Indian Banking Working of Monetary Sector & Credit

8/6/2019 Indian Banking Working of Monetary Sector & Credit

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INDIAN BANKING WORKING OF

MONETARY & CREDIT POLICY ININDIA

PRESENTED BY:

VENKAT ADITYA

ABHINAV PINNU

RANJIT KUMAR

PREETHAMKOTESWARA RAO


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CONTENTS

Meaning of Bank

History of Banking

History of Indian Banking Current Scenario of Indian Banking

Money and Credit

Monetary Policy

Current Credit Policy


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Origin of the word Bank

The word bankwas borrowed in Middle English from Middle

French banque, from Old Italian banca, from Old HighGerman banc, bank"bench, counter".

Benches were used as desks or exchange counters during

the Renaissance by Florentine bankers, who used to maketheir transactions atop desks covered by green tablecloths.


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Meaning of Bank

Bank is a lawful organization, which accepts

deposits that can be withdrawn on demand. Italso lends money to individuals and business

houses that need it.


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Role of BankingBanks provide funds for business as well as personal

needs of individuals. They play a significant role in

the economy of a nation.

It encourages savings habit amongst people and thereby makesfunds available for productive use.

It acts as an intermediary between people having surplus

money and those requiring money for various business

activities.

It facilitates business transactions through receipts and

payments by cheques instead of currency.


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It provides loans and advances to businessmen for short term

and long-term purposes.

It also facilitates import export transactions.

It helps in national development by providing credit tofarmers, small-scale industries and self-employed people as

well as to large business houses which lead to balanced

economic development in the country.

It helps in raising the standard of living of people in generalby providing loans for purchase of consumer durable goods,

houses, automobiles, etc.


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History of Banking Sector

Banking in the modern sense of the word can be traced to medieval and

early Renaissance Italy, to the rich cities in the north

like Florence, Venice and Genoa.

The Bardi and Peruzzi families dominated banking in 14th century

Florence, establishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, set up by

Giovanni Medici in 1397.

The earliest known state deposit bank, Banco di San Giorgio (Bank of St.

George), was founded in 1407 at Genoa, Italy.

Banks can be traced back to ancient times even before moneywhen temples were used to store commodities.


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The Banking Companies Act of 1949, define

Banking Company as a company which

transacts the business of banking in India. Itdefines banking as, accepting for the purpose of

lending or investment of deposit money from the

public, repayable on demand or otherwise and

withdraw able by cheque draft , order or otherwise

A bank as an institution dealing in money

and credit. It safeguard of the savings of the public

and gives loans and advances.


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History of Banking in INDIA

Banking in India originated in the last decades of the 18th

century. The first banks were The General Bank of India,

which started in 1786, and Bank of Hindustan which started

in 1790 both are now defunct.

The oldest bank in existence in India is the State Bank of

India, which originated in the Bank of Calcutta in June 1806,

which almost immediately became the Bank of Bengal.

This was one of the three presidency banks, the other two

being the Bank of Bombay and the Bank of Madras, all three

of which were established under charters from the British

East India Company. The three banks merged in 1921 to form the Imperial Bank of

India, which, upon India's independence, became the State

Bank of India.


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The Reserve Bank of India, India's central banking

authority, was nationalized on January 1, 1949

under the terms of the Reserve Bank of India

(Transfer to Public Ownership) Act, 1948 (RBI,

2005b).[Reference www.rbi.org.in]

In 1949, the Banking Regulation Act was enacted

which empowered the Reserve Bank of India (RBI)"to regulate, control, and inspect the banks in

India."

The Banking Regulation Act also provided that no

new bank or branch of an existing bank could beopened without a license from the RBI, and no two

banks could have common directors.


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Types of Bank


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Public Sector

Allahabad Bank

Andhra Bank

Bank of Baroda

Bank of India

Bank of Maharashtra

Canara Bank

Central Bank of India

Corporation Bank Dena Bank

IDBI Bank

Indian Bank

Indian Overseas Bank

Oriental Bank of Commerce

Punjab National Bank Syndicate Bank

Union Bank of India

UCO Bank

United Bank of India

Vijaya Bank

SBI

Private Sector

Centurian Bank of Punjab

Corporation BankDena Bank

Export-Import Bank of India

Guardian Sahakara Bank

Niyamita

HDFC Bank

ICICI BankIDBI Bank

IndusInd Bank Ltd.ING Vysya Bank

Kotak Mahindra Bank

Punjab and Maharashtra Bank

Ltd.

