It is an institution Provides financial services Transfers funds from investors to companies in need of funds Services are generally provided by acting as financial intermediaries Facilitates the flow of money through the economy Regulated by the Government
Banks – accept deposits and grant loans Insurance Companies - corporate entities that sell protection policies to their clientele from potential misfortunes Non – Banking Financial Institutions (NBFCs) – provide banking services without meeting legal definition of a bank Housing Finance Institutions (HFIs) – provide home loans and home insurance All India Financing Institutions (AIFIs) – group composed of Development Finance Institutions(DFIs) and Investment Institutions
A Bank can be defined in terms of Economic functions it serves The services it offers to customers The legal basis for its existence A Bank is any Business offering deposits subject to withdrawal on demand and making loans of a commercial or business nature.
Public Sector Banks- Regulated by statues of Parliament and some important provisions under Section 51 of the Banking Regulation Act, 1949 Private Sector Banks- broadly categorized into New(aggressive, professionalized and fast growing) and Old(typically smaller, specific regional bias and less than satisfactory performance)
Foreign Banks- required to invest an assigned capital of USD 25 million upfront, at the time of opening their first branch in India Regional Rural Banks (RRBs)- created for rural credit delivery and to ensure financial inclusion. Their Capital Base is held by Central Government, The Relevant State Government and the Bank that sponsors them in the ratio of 50:15:35 respectively.
All India FIs- EXIM Bank, NABARD, NHB, SIDBI, etc. Investment Institutions- LIC and GIC deploy their long-term investments State/Regional Level FIs- comprises of State Financial Corporations(SFCs) and State Industrial and Development Corporations(SIDCs) Other Public FIs- generally include NFBCs
Deposit Taking(NBFC-D)- are subjected to prudential regulation Non-Deposit Taking(NBFC-ND)- almost unregulated Residuary NFBC(RNBFC) Housing Finance Companies(HFCs)- regulated and supervised by National Housing Bank(NHB) Mortgage Guarantee Companies- Asset financing companies, loan companies and investment companies
Broadly categorized into Urban Co-operative Credit Institutions and Rural Credit Institutions Urban Co-operative credit institutions is again categorized into Scheduled UCBs and Non- Scheduled UCBs Rural Co-operative Credit Institutions consists of State Co-operative Banks, District Central Co-operative Banks, Primary Agricultural Credit Societies, etc.
Bank Rate/Discount Rate – Rate at which Central Bank lends to Commercial Banks Current Bank Rate is 9.00% Base Rate -The base rate is the minimum rate of interest that a bank will lend money at as per RBI guidelines. This is like floor interest rate below which RBI will not allow banks to lend money to any one. Current Base Rate range is between 10.00% to 10.50% Repo Rate - The rate at which the RBI lends money to commercial banks. Current Repo Rate is 8.00% Reverse Repo Rate - The rate at which the RBI borrows money from commercial banks. Current Reverse Repo Rate is 7.00%
Cash Reserve Ratio (CRR) - the amount of funds that the banks have to keep with the RBI. Current CRR is 4.75% Statutory Liquidity Ratio(SLR) - ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio. Current SLR is 24% Marginal Standing Facility - The Reserve Bank of India in its monetary policy for 2011-12, introduced the marginal standing facility (MSF), under which banks could borrow funds from RBI at 8.25%, which is 1% above the liquidity adjustment facility-repo rate against pledging government securities. Current MSF Rate is 9%
Carrying out Currency Exchanges Discounting Commercial Notes and Making Business Loans Offering Savings Deposits Supporting Government Activities with Credit Safekeeping of Valuables and Certification of Value Offering Checking Accounts (Demand Deposits) Offering Trust Services
Financial Advising Managing Cash Offering Equipment Leasing Making Venture Capital Loans Selling Insurance Policies Offering Retirement Plans Offering Mutual Funds and Annuities Offering Risk Management and Hedging Services