Chapter 01 - RBI

Prelims Syllabus

Introduction

Every Year at Least 1 Question is asked
PYQP
- Sample Question from Chapter
  
  Objective of RBI → Answer 1 : D
  
  Structure of RBI → Answer 2 :
  
  Role & Responsibility of RBI → Answer 3
  
  Expected Question can be - Role of RBI in
  
  Debt Manager to the Govt
  
  Banker to the Govt
  
  Printing Notes for the Govt
- Repetition of Question in Prelims

Apex and Commercial Banks
- Comparison between Central and Commercial Bank
  
  | Themes | Central Bank | Commercial Bank | | --- | --- | --- | | Nature | Apex Bank | Normal Bank | | Formation | Statutory Body by RBI Act 1934 | 1. Statutory SBI Act 1955 RRB Act 1976 2. Non Statutory - Companies ICICI, Axis, HDFC, IDFC etc
  
  | | Objective | 1. Ensure Growth 2. Manages Demand of Economy - Price Stabilisation High Demand - Suck Low Demand - Inject | Profit Maximisation | | Ownership | Govt Owned | 1. Govt Owned (Pub Sec Bank) PNB, SBI, IOB 2. Pvt Owned ICICI, HDFC | | Roles | 1. More Money - Suck Out Money 2. Less Money - Inject Money | 1. Open Account 2. Minimum Balance in Savings Account 3. Use Bank Account to Accept Payment 4. Use Bank Account to Make Payment 5. Use Bank to Take Loans | | Relationship | Acts as Banker to the Banks Acts as Banker to Govt | Acts as Banker to Public & Enterprises | | Examples | 1. First Ever Central Bank of World - Riksbank (Sweden) 2. Bank of England 3. US Fed Bank 4. RBI 1935 | |
- How a Central Bank is Established
  1. Central Bank is a Statutory Body
  2. Here the Act is RBI Act, 1934
- How is Commercial Bank Established
  1. Commercial Banks may be Statutory of Non Statutory
    1. Statutory
      1. SBI - SBI Act 1955
      2. RRB - RRB Act 1976
        
        Regional Rural Banks
        
        With Words Gramin
    2. Non Statutory Bank - Registered as Companies
      1. ICICI, Axis, HDFC etc
- Demand Supply Concept
  1. Demand and Supply Should Match
  2. Mismatch
    1. Inflation → D>S
      1. Control Method
        
        Increase Supply - Not Responsibility of RBI, Responsibility of Govt
        
        Reduce Demand - Responsibility of RBI
        
        Suck Out Money from Economy - Demand Decreases
    2. Recession → D<S
      1. Control Method
        
        Increase Demand - By RBI
        
        Inject Money into the Economy
        
        Lessen the Supply - By Govt
- Functions of RBI
  - 1. Lay Down Criteria of Bank coming into existence
  - 1. Lay Down Functions of Company
  - 1. Primary Focus of RBI shall be on Controlling Inflation over Promoting Growth
  - 1. Acts as a Banker to the Banks
    2. Normal Persons Bank - HDFC
      1. Open Account
      2. Minimum Balance in Savings Account
      3. Use Bank Account to Accept Payment
      4. Use Bank Account to Make Payment
      5. Use Bank to Take Loans
    3. HDFC’s Banks is RBI
      1. Open Account in RBI
      2. Minimum Balance in Account
      3. Use RBI Account to Accept Payment
      4. Use RBI Account to Make Payment
      5. Use RBI to Take Loans
  - 1. RBI is a Banker to the Government (Central/State)
    2. Open Account in RBI
    3. Minimum Balance in Account
    4. Use RBI Account to Accept Payment
    5. Use RBI Account to Make Payment
    6. Use RBI to Take Loans
- Amendment of RBI Act 2016
  
