General Banking in India PDF

RBI & BANKING/FINANCIAL SYSTEM IN INDIA ======================================= (FUNCTION & REGULATIONS) ======================== [FUNCTIONS OF RESERVE BANK OF INDIA & RBI ACT] ---------------------------------------------------------- **[FORMATION& STRUCTURE:]** - In the Year **1926, John Hilton Young Commission** (Royal Commission of Indian Currency and Finance) recommended for establishment of RBI. - The Reserve Bank of India was established on **April 1, 1935** in accordance with the provisions of the **Reserve Bank of India Act, 1934.** (RBI Act came into effect from **6^th^ March 1934**) - The Central Office of the Reserve Bank was **initially established in Calcutta** but was permanently moved to **Mumbai in 1937**. - Besides Central Office, RBI has 27 Regional Offices and 4 Sub Offices. - Though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. - First Governer of RBI was **Sir Osborne Smith** and the first Indian to become Governer of RBI was Shri **C.D.Deshmukh**. Present Governer of RBI Shri Shaktikanta Das is the **25^th^ Governer** of RBI. **[MANAGEMENT:]** (Section 8 of RBI Act) ---------------------------------------------------- **CENTRAL BOARD:** - The Reserve Bank\'s affairs are governed by a central board of directors, appointed by the Government of India. - The Central Board shall consist of the following Directors, namely: - A Governor and \[not more than four\] Deputy Governors. (Full Time), Four Directors to be nominated by the Central Government, one from each of the four Local Boards, Ten Directors to be nominated by the Central Government, Two Government officials to be nominated by the Central Government. - The Governor and Deputy Governor shall hold office for such term not exceeding **five years** and shall be eligible for re-appointment. - A Director nominated shall hold office for a period of four years and shall be eligible for re-appointment. **LOCAL BOARDS:** - One each for the four regions of the country in Mumbai, Calcutta, Chennai and New Delhi consisting of five members each appointed by the Central Government for a term of four years - **Functions:** To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks etc. **[IMPORTANT SECTIONS OF RBI ACT 1934 ]** **[(As amended by the Finance Act, 2018)]** +-----------------------------------+-----------------------------------+ | Section | Details | +===================================+===================================+ | 4 | The Paid-up capital of RBI is | | | Rs.5.00 crores. | +-----------------------------------+-----------------------------------+ | 7 | The Central Government may from | | | time to time give such directions | | | to the Bank as it may, after | | | consultation with the Governor of | | | the Bank, consider necessary in | | | the public interest. The general | | | superintendence and direction of | | | the affairs and business of the | | | Bank shall be entrusted to a | | | Central Board of Directors. | +-----------------------------------+-----------------------------------+ | 17 | Authorized for accepting of money | | | on deposit without interest from | | | and the collection of money for | | | Central Government and State | | | Governments. | +-----------------------------------+-----------------------------------+ | 17(5) | Extend Ways and Means advances to | | | GoI for a period not exceeding | | | three months to augment the | | | mismatch in gap between flow of | | | revenue as per plan in budget and | | | its actual receipt. | +-----------------------------------+-----------------------------------+ | 20 | Obligation of RBI to transact | | | Government business. | +-----------------------------------+-----------------------------------+ | 21 | Bank to have the right to | | | transact Government business in | | | India. | +-----------------------------------+-----------------------------------+ | 21A | Bank to transact Government | | | business of States on agreement. | +-----------------------------------+-----------------------------------+ | 22 | Sole right to issue Bank notes. | +-----------------------------------+-----------------------------------+ | 23 | The Issue Department shall not | | | issue bank notes to the Banking | | | Department or to any other person | | | except in exchange for other bank | | | notes or for such coin, bullion | | | or securities as are permitted by | | | this Act to form part of the | | | Reserve. | +-----------------------------------+-----------------------------------+ | 24 | Denomination of Bank notes from | | | Rs.2/- to Rs.10000/- can be | | | issued by RBI. | | | | | | (\* Rs.1/- notes and coins are | | | issued by GoI under signature of | | | Finance Secretary) | +-----------------------------------+-----------------------------------+ | 27 | The Bank shall not re-issue bank | | | notes which are torn, defaced or | | | excessively soiled. | +-----------------------------------+-----------------------------------+ | 29 | RBI is exempt from stamp duty on | | | bank notes. | +-----------------------------------+-----------------------------------+ | 31 | No person in India other than RBI | | | and the Central Government shall | | | draw, accept, make or issue any | | | bill of exchange, hundi, | | | promissory note or engagement for | | | the payment of money payable to | | | bearer on demand. | +-----------------------------------+-----------------------------------+ | 33 | **Assets of the issue** | | | **Department:** Assets of issue | | | department shall consist of Gold | | | Coin, Gold Bullion, Foreign | | | Securities, rupee coins and rupee | | | securities with an aggregate | | | amount not less than its | | | liabilities. | | | | | | The aggregate value of Gold Coin, | | | Gold Bullion and foreign | | | securities held as assets shall | | | not at any time less than | | | Rs.200.00 crores and the | | | aggregate value of Gold Coin and | | | Gold Bullion at any time shall | | | not be less than Rs.115.00 | | | crores. | | | | | | Of the gold coin and gold bullion | | | held as assets, not less than | | | seventeen-twentieths shall be | | | held in India. | +-----------------------------------+-----------------------------------+ | 40 | Transactions in foreign exchange. | +-----------------------------------+-----------------------------------+ | 42 (1) | Maintenance of CRR by scheduled | | | Commercial Banks with RBI. | +-----------------------------------+-----------------------------------+ | 45A | Collection and furnishing of | | | credit information. | +-----------------------------------+-----------------------------------+ | 45ZB | The Monetary Policy Committee | | | (MPC) constituted by the Central | | | Government under Section 45ZB | | | determines the policy interest | | | rate required to achieve the | | | inflation target. | +-----------------------------------+-----------------------------------+ | 48 | Exemption of RBI from income-tax | | | and super-tax. | +-----------------------------------+-----------------------------------+ | 49 | Publication of bank rate: The | | | Bank shall make public from time | | | to time the standard rate at | | | which it is prepared to buy or | | | re-discount bills of exchange or | | | other commercial paper eligible | | | for purchase under this Act. | +-----------------------------------+-----------------------------------+ **[FUNCTIONS OF RBI]** The Preamble of the Reserve Bank of India describes the basic functions of the Reserve Bank to regulate the issue of Bank notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage; to have a modern monetary policy framework to meet the challenge of an increasingly complex economy, to maintain price stability while keeping in mind the objective of growth. **ACTS THAT GIVE AUTHORITY TO RBI AS REGULATOR:** - RBI Act 1934 empowers RBI as Central Bank of the Country. - Banking Regulation act 1949 empowers RBI to be the regulator of banking system in the country. - Payment and Settlement act 2006 empowers RBI as regulator of Payment & Settlement system. - Foreign Exchange Management Act 1999 authorizes RBI as regulator, supervisor and controller of Foreign Exchange. **THE FUNCTIONS OF THE RESERVE BANK CAN BE CATEGORISED AS FOLLOWS:** - Monetary policy and credit policy. - Regulation and supervision of the banking and non-banking financial institutions, including credit information companies. - Regulation of money market, forex and government securities markets as also certain financial derivatives. - Debt and cash management for Central and State Governments. - Management of foreign exchange reserves. - Banker to banks - Banker to the Central and State Governments - Oversight of the payment and settlement systems - Currency management - Developmental role - Research and statistics. **PRINTING OF CURRENCY NOTES & MINTING OF COINS:** - There are 4 currency note printing press in India located in Nasik (Maharastra), Dewas (MP) owned by Security Printing and Minting Corporation of India, a GoI undertaking and at Mysore (Karnataka), Salboni (WB) owned by Bharitya Reserve Bank Mudran Ltd, a wholly owned subsidiary of RBI. - **Coins and One-rupee notes:** As per Coinage act 2011, coins are issued by GoI. The maximum denomination of coins which can be issued is Rs.1000/-. The minimum denomination of coins in circulation at present is 50 paise. One rupee notes are treated as coins and issued by GoI under signature of Secretary, Ministry of Finance. - Coins are minted in four mints located in Alipore (Kolkata), Noida(UP), Mumbai and Hyderabad. **[MONETARY POLICY FRAMEWORK:]** - Monetary policy refers to the use of monetary instruments under the control of the central bank to regulate interest rates, money supply and availability of credit with a view to achieve the ultimate objective of economic policy. - In May 2016, the RBI Act, 1934 was amended to provide a statutory basis for the implementation of the flexible inflation targeting framework. - Section 45ZB of the amended RBI Act, 1934 provides for an empowered **six-member** monetary policy committee (MPC) to be constituted by the Central Government. The first such MPC was constituted on September 29, 2016. - The MPC has **at least four members present at each meeting**, and each member has one vote. If there\'s a tie, the RBI governor has a second or casting vote. - The MPC determines the policy repo rate required to achieve the inflation target. - The MPC is required to meet **at least four times in a year**. The quorum for the meeting of the MPC is four members. Each member of the MPC has one vote, and in the event of an equality of votes, the Governor has a second or casting vote. (Presently, RBI issues monetary and credit policy **6 times in a year**). - On the 14th day after every meeting of the MPC, the minutes of the proceedings of the MPC are published. - Once in every six months, the Reserve Bank publishes the Monetary Policy Report, which explains inflation sources and forecasts for the next 6--18 months. - The amended RBI Act also provides for the inflation target to be set by the Government of India, in consultation with the Reserve Bank, once in every five years. Accordingly, the Central Government has notified in the Official Gazette **4 per cent** Consumer Price Index (CPI) inflation as the target for the period from August 5, 2016 to March 31, 2021 with the **upper tolerance limit of 6 per cent** and the **lower tolerance limit of 2 per cent**. On March 31, 2021, the Central Government retained the inflation target and the tolerance band for the next 5-year period -- April 1, 2021 to March 31, 2026. **OPEN MARKET OPERATIONS (OMOs):** These include outright purchase/sale of government securities by the Reserve Bank for injection/absorption of durable liquidity in the banking system. **MARKET STABILIZATION SCHEME (MSS):** This instrument for monetary management was introduced in 2004. Surplus liquidity of a more enduring nature arising from large capital inflows is absorbed through sale of short-dated government securities and treasury bills. The cash so mobilized is held in a separate government account with the Reserve Bank. **[LIQUIDITY ADJUSTMENT FACILITY (LAF): ]** **The LAF refers to the Reserve Bank's operations through which it injects/absorbs liquidity into/from the banking system. It consists of overnight as well as term repo/reverse repos (fixed as well as variable rates), SDF and MSF.