RBI Annual Report ...................................................................................................................................................................................... 2

3rd

bimonthly Monetary Policy Statement 2018-19 (1st

Aug) .................................................................................................................... 2

2nd

Bimonthly Monetary Policy Statement 2018-19 (6th

June) .................................................................................................................. 3

Financial Stability Report June 2018 .......................................................................................................................................................... 3

Core Purpose .............................................................................................................................................................................................. 4

About RBI ................................................................................................................................................................................................... 4

Policy rates ................................................................................................................................................................................................. 5

Reserve ratios ............................................................................................................................................................................................ 6

Lending/deposit rates ................................................................................................................................................................................ 6

Monetary policy ......................................................................................................................................................................................... 6

Issuer of currency....................................................................................................................................................................................... 7

Currency note features .............................................................................................................................................................................. 7

Regulator.................................................................................................................................................................................................... 7

FIs and their regulators .............................................................................................................................................................................. 9

Financial Markets ....................................................................................................................................................................................... 9

RBI as banker and debt manager to govt ................................................................................................................................................... 9

RBI as banker to banks ............................................................................................................................................................................... 9

Payment systems ....................................................................................................................................................................................... 9

Foreign exchange reserves ...................................................................................................................................................................... 10

Priority sector lending .............................................................................................................................................................................. 11

MSMEs ..................................................................................................................................................................................................... 11

Banking ombudsman scheme .................................................................................................................................................................. 12

Deposit Insurance and Credit Guarantee Corp ........................................................................................................................................ 12

Bhartiya Reserve Bank Note Mudran Ltd. ................................................................................................................................................ 12

Security Printing and Minting Corp of India ............................................................................................................................................. 13

Bank Note Paper Mill India Pvt Ltd .......................................................................................................................................................... 13

G-secs ....................................................................................................................................................................................................... 13

NEFT ......................................................................................................................................................................................................... 14

RTGS ......................................................................................................................................................................................................... 15

ATMs ........................................................................................................................................................................................................ 15

Nostro and Vostro accounts .................................................................................................................................................................... 15

Asian Clearing Union ................................................................................................................................................................................ 15

Guidelines for payment banks ................................................................................................................................................................. 16

Guidelines for small finance banks .......................................................................................................................................................... 16

Census on foreign liabilities and assets of Indian direct investment companies 2016-17 by RBI ........................................................... 16

RBI Annual Report

Assessment and prospects

2017-18 ended with the lowest average inflation of 3.6% since 2012-13

Due to low inflation, MPC had reduced repo rate in Aug 17 by 25 basis points

Combined fiscal position of Centre and States deteriorated somewhat in relation to budgeted levels due to

subdued growth in revenues and elevated revenue expenditure

o For centre, revenues affected by lower collections from indirect taxes due to late implementation of GST

o Shortfall in non-tax revenue due to deferment of spectrum auctions

o Lower dividend receipts

o For states, farm loan waivers and pay commission recommendations

Nominal exchange rate appreciated by 3.1% and in real terms by 4.5%

Stressed assets = Gross NPAs + restructured standard advance = 12.1% of gross advances at end Mar 2018

Banks were advised to encouraged large borrowers to obtain Legal Entity Identifiers (LEI) to improve quality and

accuracy of financial data

All deposit taking NBFCs and NBFCs-ND-SI (systemically important) are required to maintain CAR of 15% and min

Tier I capital of 10%; no more exemptions from regulatory and statutory provisions to govt owned NBFCs

3rd bimonthly Monetary Policy Statement 2018-19 (1st Aug) increased the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.5 per cent

reverse repo rate under the LAF stands adjusted to 6.25 per cent, and the marginal standing facility (MSF) rate

and the Bank Rate to 6.75 per cent

neutral stance of monetary policy

28 of the 36 sub-divisions received normal or excess rainfall, whereas 8 sub-divisions received deficient rainfall

as against three sub-divisions last year.

The total sown area of kharif crops as on July 27 was 7.5 per cent lower than that a year ago.

The live storage in major reservoirs as on July 26 was at 41 per cent of the full reservoir level compared with 36

per cent a year ago, which portends well for the rabi sowing season

Business Expectations Index is by RBI

Manufacturing PMI (Purchasing Managers’ Index) is by Nikkei India

Retail inflation, measured by the year-on-year change in the CPI, rose from 4.9 per cent in May to 5 per cent in

June, driven by an uptick in inflation in fuel and in items other than food and fuel even as food inflation

remained muted due to lower than usual seasonal uptick in prices of fruits and vegetables in summer months

Adjusting for the estimated impact of the 7th central pay commission’s house rent allowances (HRA), headline

inflation(WPI) increased from 4.5 per cent in May to 4.6 per cent in June

India’s foreign exchange reserves were at US$ 404.2 billion on July 27, 2018

inflation is projected at 4.6 per cent in Q2, 4.8 per cent in H2 of 2018-19 and 5.0 per cent in Q1:2019-20

