History of Nationalization
The Reserve Bank of India (RBI) was nationalized with effect from January 1, 1949, on the basis of Reserve
Bank of India (Transfer to Public Ownership) Act, 1948.
The Central government entered the banking business with the nationalization of the Imperial Bank of
India in 1955 (60% stake bought by RBI), and renamed State Bank of India (SBI) under State Bank of India
Act, 1955. In 2008, government acquired RBI's stake in SBI to remove any conflict of interest, because RBI is
the banking regulatory authority.
The 7 other state banks became the subsidiaries of SBI, after being nationalized on 1959, under State Bank
of India (Subsidiary Banks) Act, 1959. Currently 2 SBI subsidiaries are merged, making total 5 SBI associate
banks.
The major nationalization took place in July 19, 1969 under former PM Smt. Indira Gandhi, under Bank
Nationalization Act, 1969. 14 major banks were nationalized at that time, making 84 % of total
branches coming under government control. However, on February 10, 1970, the Supreme Court held the
Act void on the grounds that it was discriminatory against the 14 banks and that the compensation proposed
to be paid was not fair compensation.
A fresh Ordinance was issued on February 14, which was later replaced by Banking Companies (Acquisition
and Transfer of Undertakings) Act, 1970.
The next nationalization process took place in 1980, making 6 other banks nationalized. 91 % of total
branches came under government control, through Banking Companies (Acquisition and transfer of
Undertakings) Ordinance, 1980.
Banks that are nationalized in 1969 and 1980 draw power from Banking Companies (Acquisition and transfer of
Undertakings) Act of 1969 and 1980, are known as Nationalized Bank.
MUDRA Bank
According to Budget 2015-16, the union government will set up Micro Units Development and Refinance Agency
(MUDRA) Bank with a capital of Rs. 20,000 crore to finance the micro-finance sector of India, under Pradhan Mantri
Mudra Yojana.
Responsibility of MUDRA bank
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 business under the scheme of Pradhan
Mantri Mudra Yojana, etc.
Payments / remittance services to migrant labor workforce, low income households, small businesses,
other unorganized sector entities and other users.
Activities of Payment Banks 1. They can accept Demand Deposits, but will initially be restricted to hold a maximum balance of Rs.
1,00,000 per individual customer
2. Issuance of ATM / Debit Cards, but they cannot issue Credit Cards
Commercial banks - Public sector banks, Private Sector Banks, Foreign Banks operating in Indian territory,
Regional Rural Banks, Local Area Banks
Cooperative banks - State, Central and Primary Cooperative Banks (collectively called Urban Cooperative
Banks, or UCB) that have amended Cooperative Societies Act, empowering RBI to control them
Cooperative banks operating in Meghalaya, Chandigarh, Lakshadweep and Dadra & Nagar Haveli
Insurance coverage
DICGC protects bank deposits that are payable in India, including savings, current, fixed, recurring, etc. except the
following deposits
Note that this insurance is aimed to cover individual customer deposits or small business with maximum cover up
to Rs. 1 lakh. Therefore the above exceptions are justified.
Insurance Premiums
Customers need not pay any premium to insure their deposits. DICGC charges a nominal premium from the banks.
Customer deposits are automatically (from the customer's point of view) insured when they open any kind
of deposits with the bank.
Insurance Claim
In case of a bank failure, customers need not make any claim under deposit insurance (in contrast to
other insurances, where insurance claim is needed).
The official liquidator would make a claim on customers' behalf to the DICGC. DICGC is bound to pay the valid
insurance claim within 2 months period from receipt of claim from the liquidator. The liquidator then provides the
claim amount to each customer.
When DICGC is liable to pay
Deposits attract interests (you will get interest on your account balance)
After satisfactory operation of the PMDJY account for 6 months period, an Overdraft (OD) facility will be
permitted, upto Rs. 5,000 (only one account per household, preferably female account holder of that
household)
Beneficiaries of governmental schemes (like LPG subsidy, etc.) will get Direct Benefit Transfer (DBT) in
these accounts (subsidy amount will be directly credited to your bank account)
Note that RuPay Debit Card must be used at least once in 45 days. Total 13.6804 crore PMJDY accounts has been
opened in India (as on Feb 28,2015). PMJDY scheme of government recently recognized by Guinness Book of World
Record for most bank accounts opened (approx 1.8 crore) in 1 week (during August 23 - 29, 2014)
User
Security
Credit
Limit
A certain percentage of
the value of the commodities /
debts pledged by the a/c holder
NPA Classification
Banks are required to classify NPAs into the following 3 categories, based on the nonperforming period and
the realisability (recoverability) of the dues -
Secured Loans - SARFAESI Act is applicable only for the secured loans (meaning loans backed by underlying
securities). In this case, banks or financial institutions can seize and/or sell the underlying securities,
like hypothecation, pledge, mortgage, etc and recover the loan amount.
