Money and Banking (part – II)

'Gullak Bachcha Bank' is a bank managed entirely by the children at the Bal Bhavan-Kilkari in Patna. Opened on Children's Day, November 14, 2009 by Bihar Chief Minister Nitish Kumar, it was an experiment in thrift education. This bank has four objectives help children understand the importance and correct use of money; develop the habit of saving; promote understanding of the banking system; and encourage the spirit of mutual cooperation.

Among the given options, credit to farmers is an asset for a commercial bank. Liabilities and assets of commercial banks are as follows:

Among the given options, deposits are not included in the assets of a commercial bank in India. Deposit is a liability of the commercial bank, as it has to be returned to the customer. Assets of a commercial bank in India include cash in hand and balances with the RBI, money at call at short notice, investments (government securities, other approved securities and other securities), loans, advances and bills discounted-or purchased etc. Liabilities of a commercial bank in India include deposits (both term and demand deposits), borrowings, paid-up capital, payable bills etc.

Time Deposits are the most important component of the liabilities of commercial banks and after that Saving deposits and Demands deposits are the important component of the liabilities of commercial banks in India.

A non-performing asset (NPA) refers to classification for loans or advances that are in default or in arrears. A loan is an arrears when its principal or interest payments are missed. As per the RBI guidelines, any advance or loan is classified as non-performing asset when it is overdue for more than 90 days.

According to the priority sector lending norms of the RBI, banks have to extend at least 40% of their credit to the priority sector. Some of the priority sectors lending mentioned by the RBI are agriculture, micro, small and medium enterprises, education, housing, export credit, social infrastructure, renewable energy etc. Lending to weaker sections constitutes a major part of this. Hence, option (d) is the correct answer.

Loans are classified generally into three categories on the basis of their duration:

Note : However, sometimes, short-term loan provides for upto 2 years. But it depends on different institutions.

A teaser loan is nothing, but, a special loan that is offered for a fixed duration and could then be withdrawn. It generally offers a low interest rate in the initial years or some special offer and then gets back to the normal interest rates. Teaser loans' are the unofficial term used to describe housing loans that carry ultra-low fixed rate in initial years, but charge market-linked rates thereafter. It is considered to be an aspect of sub-prime lending and banks may be exposed to the risk of defaulters in future. The Reserve Bank of India had insisted that there be a higher provisioning for such loans as they carry a higher risk of default. It is not given to inexperienced entrepreneurs to set up manufacturing or export units. Hence, option (a) is the correct answer.

Public debt is the total liabilities of the Central Government contracted against the Consolidated Fund of India. It is of 2 types - Internal debt and External debt. Internal debt is categorized into marketable and non-marketable securities. Marketable government securities include G-secs and T-bills issued through auction. Non-marketable securities include intermediate treasury bills issued to State Governments, special securities issued to RBI among others. Hence, option (d) is the correct answer.

Non-financial debt consists of credit instruments issued by government entities, households and businesses that are not covered in the financial sector. Hence, statement 1,2 and 3 all are correct.