CU-BCOM-SEM-V-Banking Theory and Practice-Second Draft

BACHELORE OF COMMERCE SEMESTER V BANKINGTHEORYAND PRACTICE

First Published in 2021 All rights reserved. No Part of this book may be reproduced or transmitted, in any form or by any means, without permission in writing from Chandigarh University. Any person who does any unauthorized act in relation to this book may be liable to criminal prosecution and civil claims for damages. This book is meant for educational and learning purpose. The authors of the book has/have taken all reasonable care to ensure that the contents of the book do not violate any existing copyright or other intellectual property rights of any person in any manner whatsoever. In the event, Authors has/ have been unable to track any source and if any copyright has been inadvertently infringed, please notify the publisher in writing for corrective action. 2 CU IDOL SELF LEARNING MATERIAL (SLM)

CONTENT UNIT 1 - Banking System..............................................................................................................4 UNIT 2 - Indian Financial System...............................................................................................26 UNIT 3 - Equity & Debt Market .................................................................................................52 UNIT 4 – BCSBI, CIBIL .............................................................................................................73 UNIT 5 – Banker Customer Relationship Types........................................................................97 UNIT 6 – Bankers’ Special Relationship Mandate ..................................................................120 UNIT 7 – Opening Accounts .....................................................................................................140 UNIT 8 – Maintaining Accounts ...............................................................................................161 UNIT 9 – Loans Part I ................................................................................................................182 UNIT 10 – Loans Part II ............................................................................................................199 UNIT 11 – NON-Performing Assets .........................................................................................219 UNIT 12 – Role of ICT ..............................................................................................................238 UNIT 13 – Role of Technology Upgradation ...........................................................................256 UNIT 14 – Uses of Technology Upgradation ...........................................................................275 3 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 1 -BANKING SYSTEM STRUCTURE 1.0 Learning Objectives 1.1 Introduction 1.2 Indian Financial System 1.2.1 History 1.2.2 Classification & Present Scenario 1.2.3 Who is RBI and an Overview Role of RBI in Indian Financial System 1.3 Commercial Banks 1.3.1 Meaning of Commercial Banks 1.3.2 Functions of Commercial Banks 1.3.3 Credit (Money) Creation by Commercial bank 1.3.4 Significance of Commercial Banks 1.4 Summary 1.5 Keywords 1.6 Learning Activity 1.7 Unit End Questions 1.8 References 1.0 LEARNING OBJECTIVES After studying this unit, you will be able to  Explain the Indian Financial System.  State the significance of commercial banks.  Describe the functions of commercial banks.  Identify RBI and an overview role of RBI in Indian Financial System.  Explain credit (Money) creation by commercial bank. 4 CU IDOL SELF LEARNING MATERIAL (SLM)

1.1 INTRODUCTION The financial scene in the post-freedom time frame has seen an ocean change; the final product being that the economy has gained tremendous headway in assorted fields. There has been a quantitative extension just as expansion of monetary exercises. The encounters of the 1980s have prompted the end that to get every one of the advantages of more noteworthy dependence on intentional, market-based dynamic, India needs productive monetary frameworks. The monetary framework is potentially the main institutional and practical vehicle for financial change. Money is a scaffold between the present and the future and regardless of whether it be the assembly of reserve funds or their proficient, powerful and fair assignment for venture, it is the accomplishment with which the monetary framework plays out its capacities that establishes the rhythm for the accomplishment of more extensive public destinations. The term monetary framework is a bunch of between related exercises/administrations cooperating to accomplish some foreordained reason or objective. It incorporates various business sectors, the foundations, instruments, administrations and systems which impact the age of reserve funds, speculation capital development and development. Van Horne characterized the monetary framework as the motivation behind monetary business sectors to assign reserve funds effectively in an economy to extreme clients either for interest in genuine resources or for utilization. Christy has believed that the target of the monetary framework is to \"supply assets to different areas and exercises of the economy in manners that advance the fullest conceivable use of assets without the destabilizing outcome of value level changes or superfluous impedance with singular longings.\" According to Robinson, the essential capacity of the framework is \"to give a connection among reserve funds and speculation for the making of new riches and to allow portfolio change in the piece of the current abundance.\" From the above definitions, it very well might be said that the essential capacity of the monetary framework is the preparation of investment funds, their dispersion for mechanical venture and animating capital development to speed up the intera ction of financial development. The cycle of reserve funds, money and speculation includes monetary foundations, markets, instruments and administrations. Most importantly, oversight control and guideline are similarly critical. Accordingly, monetary administration is an indispensable piece of the monetary framework. Based on the observational proof, Goldsmith said that \"... a case for the theory that the detachment of the elements of reserve funds and venture which is made conceivable by the presentation of monetary instruments just as expansion of the scope of monetary resources which follows from the making of monetary foundations increment the proficiency of speculations and raise the proportion of capital development to public creation and monetary exercises and through these two channels increment the pace of development \" 5 CU IDOL SELF LEARNING MATERIAL (SLM)

A monetary framework offers types of assistance that are fundamental in an advanced economy. The utilization of a stable, broadly acknowledged vehicle of trade diminishes the expenses of exchanges. It works with exchange and, in this manner, specialization underway. Monetary resources with appealing yield, liquidity and hazard attributes empower saving in monetary structure. By assessing elective ventures and checking the exercises of borrowers, monetary mediators increment the productivity of asset use. Admittance to an assortment of monetary instruments empowers a financial specialist to pool, cost and trade chances in the business sectors. Exchange, the productive utilization of assets, saving and hazard taking are the foundations of a developing economy. Truth be told, the nation could make this achievable with the dynamic help of the monetary framework. The monetary framework has been recognized as the most catalysing specialist for development of the economy, making it one of the vital contributions of advancement. 1.2 INDIAN FINANCIAL SYSTEM The financial improvement of a country is reflected by the advancement of the different monetary units, extensively arranged into corporate area, government and family area. There are regions or individuals with excess assets and there are those with a shortfall. A monetary framework or monetary area capacities as a mediator and works with the progression of assets from the spaces of surplus to the spaces of shortfall. A Financial System is a creation of different organizations, markets, guidelines and laws, rehearses, cash administrator, investigators, exchanges and cases and liabilities. Monetary framework contains set of subsystems of monetary foundations, monetary business sectors, monetary instruments and administrations which helps in the arrangement of capital. It gives a component by which reserve funds are changed to venture. \"system\", in the expression \"financial system\", infers a bunch of complex and firmly associated or interlinked establishments, specialists, rehearses, markets, exchanges, cases, and liabilities in the economy. The monetary framework is worried about cash, credit and money - the three terms are personally related at this point are fairly not the same as one another. Indian monetary framework comprises of monetary market, monetary instruments and monetary intermediation. Which Means of Financial System A monetary framework capacities as a delegate among savers and financial backers. It works with the progression of assets from the spaces of surplus to the spaces of shortage. It is worried about the cash, credit and money. These three sections are firmly interrelated with one another and rely upon one another. A monetary framework might be characterized as a bunch of foundations, instruments and markets which advances investment funds and channels them to their most effective use. It 6 CU IDOL SELF LEARNING MATERIAL (SLM)

comprises of people (savers), mediators, markets and clients of reserve funds (financial backers). In the realms of Van Horne, \"monetary framework designates reserve funds proficiently in an economy to extreme clients either for interest in genuine resources or for utilization\". As per Prasanna Chandra, \"monetary framework comprises of an assortment of establishments, markets and instruments related in a methodical way and give the chief means by which reserve funds are changed into speculations\". In this way, monetary framework is a bunch of complex and firmly interlinked monetary foundations, monetary business sectors, monetary instruments and administrations which work with the exchange of assets. Monetary organizations assemble assets from providers and give these assets to the individuals who request them. Additionally, the monetary business sectors are likewise needed for development of assets from savers to delegates and from middle people to financial backers. So, monetary framework is a system by which reserve funds are changed into speculations. 1.2.1 History The word 'Bank' is supposed to be gotten from French word \"Bancus\" or \"Banque\", i.e., a seat. It is accepted that the early investors, the Jews Lombardy, executed their business on seats in the Market place. Others accept that it is gotten from German word \"Back\" which means a Joint Stock Fund. The Modern financial System began with the kick-off of Bank of England in 1964. Bank of Hindustan was the first bank to be set up in Quite a while in 1770. The most punctual organizations that embraced banking business under the British system were office houses which continued financial business notwithstanding their exchanging exercises. The greater part of these organization houses were shut down during 1929-32. Three Presidency banks known as Bank of Bengal, Bank of Bombay and Bank of Madras were open in 1809, 1840 and 1843 individually at Calcutta, Bombay and Madras. These were subsequently converged in to Imperial Bank of India in 1919 after a financial emergency. The principal bank of restricted obligation oversaw by Indians was Oudh Commercial Bank Started in 1881 before somewhere in the range of 1865 and 1870, just one bank, the Allahabad Bank Ltd., was set up. Hence the Punjab National Bank began in 1894 with its office at Anarkali Market in Lahore (presently in Pakistan) Swadeshi development, what began in 1906, incited arrangement of various business banks, for example, the people groups Bank of India Ltd., the Central Bank of India, the Indian Bank Ltd. furthermore, the Bank of Baroda Ltd. Banking emergency between 1913-1917 saw the disappointment of 588 banks. The Banking organizations (investigation Ordinance) came in January 1946 and the Banking organizations (Restriction of Branches) Act was passed in February 1946. The Banking Companies Act was passed in February 1946 which was later, revised to be known as Banking Regulation Act, 1949. In the interim, the RBI Act, 1934 was passed and the Reserve Bank of India turned into the principal Central bank of the nation w.e.f. 01.04.1935, it assumed control over the Central Banking exercises from the Imperial Bank of India. The RBI was nationalized on 1.1.1949. The Imperial Bank of India was in part nationalized to 7 CU IDOL SELF LEARNING MATERIAL (SLM)

