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CRR - 8.25 %
SLR - 25.00 %
BANKING SYSTEM :
1.Money market It refers to borrowing and lending. 2 parts organized and unorganized sector
– Organized sector are State Bank, 7 associated banks, 19 Nationalised banks, RRB,
Co-operative Banks, Non Governmental sector and other Banks. Unorganized includes the
moneylenders and indigenous bankers. 2.Development of Indian Banking: Bank of Hindusthan
1779 was first bank at Calcuttaunder European management-Bank of Bengal 1806 , Bank of
Bombay 1840, bank of Madras 1843, were called Presidency banks. 1881- First Bank with
limited liability to be managed by Indian Board namely the Oudh Commercial bank- 1894- First
purely Indian bank was Punjab National bank- Later Imperial bank 1921 by amalgamating the
Presidency banks. RBI created in 1935- nationalized in 1949 – Imperial Bank, renamed as SBI
in 1955- 14 Banks (50 crores) nationalized6-96 Banks (2 00crores) nationalized 1980 – N.B.I.
merged with P.N.B. in 1993. 3.R.B.I: It has Governor and Board of Directors apart from Central
Board 4 local boards. It has following functions: -
Functions Of Banks :
(a) Houses for slum, credit to formers for purchase, ordinary retailers etc., shall be given
priority at least 40% to them
(b) Differential rate of interest – less interest 4% rate for weaker sections. It is for those
whose income not more than per annum 6400/7200 in Rural and Urban areas- for lands less
than – 2.5-acres/1 acre non irrigated and irrigated land respectively. (c) New strategy for
rural lending – 1987 service area approach.
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Corporation Bank
Dena Bank
Indian Bank
Syndicate Bank
UCO Bank
Vijaya Bank
Reserve Bank of India hikes the repo rate under the Liquidity Adjustment Facility (LAF) by 25
basis points to 8.00%.
Reserve Bank of India credit policy announced on 29th April 2008, keeps repo rates unchanged
but CRR is hiked by 25 bps to 8.25%
The Reserve Bank of India on 28th April 2008 released the document “Macroeconomic and
Monetary Developments in 2007-08†to serve as a backdrop to the Annual Policy Statement
for 2008-09 being announced on April 29, 2008
Reserve Bank of India hikes cash reserve ratio (CRR) by 50 bps to 8% in two stages
NOTE: RBI announces the credit policy twice a year —- Generally in April and in October.
While in April it announces new policy initiatives, the October pronouncement is a review of
the April policy. RBI has now decided to have quarterly reviews of monetary policy.
Accordingly, First Quarter Review of the Annual Statement on Monetary Policy was issued in
July 2005.
Highlights of the RBI Annual Policy Statement for the Year 2008-09 (29th April 2008)
Bank Rate, Reverse Repo Rate and Repo Rate kept unchanged.
High priority to price stability, well-anchored inflation expectations and orderly conditions in
financial markets while sustaining the growth momentum.
Swift response on a continuous basis to evolving adverse international and domestic
developments through both conventional and unconventional measures.
Emphasis on credit quality and credit delivery while pursuing financial inclusion.
Bank Rate, Reverse Repo Rate and Repo Rate kept unchanged.
Scheduled banks required to maintain CRR of 8.25 per cent with effect from the fortnight
beginning May 24, 2008.
GDP growth projection for 2008-09 in the range of 8.0- 8.5 per cent.
Inflation to be brought down to around 5.5 per cent in 2008-09 with a preference for bringing
it close to 5.0 per cent as soon as possible. Going forward, the resolve is to condition policy
and perceptions for inflation in the range of 4.0-4.5 per cent so that an inflation rate of
around 3.0 per cent becomes a medium-term objective.
M3 expansion to be moderated in the range of 16.5-17.0 per cent during 2008-09.
Deposits projected to increase by around 17.0 per cent or Rs.5,50,000 crore during 2008-09.
Adjusted non-food credit projected to increase by around 20.0 per cent during 2008-09.
Active demand management of liquidity through appropriate use of the CRR stipulations and
open market operations (OMO) including the MSS and the LAF.
Introduction of STRIPS in Government securities by the end of 2008-09.
A clearing and settlement arrangement for OTC rupee derivatives proposed.
Domestic crude oil refining companies would be permitted to hedge their commodity price
risk on overseas exchanges/markets on domestic purchase of crude oil and sale of petroleum
products based on underlying contract.
Currency futures to be introduced in eligible exchanges in consultation with the SEBI; broad
framework to be finalised by May 2008.
