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A Bank is a financial institution whichaccepts money from the public for thepurpose of lending or investment repayableon demand or otherwise with drawable bycheques, drafts or order or otherwise.

UNIT BANKING VS BRANCH BANKING

The banking system in different countriesvary substantially from one another.Broadly speaking, however, there are twoimportant types of banking systems, viz.,unit banking and branch banking.

A Unit Banking

Unit banking means a system of bankingunder which banking services are providedby a single banking organisation. Such abank has a single office or place of work. Ithas its own governing body or board ofdirectors. It functions independently and is

not controlled by any other individual, firm or body corporate. It also does not control any other banbankscan become member of the clearing house and also of the Bankers Association. Unit banking systemoriginated and grew in the U.S.A. Different unit banks in the U.S.A. are linked with each other and wfinancial centres in the country through correspondent banks.

Advantages of Unit Banking

Following are the main advantages of unit banking:

1. Efficient Management: it can be managed efficiently because of its size and work. Co-ordination anbecomes effective. There is no communication gap between the persons making decisions and those such decisions.

2. Better Service: The area of operation being limited, they can concentrate well on that limited area anbest possible service. Moreover, they can take care of all banking requirements of a particular area.

3. Close Customer-banker Relations: the customers can have direct contact. Their grievances can be then and there.

4. No Evil Effects Due to Strikes or Closure: In case there is a strike or closure of a unit, it does not himpact on the trade and industry because of its small size. It does not affect the entire banking system.

5. No Monopolistic Practices: Since the size of the bank and area of its operation are limited, it is difficbank to adopt monopolistic practices. Moreover, there is free competition. It will not be possible for thindulge in monopolistic practices.

6. No Risks of Fraud: there is stricter and closer control of management.

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8. Local Development: The unit bank has the specialised knowledge of the local problems and srequirement of the local people in a better manner than branch banking. The funds of the locality are ut the local development and are not transferred to other areas.

Disadvantages of Unit Banking

1. No Economies of Large Scale: the size of a unit bank is small, it cannot reap the advantages of largdivision of labour and specialisation.

2. Lack of Uniformity in Interest Rates: 3. Risks of Banks Failure 4. Limited Resources

5. Unhealthy Competition: 6. Wastage of National Resources:

7. No Banking Development in Backward Areas:

B Branch Banking System

It means a system of banking in which a banking organisation works at more than one place. The mainbusiness is called head office and the other places of business are called branches. The head office contordinates the work at branches. The day-to-day operations are performed by the branch manager aspolicies and directions issued from time to time by the head office. This system of banking is p throughout the world. In India also, all the major banks have been operating under branch banking syste

Advantages of Branch Banking

1. Better Banking Services: 2. Extensive Service: 3. Decentralisation of Risks: 4. Uniform Rates of Int

5. Better Cash Management: 6. Better Training Facilities to Employees: 7. Easy and Economical Funds: 8. Better Investment of Funds: 9. Effective Central Bank Control: 10. Contacts with the Whole

Disadvantages of Branch Banking

1. Difficulties of Management, 2. Lack of Initiative: 3. Monopolistic Tendencies: 4. Regional Imbalan5. Continuance of Non-profitable Branches: 6. Unnecessary Competition: 7. Expensiveness: 8. LossBranches Affect Others:

Acentral bank is an apex institution in the banking structure of a country. It controls and regulates the activities of commercial banks and acts as a bankeacts as a banker, agent and adviser to the government in all financial and mon

A central bank is also thecustodian of the foreign balances of the country and responsible to maintain thrate of exchange fixed by tgovernment and manageexchange control.

The most important functioof a central bank is toregulate the volume of currency and credit in a country. It will be no exagger

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a modern central bank is the central arch to the mand fiscal framework in almost all the countries devdeveloping in the world. In developing economies, bank has also to perform certain promotionadevelopmental functions to accelerate the pace of growth. CREDIT CONTROL

It means the regulation of the creation and contraction the economy. It is an important function of central bcountry. The importance of credit control has increased growth of bank credit and other forms of credit. Comincrease the total amount of money in circulation in

through the mechanism of credit creation. In additionbuy and sell goods and services on credit basis. Because of these developments, mare based on credit economy rather than money economy.

Fluctuations in the volume of credit cause fluctuations in the purchasing powe far reaching economic and social consequences. That is why, credit control has becoany central bank. For instance, the preamble to the Bank of Canada Act states that thregulate credit in Canada. In India, the Reserve Bank has been given wide powers tand contraction by commercial banks. Before we discuss the techniques of credit understand the objectives of credit control.Objectives of Credit Control

The central bank is usuallygiven many weapons tocontrol the volume ofcredit in the country. The

use of these weapons isguided by the followingobjectives:

(a) Stability of Internal (b)Checking Booms andDepressions: (c) Promotionof Economic Development:(d) Stability of the MoneyMarket: (e) Stability inExchange Rates:

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RBISeveral attempts were made from time to time to set up a Central Bank in India prior to 1unfortunately these attempts failed to bear any fruit. In 1921, the Government of India establiImperial Bank of India to serve as the Central Bank of the country. But the Imperial Bank did nany appreciable success in its functioning as the Central Bank of the country.In 1925, the Hilton Young Commission was asked by the Government to express its viewsubject. The commission made out a forceful case for the establishment of a brand new Centra the country. According to the Commission, it was not desirable to keep the control of currencredit in the hands of two separate agencies.

