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{Economy} Banking - Terminology, Organisations, Acts

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  • Cash Reserve Ratio (CRR) - A Cash Reserve Ration, also known as the Reserve Requirement is a regulation set by Central bank which dictates the minimum amount that a commercial bank (in some cases, any bank) must be held to customer notes and deposits. In simpler terms this is the amount the bank must surrender with/to the Central (governing) Bank. It is a percentage of bank reserves to deposits and notes. Cash reserve ratio is also known as liquidity ratio or cash asset ratio and is utilized as a tool (sometimes) in monetary policy and as a tool to influence the country’s interest rates, borrowing and economy.
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  • Repo Rate - The repo rate also known as Repurchase Agreement is the rate at which the banks borrow from the Central Bank. It becomes typical for the banks to borrow from the central bank if there is an increase in the repo rate. Generally used to control the amount of money in the market, repo rate is usally a short-term measure which is used for short-term loans.
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    • Reverse Repo - The Federal Open Market Committee adds reserves to the banking system and withdraws them after a specified period of time. So, reverse repo drains reserves initially and adds them back later. Hence, it can be used as a tool for stabilizing interest rates with the Federal Reserve using it in the past to adjust the Federal funds rate to match the target rate.
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      • Statutory Liquidity Ratio (SLR) - SLR stands for Statutory Liquidity Ratio. Apart from CRR, every bank in India is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR).
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        • 'Liquidity Adjustment Facility'A tool used in monetary policy that allows banks to borrow money through repurchase agreements. This arrangement allows banks to respond to liquidity pressures and is used by governments to assure basic stability in the financial markets.Liquidity adjustment facilities are used to aid banks in resolving any short-term cash shortages during periods of economic instability or from any other form of stress caused by forces beyond their control. Various banks will use eligible securities as collateral through a repo agreement and will use the funds to alleviate their short-term requirements, thus remaining stable.
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          • IMF - The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. In April 2012, Republic of South Sudan joined the IMF, becoming the institution's 188th member. 
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            • 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.
            • The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the Government of India. The Reserve Bank's affairs are governed by a central board of directors. The board is appointed by the Government of India in keeping with the Reserve Bank of India Act.

              The Reserve Bank of India performs financial supervision function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.

              Main Functions

              Monetary Authority:

              Formulates, implements and monitors the monetary policy.
              Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.

              Regulator and supervisor of the financial system:

              Prescribes broad parameters of banking operations within which the country's banking and financial system functions.
              Objective: maintain public confidence in the system, protect depositors' interest and provide cost-effective banking services to the public.

              Manager of Foreign Exchange

              Manages the Foreign Exchange Management Act, 1999.
              Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
              Issuer of currency:

              Issues and exchanges or destroys currency and coins not fit for circulation.

              Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.

              Developmental role

              Performs a wide range of promotional functions to support national objectives.

              Related Functions

              Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.
              Banker to banks: maintains banking accounts of all scheduled banks.
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              Offices: 
              Has 19 regional offices, most of them in state capitals and 9 Sub-offices.
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              Being essentially an export promotion organization, it functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community.

              ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The present paid-up capital of the company is Rs.800 crores and authorized capital Rs.1000 crores.
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              • AMFI (Association of Mutual Funds in India), the apex body of all the registered Asset Management Companies, was incorporated on August 22, 1995, as a non-profit organisation. As of now, all the 45 Asset Management Companies that are registered with SEBI, are its members. AMFI functions under the supervision and guidance of a Board of Directors 
                Objectives:

                • To define and maintain high professional and ethical standards in all areas of operation of mutual fund industry 
                • To recommend and promote best business practices and code of conduct to be followed by members and others engaged in the activities of mutual fund and asset management including agencies connected or involved in the field of capital markets and financial services.
                • To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all matters concerning the mutual fund industry.
                • To represent to the Government, Reserve Bank of India and other bodies on all matters relating to the Mutual Fund Industry.
                • To develop a cadre of well trained Agent distributors and to implement a programme of training and certification for all intermediaries and other engaged in the industry.
                • To undertake nation wide investor awareness programme so as to promote proper understanding of the concept and working of mutual funds.
                • To disseminate information on Mutual Fund Industry and to undertake studies and research directly and/or in association with other bodies.
                • Committee on Best Practices
                • Committee on Valuation
                • Committee on Operations and Compliance
                • Committee on Registration of 
                • AMFI Certified Distributors
                • Committee on Customer Engagement
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              • NABARD (National Bank for Agriculture and RuralDevelopment) is set up as an apex Development Bank with a mandate for facilitating credit flow for promotion and development of agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural development and secure prosperity of rural areas. 
              In discharging its role as a facilitator for rural prosperity NABARD is entrusted with
              1. Providing refinance to lending institutions in rural areas
              2. Bringing about or promoting institutional development and
              3. Evaluating, monitoring and inspecting the client banks
                     
