Consumer’s Perception on Mobile Banking Assignment

Consumer’s Perception on Mobile Banking Assignment Words: 10107

The banking section will navigate through all the aspects of the Banking System in India. It will discuss upon the matters with the birth of the banking concept in the country to new players adding their names in the industry in coming few years. The banker of all banks, Reserve Bank of India (RBI), the Indian Banks Association (IBA) and top 20 banks like IDBI, HSBC, ICICI, ABN AMRO, etc. has been well defined under three separate heads with one page dedicated to each bank.

However, in the introduction part of the entire banking cosmos, the past has been well explained under three different heads namely: •History of Banking in India •Nationalization of Banks in India •Scheduled Commercial Banks in India The first deals with the history part since the dawn of banking system in India. Government took major step in the 1969 to put the banking sector into systems and it nationalized 14 private banks in the mentioned year. This has been elaborated in Nationalization Banks in India. The last but not the least explains about the scheduled and unscheduled banks in India.

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Section 42 (6a)of RBI Act 1934 lays down the condition of scheduled commercial banks. The description along with a list of scheduled commercial banks is given on this page. History of Banking in India Without a sound and effective banking system in India it cannot have a healthy economy. The banking system of India should not only be hassle free but it should be able to meet new challenges posed by the technology and any other external and internal factors. For the past three decades India’s banking system has several outstanding achievements to its credit. The most striking is its extensive reach.

It is no longer confined to only metropolitans or cosmopolitans in India. In fact, Indian banking system has reached even to the remote corners of the country. This is one of the main reasons of India’s growth process. The government’s regular policy for Indian bank since 1969 has paid rich dividends with the nationalization of 14 major private banks of India. Not long ago, an account holder had to wait for hours at the bank counters for getting a draft or for withdrawing his own money. Today, he has a choice. Gone are days when the most efficient bank transferred money from one branch to other in two days.

Now it is simple as instant messaging or dial a pizza. Money has become the order of the day. The first bank in India, though conservative, was established in 1786. From 1786 till today, the journey of Indian Banking System can be segregated into three distinct phases. They are as mentioned below: •Early phase from 1786 to 1969 of Indian Banks •Nationalization of Indian Banks and up to 1991 prior to Indian banking sector Reforms. •New phase of Indian Banking System with the advent of Indian Financial & Banking Sector Reforms after 1991. Phases Phase I

The General Bank of India was set up in the year 1786. Next came Bank of Hindustan and Bengal Bank. The East India Company established Bank of Bengal (1809), Bank of Bombay (1840) and Bank of Madras (1843) as independent units and called it Presidency Banks. These three banks were amalgamated in 1920 and Imperial Bank of India was established which started as private shareholders banks, mostly Europeans shareholders. In 1865 Allahabad Bank was established and first time exclusively by Indians, Punjab National Bank Ltd. was set up in 1894 with headquarters at Lahore.

Between 1906 and 1913, Bank of India, Central Bank of India, Bank of Baroda, Canara Bank, Indian Bank, and Bank of My sore were set up. Reserve Bank of India came in 1935. During the first phase the growth was very slow and banks also experienced periodic failures between 1913 and 1948. There were approximately 1100 banks, mostly small. To streamline the functioning and activities of commercial banks, the Government of India came up with The Banking Companies Government took major steps in this Indian Banking Sector Reform after independence.

In 1955, it nationalized Imperial Bank of India with extensive banking facilities on a large scale especially in rural and semi-urban areas. It formed State Bank of India to act as the principal agent of RBI and to handle banking transactions of the Union and State Governments all over the country. Seven banks forming subsidiary of State Bank of India was nationalized in 1960 on 19th July, 1969, major process of Act, 1949 which was later changed to Banking Regulation Act 1949 as per amending Act of 1965 (Act No. 23 of 1965).

Reserve Bank of India was vested with extensive powers for the supervision of banking in India as the Central Banking Authority. During those day’s public has lesser confidence in the banks. As an aftermath deposit mobilization was slow. Abreast of it the savings bank facility provided by the Postal department was comparatively safer. Moreover, funds were largely given to traders. Phase II Nationalizations were carried out. It was the effort of the then Prime Minister of India, Mrs. Indira Gandhi. 14 major commercial banks in the country were nationalized.

Second phase of nationalization Indian Banking Sector Reform was carried out in 1980 with seven more banks. This step brought 80% of the banking segment in India under Government ownership. The following are the steps taken by the Government of India to Regulate Banking Institutions in the Country: •1949: Enactment of Banking Regulation Act. •1955: Nationalization of State Bank of India. •1959: Nationalization of SBI subsidiaries. •1961: Insurance cover extended to deposits. •1969: Nationalization of 14 major banks. •1971: Creation of credit guarantee corporation. 1975: Creation of regional rural banks. •1980: Nationalization of seven banks with deposits over 200 crore. After the nationalization of banks, the branches of the public sector bank India rose to approximately 800% in deposits and advances took a huge jump by 11,000%. Banking in the sunshine of Government ownership gave the public implicit faith and immense confidence about the sustainability of these institutions. Phase III This phase has introduced many more products and facilities in the banking sector in its reforms measure.

In 1991, under the chairmanship of M Narasimham, a committee was set up by his name which worked for the liberalization of banking practices. The country is flooded with foreign banks and their ATM stations. Efforts are being put to give a satisfactory service to customers. Phone banking and net banking is introduced. The entire system became more convenient and swift. Time is given more importance than money. The financial system of India has shown a great deal of resilience. It is sheltered from any crisis triggered by any external macroeconomics shock as other East Asian Countries suffered.

This is all due to a flexible exchange rate regime, the foreign reserves are high, the capital account is not yet fully convertible, and banks and their customers have limited foreign exchange exposure. Basic Concepts of Banking Banking is different from money lending, but the two terms, usually carry the same significance to the general public. The money lender, advances money out of his own private wealth, hardly accepts deposits from general public and usually charges high rate of interest. More often, the rates of interest relate to the needs of the borrower and at times the rates may be exorbitant.

On the other hand the banking is defined in section 5(b) of the Banking Regulation Act, 1949, as the acceptance of deposits of money from the public for the purpose of lending or investment. Such deposits of money from the public are used for the purpose of lending or investment. Such deposits may be repayable on demand or otherwise and with drawable by cheque, draft order or otherwise. Thus a bank must perform two basic and essential functions: (i) acceptance of deposits and (ii) lending or investment of such deposits.

