index [] · human development index ... giffin goods = when prices goes up demand of inferior goods...

A-1, Keshav Vihar, Riddhi Siddhi main chauraha, Gopalpura Bye pass, Jaipur , M-9636977490

0

INDEX

Topic Page 1 Introduction 2 Market Forces 3 Monetary policy Reserve bank of India 4 Money Supply Micro finance 5 Financial Inclusion 6 Capital Market SEBI 7 Inflation 8 Fiscal Policy Goods and Services Tax 9 Budget 10 National Income Human development Index 11 Trade Policy Foreign direct investment Special economic zones Exchange rate 12 International institutions World trade organization 13 Poverty 14 Agriculture 15 Industries 16 General Agreement on Trade in Service (GATS) 17 Miscellaneous

1 2 5 7 18 20 24 26 32 36 43 48 52 58 64 71 75 81 87 92 97 103 116 122 130 136


1

INDIAN ECONOMY

ECONOMY

1. SOCIALISM 2. CAPITALISM

EQUALITY LIBERTY

French Revolution 1789 gave three points –

1. Equality

2. Liberty

3. Fraternity

Russian Revolution – 1917

Government controlled Individually controlled

Non-Profitable Profitable

Mostly adopted by all Mostly adopted by all

backward countries developed/developing countries

- India has a mixed Economy.

- India adopted Capitalism in 1991

This gap of 12 years remains

- China adopted Capitalism in 1979 the gap in Economy.

Till 1980, India Economy> Chinese Economy.

Economy is all-over based on Market Forces.


2

MARKET FORCES

Demand = Supply

Currency (RBI) Production (more production

D>S (more money) more supply) D<S (less money)

Inflation (value of money falls) Deflation (value of money rises)

RBI (Monetary policy) Go t s Fis al Poli y

Liquidity is a condition in which money in the market is kept by the owner

and they did not buy anything form market. The degree to which it can be

easily converted into cash.

4

3

2 Price Increase # Demand Decrease

Demand 1

0 1 2 3 4

Price


3

There is Positive Relation between Supply

and Demand

Price

Exceptions-

1. Essential Goods = Salt

2. Veblen Goods = Goods which belong to social status

- More Demand of Veblen goods because their prices are high

3. Giffin Goods = When prices goes up demand of Inferior goods increases.

4. Fashionable Goods

I. Monetary Policy:-Banking

Share Market

Inflation

II. Fiscal Policy:- Budget

Several Types of deficits

Planned Expenditure

Non-planned expenditure

Taxation

III. Trade policy:- Balance of Payment

B.O.P criss

Foreign investment

SEZS

Exchange rate of rupee

Full Convertibility of rupee

International Institution – IMO

-- WTO

-- IBRD

IV. National Income:- GDP

GNP


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NNP

GVA

V. Economic Development:- Human Development Report

Human Development Index

DHI

GII

HPI

VI. Poverty:- Relative

Absoute

VII. Unemployment

VIII. Planning—Planning Commission

Finance Commission

IX. Agriculture

X. Industries


5

MONETARY POLICY

BANKING

Banking:- Currency system came in existence in

1770 – Established Bank of Hindustan which was first Bank of India

1881 – Awadh commercial Bank- First Bank which was run by Indians

1894 – Punjab National Bank which was first Indian Bank

History of SBI:-

1. Bank of Bengal – 1806

2. Bank of Bombay – 1840

3. Bank of Madras – 1843

1921 – These three presidential Banks were merged and established

Imperial Bank of India

1955 – It was Partially Nationalized

It was given new Name – State Bank of India

1959 –Princely Banks were made its subsidiary Banks

8 Princely Banks

- 1961 – Bikaner and Jaipur State Banks were merged

- 2010 – State Bank of Indore was merged in SBI

- 2008 – SBI was purchased from RBI By Government of India

IDBI – 1996

SBI – 2008

RBI NABARD – 2010

NHB – National Housing Bank

DICGC

According to Regulatory Act 1981, In IDBI 1% of shares

Nationalization of Banks:-

In 1969, Indira Gandhi Government nationalized 14 largest Banks of India,

which had capital of 50 crore or more.

