बँकिंग व वित्त Banking and Finance

थोडक्यात सारांश

The financial system is the network of institutions, markets, instruments and services that moves savings from people who have surplus money to people who need it for investment. A strong financial system helps capital formation and economic growth. This topic covers the meaning, functions and components of the Indian financial system and its regulators.

महत्त्वाचे मुद्दे

• Financial system (वित्तीय प्रणाली) – a set of institutions, markets, instruments and services that facilitate the transfer of funds between savers and investors.
• Functions: mobilising savings, allocating funds to productive uses, providing liquidity, a payment mechanism, reducing and sharing risk (insurance, derivatives), price discovery, and giving information to investors.
• Financial institutions – banking (commercial, co-operative, RRBs, small finance, payments banks) and non-banking (NBFCs, insurance companies like LIC, mutual funds, pension funds, development finance institutions like NABARD, SIDBI, EXIM Bank, NaBFID).
• Financial markets – money market (short-term funds, up to one year) and capital market (long-term funds); also forex and commodity derivatives markets.
• Financial instruments – shares, debentures and bonds, government securities, treasury bills, commercial paper, certificates of deposit, mutual fund units, insurance policies, derivatives.
• Financial services – merchant banking, leasing, hire purchase, factoring, credit rating, venture capital, depository and custodial services, stock broking, portfolio management.
• Components:
• Regulators: RBI – banks, NBFCs, money and forex markets; SEBI – securities market; IRDAI – insurance; PFRDA – pension funds (NPS); IFSCA – International Financial Services Centres (GIFT City).
• Financial Stability and Development Council (FSDC) – chaired by the Union Finance Minister; coordinates regulators.
• Organised vs unorganised sector: the unorganised sector includes moneylenders, indigenous bankers and chit funds outside regulation.
• Reforms since 1991 (Narasimham Committee 1991 and 1998): lower CRR and SLR, interest-rate deregulation, entry of private banks, prudential norms, SEBI given statutory power, screen-based trading, depositories.

महत्त्वाच्या संज्ञा

• Financial intermediary – an institution that collects savings and lends or invests them (banks, mutual funds).
• Primary security – issued directly by a borrower (shares, debentures).
• Secondary security – issued by an intermediary (bank deposit, mutual fund unit).
• Capital formation – increase in the stock of real capital (machines, buildings) of a country.

महत्त्वाची माहिती

५ महत्त्वाचे प्रश्न

Q1. What is a financial system?

It is the set of financial institutions, markets, instruments and services that brings savers and borrowers together and channels savings into productive investment.

Q2. Name the regulators of the Indian financial system.

RBI (banking, NBFCs, money market), SEBI (capital market), IRDAI (insurance), PFRDA (pension) and IFSCA (international financial services centres).

Q3. Explain the components of the Indian financial system.

Outline the four components with a chart and examples; show how they work together; mention regulators.

Q4. Explain the functions of the financial system and its role in economic development.

Outline: mobilising savings, capital formation, allocation of resources, liquidity, payment system, risk management, price discovery, supporting government borrowing, promoting entrepreneurship, financial inclusion.

Q5. Write a note on financial sector reforms in India after 1991.

Outline: background (1991 crisis); Narasimham Committee recommendations; banking reforms (CRR/SLR cut, prudential norms, private and foreign banks); capital market reforms (SEBI Act 1992, NSE, demat, T+1 settlement); insurance opened to private firms (IRDA Act 1999); recent – IBC 2016, bank mergers, digital payments.

परीक्षेसाठी टीप

Draw a tree chart of the financial system (institutions – markets – instruments – services) at the start of any long answer; it organises the answer and earns presentation marks.

थोडक्यात सारांश

The money market is the market for short-term funds – loans and instruments with a maturity of up to one year. Banks, financial institutions, companies and the government use it to manage their day-to-day cash needs. The RBI regulates it and uses it to transmit monetary policy. This topic covers its meaning, features, instruments, participants and its Indian structure.