The deposits may be repayable on demand or a for a period of time as agreed by the banker and the Customer. In terms of the definition, the banker can accept deposits of money and Not Anything Further accepting deposits form frolic unapplied that a banker accepts deposits form anyone who offers money for such purpose Accepting of deposits for lending and investments have been the original functions of banking but gradually there functions were extended and others were added from time to time and presently banks perform a number of economic activities which may affect all walks of economic life. Significance of Banks

The importance of a bank to modern economy, so as to enable them to develop, can be stated as follow: (i) The banks collect the savings of those people who can save and allocate them to those who need it. These savings would have remained idle due to ignorance of the people and due to the fact that they were in scattered and oddly small quantities. But banks collect them and divide them in the portions as required by the different investors. (ii) Banks preserve the financial resources of the country and it is expected of them that they allocate them appropriately in the suitable and desirable manner. iii) They make available the means for sending funds from one place to another and do this in cheap, safe and convenient manner. (iv) Banks arrange for payments by changes, order or bearer, crossed and uncrossed, which is the easiest and most convenient, besides they also care for making such payments as safe as possible. (v) Banks also help their customers, in the task of preserving their precious possessions intact and safe. (vi) To advance money, the basis of modern industry and economy and essential for financing the developmental process, is governed by banks. vii) It makes the monetary system elastic. Such elasticity is greatly desired in the present economy, where the phase of economy goes on changing and with such changes, demand for money is required. It is quite proper and convenient for the government and R. B. I. to change its currency and credit policy frequently, This is done by RBI, by changing the supply of money with the changing the supply of money with the changing needs of the public. Although traditionally, the main business of banks is acceptance of deposits nd lending, the banks have now spread their wings far and wide into many allied and even unrelated activities. BANKS AS AUTHORISED DEALERS The RBI has designated 92 banks, including 35 foreign banks, as Authorized Dealers (ADs) in foreign exchange, and they are functioning in this capacity through their 27,762 branches. ADs can buy and sell foreign exchange on behalf of their clients, subject to limits deemed sufficient. Increase in capital flows and the relaxation of balance sheet restrictions in respect of foreign exchange operations has transformed banks into active participants in the foreign exchange market.

The changes in capital flows directly affect bank liquidity, profitability. The turnover in the foreign exchange business of banks has increased over the years. Banks in India India has a well developed banking system. Most of the banks in India were founded by Indian entrepreneurs and visionaries in the pre-independence era to provide financial assistance to traders, agriculturists and budding Indian industrialists. Indian banks have played a significant role in the development of Indian economy by inculcating the habit of saving in Indians and by lending finance to Indian industry.

The commercial banking structure in India consists of: Scheduled Commercial Banks and Unscheduled Banks. Scheduled commercial Banks constitute those banks, which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI includes only those banks in this schedule, which satisfy the criteria laid down vide section 42 (6) (a) of the Act. RESERVE BANK OF INDIA Reserve Bank of India (RBI) is the central bank of India, and was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Since its inception, it has been headquartered in Mumbai.

Though originally privately owned, RBI has been fully owned by the Government of India since nationalization in 1949. RBI is governed by a central board (headed by a Governor) appointed by the Central Government. The current governor of RBI is Dr. Y. Venugopal Reddy (who succeeded Dr. Bimal Jalan on September 6, 2003). RBI has 22 regional offices across India. The Reserve Bank of India was set up on the recommendations of the Hilton Young Commission. The commission submitted its report in the year 1926, though the bank was not set up for nine years. Monetary Authority •Formulates implements and monitors the monetary policy. Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors. Regulator and supervisor of the financial system •Prescribes broad parameters of banking operations within which the country’s banking and financial system functions. •Objective: maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public. The Banking Ombudsman Scheme has been formulated by the Reserve Bank of India (RBI) for effective redressed of complaints by bank customers Manager of Exchange Control Manages the Foreign Exchange Management Act, 1999. •Objective: to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India. Issuer of currency •Issues and exchanges or destroys currency and coins not fit for circulation. •Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality. Issuer of currency •Banker to the Government: performs merchant banking function for the central and the state governments; also acts as their banker.

Indian banks can be broadly classified into nationalized banks/public sector banks, private banks Nationalization of Banks in India Banking System in India is dominated by nationalized banks. The nationalization of banks in India took place in 1969 by Mrs. Indira Gandhi the then prime minister. The major objective behind nationalization was to spread banking infrastructure in rural areas and make available cheap finance to Indian farmers. Fourteen banks were nationalized in 1969. These Banks were Before 1969, State Bank of India (SBI) was the only public sector bank in India.

SBI was nationalized in 1955 under the SBI Act of 1955. The State Bank of India is India’s largest commercial bank and is ranked one of the top five banks worldwide. It serves 90 million customers through a network of 9,000 branches and it offers — either directly or through subsidiaries — a wide range of banking services. The second phase of nationalization of Indian banks took place in the year 1980. Seven more banks were nationalized with deposits over 200 crores. List of Public Sector Banks in India is as follows: •Allahabad Bank •Andhra Bank •Bank of Baroda Bank of India •Bank of Maharashtra •Canara Bank •Central Bank of India •Corporation Bank •Dena Bank •Indian Bank •Indian Overseas Bank •Oriental Bank of Commerce •Punjab and Sind Bank •Punjab National Bank •State Bank of Bikaner & Jaipur •State Bank of Hyderabad •State Bank of India (SBI) •State Bank of Indore •State Bank of Mysore •State Bank of Patiala •State Bank of Saurashtra •State Bank of Travancore •Syndicate Bank •UCO Bank •Union Bank of India •United Bank of India •Vijaya Bank Private Banks in India All the banks in India were earlier private banks.

They were founded in the pre-independence era to cater to the banking needs of the people. But after nationalisation of banks in 1969 public sector banks came to occupy dominant role in the banking structure. Private sector banking in India received a filip in 1994 when Reserve Bank of India encouraged setting up of private banks as part of its policy of liberalisation of the Indian Banking Industry. Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an ‘in principle’ approval from the Reserve Bank of India (RBI) to set up a bank in the private sector.