In 1980, 6 more Banks were nationalized which had 200 crore or more

capital.

In 1993, New Bank of India was merged in Punjab National Bank.


6

At present, there are 19 Nationalized Banks.

Cooperative Banks:-

Established in 1982

DFI – Development Financial Institution

Commercial Banks Cooperative Banks

Subject of concurrent list Subject of State list

These are established by

parliamentary Act

These are established by legislative

Assembly Act

One Tier Structure Three Tier Structure

1 State level - Apex Bank

2 District level – Central Bank

3 Gram Panchayat level – Cooperative

Society

No fixed functioning area Fixed functioning area

RBI is an apex body NABARD is an apex body

Scheduled Banks:-

Banks which are included in the second schedule of the RBI Act 1934

Scheduled Banks can issue cheque book and they can get all kinds of

financial facilities from RBI

They have to follow the rules and regulations of RBI

500 crore capital is required

Regional Rural Banks:-

Established on 2 October 1975

Its major objective is to provide banking facility in the rural areas

It is established by central government, state government and commercial

banks.

Their share is = 60:20:20.

No Regional Rural Bank in Goa and Sikkim


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Reserve Bank of India:-

RBI started functioning on 1 April 1935.

It was established by the RBI Act 1934.

There was a provision for establishment of Central Bank in Government of

India ACT 1935.

RBI was founded by the recommendation of Young Hilton committee.

From the very beginning it was founded as central bank.

It was a private Bank

It was nationalized on 1st

January 1949

It is an autonomous body

It also functioned as a central bank of Burma and Pakistan.

Functions of RBI

To issue currency notes

Two rupee or above value rupee notes are issued by RBI

one rupee note and coins are issued by finance ministry

But One rupee note and coins are circulated in market by RBI

RBI issues currency note by the minimum reserve system

RBI has to maintain 200 crore reserve

200 core 115 crore gold

85 crore rupees – Foreign Assets

In 1956, RBI adopted minimum Reserve System

Before it, Proportional Reserve System was used.

According to MRS, RBI Reduced its reserves from 515 crore to 200 crore.

- RBI is a regulatory body for Banking system

- It frames rules and regulations for banking system and implement them.

- It works as a Banker of Government of India and arranges all kinds of

borrowings for Government of India.

DMO – Debt Management Office

Established in 2008

In future it would arrange borrowings for Government of India.

To maintain Forex Reserve

At present, RBI has 371 billion Forex Reserves

Forex Reserve-


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I. Foreign Assets

II. Gold

III. Our deposits at IMF( Reserve Tranche IMF)

IV. SDR – Special Drawing Rights ( issued by IMF, used as an international

Currency)

To manage the exchange rate of rupee.

It provides the facility of clearing house to Banks ( clearing house –

solve the mutual disputes)

To control the liquidity of Market

Two types of measures to control the liquidity use by RBI –

1. Quantitative

2. Qualitative

QUANTITATIVE MEASURES:-

Tools of RBI:

- Bank Rate\

- CRR – Cash Reserve Ratio

- SLR – Statutory Liquidity Ratio

- Repo Rate

- Reverse Repo Rate

- MSF – Marginal Standing Facility

- BANK RATE:-

Interest Rate at which RBI provides long term loans to the Banks. It is also

known as Penal Rate, because the Bank which not maintains the SLR, RBI

uses this interest rate as a punishment.

2. CASH RESERVE RATIO:-

- All Banks have to deposit certain percentage of their total liabilities with

RBI, on which there is no provision of Interest.

- It is for emergency conditions

- At present, CRR is 4 %.

3. SLR:-


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- Statutory Liquidity Ratio = 21 %

- All Banks have to maintain certain percentage of their total liabilities as

liquid assets.

- All Banks have to invest certain percentage of their total liabilities into

government securities.