frame State Bank of India in 1955. In 1959, auxiliaries of the SBI in particular, State Bank of Bikaner and Jaipur, State Bank of Hyderabad, State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Saurashtra and State Bank of Travancore were set up. On July 19, 1969, the Govt. of India took over proprietorship and control of 14 significant banks in the Country with stores surpassing ' 50 crore each. Again on fifteenth April 1980, six additional saves money with Total time and request liabilities surpassing ' 200 Crore were nationalized. On 1993, one of the nationalized banks in particular New Bank of India was converged with another nationalized bank for example Punjab National Bank. The beginning of the Banking framework in India can be followed with the establishment of Bank of Calcutta in 1786. The Banking in India begins somewhat recently in the eighteenth century with the establishment of the English Agency houses in Bombay and Calcutta (presently Kolkata).  Three administration banks Bank of Bengal, Bank of Bombay and Bank of Madras set up in the nineteenth Century under the sanction of the British East India Company.  In 1935, the administration banks consolidate and framed another bank named Imperial Bank of India.  The Imperial Bank of India hence named the State Bank of India.  The first Indian-claimed Allahabad Bank was set up in 1865 in Allahabad.  In 1895, the Punjab National Bank was set up in 1895.  The Bank of India established in 1906 in Mumbai.  Many more business banks, for example, Canara Bank, Indian Bank, Central Bank of India, Bank of Baroda and Bank of Mysore were set up somewhere in the range of 1906 and 1913 under Indian possession.  The national Bank of India, RBI set up in 1935 on the suggestion of Hilton-Young Commission. Around then, the Banking framework was just covered the metropolitan populace and need of provincial and agribusiness area was completely disregarded. Post-Independence Phase (1947 to Work)  At the time freedom, the whole Banking area was under private proprietorship. The provincial populace of the nation needed to subject to little cash loan specialists for their necessities. To settle these issues and better advancement of the economy the Government t of India nationalized the Reserve Bank of India in 1949.  In 1955 the Imperial Bank of India was nationalized and named the State Bank of India. 8 CU IDOL SELF LEARNING MATERIAL (SLM)

 The Banking Regulation Act instituted in 1949. Nationalisation Period (1969 to 1991) In 1969, Government of India nationalised 14 major banks whose national deposits were more than 50 crores. 1. Allahabad Bank 2. Bank of India 3. Punjab National Bank 4. Bank of Baroda 5. Bank of Maharashtra 6. Central Bank of India 7. Canara Bank 8. Dena Bank 9. Indian Overseas Bank 10. Indian Bank 11. United Bank 12. Syndicate Bank 13. Union Bank of India 14. UCO Bank The Indian Banking system immensely developed after nationalization but the rural and weaker section of the society was still not covered under the system. To solve these issues, the Narasimha Committee in 1974 recommended the establishment of Regional Rural Banks (RRB). On 2nd October 1975, RRBs were established with an objective to extend the amount of credit to the rural section of the society. Six more banks further nationalized in the year 1980. With the second wave of nationalization, the target of priority sector lending was also raised to 40%. 1. Andhra Bank 2. Corporation Bank 3. New Bank of India 4. Oriental Bank of Commerce 5. Punjab & Sindh Bank 9 CU IDOL SELF LEARNING MATERIAL (SLM)

6. Vijaya Bank Liberalisation Phase (1990 to till) To work on monetary steadiness and productivity of Public Sector Banks, the Government of India set up a panel under the chairmanship of Shri. M. Narasimham. The council prescribed a few measures to change banking framework in the country.  The significant push of the suggestions was to make banks serious and solid and helpful for the strength of the monetary framework.  The panel proposed for no more nationalization of banks.  Foreign banks would be permitted to open workplaces in India either as branches or as auxiliaries.  In request to make banks more serious, the board recommended that public area banks and private area banks ought to be dealt with similarly by the Government and RBI.  It was underscored that banks ought to be urged to leave the moderate and customary arrangement of banking and embrace reformist capacity, for example, shipper banking and endorsing, retail banking, and so forth.  Now, unfamiliar banks and Indian banks allowed to set up joint endeavours in these and other more up to date types of monetary administrations.  10 Privates players got a permit from the RBI to passage in the Banking area. These were Global Trust Bank, ICICI Bank, HDFC Bank, Axis Bank, Bank of Punjab, IndusInd Bank, Centurion Bank, IDBI Bank, Times Bank and Development Credit Bank. The Government of India acknowledged all the significant proposal of the council. 1.2.2 Classification and Present Scenario The financial construction in India comprises of a national bank, public area banks and private area banks. Banks can be characterized based on various models. The accompanying figure demonstrates the financial design: 10 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 1.1Classifications Banks can be classified on the bases of different groups. Some of the important groups are explained below: A. Central Bank The Reserve Bank of India is the Central Bank. It is fully owned by thegovernment. It is governed by a central board and headed by a Governor, who is appointedby the Central Government. It issues guidelines for the functioning of all banks operatingwithin the country. B. Public Sector Banks i. The State Bank Group: the State Bank of India and its associate banks ii. 20 other nationalized banks iii. Regional rural banks: they are sponsored by public sector banks C. Private Sector Banks i. Private banks ii. Foreign banks operating in India iii. Scheduled cooperative banks iv. Non-scheduled banks D. Cooperative Banks: The cooperative sector banks are related with rural areas and serve rural people mainly. The cooperative banking sector is divided into the following categories. i. State Cooperative Banks ii. Central Cooperative Banks iii. Primary Agriculture Credit Societies 11 CU IDOL SELF LEARNING MATERIAL (SLM)

State Bank Group (Eight Banks) This comprises of the State Bank of India (SBI) and Associate Banks of SBI. The Reserve Bank of India (RBI) possesses the larger part portion of SBI and some Associate Banks of SBI. SBI has 13 administrative centres administered each by a directorate under the oversight of a focal board. The sheets of chiefs and their advisory groups hold month to month gatherings while the leader panel of every focal board meets each week. Nationalized Banks (19 Banks) In 1969, the public authority organized the nationalization of 14 planned business banks to grow the branch organization, trailed by six additional in 1980. A consolidation diminished the number from 20 to 19. Nationalized banks are completely possessed by the Government, albeit some of them have made public issues. Rather than the state bank bunch, nationalized banks are midway administered, i.e., by their particular administrative centres. Hence, there is just one board for each nationalized bank and gatherings are less successive (for the most part, one time per month). The state bank bunch and nationalized banks are together alluded to as the Public Sector Banks (PSBs). Regional Rural Banks (RRBs) In 1975, the State Bank bunch and nationalized banks were needed to support and set up RRBs in association with singular states to give minimal expense financing and credit offices to the provincial masses. Private Banks Private banks have been assuming an essential part in upgrading client arranged items with no decision left with the public area banks but to improve and contend all the while. Save Bank of India has come out on obvious terms, their rules on proprietorship and administration in private area banks. Major PrivateBanks in India are  Bank of Rajasthan  Bharat Overseas Bank  Catholic Syrian Bank  Centurion Bank of Punjab  Dhana Lakshmi Bank  Federal Bank  HDFC Bank  ICICI Bank 12 CU IDOL SELF LEARNING MATERIAL (SLM)

 IDBI Bank  IndusInd Bank  ING Vysya Bank  Jammu & Kashmir Bank  Karnataka Bank  Karur Vysya Bank  Kotak Mahindra Bank  SBI Commercial and International Bank  South Indian Bank  United Western Bank  UTI Bank  YES Bank Cooperative Banks Cooperative banks in India have made considerable progress since the sanctioning of the Agricultural Credit Cooperative Societies Act in 1904. It is a significant instrument of banking admittance to the provincial masses and is a vehicle for democratization of the Indian monetary framework. The RBI directs these banks since first March, 1966. Considering the liquidity and indebtedness issues experienced by some helpful banks in financial year 2001, the RBI attempted a few between time measures to resolve the issues, forthcoming formal administrative changes, including measures identified with loaning against shares, borrowings in the call market and term stores put with other metropolitan agreeable banks. Present Scenario of Banking System in India The rate at which banking industry of India has shown a colossal development throughout the last decade. At the point when the entire world was on turn during the worldwide monetary emergency, banking area of India has had the option to keep up with its flexibility giving development openings at the same time which is an improbable accomplishment to be contrasted with other created markets of the world. The world economy has created extreme issues as far as slip by of different banking and monetary organizations and plunging request in the new occasions. Possibilities turned out to be extremely uncertain causing downturn in significant economies. In any case, in the midst of this upside down India's financial area has been among the couple of to keep up with strength. A dynamically developing accounting report, higher pace of credit extension, growing benefit and usefulness similar to banks in 13 CU IDOL SELF LEARNING MATERIAL (SLM)

created markets, lower frequency of non-performing resources and spotlight on monetary incorporation have added to making Indian banking lively and solid. Indian banks have initiated to modify their development approach and rethink the possibilities close by to keep the economy wheeling. Utilizing data innovation, banks have overhauled their frameworks to give better client administrations. Programmed Teller Machines (ATMs) apportioning any time cash are noticeable in many regions of enormous urban areas and clients are progressively reacting to banking exchanges without visiting the banks. On the web and portable banking has brought the banks essentially to their doorsteps. Be that as it may, this has presented the banks to new sorts of dangers. The closeness between bank workers and clients has gotten progressively distant. However the banks allocate different back end and front end activities to limit hazard and use exceptionally gets attachment layers SSLs, computerized declarations and offices like virtual consoles to lessen the dangers in online exchanges, assaults like phishing and pharming have been hit up. Since the Lehman Brothers defaulted on some loans in 2008, frequencies, each now and then, at that point, have supported the worries over worldwide monetary soundness. 1.2.3 Overview Role of RBI In Indian Financial System The national bank of India is known as the Reserve Bank of India (RBI). It was set up on April 1, 1935 as per the arrangements of the Reserve Bank of India Act, 1934 so as to coordinate the monetary edge work and work with financial dependability in India. The Central Office of the Reserve Bank was at first settled in Calcutta however was for all time moved to Mumbai in 1937. However initially exclusive, since nationalization in 1949, the Reserve Bank is completely claimed by the Government of India and acts the focal administrative authority concerning the working of the different business bank and the other monetary foundations in India. It directs the issue of Bank Notes and keeps the stores with the end goal of getting money related dependability in India. It likewise works the cash and credit arrangement of the country for its potential benefit. The Reserve Bank of India (RBI) was set up on first April 1935 under the Reserve Bank of India Act, 1934. After its foundation, it assumed control over the capacity of giving paper money from the Government of India and of controlling credit from the Imperial Bank of India. It initially began as an investor's save money with a settled up capital of ' 5 crores. It was nationalized on first January 1956 and from that point forward it has been working as a State possessed and State-controlled Central Bank. The Preamble recommends the target of the Reserve Bank of India in the accompanying lines \"to manage the issue of Bank Notes and keeping of stores with the end goal of getting financial strength in India and for the most part to work the money and credit arrangement of the country for its potential benefit.\" 14 CU IDOL SELF LEARNING MATERIAL (SLM)