Saraswat Co-operative BankLtd.

Thane Janta Sahakari Bank,

Ltd.

Times Bank

UTI Bank

Yes Bank


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Current Scenario

The Banking sector in India has always been one of the most preferred

revenues of employment.

As per the McKinsey report India Banking 2010, the banking sector

index has grown at a compounded annual rate of over 51 per cent sincethe year 2001.

As compared to a 27 per cent growth in the market index during the

same period.

It is projected that the sector has the potential to account for over 7.7per cent of GDP with over Rs.7,500 billion in market cap, and to provide

over 1.5 million jobs.


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Contd

Today, banks have diversified their activities and are getting into new

products and services that include opportunities in credit cards,

consumer finance, wealth management, life and general insurance.

Further, most of the leading Indian banks are going global, setting

up offices in foreign countries, by themselves or through their

subsidiaries.


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Money and Credit

Money is any good that is widely used and accepted in transactions involving the

transfer of goods and services from one person to another.

Functions of Money:

Medium of exchange

Standard of value

Store of value


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Monetary Policy Monetary policy is the process by which the monetary

authority of a country controls the supply of money, oftentargeting a rate of interest for the purpose of

promoting economic growth and stability.

Monetary policy plays an important role in increasing the

growth rate of economy by influencing the cost andavailability of credit by controlling inflation and maintaining

equilibrium in the balance of payments.

A macroeconomic policy tool used to influence interest rates,

inflation, and credit availability through changes in thesupply of money available in the economy. In India it is also

called the Reserve Bank of Indias Credit Policyas thestress is primarily on directing credit.


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Goals of Monetary Policy

Full Employment

Price Stability

Economic Growth Balance of Payments

Financial Stability


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Processes of Monetary policy Formulation


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Tools of Monetary Policy

There are two kinds of tools:

Quantitative tools control the volume ofcredit and inflation, indirectly.

Qualitative tools they control the supplyof money in selective sectors of theeconomy.


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Quantitative Tools

Bank Rate [Interest Rates]

SLR [ Liquid Assets in form of cash ,

gold ]

Repos & Reverse Repos

[which two parties agree to sell and

repurchase the same security ] Open Market

[Buying and Selling of govt.

Securities]


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Credit policy is the policy statement traditionally announced twicein the a year, through which the reserve bank of India seeks to

ensure price stability for the economy .

It refers to the use of instruments under the control of the central

bank to regulate the availability, cost and use of money and credit

It is announced twice a year a slack season policy (April

September ) and a busy season policy (October march) in

accordance with agricultural cycles.

Credit Policy


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Inflation refers to a persistent rise in pricesInflation

Total volume ofmoney circulating in the economyMoney Supply (M3)

Minimum rate at which the central bank provides loans to commercial

banksBank Rate

Amount ofmoney that banks must set aside with RBI against their

depositsCash Reserve Ratio (CRR)

Percentage ofbankfunds to be maintained ingovernment andapproved securities

Statutory Liquidity Ratio (SLR)

Rate at which RBI lends to other banks against government securitiesRepo Rate

Rate at which RBI borrows from other banksReverse Repo Rate

Capacity ofbank meeting the time liabilities and other riskCapital Adequacy Ratio (CAR)

Purchase and sale ofsecurities in the open marketOpen Market Operations (OMO)

Monetary Policy Terminology


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Key ratesNov 2nd

2010

Jan 25th

2011

Mar 17th

2011

CRR6

.006

.006.00

Repo Rate 6.25 6.50 6.75

Reverse Repo 5.25 5.50 5.75

Bank Rate 6 6 6

CRR and Interest Rates

(Source: RBI) (% perannum)


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THANK YOU

Documents

Indian Banking Working of Monetary Sector & Credit