  Amendment took Place in 2016
- Summary of Difference Between Central and Commercial Bank
Evolution & Establishment of RBI
- 1770’s → Bank of Hindustan
  1. First Kind of Modern Bank
  2. There was No Hindustani Element
  3. Setup by Private Traders of East India Company
  4. It was a Private Owned Bank
  5. This Bank Started printing Notes and it was brought in circulation
  6. Closed its operations in 1830’s
- 1806 → Presidency Banks
  1. Examples
    1. Presidency Banks of Kolkata
    2. Presidency Banks of Madras
    3. Presidency Banks of Bombay
  2. They were Partially owned by British Government
  3. They also Started printing Notes
  4. Each Banks Note was used in its own Presidency only
- 1861 → Paper Currency Act & CoC
  1. Under this Act, British Government took over monopoly of printing notes
  2. Henceforth only British Govt could print notes
  3. Controller of Currency Agency
    1. Completely Govt Owned Agency
    2. Agency under Paper Currency Act 1861
  4. This was just after Revolt of 1857. More than being a economic necessity it was a Political necessity
- 1921 → Imperial Bank of India (IBI)
  1. 3 Presidency Banks were merged to form Imperial Bank of India
  2. Its Two Fold Role was
    1. Acting as Commercial Bank to Public
    2. Acting as Banker to Govt
- 1921 → CoC & IBI Function
  1. Controller of Currency - Printing Notes
  2. Imperial Bank of India - Lending Loans to Govt
- 1924 → Hilton Young Committee
  1. to advice how govt can manage printing of notes in India
  2. Recommendations
    - 1. Set up RBI as a Statutory Body
      2. For it to be Independent & Autonomus Authority
      3. No Scope for Political Interference
      4. RBI was supposed to do 2 things
        
        Print Notes
        
        Be Banker to Govt
      5. For this it needed Independence
    - 1. Set Up RBI as Pvt Shareholders Bank
      2. Imperial Bank
        
        Commercial Nature
        
        Banker to Bank Nature - Interest from giving loans to Govt
        
        with RBI, IBI wouldn’t earn this profit
        
        IBI would be in Loss
      3. Hence to compensate for this loss
      4. Whoever, is Owner of IBI can be the owner of RBI
      5. At that time one Share of RBI was Rs 100
    - Anomaly : Statutory body which is a privately owned
    - 1. Minimum Capital of Rupees 5 Crore
- 1934 → RBI Act
  
  Preamble of RBI Act 1934
- 1935 → 1st April 1935 Established
- 1949 → RBI Nationalised
- Summary
- Mind Map
Accounting Year of RBI
1. Earlier - July to June
2. Now - April to March
3. Committee Recommendation of : Bimal Jalan Committee
Acts that Empower RBI
1. RBI Act, 1934
  
  Establishing Act
2. Banking Regulations Act, 1949
  
  Power to Regulate Banks
3. Foreign Exchange Management Act, 1999
  
  Power to Intervene in foreign market
4. Government Securities Act, 2006
  
  Power of RBI to Manage Govt Securities is by this Act
5. Payments & Settlements Act, 2007
  
  Power to Regulate Entities like Phone Pe etc
Logo & Share of RBI

RBI is a different entity - Instead of Lion Tiger was used

It is Under Govt - Used the Same Logo
Structure of RBI
- 1. Establishment : Statutory Body by RBI Act 1934
- 1. Mandate : is that of being a Supreme Authority
- 1. Members : Composition is of 21 Members
  - Official Directors
    1. 1 Member → Governor of RBI
      1. First Governor of RBI - Sir Osborn Smith
      2. First Indian to be the Governor of RBI - C D Deshmukh
      3. Only RBI Governor who became PM of India - Dr Manmohan Singh
      4. Now - Mr Shaktikanta Das
      5. On One Rupee Note : There is Signature of Finance Secretary
    2. 4 Members → 4 Deputy Governors of RBI - Incharge of Each Department
  - Non Official Directors
    1. 4 Members - Heads of Regional HQ of RBI
      
      Basic HQ is in Mumbai ; Initially it was in Calcutta
    2. 10 Members - Independent Directors - Nominated by Govt
    3. 2 Ex Officio Govt Representatives
      1. Secretary - Dept of Financial Services
      2. Secretary - Dept of Economic Affairs
- 1. Process : Appointment of Governors and Deputy Governors
  2. RBI Act 1934 does not lay down any qualification for someone being a RBI governor
  3. FSRASC - Financial Sector Regulatory Appointment Search Committee
    
