayment of a loan).
The actual lending rates are determined by adding the components of spread to the MCLR. Banks will review and
publish their MCLR of different maturities, every month, on a pre-announced date.
Banks may publish every month the internal benchmark/ MCLR for the following maturities:
Overnight MCLR,
One-month MCLR,
Three-month MCLR,
Six month MCLR,
One year MCLR.

Base Rate

The Base Rate is the minimum interest rate of a bank below which it cannot lend, except in some cases allowed
by the RBI. It is the minimum interest rate of a bank below which it is not viable to lend. The base rate, introduced with
effect from 1st July 2011 by the Reserve Bank of India, is the new benchmark rate for lending operations of banks.

Base Rate vs MCLR:

Base rate calculation is based on cost of funds, minimum rate of return, i.e margin or profit, operating expenses and
cost of maintaining cash reserve ratio while the MCLR is based on marginal cost of funds, tenor premium, operating
expenses and cost of maintaining cash reserve ratio. The main factor of difference is the calculation of marginal
cost under MCLR. Marginal cost is charged on the basis of following factors- interest rate for various types of deposits,
borrowings and return on net worth. Therefore MCLR is largely determined by marginal cost of funds and
especially by deposit rates and repo rates.

Cash Reserve Ratio (CRR)

Cash Reserve Ratio refers to the fraction of the total Net Demand and Time Liabilities (NDTL) of a Scheduled
Commercial Bank held in India, that it has to maintain as cash deposit with the Reserve Bank of India (RBI). The
requirement applies uniformly to all banks in the country irrespective of an individual banks financial situation or size.
In contrast, certain countries e.g. China stipulates separate reserve requirements for large and small banks.

Policy Rate
The policy rate is the key lending rate of the central bank in a country. It is a monetary policy instrument under the
control of the Central Bank -Reserve Bank of India (RBI) - to regulate the availability, cost and use of money and
credit.
change in the policy rate alters all other short term interest rates in the economy, thereby influencing
the level of economic growth and inflation. (A low interest rate regime is considered conducive to growth while it
generally fuels inflation)

Interest Rate Corridor

An interest rate corridor or a policy corridor refers to the range within which the operating target of the monetary policy
- a short term interest rate, say the weighted average call money market rate - moves around the policy rate
announced by the central bank.

Monetary Policy Framework Agreement

Monetary Policy Framework Agreement is an agreement reached between Government and the central bank in
India The Reserve Bank of India (RBI) - on the maximum tolerable inflation rate that RBI should target to achieve
price stability.

Monetary Policy Committee (MPC)

The Monetary Policy Committee (MPC) is a committee of the Central Bank in India (Reserve Bank of India),
headed by its Governor, which is entrusted with the task of fixing the benchmark policy interest rate (repo rate) to
contain inflation within the specified target level.

Bank Rate

Under Section 49 of the Reserve Bank of India Act, 1934, the Bank Rate has been defined as "the standard
rate at which the Reserve Bank is prepared to buy or re-discount bills of exchange or other commercial paper eligible
for purchase under the Act."
Bank rate is the rate at which central bank lends money to the commercial banks by buying their eligible rated
securities - bills of exchange or commercial paper

Important Points on India International Exchange (India INX)

India International Exchange (India INX) is Indias first International Exchange set up at International Financial
Services Centre at GIFT City.
It was inaugurated by Honourable Prime Minister, Shri Narendra Modi, on 9th Jan, 2017.
V. Balasubramaniam is the incumbent CEO and Managing Director of India International Exchange (IFSC) Limited.
BSE became the first stock exchange in the world to sign a Memorandum of Understanding (MoU) with GIFT
SEZ Ltd., a wholly owned subsidiary of GIFT at the Vibrant Gujarat Global Summit in January 2015.
BSE has also set up India International Clearing Corporation (India ICC) at IFSC, GIFT. Both India INX and India
ICC are wholly owned subsidiaries of BSE.
GIFT City stands for Gujarat International Financial Tech.

Highlights:
India INX will be a wholly-owned subsidiary of the Bombay Stock Exchange (BSE).
It will enable Indian firms to compete on equal footing with offshore firms.
It will initially trade in equity derivatives, currency derivatives, commodity derivatives including index and Stocks.
It will offer depository receipts and bonds once required infrastructure is ready.
It will work for 22 hours in a day from sunrise to sunset i.e. it will start when the Japan exchanges begin and will
close when the US markets end.
It will have around 250 trading members including commodity and overseas brokers.
It will be one of the most advanced technology platforms with turnaround time of 4 seconds.
It will facilitate international investors and NRIs to trade from anywhere in the world.
It will also offer various benefits in terms of waiver of security transaction tax, commodity transaction tax, dividend
distribution tax and long term capital gain tax and income tax.
Financial Regulators of India

RBI
Establishment- April 1, 1935 as per the Reserve Bank
of India Act, 1934 on the recommendation of Hilton Young Commission.
Nationalization- 1st Jan 1949 Headquarters- Mumbai Emblem of RBI- Panther and Palm Tree.
Governors Urjit Ravindra Patel (2016 )
Former Governor- Dr.Raghuram Rajan- 23rd Governor (2011-2016)

Functions-
Sole Authority to issue Bank Notes in India. Prints currency in 15 languages.
At present, 90 bank + Bhartiya Mahila Bank in the second schedule of RBI Act, 1934.
It formulates, implements and monitors the monetary policy as well as it has to ensure an adequate flow of credits to
productive sectors.
Bankers to the Government: Performs merchant banking function for the central and the state
governments, also act as a banker.
Transfer funds and settle inter-bank transactions.
All Bank operating in the country have accounts with the Reserve Bank.
It acts as a custodian and manages the Foreign Exchange Act, (FEMA) 1999.
RBI buys and sells foreign currency to maintain the exchange rate of Indian Rupee v/s foreign currencies like the
US Dollar, Euro, Pound and Japanese Yen.
Credit Control is a major weapon of the RBI used to control Demand & Supply of money in the economy.

Other Functions-
RBI has a separate Department of statistics for collecting, compiling and disseminating statistical information and
conducting research related to bank and other financial sectors of the economy including supply of money, credit
banking operation and foreign exchange.
RBI act and Bank Act have both conferred extensive powers of regulations & supervisions to the RBI over commercial
& cooperative banks to check malpractices & protect interests of the investors.
RBI has been aiding development & promoting saving & Banking habits. Development of the institutional agriculture
and other rural activities has been an area of focus right from its inception.

Policy Rates at present- as of 4 January, 2017

Repo Rate- 6.25%
Reverse Repo rate- 5.75%
Marginal Standing Facility Rate or MSFR- 6.75%
Bank Rate- 6.75%
CRR- 4%
SLR- 20.75%
Base Rate: 9.30% - 9.65%
MCLR (Overnight): 8.65% - 9.00%
Saving Deposit Rates- 4.00%
Term Deposit Rate> 1year- 8.00-8.50%

SEBI

Establishment- Set up by GOI in 1988, April 2, 1992 (Legal Status)

Jurisdiction- Government of India.
Headquarters- Bandra-Kurla Complex, Bandra, Mumbai.
Head of SEBI- Upendra Kumar Sinha Chairman and MD
Opening Remarks- "...to protect the interests of investors in securities and to promote the development of, and to
regulate the securities market and for matters connected therewith or incidental thereto"

Functions of SEBI-
Regulating the business in stock exchanges and any other securities markets.
Registering and regulating the working of stock brokers, sub- brokers, share transfer agents, bankers to an issue,
trustees of trust deeds, registrar to an issue, merchant, bankers, portfolio managers, investment advisers.
Prohibiting fraudulent and unfair trade practices relating to securities markets.
The duty of the Boards to protect the interests of investors in securities and to regulate the securities market.

Responsibilities of SEBI
SEBI has to be responsive to the needs of three groups, which constitute the market:
The issuers of securities
The investors
The market intermediates
Departments of SEBI
Market Intermediaries Regulation and supervision Department ( MIRSD)
Market Regulation Department (MRD)
Derivatives and New Product Department (DNPD)
Corporation Finance Department (CFD)
Investment Management Department (IMD)
Integrated Surveillance Department (IVD)
Legal Affairs Department (LAD)

IRDAI

Establishment- By an act enacted by Indian Parliament known as IRDA Act 1999 and was amended in 2002.
Headquarters- Hyderabad, Telangana
Head of IRDA- Mr. T.S. Vijayan Chairman
Opening Remarks- "to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the
insurance industry and for matters connected therewith or incidental thereto."

Functions of IRDA
1. Registration (licensing) including renewal of registration of insurance companies.
2. Licensing of insurance intermediaries such as agents, surveyors and loss assessors, third party administrators,
brokers, etc.
3. Official approval of agents training institutions.
4. Monitoring all non-tariff products including pricing of products, terms and conditions thereof, etc.
5.Supervision of the functioning of the companies and intermediaries including review of company annual statements.
6. Formulation of regulations.
7.Enforcement of discipline.

PFRDA
Full form-Pension Fund Regulatory and Development Authority
Establishment- August 23, 2003 by GOI.
Headquarters- New Delhi
Parent Agency- Ministry of Finance
Head of PFRDA- Shri Hemant G Contractor. Chairman
Opening Remarks- To establish and promote pension system to serve the old age income needs of all citizens
through guided development and prudent regulation of the pension industry, with focus on institution-building,
capacity development and enabling framework for innovations in products, schemes and programs across all
stakeholders and market participants, in the best interest of the subscribers and the pension system.

Functions of PFRDA
1. Regulating the National Pension System and the pension schemes.
2. Approving the schemes, terms and conditions thereof and laying down norms of the management of the corpus of
the pension funds.
3. Registering and regulating intermediaries,
4. Issuing to an intermediary, on application, a certificate of registration and renewing, modifying, withdrawing,
suspending or cancelling such registration.
5. Protecting the interests of subscribers by- (a) ensuring safety of the contribution of subscribers to various schemes
of pension funds, (b) ensuring the intermediation and other operational costs under the National Pension System are
economical and reasonable.
6. Establishing mechanism for redressal of grievances of subscribers to be determined by regulations.
7. Promoting Professional organizations connected with the pension system.
8. Adjudication of disputes between intermediaries and between intermediaries and subscribers.
9. Collecting data and requiring the intermediaries to collect such data and undertaking, commissioning studies,
research and projects.