** **REPO RATE:** The interest rate at which the Reserve Bank provides overnight liquidity to banks against the collateral of government and other approved securities. **STANDING DEPOSIT FACILITY (SDF) RATE:** The rate at which the Reserve Bank accepts uncollateralized deposits, on an overnight basis, from all LAF participants. The SDF rate is placed at 25 basis points below the policy repo rate. With introduction of SDF in April 2022, the SDF rate replaced the fixed reverse repo rate as the floor of the LAF corridor. Following the introduction of SDF, the fixed rate reverse repo operations will be at the discretion of the RBI for purposes specified from time to time. **LAF CORRIDOR: The LAF corridor has the marginal standing facility (MSF) rate as its upper bound (ceiling) and the standing deposit facility (SDF) rate as the lower bound (floor), with the policy repo rate in the middle of the corridor.** **BANK RATE:** It is the rate at which the Reserve Bank is ready to buy or rediscount bills of exchange or other commercial papers. The Bank Rate is published under Section 49 of the Reserve Bank of India Act, 1934. This rate has been aligned to the MSF rate and, therefore, changes automatically as and when the MSF rate changes alongside policy repo rate changes. **[CASH RESERVE RATIO (CRR): ]** - Every bank shall maintain in India with RBI by way of cash reserve at a certain percentage (presently at the rate of **4.50%** ) of the total of its Net Demand and Time Liabilities (NDTL) in India as on the **last Friday of the second preceding fortnight** in terms of Section 42(1) of the RBI Act, 1934. - **Incremental CRR:** In terms of Section 42(1A) of RBI Act, 1934, the Reserve Bank may require the scheduled banks to maintain, in addition to the balances prescribed under Section 42(1) of the Act, an additional average daily balance, the amount of which shall not be less than the rate specified by the Reserve Bank in the notification published in the Gazette of India from time to time. - Every scheduled bank, small finance bank and payments bank shall maintain minimum CRR of **not less than ninety per cent of the required CRR** on all days during the reporting fortnight, in such a manner that the average of CRR maintained daily shall not be less than the CRR prescribed by the Reserve Bank. - **Reserve Bank of India does not pay any interest on the CRR balances maintained by SCBs.** - **With effect from 01.04.2007, RBI can prescribe CRR for scheduled commercial Banks without any floor rate or ceiling rate.** - **Cash reserves to be maintained by way of; Cash in hand,is the the net balance in current accounts with other scheduled commercial banks in India, the deposit required under sub-section (2) of Section 11 of the Banking Regulation Act, 1949 to be made with the Reserve Bank by a banking company incorporated outside India and any balance maintained by a scheduled bank with the Reserve Bank in excess of the balance required to be maintained by it under Section 42 of the Reserve Bank of India Act,1934 and any balances held by a bank with the RBI under the Standing Deposit Facility (SDF).** - **'Cash in India/hand' shall consist of total amount of rupee notes and coins held by bank branches / ATMs / Cash deposit machines maintained by banks in India, including transit cash on bank's books as also cash with Business Correspondents (BCs), but shall exclude cash, where physical possession is with outsourced vendors/BCs, which is not replenished in bank's ATM and/or is not reflected on bank's books.** **COMPUTATION OF NET DEMAND AND TIME LIABILITIES (NDTL):** - NDTL of a bank includes liabilities towards the banking system net of assets with the banking system, liabilities towards others in the form of demand and time deposits or borrowings or other miscellaneous items of liabilities. - Loans/borrowings from abroad by banks in India shall be reckoned as \'liabilities to others\' and shall be subject to reserve requirements. On the other hand, lending to banks abroad will not be considered as assets with the banking system and hence will not be allowed to be netted out from inter-bank liabilities. - Upper Tier II instruments raised and maintained in India/abroad shall be reckoned as liability for the computation of NDTL for the purpose of reserve requirements. - The balance amount in respect of the drafts issued by the accepting bank on its correspondent bank under the Remittance Facilities Scheme and remaining unpaid shall be reckoned as 'Liability to others in India' for the computation of NDTL. The amount received by correspondent banks shall be reckoned as 'Liability to the Banking System' and this liability may be netted off by the correspondent banks against the inter-bank assets. - Sums placed by banks for issuing drafts/interest/dividend warrants shall be treated as \'Assets with banking system\' and banks shall have the option to net them off from their inter-bank liabilities. **Liabilities not to be included for NDTL computation:** The liabilities mentioned below shall not form part of liabilities of a bank for the purpose of CRR and SLR: - Paid up capital, reserves, borrowings through instruments qualifying for Tier1 and additional Tier1 capital; any credit balance in the Profit & Loss Account of the bank; amount of any loan /refinance taken from RBI, Exim Bank, NHB, NABARD and SIDBI. - In the case of a Regional Rural Bank, any loan taken by such bank from its sponsor bank. - Net income tax provision; - Amount received from DICGC towards claims and held by the bank pending adjustments thereof; - Amount received from ECGC by invoking the guarantee; - Claims in respect of guarantees invoked and held by Banks from CGTMSE/NCGTC pending adjustment of the same towards the relative advances - Amount received from an insurance company on ad-hoc settlement of claims pending judgment of the Court; - Amount received from the Court Receiver. - Subsidy received and kept in the form of Zero percent interest Time Deposit. - Bill rediscounted by a bank with eligible financial institutions as approved by RBI etc. - Inter-Bank liabilities, Funds Borrowed under market repo against Government securities, Credit balances in ACU (US\$) Accounts, Demand and Time Liabilities in respect of their Offshore Banking Units, Liabilities in respect of the bank's International Financial Services Centre(IFSC) Banking Units etc are exempted from NDTL. For CRR maintenance. - Any loan /refinance taken by a scheduled/non-scheduled commercial bank from NaBFID will be excluded from the NDTL computation for CRR/SLR. The loan /refinance taken by a Scheduled Co-operative Bank from NaBFID will be excluded from the NDTL computation for CRR only (not for SLR). Further, loan /refinance taken by a non-scheduled co-operative bank from NaBFID will not be excluded from the NDTL computation for CRR/SLR. - With effect from the reporting fortnight beginning July 30, 2022, incremental FCNR (B) deposits as also NRE Term deposits with reference to base date of July 1, 2022, mobilised by banks are exempt from maintenance of CRR and SLR. The exemptions are valid for deposits raised till November 04, 2022. The exemption on reserves maintenance will be available for the original deposit amounts till such time the deposits are held in the bank's books. **PENALTIES FOR DEFAULT IN CRR MAINTENANCE:** - Banks shall pay Penal interest in the event of shortfall in maintenance of prescribed CRR on a daily basis for that day at the rate of **[3% per annum above the Bank Rate]** on the amount by which the amount actually maintained falls short of the prescribed minimum on that day and if the shortfall continues on the next succeeding day/s, penal interest shall be recovered at the rate of **[5% per annum above the Bank Rate].** - In cases of shortfall in maintenance of CRR on average basis during a fortnight, such Scheduled bank shall be liable to pay to RBI in respect of that fortnight penal interest at a rate of **three percent, above the bank rate** on the amount by which such balance with the Bank falls short of the prescribed minimum, and if during the next succeeding fortnight, such average daily balance is still below the prescribed minimum, the rates of penal interest shall be increased to a rate of **five per cent, above the bank rate** in respect of that fortnight and each subsequent fortnight during which the default continues - Every Director, Manager or Secretary of the scheduled bank/ Small Finance Bank/ Payment Bank who is knowingly and wilfully a party to the default, shall be punishable with fine which may extend to five hundred Rupees and with a further fine which may extend to five hundred Rupees for each subsequent fortnight during which default continues. - The Reserve Bank may prohibit a scheduled bank/ Small Finance Bank/ Payments Bank from receiving any fresh deposit after the said fortnight. **REPORTING TO RBI: Banks to submit the provisional report of CRR to RBI in [Form \'A\'] or Form 'B' (for scheduled state co-operative banks) at the close of business on each alternate Friday and within seven days after the date of the relevant fortnight to which it relates. The final Return in Form \'A\' or Form 'B' shall be submitted within 20 days from expiry of the relevant fortnight. Whenever there are wide variations between the sources and uses of funds exceeding 20 percent as reported, the banks concerned should give reasons therefor in the Return. The Banks have to submit these returns in electronic form on Centralised Information Management System (CIMS) portal. Now it is proposed to submit at fortnightly from 1^st^ to 15^th^ and 16^th^ to last day of a month.