    Headed by Cabinet Secretary
    
    Calls for Application, Interview
    
    They create a Panel of Names
  4. Panel of Names is sent to → Cabinet Committee on Appointments → out of those 2 to 3 → 1 will be appointed as an RBI Governor
  5. People appointed are Eligible for Re Appoint
- 1. Tenure : Official & Non Official Directors
  2. Official Directors : Max 5 Years
    1. Initial 3 Years
    2. Based on Performance extension of 2 Years
    3. Examples
      1. Raghuram Rajan - Didn’t Get Extension
      2. Urjit Patel - Reisgned
  3. Non Official Directors
    1. Max Duration of 4 Years
- 1. BFS : Board for Financial Supervision
  2. Kind of Committee under Central Board of RBI
  3. Headed by RBI Governor
- 1. BPSS : Board for Regulation of Payment and Settlement System
  2. Headed by RBI Governor
  3. by Payment & Settlement Act of 2007
- Central Board of RBI Summarised

Functions / Roles of RBI Summarised
1. Issue of Bank Notes
- Bank Notes - Rs 2 to Rs 10,000
  - What are Bank Notes
  - Issue of Bank Notes
    - Class Slide
    - Types of Notes
      1. Bank Notes (Legally) printed by RBI
      2. Currency Notes (Legally) printed by Govt (Rs 1 Notes)
    - Agencies in RBI
      1. Issue Department - CoC - Print Notes
      2. Banker Department - IBI - Banker
    - Design of Notes
      1. Recommendation by Central Board of RBI
      2. Final Authority by Government
      - Details of Notes
    - Distribution of Notes
      1. Currency Chest across India
      2. In Every District, One Big Branch should be designated as Currency Chests of that District
    - Denomination of Notes
      1. Value of Notes is Denomination
      2. Minimum Denomination according to RBI Act 1934 - Rs 2
      3. Maximum Denomination according to RBI Act 1934 - Rs 10,000
        
        Currently we don’t have any 10,000 Rs notes in circulations
        
        Bur prior to this RBI has printed 10,000 Rs Notes Twice
        
        Just After Independence's
        
        During 1940
        
        After Printing, these high value notes were demonetised
    - Trust on Note
      
      Reason why people accept notes Signed by Governor
      
      Universal Acceptability by Means of Trust
      
      Like Cigarette in Shawshank Redemption
      
      Non Acceptance of Rs 5 & 10 Coins
    - Legal Tender
      
      Obligation on Person to compulsorily accept money for settlement of Transactions
      
      You cannot reject the transaction Because its a Legal Tender
      
      There are Two Types of Legal Tenders
      1. Limited Legal Tender - Prior 2017
      2. Unlimited Legal Tender - Post 2017
      Promise
    - Difference Between Limited and Unlimited Legal Tender
      
      | Theme | Unlimited | Limited | | --- | --- | --- | | Acceptance Limit | No Matter How Much I Pay you in Cash, You Must Accept it, You cannot reject cash | There is a limit on acceptance of Bank Notes for settlement of Transactions | | Example | Car of 10 Lac being bought
      
      The entire can be purchased in form of Cash | There will be a limit of Rs 2 Lac for Cash Transactions | | In Action By | Since Independence by Laws | Finance Act 2017 | | Limit | No Limit as Such | Limit of Rs 2 Lac Remaining 8 Lacs by Other Means | | What if Limit is Exceeded | No Limit as Such | Extra Cash has to be paid as a Penalty by the Person who has accepted the Cash |
    - Printing of Bank Notes
      1. Printing Notes by : Issue Dept of RBI
      2. Criteria : According to RBI Act, 1934
        
        Minimum Reserve System
        
        Minimum Reserves of Rs 200 Crores
        
        115 Crore Worth - in form of Gold
        
        85 Crore Worth - FCA (Foreign Currency Assets)
        
        Foreign Currency like $ & Euro
        
        Bonds Issued by Foreign Govt
        
        Example : US Treasury Bonds
        
        Bonds are issued by
        
        Corporates
        
        Govt
        
        Features of Sample Bond
        
        Face Value Rs 100 Crores
        
        Maturity Period : 10 Years
        
        Rate : 5%
        
        Why RBI Will Invest
        
        has Universal Acceptability
        
        RBI will earn Interest
        
        Over All Asset should be same as their Liability
        
        What is the Concept of Assets and Liability
        
        Assets : Ownership Exists
        
        Liability : Doesn’t Belongs to Me
        
        Ones Liability is Another Mans Asset
        
        What are the Assets for RBI ?
        