                    Besides this pivotal role, NABARD also:       
              • Acts as a coordinator in the operations of rural credit institutions
              • Extends assistance to the government, the Reserve Bank of India and other organizations in matters relating to rural development
              • Offers training and research facilities for banks, cooperatives and organizations working in the field of rural development
              • Helps the state governments in reaching their targets of providing assistance to eligible institutions in agriculture and rural development
              • Acts as regulator for cooperative banks and RRBs

              Role and Functions
              • NABARD is an apex institution accredited with all matters concerning policy, planning and operations in the field of credit for agriculture and other economic activities in rural areas.  
              • It is an apex refinancing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas
              • It takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.
              • It co-ordinates the rural financing activities of all the institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India and other national level institutions concerned with policy formulation.
              • It prepares, on annual basis, rural credit plans for all districts in the country; these plans form the base for annual credit plans of all rural financial institutions
              • It undertakes monitoring and evaluation of projects refinanced by it.
              • It promotes research in the fields of rural banking, agriculture and rural development.
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              • The Indian Banks' Association (IBA) was formed on the 26th September 1946 with 22 members. As on 31st March 2012 IBA has 173 members.
                The members comprise of

                -    Public Sector Banks
                -    Private Sector Banks
                -    Foreign Banks having offices in India and 
                -    Urban Co-operative Banks.


              • To promote and develop in India sound and progressive banking principles, practices and conventions and to contribute to the developments of creative banking.
              • To render assistance and to provide various common services to Members and to the banking industry.
              • To develop and implement new ideas and innovations in banking services, operations and procedures.
              • To organize co-ordination and co-operation on procedural, legal, technical, administrative or professional problems and practices of banks and the banking industry.
              • To initiate advance planning for introduction of new systems or services in the banking industry.
              • To collect, classify and circulate statistical and other information on the structure and working of the banking system.
              • To act as a clearing house for dissemination and exchange of statistical data, information, views and opinions on the systems, procedures and practices, and organization and methods of banks and on the structure, working and operations of the banking system.
              • To explore, plan, co-ordinate and organize detailed surveys on banking, business, resources, personnel and management development programmes of banks and the banking industry.
              • To pool together talents and resources available with members and to organize exchange of expertise and experiences of members for simplifying forms and procedures, for reducing cost of operations, for increasing efficiency and productivity and for such other common purposes as may be necessary or relevant to banks and the banking industry.
              • To organize exchange of credit information and opinions, export information or information and views on any other aspects of interest to banks or the banking industry.
              • To promote education and knowledge of the law and practice of banking.
              • To issue periodical newsletters, bulletins or magazines and publish books, pamphlets or other literature on matters of interest to members and to the banking industry.
              • To project a good public image of banking as a service industry and develop good public relations.
              • To promote harmonious personnel relations in banking industry and to devise ways and means for involving banking personnel in the endeavours of banks for growth and development of banking and the economy of the country.
              • To organize, promote and afford facilities for indoor and outdoor games, any form of sports, recreation, sports competitions, events, cultural activities, social activities, fine arts, social meetings, entertainments and to organize meetings for the above purposes and to provide for purposes by purchasing, acquiring, taking on lease, own, hire or otherwise playing fields, grounds, buildings, pavilions and other facilities.
              • To give financial assistance to individuals or bodies, from out of its own funds, or by collection from its members, or from any other source, and for the purpose of such collection, to accept grants, donations, etc. in cash or kind from Government, its members, other organizations, members of the public, etc. and to collect subscriptions, membership and other fees and to levy fees or charges for the use of the facilities and to raise funds in any manner to strengthen the financial position of the Association, from time to time, for the purpose of providing education, training and facilities for imparting basic, advance knowledge and techniques in games, sports, cultural activities, social activities, fine arts, etc. and to give donations, technical and other assistance, sports equipments, sports facilities and expert guidance to organizers for this purpose whether its members or not and to conduct, organize, participate or to associate itself in State-Level, Nation, International Tournaments and competitions pertaining to sports, cultural activities, social activities, fine arts, etc., held in or outside India.
              • To found, establish, develop and finance a separate body for the promotion of objects contained in Clauses n, nn, nnn, and generally, and to register it as a Society and/or Public Trust, or a Company under the provisions or relevant Acts, as the case may be.
              • To maintain continuous communications with the representatives of bank employees, to conduct talks, discussions, and negotiations with them and to arrive at Settlements.
              • To provide assistance and guidance to members in interpretation and implementation of Awards, Settlements, etc.
              • To assist, advise and guide all members and the smaller members in particular on all their needs, difficulties and problems of growth, development and working.
              • To act as an agent or a representative of a member or members in respect of matters connected with any of their operations working or administration.
              • To maintain close co-ordination and liaison with Reserve Bank of India, All Financial Institutions, Chambers of Commerce, Organisations of Banking Industry, Management or Educational Institutes, Universities and such other Organisations for realizing the subject and purposes of the Association. 
              • Generally to do all and any other thing that may be necessary or relevant for the realization of the objects and purposes of the Association directly or indirectly. 
              • To carry on publicity for the purpose of educating public opinion with regard to the scope, importance and activities of the banking industry, for creative growth and development. 
              • To do all and such other things as are incidental or conductive to the attainment of any or all of the above objects
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              • SEBI - The Securities and Exchange Board of India was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.
                • An Act to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto. 
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              • Equated Monthly Installment - EMI

