Certified Investment Banking
What do you mean by bank ?
Lending activities can be directly performed by the bank or indirectly through capital markets.
How many types of banks are there?
Lets understand banks in details
• Cooperative banks’ principal purpose is to enhance social welfare by providing low-interest loans
• They are arranged in a three-tiered system
• State Cooperative Banks, Tier 1 (State Level) (regulated by RBI, State Govt, NABARD)
• The RBI, the government, and the National Bank for Agriculture and Rural Development (NABARD) all contribute to the project’s funding. After then, the money is allocated to the general population
• These banks are subject to CRR and SLR concessions. (SLR: 25%, CRR: 3%)
• The state owns the company, and the senior management is chosen by the members
• Central/District Cooperative Banks, Tier 2 (District Level)
• Tier 3 (Village Level) – Agriculture (Primary) Cooperative Banks
• They function on a commercial basis, with profit as their primary goal
• They are owned by the government, state, or any private company and have a unified structure
• They look after all sectors, from rural to urban
• Unless the RBI directs otherwise, these banks do not charge concessional interest rates
• These banks’ primary source of funds is public deposits
• Commercial banks are further classified into three types:
Public sector banks are those in which the government or the country’s central bank owns the majority of the stock
• Banks in the private sector are those in which a private entity, an individual, or a group of people owns the majority of the stock
• Foreign Banks – This category includes banks with headquarters in other nations and branches in the United States
• RRBs were founded in 1975 and are governed by the 1976 Regional Rural Bank Act.
• RRBs are 50/50 joint ventures between the federal government and state governments (15%), as well as a commercial bank (35 percent ).
• Between 1987 and 2005, 196 RRBs were established.
• From 2005 forward, the government began merging RRBs, bringing the total number of RRBs to 82.
• A single RRB cannot open branches in more than three districts that are geographically connected.
• The private sector organizes these.
• Local Area Banks’ primary goal is to make a profit.
• Local Area Banks are governed by the 1956 Companies Act.
• There are now just four Local Area Banks in existence, all of which are located in South India.
SIDBI (Small Industries Development Bank of India) – SIDBI can provide a loan for a small-scale enterprise or business. With the support of this bank, small businesses can get current technology and equipment.
• Export and Import Bank (EXIM Bank) – EXIM Bank stands for Export and Import Bank. This type of bank can provide loans or other financial help to foreign countries that are exporting or importing goods.
• NABARD (National Bank for Agricultural and Rural Development) – People can resort to NABARD for any type of financial support for rural, handicraft, village, and agricultural development.
• Other specialist banks exist, each with a unique function to play in the financial development of the country.
The following is a list of our country’s small finance banks:
• AU Small Finance Bank
• Equitas Small Finance Bank
• Jana Small Finance Bank
• Ujjivan Small Finance Bank
• Esaf Small Finance Bank
• Fincare Small Finance Bank
Payment banks provide services such as internet banking, mobile banking, ATM card issuance, and debit card issuance. The following is a list of our country’s few payment banks:
• Airtel Payments Bank
• India Post Payments Bank
• Fino Payments Bank
• Jio Payments Bank
• Paytm Payments Bank
• NSDL Payments Bank
Which is Central Bank of India ?
The central bank’s principal role is to serve as the government’s bank and to oversee and regulate the country’s other banking institutions. The functions of a country’s central bank are listed below:
• assisting other financial institutions
• Issuing money and enforcing monetary policies
• The financial system’s supervisor
In other words, the country’s central bank is also known as the banker’s bank because it assists other banks in the country and runs the country’s financial system under the supervision of the Government.
What are the monetary policies of RBI ?
The policy also oversees distribution of credit among users as well as the borrowing and lending rates of interest. In a developing country like India, the monetary policy is significant in the promotion of economic growth.
objectives of monetary policy?
Monetary Policy Tools
To control inflation, the Reserve Bank of India needs to decrease the supply of money or increase cost of fund in order to keep the demand of goods and services in control.
When the RBI sells government securities, the liquidity is sucked from the market, and the exact opposite happens when RBI buys securities. The latter is done to control inflation. The objective of OMOs are to keep a check on temporary liquidity mismatches in the market, owing to foreign capital flow.
Unlike quantitative tools which have a direct effect on the entire economy’s money supply, qualitative tools are selective tools that have an effect in the money supply of a specific sector of the economy.
Market Stabilisation Scheme (MSS)
The interest rate at which RBI lends long term funds to banks is referred to as the bank rate. However, presently RBI does not entirely control money supply via the bank rate.
It uses Liquidity Adjustment Facility (LAF) – repo rate as one of the significant tools to establish control over money supply.
Bank rate is used to prescribe penalty to the bank if it does not maintain the prescribed SLR or CRR
1. Repo rate : Repo rate is the rate at which banks borrow from RBI on a short-term basis against a repurchase agreement. Under this policy, banks are required to provide government securities as collateral and later buy them back after a pre-defined time.
2. Reverse Repo rate : It is the reverse of repo rate, i.e., this is the rate RBI pays to banks in order to keep additional funds in RBI. It is linked to repo rate in the following way: Reverse Repo Rate = Repo Rate – 1
MSF or Marginal Standing Facility enables banks to borrow funds from RBI (Reserve Bank of India) in emergency situations when their liquidity absolutely dries up. This short-term borrowing scheme facilitates the scheduled banks to get funds from the central bank of India overnight in case of serious cash shortage by offering their approved government securities. Liquidity shortfalls are often faced by banks resulted from the financial gap created due to deposit and loan portfolio mismatch. Such shortfalls don’t last long and to manage such emergency conditions banks can approach RBI for quick money for a period of one day within the limits of the Statutory Liquidity Ratio (SLR).
Key differences between Bank Rate VS REPO RATE
is charged against loans offered by the central bank to commercial banks
No collateral is involved while charging Bank Rate
Repo Rate is always lower than the Bank Rate.
Increase in Bank Rate directly affects the lending rates offered to the customer, restricting people to avail loans and damages the overall economic growth
Bank Rate caters to long term financial requirements of commercial banks
is charged for repurchasing the securities sold by the commercial banks to the central bank
securities, bonds, agreements and collateral is involved when Repo Rate is charged
Repo Rate is always lower than the Bank Rate.
Increase in Repo Rate is usually handled by the banks and doesn’t affect customers directly
Repo Rate focuses on short term financial needs