MONEY & CREDIT

Credit Q What is Credit? An agreement in which the lender agrees to supply the borrower with money, goods or services in return for the promise of future payment. It is a contractual agreement. There are two forms of credit: Informal Credit Sector Formal Credit Sector

Informal Credit Sector One of the ancient credit systems in India. This sector involves indigenous bankers and moneylenders. Easily accessible by the small & poor borrowers in both rural& urban areas. Simplified procedures & quick delivery of credit. Heavy rate of interest sometimes leads to exploitation of the poor borrower. Transaction costs are low / Repayment rates are high

formal Credit Sector Comprises of recognized banks & cooperatives. Many procedures & formalities leads to delay in obtaining credit. Interest rates are low. Main objectives of Formal sector is welfare of the people and not the profits. People are not exploited. Regulated & supervised by Reserve Bank of India.

Banks Q What is banking? Banking can be defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money. Bank is a financial institution which does banking. In 1865, "Allahabad Bank" was established. This bank is now considered as the oldest surviving bank in India.

Importance of banks Banks play an important role in development of the economy. Encourages savings by offering attractive interest rates. Provide loans. Helps in the development of agriculture & industries. Provide convenient way of payment through the cheque system. Offer services like DD, Credit & Debit cards, online banking, online business transactions.

Industrial Banks Provide both short-term & long-term loans to industries. Lend money for long periods & provide fixed capital.

Exchange Banks Deal in foreign currency and foreign trade. Accept & collect foreign bills of exchange.

Savings Banks Mobilization of small savings of the individuals.

Co-operative Banks Registered under the ‘Co-operative Societies Act’. Confine their activities to their members only.

Mortgage Banks Mortgage banks give long-term loans to agriculturists to carry out permanent improvements on land, such as drainage, irrigation, farm buildings etc. Also called ‘Land Development Banks’

Reserve Bank of India Central Bank of India governed by Government of India. Established on 1st April 1935. Nationalized on 1st January 1949. Raghuram Rajan

TRADITIONAL Functions of RBI Issue of Currency Notes. Banker to other Banks. Banker to the Government. Exchange Rate Management. Credit Control Function. Supervisory Function.

Developmental Functions of RBI Development of the Financial System. Development of Agriculture. Provision of Industrial Finance. Collection of Data. Promotion of Banking Habits. Promotion of Export through Refinance.

Supervisory Functions of RBI Granting license to banks. Bank Inspection . Implementation of the Deposit Insurance Scheme.