Foreign Institutional Investors (FIIs) 

Foreign Institutional investors (FIIs) are entities established or incorporated outside India and make proposals for investments in India. These investment proposals by the FIIs are made on behalf of sub accounts, which may include foreign corporates, individuals, funds etc.  In order to act as a banker to the FIIs, the RBI has designated banks that are authorised to deal with them. The biggest source through which FIIs invest is the issuance of Participatory Notes (P-Notes), which are also known as Offshore Derivatives.  

FIIs can invest in the stocks and debentures of the Indian companies. In order to invest in the primary and secondary capital markets in India, they have to venture through the Portfolio Investment Scheme (PIS). According to RBI regulations, the ceiling for overall investment for FIIs is 24% of the paid up capital of the Indian company. The limit is 20% of the paid up capital in the case of public sector banks. 

Recently SEBI allowed FIIs to invest in unlisted exchanges as well, which means both BSE and NSE (the unlisted bourses) can now allot shares to FIIs also. 

American Depositary Receipt (ADR)

An American Depositary Receipt (ADR) is a negotiable certificate issued by a U.S. bank representing a specified number of shares (or one share) in a foreign stock traded on a U.S. exchange. 

ADRs are denominated in U.S. dollars, with the underlying security held by a U.S. financial institution overseas, and holders of ADRs realize any dividends and capital gains in U.S. dollars, but dividend payments in euros are converted to U.S. dollars, net of conversion expenses and foreign taxes.  ADRs are listed on either the NYSE, AMEX or NASDAQ but they are also sold OTC. ADR holders do not have to transact in foreign currencies because ADRs trade in U.S. dollars and clear through U.S. settlement systems.

Indian Depository Receipt (IDR)

Indian Depository Receipt (IDR) is a financial instrument denominated in Indian Rupees in the form of a depository receipt. The IDR is a specific Indian version of the similar global depository receipts. IDR's are based on the original American Depositary Receipts that were first introduced in 1927 in the US.

It is created by a Domestic Depository (custodian of securities registered with the Securities and Exchange Board of India) against the underlying equity of issuing company to enable foreign companies to raise funds from the Indian securities Markets.

The foreign company IDRs will deposit shares to an Indian depository. The depository would issue receipts to investors in India against these shares. The benefit of the underlying shares (like bonus, dividends etc.) would accrue to the depository receipt holders in India.

Operation instructions under the Foreign Exchange Management Act were issued by the Reserve Bank of India on July 22, 2009. Standard Chartered PLC became the first global company to file for an issue of Indian depository receipts in India in 2010.


Securities and Exchange Board of India (SEBI)

The Securities and Exchange Board of India (SEBI) is the designated regulatory body for the finance and investment markets in India. The Securities and Exchange Board of India was established on April 12, 1992 in accordance with the provisions of the Securities and Exchange Board of India Act, 1992.

The board plays a vital role in maintaining stable and efficient financial and investment markets by creating and enforcing effective regulation in India's financial marketplace. India's SEBI is similar to the U.S. Securities and Exchange Commission (SEC).

SEBI has its headquarters at Mumbai, Maharashtra. Chairman of SEBI – Ajay Tyagi.  


  • SEBI is managed by its chairman and 5 members and has departments such as primary market Dept, Issue Management Dept, Secondary Market Dept, Institutional Investment Dept.
  • It has 2 advisory committees, one each for primary and secondary market to provide advisory guidance in framing policies and regulation.
  • SEBI has to be responsive to the needs of three groups, which constitute the market: 1) the issuers of securities 2) the investors 3) the market intermediaries. Ultimately, the board has three powers: quasi-judicial, quasi-legislative and quasi-executive.


National Securities Depository Limited (NSDL)

National Securities Depository Limited (NSDL) is an Indian central securities depository based in Mumbai, Maharashtra.

It was established on 8 November 1996 as the first electronic securities depository in India with national coverage based on a suggestion by a national institution responsible for the economic development of India. MD & CEO of NSDL - G.V. Nageswara Rao.

Promoters / shareholders

NSDL is promoted by Industrial Development Bank of India Limited (IDBI) - the largest development bank of India, Unit Trust of India (now, Administrator of the Specified Undertaking of the Unit Trust of India) and National Stock Exchange of India Limited (NSE) - the largest stock exchange in India. Some of the prominent banks in the country have also taken a stake in NSDL. They are Axis Bank Limited, State Bank of India, Oriental Bank of Commerce, Citibank NA, Standard Chartered Bank, HDFC

Bank Limited, The Hongkong and Shanghai Banking Corporation Limited,

Deutsche Bank, Dena Bank, Canara Bank


Central Depository Services (India) Ltd (CDSL)

Central Depository Services (India) Ltd (CDSL), is the second Indian central securities depository based in Mumbai, Maharashtra. Its main function is the holding securities either in certificated or uncertificated (dematerialized) form, to enable book entry transfer of securities. Chairman of CDSL - T. S. Krishna Murthy.