Excluding the HRA impact, CPI inflation is projected at 4.4 per cent in Q2, 4.7-4.8 per cent in H2 and 5.0 per cent

in Q1:2019-20

GDP growth projection for 2018-19 is retained, as in the June statement, at 7.4 per cent, ranging 7.5-7.6 per cent

in H1 and 7.3-7.4 per cent in H2, with risks evenly balanced; GDP growth for Q1:2019-20 is projected at 7.5 per

cent

Statement on development and regulatory policies

o Extension of Marginal Standing Facility (MSF) to Scheduled Primary (Urban) Cooperative Banks and

extension of LAF and MSF to Scheduled State Cooperative Banks

o been decided to permit Primary (Urban) Co-operative Banks to undertake eligible transactions for

acquisition / sale of non-SLR investment in secondary market with mutual funds, pension / provident

funds, and insurance companies

o SGL = Subsidiary general ledger and CSGL = Constituent Subsidiary General Ledger accounts

Only Ravindra Dholakia voted against decision

2nd Bimonthly Monetary Policy Statement 2018-19 (6th June)

Increase the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points to 6.25 per cent.

Reverse repo rate under the LAF stands adjusted to 6.0 per cent, and the marginal standing Facility (MSF) rate

and the Bank Rate to 6.50 per cent.

Neutral stance of monetary policy

GDP growth for 2017-18 has been estimated at 6.7 per cent by CSO. Quarterly data suggest that the economy

grew at 7.7 per cent in Q4:2017-18

Retail inflation, measured by the year-on-year change in the CPI, rose sharply to 4.6 per cent in April

Excluding the estimated impact of an increase in house rent allowances (HRAs) for central government

employees, headline inflation was at 4.2 per cent in April, up from 3.9 per cent in March

India’s foreign exchange reserves were at US$ 412 billion on June 1, 2018.

projected CPI inflation for 2018-19 is revised to 4.8-4.9 per cent in H1 and 4.7 per cent in H2, including the HRA

impact for central government employees. Excluding the impact of HRA revisions, CPI inflation is projected at 4.6

per cent in H1 and 4.7 per cent in H2

GDP growth for 2018-19 is retained at 7.4 per cent as in the April policy. GDP growth is projected in the range of

7.5-7.6 per cent in H1 and 7.3-7.4 per cent in H2

Statement on development and regulatory policies

o Framework on countercyclical capital buffer (CCCB) envisages the credit-to-GDP gap as the main

indicator for activation of CCCB

o Deferment of Indian Accounting Standards (Ind AS) to be implemented by SCBs (excluding RRBs)

All members voted in favour of decision

Financial Stability Report June 2018 SCB’s GNPA may rise from 11.6% in Mar 2018 to 12.2% by Mar 19. System level Capital to Risk-weighted Assets

Ratio (CRAR) may come down from 13.5% to 12.8% during the period

PSBs under PCA are likely to see worsening of their GNPA ratio from 21% in Mar 18 to 22.3% by Mar 19

If bank with max capacity to cause contagion losses fails, it will cause a solvency loss of about 9% of the Tier I

capital of the banking system

SEBI has permitted Liquidity Enhancement Scheme for commodity derivatives contracts

India’s GDP growth at 7.7% in Q4 of 2017-18

Gross fiscal deficit was 3.5% in 2017-18 and is budgeted at 3.3% for 2018-19

CAD for 2017-18 at 1.9% GDP

Under the revised PCA framework of 2017, apart from the capital, asset quality and profitability, leverage is

being monitored additionally. Under PCA

o banks face restrictions on distributing dividends, remitting profits and even on accepting certain kinds of

deposits

o There are also restrictions on expansion of branch network

o Lenders need to maintain higher provisions

o Caps on mgt compensation and directors’ fees

Banks’ contribution to Clearing Corp of India Ltd (CCIL’s) Settlement Guarantee Fund (SGF) in the form of g-secs

not to be reckoned as SLR investments

New harmonized and simplified framework for resolution of stressed assets brought out in Feb 2018. According

to this –

o RBI has put in place a strict timeline over which a resolution plan must be implemented, failing which

the stressed accounts must be referred to IBC

o Banks should identify stressed account immediately on default, classify these accounts as Special

Mention Accounts (SMAs) depending on the period of default, report them to RBI’s large credit

database (CRILC) and begin resolution

o Lenders now have to report all SMAs with an aggregate exposure of at least 5 crore to the Central

Repository of Information on Large Credits (CRILC) on a monthly basis

o Additionally, default by borrowers having an aggregate exposure of at least 5 crore must be reported to

CRILC on a weekly basis

Ombudsman scheme for redressal of complaints operationalized for NBFC. Initially this is only for deposit

accepting NBFCs

Persons residing in India and FPIs can now take long (bought) and short(sold) positions without having to

establish the existence of underlying exposure up to a single limit of USD 100 mn equivalent across all currency

pairs involving INR, in the exchange traded currency derivatives (ETCD) market

Core Purpose The Core Purpose reflects the Reserve Bank’s commitment to the Nation:

To foster confidence in the internal and external value of the rupee, and contribute to macro-economic stability;

To regulate markets and institutions under its ambit to ensure financial system stability and consumer

protection;

To promote the integrity, efficiency, inclusiveness and competitiveness of the financial and payments system;

To ensure efficient management of currency as well as banking services to the Government and banks; and

To support the balanced, equitable and sustainable economic development of the country.