The Government of India controlled currency while the Imperial Bank regulated credit prioestablishment of the Reserve Bank of India in April 1st, 1935. The Hilton Young Commissioconsider this double control on currency and credit as a desirable feature of the Indian monetaryIt was on this account that the Commission recommended the transfer of the control of currencredit to a new Central Bank to be set up in the country.

It was on this account that the Commission recommended the establishment of the Reserve India as the Central Bank of the country. The Government of India while acceptinrecommendations of the Commission brought forward a Bill before the Central Legislature. Bcould not be passed on account of differences amongst the members of the legislature.

The Government of India, therefore, postponed the idea of a new Central Bank for some time. the Central Banking Enquiry Committee again made a forceful plea for the establishment of thBank. Consequently, the Reserve Bank of India Act was passed in 1934, and the Reserve Bfunctioning from 1st April, 1935.The Reserve Bank of India is the kingpin of the Indian moneyissues notes, buys and sells government securities, regulates the volume, direction and cost manages foreign exchange and acts as banker to the government and banking institutions.

RESERVE BANK OF INDIA

The Reserve Bank is playing an active role in the development activities by helping the establisworking of specialised institutions, providing term finance to agriculture, industry, housing an trade. In spite of many criticisms, it has successfully controlled commercial banks in India andin evolving a strong banking system. A study of the Reserve Bank of India will be useful, no the examination, but also for understanding the working of the supreme monetary and bauthority in the country.

Capital

Originally, the Reserve Bank was constituted as a shareholders bank, based on the model oforeign central banks of those days. The banks fully paid-up share capital was Rs. 5 crores divided intshares of Rs. 100 each. Of this, Rs. 4,97,80,000 were subscribed by the private shareholder

2,20,000 were subscribed by the Central Government for disposal of 2,200 shares at part Directors of the Bank (including members of the Local Boards) seeking the minimumqualification. The share capital of the bank has remained unchanged until today. The Reserve

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had a Reserve Fund of Rs. 150 crores in 1982. It was nationalised in January 1949 and sincfunctioning as the State-owned bank and acting as the premier institution in Indias banking structure Organisation The Central Board of Directors is the leading governing body of the bank. Ithe responsibility of general superintendence and direction of the affairs an Reserve Bank.The Central Board of Directors consists of 20members as follows: 1. One Governor and four Deputy Governors 2. Four DirectorsNominated from the Local Boards 3. Tenother Directors 4. One GovernmentOfficialB Local Boards

The Reserve Bank of India is divided into four regions: the Western, the Eastern, theNorthern and the Southern regions. Foreach of these regions, there is a Local Board, with headquarters in MumbaDelhi and Chennai.Departments of the Reserve Bank

To carry out its functions/operations smoothly and efficiently, the Reserve Bthe following departments:1. Issue Department. 2. Banking Department. 3. Department of Banking Deve

4. Department of Banking Operations. 5. Agricultural Credit DepartmentControl Department. 7. Industrial Finance Department. 8. Non-BankingDepartment.

9. Legal Department. 10. Department of Research and Statistics. 11. Departmand Bank Accounts. 12. Department of Currency Management. 13. D Expenditure of Budgetary Control. 14. Rural Planning and Credit Departm Planning Cell.

16. Department of Economic Analysis and Policy. 17. Inspection Department Administration and Personnel. 19. Premises Department. 20. ManageDepartment.

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21. Reserve Bank of India Service Board. 22. Central Records and Document 23. Secretarys Department. 24. Training Establishments.

Functions of the Reserve ank

According to the preamble of the Reserve Bank of India Act, the main functions ofthe bank is to regulate the issue of banknotes and the keeping of reserves with a viewto securing monetary stability in India and generally to operate the currency and creditsystem of the country to itsadvantage. Thevarious functions performed by the RBIcan be conveniently classified in three partsas follows:

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Banking Notes for RBI & SBI exams

Dear readers, here we are posting some notes on General Knowledge (Banking), which will be helpful in the upcoming RBI and SBI exams.

Quick Notes

FII: Foreign Institutional Investment - The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market.

FDI: Foreign Direct Investment - It is a direct investment into production

or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

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MSF: Marginal Standing Facility - Under this scheme, banks will be able to borrow upto 1% of their respective net demand and time liabilities. The rate of interest on the amount accessed from this facility will be 100 basis points (i.e.

1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.

FIU: Financial Intelligence Unit set by the Government of India on 18 November 2004 as the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financialtransactions.

