Banking Services to Banks
6.1
Introduction
RBI provides services to banks that are similar to the services that banks provide to
businesses and individuals. These services include maintaining current accounts, granting
of loans & advances, providing Liquidity Adjustment Facility and centralised inter-bank
clearing facilities.
The most important service provided by RBI to banks is the facility of Current Accounts,
which mainly assists in:




Settling clearing transactions,
Settling inter-bank transactions
Maintenance of CRR (for meeting regulatory requirements)
To maintain a sound banking system, RBI acts as "lender of last resort".
Whenever a bank experiences an unexpected liquidity crunch, it can turn to RBI for
availing loans, including under the Liquidity Adjustment Facility (LAF). This
discretionary loan facility from RBI helps the banks to overcome temporary
difficulties.
RBI, in its role of a "bankers' bank", attempts to ensure the safety and efficiency of the
payments system, the critical pipeline through which all financial transactions in the
economy flow.
6.2
Scope and Objective
The objective of RBI is to provide smooth service to the banks while executing
transactions as well as providing them up-to-date information on a timely basis. (The
Supervisory role of RBI is covered separately under the subject area ‘Financial sector
regulation and supervision’.)
This objective can be broadly divided into:
a) For monitoring, payment of interest / levy of penalty on CRR maintained by banks
estimation of liquidity etc.
b) One of the important functions is to understand the balances (and their movement) in
the Current accounts of banks and also outstanding loans and advances. This
involves looking at the trends of current account balances and loan utilizations of
banks.
c) Transaction monitoring
Close monitoring of clearing transactions, which may help in identification of
liquidity / exposure related risks faced by the banks. This involves monitoring of
clearing transactions.
d) Improving Customer service:
Understanding and monitoring the volume and type of transactions undertaken at
various offices of RBI can achieve this. This information may be utilised for
improving the workflow and to achieve better service standards.
The success of a large number of analytical requirements specified in this subject area
revolve around sourcing of data from various RBI Offices / branches (DADs).
6.3
Business Functions:
Banking Services to the Banks
Deposits


Regul
atory
Cleari
ng
Loans & Advances
Refinance
facilities
Overnight (LAF)
& Intra-day
Requirements
As indicated in the above diagram, RBI, in its role as 'Banker’s Bank', plays the
following important functions:
1. Maintaining of Current Accounts of banks and providing miscellaneous banking
services like remittances, National clearing, electronic funds transfers etc.
2. Providing loans and short-term liquidity to banks.
3. Providing centralized clearing facility
The various activities carried out as part of this subject area are mostly operational in
nature and involve transaction processing and monitoring of various banking transactions
and maintenance of accounts.
Note:

The various limits and policies relating to CRR and Advances are decided by the
Central Office Departments like IDMC, MPD, DBOD etc.

DAD receives sanctioned limits / policies regarding various Loans and Advances from
concerned Central Office departments. Based on these guidelines, DAD releases the
loans and advances to various banks, financial institutions etc. on their request.
6.4
Analytical Perspective
The broad analytical framework in which the above objective is addressed can be
classified into analysis encompassing both the micro (Bank level in case of Deposits and
Advances and DAD level in case of transaction monitoring) and macro (Bank group
level) aspects. The various types of analysis that may be considered are:





Trend analysis (comparing variables over a period)
Comparative analysis (comparing various groups of entities against the same
variables)
What if (scenario based) analysis.
Ratio analysis - comparing ratios of different variables.
'Alerts' -an important analytical tool, which can be effectively used for automatic
monitoring, wherein early warning triggers can be set off on the happening of certain
user defined events. (E.g. Alerts can be defined to go off when a bank has abnormally
large amounts of clearing transactions.).
The above analysis will help in drawing important conclusions and provide early warning
signals in the areas of liquidity management; transaction monitoring and trends in
refinance utilisations. The primary source of data for the analysis would be from the
BASIS package being used at various DADs. The other important source of data would
be from the various payment and clearing systems. Other variables like NDTL could be
sourced from DBOD.
The detailed analysis to be undertaken based on the broad analytical perspective outlined
above can be classified into the following domains:
1.
Deposits of banks:
Study of Current account balances maintained by various banks with RBI.
2.
Loans & advances to banks (Refinance, LAF and Intra-day liquidity)
Study the utilisation of various lending windows provided by RBI.
3.
Clearing Transaction Monitoring
Monitoring of payments system to make sure that the financial system is not
exposed to unnecessary risks.
4.
Improving customer service and workflow
Analysis of transactions undertaken by DADs that will help in providing better
customer service.
The following context diagram will explain the relationship amongst various entities
covered by this subject area.
LAF, OMO details
IDMC
Call Money Rates
DGBA
MPD
WSA, P&L etc.
Clearing
transactions
Banking transactions
BANKS
Clearing
House
Deposit
Accounts
Department
PDO
Delivery versus Payment
transactions
LAF, OMO transactions
Public
Accounts
Department
The analysis undertaken for each of the above mentioned analytical domains and the
variables used for such analysis are outlined below.
6.5
Deposits of banks with RBI
RBI provides the facility for opening current accounts to all the banks for maintaining
Cash Reserve Ratio (CRR), inter-bank operations and working funds for clearing
adjustments.
Analytical issues:
One of the key objectives of RBI in monitoring the Deposit Balances maintained by
various banks is to ensure that the prescribed CRR is maintained, estimate the effect on
liquidity in the market etc. Information on trends in banks' current account balances with
RBI can be analysed by examining the

