Banking Awareness- Basics and RBI (IBPS-PO)

Banking Awareness- Basics of Banking  

IBPS-PO

Role of Banking

1. It is an intermediary between the surplus money holders and funds needed people, farmers, and businessmen.

2. It also financially facilitate by providing import-export transactions and by balancing economic development in the country.

Central Bank (RBI)


To regulate the banking system and to maintain the balance between government revenue and expenditure of a country, there is a central Bank in a country. In India, the RBI (Reserve Bank of India) is the central bank that formulates the guidelines for the other banks.

Commercial Banks

For accepting deposits and grant loans and advances to the customers

Types of Commercial Bank

1. Public Sector Bank- State Bank of India, Bank of Baroda, Corporation Bank, Dena Bank

2. Private Sector Bank-Axis Bank, ICICI Bank, HDFC Bank

3. Foreign Bank- HongKong and Shanghai Banking Co-operation Bank (HSBC), American Express Bank, Standard and Charted Bank, Citibank

Development Bank

The Financial assistance to businesses for equipment for using latest technology is provided by development banks.

They also facilitate by subscribing to the shares and debentures issued by companies, in the case under subscription of the issue by the public, Industrial Financial Corporation of India (IFCI) and State Financial Corporation of India (SFCs).


Co-operative Banks

When a co-operative Society (People who come together to jointly serve their common interest) involved in banking business then it is known as Cooperative Bank.

Types

State Co-operative Bank – The highest level banks in all the states of the country. The money reaches the individual through the central co-operative society and the primary credit societies.

Central Co-operative Banks – These banks operate at the district level. These act as an intermediary between the State co-operative banks and primary credit societies.

Primary Credit Societies- These societies are at the village or town level. The operations are restricted to the small town areas.


Specialized Bank

EXIM BANK: (Export-Import Bank of India)

1982

Help in Export/Import Business
SIDBI (Small Industries Development Bank of India)

1990

To establish a small scale business unit and industry and to facilitate the modernization of small-scale industry and market activity

INDIAN BANKING SYSTEM

MINISTERY OF FINANCE

RBI

COMMERCIAL BANK

· (SBI, IDBI, NATIONALIZED BANKS, RRB, PRIVATE BANKS – INDIAN BANK, FOREIGN BANK)

CO-OPERATIVE BANK

· STATE CO-OPERATIVE SOCIETY, CENTRAL CO-OPERATIVE SOCIETY , PRIMARY CREDIT SOCIETIES

DEVELOPMENT BANKS

· EXIM, SIDBI, NABARD, BMB



SBI History

1881- OUDH Commercial Bank

1894- PNB

1913-17 -BANK CRISIS

1949- BANK REGULATION ACT

1955-IMPERIAL BANK (NATIONALIZED SBI)

1959 – 8 Associate Banks (SBI)

1963- SB of BIKANER + SB of JAIPUR

2008- SB of Saurashtra + SB of Indore

RRB (1975)

Initially 5 RRB

1. MORADABAD(U.P)

2. GORAKHPUR (U.P)

3. BHIWANI (HARYANA)

4. JAIPUR (RAJASTHAN)

5. MALDA (WEST BENGAL)

PRATHMA (Ist RRB of India- established 1975 Moradabad (U.P) sponsored by Syndicate Bank)



NABARD: National Bank for Agriculture and Rural Development

(Credit Functions, Development and Promotional Function, Role in Training, Supervisory Functions)

· B. SHIVRAMAN COMMITTEE

· 12-July -1982

· Mumbai

· HEAD- H. K. Bhanwala

Financial Awareness- Foreign Direct Investment -IBPS -PO

Financial Awareness- Foreign Direct Investment 

IBPS -PO

Foreign Direct Investment (FDI)
Foreign Direct Investment is a direct investment that involves the injection of foreign funds into production or business in a country by an individual or company of another country.

Foreign Portfolio Investment (FPI)

Foreign Portfolio Investment is a direct investment but investment in only financial assets such as stocks, bonds etc. of a company located in another country. In contrast to FDI, a portfolio investment is an investment made by an investor who is not involved in the management and day-to-day business of a company.

Benefits of FDI:

(a) Improves forex position of the country

(b) Employment generation and increase in production

(c) Help in capital formation by bringing fresh capital

(d) Helps in transfer of new technologies, management skills, intellectual property

(e) Increases competition within the local market and this brings higher efficiencies

(f) Helps in increasing exports, Increases tax revenue



FDI in INDIA
A foreign company planning to set up business operations in India may:
Incorporate a company under the Companies Act, 1956, as a Joint Venture or a Wholly Owned Subsidiary.
Set up a Representative Office or a Project Office or a Branch Office of the foreign company which can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office or Other Place of Business) Regulations, 2000. 