SEBI: Securities and Exchange Board of India - SEBI is the primary governing/regulatory body for the securities market in India. All transactions inthe securities market in India are governed and regulated by SEBI. Its main

functions are: 1. New issues (Initial Public Offering or IPO)

2. Listing agreement of companies with stock exchanges

3. Trading mechanisms

4. Investor protection

5. Corporate disclosure by listed companies etc. Note: SEBI is also known as capital regulator or mutual funds regulator or market regulator. SEBI also created investors protection fund and SEBI is the only organization which regulates the credit rating agencies in India. (CRISIL and CIBIL).

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IRDA: Insurance Regulatory and Development Authority - It is an autonomous apex statutory body which regulates and develops the insurance industry in India.

FINANCIAL REGULATORS IN INDIA - RBI, SEBI, FMCI (Forward Market Commission of India), IRDA etc.

ASBA: Application Supported by Blocked Amount - It is a process developed by the SEBI for applying to IPO. In ASBA, an IPO applicants

account doesnt get debited until shares are allotted to him.

DEPB Scheme: Duty Entitlement Pass Book - It is a scheme which is offered by the Indian government to encourage exports from the country. DEPB means Duty Entitlement Pass Book to neutralise the incidence of basic and special customs duty on import content of export product.

LLP: Limited Liability Partnership, is a partnership in which some or all partners (depending on the jurisdiction) have limited liability.

Balance sheet: A financial statement that summarises a companys assets,

liabilities and shareholders equity at a specific point in time.

TAN: Tax Account Number, is a unique 10-digit alphanumeric code allotted by the Income Tax Department to all those persons who are required to deducttax at the source of income.

PAN: Permanent Account Number, as per section 139A of the Act obtaining PAN is a must for the following persons:-

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1. Any person whose total income or the total income of any other person in respect of which he is assessable under the Act exceeds the maximum amount which is not chargeable to tax.

2. Any person who is carrying on any business or profession whose total sales,

turnover or gross receipts are or are likely to exceed Rs. 5 lakh in any previous year.

3. Any person who is required to furnish a return of income under section 139(4) of the Act.

JLG: Joint Liability Group, when two or more persons are both responsible for a debt, claim or judgment.

IRR: Internal Rate of Return, is a rate of return used in capital budgetingto measure and compare the profitability of investments.

MICR: Magnetic Ink Character Recognition - A 9-digit code which actually shows whether the cheque is real or fake.

UTR Number: Unique Transaction Reference number - A unique number which is generated for every transaction in RTGS system. UTR is a 16-digit

alphanumeric code. The first 4 digits are a bank code in alphabets, the 5th one is the message code, the 6th and 7th mention the year, the 8th to 10th mentions the date and the last 6 digits mention the days serial number of the message.

RRBs: Regional Rural Banks - As its name signifies, RRBs are specially meant for rural areas, capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank.

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MFI: Micro Finance Institutions - Micro Finance means providing credit/loan (micro credit) to the weaker sections of the society. A microfinance institution (MFI) is an organisation that provides financial services to the poor.

PRIME LENDING RATE: PLR is the rate at which commercial banks give loans to its prime customers (most creditworthy customers).

BASE RATE: A minimum rate that a bank is allowed to charge from the

customer. Base rate differs from bank to bank. It is actually a minimum rate below which the bank cannot give loan to any customer. Earlier base rate was known as BPLR (Base Prime Lending Rate).

EMI: Equated Monthly Installment - It is nothing but a repayment of the loan taken. A loan could be a home loan, car loan or personal loan. The monthly payment is in the form of post dated cheques drawn in favour of the lender. EMI is directly proportional to the loan taken and inversely proportional to time period. That is, if the loan amount increases the EMI amount also increases and if the time period increases the EMI amount decreases.

Basis points (bps): A basis point is a unit equal to 1/100th of a percentage point. i.e. 1 bps = 0.01%. Basis points are often used to measure changes in or differences between yields on fixed income securities, since these often change byvery small amounts.

Liquidity: It refers to how quickly and cheaply an asset can be converted

into cash. Money (in the form of cash) is the most liquid asset.

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P- NOTES: P means participatory notes. These are the instruments issued by registered foreign institutional investors (FII) to overseas investors, who wishto invest in the Indian stock markets without registering themselves with the

market regulator, the Securities and Exchange Board of India - SEBI.

Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form for funds deposited at a bank or other eligible financial institution for a specified time period.

Commercial Paper (CP) is an unsecured money market instrument issued inthe form of a promissory note. It was introduced in India in 1990. Corporates and the All-India Financial Institutions are eligible to issue CP.

REER: Real Effective Exchange Rate.

NEER: Nominal Effective Exchange Rate.

LIBOR: London Inter Bank Offer Rate.

MIBOR: Mumbai Inter Bank Offer Rate.

EFT Electronic Fund Transfer

NEFT National Electronic Funds Transfer

RTGS Real Time Gross Settlement

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ATM Automated Teller Machine

CBS Core Banking Solution

CORE in CBS stands for Centralized Online Real-time Exchange.