MCA
Full Form- Ministry of Corporate affairs
Jurisdiction- Republic of India
Headquarters- Shastri Bhawan, New Delhi
Agency Executive- Mr. Arun Jaitley, Minister of Corporate Affiars
The Ministry of Corporate Affairs (MCA) is an Indian government ministry. The Ministry is primarily concerned with
administration of the Companies Act 2013, the Companies Act 1956, the Limited Liability Partnership Act, 2008 & other
allied Acts and rules & regulations framed there-under mainly for regulating the functioning of the corporate sector in
accordance with law. It is responsible mainly for regulation of Indian enterprises in Industrial and Services sector.
Basic Banking Functions - CBS, CTS and Interest Rates

CTS
CTS stand for Cheque Truncation System. Started in 2008.
This system eliminates the physical movement of cheques and provides a more secure and efficient method for
cheque clearing.
Now, the question arises why CTS came in existence? To answer this we have to understand the traditional method of
cheque clearing. It can be explained as:
In whole transaction, bank takes at least 1-2 days. To make the whole process fast, CTS came into existence.
Under this system, an electronic image of the cheque is transmitted to the drawee branch by clearing house along with
relevant information like MICR band, date of presentation, presenting bank etc.

Merits of CTS:
Associated cost with the movement of physical cheque gets eliminated.
Customers have to pay no charge in the clearing process.
It is efficient for bank and customers both.
Demerits of CTS:
As cheques are in digital form in CTS, in case of any errors, customers can not correct it. The only solution is they
have to issue fresh cheque.

Interest rates:
In order to expand business, enhance capital, it needs money. We also need money time to time for our different
needs. So, we take credit from financial institutions to cater our needs. But these institutions cant give loan for free.
We have to pay some additional amount except principal loan amount. So, the rate at which these financial
institutions/banks lend us or give credit facility to us is called interest rates.

Some terminologies related to interest rate

PLR Prime Lending Rate
The rate of interest charged by the bank, to their credit worthy customers, is called PLR.
It is the minimum interest rate. RBI has eliminated it in 2010.

Base rate
The minimum interest rate, decided by commercial bank, below which it cannot lend.It is implemented from 2010 in
place of PLR.

MCLR Marginal Cost of funds based Lending Rates

To provide customers more benefit, RBI started MCLR from 2016.
In MCLR, RBI linked interest rates with REPO RATE in spite of MARKET CONDITIONS.

Now, the question is why the concept of MCLR came?

The answer is quite simple
Whenever RBI cuts the Repo rate, same has to be done by individual banks also in their Base Rates. But they lower
the Base Rate in small margin because most banks currently follow average cost of fund based calculations for arriving
at respective base rates and due to this only, they lowered Base Rate by 20-40 basis points only where RBI lowered
the REPO rate by more than 100 basis points in FY 2015-16.

CBS
Stands for CORE Banking Solutions, CORE Centralised Online Real-time Exchange
It is the process where branches of a bank are connected to a central host and the customers of connected branches
can do banking activity at any branch of corresponding bank with core banking facility.

Advantages of CBS:
For Customers:
Transaction can be done from any branch.
Lower incidence of errors
Better fund management due to immediate availability of funds.
For Banks:
Better customer service
Availability of accurate data
Increase in business volume with better asset-liability management and risk management.
Disadvantages of CBS:
As whole data is stored in central host, banks have to contact central host everytime in case of any transaction
and all. Sometimes we have to suffer from server problems. (Jab bank wala bolta hai server down hai..asuwidha
k liye khed hai :P)
National Payments Corporation of India and Its Products | UPI, BHIM, IMPS, *99#

It is the umbrella organization for all retail payment systems in India, which aims to allow all Indian citizens to have
unrestricted access to e-payment services.
Presently, there are ten core promoter banks (State Bank of India, Punjab National Bank, Canara Bank, Bank of
Baroda, Union Bank of India, Bank of India, ICICI Bank, HDFC Bank, Citibank and HSBC). The Board consists of
Balachandran.M as the chairman, Nominee from Reserve Bank of India and Nominees from ten core promoter banks.
Mr. A. P. Hota, is the managing director and chief executive officer of NPCI.

The corporation service portfolio now and in the future include:

National Financial Switch (NFS) -network of shared automated teller machines in India.
Unified Payment Interface (UPI) -Single mobile application for accessing different bank accounts
BHIM App - Smartphone app built using UPI interface.
Immediate Payment Service (IMPS) - Real time payment with mobile number.
*99# - mobile banking using USSD
National Automated Clearing House (NACH)- a web based solution to facilitate interbank, high volume, electronic
transactions
Cheque Truncation System online image-based cheque clearing system
Aadhaar Payments Bridge System (APBS) - Aadhar based payment solution
RuPay - card scheme
Bharat Bill Payment System (BBPS) - integrated bill payment system

National Financial Switch

National Financial Switch (NFS) is the largest network of shared automated teller machines (ATMs) in India.
The first ATM in India was set up in 1987 by HSBC in Mumbai. In the following twelve years, about 1500 ATMs were
set up in India. In 1997, the Indian Banks' Association (IBA) set up Swadhan,
the first network of shared ATMs in India. The primary headquarters is
located at Mumbai.
NFS which is the largest domestic ATM network in the country member banks has been in the fore front in providing
inter bank ATM services to maximum customers. Initially, the following basic transactions were available in the NFS
network

Cash Withdrawal
Balance Enquiry
PIN Change
Mini Statement

Unified Payments Interface (UPI)

Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application
(of any participating bank), merging several banking features, seamless fundrouting & merchant payments into one
hood. It also caters to the Peer to Peer collect request which can be scheduled and paid as per requirement and
convenience
With the above context in mind,
NPCI conducted a pilot launch with 21 member banks. The pilot launch was on
11th April 2016 by Dr. Raghuram G Rajan, Former Governor, RBI at Mumbai. Banks have
started to upload their UPI enabled Apps on Google Play store from 25th August,
2016 onwards.

UPI has built on the Immediate Payment Service(IMPS) platform. UPI can be used for multiple common banking
tasks.
Important features:

Immediate money transfer through mobile device round the clock 24*7 and 365 days.
Single mobile application for accessing different bank accounts
Single Click 2 Factor
Authentication Aligned with the Regulatory guidelines, yet provides for a very strong feature of seamless single click
payment.
Virtual address of the customer for Pull & Push provides for incremental security with the customer not
required to enter the details such as Card no, Account number; IFSC etc.

Benefits for banks:

Single click Two Factor authentication
Universal Application for transaction
Leveraging existing infrastructure

Benefits for end Customers:

Round the clock availability
Single Application for accessing different bank accounts
Use of Virtual ID is more secure, no credential sharing

Benefits for Merchants:

Seamless fund collection from customers - single identifiers

No risk of storing customers virtual address like in Cards
Tap customers not having credit/debit cards

BHIM

BHIM (Bharat Interface for Money) is a Mobile App developed by National Payments Corporation of India (NPCI),
based on the Unified Payment Interface (UPI). It was launched by Narendra Modi, at a Digi Dhan programme at
Talkatora Stadium in New Delhi on 30 December 2016. It has been named after Bhim Rao Ambedkar and is intended
to facilitate e-payments directly through banks and as part of the 2016 Indian banknote demonetisation and drive
towards cashless transactions.

Benefits of BHIM:
BHIM allow users send or receive money to other UPI payment addresses or scanning QR code or account number
with IFSC code or MMID (Mobile Money Identifier) Code to users who do not have a UPI-based
bank account.
BHIM allows users to check current balance in their bank accounts and to choose which bank account to use
for conducting transactions, although only one can be active at any time.
Users can create their own QR code for a fixed amount of money, which is helpful in merchant seller buyer
transactions. They can also have more than one payment address.

*99#

One of the innovative payment service launched by NPCI includes *99# service, which works on Unstructured
Supplementary Service Data (USSD) channel.
This service was launched envisioning the potential of Mobile Banking and the need for immediate low value
remittances which will help in financial deepening and inclusion of underbanked society in the mainstream banking
services. *99# service was dedicated to the nation by the Honorable Prime Minister of India Shri Narendra Modi on
28th August 2014 as part of Pradhan Mantri Jan Dhan Yojana (PMJDY).

Features of *99# Service

Works without Internet Uses
voice connectivity
Round the clock availability
(works even on holidays)
Accessible through a common code
*99# across all TSPs
Works across all GSM service
providers and mobile handsets
Additional channel for banking
and key catalyst for financial inclusion
Service also offered through BC
Micro ATMs to serve the rural populace

IMPS

Immediate Payment Service (IMPS) is an instant real-time inter-bank electronic funds transfer system of India.
IMPS offers an inter-bank electronic fund transfer service through mobile phones. Unlike NEFT and RTGS, the
service is available 24/7 throughout the year including bank holidays.
IMPS offers an instant, 24X7, interbank electronic fund transfer service through mobile phones. IMPS is an
emphatic tool to transfer money instantly within banks across India through mobile, internet and atm which is not only
safe but also economical both in financial and non financial perspectives.
This facility is provided by NPCI through its existing NFS switch.

Objectives of IMPS
To enable bank customers to use mobile instruments as a channel for accessing their banks accounts and remit
funds
Making payment simpler just with the mobile number of the beneficiary
To sub-serve the goal of Reserve Bank of India (RBI) in electronification of retail payments
To facilitate mobile payment systems already introduced in India with the Reserve Bank of India Mobile
Payment Guidelines 2008 to be inter-operable across banks and mobile operators in a safe and secured manner
To build the foundation for a full range of mobile based Banking services.

National Automated Clearing House (NACH)

Started by the National Payments Corporation of India (NPCI), NACH aims to create a better option for facilitating
clearing services than the existing Electronic Clearing Service (ECS) system.
NACH is a centralised, web-based clearing service that can ease the work of banks, financial institutions, the
government and corporates by consolidating all regional ECS systems into one national payment system, thereby
removing any geographical barriers in efficient banking.

