Bank Shastra

What is Interest Rate Rates of interest are the borrowing cost of money. They are the creditors that earn money for loans. Such rates change constantly and differ according to the lender and the creditworthiness. Not only do interest rates keep the economy going, they also attract people who invest, spend and repay. But most of us don't care to really think about how or who decides how it is applied. Role of Central Bank: Short Term Interest Rates Short-term interest rates are determined by central banks in countries using a centralized banking model. Economic observers from a government develop a policy to ensure stable prices and liquidity. This policy is tested regularly so that the money supply in the economy is not too large, leading to price increases, nor too low, leading to price decreases. In India, the Reserve Bank of India (RBI) determines interest rates. The Reserve Bank of India also establishes the currency and interest-rate short-term direction. Central banks' ac...

Introduction Credit is a tool which can be used well, but which could be problematic if you cannot effectively use it. Reliable use of credit and good credit can help you build wealth and make business with companies — but if you do not understand how credit works, it can be a problem. Why is credit Important? Economic transactions can take place efficiently if consumers and businesses can lease money and the economy can grow. Credit allows businesses to access tools to manufacture the goods they buy. A business that cannot borrow could not purchase or pay the employees to manufacture products and profit for machinery and crude goods. Credit also helps customers to purchase items they need. For most people, many things, from cars to homes, pay at once for them. With credit, you can pay for important goods and services when you need them over time. When we need Credit? Although credit plays a significant role in maintaining a working economy, it is always likely that you wonder why you ...

Introduction It means the money is taken from your bank account when debited. The opposite of a debit is a credit that adds money to your account. Your account will usually be debited when you use a debit card and use it to buy products and services, as the name suggests, to withdraw money from your bank account. A debit and a credit are included in each financial transaction. For example, when you pay using your debit card, your bank account will be charged the purchase price, but will also be credited to the account of the seller you made the purchase from. What is Debit? Your bank is notified of the purchase digitally when you use your debit card to make a purchase. This is automatically and typically happening instantaneously when you swipe or insert your card on a website to create an online shopping. The bank holds on your account the amount of the transaction, since a transaction generally requires between 24 and 72 hours to complete. You cannot use the money for anything else w...

How Bank Fails ? A bank failure is the closing of a bust bank by government or regulator. Bank failure is common, and lots of bank go bankrupt every year. But when major banks go bankrupt it causes a massive economic trouble for nation or maybe to the world. But, how do banks fail in the first place? When a person deposits money into the bank, the bank has a legal authority to use that money for them, this authority is given to them by depositor when he/she opens an account in bank. By following the regulations of Central bank, commercial banks keep the 10% of that money in cash to keep the cash flow smooth and remaining 90% of deposited money is used by banks to buy assets or provide loans. Now, there are 3 ways bank may go broke: • Loan failure • Derivates and trade • People demand their money back Loan Failure When banks give out loans to people or institutions, they take a bet. The bet is weather the borrower will be able to pay back the debt. It’s a very well calculated risk and w...

Before we begin.. We're told from young age that money is hard to come by we should study to work our whole life to earn it. How then can all this money suddenly come from nowhere how is money created who's going to pay it back. Let’s understand 3 terms before we proceed, Million, Billion and Trillion with an example. 1 Million Seconds= 12 Days 1 Billion Seconds=32 Years & 1 Trillion Seconds=32,000 Years. That means if you earn $1 per second it will take you 32,000 years to make $1 Trillion , But Apple did it in only 44 years! “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” ― Henry Ford.   There are 3 ways that money is created Money which is created by Government This form of money is physical money, which either exist as notes or coins. Almost in all countries this form of money only exist as tiny percent of total economy of the nation, whi...

Introduction During reforms of 1991 Banking industry was an important part of the broader agenda of structural economic reforms introduced in India in 1991. The first stage of reforms was shaped by the approvals of the Committee on the Financial System (Narasimha Committee), which proposed its report in 1991, advising reforms in banking, the government debt market, the stock markets, and in insurance, all intended at producing a more efficient financial sector. Later, the East Asian crisis in 1997 led to a sharp appreciation of the importance of a strong banking system, not just for efficient financial intermediation but also as a vital condition for macroeconomic stability. Recognizing this, the government assigned a Committee on Banking Sector Reforms to study the progress of reforms in banking and to consider further steps to reinforce the banking system in light of changes taking place in international financial markets and the experience of other developing countries. The two ...

What is Debt, Asset and Cash Flow? When a person deposits money into the bank, where does it go? Usually all the money in the world which exists is a debt. To understand banking, it is very important to understand certain terms like Debt, Asset and Cash Flow. So, Debt is a process of borrowing money from one person/organization. But debt is not simple as it sounds, to understand banking sector we have to learn a new definition of debt, debt is a promise that financial institutions like banks makes when they give out notes to the payee. Let’s make it simpler, “ I promise to pay the bearer the sum of ₹100 ” can be found on any Indian currency note which is signed by Governor of India. Similar versions of promise can be found on foreign currencies as well. Here, RBI is making a promise of paying ₹100 of Goods/Gold or anything which has an equal value as that of ₹100 on demand, this creates DEBT=MONEY situation, but 3-8% of actual money is in the form of physical money like notes. Rest of ...