महत्त्वाचे मुद्दे

• Money market (नाणेबाजार) – the market for borrowing and lending short-term funds (overnight to one year). It deals in near-money assets.
• Features: short-term, high liquidity, low risk, large transactions, mostly over the telephone or electronic platforms, no single place (not a physical market), dominated by banks and RBI.
• Call money – overnight borrowing and lending among banks; notice money – 2 to 14 days; term money – 15 days to one year.
• Treasury bills (T-bills) – short-term government securities of 91, 182 and 364 days, issued at a discount by RBI for the Government of India.
• Commercial paper (CP) – unsecured promissory note issued by companies with good credit rating; maturity 7 days to one year.
• Certificate of deposit (CD) – negotiable time deposit issued by banks (7 days to one year) and by financial institutions (1 to 3 years).
• Repo and reverse repo – short-term borrowing against securities with an agreement to repurchase.
• TREPS (Tri-party repo) – repo dealing with a third party (CCIL) handling collateral.
• Commercial bills – trade bills discounted by banks.
• Instruments:
• Participants: RBI, commercial and co-operative banks, primary dealers, financial institutions, mutual funds, insurance companies, corporates and the government.
• Indian money market: organised sector (RBI, banks, DFIs, NBFCs) and unorganised sector (moneylenders, indigenous bankers, chit funds).
• Defects (traditional): dualism (organised vs unorganised), seasonal stringency of funds, shortage of instruments, many interest rates. Reforms (Vaghul Committee, 1987; DFHI, 1988; CCIL, 2001) improved it.
• Call rate moves within the corridor of SDF and MSF rates around the repo rate.

महत्त्वाच्या संज्ञा

• Discount – the difference between face value and issue price of a T-bill or CP.
• Primary dealer – firm authorised by RBI to deal in government securities.
• Liquidity – how quickly an asset can be turned into cash without loss.
• Near money – assets that are almost as liquid as cash.

महत्त्वाची माहिती

Worked example (yield on a T-bill): a 91-day T-bill of face value ₹100 is issued at ₹98.50. Discount = ₹1.50. Annualised yield ≈ (1.50 ÷ 98.50) × (365 ÷ 91) × 100 ≈ 6.11% p.a.

५ महत्त्वाचे प्रश्न

Q1. What are treasury bills?

Short-term government securities issued by RBI on behalf of the Government of India for 91, 182 and 364 days. They are issued at a discount and repaid at face value, so the difference is the return.

Q2. Distinguish between commercial paper and certificate of deposit.

CP is an unsecured promissory note issued by rated companies to raise short-term funds. CD is a negotiable term deposit issued by banks and financial institutions. CP is a company's borrowing; CD is a bank's deposit.

Q3. Explain the instruments of the Indian money market.

Outline call/notice/term money, T-bills, CP, CD, commercial bills, repo/reverse repo and TREPS with maturity, issuer and features.

Q4. Explain the features and defects of the Indian money market.

Outline features (above), defects (dualism, lack of integration, seasonal stringency, limited instruments, uneven interest rates, absence of a developed bill market) and reforms that removed many of them.

Q5. Explain the role of RBI in the money market.

Outline: regulator, lender of last resort, liquidity adjustment facility (repo, SDF, MSF), OMO, issuer of T-bills, setting rules for CP and CD, development of institutions (DFHI, CCIL, FIMMDA), market stabilisation.

परीक्षेसाठी टीप

Learn maturity periods (T-bills 91/182/364 days; CP 7 days–1 year; CD 7 days–1 year for banks, 1–3 years for FIs) – they are favourite short questions.

थोडक्यात सारांश

The capital market is the market for long-term funds – shares, debentures and bonds with maturity of more than one year. It has a primary market, where new securities are issued, and a secondary market (stock exchanges), where existing securities are traded. SEBI regulates it to protect investors and develop the market. This topic covers its structure, stock exchanges, depositories, and the powers and functions of SEBI.

