CLERICAL APTITUDE SHORT CUT METHODS AND EXPLANATIONS WITH MODEL QUESTIONS

CLERICAL APTITUDE SHORT CUT METHODS AND EXPLANATIONS WITH MODEL QUESTIONS 

                 Clerical Aptitude Test Paper evaluates the inclination, ability and efficiency of the candidates to discern any given information. The general interest and inclination of the candidates towards the nature of job (which the candidates expected to perform after recruitment) is tested. After all, being declared successful in the Bank Clerical Exam you are liable to shoulder a responsible job. In Banks, you are required to dispose of works of several customers in stipulated time and to keep the Cash Register and other Account Ledger up-to-date as well. In a nutshell, you are supposed to perform your job under immense pressure and that too precisely and correctly. Therefore, it is imperative to test the mental ability of a candidate for this very job.

Clerical Aptitude Test Paper may be asked from the following topics: 

1 . Arrangement of words in Alphabetical order or as per dictionary
2. Digit and Letter Codes
3. Classification of Given Items (News Items, Family Expenditures etc.)
4. Similar Name and Address
5. Questions Based on Data

QUESTIONS ON SIMILAR NAME & ADDRESS

In this type of questions, a combination of Name and Address is given and it is reproduced against the option numbers (1), (2), (3) and (4). Of them, all the four or three may have some mistakes orthe other. You have to find out the combination which is exactly the same as the combination given in the question place. If all the four combinations are different, the answer would be (5) i.e. None of these. In order to understand the nature of such questions carefully examine the following examples:

	(1 )	(2)	(3)	(4)
1. Meena Card	Meena Card	Meena Card	Meena Card	Meena Card
Product, 2383	Product, 2383	Product, 2383	Product, 2383	Product, 2383
Nai Sarak	Nia Sarak	Nai Sadak	Nai Sarak	Nai Sarak
Chawri Bazaar	Chawri Bazaar	Chawri Bazaar	Chawri Bazaar	Chavri Bazaar
2. Ashwini Mahto	Ashwini Mehta	Ashwini Mahto	Ashwini Mahto	Ashwini Mahto
11/79 "GEET"	11/79 "GEET"	11/79 "GEET"	11/97 "GEET"	11/79 "JEET"
Ghatkopar (E)	Ghatkopar (E)	Ghatkopar (E)	Ghatkopar (W)	Ghatkopar (E)

EXPLANATIONS

1.(3) In the option (1) NIA has been written in the place of NAI.

In option (2) SADAK has been written in the place of SARAK.

In option (4) CHAVRI has been written in the place of CHAWRI.

In the question, in each of the wrong combination a single letter of a word has been altered. In such a case your should observe all the options carefully, otherwise you will not get the correct answer. Indeed, it is some what difficult to sort out. the same combination from among fairly close alternatives choices.

2.(2) In option (1) there is mistake in the NAME itself MAHTO -->MEHTA

Here it should be noted, that there are two different letters in a single word.

In option (3) there is mistake in the name of place (E --> W) and 79 --> 97

In option (4) again there is mistake in the name (of a building or like)

GEET --> JEET

QUESTIONS ON ARRANGEMENT OF WORDS IN ALPHABETICAL ORDER

In this type of questions the candidates are required to arrange the given words in alphabetical order and then select the word which comes second, third, fourth or fifth in the order. In order to arrange the words in alphabetical order candidates should compare the first, the second, the third .... and so on letters of the given order to established the proper order.

Now consider the following ex-amples:

Directions (1-2) : Below in each questions five words are given. Which of them will come at the fourth place if all of them are arranged alphabetically as in a dictionary?

1. (1) Turpentine      (2) Tungsten      (3) Turbulent        (4) Tuburcular      (5) Truthful

2. (1) Juggement      (2) Journalist      (3) Jurisdiction      (4) Journalize       (5) Judicious

ANSWERS: 1.(3)    2.(1)

QUESTIONS ON DIGIT & LETTER CODE

In this type of questions some let¬ters are given in the first row and some digits corresponding to each letter are given in the se,cond row. The letters are codes for digits and vice-versa. Candidates are requriedto ascertain the codes for given combination of let¬ters or digits.