Private Banks have played a major role in the development of Indian banking industry. They have made banking more efficient and customer friendly. In the process they have jolted public sector banks out of complacency and forced them to become nore competitive. Major Private Banks in India are: •Bank of Rajasthan •Bharat Overseas Bank •Catholic Syrian Bank •Centurion Bank of Punjab •Dhanalakshmi Bank •Federal Bank •HDFC Bank •ICICI Bank •IDBI Bank •IndusInd Bank •ING Vysya Bank •Jammu & Kashmir Bank •Karnataka Bank •Karur Vysya Bank •Kotak Mahindra Bank SBI Commercial and International Bank •South Indian Bank •United Western Bank •UTI Bank •YES Bank Foreign Banks in India Foreign banks have brought latest technology and latest banking practices in India. They have helped made Indian Banking system more competitive and efficient. Government has come up with a road map for expansion of foreign banks in India. The road map has two phases. During the first phase between March 2005 and March 2009, foreign banks may establish a presence by way of setting up a wholly owned subsidiary (WOS) or conversion of existing branches into a WOS.

The second phase will commence in April 2009 after a review of the experience gained after due consultation with all the stake holders in the banking sector. The review would examine issues concerning extension of national treatment to WOS, dilution of stake and permitting mergers/acquisitions of any private sector banks in India by a foreign bank. Major foreign banks in India are: •ABN-AMRO Bank •Abu Dhabi Commercial Bank Ltd. •American Express Bank Ltd •BNP Paribas •Citibank •DBS Bank Ltd •Deutsche Bank •HSBC Ltd •Standard Chartered Bank

Regional Rural Banks Regional Rural Banks (RRBs) form an integral part of the Indian banking system with focus on serving the rural sector. There are 196 RRBs operating in 26 States across 518 districts with a network of 14,446 branches as on March 31, 2004. Majority of the branches of RRBs are located in rural areas. RRBs combine the local feel and familiarity with rural problems, which the co-operatives possess, and the degree of business organization as well as the ability to mobilise deposits, which the commercial banks possess.

RRBs are specialized rural financial institutions for catering to the credit requirements of the rural sector. In the context of recent focus of the Government of India on doubling the flow of credit to the agricultural sector, it is felt that the RRBs could be used as an effective vehicle for credit delivery in view of their rural orientation Co-operative banks Co-operative banks are an important constituent of the Indian financial system, judging by the role assigned to them, the expectations they are supposed to fulfills, their number and the number of offices they operate.

The co-operative movement originated in the West, but the importance that such banks have assumed in India is rarely paralleled anywhere else in the world. Their role in rural financing continues to be important even today, and their business in the urban areas also has increased in recent years mainly due to the sharp increase in the number of primary co-operative banks. The commercial banking structure in India consists of: ?Scheduled Commercial Banks in India ?Unscheduled Banks in India Scheduled Commercial Banks in India

Scheduled Banks in India constitute those banks which have been included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act. As on 30th June, 1999, there were 300 scheduled banks in India having a total network of 64,918 branches. The scheduled commercial banks in India comprise of State bank of India and its associates (8), nationalized banks (19), foreign banks (45), private sector banks (32), co-operative banks and regional rural banks. Scheduled banks in India” means the State Bank of India constituted under the State Bank of India Act, 1955 (23 of 1955), a subsidiary bank as defined in the State Bank of India (Subsidiary Banks) Act, 1959 (38 of 1959), a corresponding new bank constituted under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970), or under section 3 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980), or any other bank being a bank included in the Second Schedule to the Reserve Bank of India Act, 1934 (2 of 1934), but does not include a o-operative bank”. “Non-scheduled bank in India” means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949), which is not a scheduled bank”. The following are the Scheduled Banks in India (Public Sector):- •State Bank of Bikaner and Jaipur •State Bank of Hyderabad •State Bank of Indore •State Bank of Mysore •State Bank of Patiala •State Bank of Saurashtra •State Bank of Travancore •Andhra Bank •Allahabad Bank •Bank of Baroda •Bank of India •Bank of Maharashtra •Canara Bank •Central Bank of India Corporation Bank •Dena Bank •Indian Overseas Bank •Indian Bank •Oriental Bank of Commerce •Punjab National Bank •Punjab and Sind Bank •Syndicate Bank •Union Bank of India •United Bank of India •UCO Bank •Vijaya Bank The following are the Scheduled Banks in India (Private Sector):- •Vysya Bank Ltd •UTI Bank Ltd •Indusind Bank Ltd •ICICI Banking Corporation Bank Ltd •Global Trust Bank Ltd •HDFC Bank Ltd •Centurion Bank Ltd •Bank of Punjab Ltd •IDBI Bank Ltd The following are the Scheduled Foreign Banks in India:- •American Express Bank Ltd. •ANZ Gridlays Bank Plc. Bank of America NT & SA •Bank of Tokyo Ltd. •Banquc Nationale de Paris •Barclays Bank Plc •Citi Bank N. C. •Deutsche Bank A. G. •Hongkong and Shanghai Banking Corporation •Standard Chartered Bank. •The Chase Manhattan Bank Ltd. •Dresdner Bank AG. The Banking System Almost 80% of the business are still controlled by Public Sector Banks (PSBs). PSBs are still dominating the commercial banking system. Shares of the leading PSBs are already listed on the stock exchanges. The RBI has given licenses to new private sector banks as part of the liberalization process.

The RBI has also been granting licenses to industrial houses. Many banks are successfully running in the retail and consumer segments but are yet to deliver services to industrial finance, retail trade, small business and agricultural finance. The PSBs plays an important role in the industry due to its number of branches and foreign banks facing the constrait of limited number of branches. Hence, in order to achieve an efficient banking system, the onus is on the Government to encourage the PSBs to be run on professional lines. Deregulation of Banking System

Prudential norms were introduced for income recognition, asset classification, provisioning for delinquent loans and for capital adequacy. In order to reach the stipulated capital adequacy norms, substantial capital were provided by the Government to PSBs. Government pre-emption of banks’ resources through statutory liquidity ratio (SLR) and cash reserve ratio (CRR) brought down in steps. Interest rates on the deposits and lending sides almost entirely were deregulated. New private sector banks allowed promoting and encouraging competition.