LAF – Liquidity Adjustment Facility

Repo Rate

LAF

Reserve Repo Rate

- RBI started this facility in 2000 for adjustment of liquidity

- In this Repo market was developed

4. REPO RATE:-

- Repurchase Option

- Repo Market – Market in which seller of money always keep option to

repurchase his money after a certain time.

- Under this the Government Securities are kept as a mortgage.

- In India short term transaction between RBI and Banks comes under the

Repo market.

- Repo Rate- Interest Rate at which RBI provides short term loans.

5. REVERSE REPO RATE:-

Interest Rate at which Banks deposit their money with the RBI for the short term

loans.

6. MSF – MARGINAL STANDING FACILITY

- This facility was started in 2000

- In which banks can borrow money for overnight from RBI. This

Facility is available only in Mumbai. In which bank have to borrow

minimum 1 crore rupees, it should be multiple of 1 crore and

maximum it can be 2% of total deposits of Bank.

- It is borrowed to maintain CRR and SLR

- Its Interest Rate is known as MSF Rate.

7. OPEN MARKET OPERATIONS


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RBI uses Open Market Operations to control the liquidity of Market. In

which it buys and sells the securities. If problem of Inflation arises, then it

sells securities and if there is Deflation, than it buys the securities.

To control the Inflation, RBI increases all of these.

Open Market Operation is comparatively for long term as the Repo

Market. As, in Repo Market securities are kept as a mortgage, whereas, in

open market operations, securities are either sold or purchased.

QUALITATIVE MEASURES:-

1. Marginal Requirement

2. Consumer credit

3. Rationing of Credit

4. Moral Pressure

1. MARGINAL REQUIREMENT:-

If there is Inflation, than margin money is increased and vice-versa

2. CONSUMER CREDIT:-

The consumer amount/value of down payment is increased/ decreased.

3. RATIONING OF CREDIT:-

- To fix the limits of lending of Banks in various sectors

- In case of Inflation, limit of consumer loan is reduced and vice-versa

4. MORAL PRESSURE:-

- RBI creates moral pressure on Banks.

- During the recession, it encourages Banks to give more loans to the

consumer and during Inflation, it encourages Banks to control their

consumer loans.

CALL MONEY MARKET:-

It is a very short- term market.

During, day to day business, some Banks faces the shortage of money and

on the other hand some Banks have surplus money, and the transactions

among the Banks is known as call money market.

Its maximum duration is 14 days.


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But generally, money is given/taken for one day.

Its interest rate is called call rate.

It is also known as Reference Rate, because the Central Bank takes the

reference of call on rates, when it frames its Monetary Policy.

- London – Is the Wo ld s la gest all o ey a ket. - The call rate of London is known as LIBOR – London Inter- Bank Offer Rate

- The LIBOR is calculated by – BBA (British Bank Association)

- In 2012, LIBOR scam took place

- Mumbai is I dia s la gest all o ey a ket - The call rate is known as MIBOR

PRIORITY SECTOR LANDING:-

All Banks have to lend at least 40% of their loanable amount to priority

sectors and its minimum interest rate can be 12%.

Agriculture – 18%

Small Scale Industries

Exporters

SC/ST

Women

Home Loan – upto 25 lakh

Slum Dwellers

NBFC-MFI – Non-bank finance companies- Micro Finance institution.

Priority Sector Lending Certificate (PSLCS)

- On 7th

April 2016, RBI issued a notification, in which RBI allowed Banks to

buy and purchase priority sector lending certificate.

- Those banks which lend in priority sector, more than their target, they can

sale su h ki ds of e tifi ate. A d those Ba ks hi h a t a hie e the target the priority sector lending can purchase these kinds of certificates.

CARBON CREDIT TRADING

PSLCS – This Facility is started on the basis of Carbon Credit Trading

- It is issued for four types of PSLCS.

1. Agriculture

2. Small and Marginal Farmers

3. Micro- industries

4. General


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C.A.R (CAPITAL ADEQUACY RATIO)

- Banks have to maintain certain percentage in the risk assets, it must be of

thei a ks o apital - The concept of C.A.R is taken from BASEL Standards.