Now consider the following examples:

Directions (1-2) : Below are given some letters in the first row and some digits in the second row. Letters and

digits are mutual codes. You have to find out correct code for the combina¬tion given in each question. 

1. PMATBJ 

(1) 2 5 0 6 4 1                (2) 2 0 5 34 1          (3) 205938                 (4) 5 0 2 1 43            (5) None of these

2. 61 2593 

(l)XPJATK                      (2)RPJBKT            (3) X J P A K T            (4) M X T P J        (5) None of these

ANSWERS: 1.(2)            2.(3)

QUESTIONS ON CLASIFICATION OF ITEMS 

In this type of questions some items are given which are to be classified under the given heads. In case of news items, candidates are required to clas-sify them under the following five heads:

(1) Political and Social .(2) Economic and Commerce (3) Science and Health  (4) Sports and Culture 

(5) Miscellaneous 

Similarly, candidates are required to classify family expenditure under the following five heads :

(1) Education    (2) Food     (3) Health   (4) Travel    (5) Miscellaneous 

Now consider the following questions: 

1. In the following question a news item is given which is to be clas-sified into one of the following five areas: 

(1) Political and Social

(2) Economic and Commerce   (3) Science and Health    (4) Sports and Culture   (5) Miscellaneous

Inflation drifts to nine-week low.

2. In the following questions, an item of family expenditure is given which is to be classified into one of the following five areas:

(1) Education               (2) Food             (3) Health           (4) Travel         (5) Miscellaneous

 Members of Rohan's family visited doctor for regular check up.

ANSWERS: 1.(2)       2.(3)

QUESTIONS BASED ON DATA 

In some exams 15 questions are asked on a different topic having different pattern. In this type of questions, generally a table is given, on marks obtained by a number students in' different subjects.This table is followed by 15 questions. A candidate is to answer these questions on the basis of data given in the table. Candidates may be asked to find the option containing roll no. and the marks obtained by the student having that roll no. Generally five options having five roll numbers and marks are given. Among them one is true as per the table, that is in it, the roll number and marks are correctly matched. That option is the al'lswer. Besides that the reverse type of questions may also be asked, wherein all the options having roll numbers and marks are correctly matched except one. And the one is the answer. 

Candidates should follow that a table may include any type of information. This does not matter. What matters much is the comprehending capacity of the candidate and concentration. One should go through the direction, try to comprehend it; and at the time of answering the questions the relevance of every options should be judged properly. This is not possible without deep concentration. For your convenience, a suitable example is provided below: 

Directions (1-8) : Study the following table and answer the sets of questions. 

			DISTANCES BETWEEN CITIES
Panaji	944	820	409	1288	2143	545	1688	904
Lucknow	1090	1265	1384	1358	532	2035	599	2038
Kolhapur	781	657	248	1125	1982	749	1525	378
Indore	322	476	697	509	1212	1614	800	1617
Delhi	1005	2388'	1503	1111	1011	2154	261	2157
Mumbai	432	308	436	776	1824	1158	1176	1357
Bhopal	509	663	884	796	1025	1514	735	1517
Agra	9~8	1103	1303	1080	811	1954	230	1957
Distance	Vadodara	Surat	Solapur	Rajkot	Patna	Mysore	Jaipur	Ghennai
in Kms.

Directions (1-3) : Each question number is followed by a number in bold indicating distance in Kms. Find out the names of the two cities associated with it. 