PSBs were encouraged to approach the public for raising resources. Recovery of debts due to banks and the Financial Institutions Act, 1993 was passed, and special recovery tribunals set up to facilitate quicker recovery of loan arrears. Bank lending norms liberalized and a loan system to ensure better control over credit introduced. Banks asked to set up asset liability management (ALM) systems. RBI guidelines issued for risk management systems in banks encompassing credit, market and operational risks. A credit information bureau being established to identify bad risks.

Derivative products such as forward rate agreements (FRAs) and interest rate swaps (IRSs) introduced. Banking on Risk Banking is an art & science of measuring & managing risks in lending and investment activities for commensurate profits based on the risk perceptions. The overall risk exposure of banks is determined by their lending to sensitive sectors such as capital market, real estate, and commodities’ and off-balance sheet activities. Comprising forward exchange contracts, guarantees, acceptances and endorsements.

The exposure of scheduled commercial banks in India on both of these counts has gone up significantly at present. Basel I focus more on credit risks “Credit Risk is the potential of loss arising out of the inability or unwillingness of a customer or counterparty to meet its commitments in relation to lending, trading, hedging, settlement and other financial transactions” It is the term which refers to a round of deliberations by central bankers from around the world, and in 1988, the Basel Committee (BCBS) in Basel, Switzerland, published a set of minimal capital requirements for banks.

While banks operate under a varied range of risks such as credit risk, interest rate risk, exchange rate risk, liquidity risk, operational risk,6 legal risk, reputation risk, etc. , the framework in Basel I is mainly directed towards assessing the capital requirements for protecting them against credit risk Basic Features of Basel I . Further, given that the Accord’s intent has been to ensure the soundness of banks that engage in international lending and investment activities, a further aspect of credit risk namely, country transfer risk,7 is an integral component of Basel I’s risk weighting scheme.

For addressing country transfer risk, a defined group of countries of high credit standing was adopted as the benchmark for applying different risk weights, and this group was taken to be the OECD or countries which have concluded special lending arrangements with the IMF associated with the Fund’s General Arrangements to Borrow. The capital adequacy ratio (or CAR) is defined as the percentage of a bank’s capital to its assets, with assets weighted according to their relative riskiness.

The Accord addresses the different levels of credit risk inherent in both its balance sheet and off-balance sheet activities. The idea is to assess the riskiness of each class of borrowers and to base capital requirement on this risk assessment, in order to dissuade banks from undertaking excessive risks. However, only five risk weights are used, namely, 0, 10, 20, 50 and 100%, and therefore, there are inevitably some broad-based judgments in deciding which risk weight should apply to the different categories of assets.

Criticism of Basel I Several studies of the experience in the US and elsewhere, both pre- and post-Accord, suggest that firmly applied capital standards do induce weakly capitalised banks to rebuild their capital ratios in various ways more rapidly than otherwise. However, the series of financial crises in the 1990s reveals that while CAR as a technical standard may have been met across banks, the ultimate objective of preventing bank failures or reducing systemic fragility has been elusive.

Although this has to fundamentally do with increased financial liberalisation and globalisation which has resulted in increased freedom for unregulated capital movements across borders, critiques have linked at least some of the banking sector weaknesses to problems in the regulatory framework of Basel I. In 1998, “Basel II” was proposed, using much more sophisticated risk classifications. However, controversy over these new classifications, and the cost to banks of administering the new approach, led to the introduction of Basel II.

Basel II focuses more on operational risk Operational risk was one area which was expected to increase capital requirement for the banks. The Reserve Bank had announced in July 2004 that banks in India will be adopting the (BIA) Basic Indicator Approach for operational risk. This was followed up with the draft guidelines for the Basel II framework in February 2005 where the methodology for computing the capital requirement under the Basic Indicator Approach was explained to banks. Even at the system level, we find that the CRAR of banks is at present well over 12 per cent.

This reflects adequate cushion in the system to meet the capital requirement for operational risks, without breaching the minimum CRAR. There is also a perception that the capital requirements for operational risk will be lower under the advanced approaches rather than under the Basic Indicator Approach. Basel II framework rests on 3 mutually supportive pillars which are: I -Sets out minimum capital requirements II -Supervisory Review of Capital Adequacy III -Market Discipline –The II & III Pillars are complementary to I –Regulatory Capital Charge for risk Credit, Market & Operational Risks –Evolutionary in Risk Sensitivity to Capital Regime –Transparency in Public Reporting Here is the opportunity for consultancy and IT companies in India and abroad. Indian IT companies with an established reputation of system implementation and service support can and must use this opportunity to enhance their business from the financial services domain. A broad understanding among WTO countries on GATS (General Agreement on Trade and Services) should help in the movement of cheaper Indian service personnel across the globe.

IT/ITES industry in banking and financial services sector can enhance the present level of revenue from both on and off site services related to Basel II compliance. Some of the Indian IT majors like I? Flex, Infosys and Wipro are believed to be, in the advanced stage of preparation in terms of product and services, to embark upon the business opportunities provided by Basel II. Why is Basel II IMPORTANT? •For strong , sound and stability of international banking systems •More risk sensitive •New paradigm for allocating regulatory capital Approach to Basel II

Steps taken for implementation of Basel II and the emerging issues. •With the commencement of the banking sector reforms in the early 1990s, the RBI has been consistently upgrading the Indian banking sector by adopting international best practices. •Soon thereafter all banks were advised in August 2004 to undertake a self-assessment of the various risk management systems in place, with specific reference to the three major risks covered under the Basel II and initiate necessary remedial measures to update the systems to match up to the minimum standards prescribed under the New Framework. Banks were also advised to formulate and operationally the Capital Adequacy Assessment Process (CAAP) as required under Pillar II of the New Framework. •Reserve Bank issued a Guidance Note on operational risk management in November 2005, which serves as a benchmark for banks to establish a scientific operational risk management framework. •We have tried to ensure that the banks have suitable risk management framework oriented towards their requirements dictated by the size and complexity of business, risk philosophy, market perceptions and the expected level of capital. The Reserve Bank has constituted a sub group of the Steering Committee for making recommendations on the guidelines that may be required to be issued to banks with regard to the Pillar 2 aspects. The guidelines with regard to Pillar 2 aspects proposed to be issued would cover the bank level initiatives that may be required under Pillar 2. Today internationally, when market discipline is being considered an integral part of the regulatory framework, it is imperative for banks to realize that they are equal partners in ensuring financial stability; and this involves helping build up a risk management culture across all stakeholders.