महत्त्वाचे मुद्दे

• Capital market (भांडवल बाजार) – the market for medium- and long-term funds for industry, trade and government.
• Primary market (new issue market) – companies raise fresh capital through IPO (first public issue), FPO (further public offer), rights issue (to existing shareholders), private placement, preferential allotment and QIP (qualified institutional placement). Methods: fixed-price issue and book building.
• ASBA (Application Supported by Blocked Amount) and UPI are used to apply; money is only blocked until allotment.
• Secondary market (stock exchange) – where existing securities are bought and sold. Main exchanges: BSE (Bombay Stock Exchange, 1875, Asia's oldest) and NSE (National Stock Exchange, set up 1992, trading from 1994). Indices: Sensex (30 shares, BSE) and Nifty 50 (NSE).
• Trading is screen-based and anonymous; settlement in India moved to T+1 (fully from January 2023); optional same-day (T+0) settlement has started for some shares.
• Depositories: NSDL (1996) and CDSL (1999) hold securities in electronic (demat) form; investors deal through depository participants (DPs).
• Intermediaries: stock brokers, merchant bankers, registrars, underwriters, credit rating agencies, mutual funds, portfolio managers, custodians.
• SEBI (Securities and Exchange Board of India) – set up on 12 April 1988; got statutory powers on 30 January 1992 under the SEBI Act, 1992. Head office: Mumbai.
• Objectives of SEBI: protect investors' interests, develop the securities market, regulate it.
• Functions (Sec 11 of SEBI Act): regulating exchanges and intermediaries, registering and regulating mutual funds and collective investment schemes, prohibiting fraudulent and unfair trade practices and insider trading, regulating takeovers, investor education, conducting inspections and audits, levying fees and penalties.
• SEBI has quasi-legislative (makes regulations), quasi-judicial (passes orders and penalties) and quasi-executive (inspects, investigates) powers. Appeals against SEBI orders go to the Securities Appellate Tribunal (SAT).
• Investor grievances are handled online through SCORES.

महत्त्वाच्या संज्ञा

• Book building – price discovery by inviting bids within a price band.
• Insider trading – dealing in securities using unpublished price-sensitive information.
• Bull / bear – a speculator expecting prices to rise / fall.
• Listing – admission of a security for trading on a stock exchange.
• Demat account – an account holding securities in electronic form.

महत्त्वाची माहिती

५ महत्त्वाचे प्रश्न

Q1. What is an IPO?

An Initial Public Offer is the first sale of shares by a company to the public, after which its shares are listed on a stock exchange.

Q2. Distinguish between the primary and the secondary market.

The primary market deals in new securities and the money goes to the issuing company. The secondary market deals in existing securities and the money moves between investors. The first creates capital; the second gives liquidity.

Q3. Explain the functions and powers of SEBI.

Outline: background (1988, 1992 Act); protective functions (insider trading, fraud, investor education, disclosure norms); regulatory functions (registration of intermediaries, takeovers, mutual funds, exchanges); developmental functions (training, new products, research); powers and SAT.

Q4. Explain the functions of a stock exchange.

Outline: liquidity and marketability, continuous price evaluation, safety of transactions, capital formation, channelling savings, barometer of the economy, listing discipline, clearing and settlement (T+1).

Q5. Explain the structure of the Indian capital market and recent reforms.

Outline: primary and secondary markets; instruments; intermediaries; depositories; regulators; reforms – demat, screen trading, NSE, rolling settlement to T+1, ASBA/UPI in IPOs, SME platforms, SCORES, stricter disclosure and corporate governance norms.

परीक्षेसाठी टीप

Write SEBI's dates (12 April 1988; 30 January 1992) and the three objectives in the opening lines; then explain the functions under three heads – protective, regulatory and developmental.