1.749

(1) Kolhapur, Mysore (2) Lucknow, Mysore (3) Indore, Patna

(4) Kolhapur, Jaipur (5) None of these 2.2388

(1) Delhi, Vadodara (2) Vadodara, Indore (3) Solapur, Delhi (4) Indore, Solapur (5) None of these 3.1614

(1) Jaipur, Indore (2) Delhi, Mysore (3) Patna, Indore (4) Indore, Mysore (5) None of these

Directions (4-6) : Each question number is followed by the names of three cities. You have to find out the distance between the first and the third city via the second city in Kms.

4. Mumbai-Chennai-Lucknow (1) 3555

(2) 4195

(3) 3395

(4) 2261

(5) None of these

5. Rajkot-Delhi-Jaipur (1) 1377

(2) 2287

(3) 1764

(4) 1473

(5) None of these

6. Patna-Delhi-Vadodara (1) 1333

(2) 2016

(3) 1443

(4) 1514

(5) None of these

Directions (7-9) : Answer the ques-tions given below.

7. From the cities given in the table which one is nearest to Lucknow ?

(1) Vadodara (2) Jaipur

(3) Kolhapur . (4) Patna

(5) None of these

8. How many pairs of cities have distance of less than 1000 kms. but more than 500 kms?

(1) 21

(2) 20 (3) 22 (4) 19

(5) None of these

9. Which of the following is the

shortest routes ?

(1) Kolhapur~Rajkot-Bhopal (2) .Surat-Delhi-Patna

(3) Bhopal-Mysore-Lucknow (4) Indore-Patna-Agra

(5) Bhopal-Vadodara-Kolhapur

ANSWERS

1.(1 )                 2.(5)                  3.(4)             4.(3)

5.(5)                  6.(2)                  7.(4)             8.(2)

9.(5)

(RESERVE BANK OF INDIA GOVERNORS

GOVERNORS (RESERVE BANK OF INDIA) 

1. SirOA Smith: 01.04.1935 - 30.06.1937
2. SirJ.B. Tailor: 01.07.1937 - 17.02.1943
3. C.D.Deshmukh: 11.08.1943-30.06.1949
4. SirB.R Rao: 01.07.1949 - 14.01.1957
5. KG. Ambeygaonkar: 14.01.1957 - 28.02.1957
6. H.B.R Aynegar: 01.03.1957 - 28.02.1962
7. P.C. Bhattachary~ : 01.03.1962 - 30.06.1967
8. L.K Jha: 01.07.1967 - 03.05.1970
9. B.N. Adarkar: 04.05.1970 -15.05.1970
10. S. Jaganathan: 16.05.1970 - 19.05.1975
11. N.C. Sengupta: 19.05.1975 - 19.08.1975
12. KR Puri: 20.08.1975 - 02.05.1977
13. N. Narasimhan: 02.05.1977 - 30.11.1977
14. LG. Patel: 01.12.1977 - 15.09.1982
15. Dr. ManmonhanSingh: 16.09.1982 - 14.01.1985
16. A. Ghosh: 15.01.1985 - 04.02.1985
17. RN. Malhotra: 04.02.1985 - 22.12.1990
18. S. Venkataraman: 22.12.1990 - 21.12.1992
19. C. Rangarajan : 22.12.1992-22.11.1997
20. Dr. BimalJalan: 22.11.1997-05.09.2003
21. Y.B. Reddy: 05.09.2003- 4.09.2008

22. Dr. D. Subba Roa 05.09.2008- Till Today.

RBI Collection and Furnishing of Credit Information

RESERVE BANK OF INDIA Collection and Furnishing of Credit Information

Mter the insertion of Chapter III-A in the Reserve Bank of India Act in the year 1962, the Reserve Bank is empowered to collect credit information from banking companies and to furnish such information in a consolidated form to any banking company applying Jor the same along with the prescribed fee. The term credit information means any information relating to

(i) the amounts and the nature of loans or ad¬vances and other credit facilities granted by a banking company to any borrower or class of borrowers:

(ii) the nature of security taken from any borrower or class of borrowers for credit facilities granted to him or to such class;

(iii) the guarantee furnished by a banking com¬pany for any of its customers or any class of its cus¬tomers;

(iv) the means, antecedents, history of financial transactions and the creditworthiness of any borrower or class of borrowers; and

(v) any other information which the Bank may con¬sider to be relevant for the more orderly regulation of credit or credit policy.