Promoters / shareholders

CDSL is promoted by Bombay Stock Exchange Limited (BSE) jointly with State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, Standard Chartered Bank, Axis Bank and Union Bank of India.


Applications Supported by Blocked Amount (ASBA)

ASBA (Applications Supported by Blocked Amount) is a process developed by the India’s Stock Market Regulator Securities and Exchange Board of India (SEBI) for applying to IPO. In ASBA, an IPO applicant’s account doesn’t get debited until shares are allotted to them.

ASBA can be used for Initial and Follow-on Public Offers (IPO & FPO), Rights Issues, Debt Issues and Mutual Funds. Under ASBA, funds will continue to earn interest during the application processing period.  Bank will mark a lien on the deposit account of the investor to the extent of the application money. Lien will be removed immediately after finalization of the basis of allotment. If bid is successful, the shares allotted will be ransferred to the applicant’s Demat account. An Investor can make 5 applications from a single deposit account.

Note: Lien is a right to keep possession of property belonging to another person until a debt owed by that person is discharged.




Risk refers to a condition where there is a possibility of undesirable occurrence of a particular result. It also be defined as the unplanned event which causes financial consequences resulting in loss or decreased profit.

Risk can be referred as the chances of having an unexpected or negative outcome. Any action or activity that leads to loss of any type can be termed as risk.

Types of Risk

The banks are exposed to

  1. Liquidity risk.
  2. Interest rate risk.
  3. Market risk.
  4. Credit risk.
  5. Operational risk.
  6. Systemic Risk
  7. Business Risk:

These risks can be further broken up in various other types of risk as under:


  1. Liquidity risk

It is the risk arising from funding from funding of long term assets by short term liabilities or funding short term assets by long term liabilities. Ex: Person A is going to a bank to withdraw money. Imagine the bank saying that it doesn’t have cash temporarily. That is the liquidity risk a bank has to save itself from.


  1. Interest Rate Risk

It is the risk arising from adverse movement of interest rates during the period when the asset or liability was held by the bank. This risk affects the net interest margin or market value of equity.


  1. Market risk or price risk

It is the risk that arises due to adverse movement of the value of the investments/trading portfolio, during the period when the securities are held by a bank. Market risk as the risk of losses in the bank’s trading book due to changes in equity prices, interest rates, credit spreads, foreignexchange rates, commodity prices, and other indicators whose values are set in a public market.


  1. Default risk or Credit risk

The risk to a bank when there is possibility of default by the counter party to meet its obligation. Credit risk is most likely caused by loans, acceptances, interbank transactions, trade financing, foreign exchange transactions, financial futures, swaps, bonds, equities, options, and in the extension of commitments and guarantees, and the settlement of transactions. Ex: If person A borrows loan from a bank and is not able to repay the loan because of inadequate income, loss in business, death, unwillingness or any other reasons, the bank faces credit risk. Similarly, if you do not pay your credit card bill, the bank faces a credit risk.

  1. Operational Risk is the risk that arises due to failed internal processes, people or systems or from external events. It includes a no of risk such as fraud risk, Communication risk, documentation risk, competence risk, model risk, cultural risk, external event risk, legal risk, regulatory risk, compliance risk, system risk etc. It does not include strategic risk or reputation risk.

Ex: Operational risk may be incorrect information filled in during clearing a check or confidential information leaked due to system failure.

  1. Systemic Risk

Systemic risk is the risk that doesn’t affect a single bank or financial institution, but it affects the whole industry. Systemic risks are associated with cascading failures where the failure of a big entity can cause the failure of all the others in the industry.

The global crisis of 2008 is the best example of a loss to all the financial institutions that occurred due to systemic risk.


  1. Business Risk:

  It is risk mainly due to non-payment of a loan by a businessman to banks or creditor at maturity led to the origin of the risk.


6.Other risk 

These may include strategic risk or reputation risk.

  1. Strategic risk: Arises due to adverse business decision, improper implementation of decisions etc.
  2. Reputation risk: It is the risk that arises from negative public opinion. It can expose an institution to litigation, financial loss or decline in customer base.


Capital Adequacy Ratio (CAR)

  • Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation to its risk weighted assets and current liabilities.  
  • It is decided by central banks and bank regulators to prevent commercial banks from taking excess leverage and becoming insolvent in the process.
  • Capital Adequacy Ratio, also known as Capital-To-Risk weighted Assets Ratio (CRAR), is used to protect depositors and promote the stability and efficiency of financial systems around the world.
  • Two types of capital are measured: Tier One capital, which can absorb losses without a bank being required to cease trading, and Tier Two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.



