PAYMENT BANKS IN INDIA-AN OVERVIEW

Reserve Bank of India grants banking licences for two kinds of banking, namely, Universal bank Licence and Differentiated Bank licence. Payment Banks comes under differentiated bank licence since it cannot offer all the services that a commercial bank offers.

A payment bank cannot lend, it cannot issue credit cards but can take deposits up to Rs. 1lakh per account.

Objective: Main objective of Payment banks is to work towards Financial inclusion by providing small saving accounts and payment/remittance services to migrant labour workforce, low income households and other unorganized sectors.

Work Allocation: Other than remittance and saving services, a payment bank can work as business correspondence  of another bank. They can also distribute simple financial products like mutual fund units and insurance products. Continue reading

COMPLETE REFERENCE TO MUTUAL FUNDS

Mutual Funds:

Mutual Funds are the professionally managed instrument that pools money fro the investors and invest in securities like stocks, bonds, short term money market instruments and commodities such as precious metals.Mutual funds offers an attractive way to manage savings in passive manner without paying high fees or constant attention from individuals of market. Since these funds are managed by professional fund managers hence it doesn’t requires good knowledge of traditional market and also free from complex investment decision.

Mutual Funds Set Up:

A mutual fund is set up in the form of trust that has a Sponsor, Trustees and Asset Management Companies. A trust is established by a Sponsor who is like a promoter of company and this trust is registered with SEBI as mutual fund. The Trustees of the mutual fund hold its property for the benefit of its unit holders. An Asset Management Company approved by SEBI manages the fund by making investments in various type of securities.

Operating A Mutual Fund:

A mutual fund company collects money from several investors and invest it in various options like stocks, bonds etc. This investment is managed by professionals who had good knowledge of market and tries to accomplish growth.
Investors get unit of funds according to amount they have invested. AMC is responsible for managing the investment from the various schemes operated by mutual fund.

Net Asset Value:

Mutual Funds are operated on the basis of NAV. Net Asset Value is the total asset value per unit of the fund and is calculated by the Asset management Companies at the end of every business day.

Types Of Mutual Fund:

Based on the maturity period

  • Open-ended Fund An open-ended fund is a fund that is available for subscription and can be redeemed on a continuous basis. It is available for subscription throughout the year and investors can buy and sell units at NAV related prices. These funds do not have a fixed maturity date. The key feature of an open-ended fund is liquidity.
  • Close-ended Fund A close-ended fund is a fund that has a defined maturity period, e.g. 3-6 years. These funds are open for subscription for a specified period at the time of initial launch. These funds are listed on a recognized stock exchange.
  • Interval Funds Interval funds combine the features of open-ended and close-ended funds. These funds may trade on stock exchanges and are open for sale or redemption at predetermined intervals on the prevailing NAV.

Benefits:

  • Professionally Managed
  • Diversificaton
  • Liquidity
  • Low transaction cost
  • Well regulated

Risks Involved In Mutual Fund:

Mutual funds invest in different securities like stocks or fixed income securities, depending upon the fund’s objectives. As a result, different schemes have different risks depending on the underlying portfolio. The value of an investment may decline over a period of time because of economic alterations or other events that affect the overall market. Also, the government may come up with new regulations, which may affect a particular industry or class of industries. All these factors influence the performance of Mutual Funds.
  • Risk and Reward: The diversification that mutual funds provide can help ease risk by offsetting losses from some securities with gains in other securities. On the other hand, this could limit the upside potential that is provided by holding a single security.
  • Lack of Control: Investors cannot determine the exact composition of a fund’s portfolio at any given time, nor can they directly influence which securities the fund manager buys.

IBPS PO INDIAN BANKING STRUCTURE

Indian Banking Structure

a) Central Bank (RBI)
b) Specialized Banks
c) Commercial Banks
d) Development Banks
e) Co-operative Banks

Central Bank:

As its name signifies, a bank which manages and regulates the banking system of a particular country. It provides guidance to other banks whenever they face any problem (that is why the Central Bank is also known as a banker’s bank) and maintains the deposit accounts of all other
banks. Central Banks of different countries: Reserve Bank of India (INDIA), Federal Reserve System (USA), Swiss National Bank (SWITZERLAND), Reserve Bank of Australia (AUSTRALIA),
State Bank of Pakistan (PAKISTAN).