Values

Public interest

Integrity and independence of views

Responsiveness and innovation

Diversity and inclusiveness

Introspection and pursuit of excellence

About RBI Established on 1st April 1935 in accordance with provisions of RBI Act, 1934

Central office initially in Calcutta; moved to Mumbai in 1937 – Central office is where Gov sits and where policies

are formulated

Nationalisation in 1949; earlier privately owned

Governed by Central Board of Directors appointed by GoI

o Official : Gov + upto 4 Dy. Govs

o Non official :

Nominated by Govt : 10 Directors from various fields + 2 govt officials

Others : 4 Directors, one each from 4 local boards

Financial supervision

o By Board for Financial Supervision – 4 Directors from Central Board as members for 2 years + Gov as

Chair + Dy Governors as ex-officio members

Acts administered by RBI

o Reserve Bank of India Act, 1934

o Public Debt Act, 1944/Government Securities Act, 2006

o Government Securities Regulations, 2007

o Banking Regulation Act, 1949

o Foreign Exchange Management Act, 1999

o Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002

(Chapter II)

o Credit Information Companies(Regulation) Act, 2005

o Payment and Settlement Systems Act, 2007

Payment and Settlement Systems Regulations, 2008 and Amended up to 2011 and BPSS

Regulations, 2008

The Payment and Settlement Systems (Amendment) Act, 2015 - No. 18 of 2015

o Factoring Regulation Act, 2011

Functions

o Monetary authority – monetary policy

o Regulator and supervisor of financial system

o Manager of forex – manages FEMA Act 1999

o Issuer of currency

o Developmental role

o Banker to govts and banker to banks

Fully owned subsidiaries

o Deposit Insurance and Credit Guarantee Corp of India

o Bhartiya Reserve Bank note mudran private ltd

o National Housing Bank

First governors

o Osborne Smith

o James Braid Taylor

o C D Deshmukh

o B R Rau

Present dy. Governors

o N S Vishwanathan

o Viral Acharya

o B P Kanungo

o M K Jain

CFO – Sudha Balakrishnan

Policy rates Policy Repo Rate : 6.50%

Reverse Repo Rate : 6.25%

Marginal Standing

Facility Rate : 6.75%

Bank Rate : 6.75%

Reserve ratios CRR : 4%

SLR : 19.5%

Lending/deposit rates Base Rate : 8.75% - 9.45%

MCLR (Overnight) : 7.90% - 8.05%

Savings Deposit Rate : 3.50% - 4.00%

Term Deposit Rate > 1 Year : 6.25% - 7.00%

Monetary policy This responsibility is explicitly mandated under the Reserve Bank of India Act, 1934, which was amended in May

2016 to provide a statutory basis for the implementation of the flexible inflation targeting framework

o The amended RBI Act also provides for the inflation target to be set by the Government of India, in

consultation with the Reserve Bank, once in every five years

o Central Government has notified in the Official Gazette 4% (2 to 6%) CPI inflation as the target for the

period from August 5, 2016 to March 31, 2021

o factors that constitute failure to achieve the inflation target – average inflation is beyond 2 to 6% limit

for any 3 consecutive quarters

o Once the repo rate is announced, the operating framework designed by the Reserve Bank envisages

liquidity management on a day-to-day basis through appropriate actions, which aim at anchoring the

operating target – the weighted average call rate (WACR) – around the repo rate

Monetary Policy Committee (MPC) constituted by the Central Government under Section 45ZB determines the

policy interest rate required to achieve the inflation target

o RBI Governor – ex-officio Chairperson

o Dy. Governor in charge of monetary policy

o 1 RBI officer nominated by Central Board

o Chetan Ghate from ISI, Pami Dua from DSE and Ravindra Dholakia from IIM-A will hold office for 4 years

o Required to meet at least 4 times a year – presently meet 6 times

o Quorum for meeting is 4 members

o If equality of votes, Governor has casting vote

Reserve Bank’s Monetary Policy Department (MPD) assists the MPC in formulating the monetary policy

Financial Market Committee (FMC) meets daily to review the liquidity conditions so as to ensure that the

operating target of monetary policy (weighted average lending rate) is kept close to the policy repo rate.

Primary objective of monetary policy is to maintain price stability while keeping in mind the objective of growth.