The service is now active in all Indian banks with core banking facility. It comes in two variants ECS Credit
and ECS Debit. The significant benefits to bank customers include automatic debits from their account for bill
payments (telephone, electricity, etc), loan instalments, insurance premiums and more.
Not only this, NACH is useful for corporate and financial institutions that make payments in bulk like dividends
distributions, salaries, interests, pensions, etc.

The process of activation of ECS mandates had a longer turnaround time (30 days) than what it is expected to be in
NACH (10 days). Also, the Aadhar-based benefit transfers have been simplified.
There are four types of electronic clearing services:
Local ECS
Regional ECS
National ECS
NACH
While the Local ECS, Regional ECS, National ECS are controlled by the Reserve Bank of India or by the
designated commercial banks, NACH functions on all India platforms managed by the National Payments Corporation
of India (NPCI).

Cheque Truncation System (CTS)

Cheque Truncation System (CTS) or Image-based Clearing System (ICS), in India, is a project of the Reserve Bank
of India (RBI), commencing in 2010, for faster clearing of cheques.
CTS is based on a cheque truncation or online image-based cheque clearing system where cheque images and
magnetic ink character recognition (MICR) data are captured at the collecting bank branch and transmitted
electronically.
The Reserve Bank of India first implemented CTS in National Capital Region, New Delhi from 1 February 2008 with
ten pilot banks and the deadline was set as 30 April 2008 for all the banks.

Banks derive multiple benefits through the implementation of CTS, like a faster clearing cycle meaning
technically possible realization of proceeds of a cheque within the same day. It offers better reconciliation/ verification,
better customer service and enhanced customer window.
Customer satisfaction is enhanced, due to the reduced turn around time (TAT). It also offers better reconciliation and
fraud prevention.

Aadhaar Payments Bridge System (APBS)

In order to further speed track Financial Inclusion in the country, Two Working Group were constituted by RBI
on MicroATM standards and Central Infrastructure & Connectivity for Aadhaar based financial inclusion transactions
with members representing RBI, Unique Identification Authority of India, NPCI, Institute for Development and Research
in Banking Technology and some special invitees representing banks and research institutions.

The working group on MicroATM standards & Central Infrastructure & Connectivity has submitted its report to RBI. As
a part of the working group it was proposed to conduct a Lab level Proof of concept (PoC), integrating the
authentication & encryption standards of UIDAI, to test the efficacy of MicroATM standards and transactions
using Aadhaar before they are put to actual use. The PoC was successfully demonstrated at various venues.

AEPS is a bank led model which allows online interoperable financial inclusion transaction at PoS (MicroATM)
through the Business correspondent of any bank using the Aadhaar authentication.
Important Objectives

To empower a bank customer to use Aadhaar as his/her identity to access his/ her respective Aadhaar enabled
bank account and perform basic banking transactions like balance enquiry, Cash deposit, cash
withdrawal, remittances that are intrabank or interbank in nature, through a Business Correspondent.
To sub-serve the goal of Government of India (GoI) and Reserve Bank of India (RBI) in furthering
Financial Inclusion.
To sub-serve the goal of RBI in electronification of retail payments.
To enable banks to route the Aadhaar initiated interbank transactions through a central switching and
clearing agency.

RuPay

RuPay is an Indian domestic card scheme conceived and launched by the National Payments Corporation of India
(NPCI).
RuPay also provides a unified "Kisan Card", issued by banks across the country under Kisan Credit Card, enabling
farmers to transact business on ATMs and PoS terminals.
NPCI has rolled out its chip card for high security transactions using EMV (Europay, MasterCard and Visa) chip
technology, which is a global standard for debit and credit cards.

Bharat Bill Payment System

Bharat Bill Payment System (BBPS) is an integrated bill payment system in India offering interoperable and
accessible bill payment service to customers through a network of agents, enabling multiple payment modes, and
providing instant confirmation of payment.

National Payments Corporation of India (NPCI) will function as the authorized Bharat Bill Payment Central Unit
(BBPCU), which will be responsible for setting business standards, rules and procedures for technical and business
requirements for all the participants.

The Committee headed by Former RBI Executive Director G. Padmanabhan was set up in 2013 to study the feasibility
of implementation of Giro based Payment Systems.

Basic Savings Bank Deposit Account and Small Account - Features | Limits | Rules

Basic Savings Bank Deposit Account

The aim of introducing 'Basic Savings Bank Deposit Account'(BSBDA) is a part of the efforts of RBI for promoting
Financial Inclusion objectives. BSBDA is the new word coined to substitute the nomenclature no-frills account.

In BSBDA, the account holder gets the basic banking services with minimum common facilities either with nil or very
low minimum balance. Banks do not charge the customers for not maintaining minimum balance in the BSBDA, so as
to enable such accounts accessible to vast sections of population.

It is important to notice that the 'Basic Savings Bank Deposit Account is not restricted to poor and weaker section of
the population. There are no restrictions on criteria like age, income, amount etc., for opening BSBDA by banks for
individuals.

BSBDA Accounts would be subject to the following conditions:

BSBDA is a savings account that can be opened by any individual or HUF (Hindu Undivided Family) who has no
savings bank account in that bank.
Total credits in such accounts should not exceed one lakh rupees in a year.
Maximum balance in the account should not exceed fifty thousand rupees at any time.
The total of debits by way of cash withdrawals and transfers will not exceed ten thousand rupees in a month.
An individual is eligible to have only one 'Basic Savings Bank Deposit Account' in one bank.
Balance enquiry through ATMs should not be counted in the four withdrawals allowed free of charge at ATMs.
While opening the BSBDA customers consent in writing be obtained that his existing non-BSBDA Savings Banks
accounts will be closed after 30 days of opening BSBDA and banks are free to close such accounts after 30
days.
The prime purpose of BSBDA Account is Financial Inclusion.
The BSBDA needs proper KYC Documents.
NEFT, RTGS are available in BSBDA.

SMALL ACCOUNT
Those persons who do not have any of the official valid documents can open small accounts with banks. A
small account can be opened on the basis of a self-attested photograph and putting her/his signature or thumb print in
the presence of an official of the bank.

Features:
Aggregate deposit should not exceed one lakh rupees in a year.
Maximum balance in the account should not exceed fifty thousand rupees at any time.
The total of debits by way of cash withdrawals and transfers will not exceed ten thousand rupees in a month.
Foreign remittances can not be credited to Small Accounts without completing normal KYC formalities.
Small accounts are valid for a period of 12 months initially, extended upto 12 months.
Small Accounts can only be opened at CBS linked branches of banks.

Different Types of ATMs in India

Bank ATMs: The ATMs which are Owned, Managed, Installed by Banks. The most common, you see in the Bank
Branch building.

Brown-Label ATMs: Now, Brown-Label ATMs are little different from Bank ATMs. They are outsourced to a company,
who manages, installs and look after the ATMs. However, these ATMs has a Logo of the Bank in it, which makes sure,
that ATM is installed by the Bank. Mostly these were used by Private Sector Banks in India.
Some of the High-Tech Brown-Label ATMs swallows the Card till the transactions are over. You can check them out in
metro cities under various famous banks like, Standard Chattered, HDFC, Yes Bank, ICICI Bank.

White-Label ATMs: White-Label ATMs are similar to Brown-Label ATMs except the fact, they don't have any Bank
Logo in them. Now, Tata Indicash, currently famous WLATM, do have a logo of Indicash in it. Now, if they don't have
anything written in them, then how will we understand its a ATM? Isn't it? Also WL-ATMs has Advertisements which
Brown-Label or Bank ATMs NEVER HAD.

Cash Dispenser: Allows only cash withdrawls,balance enquiry and mini statement requests, cash dispenser(CD) is
generally used as the ATM,however the customer cannot deposit cash or cheques in a CD, wherear, they can use
ATM both for cash withdrawl and for depositing cash or cheque.

Mobile ATM: Refers to an ATM that moves in various areas for the customers. Few priavte banks have introduced
ATM on wheels.

Onsite ATMs: Onsite ATMs are the ATMs we see with the Branch Building. When you get into HDFC or SBI, you will
often see ATMs. These are Onsite ATMs.

Offsite ATMs: Offsite ATMs are the ATMs we see in some separate house/building. These ATMs are not attached to
the bank branch building but in the areas of Bank Branch.

Stand Alone ATMs: Stand-alone ATMs are similar to Offsite ATMs except the fact, they are just the Machines and
Nothing Else. Now where do we see them? We usually go to Supermarkets or Shopping Malls, and we notice ATMs.
They are the most common example of Stand-Alone ATMs.

Micro ATM: A point of sale terminal which is used specifically for withdrawal of money. So in one line, a PoS terminal
where you can swipe your debit/ATM card to take cash from the authorized agent is called Micro ATM. The micro
ATM cards are issued to the customers of Aadhar- linked bank accounts. A host computer is connected or
communicated via unique mobile handset allied with GPRS network to several micro ATM machines.

Banks have firmed up the upper limit on withdrawals at micro automatic teller machines (ATMs) at Rs 10,000
as part of rules governing small transactions, especially under financial inclusion. They will levy an interchange fee
of Rs 2 for withdrawal up to Rs 2,000 per transaction.

With the advent of technology the Micro- ATMs connect bank customers of rural areas who are far away from
the branches. The Micro ATMs run on GSM or GPRS (an upgrade to GSM) connectivity and therefore they are
portable. The operator (BC) can carry the Micro ATM from one village to another at set times. Even shop-keeper can
simultaneously work as a Business Correspondent (BC) and keep the terminal in his shop.

Benefits of ATM

The benefit of ATMs for customers are:

Provide 24x7 and 365 days a year service.
Offer quicker and efficient service.
Allow privacy in transactions
Are error free

The benefits of ATM for banks are:

Is an alternative to extend banking hours
Is cheaper if transaction are large in number,thereby,reducing footfall at the branches
Is an alternative to opening new branches
Reduces the operating expenses of the bank
Helps banks to avoid transportation of cash and cash handling employees
Can be located in any convenient location in any form as wall unit,lobby unit or a window unit.
Increase market penetration
Relieve the bank employees from routine transactions so that they can focus more on analytical and innovative work
Enables bank officials to up-sell or cross-sell either same products or different products

Transaction Limits
Transactions at a banks own ATMs at any location: Banks must offer their savings bank account holders a
minimum of five free transactions (including both financial and non-financial) in a month, irrespective of the location of
ATMs

Transactions at any other banks ATMs at Metro locations: In case of ATMs located in six metro locations, viz.
Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad, banks must offer their savings bank account
holders a minimum of three free transactions (including both financial and non-financial transactions) in a month.

