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Insurance of Bank Balance
Insurance of bank balance means the deposits kept in the bank is insured to save the depositors' money in case the bank goes bankrupt. In India, this is done through the 'Deposit Insurance and Credit Guarantee Corporation (DICGC)' it insures deposits up to the certain limit that is now ₹ 500000 perRead more
Insurance of bank balance means the deposits kept in the bank is insured to save the depositors’ money in case the bank goes bankrupt. In India, this is done through the ‘Deposit Insurance and Credit Guarantee Corporation (DICGC)’ it insures deposits up to the certain limit that is now ₹ 500000 per depositor per bank.
Merits:
1. Deposit Safety: It offers safety for the depositors, especially the one who deposits a small amount of money in their account in case the bank goes under.
2. Confidence in banking: Deposit insurance instills more confidence within people, especially in depositing their money in the banking institutions.
3. Financial Security: This safe depositor ensures that there are no bank runs and is always supportive of the system in place within the banking industry.
Demerits:
1. Moral Hazard: It can be said that deposit insurance does affect the risk-taking behavior of the banking institutions to the extent that they can rely on insurance to face loss.
2. Insurance protecting one’s money in the bank is not always great for big corporations or individuals carrying large sums of money. Meaning, when something wrong occurs, they may not be able to recover their entire amount.
3. When the cost of insurance rises, banks can charge a higher price for the money they lend to you. You then get a smaller amount in interest when you borrow money or when you put your money in the bank because the bank is trying to cover up the increased cost.
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See lessIn addition, to bolster the strength of bank balance insurance, the coverage could be broadened in tandem with the stringent risk criteria so as not to succumb to moral hazard. Other benefits that are related and pertinent to this include improved depositors’ literacy regarding finances because they now learn about coverage limits and therefore can make informed banking choices; hence, promoting financial stability.
women
Rural women have access to facilities like mobile health clinics, community schools, vocational training centers, digital literacy programs, rural banks and entrepreneurship development cells, empowering them economically and socially.Ensuring equitable access to healthcare, education and employmentRead more
Rural women have access to facilities like mobile health clinics, community schools, vocational training centers, digital literacy programs, rural banks and entrepreneurship development cells, empowering them economically and socially.Ensuring equitable access to healthcare, education and employment opportunities for rural women requires a multi faceted approach –
Rural women face challenges in accessing essential facilities due to geographical isolation, limited infrastructure, poverty, cultural barriers and social norms, hindering healthcare, education and employment opportunities and perpetuating inequality.
See less'Inflation's Economic Impact and Central Bank Monetary Policy Management"
The most important negative effects of inflation arise from reduction in purchasing power. Inflation can reduce the value of our money by a huge amount, making it even more difficult to purchase the things we want and need. Knowing how inflationary prices affect our purchasing power is an aspect ofRead more
The most important negative effects of inflation arise from reduction in purchasing power. Inflation can reduce the value of our money by a huge amount, making it even more difficult to purchase the things we want and need. Knowing how inflationary prices affect our purchasing power is an aspect of financial knowledge, and this skill will help us perform better in managing our money.
An influx of money into the economy from the macroeconomic point of view leads to inflation. Since there will be more money, it reduces the value of each and every unit of currency. This in turn increases the prices of the commodities and services by the reduced value of the money. Therefore, the money can purchase fewer goods and services than it could in the past.
Inflation and purchasing power-At the level of the individual, experiences vary from one person to another with the variables like income, expenses, and lifestyle.
Here’s how inflation may affect your purchasing power:
1. Savings: Because of time, inflation can gradually reduce the value of your savings. For example, imagine having $1,000 worth of savings, and the inflation rate is 3%. After one year, the value of your savings will have shrunk to $970.
2. It is more expensive to maintain living standards due to higher costs of living: With rising prices of goods and services, it becomes harder to achieve the same standard of living, thus reducing the quality of life.
3. Low returns: Inflation will also affect the return on investment. Let’s assume you invest in a bond yielding 2%, and you have a rate of inflation of 3%. This means you are losing money on your investment.
Understanding how inflation affects the purchasing power is extremely important in financial decision-making. In other words, having an understanding of inflation will enable people to think ahead and adjust their strategies because they will be able to realize early if the cost of living will continue to rise or not.
See lessImpact of Basel III norms on the capital adequacy and risk management practices of Indian banks
It indeed heavily impacted Indian banks' capital adequacy and risk management after introducing Basel III norms. These new standards arising out of the global financial crisis of 2008 require higher capital requirements and improved liquidity standards in terms of building up resilience for the bankRead more
It indeed heavily impacted Indian banks’ capital adequacy and risk management after introducing Basel III norms. These new standards arising out of the global financial crisis of 2008 require higher capital requirements and improved liquidity standards in terms of building up resilience for the banking sector.
The above factor forced Indian banks to raise their capital adequacy ratios: there is an increasing equity or, more often, retained earnings, which can afford shocks much better now. Nevertheless, this has brought along certain challenges that cannot be managed by smaller banks in attracting sufficient capital.
The stricter norms for capital affected the lending practices, as the banks became more risk averse, particularly in the riskier sectors. To an extent, Basel III has permitted sustaining a higher proportion of Tier-1 capital and thus encouraged banks to be quality-specific rather than quantity-specific in lending, that is, secured loans instead of unsecured ones. Hence, though improving the quality of assets, credit growth has become slow-affecting the sectors highly bank-financed most.
On these lines, profitability has also been dealt with because larger capital is required to be deployed reduce leverage and hence the return on equity of banks. The increased focus on liquidity and risk management have also seen operational costs increase. Although, Basel III had the benign effect of stability in the Indian banking sector, it involved the cost of restricted profitability and a more conservative approach towards lending.