The Reserve Bank had a settled up capital of ' 5 crore isolated into 5 lakh portions of ' 100 each. The Government of India claims all offers. The administration is vested in the Central Board of Directors. Hence, RBI assumes the main part in:  Securing financial soundness in India and  Operate the money and credit arrangement of the country  One Governor and four Deputy Governors selected by the Government of India for a time of five years. Their compensation, and so on, are chosen by the Central Board of Directors in conference with the Government of India.  Four chiefs assigned from the nearby sheets, situated at Bombay (Mumbai), Calcutta (Kolkata), Madras (Chennai) and New Delhi by the Government of India. Their residency is additionally five years.  Ten different chiefs assigned by the Government of India whose term is four years.  An authority of the Government of India to go to the gatherings of the Central Board. His residency isn't fixed and he hates the option to cast a ballot in the gatherings.  The Central Board is needed, under the Act, to meet no less than six times each year. The Governor of the Reserve Bank can assemble the conference of the Central Board, at whatever point he thinks fundamental. Every nearby board has something like four individuals, named by the Government of India for a time of four years and addressing all interests. The neighbourhood sheets render exhortation to the Central Board and furthermore play out the different positions doled out to them by the Central Board. Aside from these two pretends, RBI being the focal money related authority assumes an exceptionally huge part in the Indian Economy. Guarantor of Price Stability Being the financial authority of the economy, RBI is liable for carrying out, planning and observing the money related arrangement of India. Remembering this position the RBI is needed to keep up with value soundness and guarantee sufficient progression of credit to useful areas. Regulator and Supervisor of the Financial System The Supreme monetary body puts down wide boundaries of banking activities inside which the nation's banking and monetary framework works. This sensibly helps in keeping up with public trust in the framework. It thusly ensures investors' premium and gives worthwhile banking administrations to people in general. 15 CU IDOL SELF LEARNING MATERIAL (SLM)

Manager of Exchange Control The RBI is liable for dealing with the Foreign Exchange Management Act, 1999. It is the nodal organization which works with outside exchange and instalment and advances systematic turn of events also, upkeep of unfamiliar trade market in India. Issuer of Currency It is the solitary preeminent body which issues and trades or annihilates money and coins not good for dissemination. This works with in giving the public satisfactory amount of money notes and coins and in great quality. Developmental Role The RBI since its commencement plays out a wide scope of special capacities to help public targets and create generosity among the residents of the country. Present Scenario of Banking A bank is a monetary establishment which acknowledges stores from the overall population and stretches out credits to the families, the organizations, and the public authority. The Indian financial area is the life saver of the country and its kin. It is an indispensable part of the economy of the country. The financial area is viewed as the foundation of the advanced economy. The productivity and development of a country rely upon the strength and proficiency of its monetary organizations. The financial area of India is the expectation and yearning of millions of individuals in the country. Be that as it may, to make this progress the financial area needed to pass numerous obstacles. The agreeable banks in conspiracy with the Indian financial area is currently giving need-based money particularly to the advancement of the horticultural area which is the foundation of Indian economy. 1.3 COMMERCIAL BANKS Commercial bank is the term utilized for a typical bank to recognize it from a speculation bank. This is the thing that individuals regularly call a \"bank\". The expression \"business\" was utilized to recognize it from a speculation bank. Since the two kinds of banks at this point don't need to be independent organizations, some have utilized the expression \"business bank\" to allude to banks which centre for the most part around organizations. In some English-talking nations outside North America, the expression \"exchanging bank\" was and is utilized to mean a business bank. During the economic crisis of the early 20s and after the securities exchange crash of 1929, the U.S. Congress passed the Glass-Steagall Act 1930necessitating that business banks just participate in financial exercises (tolerating stores and making advances, just as other charge-based administrations), though speculation banks were restricted to capital business sectors exercises. This partition is as of now not required. It raises assets by gathering stores from organizations and purchasers through checkable 16 CU IDOL SELF LEARNING MATERIAL (SLM)

stores, reserve funds stores, and time (or term) stores. It makes credits to organizations and purchasers. It likewise purchases corporate securities and government securities. Its essential liabilities are stores and essential resources are credits and bonds. Business banking can likewise allude to a bank or a division of a bank that generally manages stores and advances from partnerships or enormous organizations, instead of typical individual individuals from general society (retail banking). 1.3.1 Meaning of Commercial Banks Definition: Commercial Bank can be portrayed as a monetary organization, that offers essential venture items like an investment account, current record, and so on to the people and corporates. Alongside that, it gives a scope of monetary administrations to the overall population like tolerating stores, giving advances and advances to the clients. It is a benefit making organization, which pays revenue at a low rate to the contributors and charges higher pace important to the borrowers and thusly, the bank acquires the benefit. A business bank is a monetary establishment that gives store, current, and saving records. A current record is equivalent to a financial records. A business bank serves people, associations, and organizations. It additionally loans cash. In the United Kingdom, individuals additionally consider it a high road bank. The term might be uncertain. A few group say a business bank is a bank's division that simply manages organizations. Business banks bring in cash by taking momentary stores and transforming those assets into greater, long haul development credits. This interaction, which changes their resources, produces pay. All in all, they make a benefit by taking individuals' cash and loaning it. Which means: The term business bank alludes to a monetary organization that acknowledges stores, offers financial records administrations, makes different advances, and offers essential monetary items like authentications of store (CDs) and investment accounts to people and independent companies. A business bank is the place where the vast majority do their banking. Business banks bring in cash by giving and acquiring revenue from advances like home loans, automobile advances, business credits, and individual advances. Client stores give banks the funding to make these advances. A business bank is a sort of monetary establishment that conveys every one of the tasks identified with store and withdrawal of cash for the overall population, giving credits to speculation, and other such exercises. These banks are benefit making foundations and work together just to make a benefit. The two essential attributes of a business bank are loaning and acquiring. The bank gets the stores and offers cash to different activities to acquire revenue (benefit). The pace of revenue 17 CU IDOL SELF LEARNING MATERIAL (SLM)

that a bank offers to the contributors is known as the acquiring rate, while the rate at which a bank loans cash is known as the loaning rate. 1.3.2 Functions of Commercial Banks Prof. Syers, characterized banks as \"organizations whose obligation—normally alluded to as 'bank stores'— are usually acknowledged in conclusive repayment of others' obligations\". As indicated by Banking Regulation Act of 1949, \"Banking implies the tolerant to loan or speculation of stores of cash from the general population, repayable on request or something else, and withdrawal with a money order, draft, request or something else\". From the above definitions we can investigate that the essential elements of banks are tolerating of stores, loaning of these stores, permitting stores to pull out through check at whatever point they request. The matter of business banks is essentially to keep stores and make credit and advances for brief period dependent upon a couple of years made to industry and exchange either by the arrangement of overdrafts of a concurred sum or by limiting bills of trade to make benefit to the investors. From the above conversation, we can say that coming up next are the elements of business banks.  Getting stores from the general population. The essential capacity of business banks is getting of stores as reserve funds ledger, current record and term stores from the savers generally from people in general. Individuals typically really like to store their investment funds with the business banks in view of wellbeing, security and liquidity. The total stores of planned business banks in India rose quickly from Rs. 822 crores in 1951 to Rs. 3,763 crores in 1967. The complete stores of business banks was Rs. 4,661 crores in 1969 that expanded to Rs. 34,237 crores by 735% by 1979. The complete stores of business banks expanded in the time of 1981 to 1991 from Rs. 40,413 crores to Rs. 2,00,569 crores by multiple times. Out of which the extent of current, saving and fixed stores were Rs. 6,286, Rs.11,805 and Rs. 22,322 crores which is just about 1: 2: 3 proportion expanded to Rs. 30,335, Rs. 56,152 and Rs. 114082 crores i.e., very nearly multiple times during multi decade with practically same extent. The complete stores with business banks before the finish of 2005 expanded to Rs. 21,00,000 crores.  Giving credits and advances. The subsequent significant capacity of the business banks is giving credits and advances to a wide range of people, especially to financial specialists and financial backers, against individual security, gold and silver and other versatile and ardent resources. The bank propels advances as money credit, call advances, overdraft and limiting bills of trade to financial specialists. After changes in financial area and foundation of new private area banks and unfamiliar banks, the other business banks additionally began giving credits and advances not exclusively to their customary organizations yet additionally for vehicles, lodging, shopper durables, and so forth by expanding the foundation of loaning exercises. 18 CU IDOL SELF LEARNING MATERIAL (SLM)

 Utilization of check framework and charge cards. The business banks will permit the contributors of the bank to pull out and make instalment of their sum in their ledger through checks. Presently the banks are permitted to utilize charge and Mastercard’s for making their instalments.  Credit creation. Credit creation is quite possibly the main elements of the business banks. Like other monetary organizations, they target procuring benefits. For this reason they acknowledge stores and advance advances by saving little money for possible later use for everyday exchanges. At the point when a bank progresses a credit, it opens a record for the sake of the client and doesn't pay him in real money however permits him to draw the cash with a money order as per his necessities. By allowing an advance, the bank makes credit or store.  Financing unfamiliar exchange. The business banks finance unfamiliar exchange of its clients by tolerating unfamiliar bills of trade and gathering them from unfamiliar banks. It likewise executes other unfamiliar trade business and purchases and sells unfamiliar cash.  Move of assets. Business banks will assist the clients with moving their cash starting with one record then onto the next account, starting with one spot then onto the next place through checks. Presently the exchange of assets starting with one spot then onto the next place, or starting with one gathering account then onto the next party record or one bank to another bank is done through Electronic Fund Transfer (EFT). This office helps in moving assets starting with one bank then onto the next bank or to another gathering account simple. The innovation like MICR assists the manages an account with having creative financial like anyplace banking, whenever banking, and virtual banking, etc.  Office capacities. The business banks go about as specialists for clients to purchase and sell shares, protections for their sake. It pays memberships to protection charges, shared assets, lease, water charges, power bills and so on in the interest of its customers. It likewise goes about as a trustee and agent of the property and will of its clients.  Various capacities. The various capacities performed by the business banks are: it gives wellbeing storage office, making and getting instalments for its investors, giving letters of credit and secured checks and so on. 1.3.3 Credit (Money) Creation by Commercial bank What is Credit Creation by Commercial Bank? In extremely basic terms, a bank is isolated from other monetary banks by credit creation. Credit Creation is fundamentally the development of the stores. Likewise, the banks can grow 19 CU IDOL SELF LEARNING MATERIAL (SLM)

