Banking & Financial Instruments

Banking and Financial Instruments

• American Depository Receipts (ADRs) are negotiable security instruments issued by a U.S. bank, representing shares of a foreign company traded in U.S. markets.
• "D" in ADR stands for Depository.
• The Banking Ombudsman Scheme was introduced in 2006 under Section 35 A of the Banking Regulation Act, 1949, and is governed by the RBI.
• Arbitrage involves gradually buying more securities in a declining market or selling in a rising market to level the purchase or sale price.
• The Basel Committee on Banking Supervision (BCBS) was formed in 1974 by central bank governors of G-10 countries following severe market disruptions.
• In 1879, James Ritty, an Ohio bar owner, invented the cash register, the first Point of Sale (POS) system that improved bookkeeping and capital management.
• Foreign Direct Investment (FDI) is integral to India's economic growth because it enhances infrastructure, productivity, employment, technology, and foreign exchange reserves.
• Financial inclusion aims to provide universal access to financial services, basic banking products, livelihood support, skill development, financial literacy, and customer protection according to the RBI.
• Financial markets provide a platform for trading financial instruments and create liquidity for businesses and entrepreneurs while mobilizing funds.
• The Public Provident Fund (PPF) was introduced in 1968 with a current interest rate of 7.1% and a 15-year minimum tenure for mobilizing small deposits.
• The Bank of Bengal (1806), Bank of Bombay (1840), and Bank of Madras (1843) were amalgamated to form the "Imperial Bank of India" on January 27, 1921.
• In 2002, the Reserve Bank of India (RBI) introduced Know Your Customer (KYC) standards to all banks to combat money laundering, terrorist financing, and theft.
• Characteristics of loans include being a short-term source of finance, having a defined time to maturity, requiring payments at specific intervals, and accruing interest as the cost of borrowing.
• The Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) provides a life insurance plan for underprivileged families with one-year life insurance that can be renewed annually, comprehensive coverage, no maturity benefits, and the requirement of a savings account.

Banking Regulations and Entities

• B Mahapatra headed the committee to review existing prudential guidelines on restructuring advances by banks/financial institutions.
• The Monetary Policy Committee (MPC), established under Section 45ZB, determines the policy interest rate to meet the inflation target, consisting of six members.
• Negotiable Instruments are enacted under the Negotiable Instruments Act 1881.
• A Non-Performing Asset (NPA) is a loan or advance with repayments overdue for 90 days.
• The Payments and Settlement Act System was set up in 2007 and came into force on August 12, 2008.
• Narasimhan committee conceptualized Regional Rural Banks (RRBs) in 1975 to combine local knowledge with commercial bank professionalism.
• Savings accounts can be opened by Indian residents over 18 with valid KYC documents.
• Para Banking includes financial services like credit cards, smart cards, mutual funds, primary dealers, and pension funds.
• HSBC introduced the first ATM in India in Mumbai in 1987, with Swadhan, India's first shared ATM network, established by the Indian Banks' Association (IBA) in 1997.
• SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a standard format for Business Identifier Codes (BIC).
• ACH (Automated Clearing House) is an electronic network facilitating low-value domestic transfers, with "C" standing for clearing.
• A Banking Ombudsman is appointed by the RBI to address customer complaints about banking deficiencies.
• Basel Norms are an international banking system issued by the Basel Committee on Banking Supervision (BCBS) to strengthen global banking regulations.
• Bimal Jalan headed the committee to scrutinize new bank license applications.
• A Point of Sale (PoS) Terminal is hardware used to accept credit cards at retail businesses.
• Financial Inclusion ensures equal access and opportunities to financial services for individuals and businesses.
• Export-Import Bank of India (EXIM) is not a financial institution regulated by the Reserve Bank of India (RBI).
• Current PPF interest rate is 7.1% and the minimum investment tenure is 15 years.
• Money Markets buy and sell short-term debts, while Capital Markets buy and sell long-term debts.
• Central Bank of India (1911) was the first commercial Bank wholly owned and operated by Indians.
• 6 objectives for financial inclusion were identified by the Reserve Bank of India (RBI).