Money and Banking - Initially barter system,Money evolved overtime
- 2. Money Initially barter system Money evolved overtime Metal currency to paper currency to electronic currency Real currency and fiat currency
- 3. Functions of money Medium of exchange: Money allows us to buy and sell goods and services without having to resort to barter. Unit of account: Money provides a common unit for measuring the value of goods and services. Store of value: Money allows us to save our purchasing power for future use.
- 4. Banking Basic function: Take savings and lend money Safe place to deposit money Loans to consumers and businesses They create money when they give loans and destroy money when they get repaid
- 5. Types of Banking Commercial banks: These are the most common type of bank, and they offer a wide range of financial services to businesses and consumers, including checking and savings accounts, loans, and credit cards. Investment banks: These banks specialize in helping businesses raise capital by issuing stocks and bonds. Central banks: These are government-owned banks that are responsible for setting monetary policy, which is the process of influencing the money supply and interest rates.
- 6. RBI Central bank of India Established in 1935, on the recommendation of Hilton Young Committee Responsible for the financial system of the country It plays a crucial role in economic stability, regulating the banking sector and controlling the money supply.
- 7. Functions of RBI Issuer of currency Banker of the government Baker’s bank Controller of credit Custodian of Foreign Exchange Reserves Supervisory role
- 8. Monetary policy It is a set of tools and actions aimed at controlling the supply of money in the economy Primary objective: Maintain price stability and support economic growth
- 9. Tools of monetary policy-qunatitative tools Repo Rate: Rate at which RBI lends short-term loans to bank Increase: Reduces the money supply Decrease: Increases the money supply Reverse Repo: Interest paid by RBI for short-term deposits from banks Increase: Reduces the money supply Decrease: Increases the money supply
- 10. CRR: Portion of deposits that banks must hold as reserves with RBI. Increase: Reduces the money supply Decrease: Increases the money supply SLR: Portion of deposits that have to be hold in government securities Increase: Reduces the money supply Decrease: Increases the money supply
- 11. Continuation MSF: Rate at which RBI lends to banks additional short-term funds Rete will be higher than the REPO rate OMO: Selling and purchasing of government securities Selling of securities: Reduces liquidity Purchasing securities: Increases liquidity
- 12. Qualitative tools Credit rationing Moral suasion: Direct action:
- 13. Banking system Structure: RBI: Scheduled banks: Commercial banks: Cooperative banks:
- 14. Functions of banking system Financial Intermediation: Mobilizing savings from households and businesses and channeling them into productive investments. Credit Creation: Providing loans and advances to various sectors of the economy. Payment and Settlement System: Facilitating smooth transactions and settlements. Financial Inclusion: Promoting banking services to underbanked and unbanked populations. Risk Management: Identifying, assessing, and managing financial risks.
- 15. Regulatory framework Reserve Bank of India (RBI): The primary regulatory authority overseeing the functioning of the banking sector. Banking Regulation Act, 1949: Provides a framework for the regulation and supervision of commercial banks. RBI Act, 1934: Empowers the RBI to regulate the issue of banknotes, maintain reserves, and operate the credit and currency system. NABARD: National Bank for Agriculture and Rural Development, focused on promoting and developing agriculture and rural sectors.
- 16. NBFCs Provide banking services like loans, investment products and money transfers. But they do not hold a full banking licence from RBI They can not hold demand deposits like regular banks Playing an important role in credit delivery and financial inclusion
- 17. Types of NBFCs
- 18. Significance of NBFCs Meeting diverse needs Innovation Financial inclusion
- 19. Financial inclusion It is the process of ensuring access to affordable, and responsible financial services, For all individuals and businesses regardless of their income levels, location or gender.
- 20. Key Components Access: Ensuring availability of financial products and services like savings accounts, loans, insurance, and payment systems. Usage: Encouraging people to use these financial services effectively to improve their financial well-being. Ownership: Promoting financial literacy and education to empower individuals to make informed financial decisions.
- 21. Why it is important Economic Growth: Financial inclusion can boost economic growth by providing access to credit for businesses and individuals, leading to increased investment and job creation. Poverty Reduction: By enabling people to save, borrow, and insure, financial inclusion can help lift people out of poverty. Social Development: Access to financial services can improve education, healthcare, and housing conditions for individuals and communities. Financial Stability: It helps protect people from financial shocks, such as job loss or natural disasters.
- 22. Initiatives and Achievements Pradhan Mantri Jan Dhan Yojana (PMJDY): Aadhaar: Digital Payments: Financial Literacy:
- 23. MFIs Microfinance is a type of financial service provided to low-income individuals or groups who otherwise wouldn't have access to financial services. It's a powerful tool for poverty alleviation and economic development.
- 24. Core components Microcredit: Providing small loans to individuals or groups for income-generating activities. Savings and checking accounts: Offering basic banking services to manage finances effectively. Microinsurance: Providing insurance coverage against various risks to protect assets and income. Financial education: Empowering clients with knowledge to make informed financial decisions.
- 25. How it works Microfinance institutions (MFIs) play a crucial role in delivering these services. They often operate in rural or underserved areas, reaching out to people who are excluded from traditional banking systems. MFIs typically rely on group lending and savings models, fostering a sense of community and shared responsibility among borrowers.
- 26. Impact Poverty reduction: By providing access to credit, microfinance can help people start or expand small businesses, leading to increased income and improved livelihoods. Women empowerment: Microfinance has been particularly effective in empowering women, allowing them to participate in economic activities and contribute to household income. Financial inclusion: It brings millions of people into the formal financial system, providing them with a safety net and opportunities for growth. Community development: Microfinance can contribute to overall community development by creating jobs and improving living standards.