Distribution of notes and coins throughout the country is done through designated bank branches, called chests. Chest is a receptacle in a commercial bank to store notes and coins on behalf of the Reserve Bank. Deposit into chest leads to credit of the commercial bank’s account and withdrawal, debit.

Functions of Currency Chests

  1. To meet currency requirement of public
  2. To withdraw unfit notes
  3. To provide exchange facility from one denomination to another
  4. To make payment requirement of the Government
  5. To exchange the mutilated notes
  6. To avoid frequent movement of cash

Apart from having its own chests at certain places, RBI also has arrangements with other banks which are entrusted with custody of the currency notes and coins for the same purpose.


The issuance of the currency is controlled by the Reserve Bank of India. The Reserve Bank manages currency in India and derives its role in currency management on the basis of the Reserve Bank of India Act, 1934. And the first paper currency issued by RBI was a 5 rupee note bearing King George VI’s portrait, in January 1938.

Coins can be issued up to the denomination of Rs.1000 as per the Coinage Act, 1906. The Reserve Bank has introduced banknotes in the Mahatma Gandhi Series since 1996 and has so far issued notes in the denominations of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 in this series.

The legal tender character of the bank notes in denominations of Rs. 500 and Rs.1000 mentioned above, issued by the Reserve Bank of India was withdrawn with the promulgation of the Specified Bank Notes (Cessation of Liabilities) Ordinance 2016 (GoI Ordinance No. 10 of 2016 dated December 30, 2016). As a result, with effect from December 31, 2016, the above Bank Notes ceased to be the liabilities of the Reserve Bank of India and ceased to have the guarantee of the Central Government.


Quick Review of Currency Printing in India

  1. Currency paper is imported from Dubai.
  2. Paper for currency and securities process at Hoshangabad (MP). Currency Notes Press, Nasik Road – Denomination of 1, 2, 5, 10, 50, 100.
  3. Bank Notes Press, Dewas (MP) : 20, 50, 100, 500.
  4. Modernized Currency notes Press: at Mysore, Salboni (West Bengal).
  5. Minting of Coins: Mumbai, Kolkata, Hyderabad, Noida (UP).
  6. OVI (Optical Variable Ink) is used for printing currency which is imported from Switzerland.
  7. Currency denomination is printed in 15 Languages.
  8. Indian Security Press, Nasik Road: Printing of Postal Stamps, Postal Material, Judicial, Non-Judicial Stamps, Cheques, Bonds, NSCs, Indira Vikas Patra, Kisan Vikas Patra, Securities of States and PSUs.
  9. Security Printing Press Hyderabad (1982) : Printing of Court Fee Stamps, Commemorative Stamps, Kisan Vikas Patra, NSS Certificates.
  10. “1 rupee” denomination printed under the control of Government of India.
  11. Plastic Currency issued first by Australia.


Demonetisation is a situation where the Central Bank of the country (Reserve Bank in India) withdraws the old currency notes of certain denomination as an official mode of payment. 

In 1936, Rs 10,000, which was the highest denomination note, was introduced but was demonetised in 1946. Though, it was re-introduced in 1954 but later, in 1978, the then Prime Minister Morarji Desai in his intensive move to counter the black money, introduced The High Denomination Banks Act (Demonetisation) and declared Rs 500, Rs 1000 and Rs 10,000 notes illegal.

On November 8, 2016, Prime Minister Narendra Modi in a surprise announcement said the existing higher denomination currency (Rs 500 and Rs 1000) will cease to be legal tenders, effective from the midnight of the same day, and announced the issuance of new Rs.500 and Rs.2,000 banknotes of the Mahatma Gandhi New Series in exchange for the old notes. So, as of now three times demonetisation taken place in India – 1946, 1978, 2016.


  • A Credit Rating Agency (CRA) is a company that rates debtors on the basis of their ability to pay back their interests and loan amount probability of them defaulting.
  • These agencies may also analyse the creditworthiness of debt issuers and provide credit ratings to only organisations and not individuals consumers. The assessed entities may be companies, special purpose entities, state governments, local governmental bodies, non-profit organisations and even countries.
  • Individual customers are rated by specialised agencies known as credit bureaus that provide credit score to every customer based on his/her financial history.
  • As of now, there are six credit rating agencies registered under SEBI namely, CRISIL ICRA, CARE SMERA, Fitch India, Brickwork Ratings

IFCI (Industrial Finance Corporation of India)

IFCI Ltd. was set up in 1948 as Industrial Finance Corporation of India,a Statutory Corporation, through The Industrial Finance Corporation of India Act, 1948' of Parliament to provide medium and long term finance to industry.