Unsecured Loans / Agricultural lands - For unsecured loans (not backed by underlying securities) or
agricultural loans (where agricultural land is the underlying security), banks cannot seize or sell by itself. In
these case, banks need to move to court and file Civil case against the defaulters.
1. Pledge - It is used when the bank (or, lender, known as pledgee) takes
actual possession of the securities, such as goods, certificates, golds, etc, (you
provide it to bank to avail loan) which are generally movable in nature.
Bank keeps the securities with itself, and provide loan to you.
Bank will return the securities (possession of goods) to you (borrower, known
as pledgor), after you repay all the debts (i.e., loan) to the bank. In case you
are unable to pay back, then the bank has the right to sell the assets,
and recover the loan amount (with interest).
Example - Gold loans, Jewellry loans, advances against NSC (National Saving
Certificates), or loans against any other assets.
2. Hypothecation - It is used when you (borrower) have the actual possession of
the asset, for which you have taken the loan. Generally, this is charged against loans
for movable assets, like car, bus, etc. (i.e., vehicle loans). Here, the assets (bus, car,
etc.) remain with you, and you are hypothecated to the bank for the loan granted.
In case you are unable to repay the loan amount, then the bank has the right to
sell the asset (bus, car, etc.), (which is possessed by you) and recover the total
amount (with interest).
Example - Car loans, Bus loans, etc.
3. Mortgage - It is used when you (borrower) have the actual possession of
the assets, for which you are granted loan (e.g., house loan), or against which you are
granted loan (e.g., house mortgaged). Mortgages are generally those assets, which
are permanently attached with Earth surface, like house, land, factory etc.
In case you are unable to repay the loan amount, the bank has
the right to seize and sell the mortgage, and recover the loan amount (with interest).
4. Lien - It is almost similar to Pledge, except that in case of lien, the lender can only
detain the asset/goods until the borrower repays the loan, but have no right
to sell the asset, unless explicitly declared in the lien contract. (For a pledge,
the lender can sell the asset, if the borrower is unable to pay the loan)
Base Rate
Base Rate System
Bank lends money to its customers by loans or advances or other credit facilities. It charges some interest on
the lending / credit. Does a bank need to follow any specific rules while providing money to its customers?
Yes, banks follow Base rate system, formulated by RBI. Base rate is the minimum chargeable interest for the credit
sanctioned to the customer (meaning, no bank can offer loans to its customers below this interest rate).
Base rate system replaced the Benchmark Prime Lending Rate (BPLR) system on July 1, 2010.
Exclusions
There are some few exclusions, where you can grant loan below base rate, as -
DRI Scheme
As per RBI guidelines, for lending under DRI scheme, banks are required to grant loans at concessional
rate of interest to the eligible beneficiaries
Family income ceiling per annum in rural and urban area should be less than Rs. 18,000 and Rs.
24,000 respectively
Max. limit of loan - Rs. 15,000. For housing loan, it could be up to Rs. 20,000
Banks are required to lend 1 % of their total outstanding advances under DRI Scheme every year.
Account Information
Purchase of Vouchers
PIN change
By using BLAs, banks have the opportunity to cut the huge cost of setting up of an ATM (bank-owned ATM)
It cannot accept Demand Deposits from public. If someone want to invest in an NBFC, it could have
some maturity (like happens in time deposits). Though some special permission is given
to LIC and GIC by RBI. These two NBFC can take demand deposits.
Deposits are not insured or covered under Deposit Insurance and Credit Guarantee Corporation (DICGC),
which generally covers the bank accounts.
insurance, etc.
There are several development banks in the world with the principal goal of development among others.
From India's point of view, the most notable among those development banks are the followings
Membership - 67 countries
goal of WB is the reduction of poverty, and the motto is 'Working for a World Free of Poverty'.
President - Jim Yong Kim
Money Market
1. Call, Notice, Term Money
This is a method by which banks lend or borrow money from each other to maintain their daily needs. Note that
no collateral security is needed, but interest need to be paid.
Call Money - deals in overnight (1 day) funds
Notice Money - deals in funds for 2 to 14 days
Term Money - deals in funds for 15 days - 1 year
Note that this is completely used in Inter-bank market. Eligible participants are
2. ECS Debit
National Electronics Funds Transfer (NEFT) - one-to-one
NEFT payment system facilitates one-to-one funds transfer. In this system, individuals,
firms and corporate can electronically transfer funds from any bank branch to
any individual, firm or corporate, having an account with any other bank in the country which is NEFTenabled.