Price stability is a necessary precondition to sustainable growth

Instruments

o Repo rate – fixed interest rate at which RBI provides overnight loans to banks against g-secs and other

secs under LAF

o Reverse repo rate – fixed interest rate at which RBI absorbs liquidity on an overnight basis under LAF

o Marginal Standing Facility - A facility under which scheduled commercial banks can borrow additional

amount of overnight money from RBI by dipping into their SLR portfolio up to a limit at a penal rate of

interest

o Corridor - The MSF rate and reverse repo rate determine the corridor for the daily movement in the

weighted average call money rate

o Bank rate - rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other

commercial papers. This has been aligned with MSF rate

o SLR – can be maintained in g-secs, cash or gold

Issuer of currency GoI is issuing authority of coins and supplies coins to RBI on demand. RBI then puts the coins into circulation on

behalf of GoI

Printing presses are in Dewas, Nasik, Mysore and Salboni (WB)

o Presses in Dewas and Nasik are owned by Security Printing and Minting Corp (owned by GoI)

o Other 2 owned by Bhartiya Reserve Bank Note Mudran Pvt Ltd (owned by RBI)

Mints at Mumbai, Noida, Kolkata, Hyderabad

Coins are legal tender only for amounts < Rs. 1000 as per Indian Coinage Act

Currency note features 2000

o Motif of Mangalyaan on reverse

o Magenta

o 66x166 mm

500

o 66x150 mm

o Stone grey

o Predominant new theme is Red Fort

o Numerals in Devnagari in new notes

o Gandhi face now at centre

o Swachch bharat logo and slogan

200 - Sanchi stupa

100 – Rani ki vav; base colour Lavender

50 - Hampi

10 - Konark

Regulator

Commercial banking The Reserve Bank is striving towards a more competitive, efficient and heterogeneous banking structure. The

licensing policies regarding Universal Banks, Small Finance Banks and Payments Banks are a step in the direction

of building a heterogeneous banking system.

How does RBI regulate

o Issuance of licenses for opening of banks

o Authorization for opening of branches

o Governing entry and expansion of foreign banks in India and Indian banks abroad

o Resolution mechanisms

o Monitoring of maintenance of CRR and SLR by banks

o According prior approval for 5%+ shares or voting rights of pvt banks

Licensing of universal banks – IDFC and Bandhan were given licenses in 2013 and now RBI has moved towards

accepting applications on a continuous basis under ‘on tap licensing policy’

Banking licenses being issued to differentiated or niche banks like Small Finance Banks and Payments Banks – for

furthering financial inclusion

Basel III regulations for Indian banks will be fully phased in by 31st March 2019, instead of 31st March 2018 as

announced earlier. This will still be close to internationally agreed date of 1st Jan 2019

Coordinate with Financial Stability and Development Council

o FSDC is apex level body constituted by GoI

o Not a statutory body

o No funds allocated to it separately

o FM is Chair

o Members are RBI Gov, Chairs of SEBI, IRDA, PFRDA, IBBI, Secys to depts. in Finance Ministry, CEA etc

Cooperative banking

Cooperative credit structure operates within a 3-tier system

o PACS (Primary Agricultural Credit Societies) at the village level – outside the purview of Banking

Regulation Act 1949 and hence not regulated by RBI

o Central Cooperative Banks at the district level and State Cooperative banks at the state level are under

State Cooperative Societies Act of the state concerned and regulated by RBI – powers have been

granted to NABARD to conduct inspection of these

Primary Cooperative Banks (aka Urban Cooperative Banks) cater to urban and semi-urban areas – primarily

registered as cooperative societies under State Cooperative Societies Acts

Banking laws were made applicable to cooperative societies only in 1966 by amending Banking Regulation Act

1949, thus giving duality of control over these banks with banking related functions being regulated by RBI and

management related functions being regulated by resp State govts/Central govt

NBFCs NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances,

acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other

marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business

50-50 rule : Financial activity as principal business is when a company’s financial assets constitute more than 50

per cent of the total assets and income from financial assets constitute more than 50 per cent of the gross

income. A company which fulfils both these criteria will be registered as NBFC by RBI

Difference wrt banks

o NBFC cannot accept demand deposits;

o NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on

itself

o deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to

depositors of NBFC

It should have a minimum net owned fund of ₹ 200 lakh. (The minimum net owned fund (NOF) required for

specialized NBFCs like NBFC-MFIs, NBFC-Factors, CICs are different)

NBFCs whose asset size is of ₹ 500 cr or more as per last audited balance sheet are considered as systemically

important NBFCs

FIs and their regulators Housing Finance Companies by NHB

Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers by SEBI

Insurance companies by IRDAI

Chit Fund companies by resp state govts

Nidhi Companies by MCA (Nidhi company = mutual benefit society; borrowing from members and lending to

members only; membership limited to individuals

Financial Markets RBI has designated industry bodies Fixed Income, Money Markets and Derivatives Association of India (FIMMDA)

and Foreign Exchange Dealers Association of India (FEDAI) as the benchmark administrators for the Rupee

interest rate and foreign exchange benchmarks, resp

o FIMMDA, FEDAI and IBA have since jointly floated an independent company

G-secs markets

o Trading largely on Negotiated Dealing System-Order Matching (NDS-OM), an anonymous order

matching trading platform

Call money market – can be collaterised or uncollaterised; includes Commercial Paper issuances by corporates,

Certificates of Deposits issued by banks etc

Foreign exchange market

Derivatives

RBI as banker and debt manager to govt The Reserve Bank of India Act, 1934 requires the Central Government to entrust the Reserve Bank with all its

money, remittance, exchange and banking transactions in India and the management of its public debt. The

Government also deposits its cash balances with the Reserve Bank.