BIS (BANK FOR INTERNATIONAL SETTLEMENT)

- Established in the year 1930.

- Its headquarter is in BASEL (Switzerland)

- It is an organization of Central Banks.

- RBI became its member in the year 1996.

- It works for the development of Banking Sector.

- It encourages the research in Banking Sector.

- It issues direction for the development of Banking Sector which are known

as Basel Standards.

- Till now BASEL I, BASEL II and BASEL III standards have been issued.

- In India BASEL III standards are being implemented from 2013 – 2019.

NARSIHMAN COMMITTEE – 1992

- No more Nationalization of Banks.

- Encouragement should be given to private banks.

- Foreign Banks should also be encouraged.

- There should be no discrimination between foreign banks and domestic

banks.

- Government Shareholding in the public sector banks should be reduced to

51% from 100%.

- Credit Information Bureau should be established.

- DRT (Debt Recovery Tribunal) should be established.

- ARF (Assets Reconstruction Fund) should be established or ARC (Assets

Reconstruction Company) should be established.

- Rate of CRR and SLR should be reduced.

NARSIHMAN COMMITTEE II – 1998

- The merger of the banks should be encouraged, so that the Indian Banks

can compete with foreign banks.

- The weaker Banks should not be merged with the stronger Banks.


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NARROW BANKINGS:-

- Those Banks which do not invest in risky sectors.

- In the Government shareholding in Public sector banks should be reduced

from 51% to 33%.

- BASEL standards should be implemented.

- C.A.R should be implemented

- NBFCshould be implemented.

- Non-banking finance company.

- Computer technology of Banks should be encouraged.

BANKING OMBUDSMAN ( LOKPAL)

- In 1995, RBI appointed 15 Banking Ombudsman in different cities.

- They hear the complaints of customers against the Banks.

- They hear the complaints of-

Scheduled Banks

Regional Rural Banks

Cooperative Banks

NBFCs (complaints regarding finance)

Types of Complaints

- Hidden Charges

- clearance of DD and cheques

- If Ba k does t ope a a ou t, e e if a pe so has all do u e ts ith him.

- If Bank refuses to grant loans.

Co plai ts hi h a t e ade:- - If the matter related is of more than 10 lakhs rupees.

- O e Yea old atte , o plai ts a t e ade. - If DRT is hea i g the atte , that o plai t a t e hea d y the Ba ki g

Ombudsman.

- General complaints

- Any complaints should be first made or reported to Bank manager, if he

does not solve the problem within a month, than you can go to banking

Ombudsman.

- If the Customer is not satisfied by the decision of banking ombudsman

than he can go to the deputy governor of RBI and appeal for it.

- Problems or complaints of Net Banking can be done before Banking

Ombudsman.

- Online complaint can also be made.


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- There should be an advertisement of banking ombudsman is each branch

of the bank.

NPA ( NON-PERFORMING ASSETS)

- If Bank does not get principle amount and interest for continuously 90 days

than such assets are included in NPA category

- NPA is of Three Types: 1 Sub-standard NPA

2 Doubtful NPA

3 Loss NPA

Sub-Standard NPA

- If Bank does not get principle amount and interest for continuously 90

days. Till one year it is called as Sub-Standard NPA.

- After remaining Sub-Standard NPA for 1 year it comes under Doubtful NPA

category.

Loss NPA

When all possibilities to get the loans back are ended, then the Banks

includes it in loss NPA category, but still it is mentioned in the Balance

Sheet.

Measures taken for this problem:

- NPA is the major problem of banks and to solve this problem government

has made number of efforts such as

1. CIBIL – Credit Information Bureau of India Limitation in the year 2000.

- CIBIL collects the information of the lending of the banks and makes them

available for all finance institutions. Collect data from all the Banks.

2. DRT- Debt Recovery Tribunal was established in the year 1994.

- In 1994, Government established 29 DRT and 5 Tribunals.

- These are specialized Tribunals for banking sector and they were established

because of hearing can be done for the matter related to NPA and the matter

can be closed soon.