See lessBanking
Key laws governing Indian banking: 1. Reserve Bank of India Act, 1934: Allows RBI to set up RBI control over the direction of a monetary policy, exercises powers to supervising the direction of banks and keep aproper check on monetary operation hence making it a central authority. 2. Banking RegulatRead more
Key laws governing Indian banking:
1. Reserve Bank of India Act, 1934:
Allows RBI to set up RBI control over the direction of a monetary policy, exercises powers to supervising the direction of banks and keep aproper check on monetary operation hence making it a central authority.
2. Banking Regulation Act 1949:
It provides direction on issues to do with licensing of banks, capital, structure and management and operations, including aspects on mergers and acquisitions.
3. Prevention of Money Laundering Act, 2002:
The Act strictly compels banks to adhere to AML and KYC standards besides closely observing transactions which they find suspicious;vi and reporting such transactions to the Financial Intelligence Unit-India (FIU-IND).
4. Basel III Norms:
The implementation of international standards is achieved when RBI asks the banks to maintain specific capital and liquidity ratio that would eventually minimize the probability of the spread of systemic risk and boost resilience.
5. Insolvency and Bankruptcy Code (IBC), 2016:
There has been also clear working out of mechanism for recovery of credits which also help in default resolution of banks and has also ensured strict compliance of credit discipline of the borrowers.
6. Negotiable Instruments Act, 1881:
Deals with safe, transparent and courteous way at the back office management of financial instruments such as cheque, bearer cheque, bill and bearer bill and helps to ensure integrity of electronic transactions.
See lessMoney Supply
The money supply in the making of inflation and deflation as well. Of course such factors are used to determine the level of prices in an economy. With this money supply there is more liquidity in the consumption and the production processes. As is evident from the Quantity Theory of Money MVRead more
The money supply in the making of inflation and deflation as well. Of course such factors are used to determine the level of prices in an economy.
With this money supply there is more liquidity in the consumption and the production processes. As is evident from the Quantity Theory of Money MV = PQ an increase in the stock of money ‘M’, at a constant velocity ‘V’, the resultant will be an increase in the price level ‘P’ with ‘Q’ constant. In a nutshell, yet more money is thrown after the same quantity of goods and services and demand goes further up and up goes the prices and inflation.
But with most instruments, a central bank also increases money stock through open market operations, reducing interest rates to encourage even higher consumption and investment to bring in easy, demand-led inflation.
This is because when money supply is reduced more money is left in the central bank than circulating in the economic market reducing the consumers’ expenditure and businesses investment thereby lowering the aggregate demand hence deflation. Because price level has a tendency to go down as time goes on; low demand consequently reduces the price level hence deflation.
Aggressive deflation would be a bane to the corporate revenues and also send the economy into stagnation because the consumers wait for cheaper products to be released
Corev, more central banks monitor this money supply and adjustment to a middle position is done to control inflation and avoid both deflationism and inflationism for economy steadiness.
See lessBanking
This has however been made a challenge by the factors of globalization, technological change and the increased flexibility presented by the digital currencies. Here's how they influence it: 1. Globalization: Globalization has also brought about the integration of economy across nation and made the wRead more
How does monetary policy influence income inequality and wealth distribution?
Monetary policy may be quite effective in influencing income distribution and wealth distribution by a change in interest rates, asset prices and even employment rates. If an economy is scaled by the Central Bank with the help of declining interest rates, then wealthy people benefit the most.Read more
Monetary policy may be quite effective in influencing income distribution and wealth distribution by a change in interest rates, asset prices and even employment rates.
If an economy is scaled by the Central Bank with the help of declining interest rates, then wealthy people benefit the most. This is so because, with lower rates, borrowing becomes cheaper and thus, investors invest more in things like stocks, real estate, and other assets, which, are expected to rise in value. Owners of such assets experience an upward social mobility and a widening of the social disparity. On the other hand, possibly, small investors, who have less money invested, will not immediately notice such advantages.
While the dampening effect of expansionary monetary policy or an increase in the interest rate to tame inflation may prove particularly lethal to lower-income earners, not to mention perhaps restricted credit due to high cost of borrowing, measures put in place to control inflation may slow down job creation, especially in areas where low wage earners work.
In conclusion, monetary policy works in the general economy, and it deepens income and wealth inequality since its winners are the high-income earners while its losers are the low-income earners.
See lessWhat role do commercial banks play in implementing monetary policy?
Following role do commercial banks play in implementing monetary policy:- 1. Interest Rate Transmission: In most countries, the commercial banks lend money and accept deposits at rates that are attached to their country's central bank rate; borrowers and savers have the influence over the amount theRead more
1. Interest Rate Transmission: In most countries, the commercial banks lend money and accept deposits at rates that are attached to their country’s central bank rate; borrowers and savers have the influence over the amount they are willing to borrow or save within the economy.
2. Credit Availability: With regard to some policies from the central banks, commercial banks regulate credit supply in businesses and consumers by changing their lending policies.
3. Open Market Operations (OMOs): The holders of OMOs are the commercial banks, shareholder deposits commercial banks are in the buying and selling government securities that have repercussions in the liquidity of the banking sector.
4. Reserve Requirements: All the commercial banks together should maintain the balance through reserves which the Central Bank has provided. Thus, any change in these requirements will determine the range to which the banks can provide money.
5. Money Supply Management: Using money obtained from borrowing, deposits they hold and through managing their required reserves, commercial banks help in realization of other monetary policy objectives as needed, say controlling inflation or boosting growth.
6. Economic Stabilization: Relaying the central bank policies or goals, it’s a responsibility of commercial banks to curb consumption, investments amongst other related economic activities.
See lessAnalyze how the digital transformation of the Public Distribution System (PDS) in India helps address the challenges it faces.
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