The Reserve Bank may also, by agreement, act as the banker and debt manager to State Governments.

Currently, the Reserve Bank acts as banker to all the State Governments in India (including Union Territory of

Puducherry), except Sikkim. For Sikkim, it has limited agreement for management of its public debt

RBI as banker to banks E-Kuber is the Core Banking solution of RBI

Payment systems Board for regulation and supervision of payment and settlement systems (BPSS), a sub-committee of Central

Board of RBI, is highest policy making body on payment systems in the country. Members are – Gov as Chair + 4

Dy. Govs (Kanungo is Vice Chair) + 2 other Central Board members

Paper based payments

o Use of paper-based instruments (like cheques, drafts, and the like) accounts for nearly 60% of the

volume of total non-cash transactions in the country. In value terms, the share is presently around 11%.

This share has been steadily decreasing over a period of time

o Reserve Bank had introduced Magnetic Ink Character Recognition (MICR) technology for speeding up

and bringing in efficiency in processing of cheques (9 digits – first 3 city code, next 3 bank code and last 3

branch code)

Electronic payments

o Electronic Clearing Service (ECS) introduce in 1990s to handle bulk and repetitive payments like salary,

dividend etc

o National Electronic Clearing Service (NECS) at National Clearing Cell (NCC) in Mumbai in 2008 – multiple

credits to beneficiary accounts against a single debit from sponsor account

Regional ECS (RECS)

o Launched in 2009

o Presently available at Ahmedabad, Bengaluru, Chennai, Kolkata

Electronic Fund Transfer (EFT) in 1990s

NEFT

o Since 2005

o More secure and for one to one transfers

o NEFT system provides for batch settlements at hourly intervals, thus enabling near real-time transfer

of funds

o unique features viz. accepting cash for originating transactions, initiating transfer requests without any

minimum or maximum amount limitations, facilitating one-way transfers to Nepal, receiving

confirmation of the date / time of credit to the account of the beneficiaries, etc., are available in the

system

RTGS (Real Time Gross Settlement) system

o "real time" means payment transaction is not subjected to any waiting period

o "Gross settlement" means the transaction is settled on one to one basis without bunching or netting

with any other transaction

o Once processed, payments are final and irrevocable

o settles all inter-bank payments and customer transactions above ` 2 lakh.

o Introduced in 2004

Clearing Corp of India Ltd (CCIL)

o CCIL was set up in April 2001 by banks, financial institutions and primary dealers, to function as an

industry service organisation for clearing and settlement of trades in money market, government

securities and foreign exchange markets

Foreign exchange reserves Foreign exchange reserves stood at USD 424.55 billion as at end of March 2018

o Foreign Currency Assets = USD 399.442 bn

o Gold = USD 21.484 bn

o SDR = 1.5 bn

o RTP = 2 bn (Reserve Tranche Position in IMF)

Current account balance = -35.7 bn USD (all figures between Apr-Dec 2017)

Capital Account balance = USD 66 bn

o FDI = USD 23.7 bn

o FPI = USD 19.8 bn

Total increase in reserves in this period = USD 39 bn

Total external assets = USD 607.6 bn

Total external liabilities = USD 1037.3 bn

Net International Investment Position = USD -429.7 bn

At the end of December 2017, the import cover decreased to 10.8 months from 11.3 months at end-March

2017.

The Reserve Bank holds 560.32 tonnes of gold, of which 268.01 tonnes are held overseas in safe custody with

the Bank of England and the Bank for International Settlements (BIS). Gold as a share of the total foreign

exchange reserves in value terms (USD) stood at about 5.0 per cent as at end-March, 2018.