FDI

FPI


Investment in productive assets (whose value increase over time) like plant and machinery for a business

Investment in financial assets like stocks, bonds, mutual funds, etc.


Investment gives investors ownership right as well as the management right

Investment gives investors only ownership right and not the management right


Engage in the decision making of a firm

Not involved in decision making


Investors enter a country with long-term approach

Investors can plan for long but often have short-term plans


So investors cannot depart from the country easily

Investors can easily depart from the country


Investment is greater than 10%

Investment is less than 10%




The routes under which foreign investment can be made:
Automatic Route: Foreign Investment is allowed under the automatic route without prior approval of the Government or the Reserve Bank of India.
Government Route: Foreign investment in activities not covered under the automatic route requires prior approval of the Government which is considered by the Foreign Investment Promotion Board (FIPB), Department of Economic Affairs, and Ministry of Finance.



Foreign investment is prohibited in the following sectors:



1. Lottery Business including Government / private lottery, online lotteries, etc.

2. Gambling and Betting including casinos etc.

3. Chit funds

4. Real Estate Business or Construction of Farm Houses

5. Manufacturing of Cigars, cheroots and tobacco substitutes.

6. Atomic energy and Railway operations.

National Income- FINANCIAL AWARENESS -IBPS-PO

NATIONAL INCOME

 FINANCIAL AWARENESS

IBPS-PO

National Income

1949- National Income Committee (P. C. Maharan Obis)

1954- Total Income –Re. 8000 Crore.


The monetary value of all goods and services during an FY is National Income

Money

Income Method

Expenditure Method

Value Added Method (Product Method)

Primary Sector -Agriculture

Secondary - Manufacturing

Tertiary – Services

1. Gross-Depreciation NET

2. Factory Cost + Income Tax –Subsidiary = Market Cost

3. Domestic + NFIA = National

4. NFIA ( Net Factor Income From Abroad)

NFIA = Factor Income from Abroad – Factor Income paid to NRI

GDP = NDP ( if Depreciation = 0)

GDP = GNP ( if NFIA =0)

GDPfc = GDPmp ( if IT= Subsidy)



GDP -Gross Domestic Production – is money value of all the final goods and services produces in domestic territory of a country during a year.

GDPmp = NNPfc

GDPmp – Depreciation + NFIA –IT + Subsidy

NDP (Net Domestic Product)

NDP = NNP ( Net National Product)

NDP +NFIA = NNP

GDP-Depreciation = NDP

NNPfc + IT – Subsidy = NNPmp

National Income

There are three methods of measuring National Income.
Value Added Method (Product Method)
Income Method
Expenditure Method

Value Added Method: Value added method measures the contribution of each producing enterprise in the domestic territory of the country.

This method involves the following steps:

(a) Identifying the producing enterprise and classifying them into industrial sectors according to their activities.

(b) Estimating net value added by each producing enterprise as well as each industrial sector and adding up the net value added by all the sectors.

All the producing enterprises are broadly classified into three main sectors namely:

(1) Primary sector-Agriculture and Allied Activities

(2) Secondary sector- Manufacturing Units

(3) Tertiary sector -Services like banking, insurance, transport and communications, trade and professions.

Income Method:

Different factors of production pool their services for carrying out production activities. These factors of production, in return, are paid for their services in the form of factor incomes.

Thus labour gets wages, land gets rent, capital gets interest and entrepreneur gets profits. In other words, whatever is produced by a producing unit is distributed among the factors of production for their services and aggregate of factor incomes of all the factors of production of all the producing units form the subject matter of calculation of national income by income method.

Expenditure Method:

The various sectors - household sector, business sector and government sector either spend their incomes on consumer goods and services or save a part of their incomes or we can say that they spend a part of their incomes on non-consumption goods (or capital goods). Total expenditure in an economy consists of expenditure on financial assets, on goods produced in preceding periods, on raw materials and intermediate goods and services and on final goods and services produced in the current period.

Gross national expenditure = Consumption expenditure + net domestic investment + net foreign investment + replacement expenditure (i.e., expenditure on replacement investment).

Net national expenditure = Consumption expenditure + net domestic investment + net foreign investment.

The income of a nation can be calculated by four different ways.
GDP – Gross Domestic Product
NDP – Net Domestic Product
GNP – Gross National Product
NNP – Net National Product

Gross Domestic Product (GDP):
Gross domestic product is the money value of all final goods and services produced in the domestic territory of a country during an accounting year. The concept of domestic territory has a special meaning in national income accounting. Domestic Territory is defined to include the following:
Territory lying within the political frontiers, including territorial waters of the country.
Ships and aircrafts operated by the residents of the country between two or more countries.
Embassies, consulates and military establishments of the country located abroad.

