1. RBI reserves give interest on the currency in circulation 2. Interests on CRR 3. Inflation tax

T-Bills: 91 - 364/365 days; discounted value; CG only Cash Management Bills: 1 year State Development Loans: States only; >1 year

Money & Banking Flashcards by Sonia Shrinivasan

Relation between Money Supply & Prices when output is constant

Money supply is directly proportional to prices

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Relationship b/w output & prices when money supply is constant

Output is inversely proportional to prices

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Seignorage of RBI

RBI reserves give interest on the currency in circulation
Interests on CRR
Inflation tax

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Inflation tax

Inflation rate x monetary base

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Function of money

Medium of exchange
Unit of account
Store of value

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Types of exchange rate systems

Fixed - govt fixed
Float - market decided
Managed float - interventions to keep ER within a certain range

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Types of securities? Difference?

Equity - ownership & share in P/L
Debt/Bond - interest on shares, no ownership

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G securities

T-Bills: 91 - 364/365 days; discounted value; CG only
Cash Management Bills: <91 days; T-bills; BSE & NSE
Dated Securities; >1 year
State Development Loans: States only; >1 year

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Backstop Facility

creates a secondary source of funds in case the primary source is not enough to meet current needs

purchase the bond/debt papers (of investors) which are of investment grade

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Capital Market

Debt & equity
IPO & FPO

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Money market

Short maturity (<1yr) ; high liquidity
Debt instrments

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CBLO?

Collateralized Borrowing and Lending Obligations (CBLO).

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CoD

Certificate of Deposit
<1 y
Against money deposited in the bank

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Commercial Paper

Unsecured money market instrument
7 days - 1 yr

BFCs, development financial institutions (like NABARD, SIDBI etc.), cooperative societies, Govt. entities (PSUs) and other companies can issue

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Call Money

Overnight basis
2-14 days
Unsecured
Commercial banks, cooperative banks, Primary dealers, DGIs, insurance co & selected mutual funds

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Types of Bank Accounts for Indian Citizens

Savings & Current Account
Fixed & Recurring deposits

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Savings account

Individuals
Demand deposits
Restrictions on withdrawals & no. Of transactions
Minimum balance prescribed
User charges deducted

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Current Accounts

No limit on the number of transactions
Demand deposits
Most liquid
No interest

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Fixed deposits

One-time time deposit
7 days to 10 yrs
Fixed term, pre mature withdrawal with penalty

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Recurring deposits

Small amount at regular time intervals
Interest on amount deposited
6 mts to 10 yrs

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Accounts for NRI/PIO

FCNR: any currency, freely repatriable, term deposits only
NRE: ₹ only, freely repatriable, any form of deposit, non taxable
NRO: ₹ only, limited repatriable, any form of deposit, principle and interest are taxable

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Money Supply

Total stock of money in circulation among the public at any point in time - public’s money either in cash or deposits form;
Interbank deposits; cash reserves of commercial bank; cash held by RBI, GoI & banks are excluded

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Monetary base

Currency in circulation + currency with banks + deposits with RBI

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Broad money

M3 = M1 + time deposits with banks
M4 = M3 + All deposits with POSB

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Narrow money

M1 = currency with public + demand deposits with banks M2 = M1 + savings deposits with POSBs

Highest & lowest liquidity

Decreasing order of Liquidity M1>M2>M3>M4

Monetary Policy Tools

Qualitative : Credit rationing , moral suasion Quantitative: RR, RRR, BR, OMO

SLR

BRA 0-40% Banks keep with themselves daily Liquid assets - gold, cash, g-sec Applies to - SCB, RRB, SFB, Payments Bank, LABs, pry UCB, StCB, DCCBs Liquid assets / NDTL

OMO

Sale of t -bills, g-secs to reduce the domestic component of Monetary supply

RRR

Banks park funds with rbi Liquidity absorption tool Overnight basis No limits as of now, rbi can impose though

MSF

RR+0.25% Banks borrow from RBI Dipping into SLR reserves (~2%)

LAF

MSF = RR+0.25 ——— RR ——— SDF = RR-0.25

Bank Rate

RBI buys debt instruments BR = MSF = RR + 0.25 Discontinued post LAF

SDF

RR - 0.25 Overnight deposits by bank Bankss’ discretion 365*7*24 Avl (unlike RR & RRR which happen as per RBI’s discretion)

Fractional reserve banking

Banks only lend out a portion of their deposits, keeping enough to meet their daily transactional requirements

MSS

Market sterilisation scheme Absorption of surplus liquidity through t-bills and g-secs

CDR

Credit Deposit Ratio Loans/total deposits

RDR

Reserve Deposit Ratio Reserves of Banks / Deposits of the public in banks

PSL & Types

On lending - onward lending by BNFCs, MFI; <5% of PSL targets Incremental PSL credit in Identified districts Co lending - Banks & NBFC (PT365)

Incremental PSL

Onward lending

Co-lending b/w Banks & NBFCs

CBDC / e₹

Fiat currency, digital form e₹ = bank note under rbi act P2P, P2M Bearer instrument WILL NOT EARN INTEREST LIKE CASH

NABARD

1982, NABARD Act 1981 indirect credit assistance by financing rural credit institution, approval by CG Supervisor, advisor

Non Banking Financial Companies

Companies Act NOT INCLUDE - principal business is agri, industrial, sale & purchase of goods other than securities, sale/purchase/construction of immovable prop Pvt sector Licensed by rbi

Scheduled Commercial Banks

Second schedule of RBI Act Paid up share capital >/= 500 crores Maintain reserve req with rbi

Non Scheduled Commercial Banks

Limited banking ops - cannot deal with forex (eg) Need to maintain reserve req, not necessarily with rbi

Urban Cooperative Banks/Primary Cooperative Banks

Scheduled & Non scheduled; rural & urban

Rural Cooperative Banks

Supervised by NABARD & Registrar

Public Sector Banks

Govt has >/= 51% shareholding

Private Sector Banks

Private ownership

RRB

Est in 1975, RRB Act 1976 50:35:15 = CG:PSB-SB:SG 75% ANBC PSL

Local Area Bank

GoI scheme - 1996 Only 4, all non scheduled - Krishna Bhima Samruddhi; Coastal; Capital; Subhadra

National Housing Bank

NHB Act 1987, est in 1988 Indirect fin assistance by refinancing credit institutions

EXIM

1982, EXIM Act 1981 Direct & indirect assistance

SIDBI

SIDBI Act, 1989 Principal FI for MSME devpt Indirect fin lending / refinancing for onward lending to MSMEs

MUDRA

Micro Units Development and Refinance Agency Ltd. Non cooperate funding - SMUs, shop owners, etc. Swishy - Tarun- Kishore (5, 5-10, 20 lakhs)

NABFID

DFI 20k crores 100% govt stake; will reduce to 26%

Payments Bank

Savings & current account facilities only Demand deposits only Add ons to existing banks, not competition

Microfinance

Credit Information Companies

Base Rate

MCLR

External Benchmarking

Anchor Rate

BASEL NORMS

Systemically Important Institutions

D-SIBs

D-SINs

D-SIIs

Foreign Investments - FDI & FPI

Foreign Investment Capital Instruments

Depository Receipts - ADRs & GDRs

Debt Instruments - ECB

Masala Bonds

Currency Swap

GIFT

IFSCA

Current Account

Capital Account

Liberalised Remittance Scheme

Liquidity Trap

Inflation

CPI

WPI

Philips Curve

Lorenz Curve

Kuznets Curve