Transactions at any other banks ATMs at Non-Metro locations: At other locations, banks must offer the savings
bank account holders a minimum of five free transactions (including both financial and non-financial transactions) in a
month at other bank ATMs.

RBI has mandated only the minimum number of free transactions at ATMs. Banks may offer more number of
transactions free of cost to their customers.

The above does not apply to Basic Savings Bank Deposit Accounts (BSBDA) as withdrawals from BSBDA are
subject to the conditions associated with such accounts.

Fine in case of Failure:

Effective from July 1, 2011, banks have to pay compensation of Rs. 100/- per day for delays in re-crediting the amount
beyond 7 working days from the date of receipt of complaint for failed ATM transactions.

The compensation has to be credited to the account of the customer without any claim being made by the customer. If
the complaint is not lodged within 30 days of transaction, the customer is not entitled for any compensation for delay in
resolving his / her complaint.

First Bank to Introduce ATM in India: HSBC

First NBFC to launch White Label ATMs: Tata Communication Payment Solution Limited under the brand "Indicash".
First Mobile ATM in India: ICICI Bank - ATM on Wheels
First Micro ATM in India: Axis Bank
India's first Aadhaar based ATM: DCB Bank
India's first "talking" ATM launched by Union bank of India for visually impaired, was launched in Ahmadabad
(Gujarat)
The national payments corporation of India (NPCI) launches India's first rural bank ATM card with a regional rural
bank in Varanasi.

Mobile Wallets & Banking AppS

BHIM or Bharat Interface for Money - A mobile app based on Unified Payment Interface (UPI) developed by National
Payment Corporation of India and launched by PM Narendra Modi. As per the transaction limit that has been placed in
the app, a maximum of Rs.10,000 per transaction will be permitted followed by Rs. 20,000 within 24 hours.
'State Bank MobiCash' - Digital wallet by SBI and BSNL.
Paytm - Developed by One97 Communications
PhonePe - UPI based wallet app from Flipkart & Yes Bank
Buddy - Mobile wallet app by SBI and Accenture, MasterCard
SIMsePAY - Yes Bank, Uttarakhand - Enables Cashless Transactions Without Smartphone or Internet
SBI Pay - UPI based app by SBI
Mingle - Social Banking App by SBI and TCS
Axis Pay - UPI based app by Axis Bank
Yes Pay - UPI based app by Yes Bank
Baroda MPay - UPI based app by Bank of Baroda
Lime - Wallet by Axis Bank
iMobile - Developed by ICICI Bank
Eazypay - A UPI enabled merchant payment app by ICICI Bank
Chillr - developed by HDFC Bank
Freecharge - Acquired by SnapDeal
HDFC PayZapp - Developed by HDFC Bank
Pockets - Developed by ICICI Bank

Other Mobile Wallets

Jio Money - developed by Reliance Jio
mRupee - developed by Tata Teleservices
Trupay - UPI based/Adhaar Enabled App
mPesa - developed by Vodafone
Itzcash
Citrus Pay
Mobikwik
Oxigen Wallet
Airtel Money

All Types of Banks in India with Definition & Guidelines

A scheduled bank, in India, refers to a bank which is listed in the 2nd Schedule of the Reserve Bank of India Act,
1934. Banks not under this Schedule are called non-scheduled banks.

Scheduled commercial banks

Nationalised banks
State Bank of India and its associates
Regional Rural Bank (RRBs)
Foreign banks
Other Indian private sector banks
Scheduled State Co-operative Banks
Scheduled Urban Co-operative Banks
Foreign Private Banks

Types of Banks in India

Public-sector banks
State Bank and its associates Nationalised banks
Private-sectorbanks
Foreign Banks
Foreign banks with branches in India
Foreign banks with representative offices in India
Regional Rural Banks (RRBs)
Cooperative banks
Central Co-operative Banks
State Co-operative Banks
Land Development Banks
Urban Co-operative Banks

The Indian banking system consists of 27 public sector banks, 25 private sector banks, 43 foreign banks, 56
regional rural banks, 1,589 urban cooperative banks and 93,550 rural cooperative banks, in addition to cooperative
credit institutions. Public-sector banks control nearly 80 percent of the market, thereby leaving
comparatively much smaller shares for its private peers. Banks are also encouraging their customers to manage their
finances using mobile phones.

Public Sector Banks

Public Sector Banks (PSBs) are banks where a majority stake (i.e. more than 50%) is held by a government.
There are a total of 27 PSBs in India [21 Nationalized banks + 6 State bank group (SBI + 5 associates) ]. However,
after the merger of BMB and SBI Associates with State Bank of India, the total number of Public Sector Bank will be
21. FDI Limit in Public Sector Banking Upto 20%

Private Sector Banks

The private-sector banks in India represent part of the indian banking sector that is made up of both private and
public sector banks. The "private-sector banks" are banks where greater parts of state or equity are held by the private
shareholders and not by government.

FDI Limit in Private Sector Banking Beyond 49% & Upto 74%
The private sector banks are split into two groups by financial regulators in India, old and new. The
old private sector banks existed prior to the nationalisation in 1969 and kept their independence because they
were either too small or specialist to be included in nationalisation. The new private sector banks are those that
have gained their banking license since the liberalisation in the 1990s

Examples of the old private-sector banks in India

City Union Bank - 1904
Dhanlaxmi Bank - 1927
Federal Bank - 1931
Karur Vysya Bank - 1916
Lakshmi Vilas Bank - 1926
The banks, which came in operation after 1991, with the introduction of economic reforms and financial sector
reforms are called "new private-sector banks". Banking regulation act was then amended in 1993, which permitted the
entry of new private-sector banks in the Indian banking s sector. However, there were certain criteria set for the
establishment of the new private-sector banks, some of those criteria being

The bank should have a minimum net worth of Rs. 200 crores.
The promoters holding should be a minimum of 25% of the paid-up capital.
Within 3 years of the starting of the operations, the bank should offer shares to public and their net worth must
increase to 300 crore

New private sector banks

Axis Bank (earlier UTI Bank) - 1994
Bank of Punjab (actually an old generation private bank since it was not founded under post-1993 new bank
licensing regime) - 1989
Centurion Bank Ltd. (Merged Bank of Punjab in late 2005 to become Centurion Bank of Punjab, acquired by HDFC
Bank Ltd. in 2008) 1994
Development Credit Bank (Converted from Co-operative Bank, now DCB Bank Ltd.) - 1995
ICICI Bank (previously ICICI and then both merged; total merger SCICI+ICICI+ICICI Bank Ltd) - 1996
IndusInd Bank - 1994
Kotak Mahindra Bank - 2003
Yes Bank - 2005
HDFC Bank - 1994
Bandhan Bank - 2015
IDFC Bank - 2015

Payment Banks

Payments Banks are a new set of banks licensed by the Reserve Bank of India to further financial inclusion by
enabling them to provide (i) small savings/ current accounts below Rs. 1 lakh (ii), distribution of mutual funds,
insurance products on a non risk sharing basis and (ii) payments / remittance services to migrant labour workforce, low
income households, small businesses, other unorganised sector entities and other users through high volume-low
value transactions in deposits and payments / remittance services using a secured technology-driven environment
including issuance of prepaid cards etc.

The minimum paid-up equity capital for payments banks shall be Rs. 100 crore, of which the promoters
contribution would be minimum 40 percent of paid-up equity capital for the first 5 years of commencement of the
business.

The Payments Bank are proposed to be registered as a public limited company under the Companies Act, 2013, and
licensed under Section 22 of the Banking Regulation Act, 1949, with specific licensing conditions restricting its
activities to acceptance of demand deposits and provision of payments and remittance services. It will be governed by
the provisions of the Banking Regulation Act, 1949, Reserve Bank of India Act, 1934, Foreign Exchange Management
Act, 1999, Payment and Settlement Systems Act, 2007 etc.

The proposal for creating payments banks stemmed from the report of the Committee on Comprehensive
Financial Services for Small Businesses and Low Income Households (Chairman: Dr. Nachiket Mor) submitted
in January 2014. This was later announced in the Union budget 2014-2015 presented on July 10, 2014.

Department of Posts is launching India Post Payments Bank (IPPB) as a Public Limited Company with 100%
Government of India (GOI) equity.
Airtel recently launched India's first Payment Bank in Rajasthan.

Regional Rural Banks

Regional Rural Banks (RRBs) are financial institutions which ensure adequate credit for agriculture and other
rural sectors . Regional Rural Banks were set up on the basis of the recommendations of the Narasimham Working
Group (1975), and after the legislations of the Regional Rural Banks Act, 1976. The first Regional Rural Bank
Prathama Grameen Bank was set up on October 2, 1975. At present there are 56 RRBs in India.

The equity of a regional rural bank is held by the Central Government, concerned State Government and the
Sponsor Bank in the proportion of 50:15:35. The RRBs combine the characteristics of a cooperative in terms of the
familiarity of the rural problems and a commercial bank in terms of its professionalism and ability to mobilise financial
resources.

Within the 40% priority target, 25% should go to weaker section or 10% of their total advances should go to the
weaker section .Weaker sections, under priority sector lending purposes, include scheduled castes, scheduled tribes,
small and marginal farmers, artisans and self help groups.

The sources of funds of RRBs comprise of owned fund, deposits, borrowings from NABARD, Sponsor Banks and
other sources including SIDBI and National Housing Bank.

Small Finance Banks

The Small Finance Bank (SFB) is a private financial institution intended to further the objective of financial
inclusion by primarily undertaking basic banking activities of acceptance of deposits and lending to
un-served and underserved sections including small business units, small and marginal farmers, micro and small
industries and unorganised sector entities, but without any restriction in the area of operations, unlike Regional Rural
Banks or Local Area Banks.