The term 'credit information' thus has much wider coverage and significance.

The -term banking company includes, for this pur¬pose, the scheduled and non-scheduled banks, the State Bank of India and its subsidiary banks, the nationalised banks and any other financial institu¬tion notified by the Central Government. The term bor¬rower is also defined so as to include in case of a com¬pany its subsidiaries also, in case of Hindu undivided family any member of the farhily or any firm in which such member is a partner; in case of a partnership, any partner or any firm in which he is a partner and in case of an individual any firm in which such individual is a partner.

The credit information is required in respect of big borrowers only. The Reserve Bank has directed the banks to submit credit information on the prescribed forms. The credit limits for the purpose of submitting half-yearly returns (as on the last Friday of April and October every year) by banks to Reserve Bank relating to information on borrowers have been raised in 1984 from Rs.5 lakhs and over to Rs. 10 lakhs and over in case of secured advances and from Rs. Ilakh and over to Rs. 5 lakhs and over in respect of unsecured advances.

Section 45-C empowers the Reserve Bank to direct any banking company to submit to it the statements relating to credit information in the specified time and form. Eveiy banking company shall be bound to com¬ply with such direction.

Under Section 45-D, a banking company may make an application to the Reserve Bank to furnish the ap-plicant with such credit information as may be speci¬fied in the application in connection with any person. The Reserve Bank shall furnish the credit information in its possession but it shall not disclose the names of the banking companies which have submitted such in¬formation to the Bank.

Any credit information submitted by a banking company to the Reserve Bank or by the Reserve Bank to any banking company shall be treated as confiden¬tial and shall not be published or disclosed except for the following purposes specified in the Act: '

(a) disclosure by any banking company of arlY in¬formation furnished to the Reserve Bank with the pre-vious permission of the Reserve Bank ,

(b) publication by the Reserve Bank of any infor¬mation collected by it under this Section in such con¬solidated form as it may think fit without disclosing the name of any banking company or its borrowers, and

(c) the disclosure or publication by 'the banking company or by the Reserve Bank of any credit infor¬mation to any other banking company or in accor¬dance with the practice and usage customary among bankers or as permitted or required under any other law.

(d) The credit information received by a banking com¬pany under this clause shall not be published except in accordance with the practice and uS<:lge customary among bankers or as permitted or required under any other law.

(e) Clause above, inserted by the Reserve Bank of India (Amendment) Act, 1947, provides for statutory protection to banks to' exchange credit information freely amongst themselves.

Promotional functions

With economic growth assuming a new urgency since Independence, the range 'of the Reserve Bank's functions has steadily widened. The Bank now per¬forms a varietyof developmental and promotional func¬tions, whiCh, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialised financing agencies. Ac¬cordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit In¬surance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of In¬dia in 1963 and the Industrial Reconstruction Corpo¬ration of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilise savings, and to provide industrial finance as well as agricultural finance. -f.-s far back as 1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank's role in this field has become extremely important. The Bank has devel¬oped the co-operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route its short term credit to .agriculture. The RBI has set up the Agricultural Refinance and Develop¬ment Corporation to provide long-term finance to farm¬ers.

Classification of RBis functions,

The monetary functions ~so known as the central banking functions of the RBI are related to control and regulation of money and credit, i.e., issue of cur¬rency, control of bank credit, control'of foreign exchange operations, banker to the Government and to the money market. Monetary functions of the RBI are significant as they control and regulate the volume of money and credit in the country.