        Gold
        
        FCA - Foreign Currency Assets
        
        G-Sec - Government Securities
        
        Coins and One Rupee Notes
        
        How is Value of Asset like Gold whose cost varies is kept in Sync ?
        
        Gold Value - Increased
        
        Asset - 10 GM Gold - Rs 3000
        
        Asset - 10 GM Gold - Rs 6000
        
        Liability - Rs 3000 - Notes in Circulation
        
        What will RBI Do
        
        Sell Gold
        
        Give to Banking Department
        
        Gold Value - Decreased
        
        Asset 10 GM - Rs 3000
        
        Asset 10 GM - Rs 1500
        
        Liability 10 GM - Rs 3000
        
        What will RBI do
        
        Buy Gold
        
        Take Money out of Transaction
        
        What is the Liability for RBI ?
        
        Note Pe Likha Hua Waada = RBI ka Promise = RBI ki Liability hai
        
        Can RBI have more Assets than Liability
        
        No It cannot, It has to dynamically match
    - Currency in Circulations by RBI
      
      30 Lac Crores
      
      Hence Assets worth 30 Lac Crores is with RBI
    - What Happens When you take Rs 500 to RBI Governor
      - RBI Has Asset
        
        Case 1 : Assets worth Rs 500
        
        Case 2 :
        
        You Cannot Replace one Promise by Another Promise
        
        500 - 100*5
        
        100 - 10*10
      - RBI Has No Asset
        
        This is Guaranteed by Central Government in the form of Coins and Rs 1 Notes
  - Concept of Seignorage
    - Defintion
      
      Seignorage is Profit Earned by RBI’s Issue Dept on Account of Printing Notes
    - Criteria of Printing Notes
      1. Minimum Reserve System of Rs 200 Crores
      2. Asset = Liabilities
    - Concept
      1. RBI has to not pay Interest to anyone in lieu of its promise on notes which is its Liability
      2. RBI Earns Profits from its Assets
        
        Average Profit of RBI is Rs 1 Lac Crores
        
        Profit from
        
        Selling of Gold
        
        Interests from FCA and G Sec
      3. Formula
        
        Now Net Money = Earning - Expenses
        
        Expenses = Interests + Printing of Notes Cost
        
        Seignorage = Earning - (Interests + Printing of Notes Cost)
      4. According to RBI - This Increases Seignorage
        
        Introduction of CBDC
        
        Promotion of Cashless Economy
      5. According to RBI - This Decreases Seignorage
        
        Demonetisation
        
        Also think About the Cost, which was used in printing earlier
        
        Also the cost to print new Notes
    - Mind Map
    - What Happens to Net Profit (Seignorage) of RBI ?
      1. Added to Reserves of RBI
      2. Dividend to Government acc to Sec 47 of RBI Act 1934
    - Notes
      
      Seignorage is the Net Profit of Issue Department
  - Assets & Liabilities of Banking Dept of RBI - Detailed
    
    NOTE : Assets of Banking & Issue Department are different. Do Alag Alag Bhai ki Property ki Tarah
    
    | Assets | Liabilities | | --- | --- | | Gold | Deposit of Centre with RBI | | Foreign Security | Deposit of States with RBI | | G Secs | Deposit of Bank with RBI | | Currency Notes are an asset for Banking Dept because they can be used by banking department for giving loans | | | Loans to Centre & States | | | Loans to Banks | |
  - Assets & Liabilities of Banking Dept of RBI - Summarised
  - Assets & Liabilities of Issue Dept of RBI - Summarised
    