Priority sector lending Categories

o Agri

o MSMEs

o Export credit

o Education – loans upto 10 lakh

o Housing – loans upto 28 lakh in metropolitan cities and 20 lakh in other places (loans to banks own

employees not eligible)

o Social infra – loans upto 5 crore per borrower for social infra in non-Tier I cities, bank credit to MFIs for

onlending to individuals, SHGs or Joint Liability Groups (JLGs) for water and sanitation facilities

o Renewable energy – loans upto 15 crore for renewable energy, non-conventional energy based public

utilities like street lighting, remote village electrification; for individual households, loan limit is 10 lakh

per borrower

o Others

Targets and sub-targets

o Domestic SCBs (excluding RRBs and Small Finance Banks) + foreign banks with 20+ branches

Total – 40%

Agri (farm credit, agri infra, ancillary activities)– 18% and within this 18%, 8% for Small and

Marginal farmers

Micro enterprises – 7.5%

Advances to weaker sections – 10%

o Foreign banks with <20 branches

40% to be achieved in a phased manner by 2020

No limits for loans sanctioned to any MSME (goods or services sector) to be classified as priority sector

Bank credit to MFIs for on-lending is categorized under priority sector

Priority Sector Lending Certis – surplus banks can sell

Priority sector guidelines do not lay down any preferential rate of interest for priority sector loans

MSMEs Current definition according to MSME Development Act, 2006

o Manufacturing industry

Micro – investment in plant and machinery < 25 lakh

Small – investment >25 lakh < 5 crore

Medium – investment >5 cr <10 crore

o Service sector limits are 10 lakh, 2 crore and 5 crore

Govt has brought out new classification based on turnover. This is not yet implemented because amendment to

MSMED Act, 2006 not yet made. In new classification, no distinction between manufacturing and services sector

o Micro – revenue < 5 crore

o Small – revenue 5 crore to 75 crore

o Medium – 75 crore to 250 crore

Banks mandated not to accept collateral security for loans upto 10 lakh to units in MSE sector

Ministry of MSME + SIDBI set up Credit Guarantee Trust Fund for MSEs to facilitate flow of credit to the MSE

sector without the need for collaterals / third party guarantees. The Credit Guarantee scheme (CGS) seeks to

reassure the lender that, in the event of a MSE unit, which availed collateral - free credit facilities, failing to

discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to

85 per cent of the outstanding amount in default. The CGTMSE would provide cover for credit facility up to Rs.

200 lakh

Banking ombudsman scheme Under Sec 35A of Banking Regulation Act 1949 wef 1995

Banking ombudsman is a senior official appointed by RBI to redress customer complaints

All SCBs, RRBs and scheduled cooperative banks covered

For amounts upto 20 lakh

Can award compensation upto 1 lakh for mental agony and harassment

Appellate authority vested with a Dy. Governor of RBI

Deposit Insurance and Credit Guarantee Corp Kanungo is Chairman

Banks included

o All commercial banks – including branches of foreign banks, RRBs, local area banks

o All cooperative banks – all state, central and primary cooperative banks (aka urban cooperative banks)

o Primary cooperative societies are not insured by DICGC

Insures all deposits such as savings, fixed, current, recurring etc upto 1 lakh except those of

o Foreign govts

o Central/state govts

o Inter bank deposits

Bhartiya Reserve Bank Note Mudran Ltd. Established in 1995 and wholly owned by RBI

Head office at Bengaluru

Presses at Mysore and Salboni (WB)

Kanungo is Chairman (non-Executive)

S K Maheshwari is ME and CEO

Security Printing and Minting Corp of India Incorporated in 2006; Miniratna wholly owned by GoI

Head office in Delhi

Security paper, minting of coins, printing currency and bank notes, non-judicial stamp papers ofr state govts,

passports and visa stickers for MEA etc

Under Dept of Economic Affairs, FM

Presses at Nashik and Dewas

Security paper mill at Hoshangabad

Mints at Mumbai, Hyd, Kol, Noida

Tripti Patra Ghosh is CMD

Bank Note Paper Mill India Pvt Ltd JV of SPMCIL and BRBNMPL

Tripti Patra Ghosh is CMD of this as well

Incorporated in 2010 with office in Mysuru

Total capacity of 12000 MT per annum (recently received nod to increase to 16000 MT)

G-secs instruments Fixed Rate Bonds – These are bonds on which the coupon rate is fixed for the entire life (i.e. till maturity) of the

bond. Most Government bonds in India are issued as fixed rate bonds.

Floating Rate Bonds (FRB) – FRBs are securities which do not have a fixed coupon rate. The coupon is re-set at

pre-announced intervals (say, every six months or one year) by adding a spread over a base rate. FRBs were first

issued in September 1995 in India. For example, a FRB was issued on December 21, 2009 for a tenor of 11 years,

thus maturing onDecember 21, 2020. The base rate on the bond for the coupon payments was fixed at 3.79%

being the weighted average rate of implicit yield on 182-day Treasury Bills during the preceding three auctions.

In the bond auction coupon for the first six months was fixed at 4.8557%

Zero Coupon Bonds – Zero coupon bonds are bonds with no coupon payments. However, like T- Bills, they are

issued at a discount and redeemed at face value. The Government of India had issued such securities in the

nineties, It has not issued zero coupon bonds after that

Capital Indexed Bonds – These are bonds, the principal of which is linked to an accepted index of inflation with a

view to protecting the Principal amount of the investors from inflation. A 5 year capital indexed bond, was first

issued in December 1997 which matured in 2002.