Securitization and Reconstruction of Financial Assets and Enforcement of

Security Interests Act 2002 :

- In short it is known as Securitization Act 2002


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- On the basis of this act, banks are given rights that after giving the notice

of 60 days mortgage assets they can take possession of the property.

- T i u al o DRT a t gi e stay ithout hea i g a k s lai . - On the basis of this Act, there is a provision of establishing ARC (Assets

Reconstruction Company).

- For Solving the problem of NPA, ARC was established.

- ARC purchases the NPA of banks and disposes it in the market, It first does

the reconstruction of the assets and dispose it.

Urjit Patel Committee Recommendations – 2013

- It was constituted in the year – 2013.

- This committee gave its recommendations in the year January 2014.

- The only objective of RBI should be to control the Inflation.

- To increase the growth rate, providing ample opportunities, maintain the

exchange rate of money. These all should not be the objectives of RBI.

- CPI should be made the major index in place of WPI.

- Target inflation should be 4% it can be (+) or (-)

- CPI should be gradually controlled

- There should be a monetary policy committee to frame the monetary

policy.

- There should be five members in the monetary policy committee, three

members from RBI, Governor of RBI, Deputy Governor and Executive

director.

- Two Independent Members appointed by the Government of India whose

term of office or tenure should be 3 years.

- They should not hold the post of profit.

- There should be transparency in the functioning

- There should one sitting in two months

- The decision should be taken by the majority.

- The Governor of RBI Should be the Chairperson of this Committee.

- The casting of vote is compulsory for all the members.

- In case of equal vote, Governor has the power of casting vote.

- If this Co ittee a t o t ol the i flatio fo o ti uous th ee ua te s, then committee has to give clarification. They have to give three

clarifications.

1. Why Inflation could not be controlled.

2. The Time within which the inflation could be controlled.

3. How the Inflation would be controlled.

- Monetary policy should be received within 60 days.


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- Earlier the time period to review the monetary policy was within every 45

days.

- Government should control its social welfare programmes.

- Fiscal deficit should also be controlled.

- The Target of FRBM Act 2003 should be achieved.

- Therefore, the recommendation of Kelkar Task force should be

implemented.

- The RBI s fu tio to o o o ey fo the go e e t of I dia should be

given to DMO.

- Fixed Income financial Products should be counted as Assets. Bank should

give loan against them, so that people invest less in gold.

- Some of these recommendations have been accepted:-

- CPI has been made the major Index.

- Targeting Inflation – 4% has been done.

- The review of Monetary Policy is done within the gap of 60 days instead of

45 days.

- Monetary Policy committee have been formed and now there are 6

members in this committee.

- Three members are of RBI and three members are from Government.

Marginal Cost of Fund Based Lending Rate-

In April 2016, RBI replaced base rate by MCFBLR.

Why it was replaced?

- Despite edu tio i the Repo Rate, a k did t edu e thei ase ate, a d the efo e the e efit of edu tio did t ea hed to onsumers or

investors.

Factors affecting the fixing of Base Rate

Cost for the fund (Interest Rate given for deposits)

Operating Expenses

Minimum Rate of Return (profit)

Cost of CRR

- While fixing the Marginal cost of Fund based lending Rate it comprises of

the following:


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- Its Main factors are as follows:-

Marginal cost of Fund

Negative carry on account of CRR

Operating Cost

Tenure Premium

Operating Expenses and cost for CRR are similar factors in both.

Whereas in cost for fund, only interest rate given on deposits was included,

but now in marginal cost of fund interest rate on deposits, Repo Rate and

different kinds of interest rate on other fund arrangement is also included.

Profit has been removed and in place of minimum rate of return Tenure

Premium has been included.

- Tenure Premium or high interest rate for long term loans.

- MCLR should be revised monthly, it is compulsory to revise MCLR on

Monthly basis.

- Now, with the reduction of Repo rate, bank has to reduce its MCLR.

BASE RATE:-The minimum interest rate declared by the bank is called base rate.