The concept of small finance banks was also one of the recommendations in the 2009 Report A Hundred Small
Steps - of the Committee on Financial Sector Reforms headed by Dr. Raghu Ram Rajan.

The minimum capital for SFBs is prescribed at Rs. 100 crore with an initial contribution of 40% coming from
the promoters, which over a period of 12 years, have to be reduced to 26%. Foreign Investment is permitted as
in the case of other private sector commercial banks. After the small finance bank reaches the net worth of Rs.500
crore, listing of its shares on a stock exchange will be mandatory within three years of reaching that net worth.

The target group of SFBs are similar to that of Local Area Banks.
They are required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC)to the sectors eligible for classification
as priority sector lending (PSL) by the Reserve Bank. At least 50 per cent of its loan portfolio should constitute
loans and advances of upto Rs. 25 lakh
There will not be any restriction in the area of operations of small finance banks; however, preference will be
given to those applicants who in the initial phase set up the bank in a cluster of under-banked States / districts. it is
stipulated that at least 25 per cent of its branches shall be in unbanked rural centers.

Local Area Banks

The Local Area Banks (LABs) are small private banks, conceived as low cost structures which would provide
efficient and competitive financial intermediation services in a limited area of operation, i.e., primarily in rural and semi
urban areas, comprising three contiguous districts.

LABs were required to have a minimum capital of Rs. 5 crore.

The promoters of the bank may comprise of private individuals, corporate entities, trusts and societies with
a minimum capital contribution of Rs. 2 crore.
The area of operation of LAB is limited to a maximum of three geographically contiguous districts and are
allowed to open branches only in its area of operation.

In 2014, RBI has permitted LABs to be converted into small finance banks subject to them meeting the prescribed
eligibility criteria.

Foreign Banks

Foreign banks are those banks whose branch offices are in India but they are incorporated outside India, and
have their head office in a foreign country. These banks were allowed to set up their subsidiaries in India from the year
2002.
The foreign banks can operate in India only, if they have a sound financial status. They must have a minimum of
25 million US dollars in minimum 3 branches. The first branch and the second branch must have 10 million US
dollars each. The third branch should have a
minimum of 5 million US dollars.

Co-operative Banks

The State Co-operative Banks (SCBs), Central Co-operative Banks (CCBs) and Urban Co-operative Banks (UCBs)
can normally extend housing loans upto Rs 1 lakh to an individual. The scheduled UCBs, however, can lend upto
Rs 3 lakh for housing purposes. The UCBs can provide advances against shares and debentures also.

The co-operative banks are small-sized units which operate both in urban and non-urban centers. They finance small
borrowers in industrial and trade sectors besides professional and salary classes. Regulated by the Reserve Bank of
India, they are governed by the Banking Regulations Act 1949 and banking laws (co-operative societies)
act, 1965. The co-operative banking structure in India is divided into following 5 categories:

Central Co-operative Banks

These are the federations of primary credit societies in a district and are of two types-those having a
membership of primary societies only and those having a membership of societies
as well as individuals.

State Co-operative Banks

The state co-operative bank is a federation of central co-operative bank and acts as a watchdog of the
co-operative banking structure in the state. Its funds are obtained from share capital, deposits, loans and overdrafts
from the Reserve Bank of India. The state co-operative banks

Land Development Banks

The Land development banks are organized in 3 tiers namely; state, central, and primary level and they meet
the long term credit requirements of the farmers for developmental purposes. The state land development banks
oversee, the primary land development banks situated in the districts and tehsil areas in the state. They are governed
both by the state government and Reserve Bank of India. Recently, the supervision of land development banks has
been assumed by National Bank for Agriculture and Rural development (NABARD).

Urban Co-operative Banks

The term Urban Co-operative Banks (UCBs), though not formally defined, refers to primary co-operative banks
located in urban and semi-urban areas. These banks, till 1996, were allowed to lend money only for non-agricultural
purposes.

Universal Banking
Universal Banking, a concept that has gained a lot of credence in recent times, can be defined as a multi-purpose
and multi-functional supermarket providing both banking and financial services through a single window. In simple
words, a Universal Bank is a super store for financial products. Under one roof, Corporates can get loans and avail of
other handy services, while individuals can bank and borrow.

Bandhan, which started as an NGO in 2001 and later turned into a microfinance institute, is the first MFI to
become a universal bank.

Universal banking in general refers to the combination of commercial banking and Investment banking i.e., issuing
underwriting, investing and trading in securities. In a broad sense, however, the term Universal banking refers to those
banks that offer a wide variety of financial services especially insurance (Reddy, 2000).
There are four different types of Universal Banks in the world. They are as follows

Fully Integrated Universal Banks: Fully integrated Universal banks are those banks which function as a single
institutional entity offering a complete range of banking and financial products and services.
Partly Integrated Financial Conglomerates: It is an institutional set-up where the bank offers a range of services,
with some of the services such as mortgage banking, leasing, and insurance being provided through wholly
owned or partially owned subsidiaries.
Bank Subsidiary Structure: These are the banks that offer functions such as investment banking and insurance in
addition to focussing on regular commercial banking functions.
Bank Holding Company Structure: Bank holding company structure is an institutional set-up where banking and
financial products are offered through a financial holding company that owns both banking and non-banking
subsidiaries that are legally separate.

10 key guidelines for 'on tap' licensing of universal banks in the private sector
The initial minimum paid-up voting equity capital for a bank shall be 500 crore rupees. Thereafter, the bank shall have
a minimum net worth of 500 crore rupees at all times.
Resident individuals and professionals having 10 years of experience in banking and finance at a senior level are also
eligible to promote universal banks.
Large industrial houses are excluded as eligible entities but are permitted to invest in the banks up to 10 per cent.
Non-Operative Financial Holding Company (NOFHC) is non-mandatory in case of promoters being individuals or
standalone promoting or converting entities who do not have other group entities.
Not less than 51 per cent of the total paid-up equity capital of the NOFHC shall be owned by the promoter or the
promoter group, instead being wholly owned by the promoter group.
Foreign shareholding in the bank would be as per the existing foreign direct investment policy subject to the minimum
promoter shareholding requirement. At present, the aggregate foreign investment limit is 74 per cent.
Existing specialised activities have been permitted to be continued from a separate entity proposed to be held under
the NOFHC subject to prior approval from the Reserve Bank.
The business plan submitted by the applicant should be realistic and viable and address how the bank proposes to
achieve financial inclusion.
The bank shall get its shares listed on the stock exchanges within six years of the commencement of business
by the bank.
The bank shall open at least 25 per cent of its branches in unbanked rural centres and should comply with the
priority sector lending targets and sub-targets as applicable to the existing domestic scheduled commercial banks.

Banking Correspondents

Banking Correspondents (BCs) are individuals/entities engaged by a bank in India (commercial banks, Regional
Rural Banks (RRBs) and Local Area Banks (LABs)) for providing banking services in unbanked / under-banked
geographical territories. A banking correspondent works as an agent of the bank and substitutes for the brick and
mortar branch of the bank.

BCs engage in
identification of borrowers; collection and preliminary processing of loan applications including verification of primary
information/data;
creating awareness about savings and other products and education and advice on managing money and debt
counselling;
processing and submission of applications to banks; promoting, nurturing and monitoring of Self Help Groups/ Joint
Liability Groups/Credit Groups/others;
post-sanction monitoring; follow-up for recovery, disbursal of small value credit, recovery of principal / collection of
interest collection of small value deposits
sale of micro insurance/ mutual fund products/ pension products/ other third party products and receipt and delivery of
small value remittances/ other payment instruments.

The banks in India may engage the following individuals/entities as BCs.

Individuals like retired bank employees, retired teachers, retired government employees and ex-servicemen,
individual owners of kirana (small shops) / medical /Fair Price shops, individual Public Call Office (PCO) operators,
agents of Small Savings schemes of Government of India/Insurance Companies, individuals who own petrol pumps,
authorized functionaries of well-run Self Help Groups (SHGs) which are linked to banks, any other individual including
those operating Common Service Centres (CSCs);
NGOs/ Micro Finance Institutions set up under Societies/ Trust Acts or as Section 25 Companies ;
Cooperative Societies registered under Mutually Aided Cooperative Societies Acts/ Cooperative Societies Acts of
States/Multi State Cooperative Societies Act; Post Offices;
Companies registered under the Indian Companies Act, 2013 with large and widespread retail outlets
Non-banking Finance Companies (NBFCs) were not allowed to be appointed as Business Correspondents (BCs) by
banks. However, since June 2014 banks have been permitted to engage non-deposit taking NBFCs (NBFCs-ND) as
BCs.

Banks Board Bureau

Banks Board Bureau is an autonomous body of Union Government of India tasked to improve the governance of
Public Sector Banks, recommend selection of chiefs of government owned banks and financial institutions and to
help banks in developing strategies and capital raising plans.
The BBB, originally proposed by the PJ Nayak Committee, was proposed to review governance issues in the
banking sector.
Vinod Rai is the Chairman of the Mumbai based Bureau.

ALL About Goods and Services Tax

Goods and Services Tax (GST) is a proposed system of indirect taxation in India merging most of the existing taxes
into single system of taxation. It was introduced by The Constitution (One Hundred and First Amendment) Act
2016.

"Goods and Services Tax" would be a comprehensive indirect tax on manufacture, sale and consumption of goods
and services throughout India, to replace taxes levied by the central and state governments.

Features:
GST is one indirect tax for the whole nation, which will make India one unified common market.
GST is a single tax on the supply of goods and services, right from the manufacturer to the consumer. Credits of input
taxes paid at each stage will be available in the subsequent stage of value addition, which makes GST essentially a
tax only on value addition at each stage. The final consumer will thus bear only the GST charged by the last dealer in
the supply chain, with set-off benefits at all the previous stages.
GST is being introduced in the country after a 13 year long journey since it was first discussed in the report of
the Kelkar Task Force on indirect taxes.