Note that, recipient should have a bank account (so that transfer can be traced), but the person who
is transferring fund need not have any account, but in that case, there is a maximum transfer limit of Rs.
50,000 (for this walk-in customers, need to provide their identity documents).
But if he/she transfer fund from an account, then there is no limit of maximum transfer, though per
transaction max limit is Rs. 50,000. e.g., For transferring Rs. 1 lakh through NEFT, there will be 2 transactions.
Note that NEFT settles transactions on net-basis and works in hourly batches. Currently, there are 12 batches (8
am to 7 pm) on weekdays and 6 batches (8 am to 1 pm) on Saturdays. Banks wait and collect all
the transactions made within an hour, and then settles the transaction (not individually, known as netting). For
an example, if you make a transaction on 8:30 am, then your settlement will wait till the hourly batch of 9 am,
and at 9:00 am, your transaction will be settled.
Transaction Costs No inward transaction cost for NEFT
But for outward transactions
Money Laundering
The PMLA, 2002 is the principal framework in India to combat money laundering cases. It defines money laundering
offence and provides for the freezing, seizure and confiscation of the proceeds of crime.
Some features
RBI, SEBI and IRDA have been brought under the PMLA, making the provision of this act to be applicable to
all the financial institutions in India, including banks, MFs, Insurance companies, etc.
The monitoring agency of Anti-Money Laundering activities in India is the Financial Intelligence Unit
(FIU-IND). It is an independent body reporting directly to the Economic Intelligence Council (EIC), headed
by the Finance Minister.
Banks' Obligations
Maintain records for - nature and value of the transaction, single or series of transactions, keep record for 10
years, etc.
Issuance of Currency
According to RBI Act 1934, Section 22, RBI has the sole right to issue bank notes of all denominations. RBI is
responsible for the design, production and management of the currency of India, with the goal of ensuring
an adequate supply of clean and genuine notes.
The responsibility for coinage vests with the Government of India on the basis of The Coinage Act, 2011. RBI acts as
an agent of government which merely distributes the coins in the market.
Minimum Reserve System to issue currency
India adopted Minimum Reserve System in the tenure of RBI governor Sir Benegal Rama Rau in 1957. In this
system, RBI is required to maintain a minimum reserve of Rs. 200 crore in gold and forex, of which at least Rs. 115
crore should be in gold form (earlier India followed Proportional Reserve System) to issue currency in India.
Notes and Coins production
Notes are printed at 4 Printing Presses, located at - Nashik, Dewas, Mysore and Salboni
Coins are minted at 4 Mints, located at - Mumbai, Noida, Kolkata and Hyderabad
became dirty
slightly cut
in the denomination of Rs. 10 and above, which are in two pieces. However, the cut should not pass through
the number panels
Note that, there is no need to fill any type of form to exchange Soiled Notes. Also note that the exchange is in full
value, meaning you will get the whole amount of the soiled note in exchange.
Mutilated Notes
Mutilated notes are those notes
essential portions are missing. Essential portions are - name of issuing authority, guarantee,
promise clause, signature, Ashoka Pillar emblem / portrait of Mahatma Gandhi, water mark
Mutilated notes are exchanged at the same places described above (for Soiled notes), without filling any type
of form. However, note that the exchange value can be in full or part, according to RBI (Note Refund)
Rules. (depending on the mutilation of the notes, you will get the value)
Also, there is another exchange facility for mutilated notes, referred to as Triple Lock Receptacle (TLR). (Put the
mutilated notes in a TLR cover along with details, and deposit it in the TLR box at RBI Issue Office. Amount will be
returned by means of a bank draft or pay order).
Excessively Soiled, Brittle, Burnt Notes
Notes which have become excessively soiled, brittle, or burnt can be exchanged only at Issue Office of RBI. (need to
approach to the Officer-in-charge of the Claims Section, Issue Department of RBI).
Instruments used
Money market instruments include Call Money, Repos, T-Bills, Commercial Papers (CP), Certificate of Deposits
(CD), and Collateralized Borrowing and Lending Obligations (CBLO).
1. Repo (Repurchase) rate This is a type of collateral lending by RBI. Here, banks sells securities (gov. securities) to RBI with a repurchase
agreement (meaning banks will buy back those securities at future date with extra interest). The rate charged
by RBI is known as Repo rate.
