General Banking Awareness

General Banking Awareness

UPDATE YOURSELF- All important rates at present

What is a repo rate? [ Present Repo Rate 7.00%]:  

Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they are facing for money (loans) and how much they have on hand to lend.   If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate.

What is a reverse repo rate? [ Present Reverse repo Rate 8.00%]: 

This is the exact opposite of repo rate.  The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system

If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk)

Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess money into the economy  Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks, while repo signifies the rate at which liquidity is injected.

What is bank rate?  [Present bank Rate: 9.00%]:

This is the rate at which RBI lends money to other banks (or financial institutions The bank rate signals the central bank’s long-term outlook on interest rates. If the bank rate moves up, long-term interest rates also tend to move up, and vice-versa.  Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate of interest. If the RBI hikes the bank rate (this is currently 6 per cent), the interest that a bank pays for borrowing money (banks borrow money either from each other or from the RBI) increases. It, in turn, hikes its own lending rates to ensure it continues to make a profit.

What is marginal standing facility? [Present MSF 9.00%]

It provides additional liquidity to banks against securities (introduced 09.05.2011).  Maximum amount under this scheme is 1% of NDTL  (minimum Rs.1.0 crore)at repo+1% rate of interest for maximum period of borrowing  overnight + RBI holidays.

What is call rate? :  Call rate is the interest rate paid by the banks for lending and borrowing for daily fund requirement. Since banks need funds on a daily basis, they lend to and borrow from other banks according to their daily or short-term requirements on a regular basis.

What is CRR? [ present CRR 4.00% of NDTL]  

Cash Reserve Ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation by tying their hands in lending money. AS per RBI act section 42 -1 All SCB maintain balance in their CD account with RBI with zero rate of interest.

What is SLR? [ Present SLR 23%of NDTL] : 

Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements. As per BRA sec-24  every schedule and non schedule bank is to maintain  this on daily basis . RBI is empowered to vary it from 0% to 40 %

What is base rate-[present 10.25% wef 08.02.2013 IC 9498]-

 BPLR system introduced in 2003 has fell short of its original objectives of bringing transparency as Banks could not lend below BPLR.RBI now introduced base rate wef July 01,2010 to have transparency and nondiscriminatory manner. All advance except certain specified categories ( loans against banks own deposit,DRI loan, staff loans) are now linked to base rate. No advance can be given below base rate

What is selective credit control? :  

Also known as qualitative control is used to regulate Cost and quantum of credit to selected sectors, by stipulating (a) minimum margin for lending against selected commodities (b) Ceiling on level of credit (c) Minimum rate of interest to be charged on advances against particular commodities.

What is broad money and narrow money?

Money supply in banking system is calculated by 4 types of money stock i.e.M0, M1, M2.M3. M0 is called monetary base (currency in circulation + deposit of banks in RBI+ other deposits in RBI)

M1- narrow money = M0+ demand deposit with banks

M2= currency in circulation + all demand deposit with banks + term deposit with maturity up to 1 year( excluding FCNRB)

M3- Broad Moneycurrency in circulation + all demand deposit with banks +all term depositexcluding FCNRB)  + other deposit with RBI

Secured advance- as per BRA 1949 (section 5 n) advances where the market value of security is not less than the advance outstanding

Banking Regulation Act-1949

Section -5 (b)- define banking - Accepting deposits of money from the public for the purpose of lending or investment which is repayable on demand .

Section -9 no bank can hold immovable property for any purpose for the period of exceeding 7 years except for its own use

Section 20 (a)- no banking company shall grant any loan and advance on the security on its own shares.

Section 22- licensing of the banks

Section 23- branch licensing

Section 24 SLR

Section 26- unclaimed deposit returns every calendar year which have been not operated for 10 years and above

Section 45 Z- return of paid cheques to customers