Equally important, however, are the non-monetary functions of the RBI in the context of India's economic backwardness. The supervisory function of the RBI may be regarded as a non-monetary function (though many consider this a monetary function). The promotion of sound banking in India is an important goal of the RBI, the RBI has been given wide and drastic powers, under the Banking Regulation Act of 1949 - these P9w¬ers relate to licencing of banks, branch expansions'li¬quidity of their assets, management and methods of working, inspection, amalgamation, reconstruction and liquidation. Under the RBI's supervision and inspec¬tion, the working of banks has greatly impro'l'ed. Com¬mercial banks have developed into financially and op¬erationally sound and viable units. The RBI's powers of supervision have now been extended to non-bank¬ing financial intermediaries. Since independence, par¬ticularly after its nationalisation 1949, the RBI has followed the promotional functions vigorously and has been responsible for strong financial support to in¬dustrial and ageicultural development in the country.

RESERVE BANK OF INDIASUPERVISORY FUNCTIONS

RESERVE BANK OF INDIA SUPERVISORY FUNCTIONS :

In addition to its traditional central banking functions. the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act. 19.34. and the Banking Regulation Act. 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks. relating to licensing and establishments. branch expansion. liquidity of their assets. management and methods of working. amalgamation. reconstruction. and liquidation. The RBI is authorised to carry out periodical inspections of the banks and to call for retums and necessary information from them. The nationalisation of . 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realisation of certain desired social objectives. The supervisory func¬tions of the RBI have helped a great deal.in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation.

Currency Chests ': The Reserve Bank has made adequate administrative arrangements for undertak¬ing the function of distribution of currency notes and coins. The Issue Department has opened its offices in 10 leading cities for this purpose. Moreover. currency chests have been maintained allover the country to facilitate the expansion and contraction of currency in the country. Currency chests are receptacles in which stocks of new or reissu¬able notes are stored along with rupee coins. The cur¬rency chests and repositories are run by the Reserve Bank. State Bank. and its subsidiaries. public sector banks and Government Treasuries and Sub-Treasur¬ies. The stock of new notes is thus held in currency chests scattered over the entire country and maintained by the public sector banks in most of the cases. There are several advantages to the bank or the Treasury maintaining a currency chest:

1. If its payments on a particular day exceed its own balance. it can immediately withdraw funds from the chest. Likewise. if the funds are in surplus it can deposit into it any such surplus funds. Thus the ne-cessity for the physical transfer of cash at frequent intervals from one place to another is avoided. The Tr~asuries and bank branches work with relatively small balances.

2. The currency chests f~cilitate the exchange of rupees coins for notes and supply of notes of lower denomination for those of higher denominations and vice versa and also the issue of new notes for old and' soiled notes.

3. The currency chests also serve as the basis for providing remittance facilities to banks and the pub¬lic .

• (b) Loans and Advances. Section 17 (4) enables the Reserve Bank to grarit loans and advances to the sched-uled banks. repayable on demand or on the expiry of fixed periods not exceeding 90 days against the secu¬rity of the follOwing:

(i) Stocks. funds and securities (other than im¬movable property) in which a trustee is authoriseQ.to

invest trust money .

(ii) Gold or silver or documents of title to the same. (iii) Such bills of exchange and promissory notes as are eligible for purchase or re-discount by the Re¬serve Bank or those guaranteed by the State Govem-ment as to the repaYment of the principal and inter¬est.

(iii) Promissory notes of any scheduled bank or State Co-operative Bank supported by documents of title to goods (such documents having been transferred. as¬signed or pledged to any other bank as security for a loan or advance made for bonafide commercial or trade transactions or for the purpose of financing agricul¬tural operations or the marketing of crops).