It comes under Liquidity Adjustment Facility (LAF) of RBI monetary policy (i.e., a way
to adjust market liquidity, along with reverse repo).
Banks borrow money by repo to meet their daily mismatches. Repo auctions are conducted by RBI on a daily basis,
except Saturdays. Here, minimum bid size is of Rs. 5 crore and multiple. All commercial banks (except RRBs) can
borrow through repo facility. Repo borrowings have a tenure of 1 day to 90 days.
2. Marginal Standing Facility (MSF) Now think what will happen if banks are not able to maintain their daily mismatches even with repo (it happens!).
Hence RBI provided (from 2011) one more facility to banks - Marginal Standing Facility (MSF). Albeit its
a penalty rate (because banks are not able to maintain their mismatches with repo), and always higher than repo
rate (currently 100 basis point higher).
In this scheme, banks borrow money with minimum bid size of Rs. 1 crore and multiple. The tenure is of 1 day only,
and banks can borrow 1 % of their respective NDTL under this scheme.
3. Bank Rate For the long term, i.e., 90 days to 1 year, banks can borrow money from RBI with bank rate. As it is a long term
borrowing, the rate is higher than repo rate.
Banks doesn't need any collateral or security, while borrowing for a long term under Bank Rate. It is not used as
a monetary policy to adjust the market, rather used to re-discount Bills of Exchange (refer our previous article
on Discounting Bills of Exchange), or other Commercial Paper.
Issued to - Individuals, banks, other corporates, NRI, FII (need SEBI approval)
Maturity - 7 days to 1 year
Minimum size - Minimum amount of CP is Rs. 5 lakh and multiple thereof
4. Inter-Corporate Deposits (ICD)
These are issued by one corporate to other for their money requirements. You can think ICDs
as analogous to Inter-bank deposits (call money, notice money, term money).
These are helpful for low-rated corporates, because they are not eligible to
issue Commercial Papers (CP) to general public and raise money. So the alternative way for
them, is to use ICDs.
Government Instruments
1. Treasury Bills (91 - 364 days)
Treasury Bills or T-Bills are the most important and used mean for the government to acquire
money from the market, to maintain its money requirements. On behalf of
the government, RBI issues T-Bills to public as auction on some fixed date.
These are the least risky money market instrument and have 3 maturity periods - 91 days,
182 days, 364 days (meaning you can claim for your return only after these term periods).
Note that Treasury Bill is a type of debenture (already discussed in the article - Equity &
Debt), hence doesn't require any collateral as security. You only buy a T-Bill, because you
know that government will never default on your payment.
Treasury Bills are issued on discount basis and can be redeemed at par, and it doesn't
bear any interest. Let clear with an example Suppose you want to buy a T-Bill of Rs. 10,000 with 91 days maturity. RBI may tell you that
the
discount rate is 1.5 %. So you can redeem a discount of = 10,000 x 1.5/100 = Rs. 150.
This means you can buy the treasury bill in Rs 10,000 - 150 = Rs. 9,850 (your profit will
be Rs. 150, which you can redeem as discount). After 91 days (the maturity), you go to RBI to
get the return, and RBI will give you Rs. 10,000.
Summary - You buy the T-Bill in Rs. 9,850 and get in return Rs. 10,000 (face value). Note
3. Dated Securities
Though definition-wise this doesn't come under Money Market. But it is better to discuss it
here in government security section.
Dated Securities are long-term securities that helps government to take money from public
for more than 1 years. Here government issues securities that bear a date of a distant
future, which could help in long-term development projects, or otherwise.
It is important to mention here, that state governments cannot issue T-Bills to public. So
state governments can issue only Dated Securities for a long term. These are known as State
Development Loans (SDL).
Gilt-edged Security - All the government securities are collectively called gilt-edged
securities, or government securities.
Unconditional Order - You are providing an order (to someone, or some institution, or
bank) to pay without any condition
Two more concepts -
Pay to Bearer - Pay the amount to, whoever comes with (bears) the instrument and
demands to be paid
Natur
e
Partie
s
Liabili
ty
Specia
l
cases
Promissory Note
Bill of Exchange
Cheque
Unconditional undertaking,
or promise to pay
Unconditional order t
o pay
Unconditional ord
er to pay
3 parties drawer,
drawee, payee
3 parties
drawer, bank,
payee
Liability of Drawer
Liability
(maker)
of drawer (maker
is secondary, drawee
) is primary
(e.g. bank) is primary
Accep
tance
Condit
ions
Legali
ty
cases
Disho
nor
person
for Self-cheque
No need of acceptance of
maker, while presenting
for payment
Can be presented
for payment only
when it
is accepted by draw
ee (acceptance is
must,
before drawee can
be made liable upon
it)
Can be drawn
Drawee can
payable
put conditions only if
to bearer or on
he accepts the bill
demand
If doesn't
contain payees name, but
state to
be payable to bearer,
is illegal.