Which taxes at the Centre and State level are being subsumed into GST?
At the Central level, the following taxes are being subsumed:

I. Central Excise Duty,

II. Additional Excise Duty,
III. Service Tax,
IV. Additional Customs Duty commonly known as Countervailing Duty, and
V. Special Additional Duty of Customs.

At the State level, the following taxes are being subsumed:

I. Subsuming of State Value Added Tax/Sales Tax,
II. Entertainment Tax (other than the tax levied by the local bodies), Central Sales Tax (levied by the Centre and
collected by the States),
III. Octroi and Entry tax,
IV. Purchase Tax,
V. Luxury tax, and
VI. Taxes on lottery, betting and gambling.

The GST council on 3 November 2016 approved four tier tax structure of 5, 12, 18 and 28 percent under the
proposed Goods and Services Tax (GST). There will be two standard tax rates- 12 percent and 18 percent under the
GST. Under the tax structure of 5, 12, 18 and 28 percent, the lower rates will be applicable for essential items and the
highest for luxury and de-merits goods that will also attract an additional cess.

Main Highlights
Essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at
zero rate.
The lowest rate of 5 percent will be for common use items while there will be two standard rates of 12 and 18 percent
under the Goods and Services Tax (GST) regime.
Most white goods like washing machines, air conditioners, refrigerators, shampoo, shaving stuff and soap will be taxed
at 28 percent (with riders).
The highest tax slab will be applicable to items which are currently taxed at 30-31 percent (excise duty plus VAT).
Demerit goods or sin goods such as luxury cars, pan masala, aerated drinks, and tobacco and tobacco products, will
invite a tax of 28 percent plus the cess which could vary between 40 percent and 65 percent.
There has been no consensus yet on tax rate for gold.
The collection from this cess as well as that of the clean energy cess will create a revenue pool which will be used for
compensating states for any loss of revenue during the first five years of implementation of GST.
The cess will be lapsable after five years.
GST threshold was set at 10 lakh for the north-east and hill states and 20 lakh for other states in the first
GST council meet.
Centre and states agreed that assessee up to 1.5 crore will be assessed by states and above that will be
assessed by centre and states.

The Act was passed in accordance with the provisions of Article 368 of the Constitution, and has been ratified by more
than half of the State Legislatures, as required under Clause (2) of the said article.
On 12 August 2016, Assam became the first state to ratify the bill, when the Assam Legislative Assembly
unanimously approved it.

State Legislatures that ratified the amendment are listed below:

Assam (12 August)
Bihar (16 August)
Jharkhand (17 August)
Himachal Pradesh (22 August)
Chhattisgarh (22 August)
Gujarat (23 August)
Madhya Pradesh (24 August)
Delhi (24 August)
Nagaland (26 August)
Maharashtra (29 August)
Haryana (29 August)[
Telangana (30 August)
Sikkim (30 August)
Mizoram (30 August)
Goa (31 August)
Odisha (1 September)
Puducherry (2 September)
Rajasthan (2 September)
Andhra Pradesh (8 September)
Arunachal Pradesh (8 September)
Meghalaya (9 September)
Punjab (12 September)
Tripura (26 September)

Did not ratify:

Jammu and Kashmir, Karnataka, Kerala, Manipur, Tamil Nadu, Uttar Pradesh, Uttarakhand, West Bengal.

Goods and Services Tax Network (GSTN), the company which was tasked to set up IT infrastructure for the GST,
said that by January it will start training around 60,000 state government officials to equip them to handle GST roll out.
The non-profit organisation said that the Centre agreed to pay around Rs 500 crore every year on behalf of the tax
payers as service charge.

Kisan Vikas Patra and Senior Citizen Savings Scheme (SCSS) Account | Interest Rates, Limits and Objective

Kisan Vikas Patra

Kisan Vikas Patra (KVP) is a saving instrument launched by the Government for individual savers, wherein invested
money doubled during the maturity period. This savings scheme was first launched by the Government on 1 April,
1988 and was distributed through post offices. It was discontinued in 2011 and later reintroduced in 2014.
Rate of Interest of KVP as of 20 January 2017 is 7.7%.

Highlights of Kisan Vikas Patra

KVP is considered a part of the National Small Savings Fund.

The amount invested in Kisan Vikas Patra would get doubled in 112 months or nine years and four months.
Kisan Vikas Patra (KVP) certificates are available to the investors in the denomination of Rs. 1000, 5000,
10,000 and 50,000.
The certificates can be issued in single or joint names and can be transferred from one person to any other
person / persons, multiple times.
The minimum amount that can be invested is Rs 1000. However, there is no upper limit on the purchase of
KVPs.
KVP is not a tax saving instrument as it does not offer any income tax exemption.
The amount of KVP can be withdrawn after 100 months (8 years and 4 months).
The maturity period or lock-in period of a KVP is 2 years 6 months(30
months).
Reintroduction of Kisan Vikas Patra (KVP) was to provide a safe and secure investment avenue to the investors so as
to help in augmenting the savings rate in the country.
The scheme is also aimed at safeguarding investors from fraudulent schemes, considering the number of ponzi
schemes that have surfaced particularly after the closure of KVP.

Senior Citizen Savings Scheme (SCSS) Account

Designated for individuals above the age of 60, the Saving Schemes for senior citizens in India are effective,
long term saving options and offer unmatched security and features that are usually associated with any government
sponsored savings program.
Rate of Interest of Senior Citizen Savings Scheme (SCSS) Account as of 20 January, 2017 is 8.5%.

Highlights of Senior Citizen Savings Scheme (SCSS) Account

An individual of the Age of 60 years or more may open the account.
An individual of the age of 55 years or more but less than 60 years who has retired on superannuation or under
VRS can also open account subject to the condition that the account is opened within one month of receipt of
retirement benefits and amount should not exceed the amount of retirement benefits.
Maturity period is 5 years.
After maturity, the account can be extended for further three years within one year of the maturity by giving
application in prescribed format.
There shall be only one deposit in the account in multiple of INR.1000/- maximum not exceeding INR 15 lakh.
Account can be opened by cash for the amount below INR 1 lakh and for INR 1 Lakh and above by cheque only.
Premature closure is allowed after one year on deduction of an amount equal to1.5% of the deposit & after 2 years 1%
of the deposit.
TDS is deducted at source on interest if the interest amount is more than INR 10,000/- p.a.

All About Sukanya Samriddhi Account | Current Interest Rate, Limits, Terms

The scheme was launched by Prime Minister Narendra Modi on 22 January 2015 as a part of the Beti Bachao, Beti
Padhao campaign.
The scheme currently (1 October 2016 to until now) provides an interest rate of 8.5% (for FY2016-17) and tax benefits.
Sakshi Malik is the brand ambassador of Beti Bachao, Beti Padhao campaign in Haryana.

15 Important Points to Remember about Sukanya Samriddhi Account:

The scheme encourages parents to build a fund for the future education and marriage expenses for their female child.
The account can be opened at any India Post office or branch of authorised commercial banks.
The account may be opened by the natural or legal guardian in the name of a girl child from the birth of the girl child
till she attains the age of ten years and any girl child.
Natural or legal guardian of a girl child shall be allowed to open the account for two girl children only. (In case of
Twins, three accounts are allowed)
The account can be transferred to anywhere in India.
A minimum of 1,000 must be deposited in the account annually.
The maximum deposit limit is 150,000.
If the minimum deposit is not made in a year, a fine of 50 will be levied.
The girl can operate her account after she reaches the age of 10.
The account allows 50% withdrawal at the age of 18 for higher education purposes.
The account reaches maturity at the age of 21.
If the account is not closed, then it will not earn interest at the prevailing rate.
No interest shall be payable once the Account completes twenty-one years from the date of its opening.
If the girl is over 18 and married, normal closure is allowed.
The Account may be transferred anywhere in India and from or to post offices and from or to Banks and between
post office and Bank, free of cost on furnishing of proof of shifting of residence of either the guardian or the Account
holder and otherwise, on payment of a fees of one hundred rupees to the post office or the Bank to which the transfer
is made.

All About Pradhan Mantri MUDRA Yojana and MUDRA Bank

The Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the Union Government on April 8, 2015 for
providing loans upto 10 lakh to the non-corporate, non-farm small/micro enterprises.
Under PMMY, all banks viz. Public Sector banks, Private Sector Banks, Regional Rural Banks (RRBs), State
Co-operative Banks, Urban Co-operative Banks, Foreign Banks and Non-Banking Finance Companies (NBFCs)/Micro
Finance Institutions (MFIs) - are required to lend to non-farm sector income generating activities below 10 lakh.

These loans are classified as MUDRA loans under PMMY.

PMMY was announced through Union Budget 2015-16, which proposed to create MUDRA bank with a corpus of
20,000 crore made available from the shortfalls of priority sector lending, to refinance Micro-Finance Institutions
through Pradhan Mantri Mudra Yojana.
Further, budget supported a credit guarantee corpus of 3,000 crore for guaranteeing loans being provided to
the micro enterprises.

The purpose of PMMY is to provide funding to the non-corporate small business sector. Non- Corporate Small
Business Segment (NCSBS) consists of millions of proprietorship/ partnership firms running as small manufacturing
units, service sector units, shopkeepers, fruits/ vegetable vendors, truck operators, food-service units, repair shops,
machine operators, small industries, artisans, food processors and others, in rural and urban areas.
One of the biggest hurdles to the growth of entrepreneurship in the Non-Corporate Small Business Sector (NCSBS)
is lack of financial support to this sector and a vast majority belonging to this sector do not have access to formal
sources of finance.

Loan offerings under PMMY

Under the aegis of PMMY, the MUDRA has already created its initial set of products/ schemes. The interventions have
been named Shishu (meaning infant), Kishor (meaning child) and Tarun (meaning adolescent) to signify the state
of growth/development and funding needs of the beneficiary micro unit/entrepreneur and also provide a reference point
for the next phase of graduation / growth to look forward to:

Shishu: covering loans upto 50,000/- provided with no collateral, @1% rate of interest/month repayable over a
period of 5 years
Kishor: covering loans above 50,000/- and upto 5 lakh
Tarun: covering loans above 5 lakh to 10 lakh

Approach of PMMY
A minimum of 60% of support would flow to enterprises in the smallest segment. Partner intermediaries of
MUDRA Bank have to endeavor to adhere to the following broad framework :
First time entrepreneurs, youth entrepreneurs (i.e. entrepreneurs aged up to 30 years) and women entrepreneurs
shall be encouraged and special schemes shall be designed for such entrepreneurs,
Emphasis shall be on cash flow based lending and not security based lending. Collateral securities, etc. shall be
avoided.
Repayment obligations shall be flexible and shall be framed keeping in view the business cash flows of the
entrepreneur.