Section 17 (3-A) was inserted in 1962 to enable the banks to secure accommodation from the Reserve Bank of India on easier terms in connection with ex¬port finance provided by them. The Reserve Bank may make loans and advances to any scheduled bank against the promissory note of the latter repayable on demand or on the expiry of a fixed period not exceeding 180 days. provided the borrowing bank fumishes a decla¬ration in writing to. the effect that-

(i) it holds bills of exchange arising out of any trans¬action relating to export of goods from India, which are drawn in India and on any place in a country out¬side India which is a member of the IMF or notified by the Reserve Bank and which mature within 180 deWS from the date ofloan and advance. The borrowing bank shall hold the bills of a value equal to the amount of such loan from the Reserve Bank and shall continueto hold such bills. till the loan is repaid. up to the value of the amount of the outstanding loan; or

(ii) it has granted a pre-shipment loan or advance to an exporter or any other person in India to enable him to export goods froIIl India. The amount of such loan should not be less than the amount borrowed by the bank from the Reserve Bank.

The Reserve Bank of India. introduced 'Export Bills Credit Scheme in March. 1963 to give effect to this pro¬vision. The main difference between this scheme and the discounting of foreign bills is that in case of the former the banks are not required to lodge the foreign bills with the Reserve Bank (as is required under re discounting). They have just to give a declaration.to the effect that they hold such bills of the value equal to the amount of the loan.

A new sub-section 3-B was inserted by the Reserve Bank ofIndia (Amendment) Act, 1974. Under this sub-section, the Reserve Bank of India may make to any scheduled bank or State Co-operative Bank, loan and advances repayable on demand or on the expiry of fixed periods not exceeding 180 days against the promissory notes of such bank. The borrowing bank is required to fumish a declaration in writing to the effect that it has made loans arid advances for (i) bonaftdecommer¬cial or trade transactions, or'(ii) financing agricultural operations or the marketing of crops or for other agri¬cultural purposes as set out in the declaration. The declaration shall also include any other particulars as required by the Reserve Bank.

Emergency Advances

The commercial banks and co-operative banks may be granted emergency advances by the Reserve Bank under Section 18 on such special occasions when the Reserve Bank is satisfied that the grant of such loans is necessaiy for the purpose of regulating credit in the interests of Indian trade, commerce, industry and ag¬riculture. Such emergency advances may be given not¬withstanding any limitation contained in Section 17.

This Section; as amended in 1978, authorises the Reserve Bank of India:

1. to purchase, sell or discount any bill of exchange or promissory note, which may not be eligible for purchase or discount by the Reserve Bank of India under Section 1'7, or

2. to make loans or advances to (a) a State Co¬operative Bank or (b) on the recommendation of a State Co-operative Bank to a Co-operative Society registered within the area in which the State Co-operative Bank operates, or (e) any other person, repayable on demand or on the expiry offixed periods, not exceeding 90 days on such terms and conditions as the Bank may con¬sider to be sufficient.

RESERVE BANK OF INDIA (RBI) DETAIL AND FUNCTION

RESERVE BANK OF INDIA (RBI) DETAIL:

The central bank ofthe country is the Reserve Bank of India (RBI). Kindly Take Note: Reserve Bank of In¬dia (RBI) is the central bank of the country and is different from Central Bank ofIndia. It was established in April 1935 with a share capital of Rs. 5 crores on the basis of the recommendations of the Hilton Young Commission. The share capital was divided into shares ofRs. 100 each fully paid which was entirely oWIled by private shareholders in the begining. The Government held shares of nominal value of Rs. 2,20,000.

Reserve Bank ofIndia was nationalised in the year 1949. The general superintendence and direction ofthe Bank is entrusted to Central Board of Directors of 20 members, the Governor and four Deputy Governors, one Goverl'lment official from the Ministry of Finance. ten nominated Directors by the Government to give representation to important elements in the economic life of the country, and four nominated Directors by the Central dovernment to represent the four local Boards with the headquarters at Mumbai, Kolkata, Chennai and New Delhi. Local Boards consist of five members each appointed for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks.

The Reserve Bank of India Act, 1934 was com¬menced on April 1, 1935. The Act, 1934 (II of 1934) provides the statutory basis of the functioning of the Bank.