GDP at Factor Cost and GDP at Market Price:

The contribution of each producing unit to the current flow of goods and services is known as the net value added. GDP at factor cost is estimated as the sum of net value added by the different producing units and the consumption of fixed capital. Since the net value added gets distributed as income to the owners of factors of production, we can also estimate GDP as the sum of domestic factor incomes and consumption of fixed capital.




In brief GDPFC = GDPMP – IT + S

where IT = Indirect Taxes

S = Subsidies

Net Domestic Product:




While calculating GDP no provision is made for depreciation allowance (also called capital consumption allowance). In such a situation gross domestic product will not reveal the complete flow of goods and services through various sectors. It is a matter of common knowledge that capital goods like machines, equipment, tools, buildings, tractors etc., get depreciated during the process of production. After some time these capital goods need replacement.


NDP = GDP - depreciation

Gross National Product (GNP):
It has already been seen that whatever is produced within the domestic territory of a country in a year is its gross domestic product. It, however, includes, the contribution made by non-resident producers by way of wages, rent, interest and profits. The non-residents work in the domestic territory of some other country and earn factor incomes. For example, Indian residents go abroad to work. Indian banks are functioning abroad. Indians own property in foreign countries.




GNP = GDP + NFIA (where NFIA is the net factor income from abroad)

NFIA (Net Factor Income from Abroad) = Income from Abroad – Income of Foreigners inside the country

Net National Product (NNP):
It can be derived by subtracting depreciation allowance from GNP. It can also be found out by adding the net factor income from abroad to the net domestic product.

Symbolically, NNP = GNP –Depreciation

NNP = NDP + NFIA

NFIA (Net Factor Income from Abroad) = Income from Abroad – Income of Foreigners inside the country

If NFIA is positive i.e., the inflow of factor income from abroad is more than the outflow, NNP will be more than NDP

If NFIA is negative, NNP will be less than NDP and it would be equal to NDP in case the net factor income from abroad is zero.

Important Points: 

1st National Income estimation in 1886 by Dadabhai Nauroji.
After independence for the period of 1948-51, National Income estimate was provided by National Income committee headed by P.C Mahalanobis.
Since 1951, N.I estimation is done by Central Statistical Organisation (CSO) Established in 1950.
CSO presents N.I estimation every year which is also known as National Accounts Statistics (NAS). 

For this purpose, CSO divides the economy is several parts.
GDPFC = GDPMP – IT + S
NDP = GDP - depreciation
GNP = GDP + NFIA (where NFIA is the net factor income from abroad)
NFIA (Net Factor Income from Abroad) = Income from Abroad – Income of Foreigners inside the country
NNP = GNP –Depreciation
NNP = NDP + NFIA 

DREAM BIG AND WORK HARD 

Financial Awareness- CAPITAL MARKET ( IBPS-PO 2018)

Financial Awareness

 CAPITAL MARKET ( IBPS-PO 2018)

CAPITAL MARKET

Maturity> 1 year

Regulated by SEBI (Security Exchange Board of India)



Authorized Capital – can max upto – 10,0000/

Issued Capital – Issue – 80,000

Subscribed Capital – Shareholder Buy – 60,000

Called –Up capital –Actual Price/Share – 60,000 × 10

Paid –Up Capital – First Call – 60,000 × 7

Authorized Capital = Nominal Capital = Registered Call

Company (Equity /Debt)

Equity 100%

51% -Company

49% - Shareholder

Shareholder share profit ( Dividend)

Debt (Debentures-Loan-Interest)

Share

Equity Preference



A general meeting Voting Rights No

Profit 2nd Priority Ist Priority

Loss Loss Profit

Wind Up 2nd Priority Ist Priority





Capital Market

Companies like manufacturing, infrastructure power generation and governments which need funds for longer duration period raise money from capital market.

Individuals and financial institutions who have surplus fund and want to earn higher rate of interest usually invest in capital market.

SEBI (Securities and Exchange Board of India) regulate the capital market in India.

Under Act 1992- a board is established to protect the interests of investors in Securities to promote and regulate the Security market.
Established -12 April 1992 under SEBI Act , 1992
SEBI Chairman- Upendra Kumar Sinha was appointed in 2011 replacing C.B.Bhave
Objective- To manage the fraudulent cases and stop fraudulent activities in stock market
Headquarter – Mumbai
Regional offices- Delhi , Kolkata , Chennai , Ahmedabad



Capital Market Instruments:

1. Shares

2. Debentures

Shares

If company issuing share for first time that it is known as IPO (Initial Public Offering).IPO of any company issued in primary market.