Micro Units Development Refinance Agency (MUDRA) Bank

Micro Units Development Refinance Agency (MUDRA) Bank is a refinance institution for micro-finance institutions.
As on date, MUDRA is conceived not only as a refinance institution and but also as a regulator for the micro finance
institutions (MFIs).
Key Persons:
Kshatrapati Shivaji Chairman of MUDRA Bank
Pankaj Jain - Government Nominee Director

The MUDRA Bank is primarily be responsible for

Laying down policy guidelines for micro/small enterprise financing business
Registration of MFI entities
Regulation of MFI entities
Accreditation /rating of MFI entities
Laying down responsible financing practices to ward off indebtedness and ensure proper client protection principles
and methods of recovery
Development of standardized set of covenants governing last mile lending to micro/small
enterprises
Promoting right technology solutions for the last mile
Formulating and running a Credit Guarantee scheme for providing guarantees to the loans which are being extended
to micro enterprises
Creating a good architecture of Last Mile Credit Delivery to micro businesses under the scheme of Pradhan Mantri
Mudra Yojana.

Government has decided to provide an additional fund of 1 trillion (US$15 billion) to the market and will be allocated
as
40% to shishu
35% to kishor
25% to Tarun
Those eligible to borrow from MUDRA bank are small manufacturing units,service sector units, shopkeepers, fruits/
vegetable vendors, truck operators,food-service units, repair shops,machine operators, small industries,artisans,food
processors

MUDRA Card is an innovative product which provides working capital facility as a cash credit arrangement.
MUDRA Card is a debit card issued against the MUDRA loan account, for working capital portion of the loan. The
borrower can make use of MUDRA Card in multiple withdrawal and credit, so as to manage the working capital limit in
a most efficient manner and keep the interest burden minimum. MUDRA Card will also help in digitalization of MUDRA
transactions and creating credit history for the borrower.
All About Regional Rural Banks

In the multiagency approach to provide credit to agriculture, Regional Rural Banks (RRBs) have special place. They
are state sponsored, regionally based and rural oriented commercial banks. The Govt. of India, in July 1975,
appointed a Working Group to study in depth the problem of devising alternative agencies to provide institutional credit
to the rural people in the context of steps then initiated under the 20 Point Economic Programme. The Working Group
identified various weaknesses of the co-operative credit agencies and the commercial banks and felt that these
institutions would not be able to fill the regional and functional gaps in the rural credit system within a reasonable
period of time. These were set up on the recommendations of The M. Narasimham Working Group.

The development process of RRBs started on 2 October 1975 with the forming of the first RRB, the Prathama Bank
with authorised capital of Rs. 5 crore at its starting.

The management of a RRB is vested in a nine-member Board of Directors headed by:

Chairman who is an officer deputed by a sponsor bank but appointed by the Govt. of India.
Three directors to be nominated the Central Govt.
Two directors to be nominated by the concerned State Govt.
Three directors to be nominated by the sponsor bank

Every RRB may undertake the following types of functions:

The granting of loans and advances particularly to small and marginal farmers and agricultural labourers individually or
to a group, co-operative societies, agricultural processing societies, co-operative farming societies, etc.
The Granting of loans and advances to artisans, small entrepreneurs and small traders, businessmen, etc.

Highlights of RRBs:

The sources of funds of RRBs comprise of owned fund, deposits, borrowings from NABARD, Sponsor Banks and
other sources including SIDBI and National Housing Bank.
The equity of a regional rural bank is held by the Central Government, concerned State Government and the
Sponsor Bank in the proportion of 50:15:35. The RRBs combine the characteristics of a cooperative in terms of the
familiarity of the rural problems and a commercial bank in terms of its professionalism and ability to mobilise financial
resources. Each RRB operates within the local limits as notified by Government.

The main objectives of RRBs are

to provide credit and other facilities especially to the small and marginal farmers agricultural labourers artisans and
small entrepreneurs in rural areas with the objective of bridging the credit gap in rural areas, checking the outflow of
rural deposits to urban areas and reduce regional imbalances and increase rural employment generation.

Priority Sector Lending:

As per the guidelines, domestic banks have to ensure that forty percent of their advances are accounted for the
priority sector.

Within the 40% priority target, 25% should go to weaker section or 10% of their total advances should go to the
weaker section .

Weaker sections, under priority sector lending purposes, include scheduled castes, scheduled tribes, small and
marginal farmers, artisans and self help groups.

Main highlights of Amendments to Regional Rural Banks Act, 1976

It amends the RRB Act, 1976 which mainly provides for the incorporation, regulation and winding up of
Regional Rural Banks (RRBs).
It removes the five year limit cap that was put on the sponsor banks to assist the upcoming RRBs under the RRB
Act, 1976. As per the Act, sponsor banks were liable to train personnel and provide managerial and financial
assistance for the first five years.
It raises the amount of authorized capital to 2000 crore rupees and it is not to be reduced below one
crore rupees. In the 1976 Act the authorised capital of each RRB was five crore rupees which was not permitted to be
reduced below 25 lakh rupees.
It allows Union government to specify that the capital issued by a RRB should be at least one crore rupees.
Under the Act, a RRB was to issue capital between 25 lakh rupees and one crore
rupees.
It allows RRBs to raise their capital from sources other than the central and state governments, and sponsor banks as
was mandated under the RRB Act. As per the Act, 50% of capital issued was held by Union government, 15% by
concerned state government and 35% by the sponsor banks.
It also provides that in case of raising of capital from other sources by a RRB, the combined shareholding of
the central government and the sponsor bank cannot be less than 51%.
The term of the non-official directors appointed by the Central Government will be fixed not exceeding three years.
Further, if the shareholding of the state government in a RRB is reduced below 15%, the Union government would
have to consult the concerned state government.

All About DIPAYAN or Digital Payments Action Network - Recommended by RP Watal Panel

In the report of the committee led by Ratan P. Watal, it was recommended that in the upcoming Union Budget 2017-
18, a new Digital Payments Incentive Fund should be created, resourced from the savings generated by the Central
Government from the movement towards less cash.
This may be called DIPAYAN or Digital Payments Action Network, also meaning light of a lamp.

Using the trinity of JAM (Jan Dhan, Adhaar, Mobile) it will link financial inclusion with social protection, contributing to
improved Social and Financial Security and Inclusion of vulnerable groups/ communities.

This fund could be used to target public education about digital payments, incentivise higher usage of digital
payments among socially and financially excluded, and help improve equitable outreach to women through womens
self-help groups, MGNREGA, outreach through women teachers, women ICDS and NHM functionaries, digital
coupons in government co-operative store or fair price shops, extending additional seed capital to womens self help
groups, priority digital cards for skill development etc.

The Government should set in place a mechanism, both at national and state level, to regularly track the cost of
handling cash and the cost of transitioning into digital payments.
Accordingly, it should regularly quantify the savings that will accrue by fully transitioning into digital payments and
consider providing subsidy for such transitioning accordingly.

It would be in existence over the medium term, for a period of 3 years.

The Fund would be used to

i. Promote public education and acceptance of digital payments, as well as changing expenditure related habits

ii. This could be by incentivising extension and greater usage of Jan Dhan Yojana Accounts for digital payments,
above certain threshold levels, by more vulnerable communities/ individuals. These would include those living below
the poverty line, SC, ST, minorities, people with disabilities, people living in remote areas with no banking access,
areas with connectivity problems, areas affected by natural calamities etc.

iii.
Government payments and receipts: An incentive in the form of cash back or a discount on price, funded by the above
fund may be introduced for payment of government services and public utilities through digital means.

iv. Support POS based acceptance in certain sectors. The Government may evaluate the feasibility of supporting
growth of this infrastructure for promoting digital payments in sectors like health services.

v. Different states are at different threshold levels of digital payments, with a differing spread and mix of vulnerable
groups. The overall monitorable target should be specified at national level and State level.

vi. In addition, the fund should be used for funding innovative solutions to adopt digital payments. This should be
available to all market participants.

Pradhan Mantri Garib Kalyan Yojana

The Lok Sabha has passed the Pradhan Mantri Garib Kalyan yojna (Second Amendment) Bill, 2016 in the Lok
Sabha. The Bill was introduced as some of the existing provisions of the Income Tax Act, 1961 can possibly be
misused for concealing black money. The new bill attempts to impose a higher rate of tax and penalty in respect of
undisclosed incomes.

The Pradhan Mantri Garib Kalyan Yojana (PMGKY) is Union Governments second income disclosure scheme (IDS) to
allow tax evaders to come clean with unaccounted wealth. (PMGKY) notified along with other provisions of Taxation
Laws (Second Amendment) Act, 2016 came into effect from 17 December 2016 and it will remain open until 31 March ,
2017.

It provides for 50% tax and surcharge on declarations of unaccounted cash deposited in banks.The recently launched
Garib Kalyan yojana, is similar to Income tax declaration scheme, however there are few differences. Under this
scheme, tax rate will be higher and the declared income.
Rules of this Scheme

1. Declarant have to deposit 25% of the undisclosed income

2. Declarant has to pay 30% tax at this income plus a penalty rate of 10% will be there

3. A surcharge at 33% of tax will also be levied and will be named as Pradhan Mantri Garib Kalyan Cess

4. Pradhan Mantri Garib Kalyan Yojana Cess will be a special component under the income tax declaration scheme,
where the payer needs to pay 33% surcharge on the tax levied.

Under the scheme, taxpayers have to deposit 25 per cent of the declared amount as interest-free deposits for four
years. This is apart from the 50 per cent tax that have to paid by declarants under the scheme. The RBI had earlier
said this deposit could be made with any banks. But now, cooperative banks have been barred from accepting such
deposits. The scheme is open till March 31.