IFCI became a Public Limited Company registered under the Companies Act, 1956.

IFCI is also a Systemically Important Non-Deposit taking Non-Banking Finance Company (NBFC-ND-SI), registered with the Reserve Bank of India.

The primary business of IFCI is to provide medium to long term financial assistance to the manufacturing, services and infrastructure sectors.

Its headquarters is in New Delhi, India. MD& CEO of IFCI - Dr. Emandi Sankara Rao


SIDBI (Small Industries Development Bank of India)

  • Small Industries Development Bank of India (SIDBI) is a development financial Institution in India. It was set up on 2nd April 1990.
  • Its purpose is to provide refinance facilities and short term lending to industries, and serves as the principal financial institution in the Micro, Small and Medium Enterprises (MSME) sector.
  • SIDBI operates under the Department of Financial Services, Government of India.
  • Its headquarters is in Lucknow, Uttar Pradesh. CMD of SIDBI – Shri Mohammad Mustafa.


NABARD (National Bank for Agriculture and Rural Development)


  • National Bank for Agriculture and Rural Development (NABARD) is an apex development financial institution in India.
  • NABARD was established on the recommendations of B. Sivaraman Committee, (by Act 61, 1981 of Parliament) on 12 July 1982 to implement the National Bank for Agriculture and Rural Development Act 1981.
  • The initial corpus of NABARD was Rs.100 crores. NABARD is fully owned by Government of India.
  • Its headquarters is in Mumbai, Maharashtra.

Export-Import Bank of India


  • Export- Import Bank of India is the premier export finance institution in India, established in 1982 under Export-Import Bank of India Act
  • Providing financial assistance to exporters and importers, and functioning as the principal financial institution for coordinating the working of institutions engaged in financing export and import of goods and services.
  • Its headquarters is in Mumbai, Maharashtra. MD of EXIM Bank – David

The ECGC Limited (Formerly Export Credit Guarantee Corporation of India

  • provides export credit insurance support to Indian exporters
  • Government of India had initially set up Export Risks Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit
  • Offers guarantees to banks and financial institutions to enable
  • Its headquarters is in Mumbai, Maharashtra. CMD of ECGC Geetha


A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature,

But does not include any institution whose principal business is that of agriculture activity, Industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction

NBFCs lend and make investments and hence their activities are akin to

hat of banks; however, there are a few differences as given below:


  • NBFCs do not form part of the payment and settlement system and cannot
  • Deposit Insurance Facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
  • An NBFC is not a part of the payment and settlement system and as such,
  • An NBFC is not required to maintain Reserve Ratios (CRR, SLR etc.).
  • An NBFC cannot indulge Primarily in Agricultural, Industrial Activity, Sale-
  • Foreign Investment allowed up to 100%.

NBFC (Non-Banking Financial Company)

Leasing, hire-purchase, insurance business, chit business.

Immovable property.

  • NBFC cannot accept demand deposits;
  • issue cheques drawn on itself;
  • Provides Banking services to People without holding a Bank license.
  • An NBFC cannot issue Cheques drawn on itself, and Purchase, Construction of Immovable Property

Types of NBFC:-

  1. Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipment’s, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively.
  2. Investment Company (IC) : IC means any company which a financial institution is carrying on as its principal business the acquisition of securities. III. Loan Company (LC) : LC means any company which a financial institution is carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company. IV. Infrastructure Finance Company (IFC) : IFC is a non-banking finance company a) which deploys at least 75 per cent of its total assets in infrastructure loans, b) has a minimum Net Owned Funds of Rs. 300 crore,

c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.

V. Systemically Important Core Investment Company (CIC-ND-SI) :  CIC-ND-SI is an NBFC carrying on the business of acquisition of shares and securities which satisfies the following conditions: -

  1. It holds not less than 90% of its Total Assets in the form of investment in equity shares, preference shares, debt or loans in group companies;
  2. Its asset size is Rs.100 crore or above and
  3. It accepts public funds
  1. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-

NBFC) : IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5-year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDFNBFCs.