- It was started in 2010

- Prime lending rate was replaced by base rate

- The concept of PLR was started in 2004.

- The concept of MCLR is started in2014.

- PLR – The Interest Rate which was provided to the best customer of the

banks.


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MONEY SUPPLY-

M1 = Cash with people + Demand deposits with the Bank + other deposits with

RBI.

M2= M1+ Deposits with Post Office

M3 = M1+ Time deposits with the Bank

M4 = M3 + Deposits with Post Office

There are Four types of Account:-

1. Current Deposit Account

Demand Deposit

2. Saving Deposit Account

3. Recurring Deposit

Time Deposit

4. Fixed Deposit

NM1 = Cash with people + Demand Deposits with the Banks + other deposits

with RBI

NM2 = NM1 + Short term time deposits of residents

NM3 = NM2 + long term time deposits of residents + Term deposits of the Banks

L1 (Liquidity) = NM3 + Post office deposits

- (National saving certificate are not included in this post office deposits)

L2 = L1 + Refinance or financial Institutions (FI) - Deposits

- Borrowings

- Certificate of Deposit

L3 = L2 + Non-Banking Finance Company (NBFC)


19

Mo

- Total currency issued by RBI

- The date is issued weekly

- NM1 + NM2 + NM3 – They are issued once in 15 days

- L1 + L2 – They are issued monthly

- L3 – They are issued quarterly

DICGC ( Deposit Insurance and Credit Guarantee Corporation)

- Established in the year 1978

- Its ownership is with RBI

- Its objective is to give the insurance on the deposits of the customer with

the Banks and it provides guarantee to the credit creation by the Bank.

Financial Stability and Development Council (FSDC)


- Its chairman is Finance Minister

- Its members are from RBI, SEBI, IRDA ( Regulatory Bodies)

- Secretaries of Finance Minister and Economic advisor of Finance Minister

are its members.

- Its objective is to provide a common platform for regulatory bodies to

resolve their disputes.

- It does not interfere in the internal affair of the regulatory bodies.

- It gives advises on financial inclusion

- It recommends financial inclusion

- To encourage the stability in financial sector.

Prepaid Instruments (PPI)

- Its objective is to provide payment related facilities to the customer

- They provide online payment facility

- They can take maximum 50,000 deposits

- They do t le d o ey a d do ot gi e loa s

- They do not provide the facility of cash withdrawal

- They follow the norms of KYC (Know Your Customer)

- They do t follo CRR a d SLR, the efo e Na hiketa Mo Co ittee criticized it and in place of it payment bank should be established instead

of PPI

Payment Bank


- To establish a payment bank 100 crore capital is needed


20

- Promoters capital amount should be 40% and after 12 years it can be

reduced to 26%

- They Provide online Payment facility to their customers

- They can take maximum 1 lakh deposit

- They Provide debit card, therefore cash withdrawal can be done

- They a t le d o ey

- They do not provide credit card

- They follow the norms of CRR

- The 75% of remaining amount have to be invested in SLR as Government

securities.

- The remaining 25 % amount to be deposited in the Banks.

Small Banks


- To establish a small bank 100 crore capital is required

- The promoters share in it should be 40%

- It gives small loans to small-scale Industries, micro-industries and small

farmers.

- This Banks provides 50% of its total amount as 25 lakh or less amount of

loans.

- Remaining 50% amount of money can be lended in which one loan can be

more tha lakh. But its si gle loa a t e o e tha % of its total loan.

- These banks would lend 25 lakhs or less amount of loan of its 50% amount.

- Small Banks should lend minimum 75% of their loanable amount to private

sector lending.

Micro Finance

- The financial activities done at micro-level are included in Micro finance.

- Its objective is to provide small loans and collect the small savings and

provide small insurance facility.

- The economist of Bangladesh Mohammad Yunus made the concept of

Micro-finance popula a d his i stitutio as a ed as G a i Ba k . - By the help of Self Help Group (SHG) provided small loans.

- He was awarded the Nobel Prize for peace.

- Later on, this Micro-Finance became popular in India.