The Standardized Approach As opposed to the simple 5-grade scale for risk weighting under Basel I, the risk weights in the Standardised approach vary from zero for the highest creditworthy claims to 150 per cent (or more in certain cases) for the lowest-rated. The national supervisory authority will be responsible for assigning eligible external credit assessment institution’s (ECAI) assessments to the risk weights available under the Standardised framework.

However, banks should use the ratings provided by a single chosen ECAI for all their claims and will not be allowed to “cherry-pick” the assessments provided by different ECAIs for different exposures. Basel II Challenges I would now like to discuss some of the challenges which we have faced in our journey to Basel II implementation and how we have attempted to address these challenges. In other jurisdictions would also have faced similar issues and they would have devised their own strategies for addressing them.

As a part of the consultative process and with a view to ensuring smooth migration to the new framework, we have constituted a ‘Steering Committee’ comprising of representatives from fourteen select private sector banks, public sector banks and foreign banks, the Indian Banks’ Association and the Reserve Bank of India. The Steering Committee has examined various issues of the Basel II framework and made its recommendations to the Reserve Bank for consideration. International Financial Reporting Standards International Financial Reporting Standards (IFRS) are a set of accounting standards.

Currently they are issued by the International Accounting Standards Board (IASB). Many of the standards forming part of IFRS are known by the older name of International Accounting Standards (IAS). IAS was issued between 1973 and 2001 by the board of the International Accounting Standards Committee (IASC). In April 2001 the IASB adopted all IAS and continued their development, calling the new standards IFRS. Although IAS are no longer produced, they are still in effect unless replaced by an IFRS, whether in its entirety or partially Adoption of IFRS

IFRS are used in many parts of the world, including the European Union, Hong Kong, Australia, Russia, South Africa, Singapore and Pakistan. Nearly 100 countries currently require or permit the use of, or have a policy of convergence with, IFRSs Bank merchandising firms A bank branch is a retail location where a bank or financial institution offers a wide array of face to face services to its customers. Like a store, a bank branch may either be a standalone building, or a space within a larger complex, such as a shopping plaza, mall or office building. Financial services organizations which are not banks also have bank-like retail branches.

Credit unions, a bank-like entity, have become increasingly prevalent due to changing regulations in many areas, and often compete with banks for deposits and loans. Other financial services companies such as full service brokerages (also known as wire houses”) and online discount brokerages have opened retail branches. For merchandising purposes, a bank or other financial institution’s retail presence will be referred to as a branch, and when the term bank branch is used, it should be understood that it applies to credit union branches as well as brokerage retail outlets.

Bank Branch Services Services provided by a bank branch include: •Routine transactions such as cash withdrawals from and deposits into a customer’s account facilitated through a bank teller (more recently, customer service representative) •Application for and disbursement of loans and mortgages •Access to safe deposit boxes •Foreign currency exchange •Advice and transactions regarding more sophisticated investments, and the sale of different types of insurance products Bank Branch Merchandising The term “merchandising” has different meanings in the marketing lexicon.

It can mean using the brand of one product to sell another, or the promotional activities of an organization’s sales force, retailers, wholesalers or dealers. Branch merchandising plays an important role in the sales process, and in the in the bank’s overall brand awareness and promotional campaigns. The newest trend in retail banking involves designing branches to become destinations. Banks often consider a more retail layout and fixturing style, offering lounge, refreshment and reading areas as well as internet access nd WiFi, providing comfort along with information, all of which the bank hopes will encourage a customer to linger. Factors of Branch Merchandising / Merchandising Techniques Areas of consideration for bank merchandising programs include space planning, the interior design and layout itself, both from a communications and a functional standpoint. How traffic flows, sight lines, waiting areas, how services are provided, and how the bank’s brand is represented in three dimensions are all critical considerations.

Other factors include the effective presentation, and optimal placement of products and services that the bank customer may not currently have. The information should be presented clearly and impactfully, and areas should be provided where customers can discuss their needs for bank products privately. By industry regulation, investment products require an identified separate area where non-FDIC insured products are discussed. Identified high-value customers often have access to separate teller lines, or are able to avoid lines altogether.

Fixturing to hold signs and sales materials need careful consideration, and must fit into the overall scheme, providing a uniform branding impression. Electronics play a part in modern branch merchandising schemes, with private television networks, programmed video presentations, interactive displays and programmable message boards beginning to proliferate in formerly staid bank branch locations. While expenses for branch merchandising are often divided between marketing and facilities departments of larger banks, the best results are achieved when the departments act in concert to reach agreed upon branding goals set by senior management.

Some merchandising expenses are considered “capital” improvements, while others are marketing “expense”, categories often pre-determined by the bank’s finance department. A design organization, with significant bank branch merchandising capability will be able to provide strategic planning, design, fabrication and installation of a branch merchandising program. Facilities of the Banks Wholesale banking ?Banking services between merchant banks and other financial institutions. ?Banking services for financial institutions. Types of Accounts

Find out about the different types of bank accounts that are available, including savings accounts, checking accounts, money market deposit accounts (MMDAs) and certificates of deposit (CDs). Choosing a Bank Learn how to choose the best bank for you. Compare features like interest rates, convenience, FDIC membership, size, and minimum deposit. Compare services like direct deposit, ATMs, online banking, credit cards and debit cards. Introduction to Banking Learn about the basics of banking, as well as alternatives to banks, such as credit unions, brokerages and mutual funds. Retail banking

Retail banking is typical mass-market banking where individual customers use local branches of larger commercial banks. Services offered include: savings and checking accounts, mortgages, personal loans, debit cards, credit cards, and so forth. Commercial bank has two possible meanings: ?Commercial bank is the term used for a normal bank to distinguish it from an investment bank. (After the great depression, the U. S. Congress required that banks only engage in banking activities, whereas investment banks were limited to capital markets activities. This separation is no longer mandatory. ? Commercial bank can also refer to a bank or a division of a bank that mostly deals with deposits and loans from corporations or large businesses, as opposed to normal individual members of the public (retail banking). -Community development bank are regulated banks that provide financial services and credit to underserved markets or populations. -Private Banks manage the assets of high net worth individuals. oOffshore banks are banks located in jurisdictions with low taxation and regulation. Many offshore banks are essentially private banks. -Savings bank accept savings deposits. Postal savings banks are savings banks associated with national postal systems •Internet banking With cybercafes and kiosks springing up in different cities access to the Net is going to be easy. Internet banking (also referred as e banking) is the latest in this series of technological wonders in the recent past involving use of Internet for delivery of banking products & services. Even the Morgan Stanley Dean Witter Internet research emphasised that Web is more important for retail financial services than for many other industries. Internet banking is changing the banking industry and is having the major effects on banking relationships.