** **[STATUTORY LIQUIDITY RATIO (SLR)]** - In addition to CRR, Every Bank needs to maintain SLR as per the rate decided by RBI from time to time (**18% at present**) which **shall not exceed 40% of NDTL** in India **as on the** **last Friday of the second preceding fortnight** in the form of **Cash, Gold** valued at a price not exceeding the current market price, **Unencumbered Dated securities of the Government of India, Treasury Bills** of the Government of India, **State Development Loans** or any other instrument as may be notified by the Reserve Bank of India (As and when prescribed). - Securities lodged in the Gilt Account of the bank maintained with Clearing Corporation of India Ltd. (CCIL) under Constituent Subsidiary General Ledger account (CSGL) facilities remaining unencumbered at the end of any day can be reckoned for SLR purposes by the bank concerned. - Funds borrowed under repo shall be exempted from CRR/SLR computation and the security acquired under repo shall be eligible for SLR provided the security is primarily eligible for SLR as per the provisions of the Act under which it is required to be maintained. - Borrowings by a bank through repo in corporate bonds and debentures shall be reckoned as liabilities for CRR/SLR. - All banks shall maintain investments in Government Securities only in Subsidiary General Ledger (SGL) Accounts with Reserve Bank or in CSGL Accounts of scheduled commercial banks, Primary Dealers (PDs), State Co-operative Banks, and Stock Holding Corporation of India Ltd.(SHCIL) or in the dematerialised accounts with depositories such as National Securities Depositories Ltd (NSDL), Central Depository Services Ltd. (CDSL), and National Securities Clearing Corporation Ltd. (NSCCL). - The cash management bill shall be treated as Government of India Treasury Bill and thus be reckoned as SLR security. **PROCEDURE FOR COMPUTATION OF NDTL FOR SLR:** Total NDTL for the purpose of SLR shall be computed on the similar procedure as followed for CRR. However, SCBs are required to **include inter-bank term deposits/ term borrowing liabilities** of all maturities in \'Liabilities to the Banking System'. Banks shall include their inter-bank assets of term deposits and term lending of all maturities in \'Assets with the Banking System\' for computation of NDTL for SLR purpose. **REPORTING TO RBI:** Banks shall submit to the Reserve Bank before 20th day of every month, a Return **in Form VIII **showing the amount of SLR held on alternate Fridays during the immediately preceding month with particulars of their DTL in India held on such Fridays or if any such Friday is a public holiday under the Negotiable Instruments Act, 1881, at the close of business on the preceding working day. The banks have to submit these returns in **electronic form on CIMS portal** using digital signatures of two authorised officials. **PENALTIES FOR DEFAULT IN SLR MAINTENANCE:** If on any alternate Friday or, if such Friday is a public holiday, on the preceding working day, the amount of SLR securities maintained by a banking company at the close of business on that day falls below the minimum prescribed SLR, such banking company shall be liable to pay to the Reserve Bank in respect of that day\'s default, penal interest for that day at the rate of **3% per annum above the bank rate** on the amount by which the amount actually maintained falls short of the prescribed minimum on that day; and If the default occurs again on the next succeeding alternate Friday, and continues on succeeding alternate Fridays the rate of penal interest shall be increased to a rate of **5%per annum above the bank rate** on each such shortfall in respect of that alternate Friday and each succeeding alternate Friday in which the default continues. The penalty shall be paid **within a period of fourteen days** from the date on which a notice issued by the Reserve Bank demanding payment of the same. **[MARGINAL STANDING FACILITY (MSF)]:** - **The higher rate at which banks can borrow, on an overnight basis, from the Reserve Bank by dipping into their Statutory Liquidity Ratio (SLR) portfolio up to a predefined limit (2 per cent). This provides a safety valve against unanticipated liquidity shocks to the banking system. The MSF rate is placed at 25 basis points above the policy repo rate.** - **Under MSF, the eligible banks shall have the option to borrow up to two per cent of their respective NDTL outstanding at the end of the second preceding fortnight.** - They shall also continue to access overnight funds under this facility against their excess SLR holdings. - **In the event of banks' SLR holding falling below the statutory requirement up to two per cent of their NDTL, banks shall not have the obligation to seek a specific waiver for default in SLR compliance arising out of use of this facility.** - Within the mandatory SLR requirement, Government securities to the extent allowed by the Reserve Bank under Marginal Standing Facility (MSF) are permitted to be reckoned as the Level 1 High Quality Liquid Assets (HQLAs) for the purpose of computing Liquidity Coverage Ratio (LCR) of banks. In addition to this, banks are permitted to reckon up to such percentage, as may be stipulated by RBI from time to time, of their NDTL within the mandatory SLR requirement as level 1 HQLA. This facility has been provided to enable banks to avail liquidity for Liquidity Coverage Ratio. [MONEY MARKET INSTRUMENTS: ] ---------------------------------------- The money market is a market for short-term financial assets that are close substitutes of money. It includes Call/Notice Money, Commercial Paper, Certificates of Deposit and Non-Convertible Debentures with original maturity up to one year. **[CALL MONEY, NOTICE MONEY & TERM MONEY:]** - **"Call Money"** means borrowing or lending in unsecured funds on **overnight basis**. - **"Notice Money"** means borrowing or lending in unsecured funds for tenors up to and inclusive of **14 days** excluding overnight borrowing or lending. - **"Term Money"** means borrowing or lending in unsecured funds for periods exceeding **14 days and up to one year.** **ELIGIBLE PARTICIPANTS:** The following entities shall be eligible to participate in the Call, Notice and Term Money Markets, both as borrowers and lenders: - Scheduled Commercial Banks (excluding Local Area Banks). - Payment Banks and Small Finance Banks. - Regional Rural Banks. - State Co-operative Banks, District Central Co-operative Banks and Urban Co-operative Banks and - Primary Dealers. **PRUDENTIAL LIMITS:** Prudential limits in respect of outstanding lending transactions in the Call, Notice and Term Money Markets shall be decided by the participants with the approval of their Board within the regulatory framework of the exposure norms prescribed by RBI. The Prudential limits for outstanding borrowing transactions in Call, Notice and Term Money Markets are as under; +-----------------------------------+-----------------------------------+ | **Participant Category** | **Prudential Limit** | +===================================+===================================+ | **Scheduled Commercial Banks** | Internal board approved limits | +-----------------------------------+-----------------------------------+ | **Small Finance Banks** | - **Call and Notice Money:** | | | 100% of capital funds, on a | | | daily average basis in a | | | reporting fortnight, and 125% | | | of capital funds on any given | | | day. | | | | | | - **Term Money:** Internal | | | board approved limit within | | | the prudential limits for | | | inter-bank liabilities. | +-----------------------------------+-----------------------------------+ | **Payment Banks, and Regional | - **Call, Notice and Term | | Rural Banks** | Money:** 100% of capital | | | funds, on a daily average | | | basis in a reporting | | | fortnight, and 125% of | | | capital funds on any given | | | day. | +-----------------------------------+-----------------------------------+ | **Co-operative Banks** | - **Call, Notice and Term | | | Money:** 2.0% of aggregate | | | deposits as at the end of the | | | previous financial year. | +-----------------------------------+-----------------------------------+ | **Primary Dealers** | - **Call and Notice Money:** | | | 225% of Net Owned Fund (NOF) | | | as at the end of the previous | | | financial year on a daily | | | average basis in a reporting | | | fortnight. | | | | | | - **Term Money:** 225% of Net | | | Owned Fund (NOF) as at the | | | end of previous financial | | | year. | +-----------------------------------+-----------------------------------+ **INTEREST RATES:** Eligible participants are free to decide on interest rates in the Call, Notice and Term Money Markets. **[\ ]** **[CERTIFICATE OF DEPOSIT]** "Certificate of Deposit" or "CD" is a negotiable, unsecured money market instrument issued by a bank as a Usance Promissory Note against funds deposited at the bank for a maturity period upto one year. **ELIGIBLE ISSUERS:** Certificate of Deposits (CDs) may be issued by Scheduled Commercial Banks, Regional Rural Banks, Small Finance Banks and all-India term-lending and refinancing institutions, viz., Exim Bank, National Bank for Agriculture & Rural Development (NABARD), National Housing Bank (NHB) and Small Industries Development Bank of India (SIDBI). **ELIGIBLE INVESTORS:** CDs may be issued to all persons resident in India. **ISSUANCE:** CDs shall be issued only in dematerialised form and held with a depository registered with Securities and Exchange Board of India. CDs shall be issued in minimum denomination of **₹5 lakh** and in **multiples of ₹5 lakh thereafter**. The tenor of a CD at issuance shall not be less than **seven days and shall not exceed one year.** CDs shall be issued on a T+1 basis where T represents the date of closure of the offer period for issuance of the CDs. **COUPON RATE:** CDs may be issued at a discount to the face value. CDs may also be issued on a fixed / floating rate basis provided the interest rate on the floating rate CD is reset at periodic rests. **TRADING IN SECONDARY MARKET:** CDs shall be traded either in Over-the-Counter (OTC) markets, including on Electronic Trading Platforms, or on recognised stock exchanges with the approval of the Reserve Bank. The settlement cycle for OTC trades in CDs shall be T+0 or T+1. All secondary market transactions in CDs shall be settled on a DvP basis.( Delivery versus Payment" or "DvP" means a settlement mechanism which stipulates that transfer of funds from the buyer of securities is made simultaneously with the transfer of securities by the seller of securities). **LOANS AGAINST CDs:** Banks are not allowed to grant loans against CDs, unless specifically permitted by the Reserve Bank. **BUY-BACK OF CDs:** Issuing banks are permitted to buyback CDs before maturity **only 7 days after the date of issue**, however, the investors shall have the option to accept or reject the buyback offer and the buyback of CDs shall be at the prevailing market price. **[COMMERCIAL PAPER & NON-CONVERTIBLE DEBENTURES (NCD) OF ORIGINAL OR INITIAL MATURITY UPTO ONE YEAR]** Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note, that are issued by Companies, NBFCs, InvITs and REITs, All India Financial Institutions (AIFIs) and any other body corporate with a **minimum net-worth of ₹100 crore**, provided that the body corporate is statutorily permitted to incur debt or issue debt instruments in India. Co-operative societies and limited liability partnerships with a minimum net-worth of ₹100 crore, may also issue CPs, subject to the condition that all fund-based facilities availed, if any, by the issuer from banks/ AIFIs / NBFCs are classified as Standard at the time of issue. **ELIGIBLE INVESTORS:** All Resident Indians, Non-residents are eligible to invest in CPs and NCDs to the extent permitted under Foreign Exchange Management Act (FEMA), 1999. Provided that no person, can invest in CPs and NCDs issued by related parties. **ISSUANCE:** - CPs and NCDs shall be issued in dematerialised form and held with a depository registered with SEBI. - CPs and NCDs shall be issued in minimum denomination of **₹5 lakh** and in **multiples of ₹5 lakh** thereafter. - The tenor of a CP **shall not be less than seven days or more than one year**. The tenor of an **NCD shall not be less than ninety days or more than one year.