Specialized Banks:

Those banks which are meant for special purposes. For examples: NABARD, EXIM bank, SIDBI,
IDBI.
NABARD: National Bank for Agriculture and Rural Development. This bank is meant for financing the agriculture as well as rural sector. It actually promotes research in agriculture and
rural development.

EXIM Bank: Export Import Bank of India. This bank gives loans to exporters and importers and

also provides valuable information about the international market. If you want to set up a
business for exporting products abroad or importing products from foreign countries for sale in
our country, EXIM bank can provide you the required support and assistance.

SIDBI: Small Industries Development Bank of India. This bank provides loans to set up the small scale business unit / industry. SIDBI also finances, promotes and develops small-scale industries

whereas IDBI (Industrial Development Bank of India) gives loans to big industries.

Commercial Banks:

Normal banks are known as commercial banks, their main function is to accept deposits from
the customer and on the basis of that they grant loans. (Loans could be short-term, medium term
and long-term loans.) Commercial banks are further classified into three types.
(a) Public sector Banks
(b) Private sector Banks
(c) Foreign Banks
(a) Public Sector Banks (PSB): Government banks are known as PSBs since the majority of their
stakes are held by the Government of India. (For example: Allahabad Bank, Andhra Bank, Bank
of Baroda, Bank of India, Bank of Maharastra, Canara Bank, Central Bank of India etc).

(b) Private Sector Banks: In these banks, the majority of stakes are held by the individual or

group of persons. (For example: Bank of Punjab, Bank of Rajasthan, ICICI Bank, Axis Bank etc).

(c) Foreign Banks: These banks have their headquarters in a foreign country but they operate

their branches in India. For e.g. HSBC, Standard Chartered Bank, ABN Amro Bank etc.

Development Banks:

Such banks are specially meant for giving loans to the business sector for the purchase of latest
machinery and equipment’s. Examples: SFCs (State Financial Corporation of India) and IFCI
(Industrial Finance Corporation of India).

Co-operative Banks:

These banks are nothing but an association of members who group together for self-help and
mutual-help. Their way of working is the same as of commercial banks. But they are quite
different. Co operative Banks in India are registered under the Co-operative Societies Act, 1965.
and regulated by the RBI.

Some Important Questions On Banking For IBPS PO Aspirants Set 1

1.  On the recommendation of which committee was NABARD established?

(a)    Shivraman    (b) Rangarajan
(c)    Malegam      (d) Vijay Kelkar

2.  ‘Swabhiman’, the financial inclusion scheme, comes under the purview of which ministry?
(a) Ministry of Commerce  (b) Ministry of Home Affairs
(c) Ministry of Finance      (d) Ministry of External Affairs

3.  RBI was established on ___________.
(a) April 1, 1925     (b) April 1, 1935
(c) April 1, 1945     (d) April 1, 1955    

4.  The one-rupee note bears the signature of____________.
(a) RBI Governor           (b) Deputy Governor
(c) Finance Secretary     (d) Finance Minister

5.  Which among the following does the RBI not decide?
(a) CAR     (b) CRR    (c) Base Rate     (d) Bank Rate 

6.  What does ‘T’ in RTGS stand for?
(a) Transaction    (b) Transfer    (c) Tax    (d) Time

7.  In banking, IFSC code stands for_________________.
(a) International Format System Code 
(b) Indian Function System Code
(c) International Forex System Code
(d) Indian Financial System Code

8.  If a customer does not get a satisfactory response to his grievance from the bank within _____ days, then he can approach the Banking Ombudsman.
(a) 60    (b) 90    (c) 30    (d) 15  

9.  Which of the following organizations is the Mutual Fund Market regulator?
(a) AMFI     (b) SEBI    (c) CIBIL    (d) CRISIL 

10.   Which of the following statements is incorrect regarding RTGS system?
(a) The transactions take place in real time
(b) The system operates on DNS (Deferred Net Settlement) basis
(c) The minimum amount that can be remitted is Rs. 2 lakh
(d) Service charges for RTGS transactions vary from one bank to another