Indian companies to be allowed to invest overseas in energy and natural resources sectors.
Reserve Bank can be approached for capitalisation of export proceeds beyond the prescribed
period of realisation.
Loans granted to RRBs for on-lending to agriculture and allied activities to be classified as
indirect finance to agriculture.
The shortfall in lending to weaker sections would be taken into account for contribution to
RIDF with effect from April 2009.
RRBs allowed to sell loan assets to other banks in excess of their prescribed priority sector
exposure. The Reserve Bank to disseminate details of various charges levied by banks.
Asset classification norms for credit to infrastructure projects relaxed. The prudential
guidelines for specific off-balance sheet exposures of banks to be reviewed.
Reserve Bank to carry out supervisory review of banks' exposure to the commodity sector.
The limit of bank loans to individuals for housing having lower risk weight of 50 per cent
enhanced from Rs. 20 lakh to Rs. 30 lakh.
Consolidated supervision of financial conglomerates proposed. Working Group to be set up for
a supervisory framework for SPVs/Trusts. Inter-departmental Group to review the existing
regulatory and supervisory framework for overseas operations of Indian banks.
All transactions of Rs. one crore and above made mandatory to be routed through the
electronic payment mechanism. Dispense with the extant eligibility norms for opening on-site
ATMs for well-managed and financially sound UCBs. Regulations in respect of capital
adequacy, liquidity and disclosure norms for systemically important NBFCs to be reviewed.
(7) IMD- operated by SBI for NRI – 5 years – different interest rates - loan available.
8.5C Formula for Banks: Challenge, competition, credit, customer and control prescribed by
Ministry of Finance
10 . Scheduled Banks
(i) Paid up capital not less than 5 lakhs and activity will not affect interest of depositors.(ii)It
has following facilities:-1.Eligible to get loan from RBI 2.Membership of clearing house 3. get
rediscount in exchange bills
(b) Non Scheduled banks – not included in scheduled but to follow CRR conditions but no
deposit with RBI and not eligible for loan from RBI.
9)Indian Banks Abroad: Bank of Baroda has the highest with 38 branches and SBI with 22
branches and Bank of India have 18 branches. In U.K. 19 branches and Fiji 9 branches.
10.New Banks in Private Sector:Created from 2000 based on Narasimham Committee –
important are UTI, IIBL, ICIC, HDFC and IDBI. Amas Bank is the first private bank established
Europe by Indian National in 1994 and Hinduja Group has established it at Geneva – Local
Area Banks in private sector allowed by RBI in A.P, Maharashtra and Karnataka.
11. Co-operative Banks: It has 3 tier - state and district primary.
12. Regional Rural Banks (RRB)®1975 established under RRB Act 1976 Capital Source: Central
Govt. 50% , State Govt. 15%, Sponsered Public Sector Commercial Bank 35%
Objectives:
1)Rural Development especially in Remote Rural Areas
2)loan to weaker section (concessional rate of interest)
3)mobilise rural savings
*83% of branches in Rural Areas (except Sikkim)
*since 1987, no new RRB has been opened (Kelkar committee) increased capital Rs.25 lakh to 1
Crore
1994-95 M.C.Bhandari Committee: to invest NON – SLR surplus fund in profitable areas
1995-96 –K.Basu Committee: Re-organisation of selected RRB’s
Narasimham committee recommended to give more freedom to RRB
13. Committees:
1. Provide short term loan(normally 1 year, Maximum 3years) 2.minimum 10 persons needed
for establishment 3.No.of PACSdecreasing 4.Mobilise deposits and savings
16)Some important banking Institutions:
a) IDBI- 1964-To provide financial assistance to industrial enterprises and to promote
institutions engaged in industrial development.
b) IFCI: 1948 Act -To arrange medium and long term credit for varuois industrial enterprises-
1993 corpn was converted into a company
c) ICICI: 1955-Developing medium and small industries –2002 merged with ICICI Bank
d) UTI: 1964- Biggest mutual fund- people’s savings and reinvestment. It started UTI bank in
1994 at Ahenmedabad.
Various Funds of UTI:
1) India Fund-1986 (ii) India Growth Fund 1988 (iii) India Access Fund 1997 (iv) India Debt
Fund 1997 (v)Master Value- Index Fund 2 in 1998.
e) EXIM bank: 1982- For financing, facilitating and promoting foreign trade in India.
f) NHB: 1988-wholly owned by RBI.Apex institution for housing finance,
BANKING SURVEY POINTS- MOST IMPORTANT