** - Issuance of a CP/NCD with options (call/put) is not permitted. - Issuance of a CP/NCD is not permitted to be underwritten or co-accepted. - The primary issuances of CPs and NCDs, including both payment of funds to the issuer and issue of CPs and NCDs to the investors, shall be settled within a period not exceeding T+4 working days. - Total subscription by all individuals, including Hindu Undivided Families, in any primary issuance of CPs or NCDs shall not exceed 25 per cent of the total amount issued. - Funds raised through CPs and NCDs shall ordinarily be used to finance current assets and operating expenses. **COUPON RATE / DISCOUNT:** CPs shall be issued at a discount to the face value. NCDs shall be issued at a discount to the face value or with fixed or floating rate coupon. **RATING:** The minimum credit rating, assigned by a Credit Rating Agency (CRA), for the issuance of CPs and NCDs shall be **'A3'** as per rating symbol and definition prescribed by SEBI. **TRADING IN SECONDARY MARKET:** CPs and NCDs shall be traded either in OTC markets, including on ETPs, or on recognised stock exchanges, approved by the Reserve Bank for the purpose. The settlement cycle for OTC trades in CPs and NCDs shall be either T+0 or T+1. All OTC secondary market transactions in CPs (including transactions undertaken on ETPs) shall be settled on a DvP basis. **BUYBACK:** The buyback of CPs can be made **only after seven days** from the date of issue. The buyback of NCDs can be made only after ninety days from the date of issue. Buyback of CPs and NCDs shall be at the prevailing market price. ***[\ ]*** ***[CLASSIFICATION, VALUATION AND OPERATION OF INVESTMENT PORTFOLIO OF COMMERCIAL BANKS ]*** ***RBI on 12^th^ September 2023 released the master direction on the captioned matter updating the regulatory guidelines with global standards and best practices while introducing a symmetric treatment of fair value gains and losses, a clearly identifiable trading book under Held for Trading (HFT), removing the 90-day ceiling on holding period under HFT, removal of ceilings on Held to Maturity and more detailed disclosures on the investment portfolio. Banks shall adopt a comprehensive investment policy duly approved by the Board of Directors in this regard. These Directions shall come into effect for accounting period commencing on or after April 1, 2024.The main points of the directions are summarized hereunder;*** ***CATEGORIZATION OF INVESTMENTS BY BANKS:*** ***Banks shall classify their entire investment portfolio (except investments in their own subsidiaries, joint ventures and associates) under three categories, viz., Held to Maturity (HTM), Available for Sale (AFS) and Fair Value through Profit and Loss (FVTPL). Held for Trading (HFT) shall be a separate investment sub-category within FVTPL. The category of the investment shall be decided by the bank before or at the time of acquisition and this decision shall be properly documented.*** ***HTM: The security is acquired with the intention and objective of holding it to maturity and the contractual terms of the security give rise to cash flows that are solely payments of principal and interest on principal outstanding ('SPPI criterion') on specified dates.*** ***Further, notwithstanding the intent with which the following securities are acquired, they shall not meet the SPPI criteria and therefore shall not be eligible for classification either as HTM or AFS;*** - ***Instruments with compulsorily, optionally or contingently convertible features.*** - ***Instruments with contractual loss absorbency features such as those qualifying for Additional Tier 1 and Tier 2 under Basel III Capital Regulations.*** - ***Instruments whose coupons are not in the nature of interest.*** - ***Preference shares and Equity shares.*** ***AFS: The security is acquired with an objective that is achieved by both collecting contractual cash flows and selling securities; and the contractual terms of the security meet the 'SPPI criterion' as given above.*** ***AFS securities shall inter-alia include debt securities held for asset liability management (ALM) purposes that meet the SPPI criterion where the bank's intent is flexible with respect to holding to maturity or selling before maturity.*** ***FVTPL: The securities held in FVTPL shall be fair valued and the net gain or loss arising on such valuation shall be directly credited or debited to the Profit and Loss Account. Securities that are classified under the HFT sub-category within FVTPL shall be fair valued on a daily basis, whereas other securities in FVTPL shall be fair valued at least on a quarterly basis.*** ***Any discount or premium on the acquisition of debt securities under FVTPL shall be amortised over the remaining life of the instrument.*** ***Securities under FVTPL shall be subject to income recognition, asset classification and provisioning norms.*** ***Investments in Subsidiaries, Associates and Joint Ventures: All investments in subsidiaries, associates and joint ventures shall be held sui generis i.e., in a distinct category for such investments separate from the other investment categories (viz. HTM, AFS and FVTPL).*** ***INITIAL RECOGNITION: All investments shall be measured at fair value on initial recognition. Unless facts and circumstances suggest that the fair value is materially different from the acquisition cost, it shall be presumed that the acquisition cost is the fair value.*** ***In respect of government securities acquired through auction (including devolvement), switch operations and open market operations (OMO) conducted by the RBI, the price at which the security is allotted shall be the fair value for initial recognition purposes.*** ***Where the securities are quoted or the fair value can be determined based on market observable inputs (such as yield curve, credit spread, etc.) any Day 1 gain/ loss shall be recognised in the Profit and Loss Account, under Schedule 14: 'Other Income' within the subhead 'Profit on revaluation of investments' or 'Loss on revaluation of investments', as the case may be.*** ***"Day 1 Gain" is the difference between the fair value at initial recognition and acquisition cost where such fair value exceeds the acquisition cost. "Day 1 Loss" is the difference between acquisition cost and the fair value at initial recognition where the acquisition cost exceeds such fair value.*** ***SUBSEQUENT MEASUREMENT:*** - Securities held in **HTM shall be carried at cost and shall not be marked to market (MTM) after initial recognition**. Any discount or premium on the securities under HTM shall be amortised over the remaining life of the instrument. The amortised amount shall be reflected in the financial statements under item II 'Income on Investments' of Schedule 13: 'Interest Earned' with a contra in Schedule 8:'Investments'. - The securities held in **AFS shall be fair valued at least on a quarterly basis**, - The securities held in FVTPL shall be fair valued and the net gain or loss arising on such valuation shall be directly credited or debited to the Profit and Loss Account. Securities that are classified under the HFT sub-category within FVTPL shall be fair valued on a daily basis, whereas other securities in FVTPL shall be fair valued at least on a quarterly, if not on a more frequent basis. - All investments (i.e., including debt and equity) in subsidiaries, associates and joint ventures shall be held at acquisition cost. When an investee ceases to be a subsidiary, associate or joint venture, the investments shall be reclassified to the respective category. Banks shall evaluate investments in subsidiaries, associates or joint ventures for impairment at least on a quarterly, if not more frequent basis. **RECLASSIFICATIONS BETWEEN CATEGORIES:** Banks shall not reclassify investments between categories (viz. HTM, AFS and FVTPL17) without the approval of their Board of Directors. Further, reclassification shall also require the prior approval of the Department of Supervision (DoS), RBI. The reclassification should be applied prospectively from reclassification date. Any sales from HTM shall be as per a Board approved policy. Details of sales out of HTM shall be disclosed in the notes to accounts of the financial statements. In any financial year, the **carrying value of investments sold out of HTM shall not exceed five per cent** of the opening carrying value of the HTM portfolio. Any sale beyond this threshold shall require prior approval from DoS, RBI. Sales of securities in the situations given below shall be excluded from the regulatory limit of five per cent prescribed above. - Sales to the RBI under liquidity management operations of RBI such as the Open Market Operations (OMO) and Government Securities Acquisition Programme (GSAP). - Repurchase of Government Securities by Government of India from banks under buyback or switch operations. - Repurchase of State Development Loans by respective state governments under buyback or switch operations. - Repurchase, buyback or exercise of call option of non-SLR securities by the issuer. - Sale of non-SLR securities following a downgrade in credit ratings or default by the counterparty. - Sale of securities as part of a resolution plan under the Prudential Framework for Resolution of Stressed Assets20 for a borrower facing financial distress. - Additional sale of securities explicitly permitted by the Reserve Bank of India. **FAIR VALUE OF INVESTMENTS:** - The fair value for the quoted securities shall be the prices declared by the Financial Benchmarks India Private Ltd. (FBIL). For securities whose prices are not published by FBIL, the fair value of the quoted security shall be based upon quoted price as available from the recognised stock exchanges or trading platforms or prices declared by the Fixed Income Money Market and Derivatives Association of India (FIMMDA). - **Unquoted SLR Securities:** Treasury Bills shall be valued at carrying cost. Unquoted Central / State Government securities shall be valued on the basis of the prices/ YTM rates published by the FBIL. Other approved securities shall be valued applying the YTM method by marking them up by 25 basis points above the yields of the Central Government Securities of equivalent maturity put out by FBIL. - **Unquoted Non-SLR Securities:** Unquoted debentures and bonds shall be valued by applying the appropriate