  1. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI) : NBFC-MFI is a non-deposit taking NBFC having not less than 85% of its assets in the nature of qualifying assets which satisfy the following criteria:
  1. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs.1,00,000 or urban and semi-urban household income not exceeding Rs.1,60,000;
  2. loan amount does not exceed Rs. 50,000 in the first cycle and Rs.1,00,000 in subsequent cycles;
  3. total indebtedness of the borrower does not exceed Rs.1,00,000; tenure of the loan not to be less than 24 months for loan amount in excess of Rs.15,000 with prepayment without penalty;
  4. loan to be extended without collateral;
  5. aggregate amount of loans, given for income generation, is not less than 50 per cent of the total loans given by the MFIs;
  6. loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower


International Financial Organizations

  1. World Bank Group (WBG) 
  2. International Monetary Fund (IMF) 
  3. Asian Infrastructure Investment Bank (AIIB) 
  4. Asian Development Bank (ADB) 
  5. European Bank for Reconstruction and Development (EBRD) 
  6. European Investment Bank (EIB) 
  7. Islamic Development Bank (IDB) 
  8. African Development Bank (AfDB).


  • Priority Sector Lending is an important role given by the Reserve Bank of India (RBI) to the banks for providing a specified portion of the bank lending to few specific sectors like agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections. 

This is essentially meant for an all-round development of the economy as opposed to focusing only on the financial sector.

Categories of Priority Sector

  • The broad categories of priority sector for all scheduled commercial banks are as under:

(i) Agriculture and Allied Activities  

The lending to agriculture sector has been re-defined to include  (i) Farm Credit (which will include short-term crop loans and medium/longterm credit to farmers) 

  1. Agriculture Infrastructure and 
  2. Ancillary Activities
  3. Small Scale Industries 

For classification under priority sector, no limits are prescribed for bank loans sanctioned to Micro, Small and Medium Enterprises engaged in the manufacture or production of goods under any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951 and as notified by the Government from time to time. The manufacturing enterprises are defined in terms of investment in plant and machinery under MSMED Act 2006.

  1. Social Infrastructure

Bank loans up to a limit of Rs. 5 crore per borrower for building social infrastructure for activities namely schools, health care facilities, drinking water facilities and sanitation facilities (including loans for construction/ refurbishment of toilets and improvement in water facilities in the household).

Bank credit to Micro Finance Institutions (MFI) extended for on-lending to individuals/ members of SHGs/ JLGs for water and sanitation facilities is also eligible for classification as priority sector loans under ‘Social Infrastructure’

(iv) Renewable Energy:

Bank loans up to a limit of Rs. 15 crore to borrowers for purposes like solar based power generators, biomass based power generators, wind mills, micro-hydel plants and for non-conventional energy based public utilities viz. street lighting systems, and remote village electrification are eligible to be classified under priority sector loans under ‘Renewable Energy’. 

For individual households, the loan limit is Rs. 10 lakh per borrower.  

  1. Education loans: 

Education loans include loans and advances granted to only individuals for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies abroad, and do not include those granted to institutions.

  1. Housing loans: 

Loans to individuals up to Rs. 28 lakh in metropolitan centres (with population of ten lakh and above) and loans up to Rs. 20 lakh in other centres for purchase/construction of a dwelling unit per family, are eligible to be considered as priority sector provided the overall cost of the dwelling unit in the metropolitan centre and at other centres does not exceed Rs. 35 lakh and Rs. 25 lakh, respectively. Housing loans to banks’ own employees are not eligible for classification under priority sector. 

  1. Under Weaker Sections: 
  • Small and Marginal Farmers, Distressed farmers indebted to noninstitutional lenders.
  • Artisans, village and cottage industries where individual credit limits do not exceed Rs. 1 lakh.
  • Beneficiaries under Government Sponsored Schemes such as National Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM) and Self Employment Scheme for Rehabilitation of Manual Scavengers (SRMS).
  • Scheduled Castes and Scheduled Tribes, Minority communities.
  • Beneficiaries of Differential Rate of Interest (DRI) scheme. Self Help Groups, Persons with disabilities, Individual women beneficiaries up to Rs.1 lakh per borrower.
  • Distressed persons other than farmers, with loan amount not exceeding Rs. 1 lakh per borrower to prepay their debt to non-institutional lenders.
  • Overdrafts upto Rs. 5,000/- under Pradhan Mantri Jan-DhanYojana (PMJDY) accounts, provided the borrowers’ household annual income does not exceed Rs.100,000/- for rural areas and Rs. 1,60,000/- for non-rural areas.

Note: The priority sector lending targets for Scheduled Commercial Bank are defined by RBI in terms of percentage of Adjusted Net Bank Credit (ANBC).

ANBC is the Net Banking Credit after taking into account bill discounting, non-SLR securities and other exemption via long-term bonds.


Priority Sector Lending Certificates (PSLCs)

Priority Sector Lending Certificates (PSLCs) are a mechanism to enable banks to achieve the priority sector lending target and sub-targets by purchase of these instruments in the event of shortfall. 

This also incentivizes surplus banks as it allows them to sell their excess achievement over targets thereby enhancing lending to the categories under priority sector.  