their interest stores as a different of their money holds in light of the fact that the interest stores fill in as a main vehicle of trade. Request stores are an exceptionally pivotal constituent of the cash supply. The development of the interest stores implies the extension of the cash supply. The whole financial design depends using a loan. The significance of credit is to get the buying power now and promising to pay eventually. What's more, bank credit implies the bank advances just as the advances. A bank keeps a specific piece of its stores as a base save to satisfy the needs of its investors and the rest is loaning out to procure a pay. The record of the program is given the advance. Every single bank makes a comparable store in the bank. Consequently, credit creation intends to extend bank stores. The Two Pivotal Aspects of Credit Creation Liquidity The banks will undoubtedly pay money to their investors when they practice their entitlement to request cash against their contributors. Profitability The banks consistently search for benefit. They are benefit driven ventures. This is the motivation behind why a bank should allow credits in such a way that will assist with procuring higher premium than what it pays on its stores. The bank's credit interaction is completely founded with the understanding that whenever a couple of clients will really require cash. Additionally, then again the banks accept that every one of their clients won't turn up requesting cash against their stores at one point on schedule. 1.3.4 Significance of Commercial Banks Banking and Capital Formation Capital arrangement is the fundamental factor for monetary turn of events. Capital arrangement implies formation of actual resources like machines and structures which increment useful limit of a country. For capital arrangement reserve funds are required which are generally assembled by business banks. Banking and Investment The example of speculation and its quantum that are carried on de-pend generally on the financial framework. A business visionary might wish to present advancements and this influences financial improvement decidedly. Bank credit empowers business people to enhance and contribute, and consequently advance financial movement. Banking and Industry 20 CU IDOL SELF LEARNING MATERIAL (SLM)

Banks are helping businesses by giving them credit to building up new units and refreshing and extending the old units. Banking and Agriculture Banks are assisting ranchers with creating farming for giving them long haul money to purchasing work vehicles and introducing tube-wells. Banking and Trade Banks are assisting exchange with shorting term and long haul finance. 1.4 SUMMARY  The term financial framework is a bunch of between related exercises/administrations cooperating to accomplish some foreordained reason or objective. It incorporates various business sectors, the establishments, instruments, administrations and systems which impact the age of reserve funds, venture capital arrangement and development. Van Horne characterized the monetary framework as the motivation behind monetary business sectors to allot reserve funds productively in an economy to extreme clients either for interest in genuine resources or for utilization.  The word \"system\", in the expression \"monetary framework\", infers a bunch of complex and firmly associated or interlinked organizations, specialists, rehearses, markets, exchanges, cases, and liabilities in the economy. The monetary framework is worried about cash, credit and money - the three terms are personally related at this point are to some degree not quite the same as one another. Indian monetary framework comprises of monetary market, monetary instruments and monetary intermediation.  Commercial Bank can be portrayed as a monetary organization, that offers fundamental venture items like a bank account, current record, and so forth to the people and corporates. Alongside that, it gives a scope of monetary administrations to the overall population like tolerating stores, allowing advances and advances to the clients.  The Reserve Bank of India is the Central Bank. It is completely possessed by the public authority. It is administered by a focal board and headed by, a selected Governor by the Central Government. It issues rules for the working of all banks working inside the country.  The rate at which banking industry of India has shown a gigantic development in the course of the last decade. At the point when the entire world was on turn during the worldwide monetary emergency, banking area of India has had the option to keep up 21 CU IDOL SELF LEARNING MATERIAL (SLM)

with its versatility giving development openings all the while which is an impossible accomplishment to be contrasted with other created markets of the world.  A bank is a monetary foundation which acknowledges stores from the overall population and stretches out advances to the families, the organizations, and the public authority. The Indian financial area is the help of the country and its kin. It is a fundamental part of the economy of the country. The financial area is viewed as the foundation of the cutting edge economy. The effectiveness and development of a country rely upon the strength and productivity of its monetary establishments. The financial area of India is the expectation and desire of millions of individuals in the country. However, to make this progress the financial area needed to pass numerous obstacles.  Using data innovation, banks have redesigned their frameworks to give better client administrations. Programmed Teller Machines (ATMs) apportioning any time cash are apparent in many regions of enormous urban areas and clients are progressively reacting to banking exchanges without visiting the banks. 1.5 KEYWORDS  Scenario - It is a particular chance. To anticipate playing with a lot of bear offspring is a situation a moronic one, yet a situation.  Regulator- It is a component or gadget that controls something like pressing factor, temperature, or liquid stream. The voltage controller keeps the force level settled. A controller is an instrument or gadget that controls something like pressing factor, temperature, or liquid stream.  Supervise - It intends to manage, so a boss is somebody whose work it is to direct every other person as they work. In case you're the chief of a major kitchen, you likely will not invest energy cleaving onions, however rather meander around ensuring everybody has their hair back and is utilizing the right fixings and working rapidly. Now and again in extremely complex issues, an entire association can be a boss, similar to a city office that manages the police.  Committee Group or Commission - It is a collection of at least one people subordinate to a get together. An advisory group isn't itself viewed as a type of gathering. Typically, the get together sends matters into a panel as an approach to investigate them more completely than would be conceivable if the actual gathering were thinking about them. Panels might have various capacities and their kinds of work contrast contingent upon the sort of the association and its requirements. 22 CU IDOL SELF LEARNING MATERIAL (SLM)

 Financial System - It is a bunch of organizations, like banks, insurance agencies, and stock trades, that grant the trading of assets. Monetary frameworks exist on firm, territorial, and worldwide levels. Borrowers, moneylenders, and financial backers trade current assets to fund projects, either for utilization or useful speculations, and to seek after a profit from their monetary resources. The monetary framework likewise incorporates sets of decides and practices that borrowers and banks use to choose which undertakings get financed, who funds tasks, and terms of monetary arrangements. 1.6 LEARNING ACTIVITY 1. Exchange the latest of currency of India with old currency of India (Must be running in current economy). ___________________________________________________________________________ _________________________________________________________________________ 2. Find what is the purpose of latest merger of various public sector banks by present government? ___________________________________________________________________________ _________________________________________________________________________ 1.7 UNIT END QUESTIONS A. Descriptive Questions 23 Short Questions 1. Define meaning of meaning of commercial banks. 2. State the significance of commercial banks. 3. Explain credit (money) creation by commercial bank. 4. Briefly explain the functions of commercial banks. 5. Who is RBI? Long Questions 1. Explain history Indian Financial system. 2. Who is RBI and an overview role of RBI in Indian Financial system? 3. Explain the classification &present scenario ofIndian Financial system. 4. Explain the functions of commercial banks. 5. Briefly explain the Credit (Money) Creation by Commercial bank. CU IDOL SELF LEARNING MATERIAL (SLM)

B. Multiple Choice Questions 1. What is the most widely used monetary policy tool among these is? a. Open market operations b. Issuing of notes c. Close market operations d. Discount rate 2. What is credit can be created by? a. RBI b. Foreign banks c. Commercial banks d. Private banks 3. Which of the Repo rate means? a. Rate offered by banks to their premium customers. b. Rate at which RBI offers loan facilities to commercial banks against government securities, with the condition that banks need to repurchase the securities in a short period. c. Banks having excess cash can buy securities from RBI with a condition of reselling securities to RBI on a prefixed day and price. d. Banks can discount bills of exchange and avail loan from RBI at times when cash is needed. 4. Which of the following rules do not apply to banking companies? a. Companies Act b. Banking Regulation Act c. Reserve Bank of India Act d. All of these 5. Which of the increase in cash reserve ratio (CRR) by the RBI will result in? a. Initially increase the supply but later on decrease automatically. b. No impact on the supply of money in the economy c. Decrease the supply of money in the economy d. Increase the supply of money in the economy 24 CU IDOL SELF LEARNING MATERIAL (SLM)

Answers 1-a. 2-c. 3-c. 4-d. 5- c. 1.8 REFERENCES References  Blinder, A, S. (1998). Central Banking in Theory and Practice, Cambridge, MIT Press.  Seshadri, R, K. (1989). The art of Central Banking and Essays, Bombay Bankers Training College RBI.  Shekhar, K, C. (2009). “Banking Theory and Practice”, Vikas Publishing House Pvt. Ltd. Textbooks  Rajesh, R&Sivagnanansithi, T. (2009).“Banking Theory: Law and Practice”. Tata McGraw Hill Publishing Company Ltd.  Decock, M, H. (1997). Central Banking, Fourth edition. New Delhi, UBSPO.  Nigam, B, M, (1997), Banking in India in Eighties, New Delhi UBSPO. Websites  https://www.sebi.gov.in/  http://www.preservearticles.com  http://chestofbooks.com/finance/banking/Banking-Credits-And-Finance/ 25 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 2 - INDIAN FINANCIAL SYSTEM 26 STRUCTURE 2.0 Learning Objectives 2.1 Introduction 2.2 NBFCs 2.2.1 Definition of NBFCs & Classification 2.2.2 Distinction Between NBFCs & Bank 2.2.3 Minimum Net Owned Found and Liquid Asset Requirements 2.2.4 Categories of NBFCs 2.2.5 Income Recognition & Prudential Accounting Norms 2.3 PDs 2.3.1 Regulations Governing Primary Dealers 2.3.2 Additional Guidelines Applicable to Banks Undertaking PD Business Departmentally 2.4 FIs 2.4.1 Commercial Banks 2.4.2 Retail Banking 2.4.3 Insurance Companies 2.4.4 Merchant Banking 2.4.5 Corporate Banking 2.4.6 Mutual Fund Houses 2.4.7 Asset Management Companies 2.5 Cooperative Banks 2.5.1 Control Over Co - Operative Banks 2.5.2 Co-operative banks in India 2.5.3 History of Co - Operative Banks in India 2.5.4 Types of Co-Operative Banks 2.5.5 Rules for Co - Operative Banks 2.6 CRR CU IDOL SELF LEARNING MATERIAL (SLM)