mark-up over the YTM rates for Central Government Securities as put out by FBIL/FIMMDA. Special securities, which are directly issued by Government of India, and which do not carry SLR status shall be valued at a spread of 25 basis points above the corresponding yield on Central Government securities of equivalent maturity. - **Zero coupon bonds (ZCBs):** In the absence of market value, the ZCBs shall be marked to market with reference to the present value of the ZCB. The fair value so determined should be compared with the carrying cost to determine valuation gain or loss. - **Preference Shares:** When a preference share has been traded on exchange within 15 days prior to the valuation date, the value shall not be higher than the price at which the share was traded. Investments in preference shares as part of the project finance shall be valued at par for a period of two years after commencement of production or five years after subscription whichever is earlier. - **Equity Shares:** Equity shares for which current quotations are not available i.e., which are classified as illiquid or which are not listed on a recognised exchange, the fair value for the purposes of these directions shall be the break-up value (without considering 'revaluation reserves', if any) which is to be ascertained from the company's latest audited balance sheet. The date as on which the latest balance sheet is drawn up shall not precede the date of valuation by more than 18 months. In case the latest audited balance sheet is not available or is more than 18 months old, the shares shall be valued at ₹ 1 per company. - **Mutual Funds Units (MF Units):** Investment in un-quoted MF units shall be valued on the basis of the latest re-purchase price declared by the MF in respect of each scheme. In case of funds with a lock-in period or any other Mutual Fund, where repurchase price/ market quote is not available, units shall be valued at Net Asset Value (NAV) of the scheme. If NAV is not available, these shall be valued at cost, till the end of the lock-in period. - **Commercial Paper:** Commercial paper shall be valued at the carrying cost. **OPERATIONAL GUIDELINES:** - **Transactions through Subsidiary General Ledger (SGL) account:** Transactions in Government Securities shall be undertaken through SGL or Constituent Subsidiary General Ledger (CSGL) accounts, under the Delivery Versus Payment (DvP) System, in accordance with the guidelines issued by RBI from time to time. - The **carrying amount of a bank's investment in unlisted non-SLR securities shall not exceed 10 per cent of the carrying amount** (i.e., value carried to the Balance Sheet) of its total investment in non-SLR securities as at the end (i.e., 31st March) of the previous financial year. Investment in unlisted securities that are proposed to be listed within one year shall be exempt from the ceiling of 10 per cent specified. Banks are permitted to make investment in unlisted non-SLR securities of an additional 10 per cent over and above the limit of 10 per cent, provided that such investment is in securitisation notes issued for infrastructure projects, and bonds/debentures issued by ARCs. - **Banks shall not invest in non-SLR securities of original maturity of less than one-year.** Provided that this restriction shall not apply to investments in Commercial Paper, Certificates of Deposits and NCDs with original or initial maturity up to one year issued by corporates (including NBFCs), which are covered under RBI guidelines. - **Banks shall not invest in unrated non-SLR securities.** Provided that the banks shall have the option to invest in unrated bonds of companies engaged in infrastructure activities, within the ceiling of 10 per cent for unlisted non-SLR securities. - The total investment by banks in liquid/short term debt schemes of mutual funds with weighted average maturity of portfolio of not more than one year, shall be subject to a prudential **cap of 10 per cent of their net worth** as at the end of the previous financial year. A half-yearly review (as of March 31 and September 30) of the investment portfolio shall be undertaken by the banks. [BANKING REGULATION ACT-1949] *(REGULATION (AMENDMENT) ACT, 2017)* *THE BANKING REGULATION (AMENDMENT) ACT, 2020* It extends to the whole of India applicable to all Banking Companies except to primary agricultural credit society, a co-operative land mortgage bank. **[IMPORTANT SECTIONS OF BR ACT: ]** - **SECTION-4: POWER TO SUSPEND OPERATION OF ACT:** The Central Government, may suspend, the operation of all or any of the provisions of this Act, either generally or in relation to any specified banking company for such period**, not exceeding sixty days.** In a case of special emergency, the Governor of the Reserve Bank, or in his absence a Deputy Governor may, exercise the powers of the Central Government so however that the period of suspension shall not exceed thirty days. The Central Government may, extend the period of any suspension ordered for such period, not exceeding sixty days at any one time, so however that the total period does not exceed one year. - **SECTION-5 (A): APPROVED SECURITY:** Means the securities issued by the Central Government or any State Government or such other securities as may be specified by the Reserve Bank from time to time. - **SECTION-5 (B): BANKING:** Means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise. - **SECTION-5 (C): BANKING COMPANY:** Means any company which transacts the business of banking in India. - **SECTION-5 (F): DEMAND LIABILITY:** Means liabilities which must be met on demand, and \"**time liabilities**\" means liabilities which are not demand liabilities. - **SECTION-5 (JA): REGIONAL RURAL BANK:** Means a regional rural bank established under section 3 of the Regional Rural Banks Act, 1976. - **SECTION-5 (N): SECURED LOAN OR ADVANCE:** Means a loan or advance made on the security of assets the market value of which is not at any time less than the amount of such loan or advance; and \"unsecured loan or advance\" means a loan or advance not so secured. (\* As per RBI guidelines, an advance where the value of security is not more than **10%** of the outstanding is an unsecured advance) - **SECTION-6: FORMS OF BUSINESS IN WHICH BANKING COMPANIES MAY ENGAGE:** In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:- borrowing, raising money, lending money, discounting, buying, selling, collecting and dealing in bills of exchange, the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange, acting as an agent for government etc. - **SECTION-7: USE OF WORDS \"BANK\", \"BANKER\", \"BANKING\" OR \"BANKING COMPANY:** No company/firm other than a banking company shall use as part of its name \[or in connection with its business\] any of the words \"bank\", \"banker\" or \"banking\". - **SECTION-8: PROHIBITION OF TRADING:** No banking company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realization of security given to or held by it. - **SECTION-9: DISPOSAL OF NON-BANKING** **ASSETS:** No banking company shall hold any immovable property howsoever acquired, except such as is required for its own use, for any period **exceeding seven years** from the acquisition thereof or from the commencement of this Act, whichever is later. Reserve Bank may in any particular case extend the aforesaid period of seven years by such period not exceeding five years. - **SECTION-10A: BOARD OF DIRECTORS TO INCLUDE PERSONS WITH PROFESSIONAL OR OTHER EXPERIENCE:** As per Section 10A(2), Not less than **fifty-one per cent**, of the total number of members of the Board of Directors of a banking company shall consist of persons, who shall have special knowledge or practical experience in respect of one or more of the following matters, namely (i) accountancy, (ii) agriculture and rural economy, (iii) banking, (iv) co-operation, (v) economics, (vi) finance, (vii) law, (viii) small-scale industry, (ix) any other matter the special knowledge of, and practical experience, provided that out of the aforesaid number of Directors, not less than two shall be persons having special knowledge or practical experience in respect of agriculture and rural economy, co-operation or small- scale industry. No Director of a banking company, other than its Chairman or whole-time Director, by whatever name called, shall hold office continuously for a period exceeding **eight years**. - **SECTION-11: REQUIREMENT AS TO MINIMUM PAID-UP CAPITAL AND RESERVES:** Every Banking Company, shall, after the expiry of three years from commencement of business should meet the minimum capital requirement. In the case of a banking company incorporated outside India, the aggregate value of its paid-up capital and reserves shall not be less than fifteen lakhs of rupees and if it has a place or places of business in the city of Bombay or Calcutta or both, the requirement will be twenty lakhs of rupees. The banking company shall deposit and keep deposited with the Reserve Bank either in cash or in the form of unencumbered approved securities, or partly in cash and partly in the form of such securities for the minimum capital and an amount equal to 20% of its profit in respect of all business transacted through its branches in India. In the case of any banking company not incorporated outside India, the minimum paid up capital and reserve should be Rs.5.00 Lakh Rupees ( if it has places of business in more than one State), Rs.10.00 Lakh Rupees (if any such place or places of business is or are situated in the city of Bombay or Calcutta or both). If it has all its places of business in one State none of which is situated in the city of Bombay or Calcutta, one lakh of rupees in respect of its principal place of business, plus ten thousand rupees in respect of each of its other places of business situated in the same district in which it has its principal place of business, plus twenty-five thousand rupees in respect of each place of business situated elsewhere in the State otherwise than in the same district. Subject to maximum capital and reserve requirement of Rs.5.00 Lakh Rupees and Rs.50000/- if the Bank is having only one place of business. - **However, RBI has different minimum capital requirements for different types of banks. The initial minimum paid-up voting equity capital for a commercial bank must be ₹5 billion, and the bank must maintain a minimum net worth of ₹5 billion at all times.** **The minimum capital requirement for SFBs is ₹200 crore.** **Payment banks must have a minimum paid-up capital of ₹100 crore.** **The aggregate value of paid-up capital and reserves for co-operative banks must be at least ₹1 lakh.** - **SECTION:12. REGULATION OF PAID-UP CAPITAL, SUBSCRIBED CAPITAL AND AUTHORIZED CAPITAL AND VOTING RIGHTS OF SHAREHOLDERS:** No banking company shall carry on business in India, unless it satisfies the following conditions, namely: - That the subscribed capital of the company is not less than one-half of the authorized capital, and the paid-up capital is not less than one-half of the subscribed capital. i.e the ratio of Authorized, Subscribed and paid up capital must be minimum 4:2:1 - No shareholder in a banking company shall exercise voting rights in excess of **ten per cent** of the total voting rights of all the shareholders of the banking company. \[Provided that the Reserve Bank may increase, such ceiling to twenty-six per cent.