Sunday, July 18, 2010

Ø National Advisory Council

The National Advisory Council (NAC) has been set up as an interface with Civil Society. The NAC would provide policy and legislative inputs to Government with special focus on social policy and the rights of the disadvantaged groups. The NAC would also give attention to the priorities stated in the address of the President of India to Parliament on 4 June, 2009. In addition, the NAC would review the flagship programmes of the Government and suggest measures to address any constraints in their implementation and delivery.

The NAC comprises distinguished professionals drawn from diverse fields of development activity who serve in their individual capacities. Through the NAC, the Government has access not only to their expertise and experience but also to a larger network of Research Organizations, NGOs and Social Action and Advocacy Groups.

Chairperson, National Advisory Council

Ø Indian Council of Medical Research (ICMR)

Indian Council of Medical Research (ICMR), Delhi, at its initiation was known as Indian Research Fund Association (IRFA), which was established in 1911. Several organizational and functional changes were brought about in the IRFA after independence.

Finally in 1949 it was restructured to form ICMR. The ministry of Health and Family Welfare, Government of India provides the necessary funds to ICMR.

The Indian Council of Medical Research is a premier research institute, which formulates, co-ordinates and promotes biomedical research in India. The health minister of India heads the governing body of ICMR. He is assisted by a Scientific Advisory Board, which includes eminent professionals from the biomedical fields. A group of Scientific Advisory Groups, Scientific Advisory Committees, Expert Groups, Task Forces, and Steering Committees in turn helps the board to carry on its functions.

Ø Net interest margin (NIM)

Net interest margin (NIM) is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders(for example, deposits), relative to the amount of their (interest-earning) assets. It is similar to the gross margin of non-financial companies.

It is usually expressed as a percentage of what the financial institution earns on loans in a time period and other assets minus the interest paid on borrowed funds divided by the average amount of the assets on which it earned income in that time period (the average earning assets).


NIM is calculated as a percentage of interest bearing assets. For example, a bank's average loans to customers were $100.00 in a year while it earned interest income of $6.00 and paid interest of $3.00. The NIM then is computed as ($6.00 – $3.00) / $100.00 = 3%. Net interest income equals the interest earned minus the interest paid out to customers.

Ø Cash Reserve Ratio (CRR)

The present banking system is called a “fractional reserve banking system”, as the banks are required to keep only a fraction of their deposit liabilities in the form of liquid cash with the central bank for ensuring safety and liquidity of deposits. The Cash Reserve Ratio (CRR) refers to this liquid cash that banks have to maintain with the Reserve Bank of India (RBI) as a certain percentage of their demand and time liabilities.

For example if the CRR is 10% then a bank with net demand and time deposits of Rs 1,00,000 will have to deposit Rs 10,000 with the RBI as liquid cash.

How is CRR used as a tool of credit control?
CRR was introduced in 1950 primarily as a measure to ensure safety and liquidity of bank deposits, however over the years it has become an important and effective tool for directly regulating the lending capacity of banks and controlling the money supply in the economy. When the RBI feels that the money supply is increasing and causing an upward pressure on inflation, the RBI has the option of increasing the CRR thereby reducing the deposits available with banks to make loans and hence reducing the money supply and inflation.

Does RBI impose on penalty on banks for defaulting on CRR deposits?
The RBI has the authority to impose penal interest rates on the banks in respect of their shortfalls in the prescribed CRR. According to Master Circular on maintenance of statutory reserves updated up to June 2008, in case of default in maintenance of CRR requirement on daily basis, which is presently 70 per cent of the total CRR requirement, penal interest will be recovered at the rate of three 3% per annum above the bank rate on the amount by which the amount actually maintained falls short of the prescribed minimum on that day. If shortfall continues on the next succeeding days, penal interest will be recovered at a rate of 5% per annum above the bank rate. In fact if the default continues on a regular then RBI can even cancel the bank’s licence or force it to merge with a larger bank.

Does CRR apply to all scheduled banks?
The CRR is applicable to all scheduled banks including the scheduled cooperative banks and the Regional Rural Banks (RRBs). The present level of CRR is 6.5%. Previously, there was a floor of 3% and ceiling of 20% on the CRR that could be imposed by the RBI; however since 2006 there is no minimum or maximum level of CRR that needs to be fixed by the central bank of India. At present, the RBI does not pay any interest to the banks on the CRR deposits. Prior to 1962, a separate CRR was fixed in respect of demand and time liabilities, however after 1962 the separate CRRs were merged and one CRR came into effect for both demand and time deposits of banks with RBI.

Ø Confederation of Indian Industry

The Confederation of Indian Industry (CII) works to create and sustain an environment conducive to the growth of industry in India, partnering industry and government alike through advisory and consultative processes.

CII is a non-government, not-for-profit, industry led and industry managed organisation, playing a proactive role in India's development process. Founded over 115 years ago, it is India's premier business association, with a direct membership of over 8100 organisations from the private as well as public sectors, including SMEs and MNCs, and an indirect membership of over 90,000 companies from around 400 national and regional sectoral associations.

CII has taken up the agenda of “Business for Livelihood” for the year 2010-11. Businesses are part of civil society and creating livelihoods is the best act of corporate social responsibility. Looking ahead, the focus for 2010-11 would be on the four key Enablers for Sustainable Enterprises: Education, Employability, Innovation and Entrepreneurship. While Education and Employability help create a qualified and skilled workforce, Innovation and Entrepreneurship would drive growth and employment generation.

With 64 offices in India, 9 overseas in Australia, Austria, China, France, Germany, Japan, Singapore, UK, and USA, and institutional partnerships with 223 counterpart organisations in 90 countries, CII serves as a reference point for Indian industry and the international business community.


Liquidity Adjustment Facility (LAF) was introduced by RBI during June, 2000 in phases, to ensure smooth transition and keeping pace with technological upgradation. On recommendations of an RBI’s Internal Group RBI has revised the LAF scheme on March 25, 2004. Further revision has been carried wef Oct 29, 2004. The revised LAF scheme has the following features:
Objective: The funds under LAF are used by the banks for their day-to-day mismatches in liquidity.
Tenor :Under the scheme, Reverse Repo auctions (for absorption of liquidity) and Repo auctions (for injection of liquidity) are conducted on a daily basis (except Saturdays). 7-days and 14-days Repo operations have been discontinued wef Nov 01, 2004.
Eligibility : All commercial banks (except RRBs) and PDs having current account and SGL account with RBI.
Minimum bid Size : Rs. 5 cr and in multiple of Rs.5 cr
Eligible securities: Repos and Reverse Repos in transferable Central Govt. dated securities and treasury bills.
Rate of Interest : The reverse repo rate will be fixed by RBI from time to time (presently 5.25%). The repo rate (presently 6.25% wef Oct 26, 2005) will continue to be linked to the reverse repo rate and the spread between the repo rate and the reverse repo rate which was reduced to 150 basis points with effect from March 29, 2004 has been reduced further to 100 basis points.
Discretion to RBI: Under the revised Scheme, RBI will continue to have the discretion to conduct overnight reverse repo or longer term reverse repo auctions at fixed rate or at variable rates depending on market conditions and other relevant factors. RBI will also have the discretion to change the spread between the repo rate and the reverse repo rate as and when appropriate. (As per an IMF 1997 publication, “the sale and repurchase transactions (reverse repo), are sales of assets by the central bank under a contract providing for their repurchase at a specified price on a given future date; they are used to absorb liquidity”. On the contrary, prior to above change, in the Indian context, “repo” denotes liquidity absorption by the Reserve Bank and “reverse repo” denotes liquidity injection).


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