2.7 SLR 2.8 Summary 2.9 Keywords 2.10 Learning Activity 2.11Unit End Questions 2.12 References 2.0 LEARNING OBJECTIVES After studying this unit, you will be able to  Explain definition of NBFCs &classification.  Explain the categories of NBFCs.  Describe regulations governing primary dealers.  Explain the cooperative banks.  Explain the FIs.  Describe the CRR & SLR. 2.1 INTRODUCTION Financial institutions are perhaps the main segments of any country's monetary framework. They assume an imperative part in deciding the adequacy and effectiveness of the monetary framework, and comes in the significance of monetary organizations in that they give the economy administrations to more extravagant than them, they address the crucial foundation through which cash streams from reserve funds to financial backers in different monetary fields. Interest in medium and little ventures is one of the variables of financial development. Little and medium ventures area is a significant area of the public economy, through its commitment to monetary turn of events, expanding homegrown yield ... and so on Little individual tasks are important to various nations of the created and creating world the same, beginning from the crucial job of these undertakings in financial development and occupation creation, and initiating nearby and territorial turn of events. The point of this examination is to reveal insight into the experience of the Iraqi private banks recorded in the Iraqi market for protections as one of the monetary foundations that assume a huge part in giving the money expected to create and back little individual undertakings. Financial institutions are perhaps the most significant and hazardous financial foundations that add to animating or impeding financial movement, Through their capacity to allow credit or credit scaling, and through the control (national bank) in deciding the loan cost and lawful 27 CU IDOL SELF LEARNING MATERIAL (SLM)

hold proportion, As well as the commitment of some in the making of cash, and the acquisition of protections, And the work and utilization of reserve funds. Little endeavours are one of the parts that assume a significant part in propelling the economy of many created nations. A Financial institutions (FI) is an organization occupied with the matter of managing monetary and financial exchanges like stores, credits, ventures, and cash trade. Financial institutions envelop an expansive scope of business tasks inside the Financial institutions area including banks, trust organizations, insurance agencies, financier firms, and speculation sellers. Basically everybody living in a created economy has a progressing or if nothing else intermittent requirement for the administrations of monetary foundations. All India Financial Institutions (AIFI) is a gathering made out of advancement finance organizations and speculation foundations that assume a crucial part in the monetary business sectors. Otherwise called \"monetary instruments\", the monetary establishments aid the appropriate assignment of assets, sourcing from organizations that have an excess and dispersing to other people who have deficiencies - this additionally helps with guaranteeing the proceeded with dissemination of cash in the economy. Conceivably of most prominent importance, the monetary establishments go about as a middle person among borrowers and last loan specialists, giving security and liquidity. This cycle accordingly guarantees income on the speculations and reserve funds included. In Post-Independence India, individuals were urged to expand reserve funds, a strategy expected to give assets to speculation by the Indian government. In any case, there was a tremendous hole between the inventory of reserve funds and interest for the speculation openings in the country. In 1995, the Reserve Bank of India (RBI) presented the arrangement of Primary Dealers (PDs) in the Government Securities (G-Sec) Market. The destinations of the PD framework are to fortify the foundation in G-Sec market, advancement of guaranteeing and market making abilities for G-Sec, further develop optional market exchanging framework and to make PDs a compelling channel for open market activities (OMO). As on June 30, 2015, there are seven independent PDs and thirteen banks approved to attempt PD business departmentally. 2.2 NBFCS Non-Banking Financial Companies (NBFC) assume a urgent part in expanding admittance to monetary administrations, upgrading contest and broadening of the monetary area. They are progressively being perceived as corresponding to the financial framework, fit for retaining shocks and spreading hazards on occasion of monetary pain. Improved on authorize strategies, direction towards clients, appealing paces of return on stores and adaptability and practicality in gathering the credit needs of indicated areas (like gear renting and recruit buy), are a portion of the elements that upgraded the allure of NBFCs. 28 CU IDOL SELF LEARNING MATERIAL (SLM)

2.2.1 Definition of NBFCS and Classification A Non-Banking Financial Company (NBFC) is an organization enlisted under the Companies Act 1956/2013, occupied with the matter of advances and advances, procurement of offers, debentures and different protections, renting, enlist buy, protection business and chit business. The term NBFC does exclude any organization whose main business is that of agribusiness action, mechanical action or offer of any great (other than protections) or offering any types of assistance and deal/buy/development of any unflinching property. Segment 45 I(f) of Reserve Bank of India (Amendment) Act, 1997 characterizes a non- banking monetary organization as  A monetary establishment which is an organization.  A non-banking foundation which is an organization with head business of getting of stores, under any plan or course of action or in some other way, or loaning in any way.  Such other non-banking organization or class of such establishments, as the Reserve Bank with the past endorsement of the Central Government might indicate by warning in the Official Gazette. For reasons for RBI (Reserve Bank of India) Directions identifying with Acceptance of Public Deposits, non-banking monetary organization implies just the non-banking establishment which is a – \"Credit organization\", \"Speculation organization\", \"Recruit buy finance organization\", \"Hardware renting organization\" and \"Common advantage monetary organization\". According to RBI FAQ (Frequently Asked Questions) dated 10 January 2017, Non-Banking Financial Company (NBFC)  Is an organization enlisted under the Companies Act, 1956 or 2013?  Engaged occupied with advances and advances, obtaining of offers/stock/securities/debentures/protections gave by Government or nearby position or different protections of like attractive nature, renting, enlist buy, protection business, chit business.  But does exclude any establishment whose chief business is that of agribusiness action, mechanical action, buy or offer of any merchandise (other than protections) or offering any types of assistance and deal/buy/development of undaunted property. Residuary non-banking organization - A non-banking establishment which is an organization and has its essential business of getting stores under any plan or course of action in one single amount or in portions via commitments or some other way, or loaning in any way is additionally a non-banking monetary organization. 29 CU IDOL SELF LEARNING MATERIAL (SLM)

What does direct monetary action as \"principal business\" mean? Monetary movement as head business is the point at which an organization's monetary resources establish more than 50% of the all-out resources and pay from monetary resources comprise more than 50% of the gross pay. An organization which satisfies both these models will be enlisted as NBFC by RBI. The term 'head. Classification of NBFC Does the Reserve Bank direct all monetary organizations? No. A. Companies excluded from enlistment under RBI Organizations that do monetary business however are managed by different controllers are given explicit exception by the Reserve Bank from its administrative necessities for keeping away from duality of guideline. Following NBFCs have been excluded from the necessity of enlistment under Section 45-IA of the RBI Act, 1934 subject to specific conditions.  Housing Finance Companies (controlled by National Housing Bank).  Merchant Banking Companies (controlled by Securities and Exchange Board of India).  Stock Exchanges (directed by Securities and Exchange Board of India).  Companies occupied with the matter of stock-broking/sub-broking (directed by Securities and Exchange Board of India).  Venture Capital Fund Companies (directed by Securities and Exchange Board of India).  Nidhi Companies (directed by Ministry of Corporate Affairs, Government of India).  Insurance organizations (directed by Insurance Regulatory and Development Authority) and  Chit Fund Companies (directed by the particular State Governments). It might likewise be referenced that Mortgage Guarantee Companies have been told as Non- Banking Financial Companies under Section 45 I(f)(iii) of the RBI Act, 1934. Centre Investment Companies with resource size of not exactly ₹ 100 crore, and those with resource size of ₹ 100 crore or more however not getting to public assets are excluded from enlistment with the RBI. NBFCs not registered with RBI are classified under following categories: 30 CU IDOL SELF LEARNING MATERIAL (SLM)

Figure 2.1:NBFCs not registered with RBI NBFCsmandatedtoregisterunderRBI NBFCs requiring registration with RBI are classified under following categories: Figure 2.2:NBFCs mandated to register under RBI NBFCs enrolled with RBI are arranged as follows: i. In terms of the kind of liabilities into Deposit and Non-Deposit tolerating NBFCs. ii. Non store taking NBFCs by their size into foundationally significant and other non-store holding organizations (NBFC-NDSI and NBFC-ND). iii. By the sort of movement, they direct. 31 CU IDOL SELF LEARNING MATERIAL (SLM)

Inside the arrangement referenced in (c) above, (for example by the sort of movement they direct) the various kinds of NBFCs are as per the following:  Asset Finance Company (AFC) i. AFC would be characterized as any organization which is a monetary establishment carrying on as its central business the financing of actual resources supporting useful/financial movement, like cars, farm trucks, machine machines, generator sets, earth moving and material taking care of hardware's, continuing on own force and broadly useful modern machines. ii. Principal business for this reason for existing is characterized as total of financing genuine/actual resources supporting monetary action and pay emerging there from isn't under 60% of its complete resources and absolute pay individually.  Investment Company (IC): It implies an organization which is a monetary establishment carrying on as its primary business of the obtaining of protections.  Loan Company (LC): It implies any organization which is a monetary foundation carrying on as its fundamental business by giving money whether by making advances or propels or in any case for any action other than its own yet does exclude an Asset Finance Company.  Infrastructure Finance Company (IFC): An IFC is characterized as non-store taking NBFC that satisfies the rules referenced beneath. i. A least of 75% of its all-out resources ought to be conveyed in foundation advances as characterized in Para 2(viii) of the Non-Banking Financial (Non Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007. ii. Has a net possessed assets of ' 300 crore or above? iii. Has got a base FICO assessment 'A' or likeness CRISIL, FITCH, CARE, ICRA, Brickwork Ratings India Pvt. Ltd. or on the other hand comparable rating by some other crediting rating office certify by RBI. iv. Has a Capital to Risk Asset Ratio (CRAR) of 15% (with a base Tier I capital of 10%)?  Systemically Important Core Investment Companies (CICs-ND-SI): Core Investment Company implies a NBFC carrying on the matter of obtaining of offers and protections which fulfils the accompanying conditions. i. It holds at the very least 90% of its Total Assets as interest in value shares, inclination offers, obligation or advances in bunch organizations. 32 CU IDOL SELF LEARNING MATERIAL (SLM)