\] - No person shall, except with the previous approval of the Reserve Bank, acquire shares of a banking company or voting rights therein by him or his relative or associate enterprise or person acting in concert with him, of five per cent or more of the paid-up share capital of such banking company or five per cent or more of the voting rights in such banking company. - **SECTION:13: RESTRICTION ON COMMISSION, BROKERAGE, DISCOUNT, ETC. ON SALE OF SHARES:** No banking company shall pay by way of commission, brokerage, discount in any form in respect of any shares issued by it, any amount exceeding **2.50% of the price** at which the said shares are issued. - **SECTION:17: RESERVE FUND:** A Banking company is required to **transfer 20% of its profits to reserve fund** before declaring dividend. As per current guidelines, RBI has increased the same to **25%.** - **SECTION:18:** Defines Cash Reserve requirement for Non-Scheduled Banks. - **SECTION:19 (2) :** No banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding **thirty per cent** of the paid-up share capital of that company or **thirty per cent** of its own paid-up share capital and reserves, whichever is less. - **SECTION:20: RESTRICTIONS ON LOANS AND ADVANCES: As per** Section :**20 (1.a):** No banking company shall grant any loans or **advances on the security of its own shares**. As per Section :20 (1.b):No banking company shall without approval of RBI grant any loans or advances to any of **its directors**, in any firm where any of the director is partner, employee or guarantor or in any company where he / she is holding substantial interest. As per Section:20A: a banking company shall not, except with the prior approval of the Reserve Bank, remit in whole or in part any debt due to it by any of its directors, in any firm where any of the director is partner, employee or guarantor or in any company where he / she is holding substantial interest. - **SECTION:21: POWER OF RESERVE BANK TO CONTROL ADVANCES BY BANKING COMPANIES:** (Selective Credit Control). Reserve Bank of India in the interest of public may direct Banks on restriction on lending against certain commodities, maintenance of minimum margin, ceiling on limit or charging of minimum ROI etc. - **SECTION 21A:** Rate of interest charged by Banks is not to be subject to **scrutiny by courts**. - **SECTION:22: LICENSING OF BANKING COMPANIES:** No Banking company shall commence business without obtaining license from Reserve Banking of India. Reserve Bank may cancel license of a Banking Company Under Section 22(4) under certain conditions. Any banking company aggrieved by the decision of the Reserve Bank cancelling a license under this section may, within thirty days from the date on which such decision is communicated to it, appeal to the Central Government (U/s 22(5)) - **SECTION:23: LICENSING OF BANK BRANCHES:** Prior permission from RBI is required for opening any new Branch, office or transfer of existing place of business (except for one month). Now RBI has permitted Banks to open Branches without its permission. - **SECTION: 24:Banks** are required to maintain minimum Statutory Liquidity Ratio (SLR) as prescribed by RBI. - **SECTION:25: ASSETS IN INDIA:** The assets in India of every banking company at the close of business on the last Friday of every quarter or, if that Friday is a public holiday, at the close of the business on the preceding working day, shall not be less than seventy-five percent of its demand and time liabilities in India. - **SECTION:26: RETURN OF UNCLAIMED DEPOSITS:** Every banking company shall, within thirty days after the close of each calendar year, submit a return in the prescribed form and manner to the Reserve Bank as at the end of such calendar year of all accounts \[in India\] which have not been operated for ten years, (in the case of a Time Deposit, the said term of ten years shall be reckoned from the date of maturity of such Term Deposit). - RBI has launched 'The Depositor Education and Awareness Fund Scheme 2014 (DEAF)' under Section 26(A) of BR Act, under which unclaimed deposits for 10 Years or more to be remitted by Banks to RBI within a period of 3 months from the expiry of the said period of ten years to be credited to this fund. Provided that it shall not prevent a depositor or claimant to claim his deposit or operate his account even after the expiry of said period of ten years and the Bank shall be liable to repay such deposit or amount at such rate of interest as may be specified by the Reserve Bank in this behalf (Which is 3.00% p.a at present). - **SECTION:29: ACCOUNTS AND BALANCE-SHEET:** Every Banking Company shall prepare Balance Sheet and P&L Statement as on the last day of March every year in the format given in Schedule -III of the Act. - **SECTION:30: AUDIT:** The financial statements (Balance Sheet/P&L) are subjected to audit by a person duly qualified. - **SECTION: 31: SUBMISSION OF RETURNS:** The accounts and balance-sheet together with the auditor\'s report shall be published in the prescribed manner and three copies thereof shall be furnished as returns to the Reserve Bank within three months from the end of the period to which they refer. (Reserve Bank may extend by a further period not exceeding three months). - **SECTION 35: INSPECTION:** The act empowers RBI to conduct to inspection of Banks. - **SECTION 35A:** The act empowers RBI to issue directions to Banks in public interest or in the interest of banking policy. - **SECTION 35AA: Power of** **Central Government to authorize Reserve Bank for issuing directions to banking companies to initiate insolvency resolution process.** - **SECTION 35AB: Power of** **Reserve Bank to issue directions in respect of stressed assets.** - **SECTION 35B: Amendments of provisions relating to appointments of Managing Directors, etc., to be subject to previous approval of the Reserve Bank.** - **SECTION 36:** Power of Reserve Bank to caution or prohibit banking companies against entering into any particular transaction or class of transactions, and generally give advice to any banking company in proposals for the amalgamation of such banking companies, give assistance to any banking company by means of the grant of a loan or advance to it. - **SECTION-36AA:** **RBI has the power to remove any managerial or other persons of a Bank.** - **SECTION 36AB:** Power of Reserve Bank to appoint additional Directors. - **SECTION-36ACA. SUPERSESSION OF BOARD OF DIRECTORS IN CERTAIN CASES:** Reserve in consultation with the Central Government, in the public interest or for preventing the affairs of any banking company being conducted in a manner detrimental to the interest of the depositors the Reserve Bank may supersede the Board of Directors of such banking company for a period not exceeding six months which may be extended from time to time, so, however, that the total period shall not exceed twelve months. - **SECTION-44(A): AMALGAMATION OF BANKING COMPANIES:** The scheme of amalgamation to be first approved by General Body by 2/3^rd^ majority and then approval of RBI is required. - **SECTION-45(Y): PRESERVATION OF RECORDS:** Central Government in consultation with RBI can frame rules on preservation of various records, books of accounts etc. - **SECTION-45(Z): Contains rules on return of paid instruments to customers** keeping a true copy with Bank. Customers taking the paid cheques from Banks are required to preserve the same for 8 years. - **SECTION-45ZA & ZB:** Regarding **nomination** facility in **deposit accounts**. - **SECTION-45ZC & ZD: R**egarding **nomination** facility for articles kept in **safe custody**. - **SECTION-45ZE & ZF:** Regarding **nomination** facility in case of **lockers.** - **Section 49A.** Restriction on acceptance of deposits other than by any Bank or RBI withdrawable by cheque - **SECTION:52. POWER OF CENTRAL GOVERNMENT TO MAKE RULES:** The Central Government may, after consultation with the Reserve Bank, make rules and all such rules shall be published in the Official Gazette. **[THE BANKING REGULATION (AMENDMENT) ACT, 2020:]** =============================================================== The Banking Regulation (Amendment) Act, 2020 come into force on the 26th day of June, 2020. This Act shall not apply to\-- (a) a primary agricultural credit society; or (b) a co-operative society whose principal business is providing of long term finance agricultural Credit if such society does not use as part of its name, the words \"bank\", \"banker\" or \"banking\" and does not act as drawee of cheques. **The highlights of the bill are:** - Co-operative banks are exempted from several provisions of the Banking Regulation Act, 1949. The Bill applies some of these provisions to them, making their regulation under the Act similar to that of commercial banks. - Co-operative banks may raise equity or unsecured debt capital from the public subject to prior RBI approval. - RBI may prescribe conditions on and qualifications for employment of Chairman of co-operative banks. RBI may remove a Chairman not meeting 'fit and proper' criteria and appoint a suitable person. It may issue directions to reconstitute the Board of Directors in order to ensure sufficient number of qualified members. - RBI may supersede the Board of Directors of a co-operative bank after consultation with the state government. - The Bill allows RBI to undertake reconstruction or amalgamation of a bank without imposing a moratorium. - The words "multi-State co-operative bank", has been substituted as "co-operative bank". - Co-operative banks cannot employ as Chairman, someone who is insolvent or has been convicted of a crime involving moral turpitude, among other restrictions. It empowers RBI to remove the Chairman if he is not fit and proper and appoint a suitable person if the bank does not do so. The Bill provides that the Board of Directors must have not less than 51% of members who have special knowledge or practical experience in areas such as accountancy, banking, economics or law among others. It allows RBI to direct a bank to reconstitute the Board if it does not conform to the requirements. - Under the BR Act, RBI is empowered to issue an order to supersede the Board of Directors of multi-state co-operative banks for a maximum period of five years and appoint an Administrator. For other co-operative banks, RBI may approach the RCS to supersede the Board. - **Audit and winding up:** Under the Bill, audit of co-operative banks would be conducted on par with scheduled commercial banks. The Bill makes applicable certain provisions relating to winding up and special provisions for speedy disposal of winding up proceedings of banks will now be applicable to co-operative banks. - **Formulation of scheme for reconstruction or amalgamation without moratorium:** Under the BR Act, RBI may, after placing a bank under moratorium, prepare a scheme for reconstruction or amalgamation of the bank. Banks placed under moratorium do not face any legal action for up to six months. Further, banks cannot make any payment or discharge any liabilities during the moratorium. The Bill allows RBI to initiate a scheme for reconstruction or amalgamation of a bank without imposing a moratorium. **[THE BANKING LAWS (AMENDMENT) BILL, 2024]** The Banking Laws (Amendment) Bill, 2024 was introduced in Lok Sabha on August 9, 2024. It amends the: (i) Reserve Bank of India (RBI) Act, 1934, (ii) Banking Regulation Act, 1949, (iii) State Bank of India Act, 1955, (iv) Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, and (v) Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. - **Changes related to CRR:** Under RBI Act, scheduled banks must maintain a certain level of average daily balance with the RBI as cash reserves. This average daily balance is based on the average of the balances held by banks at the closing of business of each day of a fortnight. A fortnight is defined as the period from Saturday to the second following Friday. The Bill changes the definition of fortnight to the period from **1^st^ to 15^th^ and 16^th^ to last day of the month.