- Many farmers did suicide in India, due to which these micro finance

companies came into Limelight.

- RBI imposed restrictions on the functioning of Micro Finance Company and

Malegam committee was formed in 2011.


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Recommendations given by Malegam committee:-

- There should be a new category as NBFC-MFI who do micro –finance

- There should be a separate Ombudsman for NBFC likewise, there should

be a separate credit information bureau for these companies

- They can lend money to the families which have less than 50,000 Income.

- Single loan should not be more than 25,000.

- A family can borrow money from maximum two companies.

- No mortgage loan should be provided

- There should be no harassment done on farmers.

- Maximum interest should be 24%.

- NBFC-MFI should be included in the priority sector lending.

MUDRA BANK-

Micro unit development and Refinance Agency Bank (or mudra bank) is a

new institution set up by the Government of India for development of

micro units and refinance of MIFs to encourage entrepreneurship in India

and to provide the findings to the non-corporate small business sector.

It provides loans at low rates to micro-finance institutions and non-

banking financial institutions.

It was launched by Prime Minister Narendra Modi on 8 April 2015

The Bank will classify its clients into three categories and the maximum

allowed loan sums will be based on the category, to signify the stage of

growth and funding needs of Micro units or entrepreneurs.

- Shishu – Allowed loans upto Rs 50,000

- Kishor – Allowed loans upto Rs 5 lakh

- Tarun – Allowed loans upto Rs 10 lakh

Mudra Bank will need two type of Product like refinance for the micro

units having loan requirement from Rs 50,000 to 10 lakh and support of

Micro Finance Institutions for on lending.

Mudra Bank is refinancing through state level institutions, Mudra Bank will

deliver loans through NBFCs, MFIs, Rural Banks, district Banks, Nationalized

Banks, Private Banks, Primary lending Institutions and other

intermediaries.

There is no fixed interest rate in Mudra loan

Benefits of Mudra Banks:-

- Providing low cost funding for MFIs. Priority for SMEs in lending.


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- It will increase liquidity and access for funds for small scale business.

Introduce appropriate technologies to assist in the process of efficient

lending, borrowing and monitoring distributed capital.

NBFC-MFI-

RBI has given a separate category to NBFC-MFI

To start a NBFC-MFI the minimum capital should be 5 crore and minimum

2 crore capital for North-East States.

85% qualifying assets must be of its total capital.

Qualifying Assets

- The loan which is given to people having Income of 100,000 in urban and

Semi-urban areas.

- The loan should not exceed more than 1 lakh

- The loan must be given without conditions.

- The loan amount does not exceed 60,000 in first cycle and 100,000 in

successive cycle/installments

- The return of loan should not be less than 24 months (for loans of 15,000

and more).

- The aggregate amount of loans given for income generation is not less than

50% total loans given by the NBFC.

- Loan is repayable on weekly, fortnight or monthly installments at the

choice of borrower.

- Remaining 50% assets, there is no restrictions on it.

- Those institution which does not qualify as NBFC-MFI should not extend

loans to micro-finance sectors. Exceeding 10 % of loan its total assets.

Interest Rate

- Cost of fund + Margin

- The margin of large NBFC-MFI should be 10%

- The margin of small NBFC-MFI should be upto 12%

- Those NBFC-MFI whose assets is more than 100 crore rupees, loan

exceeding portfolio of 100 crore rupees, comes under large NBFC-MFI.

- Small NBFC-MFI – The loan exceeding portfolio is less than 100 crore.

The Average of commercial banks base rate х 2

- Cost of fund + 10% margin


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- The rate among these two, whichever among them is lower becomes the

interest rate.

- NBFC-MFI can charge differential rate of interest to its customers but the

diffe e e a t e o e tha %.

NBFC-MFI can charge only three types of charges

- Interest Rate

- Processing charges, which can be 1% of total amount.

- Insurance

The way of the returning the money or the repayment of loan should be

simple.

- It has been included in priority sector lending.

index [] · human development index ... giffin goods = when prices goes up demand of inferior goods...

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