Banking is now no longer confined to the branches were one has to approach the branch in person, to withdraw cash or deposit a cheque or request a statement of accounts. In true Internet banking, any inquiry or transaction is processed online without any reference to the branch (anywhere banking) at any time. Providing Internet banking is increasingly becoming a “need to have” than a “nice to have” service. The net banking, thus, now is more of a norm rather than an exception in many developed countries due to the fact that it is the cheapest way of providing banking services. Savings Bank Account Savings Bank Accounts are meant to promote the habit of saving among the citizens while allowing them to use their funds when required. The main advantage of Savings Bank Account is its high liquidity and safety. On top of that Savings Bank Account earn moderate interest too. The rate of interest is decided and periodically reviewed by the Government of India. Presently, the rate of interest is 3. 5% compounded half yearly. Savings Bank Account can be opened in the name of an individual or in joint names of the depositors.

Savings Bank Accounts can also be opened and operated by the minors provided they have completed ten years of age. Accounts by Hindu Undivided Families (HUF) not engaged in any trading or business activity can be opened in the name of the Karta of the HUF. The minimum balance to be maintained in an ordinary savings bank account varies from bank to bank. It is less in case of public sector banks and comparatively higher in case of private banks. In most of the public sector banks, minimum balance to be maintained is Rs. 100. In accounts where cheque books are issued, a minimum balance of Rs. 00/- has to be maintained. For Pension Savings Accounts, minimum balance to be maintained is Rs. 5/- without cheque facility and Rs. 250/- with cheque facility. •Bank Fixed Deposits Bank Fixed Deposits are also known as Term Deposits. In a Fixed Deposit Account, a certain sum of money is deposited in the bank for a specified time period with a fixed rate of interest. The rate of interest for Bank Fixed Deposits depends on the maturity period. It is higher in case of longer maturity period. There is great flexibility in maturity period and it ranges from 7days to 10 years.

The interest is compounded annually and is added to the principal amount. Minimum deposit amount is Rs 1000/- and there is no upper limit. Loan / overdraft facility is available against bank fixed deposits. Premature withdrawal is permissible but some penalty is levied. Tax Deductible at Source, if the interest paid/ payable on deposit exceeds Rs. 5000/- per customer, per year, per branch •Core banking Finacle core banking is a modular consumer, corporate and trade finance solution delivering business agility, minimized risk and lower Total Cost of Ownership (TCO).

It is a highly scalable new generation solution that addresses both the back office and front office requirements of banks in a seamlessly integrated manner. Finacle has emerged as one of the world’s most scalable open systems based core-banking solutions. This extensively parameter sable solution offers 24×7 operations, powerful STP and workflow capabilities, multiple channel integration framework and supports multi-currency, multi-lingual and multi-entity functionalities. The services oriented architecture along with the unique Xtensibility tool kit ensures unparalleled flexibility and ease of integration.

The solution comes with integrated banking CRM and alerts capability enabling banks to create a rich and differentiated value proposition for their customers. •Bank Current Account When experiencing financial difficulties, it is common that current accounts are in overdraft each month. This can result in additional charges made to the account as well as the interest costs. Sometimes Direct Debits can be rejected and Standing Orders and cheques will not be honoured; again often resulting in fees or charges. Alternative Payments Methods

It is worth considering other methods of payment for Priority Bills (rent/mortgage, Council Tax, water charges and other utilities; see Information Sheet; Priority Payments). You can pay these by using a payment book or prepayment card for electricity/gas. These methods of payment put you in control and don’t result in charges if you are a bit late in paying. However, it is important to set money and time aside each month (otherwise you may forget) to make these payments. Direct Debits & Standing Orders Canceling Direct Debits and Standing Orders may be appropriate if you are making reduced payments to your unsecured creditors.

Do this as soon as possible. You must do this with both your bank and the creditors in writing. You can request a payment book from the creditors at the same time. Making alternative Banking Arrangements Having your earnings and other income paid into another bank account may become necessary if you have a loan with your bank as well as an overdraft. This may be particularly applicable if they have refused to stop Direct Debit payments being taken from the account. If this happens have salary and other income paid into another account. If you have an alternative simple “no credit facility account”, use that.

Otherwise, open a current account with another bank or building society where you can have cheques, a cash card and arrange Direct Debits and Standing Orders. If you are refused a current account because of your financial problems, you may consider a basic savings account with a passbook at a convenient building society or bank. You can then contact the Wages/Salaries dept. At work and request your salary to be paid into the new account. You do not have to disclose why you are opening alternative banking facilities to the new bank or to your employer. Once you have made new arrangements, you will be completely in ontrol of your income to pay your priority bills and basic living expenses, and you will not incur charges. Treating Overdraft as an Unsecured Debt Once you have changed your banking arrangements, you can contact your original bank holding the overdraft and offer a Token or Pro-rata offer of payment as they are included as one of your unsecured creditors. •Phone banking (24 *7) ?Check you account balance. ?Transactions details (immediate fax print of your statement) ? Transfer funds between accounts of the same currency. ?Cheque book request. ?Exchange rates inquiries ?Product information Credit Card inquires and activation. ?Inward and outward remittance inquiries. •Demat services In our continuous endeavor to offer best of the class services to our customers E-Instructions: You can transfer securities 24 hours a day, 7 days a week through Internet & Interactive Voice Response (IVR) at a lower cost. Now with “Speak to transfer”, you can also transfer or pledge instructions through our customer care officer. Consolidation Demat Account: Dematerialize your physical shares in various holding patterns and consolidate all such scattered holdings into your primary demat account at reduced cost.

Corporate Benefit Tracking: Track your dividend, interest, bonus through your account statement. Digitally Signed Statement: Receive your account statement and bill Dedicated customer care executives specially trained at our call centre, to handle all your queries. Mobile Alerts: Receive SMS alerts for all debits/credits as well as for any request which cannot be processed Mobile Request: Access your demat account by sending SMS to enquire about Holdings, Transactions, Bill & ISIN details •DEBIT CARD A debit card is a plastic card which provides an alternative payment method to cash when making purchases.