When
made payable to be
arer, it
is not considered
as illegal (entitled
to 3
days of grace unless
it is payable on
demand)
Payable immedia
tely on
demand without
any days
of grace
If dishonored, no
notice required
If dishonored,
a notice of
dishonor is required
to be given by
the holder (payee) t
o the maker of the
bill (drawer)
Notice of
dishonor is not
necessary. Want
of assets in the
hands
of banker is
sufficient notice
Crossing of Cheques
Bearer Cheque & Ordered Cheque
There are two types of cheques
Payable to bearer Whoever bears or holds the instrument. If you don't provide any crossing on
the cheque, then it will be a bearer cheque. If you take it to the bank counter, you
will be able to en-cash the cheque, without any issue.
Payable to order Only to a certain person/institution. If you provide a crossing on the cheque, it will be
a ordered cheque. There will be several conditions for an ordered cheque as
described below.
Crossing of Cheques are defined in Section 123 of Negotiable Instrument Act, 1881.
There are four types of crossing (i.e., putting conditions on cheque):
1. Crossed Generally [Putting Two Parallel Transverse Lines on the cheque]
It provides the condition to the banker that the amount can be credited to any account but
through a banking channel, so that the beneficiary may be traced.
2. Crossed Specially [Putting the name of the banker, e.g., SBI, ICICI, etc]
Here the bank makes payment only to the banker whose name is written in the crossing. It
is more safe than the generally crossed cheques, because it restricts to the
only banker you want to use.
3. Account Payee / Restrictive Crossing - [Putting the word 'Account payee']
The collecting bank is supposed to credit the amount only to the account of
payee, nowhere else.
4. Non-negotiable Crossing - [Putting the word 'Not Negotiable']
Here, you are making the cheque (which is a negotiable instrument) non-negotiable. It
means you cannot endorse the cheque to other person (restricting the transferability, refer
to the previous posts)
Based on the advantages realized and experience gained, RBI decided to operationalize CTS across the country.
Accordingly, Grid-based CTS clearing has been launched in these 3 locations.
1. New Delhi Grid - NCR of New Delhi, Haryana, Punjab, UP, Uttarakhand, Bihar, Jharkhand, Chandigarh
2. Mumbai Grid - Maharashtra, Goa, Gujarat, MP, Chattisgarh
3. Chennai Grid - Andhra Pradesh, Telengana, Karnataka, Kerala, Tamil Nadu, Odisha, West Bengal, Assam,
Puducherry
CTS Clearing Cycle
Step 1 - The Collecting bank (or branch) captures the data (on MICR band), and the images of a cheque using
their Capture System (comprising scanner, core banking or other application)
To ensure security, safety and non-repudiation of data/images, end-to-end Public Key Infrastructure (PKI) has been
implemented in CTS.
Step 2 - The Collecting Bank sends the data and captured images duly signed and encrypted to
the central processing location (Clearing House).
The Clearing House processes the data, and arrives at the settlement figure and transfers the images and requisite
data to the Paying bank. This is known as presentation clearing.
Step 3 - The Paying Bank receives the images and data from the Clearing House for payment processing. The paying
bank generates the return file for unpaid instruments. The return file/data are then sent to the Clearing House.
Step 4 - The return file/data is processed by the Clearing House in the return clearing session and in the same way
as presentation clearing session. Then these are provided to the Collecting bank.
Step 5 - The Collecting bank processes the data received from Clearing House. The whole process is known
as Clearing Cycle.
The Clearing Cycle is treated as complete once the Presentation clearing and the associated Return clearing sessions
are successfully processed.
Amendment in NIA Act, 1881 for CTS
RBI has confirmed that with amendments to Section 6 and 1(4) and with addition of Section 81A in the NIA Act,
1881, the truncation of cheques has been legalized.
Forex
Foreign-exchange reserves (forex) are assets of a country, generally held by the central bank, and held in foreign
currencies. For India, RBI is authorized to maintain Indian forex, which is generally held in US Dollar, or other
foreign currencies.
But the question is why do a country hold forex reserve?
There are few reasons behind this. However most important is -
Influence Exchange Rate - If India has a large amount of forex, then it can target a certain exchange rate. For
example, If India wants to increase the value of Indian Rupee (INR), India could sell its dollar reserves to
buy INR on the foreign exchange market. The increased demand would appreciate the INR. In a fixed
exchange rate, forex reserves can play an important role in trying to keep a target exchange rate.
