JAIIB PPB UNIT-1. Indian financial System-An overview

·Financial System = A system to mobilize the capital from various surplus sectors of the economy and allocate & distribute the same to the various needy sector

 - It transform “saving into investment and consumption”.

· Central Banking Authority = RBI (Reserve Bank of India)

-Two distinct role :

a)Monetary control including controlling inflation.

b)Bank Supervision.

- Monetary control is exercised through CRR, SLR and Bank Rate &Repo rate (Main instruments to control Prime rates of leading banks)

- It acts as lenders of last resort to banking system.

• · Commercial Banks : It include public sector banks, foreign banks and old & new private sector banks.
• ·  NBFCs(Non Banking Financial Companies) :

-NBFCs are allowed to raise deposits from the public and lend through various instruments including leasing, hire purchase and bill discounting etc.

• ·   PDs(Primary Dealers) :

- It deals in government securities in both primary and secondary markets.

• · FIs (Financial Institution) = A development financial institution provide long term funds for industry and agriculture.

- It deals with financial transactions such as investments, loans and deposits.

·      Co- Operative Banks :

- Urban co operative banks are controlled by state Government and RBI (many times asked in JAIIB)

- Other co-operative banks are controlled by National Bank for Agriculture and Rural Development(NABARD) and State Government.

·    CRR (Cash Reserve Ratio) = As per section 42(1) of RBI Acts 1934.

-It is the mandatory deposit (Prescribed percentage of NDTL (Net Demand & Time Liabilities) that all scheduled commercial banks are required to maintain with RBI.

·      SLR (Statutory Liquidity Ratio) :

-  It is prescribed percentage of NDTL of banks to be held in prescribed securities, mostly government securities.

- The ratio of liquid assets to Demand and time liabilities known as SLR.

-The increase or decrease in CRR & SLR , contracts or expands credit creation.