Banking Regulatory Bodies in India Quiz

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10 Questions

What is one of the challenges faced by banks due to decreased dependence of the corporate sector on them?

Difficulties in customer retention

Which norm emphasizes more on risk assessment and control for Indian banks?

Basel II norms

What is being replaced by IFRS in three phases, including Recognition & Measurement, Impairment, and Hedge Accounting?

IAS 39

Why is the cost of funds higher for Indian banks compared to their foreign counterparts?

Market share decline of PSU banks

What area does IFRS Convergence focus on replacing with new standards?

Accounting Standards

Which strategy aims at inclusive growth in the banking sector?

Financial Inclusion

What has led to a reduction in the market share of Public Sector Banks (PSU)?

Increased role of private sector banks

Which concept is highlighted by the stress on more stringent Basel III norms?

Capital Adequacy

What poses a great challenge for bankers according to the text?

A True Professional Approach

Which area of focus is affected due to inclusive banking as a strategy for inclusive growth?

Financial Inclusion

Study Notes

Overview of Banking Sector in India

  • The financial system has two segments: financial markets and financial intermediaries.

Financial Markets

  • There are five types of financial markets:
    • Money Market: provides short-term finance, operators include banks, government, and insurance companies, and is regulated by the central bank (RBI/SEBI in India).
    • Capital Market: provides long-term finance, operators include companies, banks, and insurance companies, and is regulated by the capital market regulator (SEBI in India).
    • Foreign Exchange Market: deals with foreign currency operations, operators include companies, banks, and authorized dealers, and is regulated by the central bank (RBI in India).
    • Government Securities Market: provides short-term and long-term finance, operators include the government, banks, and primary dealers, and is regulated by the central bank (RBI in India).
    • Credit Market: provides short-term and long-term finance, operators include banks, financial institutions, and non-banking financial institutions, and is regulated by the central bank (RBI in India).

Banks in India

  • There are various types of banks in India:
    • Scheduled commercial banks
    • Private sector banks
    • Public sector banks (22 PSBs)
    • Small finance banks
    • Payments banks
    • Cooperative banks (urban and rural)
  • RBI is the banking regulator, and NABARD is the supervisor.

Evolution of Banking Sector in India

  • There have been three phases of equity infusion by the government in PSBs:
    1. Up to 1992-93, capitalization without predetermined norms.
    2. Up to 1993-95, recovery of weak nationalized banks.
    3. In 2006-07, banks were allowed to raise capital from the public.
  • The banking sector has undergone four phases:
    1. Pre-independence (pre 1947)
    2. 1947 to 1967
    3. 1967 to 1991-92
    4. 1991-92 (financial sector reforms) and beyond

Challenges and Opportunities in Indian Banking Sector

  • Challenges:
    • Risk management
    • Regulatory architecture
    • Tension between fiscal and monetary policies
  • Opportunities:
    • Expansion of banking business abroad
    • Growth in loan market
    • Low-cost IT services
    • Development of new financial instruments
    • Increased banking habits among the population
    • Compliance with Basel II and III norms

Issues in Indian Banking Sector

  • Decreased dependence on banks for short-term funding
  • Customer retention and loyalty
  • Decreased margins due to competition
  • Compliance with Basel II and III norms
  • Inclusive banking and financial inclusion
  • Priority sector lending
  • Market competency and human resource development
  • Corporate governance and risk management

Test your knowledge on the banking regulatory bodies in India, including RBI and NABARD, as well as the different types of cooperative banks and their classification. Explore the history of banking regulation from pre-independence to the present day.

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