If company issuing shares for second or third time than it is known as FPO (Follow on Public Offering) and trading of already issued shares take place in secondary market.

Share gives ownership right to individuals who subscribe to it, in this way company has to dilute his ownership right up to 49 percent of their ownership and keep remaining 51 percent with them so that they have majority control.

A person earns from shares is company make profit which is distributed among share holders know as dividend and if company make loss value of share also falls so shares are high risk instruments.

Debt

A debt instrument is used by government or organization to generate funds for longer duration, and is known as Debentures.

The relation between people who invest in debt instrument is of lender and borrower .This gives no ownership right .A person receives fixed rate of interest on debt instrument.

A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company’s capital structure, it does not become share capital. Senior debenture gets paid before subordinate debentures, and there are varying rates and

payoff for these categories.

Debenture holders have no rights to vote in the company’s general meetings of shareholders.

The interest paid to them is a charge against profit in the company’s financial statements.

There are two types of debentures:

1. Convertible debentures:

Convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time.

Convertible bonds typically have lower interest rates than non-convertible corporate bonds.

2. Non-Convertible debentures:

Non Convertible Debentures are simply regular debentures, cannot be converted into equity shares

of the liable company. They are debentures without the convertibility feature attached to them. As a result, they usually carry higher interest rates than their convertible counterparts.

Daily Dose of Editorial- 10th April -Reading Comprehension

Daily Dose of Editorial- 10th April 

Reading Comprehension 

Here is your daily dose of Editorial.

I hope you are doing good with the Editorial Section. This will help you in Current Affair section, Reading comprehension, and vocabulary building.

Please read it very carefully and write your points in a dairy. Make daily notes about the current affairs topic.
This will definitely help in the descriptive paper. Essay writing is an art.

The Hindu: CLICK HERE 

The Indian Express: CLICK HERE 

Financial Express: CLICK HERE 

"ALL YOUR LATE NIGHTS AND EARLY MORNING WILL PAY OFF"

Daily Dose Editorial- 9th April 2018- Reading Comprehension

Daily Dose Editorial- 9th April 2018

 Reading Comprehension 

Hi Guys...

I hope you are burning the midnight oil. Here is your daily dose of the editorial. 

Read it. 

Analyze it. 

Feel it. 

Summarize it...

This dose will help you in kicking the English Section, Current Affairs, and the Descriptive paper. 

You should read these editorials very carefully. Read every article as the comprehension passage. 

Write your thoughts after reading the editorials.




The Indian Express: CLICK HERE 

The Financial Express: CLICK HERE 

IT'S YOUR TIME. GIVE YOUR BEST

Lock yourself in a room, you know you are just an inch away. You can do it this time. Remember it's your time. 

Rock on. 

Daily Editorial Dose-8th April 2018- Reading Comprehension Practice

Daily Editorial Dose-8th April 2018

Reading Comprehension Practice 

The Daily dose of Editorials helps you in the Reading comprehension as well as in the descriptive writing. 

IBPS-PO has come with the descriptive test last time. It should be a scoring part for you this time. Use your failure as Inspiration. 

Your Daily Dose of Editorial is: 

The Hindu- Click Here 

Financial Express- Click Here 

The Indian Express- Click Here 

This is not easy, you have to do hard work to get success. Let's DO it. 

FINANCIAL AWARENESS - BUDGET BASICS

FINANCIAL AWARENESS - BUDGET BASICS 

 

BUDGET

World Budget -1^st introduced by Sir Robert Valpaul -1733

A list of Revenue and Expense from French word –Bougette Purse

In 07/04/1860 introduced BUDGET in India.

Father of BUDGET- JAMES WILSON

Financial Year- 1^st April -31th March

RECEIPT

Revenue Receipt (Non-Refundable Recurring – Neither increase Liability nor decrease Assets)

Capital Receipt (Refundable or Non-Recurring – Either increase Liability or decrease Assets)

RECEIPT –

·         Revenue receipt

·         Capital receipt

Revenue Receipt:

Tax Revenue – Direct Tax (Income Tax) Indirect Tax (Sales Tax)

Non Tax Revenue-

·         Challan

·         Penalty

·         Licence

·         Dividend

·         Interest

Donation

Capital Receipt

Borrowing –World Bank, IMF

Disinvestment – GoI  PSU

Recovery of Loan –

State Govt. - Central Govt.