ii. Its interests in the value shares (counting instruments necessarily convertible into value shares inside a period not surpassing a long time from the date of issue) in bunch organizations comprises at the very least 60% of its Total Assets. iii. It doesn't exchange its interests in offers, obligation or credits in bunch organizations besides through block deal with the end goal of weakening or disinvestment.  Infrastructure Debt Fund - Non-Banking Financial Company (IDF-NBFC): \"Foundation Finance Company\" signifies a non-store taking NBFC that satisfies the accompanying models. i. A least of 75% of its absolute resources conveyed in \"framework credits\". ii. Net claimed assets of ' 300 crore or above. iii. Minimum credit score 'A' or likeness CRISIL, FITCH, CARE, ICRA, Brickwork Rating India Pvt. Ltd. (Brickwork) or identical rating by some other FICO score office licensed by the Bank. iv. CRAR of 15% (with a base Tier I capital of 10%). v. It puts just in Public Private Partnerships (PPP) and post beginning tasks date (COD) foundation projects which have finished something like one year of good business activity and turns into involved with a Tripartite Agreement.  Non-Banking Financial Company – Micro Finance Institution (NBFC-MFI): The Reserve Bank of India having thought of it as essential in the public premium and being fulfilled that to empower the Bank to control the credit framework to the benefit of the nation, gave the headings for the Non-Banking Financial Company-Micro Finance Institutions (Reserve Bank) Directions, 2011.  Non-Banking Financial Company–Factors (NBFC-Factors): NBFC-Factor is a non- store taking NBFC occupied with the essential business of calculating. The monetary resources in the calculating industry ought to comprise at any rate.  50% of its all-out resources and its pay got from figuring business ought not be under 50% of its gross pay.  Mortgage Guarantee Companies (MGC): MGC are monetary establishments for which essentially 90% of the business turnover is contract ensure business or if nothing else 90% of the gross pay is from contract ensure business and net claimed store is ₹ 100 crore.  NBFC-Non-Operative Financial Holding Company (NOFHC) is monetary establishment through which advertiser/advertiser gatherings will be allowed to set up another bank. It's a completely claimed Non-Operative Financial Holding Company 33 CU IDOL SELF LEARNING MATERIAL (SLM)

(NOFHC) which will hold the bank just as any remaining monetary administrations organizations managed by RBI or other monetary area controllers, to the degree passable under the appropriate administrative remedies. 2.2.2 Distinction between NBFCS and Bank  Banks are the public authority approved monetary middle person that targets giving financial administrations to the overall individuals. Though NBFCs gives banking administrations to individuals without conveying a bank permit.  An NBFC is joined under the Companies Act though a bank is enrolled under the Banking Regulation Act, 1949.  NBFCs are not permitted to acknowledge stores which are repayable on request while banks acknowledge request stores.  In NBFC, unfamiliar Investments up to 100% is permitted. Though on account of private area banks they are qualified for unfamiliar speculation, yet which would be close to 74%.  Banks are an indispensable piece of the instalment and settlement cycle while NBFC isn't a piece of this framework.  It is required for banks to keep up with hold proportions like CRR or SLR. While on account of NBFC it isn't needed to keep up with save proportions.  Deposit protection office is permitted to the contributors by Deposit Insurance and Credit Guarantee Corporation (DICGC). On account of NBFC, this sort of office will not be accessible.  Banks can make credit though if there should arise an occurrence of NBFC they are not engaged with the production of credit.  Banks can give exchange administrations to its clients like giving overdraft office, issue of secured check, move of assets, and so on While these sorts of administrations can't be given by NBFC. 2.2.3 Minimum Net Owned Found and Liquid Asset Requirements Minimum Net-owned Fund A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). Net Owned Fund is defined in the Explanation to Section 45-IA of the RBI Act 1934 as follows: 34 CU IDOL SELF LEARNING MATERIAL (SLM)

1. The aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the company after deducting therefrom  Accumulated balance of loss  Deferred revenue expenditure and  Other intangible assets and 2. Further reduced by the amounts representing- Investments of such company in shares of  Its subsidiaries  Companies in the same group  All other non-banking financial companies; and The book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with  Subsidiaries of such company and  Companies in the same group To guarantee a deliberate development towards fortifying the financials of all store taking NBFCs by expanding their NOF to at least Rs.200 lakh in a slow, nondisruptive and non- oppressive way, it has been chosen to recommend that  As an initial step, NBFCs having least NOF of not as much as Rs. 200 lakhs might freeze their stores at the level as of now held by them.  Further, Asset Finance Companies (AFC) having least speculation grade credit score and CRAR of 12% may cut down open stores to a level that is 1.5 occasions their NOF while any remaining organizations might cut down their public stores to a level equivalent to their NOF by March 31, 2009.  Those organizations which are as of now qualified to acknowledge public stores up to a specific level, however have, under any condition, not acknowledged stores up to that level will be allowed to acknowledge public stores up to the changed roof recommended.  Companies on accomplishing the NOF of Rs.200 lakh might submit legal evaluator's declaration affirming its NOF. (e) The NBFCs neglecting to accomplish the recommended roof inside the specified time span, may apply to the Reserve Bank for proper allotment in such manner which might be considered on case to case premise. Liquid Asset Requirements 35 CU IDOL SELF LEARNING MATERIAL (SLM)

As far as Section 45-IB of the RBI Act, 1934, from thirteenth February 2009, the base degree of fluid resource for be kept up with by NBFCs is 15% of public stores extraordinary as on the last working day of the second going before quarter. Of the 15%, NBFCs will be qualified for put a sum equivalent to or in overabundance of 10% of public stores, in unhampered supported protections and the excess 5% in unrestricted (a) term stores in any planned business bank, Small Industries Bank (SIDBI) or National Bank for Agriculture and Rural Development (NABARD) or (b) bonds gave by SIDBI or NABARD. NBFCs are categorized a) in terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs, b) non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and c) by the kind of activity they conduct. Within this broad categorization the different types of NBFCs are as follows: 2.2.4 Categories of NBFCs Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment’s, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively. Investment Company (IC) : IC means any company which is a financial institution carrying on as its principal business the acquisition of securities, Loan Company (LC): LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company. Infrastructure Finance Company (IFC): IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of ₹ 300 crore, c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%. Systemically Important Core Investment Company (CIC-ND-SI): CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions:-  It holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies; 36 CU IDOL SELF LEARNING MATERIAL (SLM)

 Its investments in the equity shares (including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue) in group companies constitutes not less than 60% of its Total Assets;  It does not trade in its investments in shares, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment;  It does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of the RBI act, 1934 except investment in bank deposits, money market instruments, government securities, loans to and investments in debt issuances of group companies or guarantees issued on behalf of group companies.  Its asset size is ₹ 100 crore or above and  It accepts public funds Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF- NBFCs. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria:  Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000;  Loan amount does not exceed ₹ 50,000 in the first cycle and ₹ 1,00,000 in subsequent cycles;  Total indebtedness of the borrower does not exceed ₹ 1,00,000;  Tenure of the loan not to be less than 24 months for loan amount in excess of ₹ 15,000 with prepayment without penalty;  Loan to be extended without collateral;  Aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs;  Loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the 37 CU IDOL SELF LEARNING MATERIAL (SLM)

factoring business should constitute at least 50 percent of its total assets and its income derived from factoring business should not be less than 50 percent of its gross income. Mortgage Guarantee Companies (MGC) - MGC are financial institutions for which at least 90% of the business turnover is mortgage guarantee business or at least 90% of the gross income is from mortgage guarantee business and net owned fund is ₹ 100 crore. NBFC- Non-Operative Financial Holding Company (NOFHC) is financial institution through which promoter / promoter groups will be permitted to set up a new bank .It’s a wholly- owned Non-Operative Financial Holding Company (NOFHC) which will hold the bank as well as all other financial services companies regulated by RBI or other financial sector regulators, to the extent permissible under the applicable regulatory prescription. 2.2.5Income Recognition and Prudential Accounting Norms Income Recognition Policy  The strategy of pay acknowledgment must be even-handed and in view of the record of recuperation. Globally pay from nonperforming resources (NPA) isn't perceived on accumulation premise yet is reserved as pay just when it is really gotten. Along these lines, the banks ought not charge and consider revenue on any NPA.  However, interest on propels against term stores, NSCs, IVPs, KVPs and Life arrangements might be considered on the due date, given sufficient edge is accessible in the records.  Fees and commissions acquired by the banks because of renegotiations or rescheduling of exceptional obligations ought to be perceived on a gathering premise throughout the timeframe covered by the renegotiated or rescheduled expansion of credit.  If Government ensured progresses become NPA, the interest on such advances ought not be considered except if the interest has been figured it out. Prudential Accounting Norms Bombay Chartered Accountants Society CA Bhavesh Vora 04/08/2016 NBFC Prudential Norms and Compliances Important AspectsCoverage04/08/2016 BCAS - CA Bhavesh Vora Existence of NBFCs Last Decade of NBFC Banks Vs. Non-Banks Meaning of NBFCs Major Changes in 2007-08 Recent Developments Applicability and Issues Public Funds Vs. Public Deposits Income Recognition Accounting according to Prudential Norms Asset Classification and Provisioning Capital Adequacy Leverage Ratio Coverage. 38 CU IDOL SELF LEARNING MATERIAL (SLM)

2.3 PDS In 1995, the Reserve Bank of India (RBI) presented the arrangement of Primary Dealers (PDs) in the Government Securities (G-Sec) Market. The targets of the PD framework are to reinforce the foundation in G-Sec market, advancement of guaranteeing and market making abilities for G-Sec, further develop auxiliary market exchanging framework and to make PDs a powerful course for open market tasks (OMO). As on June 30, 2015, there are seven independent PDs and thirteen banks approved to attempt PD business departmentally. 2.3.1 Regulations Governing Primary Dealers  PDs are needed to meet enlistment and such different necessities as specified by the Securities and Exchange Board of India (SEBI) remembering tasks for the Stock Exchanges, in the event that they attempt any action controlled by SEBI.  PDs are required to join Primary Dealers Association of India (PDAI) and Fixed Income Money Market and Derivatives Association (FIMMDA) and submit to the implicit rules outlined by them and such different activities as started by them in light of a legitimate concern for the protections markets.  In regard of exchanges in Government protections, a Primary Dealer ought to have a different work area and keep up with independent records in regard of its own position and client exchanges and subject them to outer review too.  Any change in the shareholding design/capital construction of a PD needs earlier endorsement of RBI. PDs should report some other material changes, for example, business profile, association, and so forth influencing the states of authorizing as PD to RBI right away.  Reserve Bank of India maintains all authority to drop the Primary Dealership if, in its view, the concerned foundation has neglected to hold fast to the terms of authorisation or some other RBI rule as material.  A Primary Dealer ought to bring to the RBI's consideration any significant objection against it or move started/taken against it by specialists like the Stock Exchanges, SEBI, CBI, Enforcement Directorate, Income Tax, and so forth. 2.3.2 Additional Guidelines Applicable To Banks Undertaking Pd Business Departmentally PDs are relied upon to assume a functioning part in the public authority protections market, both in its essential and auxiliary market fragments. A Primary Dealer will be needed to have a standing plan with RBI dependent on the execution of an endeavour (Annex I) and the authorisation letter gave by RBI every year. The significant jobs and commitments of PDs are as underneath 39 CU IDOL SELF LEARNING MATERIAL (SLM)

