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Questions and Answers
What distinguishes universal banks from commercial and investment banks?
What distinguishes universal banks from commercial and investment banks?
Which of the following institutions primarily serves the needs of small and marginal farmers?
Which of the following institutions primarily serves the needs of small and marginal farmers?
What is a key function of investment banks?
What is a key function of investment banks?
Which type of bank is focused primarily on making loans and taking deposits?
Which type of bank is focused primarily on making loans and taking deposits?
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What is a common income source for universal banks?
What is a common income source for universal banks?
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Which of the following functions is NOT typically associated with commercial banks?
Which of the following functions is NOT typically associated with commercial banks?
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How do investment banks primarily raise capital for their clients?
How do investment banks primarily raise capital for their clients?
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What type of income source is mainly attributed to commercial banks?
What type of income source is mainly attributed to commercial banks?
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What is the primary goal of Regional Rural Banks?
What is the primary goal of Regional Rural Banks?
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Which of the following statements accurately describes Local Area Banks?
Which of the following statements accurately describes Local Area Banks?
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Who primarily owns Public Sector Banks in India?
Who primarily owns Public Sector Banks in India?
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How many Public Sector Banks exist in India?
How many Public Sector Banks exist in India?
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What is the function of the Banks Board Bureau (BBB)?
What is the function of the Banks Board Bureau (BBB)?
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Which of the following is NOT a characteristic of Private Sector Banks in India?
Which of the following is NOT a characteristic of Private Sector Banks in India?
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Which of the following banks is considered a Private Sector Bank in India?
Which of the following banks is considered a Private Sector Bank in India?
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What is the main objective of Public Sector Banks?
What is the main objective of Public Sector Banks?
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Which of the following correctly describes the classification of Non-banking Financial Institutions (NBFIs)?
Which of the following correctly describes the classification of Non-banking Financial Institutions (NBFIs)?
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What is the primary objective of establishing Small Finance Banks?
What is the primary objective of establishing Small Finance Banks?
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Which of the following is NOT classified as an All India Financial Institution (AIFI)?
Which of the following is NOT classified as an All India Financial Institution (AIFI)?
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Who is eligible to establish a Small Finance Bank?
Who is eligible to establish a Small Finance Bank?
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What is the primary function of term-lending institutions like EXIM Bank?
What is the primary function of term-lending institutions like EXIM Bank?
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Which institution is classified as a refinancing institution?
Which institution is classified as a refinancing institution?
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Which of these is NOT a typical service provided by a Small Finance Bank?
Which of these is NOT a typical service provided by a Small Finance Bank?
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What characteristic defines Payments Banks?
What characteristic defines Payments Banks?
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Primary Dealers (PDs) primarily serve which role within NBFIs?
Primary Dealers (PDs) primarily serve which role within NBFIs?
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Which of the following groups best represents Non-banking Financial Companies (NBFCs)?
Which of the following groups best represents Non-banking Financial Companies (NBFCs)?
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When were Small Finance Banks approved by the RBI?
When were Small Finance Banks approved by the RBI?
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Which of the following best describes the role of Non-banking Financial Institutions?
Which of the following best describes the role of Non-banking Financial Institutions?
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What type of customers are Small Finance Banks primarily intended to serve?
What type of customers are Small Finance Banks primarily intended to serve?
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What are the two essential functions of banking as defined in the Banking Regulation Act, 1949?
What are the two essential functions of banking as defined in the Banking Regulation Act, 1949?
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Which of the following does NOT fall under the Financial Institution’s structure as mentioned?
Which of the following does NOT fall under the Financial Institution’s structure as mentioned?
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Which of the following statements is true regarding companies that accept deposits?
Which of the following statements is true regarding companies that accept deposits?
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What is the main focus of Payments Banks as per their defined role?
What is the main focus of Payments Banks as per their defined role?
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How does the financial system primarily function?
How does the financial system primarily function?
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What key regulatory aspect defines the operation of Small Finance Banks?
What key regulatory aspect defines the operation of Small Finance Banks?
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What encompasses the financial intermediaries in the financial system?
What encompasses the financial intermediaries in the financial system?
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Which market is NOT part of the financial markets as described in the content?
Which market is NOT part of the financial markets as described in the content?
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What is a broader definition of banking according to the content?
What is a broader definition of banking according to the content?
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Which of the following correctly describes the role of banks in the financial system?
Which of the following correctly describes the role of banks in the financial system?
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Which statement best reflects the nature of prevalent banking models across countries?
Which statement best reflects the nature of prevalent banking models across countries?
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What is the primary purpose of cooperative credit institutions?
What is the primary purpose of cooperative credit institutions?
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Which group primarily benefits from the loans provided by cooperative credit institutions?
Which group primarily benefits from the loans provided by cooperative credit institutions?
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What major issue affects the efficiency of cooperative credit institutions?
What major issue affects the efficiency of cooperative credit institutions?
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How is financial inclusion related to the role of urban cooperative banks (UCBs)?
How is financial inclusion related to the role of urban cooperative banks (UCBs)?
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Which act defines the requirements to be classified as a bank in India?
Which act defines the requirements to be classified as a bank in India?
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Which of the following is NOT a service typically provided by cooperative credit institutions?
Which of the following is NOT a service typically provided by cooperative credit institutions?
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What is a significant concern regarding the commercial viability of cooperative credit institutions?
What is a significant concern regarding the commercial viability of cooperative credit institutions?
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What fundamental function does a bank perform according to the Banking Regulation Act?
What fundamental function does a bank perform according to the Banking Regulation Act?