    Gold, FCA, G Sec, Coins & Re 1 Notes
  - Designs of all Bank Notes
- Currency Notes - Rs 1
  - Face Value
  - Why Govt Print 1 Rs Notes
    1. RBI is Not Allowed to Print
    2. It is a Form of RBI Guarantee
  - Is there any limit on Central Government to Print 1 Rs Note
    
    No there is No Limit and There is No Pre Requirement to Print Rs 1 Notes
  - Mind Map
  - Point to Note
    
    The Limited Legal Tender of Limit of Rs 1000 in Denomination of Rs 1 Notes
    
    Upto 1000 Rs - Compulsorily You have to accept
    
    Above Rs 1000 - Its Upto You, Ig you want to Accept it or not
- Difference between Bank Notes & Currency Notes
- Coins
  - Mind Map
  - Denomination
    1. No Min Denomination
    2. Max Denomination - Rs 1000
      
      Commemorative Coin - For Example for Mahabalipuram
      
      It is not put into Circulation
      
      It is sold on Auction by SPMCIL
- Difference Between Bank Notes, Currency Notes & Coins
1. Bankers to the Government
- Functions
  
  By RBI Itself
  1. RBI will Open Account of Centre & States
  2. C&S will have to Maintain Minimum Balance with RBI
  3. RBI will Give Loans to Govt
  By Agency Bank appointed by RBI
  1. RBI will Help Accept Payments - Tax etc
  2. RBI will Help Make Payments - Salary of Govt Officials
- Right & Obligation
  - Centre
    1. RBI Cannot Say No to be the Banker
    2. Centre has a Obligation to make RBI as its Banker
  - State
    1. RBI Can Say No to be the Banker
    2. State doesn’t have a Obligation to make RBI as its Banker
  - Sikkim Bank is NOT RBI
    1. Sikkim Special Act, 1975 - Banking Regulations Act 1949 doesn’t apply to Sikkim
    2. State Bank of Sikkim is State Owned Bank of Sikkim
    3. State Bank of Sikkim was not under control of RBI until 2019/20
- Delegation of Functions
  
  Some of the Function of Accepting & Making Payments is done by Agency Banks
  
  for Ministry of Finance RBI may have chosen State Bank of India
- Mind Map
1. Debt Manager of Government
- Why does Government has to Borrow in the First Place ?
  1. Income (Amount of Money Tax) < Expenses (Govt Spending Obligation)
  2. Income 20 Lac Crore < Expense 37 Lac Crore
  3. Hence, Govt Needs Money of Difference which is 17 Lac Crores
  4. The Money we Borrowed == Money Govt earns as Income
- Why Doesn’t India Cut down its Expenses ?
  1. For Welfare of People
  2. For Infrastructure
  3. Borrowing is Not a Option for India, Its a Necessity
- From Where does Government Borrows (Sources) ?
  - Outside India
    1. External Debt From Chapters of Taxation From Chapters of External Sector
    2. Two Entities Can Borrow Money from Outside India
      1. Government - Sovereign Debt
      2. Private Companies
    3. External Debt of Govt is Managed by Ministry of Finance
      
      RBI does NOT manage India’s External Debt
    4. Money can be Borrowed from
      1. IMF, WB, ADB, AIIB
  - Within India
    1. Govt can borrow Money from
      1. RBI
      2. Domestic Market
        
        Primary Dealers (Category of Investors)
        
        Who are Primary Dealers
        
        Similar to Corporate Bonds, GoI releases G Secs
        
        These G Secs have Face Value, Maturity Period & RoI
        
        RBI has authorised some dealers to Invest in G Secs called Primary Dealers
        
        Primary Dealers are of Two Types
        
        Bank Primary Dealers
        
        Example
        
        Kotak Securities
        
        ICICI Securities
        
        Standalone Primary Dealers
        
        Why Invest in G Secs
        
        For Safe and Stable Investments
        
        Share Costs Vary & Fluctuate Severely but G Sec is Stable
        
        Insurance Companies
        
        Examples - LIC & Aditya Birla etc
        
        They Sit on Huge Amount of Cash
        
        They Need to Make Money out of this money but at the same time maintain safety of these returns
        