** It also mandated that, now non-scheduled banks are required to maintain cash reserves. - **Tenure of directors of co-operative banks:** The Banking Regulation Act prohibits the director of a bank (except its chairman or whole-time director) to hold office for more than **eight years** consecutively. The Bill seeks to increase this period to 10 years for co-operative banks. - **Prohibition on common directors in case of co-operative banks:** The Banking Regulation Act prohibits a director on a bank's board to serve on the board of another bank (except in case of directors appointed by RBI). The Bill extends this exemption to the director of a central co-operative bank. This exemption will apply where he is elected to the board of a state cooperative bank in which he is a member. - **Substantial interest in a company:** Under the Banking Regulation Act, substantial interest in a company refers to holding shares of over five lakh rupees or 10% of the paid-up capital of the company, whichever is less. This may be held by an individual, his spouse, or minor child, either individually or collectively. The Bill amends this to increase the threshold to **two crore rupees**. The central government may alter the amount through a notification. - **Nomination:** The Banking Regulation Act allows deposit holders/locker holders to appoint a nominee for their account. The Bill allows the appointment of **up to four nominees** for these purposes. For deposits, such nominees can be appointed either successively or simultaneously while for other purposes they can be appointed successively. In case of simultaneous nominees, the nomination will be effective in a declared proportion. For successive nomination, the nominee who has been named higher in the order of nomination will receive priority. - **Settlement of unclaimed amounts:** As per the State Bank of India Act and the Banking Companies (Acquisition and Transfer of Undertakings) Acts of 1970 and 1980, If the money in the unpaid or unclaimed dividend to an unpaid dividend account remains unpaid or unclaimed for **seven years**, it is transferred to the Investor Education and Protection Fund (IEPF). The Bill widens the ambit of the funds that can be transferred to the IEPF. These include: (i) shares for which dividend has not been paid or claimed for seven consecutive years, and (ii) any interest or redemption amount for bonds which is unpaid/ unclaimed for seven years. Any person whose shares or unclaimed/ unpaid money is transferred to IEPF can claim the transfer or refund. - **Remuneration of auditors:** Presently, the remuneration to the auditors of banks is fixed by the RBI in consultation with GoI. The Bill empowers banks to decide the remuneration of their auditors. **[CHECK YOUR PROGRESS (RBI Act & BR Act)]** 1. As per which act, RBI has been entrusted with the sole right to issue Bank Notes? **(Ans. Section 22 of RBI Act)** 2. What are the Denomination of Bank notes that can be issued by RBI? **(Ans. From Rs.2/- to Rs.10000/-)** 3. As per which act, Bank notes are exempted from Stamp duty? **(Ans. Section 29 of RBI Act)** 4. As per which act no person in India other than RBI and the Central Government shall draw, accept, make or issue any bill of exchange, hundi, promissory note or engagement for the payment of money payable to bearer on demand? **(Ans. Section 31 of RBI Act)** 5. Which act mandates maintenance of CRR by scheduled Commercial Banks with RBI? **(Ans. Section 42(1) of RBI Act.)** 6. Which act mandates maintenance of SLR by scheduled Commercial Banks? **(Ans. Section 24 of BR Act.)** 7. RBI is authorized for Collection and furnishing of credit information based on which act? **(Ans. Section 45A of RBI Act)** 8. The Monetary Policy Committee (MPC) constituted by the Central Government under which act and section? **(Ans. Section 45ZB of RBI Act)** 9. RBI Publishes Bank rate following which act? **(Ans. Section 49 of RBI Act)** 10. The maximum denomination of coins which can be issued is \_\_\_\_\_\_\_\_**(Ans. Rs.1000/-)** 11. What is the RoI on CRR Balance being paid by RBI to Banks? **(Ans. 0%)** 12. No banking company shall hold any immovable property howsoever acquired, except such as is required for its own use, for any period exceeding \_\_\_\_\_\_\_\_ years from the acquisition thereof. **(Ans. 7 Years)** 13. As per Banking Regulation Act, no Director of a banking company, other than its Chairman or whole-time Director, by whatever name called, shall hold office continuously for a period exceeding \_\_\_\_\_\_ years. **(Ans. 8 Years)** 14. As per BR Act, no shareholder in a banking company shall exercise voting rights in excess of \_\_\_\_\_\_ per cent of the total voting rights of all the shareholders of the banking company. Provided that the Reserve Bank may increase, such ceiling to \_\_\_\_\_\_\_ per cent**. (Ans. 10% and 26%)** 15. No person shall, except with the previous approval of the Reserve Bank, acquire shares of a banking company or voting rights therein to hold \_\_\_\_per cent or more of the paid-up share capital of such banking company or entitles him to exercise \_\_\_\_\_\_\_ per cent or more of the voting rights in such banking company**.(Ans. 5% and 5%).** 16. As per which act, no banking company shall grant any loans or advances on the security of its own shares? **(Ans. Section 20, 1.a of BR Act)** 17. What is the full form of DEAF? **(Ans. Depositor Education and Awareness Fund Scheme 2014)** 18. Under which act Central Government can authorize Reserve Bank for issuing directions to banking companies to initiate insolvency resolution process? **(Ans. Section 35 AA of BR Act)** 19. RBI is empowered to issue directions in respect of stressed assets as per which act? **(Ans. Section 35AB of BR Act)** 20. Which act empowers RBI to remove any managerial or other persons of a Bank? **(Ans. Section 36 AA of BR Act)** 21. Guidelines regarding nomination facility in deposit accounts are given in which act? **(Ans. Section 45ZA and ZB of BR Act)** 22. Guidelines regarding nomination facility for articles in safe custody are given in which act? **(Ans. Section 45ZC and ZD of BR Act)** 23. Guidelines regarding nomination facility in case of Lockers are given in which act**? (Ans. Section 45ZE and ZF of BR Act)** **[MULTIPLE CHOICE TYPE QUESTIONS (RBI Act & BR Act)]** 1. **Rs.1/- notes are issued under the signature of whom?** a. Finance Secretary b. Governor of RBI c. Dy. Governor of RBI d. Secretary, Department of Financial Services. 2. **Who constitutes the Monetary Policy Committee?** a. RBI b. Govt of India c. NABARD d. None of the above 3. **The actual CRR balance on any day of should not fall below \_\_\_\_\_% of the required average daily cash balance by any Bank.** a. 80% b. 90% c. 95% d. 75% 4. **The definition of Banking is given in which act?** a. Section 5(b) of BR Act b. Section 5(b) of RBI Act c. Section 7 of BR Act d. Section 18 of BR Act 5. **As per BR Act, the ratio of Authorized, Subscribed and paid up capital of a Banking Company in India must be minimum of\_\_\_\_** a. 3:2:1 b. 5:4:2 c. 4:2:1 d. 7:5:3 6. **As per which act, no banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding thirty per cent of the paid-up share capital of that company or thirty per cent of its own paid-up share capital and reserves, whichever is less?** a. Section 19(2) of BR Act b. Section 19(2) of RBI Act c. Section 17 of BR Act d. Section 21 of BR Act. 7. **As per which act, no banking company shall with approval of RBI grant any loans or advances to any of its directors?** a. Section :20 (1.b) of RBI Act b. Section :20 (1.b) of BR Act c. Section 21 of BR Act d. Section 19(a) of BR Act 8. **RBI issues directions to Banks regarding Selective Credit Control based on authority given in which act?** a. Section 21 of RBI Act b. Section 17 of RBI Act c. Section 35 of RBI Act d. Section 21 of BR Act 9. **Which act empowers RBI to cancel license of Banking Company?** a. Section 22 of BR Act b. Section 24 of BR Act c. Section 22(4) of BR Act d. None of the above 10. **Unclaimed deposits for 10 Years or more to be remitted by Banks to RBI within a period of \_\_\_\_\_\_\_\_ from the expiry of the said period of ten years to be credited to DEAF fund.** a. 1 Month b. 3 Months c. 6 Months d. 1 Year 11. **RBI issues guidelines to Banks on KYC Norms following which act?** a. Section 35A of BR Act b. Section 36 of BR Act c. Section 35 of RBI Act d. Section 23 of BR Act 12. **RBI issued guidelines to Banks regarding not to staple on Bank notes following which act?** a. Section 35A of BR Act b. Section 36 of BR Act c. Section 35 of RBI Act d. Section 23 of BR Act 13. **As per Section 36ACA of BR Act, Reserve Bank may supersede the Board of Directors of a banking company for a period not exceeding \_\_\_\_\_\_\_\_\_ provided that the period of supersession of the Board of Directors may be extended for a further period of \_\_\_\_\_\_\_\_.** a. 3 months and 3 months b. 6 months and 6 months c. 6 months and 3 months d. 12 months and 12 months 14. **Under which act Central Government frames rules for preservation of records?** a. Section 45Z of BR Act b. Section 49 of BR Act c. Section 45Y of BR Act d. None of the above 15. **Banks should return the paid cheques to customers on demand following which act?** a. Section 45 Z of BR Act b. Section 45Z of NI Act c. Section 43 of NI Act d. Section 42 of BR Act **ANSWERS TO MCQs** 1 2 3 4 5 6 7 8 9 10 ---- ---- ---- ---- ---- --- --- --- --- ---- a B B A c a b d c b 11 12 13 14 15 a a b c a [BANKING & FINANCIAL SYSTEM IN INDIA] ------------------------------------------------- Banking and Financial Institutions in India consists of Development Financial Institutions (DFIs), Commercial Banks, Regional Rural Banks (RRBs), Differential Banks and Co-Operative Banks. **[DEVELOPMENT FINANCIAL INSTITUTIONS (DFIs)]** Development financial institutions provide long-term credit for capital-intensive investments spread over a long period and low yielding rates of return, such as urban infrastructure, mining and heavy industry, and irrigation systems. The brief about different DFIs established in India are as follows; **INDUSTRIAL FINANCE CORPORATION OF INDIA (IFCI):** This is the **first DFI** of the country. It was formed in the year **1948** for financing industries. In 1993 it converted itself as a joint stock company. It's a government company with more than 51% shareholding by GoI and having its **headquarter at New Delhi.