Guarantor for External Debts / Liabilities - If India holds a large amount of forex, then foreign countries, or
foreign banks (like, World Bank, ADB, etc) will be much willing to provide long term or short term loans.
Because, they will understand that India has the ability to payback the loan. It reflects as credit worthiness.
Indian forex
India has four types of forex assets 1. Foreign Currency Assets - This is the most important part of forex, and holds the maximum portion of it. It
simply means how much foreign currency (generally dollar) India holds (Jan 23, 2015 - USD 2,97,510)
2. Gold Reserves - This is the next most important part. How much gold India holds (Jan 23, 2015 - USD
19,377 worth gold)
3. Special Drawing Rights (SDR) - These are the drawing rights, or a claim to currency, that a country holds
with IMF, that can be sold or bought. Note that it can be exchanged with currencies. (Jan 23, 2015 - USD
4,047)
4. Reserve Position in the IMF - Also known as Reserve Tranche Position (RTP). It also represents a forex, to
some extent (Jan 23, 2015 - USD 1,101)
India holds total $360 billion by end March 2016
Wide power on the hand of Enforcement Directorate (E.D) to arrest any person,
seize any document (Corporate world found themselves at the mercy of E.D.!)
Hence government of India, under PM Shri. Atal Bihari Vajpayee repealed the FERA Act,
and introduced FEMA in 1999. This time, instead of "regulating" the foreign exchange,
government tried to "manage" it (with simpler norms).
FEMA has brought a new management regime of foreign exchange with the
new framework of the World Trade Organization (WTO). Also, it brought with it
the Prevention of Money Laundering Act, 2002, w.e.f. July 1, 2005.
FERA
FEMA
Objectives
Provisions
Power of
Search &
Seize
Violation
Residentia
l status
or to non-shareholders.
3. Rights Issue - If the company issues shares to existing shareholders in per share basis,
then the percentage stake will not be diluted. This is known as Rights Issue.
For an example, suppose a company issues 1:3 Rights Issue @ Rs. 50/share. It means
an existing shareholder having 3 shares already can buy 1 new share at Rs. 50. Note that
the percentage stake is not diluted, because every shareholder again holds the same
percentage of shares.
4. Preferential Issue - If the company issues shares to some other selected
(preferred) people who is not an existing shareholder, then it will be known
as Preferential Issue. Note that percentage stake is diluted here, because new person
becomes shareholder.
Secondary Market - You buy shares from some other shareholder, rather than the company, meaning
the share is already gone through the Primary market.
Types of Shares
Before going to how you could calculate sensex, it is important to know about different types of shares
Restricted Shares - restricted to its own employees, or insiders, cannot be issued to public without special
permission
Float Shares - freely bought of sold in public (consider as floating in public market)
Outstanding Shares - represents all the shares the company actually issued, either to the public or to its
own employees (meaning, restricted shares + float shares)
Authorized Shares - maximum share that a company can issue. Shareholder's Vote is necessary to increase or
decrease it.
1. A commodity market is a market that trades in primary/raw products, rather than manufactured products.
Commodities include a. Soft commodities, like wheat, cocoa, sugar, etc (agricultural products)
b. Hard commodities, like gold, rubber, oil, etc (mined products)
c. Both (a) and (b)
d. None of the above
2. Commodity Market trading can include a. Physical trading
b. Derivatives trading (futures, forwards, options, etc.)
c. Both (a) and (b)
d. None of the above
3. Which of the following is/are commodity exchanges of India?
a. Multi Commodity Exchange (MCX)
b. National Commodity and Derivatives Exchange (NCDEX)
c. National Multi-Commodity Exchange (NMCE)
d. All of the above
4. Which of the following is the regulatory body of Commodity Market / Derivative Market?
a. Reserve Bank of India (RBI)
b. Securities and Exchange Board of India (SEBI)
c. Forwards Market Commission (FMC)
d. None of the above
* FM Arun Jaitley announced merger of FMC with SEBI in his Budget 2015-16 speech
Investors have to pay the entire fee upfront (at the time of bidding for shares)
Refunds (in case bidding failed) through cheques usually take up to 45 days.
ASBA is an application to buy shares, where investors authorize the bank (mediates the
process) to block the application money in his bank account. Investors
cannot withdraw the blocked amount, until the whole process is over.
If the investor is not selected for share (means his bidding is unsuccessful), then
the blocked amount will be unblocked, and he can withdraw that amount as per his
wish.