11. Banks have recently launched a service through which money can be transferred using mobile phones. This service is known as
(a) MMTF (Mobile Money Transfer Facility)
(b) MTMT (Mobile To Mobile Transfer)
(c) IMPS (Inter Bank Mobile Payment Service)
(d) IBMPS (Internet Banking Mobile Payment Service)

12. Which among the following is at times mentioned as a kind of Direct Debit Facility?
(a) ECS    (b) RTGS    (c) IMPS    (d) UTR   

13. The discounting rate at which RBI borrows government securities from commercial banks is known as
(a) Repo Rate        (b) Reverse Repo
(c) Deposit Rate     (d) Base Rate         

14. Which among the following is an instrument of monetary policy used by the RBI?
(a) Base Rate    (b) PLR    (c) CRR    (d) BPLR

15.  Which among the following statements is incorrect in the context of IMPS?
(a) It’s a mobile-to-mobile fund transfer facility
(b) For this facility we need a GPS-enabled mobile phone
(c) Both the sender and the receiver must have an account in the same bank
(d) Both the customers must have an MMID (Mobile Money Identifier Number) number

16. ________is the organization that maintains the borrower’s history in India.
(a) CRISIL    (b) CIBIL    (c) CARE    (d) RBI 

17.  RBI has directed commercial banks to resolve ATM transaction-related complaints within seven working days. If a commercial bank is unable to do so then it has to pay Rs.________per day as compensation.
(a) 50     (b) 100     (c) 200     (d) 225 

18. RTGS as well as NEFT uses
(a) UTR Number    (b) MICR    (c) IFSC    (d) DNS

19. Which of the following statement is incorrect about SEBI?
(a) SEBI is a capital market regulator
(b) SEBI is the mutual fund regulator
(c) SEBI also regulates the credit rating agencies in India
(d) None of them is wrong

20. What does liquidity mean?
(a) It means how cash is converted into gold
(b) It means how cheaply and quickly an asset is converted into cash
(c) It means how cash is converted into SDR (Special Drawing Rights)
(d) It means how uncertain the money market conditions are


Answer

1. (a) NABARD (National Bank for Agriculture and Rural Development) was established in 1982 on the recommendation of Shivraman Committee.
2. (c) Ministry of Finance.
3. (b) RBI was established on 1st of April 1935.
4. (c) Finance secretary.
5. (c) Base rate is decided by commercial banks, not the RBI.
6. (d) RTGS-Real Time Gross Settlement system is a funds transfer systems where transfer of money or securities takes place from one bank to another on a “real time”. (Real time means within fraction of seconds.)
7. (d) Indian Financial System Code.
8. (c) 30 days.
9. (b) SEBI is also known as Capital regulator or Mutual funds regulator or Market regulator. SEBI is also created investors protection fund and SEBI is the only organization which regulate the credit rating agencies in India such as CRISIL and CIBIL.
10. (b) NEFT-National Electronic Fund Transfer. This is a method used for transferring funds across banks in a secure manner. It usually takes 1-2 working days for the transfer to happen. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. RTGS does not works on DNS.
11. (c) IMPS-Interbank Mobile Payment Service is an instant interbank electronic fund transfer service through mobile phones. Both the customers must have MMID (Mobile Money Identifier Number). 
12. (a) ECS: Electronic Clearing Service.
13. (a) Also called Repurchase Rate, the rate at which the RBI lends money to the banks or in other words we can say that Repo rate is the discounting rate at which central bank borrows government securities from commercial bank. Repo means repurchase agreement between RBI & commercial bank.
14. (c) CRR (Cash Reserve Ratio)
15. (b) We don’t need any GPS enabled cell phone for IMPS.
16. (b) CIBIL: Credit Information Bureau of India Limited. CIBIL is India’s first credit information bureau. Whenever a person apply for new Loans or Credit Card to a Financial Institution, they generate the CIBIL report of the said person or concern to judge the credit worthiness of the person and also to verify existing track record. CIBIL actually maintains the borrower’s history.
17. (b) Rs 100 per day.
18. (c) IFSC: Indian Financial System Code.
19. (d) None of them is wrong.
20. (b) 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.