        Hence they Invest in G Secs
        
        Banks
        
        Pension Fund Companies
        
        Retail Investors
    2. RBI Acts as Facilitator for Govt to borrow from Domestic Market (Its Institutions)
    - How RBI Felicitates this Process
- Mind Map Summarised
- Retail Direct Scheme
- By what power does RBI act as a Debt Manager of Govt
  
  Govt enables RBI to manage its borrowings, Its both a Right and a Obligation
- RBI as Debt Manager of Govt in Domestic Market (within India)
For What Purposes Govt Borrows Money ?
- To Finance its Deficit This Money is NOT repaid back in the Same Financial Year
  
  Revenue of Govt - 20 LC
  
  Expense of Govt - 37 LC
  
  Deficit = Difference Between Revenue & Expense = 17 LC
- To Address Temporary Mismatches in Cash Balances This Money is Repaid Back in the SAME Financial Year
  
  Examples
  
  Revenue/Income - 100
  
  Expense - 150
  
  Deficit - 50
  
  Govt Borrowed & Not Repaid - 50
In What Manner RBI Manages Debt for Govt ?
- RBI Lends Loan to Govt Directly
  - Monetisation of G Sec
  - The Detailed Table of Types of Loans
    
    | Long Term | Short Term | | --- | --- | | Only Centre | Both Centre and State | | To Finance Deficit | To Address Temporary Mismatches | | By Monetisation of G Secs | By Ways and Means Advances | | For Centre
    1. Not Allowed under Normal Circumstances
    2. Allowed Under Exceptional Circumstances
    3. Circumstances have been laid down by FRBM Act, 2003 National Security Collapse of Agriculture | For Centre
    4. Normal WMA - Limit Fixed by RBI in Consultation with Centre Maturity Period 90 Days
    Here, ROI = Repo Rate 2. Overdraft When Apr to Dec 100 Crore Done, Jan to Mar Money is Still Needed
    
    Hence Overdraft is taken Here ROI = Repo Rate + 2% | | For State
    
    Not Allowed to Borrow from RBI | For State 1. Normal WMA - Same as Centre 2. Overdraft - Same as Centre 3. SDF - Special Drawing Facility - for State Only State investing in Centre G Secs Dated Bonds, T Bills, CMB,
    
    This Bond can be used as Collateral to Borrow from RBI
    
    *Here, ROI = Repo Rate - 1%
    
    By this Means, RBI forces state to Invest in Central G Secs* |
  - Summary of WMA
- RBI Helps Govt to take Loan from Domestic Market
  
  RBI Helping in Borrowing Money from the Market
  - Short Term (< 1 Year) && (Long Term > 1 Year)
    
    ST & LT to be used as abbreviation while practising
    
    Keep in Mind which LT & ST are given to States and which to Govt
  - The Detailed Table of Types of Loans
    
    | Long Term → > 1 Year | Short Term → < 1 Year | | --- | --- | | Centre & State Both Allowed | Only Centre State Now Allowed | | RBI Issues for Centre: Govt Dated Bonds (GDB)
    
    Face Value: How Much Money Govt is Borrowing
    
    Maturity Period: For How Much time Govt is Borrowing 4 to 40 Years
    
    Rate of Interests : *How Much Interest will Govt Pay * Fixed Rate Govt Bonds - ROI Same for whole Tenure
```
Floating Rate Govt Bonds - ROI Changes Every 6/12 Months 
```
    | Treasury Bill (T Bill) is issued by RBI for Centre to Borrow
    
    When You buy a T Bill, You Give Loan to the Govt
    
    Face Value
    
    Maturity Period of 91 Days - T 91 of 182 Days - T 182 of 364 Days - T 364 T 14 has been done away with
    
    Rate of Interests : *There is no Interest on T Bill *The T Bill is Issued at a Discount & Redeemed at Face Value
    
    | | RBI Issues for State: State Development Loan (SDL)
    
    Face Value: How Much Money Govt is Borrowing
    
    Maturity Period: 4 to 40 Years
    
    Rate of Interests : Fixed Rate Govt Bonds - ROI Same for whole Tenure
```
Floating Rate Govt Bonds - ROI Changes Every 6/12 Months  | ***Cash Management Bill (CMB)*** is issued by RBI for Centre to Borrow 
```
    Face Value:
    
