JAIIB PPB Principles and Practices of Banking Short Notes Module-wise
Unit – 1 Indian Financial System
Unit – 2 Banking Regulation
Unit – 3 Retail Banking, ADR, GDR and PNs
Unit – 4 Role of Money Markets, Fixed Income Markets, Forex markets and FEMA
JAIIB PPB Principles and Practices of Banking Short Notes Module-A
Unit – 1 : Indian Financial System
1. NBFC are allowed to raise money from the public and lend monies through various
instruments for ex leasing, hire purchase and bill discounting.
2. Primary dealers deal in government securities, primary as well as secondary markets.
3. FI are financial institutions which provide long term funds for industry and agriculture.
4. Co-operative banks are allowed to raise deposits and give advances from/to public.
5. Urban co-operative banks are controlled by State government and RBI.
6. Other co-operative banks are controlled by State Government and NABARD.
7. CRR is a percentage of demand and time liabilities of a bank which is deposits held by the bank.
8. SLR is a percentage of demand and time liabilities of a bank which is held in prescribed
government securities by the bank.
9. Bonds and debentures are examples of corporate securities and can be used to raise debts.
10. Debts, equities and derivatives are examples of securities.
11. SEBI is the capital market regulator.
12. Merchant bankers aka Investment bankers are licensed by SEBI and they issue stocks, raise fund and manage them.
13. FII are authorized by SEBI to invest in Indian equity and debt market through stock
14. Depositories held securities in demat form (not physical).
15. Mutual fund pools money from investors and invests in stocks, debt and other securities.
16. The three regulatory authorities are:
RBI – for banks,
SEBI – for capital markets and
IRDA – for insurance sectors.
Must Read : How to Prepare for PPB (Syllabus Priority)
Unit – 2 : Banking Regulation
1. RBI was constituted under the RBI Act 1934.
2. RBI started functioning with effect from 1 Apr 1935.
3. RBI is a state owned institution under the RBI (Transfer of Public Ownership) Act 1948.
4. RBI has 4 Deputy Governors and 15 Directors nominated by Union government.
5. All coins and Re 1 note is issued by Government of India but put into circulation by RBI.
6. RBI manages the exchange rate between the Indian Rupee and foreign currencies by selling and buying foreign exchange to/from Authorized Dealers (RBI’s specified branches and other dealers).
7. Important macroeconomic policies:
Monetary and credit policies – issued by RBI annually
Fiscal policy – issued by Ministry of Finance
EXIM policy – Ministry of Commerce
8. Saving and current accounts are demand liabilities.
9. Reducing CRR reduces loanable funds with banks.
10. RBI can prescribe SLR from 0 to 40 percent of bank’s DTL.
11. Increasing SLR reduces loanable funds with banks.
12. Bank rate is the rate at which RBI is prepared to buy or rediscount bills of exchange or other eligible commercial paper from banks.
13. No bank held shares in a company as pledge or mortgagee in excess of the limit of 30% of the paid-up capital of that company or 30% of the bank’s Paid-up capital and reserves, whichever is less.
14. Open market operations refer to sale or purchase of government securities by RBI in the open market.
15. Selective credit control is another tool which RBI uses for monetary control. It prevents
holding of essential commodities and resultant rise in their prices. Presently buffer stocks of sugar, unreleased stocks of sugar with sugar mills representing free sale sugar and levy sugar are covered by SCC.
** Principles and Practices of Banking – PPB Most Important Questions **
Unit -3 : Retail Banking, ADR, GDR and PNs
1. Retail banking refers to dealing of commercial banks with individual customers, both assets and liabilities sides.
Products offered are: SB, RD, CA, TDR, STDR, No Frill A/C, Home loan, auto loan, personal
loan, education loan, crop loan, credit card, debit cards, lockers, bank assurance etc.
2. Wholesale banking aka corporate banking or commercial banking refers to doing banking
business with industrial and business entities – mostly corporate and trading houses, including multinationals, domestic business houses and prime public sector companies.
Products offered are: LC, BG, Collection of bills and documents, forex desk, tax collection,
RTGS, term lending, etc.
3. International banking refers to dealing in cross border transaction.
4. Universal banking offers all types of financial products like mutual fund, capital market
related products including share broking, commodity broking, etc, sale of gold/bullion,
government/corporate bonds, merchant banking, general banking, insurance (both life and nonlife), etc under one roof.
5. A depository receipt (DR) is a form of negotiable (transferable) financial instrument that is traded on a local stock exchange of a country but represents a security, usually in the form of equity that is issued by a foreign publicly listed company.
6. Participatory Notes are like contract notes. They are issued by FII to entities that want to
invest in the Indian stock market but do not want to register themselves with the SEBI.
7. FII are not allowed to issue Participatory notes to Indian national or overseas corporate bodies
(because majority are owned/controlled by NRIs).