Fiscal Deficit
In the Revenue Deficit/Surplus, deficit or surplus was calculated on the predicted and actual Net Revenue.
But, if the government actually makes the deficit, then we are talking about Fiscal Deficit. That means, if the
government spends more than it earns in a financial year, then (obviously) the expenditure is greater than
the revenue, leading to the Fiscal Deficit.
Note Fiscal Deficit means actual loss of revenue, while Revenue Deficit can mean actual loss, or actual profit, for
the financial year.
Also note that, while calculating Fiscal Deficit, we need to exclude the borrowings of the government (because it
certainly is not actual revenue, its a debt, that the government needs to pay back to the lender/investor)
Primary Deficit
After borrowing from the investors, government needs to pay interest on the borrowings. If these interests are
deducted from the Fiscal Deficit, then we get the Primary Deficit.
Balance of Payment
Balance of Payments (BOP) of a country is its record of all financial transactions performed between the
residents (meaning individual, firms, government) and the rest of the world (albeit within a period, usually a financial
year). Here a point need to be mentioned, BOP data isn't concerned with actual 'payments', rather with 'transactions'.
For the international trade, a country's BOP deals with three types of accounts 1. Current Account - It is the most important of the three. It has mainly four components - goods, services,
income and current transfers (meaning worker's remittances, donations, aids, etc.). It is very obvious now if the outflow of this components are more than the inflow, it will result in Current Account Deficit (CAD).
2. Capital Account - All international capital transfers are recorded here (Capitals meaning non-financial
assets, such as land and non-produced assets, such as mine)
3. Financial Account - It contains the direct investment (remember FDI, ODI), portfolio investment, reserve
assets, etc.
Often the last two accounts are mentioned as a single one - Capital and Financial Account.
You can only maintain your FCNR(B) account in foreign currencies (like, Pound, Dollars, Euro, Yen, etc)
Vostro accounts are generally held by a foreign bank in our country (with a domestic bank). It generally maintained
in Indian Rupee (if we consider India)
For example, HSBC account is held with SBI in India. (may be)
LORO Account
Again, Italian word 'loro' means 'theirs'. Therefore, it points at - "Their account with them"
Loro accounts are generally held by a 3rd party bank, other than the account maintaining bank or with whom
account is maintained.
For example, BOI wants to transact with HSBC, but doesn't have any account, while SBI maintains an account
with HSBC in U.K. Then BOI could use SBI account. (again may be)
Banking Ombudsman
Ombudsman is an official appointed to investigate individual's complaints against a company or organization,
especially a public authority (Google definition of 'Ombudsman').
To facilitate customer complaints resolution process, RBI introduced this fast and inexpensive (no fee to avail this
facility) Ombudsman Scheme in 1995 under Section 35A of Banking Regulation Act, 1949. In this
scheme, RBI appoints the Banking Ombudsman, generally a senior official, to redress customer complaints
against deficiency in certain banking services provided by a bank.
Banks covered under this scheme
If he has not received any reply from the bank within a period of 1 month after the bank has received
his complaint (meaning, customer has to complain to the bank first, then Ombudsman)
If the customer is not satisfied with the reply from the bank
He can file a complaint by writing on a plain paper, or online, or email to the Banking Ombudsman (under whose
jurisdiction the bank branch is)
Note that, Banking Ombudsman is not meant to replace the traditional Consumer Courts or Forums, but the scheme
only supplements them. Also note that this scheme deals with complaints of max. Rs. 10 lakh disputes.
DEAF Scheme
There are several accounts in banks which are not operated for 10 years (or more), or there
are deposits which are unclaimed for 10 years (or more). There is little possibility that
thedeposits will be reclaimed by the owner (as it is unclaimed for that long period).
RBI decided to acquire those unclaimed amounts and create a fund, which could be used for
the good of the public. It amended the Banking Regulation Act, 1949, by adding Section
26A, which empowers RBI to establish the Depositor Education and Awareness Fund
(DEAF).
All the unclaimed amounts in the banks need to be transferred within 3 months after
becoming 10 years default, to the DEAF fund. Also note that the transfer is allowed only
in electronic mode.
The goal of this DEAF fund is to promote depositor interest, like educating them, or creating
awareness among them, or some other purpose.
Situational Question
If someone comes to your bank and claims for his/her deposit (which has already
been transferred to DEAF fund, because it defaulted for 10 years), what will you do?
You will verify his/her claim, and after successful verification, will honor the claim.
Note that the bank would be liable to pay the amount to the depositor/claimant and claim
refund of such amount from the DEAF fund (even after 10 years).