Inflation Indexed Bonds (IIBs) - IIBs are bonds wherein both coupon flows and Principal amounts are protected

against inflation. The inflation index used in IIBs may be Whole Sale Price Index (WPI) or Consumer Price Index

(CPI). Globally, IIBs were first issued in 1981 in UK. In India, Government of India through RBI issued IIBs (linked

to WPI) in June 2013. Since then, they were issued on monthly basis (on last Tuesday of each month) till

December 2013. Based on the success of these IIBs, Government of India in consultation with RBI issued the IIBs

(CPI based) exclusively for the retail customers in December 2013. Further details on IIBs are available on RBI

website under FAQs.

Bonds with Call/ Put Options – Bonds can also be issued with features of optionality wherein the issuer can have

the option to buy-back (call option) or the investor can have the option to sell the bond (put option) to the

issuer during the currency of the bond. It may be noted that such bond may have put only or call only or both

options. The first G-Sec with both call and put option viz. 6.72%GS2012 was issued on July 18, 2002 for a

maturity of 10 years maturing on July 18, 2012. The optionality on the bond could be exercised after completion

of five years tenure from the date of issuance on any coupon date falling thereafter. The Government has the

right to buy-back the bond (call option) at par value (equal to the face value) while the investor has the right to

sell the bond (put option) to the Government at par value on any of the half-yearly coupon dates starting from

July 18, 2007.

Special Securities - Under the market borrowing programme, the Government of India also issues, from time to

time, special securities to entities like Oil Marketing Companies, Fertilizer Companies, the Food Corporation of

India, etc. (popularly called oil bonds, fertiliser bonds and food bonds respectively) as compensation to these

companies in lieu of cash subsidies. These securities are usually long dated securities and carry marginally higher

coupon (spread of about 20-25 bps) over the yield of the dated securities of comparable maturity. These

securities are, however, not eligible SLR securities but are eligible as collateral for market repo transactions. The

beneficiary entities may divest these securities in the secondary market to banks, insurance companies / Primary

Dealers, etc., for raising funds.

STRIPS – Separate Trading of Registered Interest and Principal of Securities.- STRIPS are the securities created by

way of separating the cash flows associated with a regular G-Sec i.e. each semi-annual coupon payment and the

final principal payment to be received from the issuer, into separate securities. They are essentially Zero Coupon

Bonds (ZCBs). However, they are created out of existing securities only and unlike other securities, are not

issued through auctions. Securities represent future cash flows (periodic interest and principal repayment) of an

underlying coupon bearing bond. Being G-Secs, STRIPS are eligible for SLR. In India, currently dated securities

(other than FRBs, IIBs and special securities) having their coupon due on Jan 2 and Jul 2 are eligible for

STRIPPING. Guidelines for stripping and reconstitution of G-Secs have already been issued (IDMD circular dated

March 25, 2010). For example, when ₹100 of the 8.24%GS2018 is stripped, each cash flow of coupon (₹ 4.12

each half year) will become a coupon STRIP and the principal payment (₹100 at maturity) will become a principal

STRIP. These cash flows are traded separately as independent securities in the secondary market. STRIPS in G-

Secs ensure availability of sovereign zero coupon bonds, which facilitate the development of a market

determined zero coupon yield curve (ZCYC). STRIPS also provide institutional investors with an additional

instrument for their asset liability management (ALM). Further, as STRIPS have zero reinvestment risk, being

zero coupon bonds, they can be attractive to retail/non-institutional investors. The process of stripping/

reconstitution of G-Secs is carried out at RBI, Public Debt Office (PDO) in the CBS package of RBI i.e. E-Kuber

through any of the Primary Dealer at the option of the holder at any time from the date of issuance of a G-Sec

till its maturity. Physical securities are not eligible for stripping/reconstitution. Minimum amount of securities

that needs to be submitted for stripping/reconstitution is ₹ 1 crore (Face Value) and in multiples thereof. They

are currently tradable in both OTC market and on NDS-OM.

Sovereign Gold Bond (SGB) : SGBs are unique instruments, prices of which are linked to commodity price viz

Gold. SGBs are denominated in multiples of gram(s) of gold with a basic unit of 1 gram. The tenor of the SGB is

for a period of 8 years with exit option from 5th year to be exercised on the interest payment dates. SGBs are

restricted for sale to resident Indian entities including individuals, HUFs, trusts, Universities, charitable

institutions. Price of bond at the time of issue is fixed in Indian Rupees on the basis of the previous week’s

(Monday–Friday) simple average of closing price of gold of 999 purity published by the India Bullion and

Jewellers Association Ltd. (IBJA). The redemption price will be in Indian Rupees based on previous week’s

(Monday-Friday) simple average of closing price of gold of 999 purity published by IBJA. The investors are

compensated at a fixed rate annum payable semi-annually on the initial value of investment. SGBs are eligible

for SLR, can be used as collateral for loans and are tradeable on stock exchanges.

