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ALL THE VERY BEST FOR YOUR EXAMS
SHORT NOTES FOR
JAIIB
PRINCIPLES & PRACTICES OF BANKING
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for their valuable contribution. Though we had taken enough care to go through the notes
provided here, we request everyone to go through the Macmillan book and update yourself
with the latest information through RBI website and other authenticated sources. In case you
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Principles and Practices of Banking
Unit – 1 : Indian Financial System
1. NBFC are allowed to raise money from the public and lend monies through various instruments for
ex leasing, hire purchase and bill discounting.
2. Primary dealers deal in government securities, primary as well as secondary markets.
3. FI are financial institutions which provide long term funds for industry and agriculture.
4. Co-operative banks are allowed to raise deposits and give advances from/to public.
5. Urban co-operative banks are controlled by State government and RBI.
6. Other co-operative banks are controlled by State Government and NABARD.
7. CRR is a percentage of demand and time liabilities of a bank which is deposits held by the bank.
8. SLR is a percentage of demand and time liabilities of a bank which is held in prescribed
government securities by the bank.
9. Bonds and debentures are examples of corporate securities and can be used to raise debts.
10. Debts, equities and derivatives are examples of securities.
11. SEBI is the capital market regulator.
12. Merchant bankers aka Investment bankers are licensed by SEBI and they issue stocks, raise fund
and manage them.
13. FII are authorized by SEBI to invest in Indian equity and debt market through stock exchanges.
14. Depositories held securities in demat form (not physical).
15. Mutual fund pools money from investors and invests in stocks, debt and other securities.
16. The three regulatory authorities are:
a. RBI - for banks
b. SEBI - for capital markets and
c. IRDA - for insurance sectors
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Unit – 2 : Banking Regulation
1. RBI was constituted under the RBI Act 1934.
2. RBI started functioning with effect from 1 Apr 1935.
3. RBI is a state owned institution under the RBI (Transfer of Public Ownership) Act 1948.
4. RBI has 4 Deputy Governors and 15 Directors nominated by Union government.
5. All coins and Re 1 note is issued by Government of India but put into circulation by RBI.
6. RBI manages the exchange rate between the Indian Rupee and foreign currencies by selling and
buying foreign exchange to/from Authorised Dealers (RBI’s specified branches and other dealers).
7. Important macroeconomic policies:
a. Monetary and credit policies - issued by RBI annually
b. Fiscal policy - issued by Ministry of Finance
c. EXIM policy - Ministry of Commerce
8. Saving and current accounts are demand liabilities.
9. Reducing CRR reduces loanable funds with banks.
10. RBI can prescribe SLR from 0 to 40 percent of bank’s DTL.
11. Increasing SLR reduces loanable funds with banks.
12. Bank rate is the rate at which RBI is prepared to buy or rediscount bills of exchange or other
eligible commercial paper from banks.
13. No bank held shares in a company as pledge or mortgagee in excess of the limit of 30% of the
paid-up capital of that company or 30% of the bank’s Paid-up capital and reserves, whichever is less.
14. Open market operations refer to sale or purchase of government securities by RBI in the open
market.
15. Selective credit control is another tool which RBI uses for monetary control. It prevents holding of
essential commodities and resultant rise in their prices. Presently buffer stocks of sugar, unreleased
stocks of sugar with sugar mills representing free sale sugar and levy sugar are covered by SCC.
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Unit -3 : Retail Banking, ADR, GDR and PNs
1. Retail banking refers to dealing of commercial banks with individual customers, both assets and
liabilities sides.
Products offered are: SB, RD, CA, TDR, STDR, No Frill A/C, Home loan, auto loan, personal loan,
education loan, crop loan, credit card, debit cards, lockers, bankassurance etc.
2. Wholesale banking aka corporate banking or commercial banking refers to doing banking business
with industrial and business entities – mostly corporate and trading houses, including multinationals,
domestic business houses and prime public sector companies.
Products offered are: LC, BG, Collection of bills and documents, forex desk, tax collection, RTGS, term
lending, etc.
3. International banking refers to dealing in cross border transaction.
4. Universal banking offers all types of financial products like mutual fund, capital market related
products including share broking, commodity broking, etc, sale of gold/bullion,
government/corporate bonds, merchant banking, general banking, insurance (both life and non-life),
etc under one roof.
5. A depository receipt (DR) is a form of negotiable (transferable) financial instrument that is traded
on a local stock exchange of a country but represents a security, usually in the form of equity that is
issued by a foreign publicly listed company.
6. Participatory Notes are like contract notes. They are issued by FII to entities that want to invest in
the Indian stock market but do not want to register themselves with the SEBI.
7. FII are not allowed to issue Participatory notes to Indian national or overseas corporate bodies
(because majority are owned/controlled by NRIs).
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