Direct Tax- Right to pay transfer (×)

Indirect Tax – Right to pay transfer

OUT FLOW-

EXPENDITURE

Planned

Revenue Expenditure (Salaries, Interest Payment, Govt. pay to RBI)

Capital Expenditure (Bridge, Road)

Non Planned

Natural Calamities

Subsidies

Defence

L.K.Jha committee in 1867 Report changes the FY( 1 May -30 April ).

Railway Budget was separated from general budget in 1924 on recommendation of Acworth’s Committee.

 Morarji Desai – present Budget –maximum time

10 times (8 general, 2 interim) present on 1964-1968

on his Birth Anniversary -29 Feb.

The Union Budget of Independent India

1947- R.K. ShanMukhan Shetty

John Mthai - Ist after Republic India.

1950-51 Budget FM – John Methai announced the creation of Planning Commission.

Article 112 – of commission require the Government to present “Statement of Estimated Receipt and Expenditure” in parliament in respect to every FY.

Annual FY Report

·         Consolidated Fund

·         Contingency Fund (Natural Disaster)

·         Public Account Fund( Liability)

Before 1997, there is Budgetary Deficit

E-R Deficit is taken RBI

GoI don’t repay it (Setoff)

then after 1997

Fiscal Deficit

Expenditure –Receipt – So GoI has to pay interest.

Interim Budget

It is prepared in case of special situation, like Natural Calamity and War etc.

This is valid only for 6 months, Revenue is not specified only expenditure as specified for a FY.

DEFECIT:

1.    REVENUE DEFECIT (RD): RE-RR

2.    BUDGETRY DEFECIT (BD): TE –TR

3.    FISCAL DEFECIT (FD): BD + Borrowing + Other Liability

4.    PRIMARY DEFECIT (PD): FD –Interest Payment

BUDGET

·         OUTCOME BUDGET – Feedback from last FY

·         ZERO BUDGET          – New Budget

·         GENDER BUDGET    – Women Empowerment

****

Budget can be divided into two parts

• Receipt
• Expenditure

Receipt

Revenue receipts – Receipts from the following sources:

(a) Direct and indirect taxes

(b) Interest

 (c) Dividends

 (d) Profits from investments

(e) Fees and other receipts from services rendered by the Govt.

Capital receipts – Receipts from the following sources:

 (a) Loans raised from the market

 (b) Borrowing from RBI

 (c) External assistance from the foreign government.

 (d) Recoveries of loans and advances.

Expenditure

Revenue expenditure –These are expenses incurred for the

(i)  Normal running of the Govt. departments

 (ii) Interest charges on debt and subsidies.

Capital expenditure – It is the expenditure incurred on

(i) Acquisition of assets and investments

(ii) Loans and advances to State governments.

Balanced Budget: If the estimated receipts (revenue and capital both) are equal to the estimated expenditure, then it is a Balanced Budget.

Balanced Budget= Estimated Govt. Receipts = Estimated Govt. Expenditure

Unbalanced Budget: When the expected revenue is not equal to the estimated expenditure, in this case, the budget is unbalanced. 

Surplus Budget:

When estimated income exceeds estimated expenditure i.e. when the government estimated receipts are more than the government expected expenditure in the budget, then it is called a surplus budget.

Deficit Budget:

When estimated expenditure exceeds estimated income i.e. when the government expected expenditure are more than the government estimated revenue in the budget, then it is called a deficit budget.

Types of Budget

1. Zero Budget – When the budget is prepared every year on the assumption that there was no budget in the past. Each item in the budget is allocated on the merits rather than with reference to the allocation made in the previous years.

2. Outcome Budget –

It is a system of performance budgeting by Ministries handling development programmes. It comprises scheme /project –wise outlays for all central ministries department and organizations. It was first made in 2005 -06.

3. Gender Budget– 

Its objective is to mainstream gender perspective in all sectoral policies and programmes, in order to create enabling environment for gender justice and empowerment of women. Gender Budget was first introduced in India 2005 -2006. 

Deficit

• Budget Deficit = Total Expense – Total Receipt 
• Revenue Deficit = Revenue Expense – Revenue Receipt 
• Fiscal Deficit = Total Expense – Revenue Receipt + Non–debt creating Capital Receipt (Borrowings)

 IMPORTANT FACTS:

• Mr. Morarji Desai presented the budget ten times, the most by any Finance Minister.
• India’s first budget was presented on February 18, 1860, by James Wilson, a Finance Member of the India Council.
• Initially, the Railway budget was part of the general budget. On the basis of recommendations Acworth Committee, the Rail Budget was separated in 1924.
• The first budget of Independent and united India was presented by John Mathai in 1949-50.