NEFT Nation-wide payment system facilitating one-to-one fund transfer

Even individuals who do not have a bank account can deposit cash at NEFT enabled branches to transfer funds

using NEFT (limit of Rs. 50k per txn)

Necessary for beneficiary to have a bank account with a NEFT enabled destination bank

NEFT facilitates one way cross border transfer of funds from India to Nepal under Indo-Nepal Remittance Facility

Scheme. A remitter can transfer funds from any NEFT enabled branch even to a beneficiary who does not have a

NEFT enabled account in Nepal. The beneficiary would be paid in Nepalese Rupees. Here also limit of max Rs.

50k per txn.

Other than above 2 cases, there is no limit to amount transferred through NEFT

Settlement done on half-hourly basis – 23 batches from 8am to 7pm on all working days of the week

NEFT Clearing Centre in RBI is operated by National Clearing Cell

IFSC (Indian Financial System Code)

o Uniquely identifies a bank branch participating in the NEFT system

o 11 digit code with first 4 chars representing bank, 5th char as 0, and last 6 chars representing the branch

NEFT is a credit push system

NEFT works on a Deferred Net Settlement(DNS) basis which settles txns in batches

RTGS continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting)

'Real Time' means the processing of instructions at the time they are received rather than at some later time;

'Gross Settlement' means the settlement of funds transfer instructions occurs individually (on an instruction by

instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India,

the payments are final and irrevocable.

RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS

is 2 lakh. There is no upper ceiling for RTGS transactions

The RTGS service window for customer's transactions is available to banks from 9.00 hours to 16.30 hours on

week days and from 9.00 hours to 14:00 hours on Saturdays for settlement at the RBI end

ATMs ATMs set up, owned and operated by non-banks are called White Label ATMs. Non-bank ATM operators are

authorized under Payment & Settlement Systems Act, 2007 by the Reserve Bank of India

i) In White Label ATM scenario, logo displayed on ATM machine and in ATM premises pertain to WLA Operator

instead of a bank. However, for a customer, using WLA is just like using the ATM of other bank (bank other than

card issuing bank). ii) Acceptance of cash deposits at the WLAs is not permitted at present.

Nostro and Vostro accounts A Nostro account is a bank account established in a foreign country usually in the currency of that country for

the purpose of carrying out transactions there

Asian Clearing Union established with its head-quarters at Tehran, Iran, on December 9, 1974 at the initiative of United Nations

Economic and Social Commission for Asia and Pacific (ESCAP) for promoting regional co-operation

to facilitate payments among member countries for eligible transactions on a multilateral basis thereby

economizing on the use of foreign exchange reserves and transfer costs, as well as promoting trade among the

participating countries

Central Banks and the Monetary Authorities of Bangladesh, Bhutan, India, Iran, Maldives, Myanmar, Nepal,

Pakistan and Sri Lanka are currently the members of the ACU

Asian Monetary Units (AMUs) is the common unit of account of ACU and is denominated as ‘ACU Dollar’ and

‘ACU Euro’, which is equivalent in value to one US Dollar and one Euro respectively. All instruments of payments

under ACU have to be denominated in AMUs. Settlement of such instruments may be made by AD Category-I

banks through the ACU Dollar Accounts and ACU Euro Accounts, which should be distinct from the other US

Dollar and Euro accounts

Guidelines for payment banks Can accept demand deposits upto Rs. 1 lakh

Can issues ATM/debit cards but not credit cards

Can distribute non risk sharing simple financial products like mutual funds and insurance

Cannot undertake lending activities

Apart from maintaining CRR, required to invest min 75% of demand deposit balances in SLR eligible G-

secs/treasury bills with maturity upto 1 year and hold max 25% in current and time/fixed deposits with other

SCBs for operational purposes and liquidity mgt

Min paid up capital of 100 crore

should have a leverage ratio of not less than 3 per cent, i.e., its outside liabilities should not exceed 33.33 times

its net worth (paid-up capital and reserves)

Guidelines for small finance banks shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and

underserved sections including small business units, small and marginal farmers, MSMEs and unorganised sector

There will not be any restriction in the area of operations of small finance banks

minimum paid-up equity capital for small finance banks shall be Rs. 100 crore

CRR and SLR norms same as for other SCBs

required to extend 75 per cent of its Adjusted Net Bank Credit (ANBC) to the sectors eligible for classification as

priority sector lending

At least 50 per cent of its loan portfolio should constitute loans and advances of upto Rs. 25 lakh

Census on foreign liabilities and assets of Indian direct investment companies 2016-

17 by RBI Most companies that responded to survey were unlisted, and received only inward FDI; unlisted companies had

higher share of FDI equity vis-à-vis listed companies

Non-financial FDI companies had a much higher share in total foreign equity participation than financial FDI

companies

Ratio of inward to outward direct investment = 4.3

Mauritius (21.8%)>US>UK>SG>JP were largest sources of FDI in India

SG (19.7%)>Netherlands>Mauritius>US largest destinations of ODI

Manufacturing sector accounted for almost half of the total FDI