              A fixed payment amount made by a borrower to a lender at a specified date each calendar month. Equated monthly installments are used to pay off both interest and principal each month, so that over a specified number of years, the loan is paid off in full. With most common types of loans, such as real estate mortgages, the borrower makes fixed periodic payments to the lender over the course of several years with the goal of retiring the loan. EMIs differ from variable payment plans, in which the borrower is able to pay higher payment amounts at his or her discretion. In EMI plans, borrowers are usually only allowed one fixed payment amount each month. The benefit of an EMI for borrowers is that they know precisely how much money they will need to pay toward their loan each month, making the personal budgeting process easier.
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              • Bank Rate – The interest rate at which a nation's central bank lends money to domestic banks.Often these loans are very short in duration. Managing the bank rate is a preferred method by which central banks can regulate the level of economic activity. Lower bank rates can help to expand the economy, when unemployment is high, by lowering the cost of funds for borrowers. Conversely, higher bank rates help to reign in the economy, when inflation is higher than desired. The bank rate can also refer to the interest rate which banks charge customers on loans.
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              • Online BankingThe performance of banking activities via the Internet. Online banking is also known as "Internet banking" or "Web banking." A good online bank will offer customers just about every service traditionally available through a local branch, including accepting deposits (which is done online or through the mail), paying interest on savings and providing an online bill payment system.
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                • No frill account is a type of bank account, with low / Zero balance requirement with extra-features removed.RBI came up with this No-frill concept, because poor people cannot open regular bank accounts having requirements like Rs.5000/- minimum balance etc.So there are no frill accounts for them. So that poor people can open bank accounts and take loans, that’ll save them from the 36% interest rate charged by the evil money lenders.
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                • Exchange Earners' Foreign Currency Account (EEFC) is an account maintained in foreign currency with an Authorised Dealer i.e. a bank dealing in foreign exchange. It is a facility provided to the foreign exchange earners, including exporters, to credit 100 per cent of their foreign exchange earnings to the account, so that the account holders do not have to convert foreign exchange into Rupees and vice versa, thereby minimizing the transaction costs.All categories of foreign exchange earners, such as individuals, companies, etc. who are resident in India, may open EEFC accounts.An EEFC account can be held only in the form of a current account. No interest is payable on EEFC accounts.
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