Under the PSLC mechanism, the seller sells fulfilment of priority sector obligation and the buyer buys the obligation with no transfer of risk or loan assets.

Financial Inclusion

Financial Inclusion is defined as “the process of ensuring access to financial services and timely and adequate credit where needed by vulnerable groups such as weaker sections and low-income groups at an affordable cost” (Rangarajan, 2008) in the report of the Committee on financial inclusion in India.

RBI set up the Rangarajan Committee in 2004 to look into financial inclusion. Financial inclusion first featured in 2005 & Mangalam, Puducherry became the first village in India where all households were provided banking facilities.

RBI Initiatives for Financial Inclusion

  1. Opening of Basic Saving Bank Deposit, a/c.
  2. Relaxed KYC norms for small deposits a/c.
  3. Allowing engaging business correspondents.
  4. Effective use of information and communication technology(ICT), to provide door step banking services.
  5. Implementation of Electronic Benefit Transfer (EBT) by leveraging ICTBased Banking.
  6. Issue of general credit cards.
  7. Simplified branch authorization for tier III to tier VI centres (population of less than 50,000) under general permission.


Financial Inclusion Fund (FIF) 

  • As you may be aware, the Financial Inclusion Fund (FIF) and Financial Inclusion Technology Fund (FITF) was constituted in the year 2007-08 for a period of five years with a corpus of Rs. 500 crore each to be contributed by Government of India (GOI), RBI and NABARD in the ratio of 40:40:20. The guidelines for these two funds were framed by GOI.  In April 2012, RBI decided to fund FIF by transferring the interest differential in excess of 0.5% on RIDF and STCRC deposits on account of shortfall in priority sector lending.
  • Keeping in view the various developments over the years, GOI has merged the FIF and FITF to form a single Financial Inclusion Fund.
  • The Reserve Bank of India has finalised the new scope of activities and guidelines for utilisation of the new FIF in consultation with GOI.
  • The new FIF will be administered by the reconstituted Advisory Board constituted by GOI and will be maintained by NABARD.


Important Initiatives launched under Financial Inclusion

  • No Frill Accounts (Refer Page no.
  • BSBDA (Refer Page no.
  • Lead Banking Scheme
  • Business Correspondents
  • Swabhimaan
  • Pradhan Mantri Jan-Dhan Yojana (PMJDY) 
  • Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJY) 
  • Pradhan Mantri Suraksha Bima Yojana (PMSBY) 
  • Atal Pension Yojana (APY) 
  • Pradhan Mantri Jan Dhan Yojana (PMMY) 
  • Direct Benefit Transfer (DBT) 
  • Small Finance Banks
  • Payments Bank


Lead Bank Scheme:

The Lead Bank Scheme was launched by the RBI in 1969 as an area approach for providing banking facilities in rural areas. The LBS was recommended by DR Gadgil study group that pioneered the idea of providing social banking in the post-independence period.

Under LBS, every district across the country would be assigned to a commercial bank. The bank should have major presence in that district to do the work of the Lead Bank. The lead bank makes surveys and makes loan facility to various sectors.

Business correspondents (BCs)

  • The business correspondent is nothing but a bank-in-person, who is authorised to collect small ticket deposits and extend small credit on behalf of the banks. A BC also does the following activities: Recovering the principal interest of small value deposits.
  • The RBI has allowed banks to appoint entities and individuals as agents for providing basic banking services in remote areas where they can’t practically start a branch. These agents are called Business Correspondents
  • Business Correspondents are hence instrumental in facilitating financial inclusion in the country.
  • As per the RBI guidelines the products provided by BCs are: Small Savings Accounts, Fixed Deposit and Recurring Deposit with low minimum deposits, Remittance to any BC customer, Micro Credit and General Insurance.
  • The BC model allows banks to provide door-step delivery of services especially ‘cash in – cash out’ transactions at a location much closer to the rural population, thus addressing the last-mile problem.


  • Swabhiman is a path-breaking initiative by the Union Government and the Indian Banks’ Association to bridge economic gap between rural and urban India. 
  • This campaign is a big step towards socio-economic equality by bringing the underprivileged segments of Indian population into the formal banking fold for the first time. The vision for this programme is social application of modern technology. 
  • ‘Swabhimaan’ – Transforming Rural India through Financial Inclusion, a financial security programme to ensure banking facilities in habitation with a population in excess of 2000 by March 2012. 
  • This nationwide programme on financial inclusion, was launched in February 2011 with its focus on bringing the deprived sections of the society in the banking network to ensure that the benefits of economic growth reach everyone at all levels.
  • Banks provide basic services like deposits, withdrawals and remittances using the services of Business Correspondents (BCs) also known as Bank Saathi.
  • The initiative also enables Government subsidies and social security benefits to now be directly credited to the accounts of the beneficiaries so that they could draw the money from the Business Correspondents (BCs) in their village itself.