 Support to Primary Market: PDs are needed to help barters for issue of Government dated protections and Treasury Bills according to the base standards for endorsing responsibility, offering responsibility and achievement proportion as recommended by RBI every now and then.  Market making in Government protections: PDs should offer two-way costs in Government protections, through the Negotiated Dealing System-Order Matching (NDS-OM), over-the-counter market and perceived Stock Exchanges in India and take chief situations in the auxiliary market for Government protections.  PDs ought to keep up with sufficient actual framework and gifted labour for effective cooperation in essential issues, exchanging the optional market, and to prompt and instruct financial backers.  A Primary Dealer will have a productive inner control framework for reasonable lead of business, settlement of exchanges and support of records.  A Primary Dealer will give admittance to RBI to all records, books, data and archives as and when required.  PDs' interest in Government Securities and Treasury Bills consistently ought to be basically equivalent to its net call/notice/repo (counting CBLO) acquiring in addition to net RBI getting (through LAF/Intra-Day Liquidity/Liquidity Support) in addition to the base endorsed NOF. 2.4 FIS 2.4.1 Commercial Banks Commercial banks are the main delegate monetary foundations and their principle work is to acknowledge current stores, Savings stores from people, establishments, public organizations, and projects, and contributes it for its own benefit, by giving credits and other monetary exchanges. 2.4.2Retail Banking Retail banking, otherwise called customer banking or individual banking, will be banking that offers monetary types of assistance to singular purchasers instead of organizations. Retail banking is a way for singular buyers to deal with their cash, approach credit, and store their cash in a protected way. Administrations offered by retail banks incorporate checking and investment accounts, contracts, individual advances, charge cards, and authentications of store (CDs). 40 CU IDOL SELF LEARNING MATERIAL (SLM)

2.4.3 Insurance Companies Insurance agency a monetary organization which underwrites the danger of loss of, or harm to, individual and business resources (General Insurance) and life and appendage (life and mishap protection). A few organizations represent considerable authority in one or other of these spaces, yet others (alluded to as 'composites') work in the two areas. Insurance agencies issue protection approaches to cover an assortment of possibilities (fire, flooding, breakage, burglary, passing, and so forth), including likely monetary misfortune to strategy holders or their wards as a trade-off for customary instalments of an expense. 2.4.4 Merchant Banking Shipper banking can be characterized as an expertise arranged proficient help given by trader banks to their customers, concerning their monetary necessities, for satisfactory thought, as expense. Shipper banks are an expert in worldwide exchange and consequently, dominate in executing with huge ventures. Administrations Offered by Merchant Banks Shipper Banks offers a scope of monetary and consultancy administrations, to the clients, which are identified with  Marketing and endorsing of the new issue  Merger and obtaining related administrations  Advisory administrations, for raising assets  Management of client security  Project advancement and task finance  Investment banking  Portfolio services  Insurance services. Vendor banking helps in supporting the monetary improvement of the country, by going about as a wellspring of assets and data to the business substances. 2.4.5 Corporate Banking Corporate banking, otherwise called business banking, regularly serves an assorted customer base, going from little to fair sized nearby organizations with a couple million in incomes to huge aggregates with billions in deals and workplaces the nation over. The term was initially utilized in the United States to recognize it from speculation banking after the Glass-Steagall Act of 1933 isolated the two exercises. 41 CU IDOL SELF LEARNING MATERIAL (SLM)

2.4.6 Mutual Fund Houses On the other hand known as Asset Management Companies (AMC), reserve houses are associations that put pooled in cash from financial backers into monetary instruments like values, shared assets, protections, and so on These organizations have qualified asset supervisors who choose where to put away cash contingent upon the states of the market. In straightforward words, these organizations deal with the cash pooled from various financial backers. 2.4.7 Asset Management Companies A resource the asset management companies (AMC) is a firm that contributes pooled assets from customers, giving the capital something to do through various ventures including stocks, bonds, land, ace restricted associations, and then some. Alongside high-total assets singular portfolios, AMCs oversee mutual funds and benefits plans, and—to all the more likely serve more modest financial backers—make pooled designs like common assets, file assets, or trade exchanged assets, which they can oversee in a solitary concentrated portfolio. 2.5 COOPERATIVE BANKS A co-operative bank is a monetary substance which has a place with its individuals, who are simultaneously the proprietors and the clients of their bank. Co-operative banks are regularly made by people having a place with a similar neighbourhood or expert local area or sharing a typical premium. Co-operative banks for the most part give their individuals a wide scope of banking and monetary administrations (advances, stores, banking accounts and so forth) Co- operative banks contrast from investor banks by their association, their objectives, their qualities and their administration. 2.5.1 Control Over Co - Operative Banks 1. A helpful bank is an agreeable society occupied with the matter of banking and might be an essential Cooperative bank, an area focal helpful bank or a state helpful bank. Agreeable banks working in one state just are enlisted under the State helpful Societies Act concerned. The development of such banks just as their administration and command over staff is directed by the helpful law of the state. The Registrar of helpful social orders under the Cooperative Societies Act practices a wide scope of forces on agreeable social orders from enrolment to twisting up. 2. In the instance of helpful banks working in more than one express, the Multi-State Cooperative Societies Act, 2002 is pertinent. All things considered; the Registrar delegated by the Central Government replaces the Registrar designated by the state government in different cases. 42 CU IDOL SELF LEARNING MATERIAL (SLM)

2.5.2 Co-Operative Banks In India Agreeable Banks in India are monetary substances which are under the having its very own place individuals who are simultaneously the proprietor and clients which has been enlisted under the state helpful social orders Act. Additionally, these Cooperative Banks are dir ected by Reserve Bank of India and were administered by banking guideline Act 1949, Banking Laws Act 1955, and there are an all-out 31 Cooperative Banks in India, which are separately under by Government Firms to offer support to their workers. These Cooperative banks let you keep stores, get advances and offer different monetary types of assistance for their cooperatives or individuals from the general public. 2.5.3 History of Co - Operative Banks in India The historical backdrop of helpful banks returns to the year 1904. In 1904, the helpful credit society act was established to energize co-usable development in India. However, the improvement of helpful banks from 1904 to 1951 was the most frustrating one. The primary period of co-employable bank advancement was the development and guideline of helpful society. The established changes which prompted the death of the Government of India Act in 1919 moved the subject of \"Collaboration\" from Government of India to the Provincial Governments. The Government of Bombay passed the main State Cooperative Societies Act in 1925 \"which not just gave the development, its size and shape however was a speed setter of agreeable exercises and focused on the essential idea of frugality, self-improvement and common guide.\" This denoted the start of the second stage throughout the entire existence of Co-usable Credit Institutions. There was the overall acknowledgment that metropolitan banks have a significant job to carry out in financial development. This was affirmed by a large group of councils. The Indian Central Banking Enquiry Committeefelt that metropolitan banks have an obligation to help the private venture and working class individuals. The Mehta - Bhansali Committeesuggested that those social orders which had satisfied the measures of banking ought to be permitted to fill in as banks and suggested an Association for these banks. The Cooperative Pharming Committeewent on record to say that metropolitan banks have been the best offices for little individuals in whom Joint stock banks are not by and large intrigued. The Rural Banking Enquiry Committeedazzled by the minimal expense of foundation and tasks suggested the foundation of such banks even in places less than taluka towns. The genuine advancement of co-employable banks occurred solely after the proposals of All India Rural Credit Survey Committee (AIRCSC), which were made with the view to attach the development of co-usable banks. The co-usable banks are relied upon to play out certain obligations, to be specific, broaden a wide range of credit offices to clients in real money and kind, advance utilization advances, expand banking offices in country regions, activate stores, manage the utilization of advances and so forth The necessities of co- employable bank are unique. They have confronted a great deal of issues, which has influenced the improvement of co-employable banks. Thusly, it was important to examine 43 CU IDOL SELF LEARNING MATERIAL (SLM)

this matter. The principal investigation of Urban Co-usable Banks was taken up by RBI in the year 1958-59. The Report distributed in 1961 recognized the inescapable and monetarily solid famework of metropolitan co-employable banks; accentuated the need to build up essential metropolitan co-usable banks in new focuses and proposed that State Governments loan dynamic help to their turn of events. In 1963, Varda Committee suggested that such banks ought to be coordinated at all Urban Centres with a populace of 1 lakh or more and not by any single local area or station. The council presented the idea of least capital necessity and the standards of populace for characterizing the metropolitan community where UCBs were joined. 2.5.4 Types of Co-Operative Banks The co-employable banks are little measured units which work both in metropolitan and non- metropolitan focuses. They finance little borrowers in mechanical and exchange areas other than expert and compensation classes. Controlled by the Reserve Bank of India, they are administered by the Banking Regulations Act 1949 and banking laws (Co-usable social orders) Act, 1965. The co-employable financial design in India is separated into following 5 parts. 1. Primary co-operative credit society The essential co-operative credit society is a relationship of borrowers and non-borrowers dwelling in a specific region. The assets of the general public are determined fi-om the offer capital and stores of individuals and advances from focal co-operative banks. The getting forces of the individuals just as of the general public are fixed. The advances are given to individuals for the acquisition of dairy cattle, feed, composts, pesticides, and so on. 2. Central co-operative banks - These are the alliances of essential credit social orders in a region and are of two kinds those having an enrolment of essential social orders in particular and those having a participation of social orders just as people. The assets of the bank comprise of offer capital, stores, credits and overdrafts fi-om state co-usable banks and joint stocks. These banks give money to part social orders inside the constraints of the acquiring limit of social orders. They additionally lead all the matter of a joint stock bank. 3. State co-operative banks the state co-usable bank is an organization of focal co-usable bank and goes about as a guard dog of the co-operative financial design in the state. Its assets are acquired from share capital, stores, credits and overdrafts fi-om the Reserve Bank of India. The state helpful banks loan cash to focal co-usable banks and essential social orders and not straightforwardly to the ranchers. 4. Land advancement banks - The Land improvement banks are coordinated in 3 levels in particular; state, focal, and essential level and they meet the drawn out credit prerequisites of the ranchers for formative purposes. The state land improvement 44 CU IDOL SELF LEARNING MATERIAL (SLM)