However, its functionality is more similar to writing a cheque as the funds are withdrawn directly from either the cardholder’s bank account ( referred to as a cheque card), or from the remaining balance on a gift card. Depending on the store or merchant, the customer may swipe or insert their card into the terminal, or they may hand it to the merchant who will do so. The transaction is authorized and processed and the customer verifies the transaction either by entering a PIN or, occasionally, by signing a sales receipt.

In some countries the debit card is multipurpose, acting as the automated teller machine card for withdrawing cash and as a cheque guarantee card. Merchants can also offer “cashback”/”cashout” facilities to customers, where a customer can withdraw cash along with their purchase. The use of debit cards has become wide-spread in many countries and has overtaken the cheque, and in some instances cash transactions by volume. Like credit cards, debit cards are used widely for telephone and Internet purchases.

This may cause inconvenient delays at peak shopping times (e. g. the last shopping day before Christmas), caused when the volume of transactions overloads the bank networks. •CREDITCARDS A credit card is a system of payment named after the small plastic card issued to users of the system. A credit card is different from a debit card in that it does not remove money from the user’s account after every transaction. In the case of credit cards, the issuer lends money to the consumer (or the user).

It is also different from a charge card (though this name is sometimes used by the public to describe credit cards), which requires the balance to be paid in full each month. In contrast, a credit card allows the consumer to ‘revolve’ their balance, at the cost of having interest charged. Most credit cards are the same shape and size, as specified by the ISO 7810 standard •Bank Salary Account Bank Salary Account is a benefit-rich payroll account for Employers and Employees. As an organization, you can opt for our Salary Accounts to enable easy disbursements of salaries and enjoy numerous other benefits too.

Salary Accounts your employees will enjoy the convenience of : ? Having the largest network of ATMs at their command, ?Free 24 hour Phone Banking, ?Free Internet Banking. Bank Salary Accounts benefits you in more than one ways:- ?Reduces your paperwork. ?Saves remittance costs. ?Employees receive instant credit of salaries. ?More convenient than ECS. ?Besides all of the above, employees will automatically become ICICI Bank account holders with special benefits and privileges of 8-8 banking, Investment advisory and much more. ICICI Bank also has a special offering: Defense Banking Services designed exclusively for the armed forces Automated Teller Machine Smaller indoor ATMs dispense money inside convenience stores and other busy areas, such as this off-premise Wincor Nixdorf mono-function ATM in Sweden. An automated banking machine or automatic teller machine (ATM) is a computerized telecommunications device that provides a financial institution’s customers a method of financial transactions in a public space without the need for a human clerk or bank teller.

On most modern ATMs, the customer identifies him or herself by inserting a plastic ATM card with a magnetic stripe or a plastic smartcard with a chip, that contains his or her card number and some security information, such as an expiration date or CVC (CVV). Security is provided by the customer entering a personal identification number (PIN). Using an ATM, customers can access their bank accounts in order to make cash withdrawals (or credit card cash advances) and check their account balances. Many ATMs also allow people to deposit cash or checks, transfer money between their bank accounts, pay bills, or purchase goods and services.

In other parts of the world, these machines are known by other names including: a cash machine, hole-in-the-wall, cash point or Bancomat (in Europe and Russia). Alternative uses Automatic teller machines at a bank in Jersey dispensing dual currencies: Bank of England sterling and Jersey pounds Although ATMs were originally developed as just cash dispensers, they have evolved to include many other bank-related functions. In some countries, especially those which benefit from a fully integrated cross-bank ATM network (e. g. : Multibanco in

Portugal), ATMs include many functions which are not directly related to the management of one’s own bank account, such as: •Deposit currency recognition, acceptance, and recycling Paying routine bills, fees, and taxes (utilities, phone bills, social security, legal fees, taxes, etc. ) •Printing bank statements •Updating passbooks •Loading monetary value into pre-paid cards (cell phones, tolls, multi purpose stored value cards, etc. ) •Ticket purchases (train, concert, etc. ). •Purchasing postal stamps. •Lottery ticket purchases Games and promotional features Donations to charities •Purchase shopping mall gift certificates. Cheque Processing Module •Investment Advisor 16 May 2007 (UTC) An investment advisor (or investment adviser) is an individual or firm that advises clients on investment matters on a professional basis. They tend to fall into two distinct categories: ?investment advisors offering direct financial advice to individuals or businesses, ? Investment advisors offering asset management for (typically) corporate clients, hedge funds and/or mutual funds. Depending on the nature of the relationship, investment advisors charge fees calculated as a percentage (e. . , 1%) of assets under management (see: fee-only financial advisor), on an annual basis, an hourly or on a “flat fee” basis As bancassurance – the marketing of life and non-life products to a bank client base – has evolved since the early 1990s in Europe, DIBC has monitored best practice in areas such as strategy, structure, channel management and the results of cross selling efforts. In addition, we have been asked on several occasions to identify and rank possible strategic distribution partners for banc assurance providers outside their home market.

Recent Assignments: ?A leading European non-life insurance provider requested DIBC’s assistance in identifying and selecting a foreign banking partner interested in its unique direct service concept. We contacted a variety of such banks across the world and initiated substantive negotiations with a major Canadian bank ? A major Scandinavian bank contemplating a merger with an insurance partner asked us to determine best practice in similar institutions in maximizing the cross-selling of both banking and insurance products ?

For a UK banc assurance leader, we identified possible European partners interested in a partnership based on its success in marketing insurance products through a banking network. Negotiations were commenced with a Scandinavian banking group ? A research report for a leading Canadian insurance company on bank/insurance mergers and the possible lessons for public policy. This was based almost entirely on desk research and covered Europe, the US, Australia and South Africa. •Safe Deposit Lockers in banking Maximum protection and security

Strong, heat-resistant steel lockers are lodged in reinforced concrete steel vaults in a locker complex protected against weather conditions, power failures, wired with highly sophisticated anti-burglary alarm systems, smoke-sensor’s, backed by fire fighting equipment and 24 hour manned security. Absolute privacy and comfort You will be provided complete privacy to operate your locker in a comfortable, centrally air-conditioned hall. Should you require any help, your locker custodian is standing by to offer friendly, personalized assistance. Convenience of location and timing your locker complex is only as far as your nearest branch.