The Bank was constituted for the need of following:

• To regulate the issue of banknotes

• To maintain reserves with 'a view to securing mon¬etary stability and

• To operate the credit and currency system of the counfry to its advantage.

Functions of Reserve Bank of India

The Reserve Bank of India Act of 1934 entrust all the important functions of a central bank.

Bank of Issue

Under Section 22 of the Reserve Bank 'of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins allover the country is un¬dertaken by the Reserve Bank as agent of the Govern¬ment. The Reserve Bank has a separate Issue Depart¬ment which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Depart¬ment are kept separate from those of the Banking De¬partment. Originally, the assets of the Issue Depart¬ment were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes pay¬able in India. Due to the exigencies of the Second World War and the post-warperiod, these provisions were con¬sIderably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Rs. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system. The assets of the Issue department against which bank notes are issued consists of the following, namely,

(1) gold coins and bullions

(2) (oreign securities

(3) rupee coins

(4) goverment of india rupees securities, and

(5) the bills of exchange and promissory notes payable in india, which are eligible for purchase by the bank,.

Banker to Government

The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser~ The Reserve Bank is agent of Central Govern¬ment and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Gov¬ernment and to .carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank mak~s ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking mat¬ters.

Bankers' Bank and Lender of the Last Resort

The Reserve Bank of Inaia acts as the bankers' bank. According to the provisions of the Banking Com¬panies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to• 5% of its demand liabilites and 2 per cent of its time liabilities in India. By an amendment.of 1962, the distinction between demand and time li¬abilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggre¬gate deposit liabilities. The minimum cash require¬ments can be changed by the Reserve Bank of India.

The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or strin¬gency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to came their help in times of banking crisis the Reserve Bank becomes not only the banker's bankbut also the lender of the last resort.

Controller of Credit

The Reserve Bank ofIndia is the controller of credit i.e. it has the power to influence the volume of credit

. created by banks in India. It can do so through chang¬ing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of se¬curities. Since 1956, selective controls of credit are in¬creasingly being used by the Reserve Bank.

The Reserve Bank ofIndia is armed with many more powers to control the Indian money market. Every bank has to get a licence from the Reserve Bank of India to do banking business within India, the license can be cancelled by the Reserve Bank if certain stipulated con¬ditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch .. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail. its as¬sets and liabilities. This power of the Bai:1k to call for information is also intended to give it effective control' of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank,

As supreme banking authority in the country, the Reserve Bank of India, therefore, has the following powers:

(a) It holds the cash reserves of all the scheduled banks.

(b) It controls the credit operations of banks through quantitative and qualitative controls.

(c) It controls the banking system through the sys¬tem of licensing, inspection and callillg for information.

(d) It acts as the lender of the last resort by provid¬ing rediscount facilities to scheduled banks.

Custodian of Foreign Reserves

The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank. of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at Ish.6d. though there were periods of extreme pressure in favour of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Re¬serve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the LM.F Besides maintaining the .rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast ster¬ling balances were acquired and managed by the Bank Further. the RBI has the responsibility of administer¬ing the exchange controls of the country.

Deregulation of Banking System - Private Mutual Funds Permitted

Deregulation of Banking System:

Prudential norms were introduced for income recognition. asset classification, provisioning for delin quent loans and for capital adequacy. In order to reach the stipulated capital adequacy norms. substan¬tial capital were provided by the Govemment to PSBs.

Government pre-emption of banks' resources through statutory liquidity ratio (SLR) and cash re¬serve ratio (CRR) brought down in steps. Interest rates on the deposits and lending sides almost entirely were deregulated.

New private sector banks allowed to promote and encourage 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. aqd special recovery tribunals set up to facilitate quicker recovery of loan arrears.

Bank lending norms liberalised and a loan sys¬tem to ensure better control over credit introduced. Banks asked to set up asset liability management (ALM) systems. RBI guidelines issued for risk manage¬ment 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 (IBSs) introduced.