banks regulate, the essential land advancement banks arranged in the locale and tehsil regions in the state. They are represented both by the state government and Reserve Bank of India. 5. Urban co-operative banks the Term Urban Co-operative Banks (UCBs), however not officially characterizedalludes to essential co-operative banks situated in metropolitan and semi-metropolitan regions. These banks, till 1996, were permitted to loan cash just for non-farming purposes. This qualification doesn't hold today. These banks were customarily jogged on networks, regions, work place gatherings. They basically loan to little borrowers and organizations. Today, their extent of activities has extended extensively. 6. Bank, Banker, Banking: No helpful society other than an agreeable bank is allowed to use as a feature of its name or regarding the business, the words \"bank\", \"broker\" and \"banking\". Further, a helpful society continuing financial business needs to use no less than one of such words as a feature of its name. 7. Paid-up Capital and Reserves The base settled up capital and stores required starting or continue banking business by an agreeable bank isn't not as much as Rs 1 lakh under Section 11. Be that as it may, this arrangement isn't relevant to an essential credit society which becomesan essential helpful bank after the initiation of the Act, for a time of a long time from the date it turns into an essential agreeable bank. The Reserve Bank might give a further time of one year in light of a legitimate concern for contributors of the essential agreeable bank in a specific case. For ascertaining the worth of settled up capital and stores, the genuine and replaceable worth and not the ostensible worth would be thought of. On account of a debate in regards to the worth of settled up capital and stores. Hold Bank's choice will be conclusive. 8. Cash reserve - Cooperative banks other than booked state agreeable banks need to keep up with in India via cash save with itself or via offset in current record with the Reserve Bank or the state helpful bank of the state concerned or via net equilibrium in current records or anybody or a greater amount of these ways an aggregate comparable to somewhere around 3% of its all-out interest and time liabilities in India 9. Restrictions on loans and advances - A. Area 20 of the Banking Regulation Act (as material to helpful social orders) sets out specific limitations on credits and advances by agreeable banks. Appropriately, a helpful bank will not concede credits and advances as under: i. Loans and advances on the security of its own offers. ii. Unsecured advances or advances to firms or privately owned businesses in which any of its chiefs are intrigued as accomplice, overseeing specialist or underwriter, 45 CU IDOL SELF LEARNING MATERIAL (SLM)

or t6 people in situations where any of its chiefs is an underwriter for the advances or advances. 9. Permitting of cooperative banks - Each helpful society requires a permit from the Reserve Bank under section 22 of the Banking regulation act to continue banking business in India. In any case, essential credit social orders are excluded from the prerequisite. The Reserve Bank might force such conditions as it might consider fit while giving permit to an agreeable bank. Helpful social orders continuing financial business at the beginning of the Banking Laws Act, 1965 were given exclusion for a time of one year. 2.5.5 Rules for Co - Operative Banks Non-scheduled (urban) cooperative banks, under the provision of Section 18 of Banking Regulation Act, 1949 (As Applicable to Cooperative Societies) should maintain a sum equivalent to at least 3 per cent of their total demand and time liabilities in India on day-to- day basis Non-Scheduled banks a) with NDTL of Rs.25 crore & above – 15% b) with NDTL of less than Rs.25 crore – 10% 2.6 CRR Cash Reserve Ratio or CRR is the base sum as indicated by the Central Bank, to be kept up with by the Commercial banks of the public stores with the Central Bank. This article will upkeep you with CRR, its experience, benefits and significance of Cash Reserve Ratio, Effects of CRR on Banks, contributors and financing costs and the need to keep up with Cash Reserve Ratio. Wannabes of cutthroat tests like UPSC test, Bank test, RRB, SSC and other Government tests should be knowledgeable with CRR. Money Reserve Ratio is a significant theme for the overall mindfulness part of the multitude of cutthroat tests. What is the Cash Reserve Ratio? CRR is a fundamental financial strategy device utilized for controlling the cash supply in the economy, a guideline carried out in pretty much every country by the Central Bank of that country. CRR rate is the base level of money stores (as indicated by RBI) that should be kept up with by each business bank according to the prerequisite of the Central Bank for example RBI. Money Reserve Ratio Rate is processed as a level of the net interest and time liabilities of each bank. Net demand and time liability is reached with the absolute of the investment account, current record, and fixed store adjusts. However the allowable scope of CRR rate is between 3 to 15%, the current CRR of India is 4%. That implies banks need to keep 4 rupees with the RBI 46 CU IDOL SELF LEARNING MATERIAL (SLM)

at whatever point their store increments by 100 rupees. Higher CRR implies lower measure of cash accessible with banks to loan out or contribute for example lower would be the liquidity and the other way around. 2.7 SLR Statutory liquidity ratio prevalently called SLR is the base level of stores that the business bank keeps up with through gold, cash and different protections. Nonetheless, these stores are kept up with by the actual banks and not with the RBI or Reserve Bank of India. How does Statutory Liquidity Ratio Work? Each bank should have a specific bit of their Net Demand and Time Liabilities (NDTL) as money, gold, or other fluid resources before the day's over. The proportion of these fluid resources for the interest and time liabilities is known as the Statutory Liquidity Ratio (SLR). The Reserve Bank of India (RBI) has the power to build this proportion by up to 40%. An increment in the proportion chokes the capacity of the bank to infuse cash into the economy. RBI is likewise answerable for controlling the progression of cash and soundness of costs to run the Indian economy. Legal Liquidity Ratio is one of its numerous money related arrangements for the equivalent. SLR (among different apparatuses) is instrumental in guaranteeing the dissolvability of the banks and income in the economy. 2.8 SUMMARY  Financial foundations are perhaps the most significant and hazardous monetary organizations that add to animating or preventing financial action, Through their capacity to give credit or credit scaling, and through the control (national bank) in deciding the loan fee and legitimate save proportion, As well as the commitment of some in the making of cash, and the acquisition of protections, And the work and utilization of reserve funds. Little ventures are one of the parts that assume a significant part in propelling the economy of many created nations.  Non-Banking Financial Companies (NBFC) assume an essential part in widening admittance to monetary administrations, improving contest and enhancement of the monetary area. They are progressively being perceived as integral to the financial framework, fit for engrossing shocks and spreading hazards on occasion of monetary pain.  Infrastructure debt funds - Non-Banking Financial Company (IDFs-NBFC) work with the progression of long haul obligation into foundation projects. The IDF-NBFC will be set up one or the other as trust or as an organization. A trust based IDF would 47 CU IDOL SELF LEARNING MATERIAL (SLM)

ordinarily be a shared asset while an organization based IDF would regularly be a NBFC for example IDF-NBFC.  In 1995, the Reserve Bank of India (RBI) presented the arrangement of Primary Dealers (PDs) in the Government Securities (G-Sec) Market. The destinations of the PD framework are to reinforce the foundation in G-Sec market, advancement of endorsing and market making capacities for G-Sec, further develop optional market exchanging framework and to make PDs a compelling course for open market activities (OMO). As on June 30, 2015, there are seven independent PDs and thirteen banks approved to attempt PD business departmentally.  Commercial banks are the main delegate monetary organizations and their fundamental capacity is to acknowledge current stores, Savings stores from people, establishments, public organizations, and projects, and contributes it for its own benefit, by allowing credits and other monetary exchanges.  Alternatively known as Asset Management Companies (AMC), reserve houses are associations that put pooled in cash from financial backers into monetary instruments like values, shared assets, protections, and so forth These organizations have qualified asset supervisors who choose where to put away cash contingent upon the states of the market. In basic words, these organizations deal with the cash pooled from various financial backers. 2.9 KEYWORDS  Agency - An office or body offering a particular assistance for an administration or comparative association.  Fiscal - Of or identifying with governments use incomes or obligation.  Foreign Exchange - It is the trading of one money for another or the transformation of one cash Notes into another cash.  Loans - A thing that is acquired, particularly an amount of cash that is required to be taken care of with premium.  NBFCs - Non-banking Financial Companies. 2.10 LEARNING ACTIVITY 1. Take any bank and identify the exclusive banking services of it. ___________________________________________________________________________ _________________________________________________________________________ 48 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Find a bank’s annual report by using the World Wide Web or visiting a library. Using the annual report, do the following: i. Find the different rate of interest available for customer’s account. ___________________________________________________________________________ _________________________________________________________________________ 2.11UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Write a short note on cooperative banks. 2. Define NBFCs. 3. Explain CRR and SLR. 4. Describe the co-operative banks in India. 5. What areinsurance companies? Long Questions 1. Explain the types of co-operative banks. 2. Discuss the FIs. 3. Definition of NBFCs &classification. 4. Describe regulations governing primary dealers. 5. What are the rules for co - operative banks? Explain. B. Multiple Choice Questions 1. Which among these is not a monetary tool? a. SLR b. Deficit financing c. Open market operations d. CRR 2. Which of the following HDFC bank is an example of? 49 a. Foreign bank b. Public bank c. Private bank d. None of these CU IDOL SELF LEARNING MATERIAL (SLM)

3. What is the rate of interest is increased by RBI? a. Lower inflation b. Higher inflation c. From the pressure of commercial banks d. All of these 4. Which of the following is not a function of the RBI? a. Printing of currency b. Controller of credit c. Issuance of coins d. Custodian of foreign currency 5. What is the liabilities of a commercial bank include? a. Loans. b. Demand deposits c. Net worth. d. Shares of stock. Answers 1-b. 2- c. 3-a. 4- c. 5- b 2.12 REFERENCES References  Rajesh, R&Sivagnanansithi, T. (2009). “Banking Theory: Law and Practice”. Tata McGraw Hill Publishing Company Ltd.  Shekhar, K, C (2009). “Banking Theory and Practice”. Vikas Publishing House Pvt. Ltd.  Khan, M, Y. Indian Financial System. Tata McGraw Hill. Textbooks  Hajols, T, N. (2009). “Money and Banking”. Gopaljee Enterprises.  Muralitharan, D (2009). “Modern Banking: Theory and Practice”, PHI Learning Pvt. Ltd. 50 CU IDOL SELF LEARNING MATERIAL (SLM)