    Maturity Period b/w 1 to 90 Days
    
    Rate of Interests : *There is no Interest on CMB *The CMB is Issued at a Discount & Redeemed at Face Value
    
    Generally Bought to Address the Temporary Mismatch
    
    | | Special Government Securities This is For Both Centre and States
    1. Oil Bond
    2. UDAY Bond
    3. Recap Bonds
    4. Sovereign Gold Bonds | |
    Government Securities - G Sec
    1. Normal G Secs → 2 Special G Secs → Special Govt Securities
- Sources of Govt Borrowings - Summarised
- How Exactly RBI Issues G Secs
  - RBI is Debt Manager ↓
  - Issues G Secs ↓
    
    Dated Bonds
    
    CMB
    
    T Bill
    
    SDF
  - Auctioned Through - E Kuber
    - Bank
    - Primary Dealers
    - Retail Investors
      - Earlier
        
        Did Not Open Account with RBI
        
        Not Allowed to Buy G Sec Directly in Primary Market
        
        But Retail Investors can buy Indirectly by Means of
        
        Demat account
        
        Banks
        
        Primary Dealers
      - Now - Retail Direct Scheme
        
        Open Retail Direct Gilt Account (RDG)
        
        Directly from G Sec from RBI
- Mind Map - Primary and Secondary Markets
1. Bankers to Bank
- Framework Mind Map
- Payment Methods - Payment and Settlement Chapter
  - By RBI
    1. NEFT - National Electronic Fund Transfer
    2. RTGS - Real Time Gross Settlement
  - By NPCI
    1. IMPS - Immediate Payment Service
    2. UPI - Unified Payment Interface
- Provides Loan to Banks - Monetary Policy Chapter
1. Lenders of Last Resort
Asset Liability Mismatch and Bank Run - Lender of Last Resort - ”Bagehot Doctrine”
1. Regulations of Banks and Other Entities
- What is the Meaning of Regulation
  
  Regulation :
  1. To Ensure that Private Banks are working in the best interest of banks
  2. To Make banks work in Efficiently
- Regulation of Financial Institutions - Banks & NBFC Detailed
  - What is the Difference Between Private Banks and Public Sector Banks
  - Banks
    - Private Sector Banks
      - Private Banks
        
        Private Banks are Regulated by Private Banks of India
        
        These Banks in India are Registered as Companies under the Companies Act
        
        Parliament of India passed a legislation called Banking Regulation Act, 1949
      - How is Regulation Ensured
        
        Lays Down Elaborate Eligibility Criteria
        
        Process
        
        Earlier - at a time, there is a notice for banks to invite application, submit, scrutinise, approve
        
        Now - eligibility criteria laid down, no wait for notice inviting application, at any point of time, apply and submit, scrutinise, approve → On Tap Licensing
        
        Criteria
        
        Min Capital of Rs 500 Crore
        
        Successful Track Record of Bring in the Banking Sector for at least 10 Years
        
        Example : IDFC & Bandhan Bank, Only these sectors were chosen because they were working as MFI’s (Micro Finance Institution)
        
        Large Corporate Houses in india cannot be issued license
        
        Example : Tata, Ambani, Reliance
        
        Problem :
        
        Interconnected Lending
        
        Favourism
        
        Give Licenses to Banks - India and Foreign
        
        Lay Down Qualifications of Board of Directors of Bank
        
        RBI can supersede BOD of Private Banks
        
        Meaning BOD Removed RBI will appoint its own officials
        
        RBI can undertake merger of Private Banks
    - Public Sector Banks
      1. Originally PSU Bank
        
        By Legislation of Parliament
        
        SBI by SBI Act
      2. Turned into PSU Bank by Nationalisation
        
        By Nationalisation of Bank in
        
        1969
        
        1980
        
        Examples
        
        Bank of Baroda
        
        PNB
        
        Central Bank
        
        Canara Bank
    - Regulations of Types of Bank
      1. Private Banks
        
        Companies Act
        
        Banking Regulations Act, 1949 - Only BY RBI
      2. Public Sector Banks (PSB)
        
        Original
        
        SBI Act, 1955 - By Ministry of Finance (Govt)
        
