Indian Financial Institutions Quiz

ACE Banker Induction Program - Day 1

• HDFC Bank induction program for ACE Bankers
• Focuses on role readiness, not training
• Participation and curiosity are emphasized
• 100% attendance required
• On-time arrival for training is essential
• Professional attire (business formal) is required for video activities
• Environment for training includes sitting on tables and chairs

Participants Introduction

• Participants are expected to share their name, education, and a unique quality
• Participants should consider their aspirations for success in banking

Banking Overview

• No specific content details presented in the slides.

Basics of Banking

• No specific content details in the slides.

Circle of Trust

• Shows the relationship among depositors, customers, borrowers, and banks
• Customer (borrower) receives loans from the bank
• Customer (depositor) deposits money into the bank

Watch Videos

• Watch the evolution of banking and money
• Note the important takeaways.
• Finalize points and present takeaways at the end of the video

Milestones in Indian Banking

• Formation of Presidency Banks (Bank of Calcutta, Bank of Madras, and Bank of Bombay merged)
• Renamed as The Imperial Bank of India
• Reserve Bank of India (RBI) assumed central banking role in 1934, operating in 1935
• Banking Regulations Act (1949) - created banking guidelines and regulations
• Nationalization Movements: Imperial Bank (1955) and 14 private sector banks (1969) and 6 more (1980) were nationalized
• Narasimham Committee Recommendations —Advocating transparency, deregulation, and global standard alignment.
• Technological Advancements (new and older banks shifting their operations)
• Importance of technological advancements and global standards in defining best banking practices.

Scheduled Banks & Non-Scheduled Banks in India

• Scheduled Banks are listed in the Second Schedule of the Reserve Bank of India Act (1934)
• Scheduled banks require a minimum paid-up capital and reserves of ₹5 Lakh and fulfill RBI criteria for depositors' best interest
• Scheduled Banks are eligible for loans, membership in clearinghouses from RBI
• Non-Scheduled Banks are not listed in the Second Schedule of the RBI Act (1934)
• They tend to be smaller banks (fewer reserves compared to scheduled banks)
• Lack of direct access to RBI borrowing facilities

Classification of Bank in India

• Categorizes banks into several types including, commercial banks, small finance banks, payment banks, and cooperative banks
• Banks are further classified into public sector, foreign, and private sector, and RRBs (regional rural banks)

Financial Regulators

• RBI (Reserve Bank of India)
• SEBI (Securities and Exchange Board of India)
• IRDAI (Insurance Regulatory and Development Authority of India)
• NPCI (National Payments Corporation of India)

Activity

• 15 minutes to research and list the role of RBI

Reserve Bank of India (RBI) History

• Establishment on April 1, 1935 (RBI Act 1934)
• Initially in Calcutta (now Kolkata), then Mumbai.
• Nationalized on January 1, 1949 (after independence).
• Evolving role in monetary policy, managing the banking sector, and ensuring financial stability. Important aspects of RBI operations.

Reserve Bank of India (RBI) The Regulator

• Monetary authority: Formulates and implements India's monetary policy
• Regulator and supervisor: Regulates and supervises financial institutions and NBFCs for stability and soundness.
• Issuer of currency: Manages the currency notes and coins.
• Foreign Exchange Management: Manages foreign exchange market under the Foreign Exchange Management Act (1999)
• Developmental role: Supports initiatives for improving financial infrastructure, financial inclusion, and enhancing the financial system's efficiency

RBI & Banking Regulation Act

• RBI Act (1934) established RBI as the central bank, delineating its role in monetary policy, financial stability, and currency issuance, and regulation of the banking sector.
• Banking Regulation Act (1949) - Provides a framework for regulating banks in India and protecting depositors' interests

Reserve Bank of India Role in Banking System

• Monetary Authority handles monetary policy (controlling inflation, stabilizing currency, and promoting growth), managing interest rates and money supply.
• Regulator of the Financial System—regulates and supervises banks and financial institutions for stability and soundness, protects consumers of financial services.
• Issuer of Currency—issues and manages the supply of the Indian Rupee, ensuring adequate supply of clean and genuine currency

Reserve Bank of India Role in Banking System (Continued)

• Manager of Foreign Exchange: regulates and facilitates external trade, payments, and promotes orderly development and maintenance of the foreign exchange market.
• Developmental Role —Promotes financial inclusion, and supports the development of financial infrastructure.
• Banker to the Government: Acts as a banker to the central and state government, manages government accounts, and handles public debt.
• Custodian of Foreign Exchange Reserves: manages foreign exchange reserves to ensure adequate liquidity and supports the rupee's value. Essential details of roles within the operations.

Subsidiaries of RBI

• DICGC (Deposit Insurance and Credit Guarantee Corporation): Insures depositor's confidence by protecting deposits in case of bank failures.
• NABARD (National Bank for Agriculture and Rural Development): Provides credit and financial support for agricultural and rural development.
• SIDBI (Small Industries Development Bank of India): Focuses on promoting and developing small and medium-sized enterprises, provides financial assistance, and fosters development.
• ReBIT (Reserve Bank Information Technology Pvt. Ltd.): Improves IT infrastructure and services for the RBI and the Indian financial sector.