Capital Market Developments

The Capital Issues (Control) Act. 1947. repealed. office of the Controller of Capital Issues were abol¬ished and the initial share pricing were decontrolled.' SEB!. the capital market regulator was established in 1992

Foreign institutional investors (FIls) were allowed to invest in Indian capital markets after registration with the SEB!. Indian companies were permitted to access intemational capital markets through euro is¬sues.

The National Stock Exchange (NSE), with nation¬wide stock trading and electronic display. clearing and settlement facilities was established. Several local stock exchanges changed over from floor based trading to screen based trading.

Private Mutual Funds Permitted

The Depositories Act had given a legal framework for the establishment of depositories to record own¬ership deals in book entry form. Dematerialisation of stocks encouraged paperless trading. Companies were required to disclose all material facts and specific risk factors associated with their projects while making public issues ..

To reduce the cost of issue, underwriting by the issuer were made optional. subject to conditions. The practice of making preferential allotment of shares at prices unrelated to the prevailing market prices stopped and fresh guidelines were issued by SEB!.

SEBI reconstituted goveming boards of the stock exchanges. introduced capital adequacy norms for bro¬kers. and made rules for making client or broker re¬lationship more transparent which included separa¬tion of client and broker accounts.

Buy Back of Shares Allowed:

The SEBI started insisting on greater corporate disclosures. Steps were taken to improve corporate governance based on the report of a committee.

SEBI issued detailed employee stock option scheme and employee stock purchase scheme for listed companies.

Standard denomination for equity shares of Rs. 10 and Rs. 100 were abolished. Companies given the freedom to issue demateriahsed shares in any denomi¬nation.

Derivatives trading starts with index options and futures. A system of rolling settlements introduced. SEBI empowered to register and regulate venture capi¬tal funds.

The SEBI (Credit Rating Agencies) Regulations, 1999 issued for regulating new credit rating agencies 'as well as introducing a code of conduct for all credit rating agencies operating in India.

Consolidation Imperative

Another aspect of the financial sector reforms in Ind~a is the consolidation of existing institutions which is especially applicable to the commercial banks. In India the banks are in huge quantity. First, there is no need for 27 PSBs with branches allover India. A number of them can be merged. The merger of Punjab National Bank and New Bank of India was a difficult one, but the situation is different now. No one expected so many employees to take voluntary re¬tirement from PSBs, which at one time were much sought after jobs. Private sector banks will be self con~ solidated while co-operative and rural banks will be encouraged for consolidation, and anyway play only a niche role.

In the case of insurance, the Life Insurance Cor¬poration of India is a behemoth, while the four pub¬lic sector general insurance companies will probably move towards consolidation with a bit of nudging. The UTI is yet again a big institution, even though facing difficult times, and most other public sector players. are already exiting the mutual fund business. There are a number of small mutual fund players in the pri¬vate sector: but th~ business being comparatively new for the -private players, it will take some time.

, We' finally come to convergence in the financial sector, the new buzzword internationally. Hi-tech and the need to meet increasing consumer needs is en¬couraging convergence, even though it has not always been a success till date. In India organisations such as IDBI, ICICI, HDFC and SBI are already trying to offer various services to the customer under one um¬brella. This phenomenon is eXpected to grow rapidly in the coming years. Where mergers may not be pos¬sible, alliances between organisations may be effec¬tive. Various forms 'of bancassurance are being intro¬duced, with the RBI having already come out with de¬tailed guidelines for entry of banks into insurance. The LIC has bOl)ght into Corporation Bank in order To spreaa HS Insurance Distribution network. both banks and insurance companies have started enter¬ing the asset management business, as there is a great deal of synergy among these businesses. The pensions market is expected to open up fresh opportunities for insurance companies and mutual funds. ,

It is not possible to play the role of the Orade of Delphi when a vast nation like India is involved. How¬ever, a few trends are evident, and the coming decade should be as interesting as the last one.

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