What is DICGC? The Reserve Bank of India in 1978 formed Deposit Insurance and Credit Guarantee Corporation (DICGC) as a fully owned subsidiary under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the reason to provide insurance of deposits and credit guarantee scheme. DICGC assures that maximum of ₹5,00,000 for each user for both principal as well as on interest amount is insured, i.e. DICGC provides deposit insurance protection cover scheme to the depositor incase if bank fails. If the customer has accounts in different banks, they all are summed up as a single account and protection cover is applied to that single account. The premium paid by the banks to the Corporation is required to be soak up by the banks themselves so that the benefit of deposit insurance protection is made accessible to the depositors free of cost. In other words, the financial liability on account of payment of premium should be swallowed by the banks themselves and should not be passed o...

What is BCBS? The Basel Committee on Banking Supervision (BCBS) is the major global standard setter for the prudential regulation of banks. It also provides a forum for regular cooperation on banking regulatory matters. It has 45 members including central banks and bank supervisors from 28 jurisdictions which together accounts 95% of world GDP. In 1974 when it was established it had only 10 members, but later committee expanded its membership to more groups. Its vision is to improve understanding of key administrative issues and improve the quality of banking management worldwide. The Committee edges guidelines and standards in different areas – some of the better known among them are the international standards on capital acceptability. The headquarter for BCBS is located in Basel, Switzerland. The Bank for International Settlement (BIS) acts as a host for BCBS and other international institutions which are engaged in standardization and creating a financial stability. Current Secreta...

 Indian Banking Sector in 3 Phase Indian Banking Sector can be studied into 3 Phases as it has developed. Currently, Indian banking sector holds 27 Public sector banks, 49 foreign banks, 21 Private sector banks, 56 regional rural banks, 1,562 urban co-operative banks and 94,384 rural co-operative banks along with some other financial institutions. All these banks are regulated by the Reserve Bank of India. Phase 1: During this phase which lasted from 1786 to 1969, as it involved the inception of structural formation of the banking sector in India, many banks were set up to finance business and trades. The largest and oldest working bank in India is State Bank of India (S.B.I) which originated as Bank of Calcutta in 1806. It was one of the 3 banks founded by presidency government of British India. In 1921 all three banks were merged to form the Imperial Bank of India, which after 1947 became State Bank of India. Reserve Bank of India was also formed during this time in 1935 as the c...

History The Reserve Bank of India (RBI) is the central bank of India and manages the Indian Rupee’s supply. It is also the regulator of Indian Banking sector and plays a major role in functioning of Government of India. RBI was founded during colonial-era of India under the Reserve bank of India act of 1934 and was Nationalized in 1 January 1949.  Currently it functions under Monetary Policy Committee which was founded in 2016. Under this committee it monitors the monetary policies of India. Headquarters of RBI was setup in Calcutta (Kolkata) but was moved to Mumbai in 1937. RBI has also acted as central bank for Burma (Myanmar) until 1947 and for Pakistan until 1948, until their State Bank of Pakistan came into existence. RBI since 1949 after its nationalization is fully owned by Government of India. RBI is responsible for printing of currency Rupee under Government Supervision.  Role "To regulate the issue of Bank notes and keeping of reserves with a view to securing monetar...

 What Is the World Bank? World Bank is an international financial institution founded in 1944 which provides loans and technical assistance to 3rd world nations. It includes the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). History World bank was founded during Bretton Woods Conference in 1944, International Monetary Fund (IMF) was also established along with World Bank and they work closely with each other. Both have their headquarters in Washington D.C, commonly president of both these institutions is an American. 189 countries around the world are members of the World Bank. After 1989, World Bank has also included many NGO’s and social active groups eligible to raise funds from them, to provide a sustainable healthcare, the World Bank also finance vaccines development, fight against diseases like AIDS, Malaria and Tuberculosis. Criteria World Bank has made a criterion were its funds will be distributed, countrie...

What Is the Central Bank? Generally central bank is involved in printing money and its distribution it also has the power to change monetary base of state. Central bank is also the lender at last resort to government and commercial banks during financial crisis. Most of the central banks of world are politically independent and operate on their own terms. Central banks are protected from insolvency due to their ability to create money and therefore operate with negative equality- European Central Bank published in 2016   Purpose Main purpose of Central bank is to oversee the printing of money and its distribution, design, and valuation. Central banks also hold the power to detain currency which are or were in circulation. This was seen during demonetization, were RBI under guideline of Indian government, banned ₹1000 and  ₹500 currency note as legal tender. They also serve to reduce unemployment in the nation by observing the macroeconomics by diverting the flow of money towar...

 Classification of Banks-World Banks have developed over time, many banks were founded to serve specific goals, some were founded to serve special category of people. So, it’s important to understand what are the types of banks or how are they categorized and how they perform. We can categorize them into six sectors Commercial Banks Exchange Banks Industrial Banks Agricultural or Co-operative Bank Saving Bank Central Bank Commercial Banks Everyone is aware of this type, here anyone with an account can deposit, request loan, earn interest on deposit and other services of banks. They earn money from the interest of loans which they have provided to consumers. They also provide many services like ATM, CDM, electronic banking system, phone banking, etc. Industrial and Commercial Bank of China is the largest commercial bank in the world with assets valuation of US$4027.44 Billion Exchange Banks Exchange bank facilitate import and export goods of their country, when someone imports good...