Controls in Indian Economy and Inflation

• Currency Management: Controls and manages money supply to maintain stability. Manages foreign exchange to ensure stability.
• Regulation and Supervision: Oversees and regulates banks to ensure stability and prevent practices that lead to instability.

RBI Bank Rate Key Rates to understand

• Bank Rate —Long-term loans to commercial banks, influences interest rates
• Repo Rate—Short-term loans to commercial banks against government securities, used to control liquidity and manage inflation
• Reverse Repo Rate—Absorbs excess liquidity from banks by offering returns, reduces liquidity in the market

RBI Bank Rate Key Rates (Continued)

• Marginal Standing Facility (MSF) Rate—Overnight borrowing from RBI against government securities
• Cash Reserve Ratio (CRR)—Percentage of a bank's net demand and time liabilities maintained as reserves with the RBI
• Statutory Liquidity Ratio (SLR)—Percentage of a bank's net demand and time liabilities held as liquid assets, Impacts the amount of money available for lending

Activity

• Find out the current bank rate

Developmental and Promotional Functions of RBI

• Setting up financial institutions like NABARD, SFCs, DICGC, UTI, and IDBI
• Promoting savings, mobilizing funds, and financing industries, agriculture, and other key sectors
• Cooperative credit movement—encouraging savings among rural populations, protecting them from exploitative practices, providing credit for agriculture through cooperative societies

The Reserve Bank of India (RBI) role in the Indian economy

• Financial Inclusion: extending financial services to underprivileged and rural populations
• Development of Rural and Agricultural Finance: Ensuring credit accessibility for rural areas and agricultural activities
• Promotion of SMEs: Supporting the growth of SMEs, crucial for job creation and economic development
• Infrastructure Development: Creating and improving financial infrastructure

The Reserve Bank of India (RBI) role in the Indian economy (Continued)

• Promotion of Digital Banking and Payments: promoting digital banking and payments to enhance accessibility and reduce costs.
• Developmental Role in Financial Literacy: enhancing financial decision-making through financial literacy initiatives
• Support for Green Banking and Sustainable Development: promoting sustainable banking practices and supporting environmentally friendly projects
• Research and Development: promoting research and innovation in the financial sector including RBI's research institutions and innovation hubs.

RBI Monetary Policy

• Controlling money supply and interest rates to maintain financial stability, support economic growth, and control inflation
• Key aspects of monetary policy—inflation control, liquidity management, credit flow, and growth support. Using tools like repo rate, Reverse repo rate, Open Market Operations (OMOs)

RBI Annual Policy

• Comprehensive document released annually, outlining the central bank's strategy for managing the economy
• Key components include economic outlook, monetary policy stance, and financial sector developments, sectoral focus, and regulatory changes

General Credit Controls and Checks on Lending Rates

• RBI tools to regulate credit flow, control inflation, and make credit available to priority sectors
• General credit controls- include factors like Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR), and Open Market Operations (OMOs)

Key Agencies Under the RBI

• DICGC —Deposit Insurance and Credit Guarantee Corporation, provides deposit insurance and credit guarantees, important for stability.
• NABARD —National Bank for Agriculture and Rural Development, providing refinance support and developmental activities for rural sectors.
• SIDBI —Small Industries Development Bank of India— promotes and develops MSMEs (micro, small, and medium enterprises), provides financial assistance.
• NPCI —National Payments Corporation of India —responsible for operating payment systems for retail transactions such as UPI (Unified Payments Interface) etc.
• CGTMSE —Credit Guarantee Fund Trust for Micro and Small Enterprises—ensures access to credit for MSMEs without collateral.
• EXIM Bank —Export-Import Bank of India—offers export financing and support.
• ECGC —Export Credit Guarantee Corporation of India—provides insurance to exporters against credit risks related to non-payment

Key Agencies Under the RBI (Continued)

• IDRBT —Institute for Development and Research in Banking Technology—conducts research and development in banking technology, and provides training

RBI in the Indian Banking Industry

• RBI (Reserve Bank of India) plays a vital role by regulating and supervising Indian banking system, ensuring financial stability, implementing monetary policy, managing money supply

Quiz Time

• Series of questions about the different topics of the day's session, covers historical, legal, and operational details

Answer 1 (Question 1)

• 1935

Answer 2 (Question 2)

• DICGC (Deposit Insurance and Credit Guarantee Corporation)

Answer 3 (Question 3)

• Managing retail payment systems and promoting digital payments

Answer 4 (Question 4)

• SIDBI

Answer 5 (Question 5)

• Political Risk

The Acts Which Define Banking Industry

• Reserve Bank of India Act (1934) —Central banking function
• Banking Regulation Act (1949) —Regulates and supervises banks
• Negotiable Instruments Act (1881) —Deals with instruments (cheques, promissory notes, bills of exchange)-- defines legal aspects of these instruments, including transfer and liabilities.
• Companies Act (2013) —Governs company formation and governance
• Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act (2002) —Deals with the seizure and sale of assets to recover defaulted loans