        Banking Regulations Act, 1949 - By RBI
        
        Nationalised
        
        The Banks Own Act - Bank Nationalisation Act, 1970 & 1980
        
        Banking Regulations Act, 1949
        
        Note : Some Provisions of Banking Regulations Act, 1949 are NOT applicable to Public Sector Banks
        
        The Provisions of Exception for Public Sector Banks are
        
        No License Required from RBI
        
        RBI cannot lay down Qualification for BOD of PSB
        
        RBI cannot supersede BOD of PSB
        
        RBI cannot force merger of PSB
        
        Hence it can be said that RBI is handicapped in the case of PSB
    - Privatisation of Public Sector Banks
      1. The Bank Nationalisation Acts of 1970 & 1980 State that Govt ownership should be always greater than 51%
      2. For Privatisation, The Govt Ownership should be less than 51%
      3. Hence, for the Banks to be Privatised, the ownership should be less than 51%
      4. For this to happen the Bank Nationalisation Acts of 1970 & 1980 which are preventing the Govt to reduce its ownership should be change
      5. This changes can only be brought in by means of by a amendment act as the Law of Nationalisation is by Parliament
  - Other Entities - NBFC
    - NBFC - Non Banking Financial Companies
      - Who are they
        
        They can accept Deposits
        
        They can give loans
        
        They don’t have a license of Bank but a License of NBFC from RBI
      - Examples of NBFC
        
        MFI
        
        Credit Companies
        
        P2P Lenders
      - Why do MFI Exist ?
        
        No Small Value Loans are Given by Banks, Hence NBFC is an option for people wanting low value loans
        
        Banks are Interested in Large Value Loans
      - Examples
        
        Bajaj Finance
        
        Mahindra Finance
        
        Muthoot Gold Loans
      - Revision Mind Map
    - Credit Information Companies - Regulated by RBI
      - They Generate CIBIL Score
        
        How Much Loan
        
        Any Pending Loan
        
        Repaid Loan
        
        Income Tax Paid
      - Credit Rating Agencies - Regulated by SEBI - To Not Get Confused
        
        Some Agencies
        
        International Agencies
        
        They Take into account only GDP Size, Indian Govt is asking for considering the Growth Rate of Indian GDP as well
        
        S&P
        
        Moddy’s
        
        FITCH
        
        Indian Agencies
        
        ICRA - Indian Credit Rating Agencies
        
        Types of Credit Ratings
        
        AAA+
        
        AAA
        
        AAA-
        
        BBB+
        
        BBB
        
        BBB-
    - Primary Dealers
      1. Bank & Standalone PD
    - Authorised Dealers
- Regulation of Financial Institutions - Banks and NBFC Summarised
- Regulation of Financial Institutions - PD, AD & CIC
1. Management of Foreign Exchange - Other Chap
Will be Covered in External Sector Chapter
1. Regulation of Payment & Settlement System - Other Chap
in Chapter of Banking and Payment & Settlement Systems

RBI’s Economic Framework
- Controversy Over Transfer of Reserves
- The Whole Timeline
- Bimal Jalan’s Committee Recommendation - Realised and Unrealised Profits
Various Schemes by RBI - PSL, Lead Bank, Service Area, Differential Rate
Subsidiaries of RBI

Meaning RBI has a 100% Ownership of the Subsidiary Company. Example is
- DICGC - Deposit Insurance and Credit Guarantee Corporation
  - Background
    1. From Rs 1 Lac of Insurance Cover to 5 Lac of Insurance has been done in case a Bank Collapses
    2. By Means of DICGC Amendment Act, 2021
  - Concept of Deposit Insurance
    
    Recent Moratorium Banks
    1. PMC - Punjab Maharashtra Coperation Bank
    2. Laxmi Vilas Bank
  - Scenarios of Claiming Insurance for Question Practise Purpose
    
    Note : Deposit Insurance is based on Account
- Deposit Insurance Prelims Pointers
- Subsidiaries of RBI - Other Subsidiaries & Summary
Initiatives of RBI
- Why Study the Initiatives
- List of Initiatives 1
- List of Initiatives 2