Finance Ministry
Ministry of Finance (MoF)
Finance Ministry is one of the most important ministries of Government of India.
It governs the following
Taxation (direct and indirect - CBDT and CBEC comes under this ministry)
Departments of MoF
Ministry of Finance of India comprises 5 departments -
1. Economic Affairs
Department of Economic Affairs (DEA) formulates and monitors the economic
policies and programmes of the government. It performs the following functions
2. Expenditure
Department of Expenditure governs the public financial management system in
the Central government. It performs the following functions
Appraises major schemes or projects before sanction (both Plan and non-Plan
expenditure)
3. Revenue
Department of Revenue controls all the Direct and Indirect Taxes by Central Board of
Direct Taxes (CBDT) and Central Board of Excise and Customs (CBEC) respectively.
Note that Income Tax, Customs Duty, Excise Duty, etc. - all type of taxes are governed
by Revenue Department.
Revenue Secretary - Shri Shaktikanta Das
4. Financial Services
Department of Financial Services (DFS) governs
all banks, insurance, pension and financial services (including MSMEs) provided
by government agencies or private corporations.
Financial Services Secretary - Shri Hasmukh Adhia
5. Disinvestment
Cadres of MoF
The following cadres of Indian Civil Services work under Ministry of Finance
Finance Minister
First Finance Minister of independent India is Shri R.K.Shanmukham Chetty and
current Finance Minister is Shri Arun Jaitley.
Minister of State for Finance
Current Minister of State for Finance is Shri Jayant Sinha
Finance Secretary
Finance Secretary plays the leadership role among the 5 departmental
secretaries (chosen among them). Generally Finance Secretary tends to be the senior
most of the 5 (seniority based on entry into civil services, not based on actual age).
These series banknotes are issued in the denomination of Rs. 10, 20, 50, 100, 500 and 1000, and contain
some additional new security features that MG Series-1996 doesn't have. Started from August 2005, MG Series 2005 banknotes are currently being used in India.
It is very easy to distinguish MG-Series 2005 notes from its predecessors, because these notes bear the year of
printing on the reverse side.
Withdrawal of Pre-2005 Banknotes
RBI changed the design of pre-2005 banknotes and introduce new security features primarily to minimize
the risk of counterfeiting. So that the economy can be protected from counterfeiters or forgers.
Also, the withdrawal exercise is in conformity with the standard international practice of not having multiple
series of notes in circulation at the same time.
Public can visit any bank branch, or RBI Issue Office to exchange pre-2005 banknotes.
Recently, the deadline of January 1, 2015 has been extended to June 30, 2015 by RBI.
Situational Question
RBI has given a deadline for the exchange of pre-2005 banknotes. What will happen to those notes (that will still
remain in circulation) after the deadline? Will those remain a legal tender?
RBI has clarified that the public can continue to freely use those notes for any transaction and
can unhesitatingly receive those notes in payment, as all such notes continue to remain legal tender.
But public is encouraged to exchange pre-2005 notes with MG Series-2005 notes.
Note the drastically declining figure of girl child. This is a major indicator of women dis-empowerment. There may be
several practical reasons, but the most important is our patriarchal mindset, which needs to be changed.
Therefore, the need of the hour is to educate people and start campaigns to save the girl child. We should remember,
'The Happiness of a Nation lies in the Dignity of its Daughters'.
This initiative will be implemented through a national campaign and focused multi-sectoral
action in 100 selected districts, that are low in CSR.
Objectives
Prevention of gender-biased sex selective elimination - enforcement of laws, especially the implementation
of Pre-Conception & Pre-Natal Diagnostic Techniques (Prohibition of Sex Selection) Act, 1994
(PC&PNDT Act) with stringent punishments for violations.
Ensuring survival and protection of the girl child - the access to various entitlements, changes in patriarchal
mind-set, etc. are to be addressed in order to ensure equal value, care for and survival of the infant and young
girl child.
Ensuring education and participation of the girl child - access and availability
of services and entitlements during the various phases of the life cycle of the girl child - related to nutrition,
health care, education, etc.
Outlays
Fund will be mobilized from 'Care and Protection of Girl Child - A Multi Sectoral Action Plan' - Rs. 100 crore
Partial withdrawal, maximum up to 50 % balance can be withdrawn by the girl child after attaining 18 years
A legal guardian / natural guardian can open account in the name of girl child
A guardian can open only one account in the name of one girl child and max. 2 accounts in the name of two
different girl children
Account can be opened up to age of 10 years from date of birth (initially 1 year grace period has been given)