Pradhan Mantri Jan-Dhan Yojana (PMJDY)

Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial Inclusion to ensure access to financial services, namely, Banking/ Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. This financial inclusion campaign was launched by the Prime Minister of India Narendra Modi on 28 August 2014.

  • Account can be opened in any bank branch or Business Correspondent (Bank Mitr) outlet. Accounts opened under PMJDY are being opened with Zero balance. However, if the account-holder wishes to get cheque book, he/she will have to fulfil minimum balance criteria.
  • By 10 February 2018, over 31 crore (310 million) bank accounts were opened and over Rs.745 billion (US$12 billion) were deposited under the scheme.

Special Benefits under PMJDY Scheme Interest on deposit.

  • Accidental insurance cover of Rs. 1 lakh
  • No minimum balance required.
  • The scheme provides life cover of Rs. 30,000/- payable on death of the beneficiary, subject to fulfilment of the eligibility condition.
  • Easy Transfer of money across India
  • Beneficiaries of Government Schemes will get Direct Benefit Transfer in these accounts.
  • After satisfactory operation of the account for 6 months, an overdraft facility will be permitted.
  • Access to Pension, insurance products.
  • The Claim under Personal Accidental Insurance under PMJDY shall be payable if the Rupay Card holder have performed minimum one successful financial or non-financial customer induced transaction at any Bank Branch, Bank Mitra, ATM, POS, E-COM etc. Channel both Intra and Inter-bank i.e. on-us (Bank Customer/rupay card holder transacting at same Bank channels) and off-us (Bank Customer/Rupay card holder transacting at other Bank Channels) within 90 days prior to date of accident including accident date will be included as eligible transactions under the Rupay Insurance Program 2016-2017.
  • Overdraft facility up to Rs.5000/- is available in only one account per household, preferably lady of the household.

Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJY)

Pradhan Mantri Jeevan Jyoti Bima Yojana is a government-backed Life insurance scheme in India. It was launched by Prime Minister Narendra Modi on 9 May 2015 in Kolkata.

Pradhan Mantri Jeevan Jyoti Bima Yojana is available to people between 18 and 50 years of age with bank accounts. It has an annual premium of Rs.330 (US$4.90).  

The GST is exempted on Pradhan Mantri Jeevan Jyoti Bima Yojana. The amount will be automatically debited from the account. In case of death due to any cause, the payment to the nominee will be Rs.2 lakh (US$3,000).  This scheme will be linked only to the bank accounts opened under the Pradhan Mantri Jan Dhan Yojana scheme. Most of these accounts had zero balance initially. The government aims to reduce the number of such zero balance accounts by using this and related schemes. PMJJBY is administered through LIC and other Indian private life insurance companies. 

Now all Bank account holders can avail this facility through their net-banking service facility or filling a form at the bank branch at any time of the year. As of 30 May 2018, 5.33 crore people have already enrolled for this scheme. 60,422 claims have been disbursed against 63,767 claims received.

Pradhan Mantri Suraksha Bima Yojana (PMSBY)

Pradhan Mantri Suraksha Bima Yojana is a government-backed accident insurance scheme in India. It was formally launched by Prime Minister Narendra Modi on 9 May 2015 in Kolkata.

Pradhan Mantri Suraksha Bima Yojana is available to people between 18 and 70 years of age with bank accounts. It has an annual premium of Rs.12 (18¢ US) exclusive of taxes. 

The GST is exempted on Pradhan Mantri Suraksha Bima Yojana. The amount will be automatically debited from the account. The accident insurance scheme will have one-year cover from June 1 to May 31 and would be offered through banks and administered through public sector general insurance companies.

In case of accidental death or full disability, the payment to the nominee will be Rs.2 lakh (US$3,000) and in case of partial Permanent disability Rs.1 lakh (US$1,500). Full disability has been defined as loss of use in both eyes, hands and feet. Partial Permanent disability has been defined as loss of use in one eye, hand or foot. 

This scheme will be linked to the bank accounts opened under the Pradhan Mantri Jan Dhan Yojana scheme. Most of these accounts had zero balance initially. The government aims to reduce the number of such zero balance accounts by using this and related schemes. The scheme is being offered by Public Sector General Insurance Companies or any other General Insurance Company who are willing to offer the product on similar terms with necessary approvals and tie up with banks for this purpose.

Atal Pension Yojana (APY)

Atal Pension Yojana (previously known as Swavalamban Yojana) is a government-backed pension scheme in India targeted at the unorganised sector. It was mentioned in the 2015 Budget speech by Finance Minister Arun Jaitley. It was launched by Prime Minister Narendra Modi on 9 May 2015 in Kolkata.

