Tamilnadu Samacheer Kalvi 12th Economics Notes Chapter 6 Banking Notes
→ It is well-recognized that the financial sector plays a critical role in the development process of a country.
→ Financial institutions, instruments and markets that constitute the financial sector that act as a conduit for the transfer of resources from net savers to net borrowers, that is, from those who spend less than they earn to those who spend more than they earn.
→ The outcome of the various reform measures so far has been impressive and banks have responded to the deregulation and the increasingly competitive environment by restructuring their operation and upgrading performance standards.
→ However, in the 2010s the volumes of NPAs have increased sharply.
→ Bank Rate : It is the rate at which the Central Bank of a country is prepared to re-discount the first class securities.
→ Capital Market : It is a financial market in which long-term debt or equity backed securities are bought and sold.
→ Cash Reserve Ratio (CRR) : Banks are required to hold a certain proportion of their deposits in the Form of cash with RBI. This is known as CRR.
→ Central Bank : It is an institution that manages a state’s currency, money supply, and interest rates. Central banks also usually oversee the commercial banking system.
→ Commercial Banks : These are the institutions that make short term loans to business and in the process create money.
→ Credit Creation : It means the multiplication of loans and advances. Commercial banks receive deposits from the public and use these deposits to give loans.
→ Demonetisation : It is the act of stripping a currency unit of its status as legal tender. It occurs whenever there is a change of national currency.
→ Monetary Policy : It is the macro-economic policy laid down by the Central Bank towards the management of money supply and interest rate.
→ Non-Bank Financial Institution (NBFI) : It is a financial institution that does not have a full banking license or is not supervised by the central bank:
→ Statutory Liquidity Ratio (SLR): It is the amount which a bank has to maintain in the form of cash, gold or approved securities.