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Study Notes
Banking Management - IPM Term V
- Banking is defined under Section 5(b) of the Banking Regulation Act, 1949.
- Accepting deposits of money from the public, for lending or investment, is repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise.
- Important interpretations follow from this definition.
- 'Banking' involves accepting public deposits and lending/investing these deposits.
- Businesses accepting deposits for financing cannot be categorized as banking businesses.
- Banks channel savings into loans and investments.
- Banking is primarily about deposits and loans.
- A broader definition classifies banking as any financial institution that receives, collects, transfers, pays, exchanges, lends, invests, or safeguards money for its customers.
- Financial systems transfer funds from savers to borrowers.
- The financial system's constituents include savers, borrowers (domestic/foreign households, businesses and governments), and financial markets.
Financial System
- Financial systems have two segments: financial markets and financial intermediaries.
- Financial markets include money, capital, and forex markets.
- Financial intermediaries are banks and non-banks.
- The Indian financial system is comprised of financial markets and financial intermediaries.
Indian Financial System
- The Indian financial system's structure includes commercial banks, non-banking financial institutions, and cooperative credit institutions.
- Commercial banks are largely government-owned (Public Sector Banks).
- 12 Public Sector Banks in India.
- Public Sector Banks are mainly owned by the Ministry of Finance, either of the Government of India or State level governments, with a majority stake (more than 50%).
- Employees of Public Sector Banks are often gazetted officers.
- Private banks, such as HDFC Bank, ICICI Bank, and Axis Bank, have shareholder majority ownership.
- These institutions offer all banking products and services.
Private Sector Banks
- There are 21 private sector banks currently in India.
- Majority ownership is in the hands of shareholders, not the government.
Small Finance Banks (SFBs)
- SFBs are niche banks in India and are meant to cater to the needs of small-value customers.
- RBI gave approvals/licenses for SFBs in November 2014.
- A small finance bank license allows companies to engage in banking activities described under section 5(b) and 6(1)(a) to (o) of the Banking Regulation Act, 1949.
- SFBs have objectives of providing a fillip to financial inclusion to provide financial vehicles and credit facilities to business units, small farmers, micro and small businesses and other unorganized sector entities.
Payments Banks
- Payments banks are essentially narrow banks.
- To safeguard placed deposits, Payments Banks do not engage in lending.
- Investments in instruments, such as government securities, are common.
- RBI authorized Payments banks in November 2014.
- Objective is to promote financial inclusion: providing small savings accounts and payment/remittance services.
- Payments banks can issue ATM/debit cards but not credit cards.
- Examples include Airtel Payments Bank, India Post Payments Bank, Jio Payments Bank, Idea Payments Bank and Paytm Payments Bank.
Foreign Banks
- RBI permitted foreign banks to establish wholly owned subsidiaries in India in 2004.
- Foreign banks need to follow the regulations of their home and host countries.
- Currently, there are 46 foreign banks in India.
- The presence of foreign banks aims to foster sustained growth of the Indian economy.
Regional Rural Banks (RRBs)
- Regional Rural Banks (RRBs) exist in India to deliver credit and ensure financial inclusion for rural areas.
- Capital is shared between central government, relevant state government, and the sponsoring commercial bank, in a 50:15:35 ratio.
- RRB efficiency is hampered by overlaps in regulation (RBI / NABARD).
Non-Banking Financial Institutions (NBFIs)
- NBFIs are a diverse group of institutions catering to many financial requirements.
- The broadly categorized as All India Financial Institutions (AIFIs), non-banking financial companies (NBFCs) and primary dealers.
- NBFIs complement banks in providing financial services to multiple customer.
Investment Institutions and Specialized FIs
- LIC and GIC invest in long-term projects.
- State/regional financial institutions include State Financial Corporations (SFCs) and State Industrial and Development Corporations (SIDCs).
- Specialized FIs are financial institutions established by specific laws.
- Example of Specialized Financial Institutions include: Industrial Credit and Investment Corporation of India (ICICI) and Industrial Finance Corporation of India (IFCI).
- Further breakdown of the Indian financial institutions is divided based on major work activities: (1) Term lending institutions (EXIM Bank), and (2) refinancing institutions (NABARD, Agriculture and Rural Development, SIDBI, Small Industries Development Bank of India and NHB – National Housing Bank.
Housing Finance Companies (HFCs)
- HFCs are a category of NBFCs that specialize in housing finance.
- The National Housing Bank (NHB) was set up in 1988.
- HDFC was originally the largest housing finance company.
Primary Dealers (PDs)
- A primary dealer (PD) is an RBI registered entity authorized to buy and sell government securities.
- Example of PDs (21) in India. 14 are banks.
Cooperative Credit Institutions
- These institutions provide home, personal, and auto loans at lower interest rates to members.
- Main goals are promoting the economic and social development of members through their own efforts with mutual support and grant loans and advances to low income groups.
Challenges and Competitors
- Multiplicity of regulators creates challenges for non-banking sector.
- The banking sector faces competitors from other financial institutions and challenges in terms of commercial viability and their financial stability,.
Banking Requirements
- As per Sec. 5(b), of the Banking Regulation Act, 1949, accepting deposits for lending or investment, is a key requirement for describing a business in the banking sector, but, not all.
- Crucial elements include deposits being solely for lending and investing, sources of deposits exclusively from the public, and being withdrawable by the customers with tools like cheques, drafts etc.
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Description
Explore the fundamental concepts of banking defined under the Banking Regulation Act of 1949. This quiz covers the roles of banks in accepting deposits, lending, and investment as a part of the financial system. Understand the classifications and interpretations surrounding banking practices.