Unit – 4 : Role of Money Markets, Fixed Income Markets, Forex markets and FEMA
1. Money markets play a key role in banks’ liquidity management and the transmission of
2. In normal times, money markets are among the most liquid in the financial sector.
3. By providing the appropriate instruments and partners for liquidity trading, the money market allows the refinancing of short and medium-term positions and facilitates the mitigation of your business’ liquidity risk.
4. The banking system and the money market represent the exclusive setting monetary policy operates in.
5. A developed, active and efficient interbank market enhances the efficiency of central bank’s monetary policy, transmitting its impulses into the economy best.
6. Development of the money market smoothes the progress of financial intermediation and boosts lending to economy, hence improving the country’s economic and social welfare.
7. Therefore, the development of the money market is in all stakeholders’ interests: the banking system itself, the Central Bank and the economy on the whole.
8. “Money Market” refers to the market for short-term requirement and deployment of funds. Money market instruments are those instruments, which have a maturity period of less than one year.The most active part of the money market is the market for overnight call and term money between banks and institutions and repo transactions. Call Money / Repo are very short-term Money Market products. The below mentioned instruments are normally termed as money
1. Certificate of Deposit (CD)
2. Commercial Paper (C.P)
3. Inter Bank Participation Certificates
4. Inter Bank term Money
5. Treasury Bills
6. Bill Rediscounting
7. Call/ Notice/ Term Money
9. Government Securities are issued by the Government for raising a Public loan or as notified in the official Gazette.
10. They Consist of Government Promissory Notes, Bearer Bonds, Stocks or Bond held in Bond Ledger Account.
11. They may be in the form of Treasury Bills or Dated Government Securities.
12. Government Securities are mostly interest bearing dated securities issued by RBI on behalf of the Government of India.
13. GOI uses these funds to meet its expenditure commitments. These securities are generally fixed maturity and fixed coupon securities carrying semi-annual coupon. Since the date of
maturity is specified in the securities, these are known as dated Government Securities.
14. Features of Government Securities
1. Issued at face value.
2. No default risk as the securities carry sovereign guarantee.
3. Ample liquidity as the investor can sell the security in the secondary market.
4. Interest payment on a half yearly basis on face value.
5. No tax deducted at source.
6. Can be held in Demat form.
15. Corporate bonds are debt securities issued by private and public corporations.
16. Companies issue corporate bonds to raise money for a variety of purposes, such as building a new plant, purchasing equipment, or growing the business. When one buys a corporate bond, one lends money to the “issuer,” the company that issued the bond.
17. In exchange, the company promises to return the money, also known as “principal,” on a specified maturity date. Until that date, the company usually pays you a stated rate of interest, generally semiannually.
18. While a corporate bond gives an IOU from the company, it does not have an ownership
interest in the issuing company, unlike when one purchases the company’s equity stock.
19. An interest rate swap (IRS) is a liquid financial derivative instrument in which two parties agree to exchange interest rate cash flows, based on a specified notional amount from a fixed rate to a floating rate (or vice versa) or from one floating rate to another.
20. An interest rate future is a financial derivative (a futures contract) with an interest-bearing instrument as the underlying asset. It is a particular type of interest rate derivative.
21. LIBOR or ICE LIBOR (previously BBA LIBOR) is a benchmark rate that some of the
world’s leading banks charge each other for short-term loans.
22. It stands for Intercontinental Exchange London Interbank Offered Rate and serves as the first step to calculating interest rates on various loans throughout the world.
23. LIBOR is administered by the ICE Benchmark Administration (IBA), and is based on five
currencies: U.S. dollar (USD), Euro (EUR), pound sterling (GBP), Japanese yen (JPY) and Swiss franc (CHF).
24. It serves seven different maturities: overnight, one week, and 1, 2, 3, 6 and 12 months. There
are a total of 35 different LIBOR rates each business day. The most commonly quoted rate is the three-month U.S. dollar rate.
25. The Mumbai Interbank Offered Rate (MIBOR) is calculated everyday by the National Stock Exchange of India (NSEIL) as a weighted average of lending rates of a group of banks, on funds lent to first-class borrowers.
26. It is the interest rate at which banks can borrow funds, in marketable size, from other banks in the Indian interbank market.
27. The MIBOR was launched on June 15, 1998 by the Committee for the Development of the Debt Market, as an overnight rate.
28. The NSEIL launched the 14-day MIBOR on November 10, 1998, and the one month and
three month MIBORs on December 1, 1998.
29. Since the launch, MIBOR rates have been used as benchmark rates for the majority of money market deals made in India.
30. Foreign Exchange Management Act (FEMA), 1999 is applicable-
To the whole of India.
Any Branch, office and agency, which is situated outside India, but is owned or controlled by a person resident in India.