थोडक्यात सारांश

Financial inclusion means giving every person and small business access to useful and affordable financial services – a bank account, credit, insurance, pension and digital payments – delivered responsibly. India has made big progress through Jan Dhan accounts, Aadhaar, mobile phones (the JAM trinity) and UPI. This topic covers its meaning, need, major schemes and recent trends in banking and finance.

महत्त्वाचे मुद्दे

• Financial inclusion (वित्तीय समावेशन) – the process of ensuring access to appropriate financial products and services needed by all sections of society, especially vulnerable and low-income groups, at an affordable cost in a fair and transparent manner (Rangarajan Committee, 2008, adapted).
• Need: to free the poor from moneylenders, encourage savings, give credit for self-employment, deliver government benefits directly (DBT), reduce poverty and support growth.
• Pradhan Mantri Jan Dhan Yojana (PMJDY) – launched 28 August 2014; zero-balance accounts, RuPay debit card, accident insurance cover and overdraft facility.
• JAM trinity – Jan Dhan accounts, Aadhaar and Mobile – used for Direct Benefit Transfer (DBT).
• Social security schemes (2015): PMJJBY (life insurance), PMSBY (accident insurance), Atal Pension Yojana (pension for the unorganised sector). Premiums and covers are revised from time to time – check the current year's figures.
• Credit schemes: PM MUDRA Yojana (2015) – loans for micro enterprises in categories Shishu, Kishore, Tarun (and Tarun Plus); Stand-Up India (2016) – loans for SC/ST and women entrepreneurs; PM SVANidhi (2020) – for street vendors; Kisan Credit Card for farmers.
• Delivery channels: bank branches, business correspondents (bank mitras), ATMs and micro-ATMs, India Post Payments Bank, small finance banks, payments banks, self-help groups (SHG–bank linkage by NABARD).
• RBI's Financial Inclusion Index (FI-Index) – launched in 2021 with three parameters: access, usage and quality; scale 0 to 100.
• National Strategy for Financial Inclusion (2019–24) by RBI, along with financial literacy centres and the annual Financial Literacy Week.
• Recent trends in banking: UPI and digital payments, mergers of public sector banks, Insolvency and Bankruptcy Code 2016 for bad loans, fall in NPAs, Account Aggregator framework, e-rupee (CBDC), fintech and neo-banks, co-lending by banks and NBFCs, green finance, and stronger cyber-security rules.

महत्त्वाच्या संज्ञा

• Financial literacy – knowledge and skills to make sound money decisions.
• Direct Benefit Transfer (DBT) – subsidies paid straight into beneficiaries' bank accounts.
• Business correspondent – an agent who provides banking services in villages on behalf of a bank.
• Microfinance – small loans and services to low-income people, often through SHGs and MFIs.

महत्त्वाची माहिती

५ महत्त्वाचे प्रश्न

Q1. What is financial inclusion?

It is the delivery of banking and financial services – savings, credit, insurance, pension and payments – at affordable cost to disadvantaged and low-income groups.

Q2. State the main features of PMJDY.

Zero-balance savings account, RuPay debit card with accident insurance cover, overdraft facility for eligible account holders, and use of the account for DBT payments. Launched on 28 August 2014.

Q3. Explain the need and importance of financial inclusion in India.

Outline: rural population, dependence on moneylenders, savings mobilisation, credit for livelihood, DBT and reduced leakages, women's empowerment, poverty reduction, formal economy, inclusive growth.

Q4. Explain the major government schemes for financial inclusion.

Outline the schemes in the table above with features; add KCC, PM SVANidhi, SHG–bank linkage, India Post Payments Bank.

Q5. Explain the recent trends in the Indian banking sector.

Outline: digital banking and UPI, bank mergers, IBC and NPA resolution, payments and small finance banks, Account Aggregator, CBDC, fintech partnerships, financial inclusion, ESG/green finance, cyber-security challenges.

परीक्षेसाठी टीप

Use the year table of schemes in short notes, and end long answers with two problems that still remain – inactive accounts and low financial literacy – with suggestions.