This convenience is further matched by our locker timings. Mondays to Saturdays, 9am – 5pm. Variety of sizes available Your safe deposit locker is available in various sizes to suit and accommodate your needs. For the perfect match, please contact your branch for more information. •Banks free to charge for home delivery of drafts, cash According to RBI guidelines about the risks involved in delivering cash and drafts the apex bank says,” The service should be seen as mere extension of banking services offered at the branch and liability of the bank should be the same as if the transactions were conducted at the branch. In other words, your bank branch will be extending its services to your doorstep, a banker said. However, it will be entirely upon individual banks to decide whether or not to extend such facilities to its clients and to fix their own service charges. “Charges, if any, to be levied on the customer for doorstep services should be incorporated in the policy approved by the board and should form part of the agreement entered into with the customer,” the notification said. RBI has allowed banks to home deliver cash/draft either through agents or their own employees.

It has also asked the banks to educate their agents to identify forged and mutilated notes to prevent misuse of the facility. •Mobile Phones Offer New Banking Opportunities for the Poor The Consultative Group to Assist the Poor (CGAP), United Nations Foundation (UN Foundation), and The Vodafone Group Foundation (VGF) have released the first public findings on how low-income individuals in South Africa use mobile phone banking (m-banking). The findings show that m-banking can be up to a third cheaper for customers than the current banking alternatives, and users value the service for its security and easy use.

However, this study shows more needs to be done to address negative perceptions about the cost and effectiveness of mobile phones and m-banking. “Mobile phone ownership is exploding in developing countries, presenting a tremendous opportunity to deliver financial services cost effectively to the nearly three billion people who do not currently have bank accounts,” said Elizabeth Littlefield, CEO of CGAP. “And that matters because financial services can help poor people increase household incomes and build assets, making them less vulnerable to crises so that they can ultimately plot their own paths out of poverty.

Globally, there are more than 2. 5 billion mobile phones, more than half owned by people in developing countries. ” The study is based on surveys of 515 low-income South Africans, including 300 who do not use m-banking and 215 customers of WIZZIT — a “virtual bank” that has no branches of its own, but instead offers a bank account which is accessible via mobile phone and debit card. •Pay All Your Bills Online Pay anyone with a valid U. S. mailing address – from your babysitter to your phone company. And, always be assured of accurate and timely payments Save Time Schedule a payment and most bills can be paid in one to two business days.

Plus, certain companies offer e- Bills – electronic versions of your paper bills that you can view within bill pay. Track Your Bills Check the status of payments and access six months of payment history. And, you can sort by biller, date, amount and category. Higher rates, rising risks We maintain an underweight stance on the Indian banking sector. We believe risks to asset quality and a sharper-than-expected decline in growth have risen substantially. After a sudden and significant risen lending and borrowing rates, with the risk of further monetary tightening if loan growth and inflation do not slow.

We have UNDERPERFORM ratings on ICICI Bank and HDFC, and key OUTPERFORM ratings for SBI, UTI Bank and PNB. Significant rise in interest rates have created risks Lending and borrowing rates have risen quickly and well beyond expectations. In the past three months itself, auto lending rates have risen 250-300 bp – new passenger car loans are now at 13. 5-14% – and mortgage rates have risen 200 bp (now at 11%). The prime lending rates (PLRs) of most banks have risen ‘150-200 bp as well and are now at about 12-’12. 5% for the government banks.

The sharp rise in interest rates has happened due partly to monetary tightening, driven by higher inflation and money supply, and partly to deposit competition as banks run out of excess SLR. Loan growth needs to slow, and also to change its pattern in order to fund large corporate capax plans. While slowing growth was known, what was not expected was the significant and sudden increase in interest rates? Sharply higher interest rates create risks Lending and borrowing rates have risen quickly and well beyond expectations.

This has happened due partly to monetary tightening, driven by higher inflation and money supply, and partly to deposit competition as banks run out of excess SLR Loan growth needs to slow, and also to change its pattern in order to fund large corporate capex plans. While slowing growth was known, what was not expected was the significant and sudden increase in interest rates? Lending and borrowing rates have risen suddenly Retail lending rates have jumped sharply in the past three months Lending and borrowing rates have been rising steadily for the past 24-30 months.

Pace of increase has intensified, with a sharp rise in the past three to six months. The increase in interest rates has been the most pronounced for retail lending. Auto lending rates have raised 250-300 bp – new passenger car loans are now at 13. 5-14%¬and mortgage rates have raised 200 bp (now at 11%) just in the past three months. Over the past 12-15 months, effective lending rates on cars (net of discounts) have risen by 500 bp, and on mortgages by 250-300 bp. PLRs and CP rates have also risen The prime lending rates (PLRs) of most banks have risen 150-200 bp as well.

PLRs are now at about 12-’12, 5% for the government banks -levels that prevailed in the late 19905 (when government securities yields were much higher). Effectively, spreads on PLR-based lending relative to risk-free rates in the economy (assuming a similar spread over PLR) are much higher now- The impact of the sharp rise in PLRs would be significant and widespread – we estimate that about 50-55%1 of banks’ lending would be linked to PLR (the rest would be retail, large corporate lending and some portion of agri lending). Commercial paper yields have also risen substantially (300-350 bp) over six to nine months.

Ignoring the spike in March 2006, CP rates have risen from about 6% at the end of 2005, and from 8% at the end of 2006, to over 10% now. It is likely that CP rates would settle below their current levels in 1 Q FY3I08, but even a 200 bp dip from current rates would be a 200 bp rise over 12 months. Monetary tightening, driven by inflation and money supply A part of the significant increase in interest rates in the last three months has also been due to RBI’s monetary tightening. Inflation, as measured by the wholesale price index, as well as by various consumer price indices, has been rising steadily.

The WPI has sustained at over 6%, well above the RBI’s target levels of 5-5. 5%. Inflation appears to be driven primarily by primary artides and manufactured products. Money supply growth has risen substantially above the RBI’s target levels of 15-16% (at the beginning of FY3/07), and is now at 21. 8%. The RBI has been steadily increasing reverse repo and repo rates in an attempt to slow credit growth. In an effort to control inflation to the target levels of 5-5. 5%, the RBI increased the cash reserve ratio by 100 bp in the last three months.

This resulted in a significant tightening of liquidity – 100 bp abso

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