The Acts Which Define Banking Industry (Continued)

• Insolvency and Bankruptcy Code (IBC) (2016) —Deals with insolvent entities, and debt recovery
• Payment and Settlement Systems Act (2007) —Governs payment systems and digital transactions.
• Prevention of Money Laundering Act (PMLA) (2002) —Combats moneylaundering
• Foreign Exchange Management Act (FEMA) (1999) —Regulates foreign exchange transactions

The Bank & The Customer

• Relationship based on mutual trust and legal obligations
• Debtor-creditor, creditor-debtor, and agent-principal relationships
• Rights and obligations of both banks and customers (lien, setoff, and closing accounts)
• Confidentiality, honoring of cheques, and providing account statements.

Indian Contract Act, 1872

• Contract definition, lawful proposals, promises, and essential elements of a valid contract.
• Parties must have legal capacity and sound mind.

The Sale of Goods Act, 1930

• Defines sales contracts (seller, buyer, goods, price, and ownership transfer).

Negotiable Instruments Act, 1881 (NI Act)

• Defines and outlines various negotiable instruments(promissory notes, bills of exchange, and cheques)
• Processes associated with endorsement and transfer.
• Liabilities and rights of various parties involved in these instruments. How instruments are legally binding.
• Dishonoring rules of cheques and associated recourse and penalties
• Banker's rights and duties in the context of negotiable instruments like honoring of checks etc

Negotiable Instruments Act, 1881 (NI Act) : Cheques

• Different types and characteristics of cheques
• Cheque information such as number, date, payer details, amounts, and signatures.
• Importance of crossing cheques, and various types of crossing (General, not negotiable, and special crossing).
• Avoiding issues like alterations, avoiding fraud through proper endorsement procedures.

Negotiable Instruments Act, 1881 (NI Act) : Cheques (Continued)

• Banker's responsibilities - duty to honor cheques (if funds are available) and responsibilities in case of wrong checks.
• Payment in due course and protection of both the paying and collecting banker under relevant sections/clauses.

Negotiable Instruments Act, 1881 (NI Act): Cheques (Continued)

• Returns of cheques - reasons for return, and various legal aspects.
• Importance of crossing - Advantages and benefits of crossing (safeguard against fraud), and types of crossing (general, not negotiable, etc).

Negotiable Instruments Act, 1881 (NI Act): Cheques (Continued)

• Parties responsible for paying and collecting (clearing).
• Procedures, responsibilities and details for paying and collecting bankers in cheque clearing system.
• Definition and characteristics details of a cheque
• Essential components (parties, dates, etc).

Cheque Truncation System - CTS 2010

• Electronic image-based cheque clearing process which replaces the traditional physical process.
• Processes and systems used to capture, transmit, verify, process, and settle cheque transactions in an electronic manner. Steps involved in the CTS 2010 process.
• Advantages and benefits of the modernized (CTS 2010) system over the traditional methods and traditional procedures.

Activity - Banking Overview

• Group 1: Why do banks exist?
• Group 2: Why do banks need customers?
• Group 3: What do all banks do?
• Group 4: What are the products and services of a bank?
• Group 5: Why do customers come to a bank?

Debrief: Why do Banks exist?

• Functional roles of banks - financial intermediaries, provider of financial services, constituent of payment and settlement systems, and provider of other supportive financial services

Why do banks need customers?

• Banks require depositors with surplus funds.
• Banks need borrowers seeking loans.

What do banks do?

• Accepting deposits (savings, checking, etc.)
• Lending money (loans, mortgages, etc.)

What are the Products of a bank?

• Assets and liabilities of a bank - Loans, credit cards, mortgages, and other instruments available to customers. Liabilities side includes different types of deposits.

Types of Products - Product Suite

• Provides a categorized overview listing essential banking products

Why do customers come to a bank?

• Access to a variety of services, including new products, deposits, and loans, along with other financial instruments.

Types of Customers

• Categories of customers that banks serve: Individuals, Sole Proprietorship Firms, Partnership Firms, Limited Companies, Trusts, Cooperatives, and Hindu Undivided Families (HUFs).

HDFC Bank – (High-Level) Story & Achievements

• Details of HDFC Bank's history, including its inception, growth, mergers, and key achievements

Mission and Values

• HDFC Bank's mission, core values (operational excellence, customer focus, product leadership, people, and sustainability)

History & Milestones

• The chronological history of HDFC Bank (inception, early years, growth and expansion, strategic mergers, technological innovations, and recent developments)

Discussion - Quizzes

• Series of multiple-choice questions covering various topics covered in the day's session

Test your knowledge on various Indian financial institutions, their functions, and the types of risk they cover. This quiz will cover important agencies such as the National Payments Corporation of India (NPCI) and the Export Credit Guarantee Corporation of India (ECGC), among others. Dive into the regulatory environment and the role these institutions play in supporting the economy.