Organised Banking Sector in India

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Laws and regulations that outline the legalrequirements to be met.

They may also be implemented by many policies,standards , directives and guidelines.


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Regulatory framework is necessary for thepreparation of financial statements.Financial statements are used by investors,

lenders and customers and must be helpful forthose stakeholders for making decisions.Statements should be comparable and provide

basic information.


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Reserve Bank of IndiaBanking Regulation Act 1949Cash Reserve RatioStatutory Liquidity RatioBank RatePrime Lending RateRepo Rate


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Originally constitutedas a shareholdersbank in India.Under Reserve Bankof India Act 1934 toregulate issue of banknotes and keeping ofreserves.

The bank wasnationalised on 1 st January,1949


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The Law relating to banking is outcome of thegradual process of evolution . BankingCompanies Act was passed in 1949 and it has

changed to Banking Regulation Act 1949.Section 8: banking company emerging directlyor indirectly.Section 11: provisions to ensure adequacy ofminimum paid


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Section 22: comprehensive system of licensingof banks by RBI.

Section 23: requires every banking company totake RBIs permission.

Section 35: the RBI may eitherat its initiativesor at the instance of the Central government.


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How is CRR used as a tool of credit control?CRR was introduced in 1950 primarily as ameasure to ensure safety and liquidity of bankdeposits, however over the years it has becomean important and effective tool for directlyregulating the lending capacity of banks andcontrolling the money supply in the economy.


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Statutory Liquidity Ratio is the amount ofliquid assets , such as cash , precious metals orother approved securities , that a financial

institution must maintain as reserves otherthan the the cash with the central bank.Objectives:

1.To restrict expansion of bank credit.2.To augment the investment of banks in

Government securities.3.To ensure solvency of banks.


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Bank rate , also referred to as the discountrate,is the rate of interest which a central bankcharges on loans and advances that it extends

to commercial banks and another financialbanks intermediaries.


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The interest rate that commercial banks chargetheir best , most credit worthy customers .Generally a banks best customers consist of

large corporations . The rate is determined bythe Federal Reserves decision to raise or lowerprevailing interest rates for short-termborrowing.


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The repo rate is the rate at which the bankmarket lends short term money to RESERVEBANK OF INDIA.

Repo rate is powerful signal from ReserveBANK OF INDIA on the interests ratesoutlook.


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Objectives of bank regulationThe objectives of bank regulation, and the emphasis,vary between jurisdictions. The most commonobjectives are:

Prudential to reduce the level of risk bank creditorsare exposed to (i.e. to protect depositors)Systemic risk reduction to reduce the risk ofdisruption resulting from adverse trading conditionsfor banks causing multiple or major bank failures

Avoid misuse of banks to reduce the risk of banksbeing used for criminal purposes, e.g. laundering theproceeds of crimeTo protect banking confidentialityCredit allocation to direct credit to favored sectors
http://en.wikipedia.org/wiki/Systemic_riskhttp://en.wikipedia.org/wiki/Systemic_risk


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Minimum requirementsSupervisory reviewMarket discipline

Instruments and requirements of bankregulation

Capital requirementReserve requirementFinancial reporting and disclosurerequirements


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In the Internet Banking system , information isconsidered as an asset and so worthy ofprotection.

According to online banking BankingAssociation member institutions rated securityas the most important issue of online banking.Privacy and protection against fraud.


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Organised Banking Sector in India

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