Swavalamban Yojana was a government-backed pension scheme targeted at the unorganised sector in India. It was applicable to all citizens in the unorganised sector who joined the National Pension Scheme (NPS) administered by the Pension Fund Regulatory and Development Authority (PFRDA) Act 2013.

Swavalamban scheme has been replaced with Atal Pension Yojana. The minimum age of joining APY is 18 years and maximum age is 40 years. The age of exit and start of pension would be 60 years. Therefore, minimum period of contribution by the subscriber under APY would be 20 years or more.

The subscribers are required to opt for a monthly pension from Rs.1,000 (US$15) to Rs. 5,000 (US$75) and ensure payment of the stipulated monthly contribution regularly. The subscribers can opt to decrease or increase pension amount during the course of accumulation phase, as per the available monthly pension amounts. This scheme will be linked to the bank accounts opened under the Pradhan Mantri Jan Dhan Yojana scheme and the contributions will be deducted automatically.


Pradhan Mantri MUDRA Yojana (PMMY)

Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the Prime Minister on April 8, 2015 for providing loans upto 10 lakh to the non-corporate, non-farm small/micro enterprises. These loans are classified as MUDRA loans under PMMY. There is no subsidy for the loan given under PMMY.

These loans are given by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs. Under the aegis of PMMY, MUDRA has created three products namely 'Shishu', 'Kishore' and 'Tarun' to signify the stage of growth / development and funding needs of the beneficiary micro unit / entrepreneur and also provide a reference point for the next phase of graduation / growth.

MUDRA, which stands for Micro Units Development & Refinance Agency Ltd, is a financial institution being set up by Government of India for development and refinancing micro unit’s enterprises. It is a wholly-owned subsidiary of the SIDBI and provides refinancing facilities to banks and microfinancing institutions against the loans that they have provided to small enterprises in order to promote the development of these micro units. Term Loan and/or Working Capital up to maximum Rs.10 lakhs under 3 categories

  1. Shishu: covering loans upto 50,000/-
  2. Kishore: covering loans above 50,000/- and upto 5 lakhs Tarun: covering loans above 5 lakhs to 10 lakhs

Direct Benefit Transfer (DBT)

Direct Benefit Transfer or DBT is an attempt to change the mechanism of transferring subsidies launched by Government of India on 1 January 2013. This program aims to transfer subsidies directly to the people through their bank accounts. It is hoped that crediting subsidies into bank accounts will reduce leakages, delays, etc

The primary aim of this Direct Benefit Transfer program is to bring transparency and terminate pilferage from distribution of funds sponsored by Central Government of India. In DBT, benefit or subsidy will be directly transferred to citizens living below poverty line. Central Plan Scheme Monitoring System (CPSMS), being implemented by the Office of Controller General of Accounts, will act as the common platform for routing DBT.

Transfer from the government to the people especially the popular ones and that involving millions of people as beneficiaries are made through the platform of DBT over the last few years. Two such major programmes are the LPG subsidy schemePAHAL and wage payment under MGNREGS.




The aim behind these to provide financial inclusion to sections of the economy not being served by other banks, such as small business units, small and marginal farmers, micro and small industries and unorganised sector entities. 

The small finance bank shall be registered as a public limited company under the Companies Act, 2013. It will be licensed under Section 22 of the Banking Regulation Act, 1949 and governed by the provisions of the Banking Regulation Act, 1949; Reserve Bank of India Act, 1934.



Resident individuals/professionals with 10 years of experience in banking and finance; and companies and societies owned and controlled by residents will be eligible to set up small finance banks. Existing Non-Banking Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local Area Banks (LABs) that are owned and controlled by residents can also opt for conversion into small finance banks. The validity of the in-principle approval issued by the Reserve Bank will be eighteen months.

The minimum paid-up equity capital for small finance banks shall be Rs. 100 crore. Foreign shareholding will be allowed in these banks as per the rules for FDI in private banks in India. Promoter’s initial contribution should be 40% lowered to 26% in 12 years.


75% of its net credits should be as Adjusted Net Bank Credit (ANBC) in priority sector lending and 50% of the loans in its portfolio must in Rs.25 lakh (US$38,000) range.


  1. They can accept any deposit like savings, current, fixed deposits, and recurring deposits.
  2. They will be allowed to lend money but not allowed to lend the deposited money to big businesses or industries.
  3. Small banks can undertake financial services like distribution of mutual fund units, insurance products, pension products, and so on, but not without prior approval from the RBI.
  4. A fundamental requirement is that it must have 25% of its branches set up in unbanked areas.