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INDIAN BANKING WORKING OF
MONETARY & CREDIT POLICY ININDIA
PRESENTED BY:
VENKAT ADITYA
ABHINAV PINNU
RANJIT KUMAR
PREETHAMKOTESWARA RAO
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CONTENTS
Meaning of Bank
History of Banking
History of Indian Banking Current Scenario of Indian Banking
Money and Credit
Monetary Policy
Current Credit Policy
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Origin of the word Bank
The word bankwas borrowed in Middle English from Middle
French banque, from Old Italian banca, from Old HighGerman banc, bank"bench, counter".
Benches were used as desks or exchange counters during
the Renaissance by Florentine bankers, who used to maketheir transactions atop desks covered by green tablecloths.
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Meaning of Bank
Bank is a lawful organization, which accepts
deposits that can be withdrawn on demand. Italso lends money to individuals and business
houses that need it.
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Role of BankingBanks provide funds for business as well as personal
needs of individuals. They play a significant role in
the economy of a nation.
It encourages savings habit amongst people and thereby makesfunds available for productive use.
It acts as an intermediary between people having surplus
money and those requiring money for various business
activities.
It facilitates business transactions through receipts and
payments by cheques instead of currency.
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It provides loans and advances to businessmen for short term
and long-term purposes.
It also facilitates import export transactions.
It helps in national development by providing credit tofarmers, small-scale industries and self-employed people as
well as to large business houses which lead to balanced
economic development in the country.
It helps in raising the standard of living of people in generalby providing loans for purchase of consumer durable goods,
houses, automobiles, etc.
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History of Banking Sector
Banking in the modern sense of the word can be traced to medieval and
early Renaissance Italy, to the rich cities in the north
like Florence, Venice and Genoa.
The Bardi and Peruzzi families dominated banking in 14th century
Florence, establishing branches in many other parts of Europe. Perhaps the most famous Italian bank was the Medici bank, set up by
Giovanni Medici in 1397.
The earliest known state deposit bank, Banco di San Giorgio (Bank of St.
George), was founded in 1407 at Genoa, Italy.
Banks can be traced back to ancient times even before moneywhen temples were used to store commodities.
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The Banking Companies Act of 1949, define
Banking Company as a company which
transacts the business of banking in India. Itdefines banking as, accepting for the purpose of
lending or investment of deposit money from the
public, repayable on demand or otherwise and
withdraw able by cheque draft , order or otherwise
A bank as an institution dealing in money
and credit. It safeguard of the savings of the public
and gives loans and advances.
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History of Banking in INDIA
Banking in India originated in the last decades of the 18th
century. The first banks were The General Bank of India,
which started in 1786, and Bank of Hindustan which started
in 1790 both are now defunct.
The oldest bank in existence in India is the State Bank of
India, which originated in the Bank of Calcutta in June 1806,
which almost immediately became the Bank of Bengal.
This was one of the three presidency banks, the other two
being the Bank of Bombay and the Bank of Madras, all three
of which were established under charters from the British
East India Company. The three banks merged in 1921 to form the Imperial Bank of
India, which, upon India's independence, became the State
Bank of India.
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The Reserve Bank of India, India's central banking
authority, was nationalized on January 1, 1949
under the terms of the Reserve Bank of India
(Transfer to Public Ownership) Act, 1948 (RBI,
2005b).[Reference www.rbi.org.in]
In 1949, the Banking Regulation Act was enacted
which empowered the Reserve Bank of India (RBI)"to regulate, control, and inspect the banks in
India."
The Banking Regulation Act also provided that no
new bank or branch of an existing bank could beopened without a license from the RBI, and no two
banks could have common directors.
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Types of Bank
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Public Sector
Allahabad Bank
Andhra Bank
Bank of Baroda
Bank of India
Bank of Maharashtra
Canara Bank
Central Bank of India
Corporation Bank Dena Bank
IDBI Bank
Indian Bank
Indian Overseas Bank
Oriental Bank of Commerce
Punjab National Bank Syndicate Bank
Union Bank of India
UCO Bank
United Bank of India
Vijaya Bank
SBI
Private Sector
Centurian Bank of Punjab
Corporation BankDena Bank
Export-Import Bank of India
Guardian Sahakara Bank
Niyamita
HDFC Bank
ICICI BankIDBI Bank
IndusInd Bank Ltd.ING Vysya Bank
Kotak Mahindra Bank
Punjab and Maharashtra Bank
Ltd.