** **INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA (ICICI):** ICICI was formed in **1955** at the initiative of the World Bank, the Government of India and representatives of Indian industry. The principal objective was to create a development financial institution for providing medium-term and long-term project financing to Indian businesses. In the year 1994, ICICI formed ICICI Bank as its subsidiary and later on it got merged with ICICI Bank through a reverse merger, i.e merger of a holding company with its subsidiary. **INDUSTRIAL DEVELOPMENT BANK OF INDIA (IDBI):** IDBI was formed in the year **1964** as a statutory body. IDBI established a Bank called IDBI Bank as its subsidiary in the year 1994 and in the year 2004, IDBI converted itself into a joint stock company called IDBI Ltd functioned as a DFI and Bank and later in the year 2005, IDBI Bank merged with IDBI Ltd. In the year 2008, IDBI Ltd changed its name to IDBI Bank Ltd and was classified as Other Public Sector Bank till its privatization in recent past. **UNIT TRUST OF INDIA (UTI):** It was established in **1964 as the first mutual fund in India**. It formed a Private Sector Bank later called UTI Bank and consequently changed the name to Axis Bank. **EXPORT IMPORT BANK OF INDIA (EXIM BANK):** Exim Bank was **established under the Export-Import Bank of India Act, 1981 as a purveyor of export credit, mirroring global Export Credit Agencies**. The Bank provides refinance against export/import finance done by Banks. It also provides directed credit for export finance. Exim Bank provides line of credit to different countries/Central Banks for onward finance to importers of their country to import goods/services from India. The Bank also provides assistance to exporters for attending international exhibitions, trade fairs etc. The Headquarter of the Bank is at **Mumbai.** **[NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT (NABARD)]:** National Bank for Agriculture and Rural Development (NABARD) was established on **12 July 1982** by NABARD Act 1981. NABARD is wholly owned by Government of India. NABARD, as a Development Bank, is mandated for providing and regulating credit and other facilities for the promotion and development of agriculture, small scale industries, cottage and village industries, handicrafts and other rural crafts and other allied economic activities in rural areas. Headquarters of NABARD is at **Mumbai**. **REFINANCE ACTIVITY:** NABARD provides refinance to Scheduled Commercial Banks, RRBs, Cooperative Banks etc against their long term credits to agriculture and rural development. NABARD also refinance against short term credit provided for production, marketing and procurement activities by Co-operative Banks and Regional Rural Bank. **RURAL DEVELOPMENT:** NABARD plays a key role in promoting rural finance, promotion of SHGs through various NGOs, etc. It also introduced many popular schemes like Kissan Credit Card, Farmers Club Programme, Self Help Groups etc. It also **supervises the RRBs and Rural Co-operative Banks**. It also provides subsidies for various investment credit schemes on agriculture and rural development. **POTENTIAL LINKED CREDIT PLAN (PLP):** PLP is **a comprehensive documentation of the potential of economic activities in the district**. It gives block-wise physical and financial estimates for the economic activities which can be taken up for development. The estimates are worked out for the total financial outlays and net bank credit. **RURAL INFRASTRUCTURE DEVELOPMENT FUND (RIDF): Government of India created the RIDF in NABARD in 1995-96, with an initial corpus of Rs.2,000 crore. Regular contribution to this fund comes from commercial Banks who fail to achieve targets for Priority Sector lending,** **NATIONAL HOUSING BANK (NHB): National Housing Bank, is the apex regulatory body for overall regulation and licensing of housing finance companies in India. It is under the jurisdiction of Ministry of Finance, Government of India. It was set up on 9 July 1988 under the National Housing Bank Act, 1987. The Bank is head quartered at New Delhi.** **SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI): Small Industries Development Bank of India (SIDBI) set up on 2nd April 1990 under an Act of Indian Parliament, acts as the Principal Financial Institution for Promotion, Financing and Development of the Micro, Small and Medium Enterprise (MSME) sector as well as for co-ordination of functions of institutions engaged in similar activities. It provides refinance to Banks and MFIs against their finance to MSME sector and also provides direct finance to MSMEs. Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to provide guarantee cover to Banks and NBFCs to extend finance to MSMEs. Headquarter of SIDBI is at Lucknow (UP).** **INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED (IDFC): IDFC was incorporated on 30 January 1997 with its registered office in Chennai and started operations on 9 June 1997 with an objective to provide finance for infrastructure projects. It was also involved in Takeout Finance where commercial Banks provide finance to infrastructure projects and with an arrangement with IDFC, the outstanding to be taken over by IDFC after some period of time say 5-7 years.** **In 2014, the Reserve Bank of India granted an in-principle approval to IDFC Limited to set up a new bank in the private sector. Following this, the IDFC Limited divested its infrastructure finance assets and liabilities to a new entity - IDFC Bank- through demerger. Thus, IDFC Bank was created by demerger of the infrastructure, lending business of IDFC to IDFC Bank in 2015.** **An aspiration for accelerated and sustained growth paved the way for the merger of erstwhile IDFC Bank Ltd and erstwhile Capital First Ltd on December 18, 2018. Thus, a new bank with a new DNA was born -- IDFC FIRST Bank.** **INDIA INFRASTRUCTURE FINANCE COMPANY LTD. (IIFC): IIFCL is a wholly-owned Government of India company set up in 2006 (Headquarter at Mumbai) to provide long-term financial assistance to viable infrastructure projects through the Scheme for Financing Viable Infrastructure Projects through a Special Purpose Vehicle called India Infrastructure Finance Company Ltd (IIFCL), broadly referred to as SIFTI. IIFCL has been registered as a NBFC-ND-IFC with the Reserve Bank of India (RBI) since September 2013.** **MUDRA BANK: MUDRA, stands for Micro Units Development & Refinance Agency Ltd., is a financial institution set up by Government of India for development and refinancing of micro units enterprises (HQ at Mumbai).** **The Union Budget for FY 2015-16, announced the formation of MUDRA Bank. Accordingly MUDRA was registered as a Company in March 2015 under the Companies Act 2013 and as a Non-Banking Finance Institution with the RBI on 07 April 2015. Pradhan Mantri MUDRA Yojana was launched by the Hon\'ble Prime Minister Shri Narendra Modi on 08 April 2015.** **NATIONAL BANK FOR FINANCING INFRASTRUCTURE AND DEVELOPMENT (NaBFID): The National Bank for Financing Infrastructure and Development (NaBFID) Act, 2021 came into force w.e.f. April 19, 2021. Accordingly, NaBFID has been set up as a Development Financial Institution (DFI) to support the development of long-term infrastructure financing in India. NaBFID shall be regulated and supervised as an All India Financial Institution (AIFI) by the Reserve Bank under Sections 45L and 45N of the Reserve Bank of India Act, 1934. It shall be the fifth AIFI after EXIM Bank, NABARD, NHB and SIDBI.** **NBFID will be set up as a corporate body with authorised share capital of one lakh crore rupees. Shares of NBFID may be held by: (i) central government, (ii) multilateral institutions, (iii) sovereign wealth funds, (iv) pension funds, (v) insurers, (vi) financial institutions, (vii) banks, and (viii) any other institution prescribed by the central government. Initially, the central government will own 100% shares of the institution which may subsequently be reduced up to 26%.Headquarter of NaBFID is at Mumbai.** **NATIONAL ASSET RECONSTRUCTION COMPANY LIMITED (NARCL): NARCL (HQ at Mumbai), the proposed bad bank is set-up for taking over stressed assets of lenders, was announced in the Budget for 2021-22. It is registered as an Asset Reconstruction Company with RBI. NARCL is intended to resolve stressed loan assets above ₹500 crore each amounting to about ₹ 2 lakh crore. In phase I, fully provisioned assets of about Rs. 90,000 crores are expected to be transferred to NARCL, while the remaining assets with lower provisions would be transferred in phase II. It intends to acquire these through 15% Cash and 85% in Security Receipts (SRs). Central Government guarantee of Rs.30,600 crore to back Security Receipts issued by National Asset Reconstruction Company Limited (NARCL) for acquiring stressed loan assets was approved by Union Cabinet.** **[BANKING SYSTEM IN INDIA]** **The history of Commercial Banking in India can be traced back to Bank of Hindustan, the first Bank to be formed in India in 1770 and went into liquidation in 1829. The Banking system in India consists of scheduled and non-scheduled Banks. A scheduled Bank is one which is included in the second schedule of RBI Act. The structures of Banking System in India are as follows.** **[PUBLIC SECTOR BANKS]: These are the Banks where the Govt. of India holds minimum 51% of total share capital of the Bank. It includes State Bank of India and the nationalized Banks. Among the public sector Banks, Allahabad Bank was the oldest which came into existence in the year 1866.** **STATE BANK OF INDIA: In the year 1921, the three Presidency Banks (Bank of Calcutta, Bank of Bombay and Bank of Madras) were amalgamated to form the Imperial Bank of India. In the year 1955, State Bank of India was formed through SBI Act 1955 and took over the Imperial Bank of India. SBI is the first Bank to be formed in Public Sector. It had 6 associate Banks which merged into SBI in recent past.** **NATIONALIZED BANKS: On 19^th^ July 1969, GoI passed an ordinance and took over 14 major private sector Banks having deposits of Rs.50.00 crores and above. This ordinance was replaced by the Banking Companies (Acquisition and Transfer of Undertaking) Act 1970. These 14 Banks were, Allahabad Bank, United Bank of India, UCO Bank, Union Bank of India, Bank of India, Central Bank of India, Dena Bank, Indian Bank, Indian Overseas Bank, Punjab National Bank, Canara Bank, Syndicate Bank, Bank of Baroda and Bank of Maharastra. On 15^th^ April 1980, GoI took over 6 more private sector Banks having deposit of more than Rs.200.00 crores as per the Banking Companies (Acquisition and Transfer of Undertaking) Act 1980. These Banks were, Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab & Sind Bank and Vijaya Bank.

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