The finance ministry did not give details on why it amended the rules to prevent cooperative banks from accepting
deposits under the scheme. Under the scheme, holders of unaccounted cash willing to avail the offer will have to first
pay the tax amount and then fill up a challan form provided by the bank for availing the four-year deposit scheme.

The authorised banks have to electronically furnish the details of deposit to the revenue department on the next
working day to enable information verification of the deposit before accepting the declaration under the PMGKY.

During the 50-day demonetisation period, the income tax department had found various irregularities in co-operative
banks operations such as backdating of cash deposits, structuring deposits in multiple accounts to escape reporting
norms, their management using the bank to launder personal unaccounted cash.

An estimated Rs 15.44 lakh crore worth of Rs 500 and Rs 1,000 notes were in circulation as on November 8, the day
government announced withdrawal of these high denomination notes. While the RBI has not announced the exact
amount of withdrawn notes that were deposited, there are reports that close to Rs 15 lakh crore has already come
back. The tax department has asked banks to report deposits in any account aggregating Rs 10 lakh in a year, as well
as cash payments of Rs 1 lakh or more on credit card bills.

Tax department steps up scrutiny

New Delhi: Similar to the higher number of searches and surveys conducted by the tax department during the Income
Declaration Scheme (IDS) last year, the tax department has stepped up its investigations for deposits of unaccounted
cash post demonetisation, prompting many people to come clean under the Pradhan Mantri Garib Kalyan Yojana
(PMGKY).

Based on information about deposits worth Rs 140 crore, the Pune Investigation Directorate over the last two days has
conducted searches and surveys on premises of more than 37 jewellers in 16 cities across Maharashtra and has
detected serious irregularities, an internal report of the department stated. Following the investigations by the tax
department, these persons have opted for disclosures under the PMGKY scheme, it said.

The Hyderabad Investigation Directorate has also conducted several searches and surveys, among which a jeweller
was found to have deposited cash over Rs 100 crore in the scrapped currency of Rs 500 and Rs 1,000 notes. The
jeweller had claimed the source of cash as advances from more than 5,200 customers on November 8, the day when
the government had announced its decision to scrap old currency notes. After investigation by the tax department, the
claim was found to be incorrect and the case was subsequently referred to the Enforcement Directorate.

Similar cases have been reported in Hyderabad, with a doctor admitting to depositing cash out of unexplained sources.
The tax department subsequently seized Rs 7.5 crore out of total Rs 11.5 crore deposited by the doctor. In other
cases, another doctor was found to have routed his unaccounted cash through account of a taxi driver, while a film
producer admitted to having deposited unaccounted cash worth Rs 40 crore, out of which Rs 37 crore was seized by
the tax department.

Understanding Marginal Cost of funds based lending rate, the easier way:

Marginal Cost of Funds based Lending rate has been made applicable w.e.f 1st April 2016. It has replaced the
previous 'base rate' that was being used previously.
What is MCLR?

MCLR is the rate comprising 4 Factors that contribute to its making:

Marginal Cost of Funds

Operational Costs of bank
Negative carry in maintaining CRR
Tenor Premium
We will elaborate these terms later in this answer but for now, lets just assume MCLR is made up of these factors.

Why MCLR?

Dr. Raghuram Rajan cut out Repo Rates in the previous fiscal. He thought that the banks would pass on the benefits of
Rate cuts to their customers (the borrowers) but a few banks put the benefit of rate cuts into their pockets and did not
reduce the base rate. Dr. Rajan got furious over the fact that banks that had been demanding rate cuts to make the
loans cheaper were actually not doing so when Repo rates got reduced.

Therefore MCLR was brought in to attach the effects of REPO Rate to the base rate of banks.

The difficult part: How to Calculate MCLR?

As mentioned above, 4 factors have to be properly understood.

1. Marginal Cost of Funds: It comprises 3 parts:

a. The interest rates on deposits given by the banks to its customers
b. The Rate charged by RBI for amount borrowed from it. (REPO)
c. The rate of return on Net Worth (in accordance with capital adequacy norms)
Weights assigned to each of the 3 above are as follows:

92% weightage to be given to (a) + (b)

8% weightage to (c)
2. Bank's Operating Cost: the everyday operating cost of the bank.

3. Negative carry in maintaining CRR with RBI: CRR is the amount kept as reserve by the banks in accordance with
the guidelines and monetory policy of RBI. This liquid amount cannot be used for day to day operations in the business
of banks. In other words, the cost of funds blocked due to maintenance of CRR is also to be considered.

4. Tenor Premium: Tenor premium means, longer the loan, higher can be the premium for the same. This, in other
words, is the profit margin of the bank.

The basic difference is easily visible in the form of tenor premium and Marginal Cost of Funds that would be used.
Now the banks have to pass on the benefit of rate cuts by RBI. For this, the RBI has also released guidelines
for compliance of the sane, which can be referred here Press Release

Example: Suppose SBI's marginal cost of funds comes out to 6%, operating costs 1% , CRR maintenance: 1% and
tenor premium 1% for one year. Therefore if you take a loan for one year then the MCLR comes out to 9% + spread (if
any). Now suppose if any cut in the REPO rate happens, then this would cut the rate of marginal cost of funds.
Bingo! Win for Dr. Rajan, benefit to the borrowers.

The marginal cost of funds based lending rate (MCLR) refers to the minimum interest rate of a bank below which it
cannot lend, except in some cases allowed by the RBI. It is an internal benchmark or reference rate for the bank.
MCLR actually describes the method by which the minimum interest rate for loans is determined by a bank - on the
basis of marginal cost or the additional or incremental cost of arranging one more rupee to the prospective borrower.

The MCLR methodology for fixing interest rates for advances was introduced by the Reserve Bank of India with effect
from April 1, 2016. This new methodology replaces the base rate system introduced in July 2010. In other words, all
rupee loans sanctioned and credit limits renewed w.e.f. April 1, 2016 would be priced with reference to the Marginal
Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark (means a reference rate determined
internally by the bank) for such purposes.

Existing loans and credit limits linked to the Base Rate (internal benchmark rate used to determine interest rates uptill
31 March 2016) or Benchmark Prime Lending Rate (BPLR or the internal benchmark rate used to determine the
interest rates on advances/loans sanctioned upto June 30, 2010.) would continue till repayment or renewal, as the
case may be. However, existing borrowers will have the option to move to the Marginal Cost of Funds based Lending
Rate (MCLR) linked loan at mutually acceptable terms.

Reasons for introducing MCLR

RBI decided to shift from base rate to MCLR because the rates based on marginal cost of funds are more sensitive to
changes in the policy rates. This is very essential for the effective implementation of monetary policy. Prior to MCLR
system, different banks were following different methodology for calculation of base rate /minimum rate that is either
on the basis of average cost of funds or marginal cost of funds or blended cost of funds. Thus, MCLR aims

To improve the transmission of policy rates into the lending rates of banks.
To bring transparency in the methodology followed by banks for determining interest rates on advances.
To ensure availability of bank credit at interest rates which are fair to borrowers as well as banks.
To enable banks to become more competitive and enhance their long run value and contribution to economic
growth.

Calculation of MCLR

The MCLR is a tenor linked internal benchmark (tenor means the amount of time left for the repayment of a loan). The
actual lending rates are determined by adding the components of spread to the MCLR. Banks will review and publish
their MCLR of different maturities, every month, on a pre-announced date.

The MCLR comprises of the following:

a) Marginal cost of funds which is a novel concept under the MCLR methodology comprises of Marginal cost of
borrowings and return on networth, appropriately weighed. i.e.,

Marginal cost of funds = (92% x Marginal cost of borrowings) + (8% x Return on networth)
Thus, marginal cost of borrowings has a weightage of 92% while return on net worth has 8% weightage in the marginal
cost of funds. Here, the weight given to return on networth is set equivalent to the 8% of risk weighted assets
prescribed as Tier I capital for the bank. The marginal cost of borrowing refers to the average rates at which deposits
of a similar maturity were raised in the specified period preceding the date of review, weighed by their outstanding
balance in the banks books. i.e,

Rates offered on deposits of a similar maturity on the date of review/ rates at which funds raised x Balance outstanding
as a percentage of total funds (other than equity) as on any day, but not more than seven calendar days prior to the
date from which the MCLR becomes effective.

b) Negative carry on account of' Cash reserve ratio (CRR)- Negative carry on the mandatory CRR arises because
the return on CRR balances is nil. Negative carry on mandatory Statutory Liquidity Ratio (SLR) balances may arise if
the actual return thereon is less than the cost of funds.

c) Operating Cost associated with providing the loan product, including cost of raising funds, but excluding those
costs which are separately recovered by way of service charges.

d) Tenor Premium- The change in tenor premium cannot be borrower specific or loan class specific. In other words,
the tenor premium will be uniform for all types of loans for a given residual tenor.

Banks may publish every month the internal benchmark/ MCLR for the following maturities:

Overnight MCLR,
One-month MCLR,
Three-month MCLR,
Six month MCLR,
One year MCLR.
MCLR for any other maturity which the bank considers fit

Banks have the freedom to offer all categories of advances on fixed or floating interest rates. Banks have to determine
their actual lending rates on floating rate advances in all cases by adding the components of spread to the MCLR.
Accordingly, there cannot be lending below the MCLR of a particular maturity, for all loans linked to that benchmark.
Fixed rate loans upto three years are also priced with reference to MCLR.

However, certain loans like Fixed rate loans of tenor above three years, special loan schemes formulated by
Government of India, Advances to banks depositors against their own deposits, Advances to banks own employees
etc. are not linked to MCLR.

Base Rate vs MCLR

Base rate calculation is based on cost of funds, minimum rate of return, i.e margin or profit, operating expenses and
cost of maintaining cash reserve ratio while the MCLR is based on marginal cost of funds, tenor premium, operating
expenses and cost of maintaining cash reserve ratio. The main factor of difference is the calculation of marginal cost
under MCLR. Marginal cost is charged on the basis of following factors- interest rate for various types of deposits,
borrowings and return on net worth. Therefore MCLR is largely determined by marginal cost of funds and especially by
deposit rates and repo rates.