Saraswat Co-operative BankLtd.
Thane Janta Sahakari Bank,
Ltd.
Times Bank
UTI Bank
Yes Bank
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Current Scenario
The Banking sector in India has always been one of the most preferred
revenues of employment.
As per the McKinsey report India Banking 2010, the banking sector
index has grown at a compounded annual rate of over 51 per cent sincethe year 2001.
As compared to a 27 per cent growth in the market index during the
same period.
It is projected that the sector has the potential to account for over 7.7per cent of GDP with over Rs.7,500 billion in market cap, and to provide
over 1.5 million jobs.
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Contd
Today, banks have diversified their activities and are getting into new
products and services that include opportunities in credit cards,
consumer finance, wealth management, life and general insurance.
Further, most of the leading Indian banks are going global, setting
up offices in foreign countries, by themselves or through their
subsidiaries.
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Money and Credit
Money is any good that is widely used and accepted in transactions involving the
transfer of goods and services from one person to another.
Functions of Money:
Medium of exchange
Standard of value
Store of value
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Monetary Policy Monetary policy is the process by which the monetary
authority of a country controls the supply of money, oftentargeting a rate of interest for the purpose of
promoting economic growth and stability.
Monetary policy plays an important role in increasing the
growth rate of economy by influencing the cost andavailability of credit by controlling inflation and maintaining
equilibrium in the balance of payments.
A macroeconomic policy tool used to influence interest rates,
inflation, and credit availability through changes in thesupply of money available in the economy. In India it is also
called the Reserve Bank of Indias Credit Policyas thestress is primarily on directing credit.
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Goals of Monetary Policy
Full Employment
Price Stability
Economic Growth Balance of Payments
Financial Stability
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Processes of Monetary policy Formulation
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Tools of Monetary Policy
There are two kinds of tools:
Quantitative tools control the volume ofcredit and inflation, indirectly.
Qualitative tools they control the supplyof money in selective sectors of theeconomy.
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Quantitative Tools
Bank Rate [Interest Rates]
SLR [ Liquid Assets in form of cash ,
gold ]
Repos & Reverse Repos
[which two parties agree to sell and
repurchase the same security ] Open Market
[Buying and Selling of govt.
Securities]
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Credit policy is the policy statement traditionally announced twicein the a year, through which the reserve bank of India seeks to
ensure price stability for the economy .
It refers to the use of instruments under the control of the central
bank to regulate the availability, cost and use of money and credit
It is announced twice a year a slack season policy (April
September ) and a busy season policy (October march) in
accordance with agricultural cycles.
Credit Policy
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Inflation refers to a persistent rise in pricesInflation
Total volume ofmoney circulating in the economyMoney Supply (M3)
Minimum rate at which the central bank provides loans to commercial
banksBank Rate
Amount ofmoney that banks must set aside with RBI against their
depositsCash Reserve Ratio (CRR)
Percentage ofbankfunds to be maintained ingovernment andapproved securities
Statutory Liquidity Ratio (SLR)
Rate at which RBI lends to other banks against government securitiesRepo Rate
Rate at which RBI borrows from other banksReverse Repo Rate
Capacity ofbank meeting the time liabilities and other riskCapital Adequacy Ratio (CAR)
Purchase and sale ofsecurities in the open marketOpen Market Operations (OMO)
Monetary Policy Terminology
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Key ratesNov 2nd
2010
Jan 25th
2011
Mar 17th
2011
CRR6
.006
.006.00
Repo Rate 6.25 6.50 6.75
Reverse Repo 5.25 5.50 5.75
Bank Rate 6 6 6
CRR and Interest Rates
(Source: RBI) (% perannum)
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THANK YOU