What is the trend of current account balances, bank-wise, across time?

What is the trend in interest paid (on excess reserves) by RBI and penalty levied
(for not maintaining stipulated reserves) to / on banks?

What are the trends of balances maintained by banks as a percentage of NDTL?
This analysis allows RBI to assess pressure on liquidity on account of reserve
maintenance by banks within a fortnight.
Variables to be tracked:

Current account balances classified by bank, account type (Source: BASIS,
Frequency: Daily)

Average Balances classified by bank, account type (Source: BASIS, Frequency:
Daily)

NDTL classified by bank (Source: DBOD - Section 42 return, Frequency:
Fortnightly)

Actual balances vis-à-vis CRR requirement (variations etc)

Interest paid and penalty levied by RBI
Note: The completeness and success of analysis depends on how the data can be sourced
from various DADs, a constraint to be addressed by RBI.
6.6
Loans & Advances to banks
RBI provides liquidity support to banks to tide over their temporary mismatches. The
various types of facilities provided by RBI may be classified as follows:
Formula based
Currently, RBI through Collateralised Lending Facility (CLF) and Export credit refinance
provides liquidity support to the banks. The above limits are available subject to
quantitative limits (formula based) for a specified duration at the Bank Rate to tide over
their temporary liquidity shortages and to encourage the banks to extend more liberal
Export credit finance (for achieving the objectives of foreign trade policy) respectively.
The study of utilisation of these limits by banks assists RBI to understand the liquidity
position of the banks.
Overnight
RBI introduced full-fledged Liquidity Adjustment Facility (LAF) effective June 5, 2000
for providing overnight liquidity support to banks. LAF is conducted through Repo and
reverse repo auctions on a daily basis (except on Saturday) with a tenor of one day except
on Fridays and days preceding the holidays. Interest rates in respect of both repos and
reverse repos are decided through cut-off rates emerging from auctions conducted by RBI
on uniform basis.
The key objective of analysis is to identify the trend in utilisation of LAF by various
banks. Consistent use of the repo facility may indicate liquidity problems for a bank.
Similarly, a comparison of the trend in repo / reverse repo rates vis-à-vis call money rate
will also help in establishing the efficacy of the auction process.
Intra-day
Settling systems are a conduit for systemic risk spreading through the financial system.
The risks are associated with the settlement lags in the system including the ‘zero hour
risks’ associated with bankruptcy laws. The risk occurs if one of the counter parties for
whatever reason fulfils its leg of the transaction based on advises instead of waiting for
final settlement.
The key objective would be to understand the trend in intra-day exposure of banks to
assist in fixing intra-day exposure limits. This involves study of clearing transactions
(volume and value) vis-à-vis Demand and Time Liabilities of a bank, Capital Adequacy
and banks net outstanding position (loans and advances taken from RBI) with RBI. This
analysis could help RBI in arriving at intra-day liquidity support that can be provided to a
bank.
Analytical issues:

What are the trends in utilisation of loans and advances (formula based, overnight
and intra-day) vis-à-vis limits fixed, by the banks? Trends may be analysed type
of facility wise, bank wise, bank group wise etc.

How frequently (number of days) are the banks resorting to liquidity support
provided by RBI? Trends may be analysed bank wise, bank group wise and type
of lending facility wise.

What is the amount of interest income earned on various liquidity support
facilities provided to banks? Trends may be analysed bank wise, type of lending
facility wise.

What is the quantum of support and cut-off rate of repos / reverse repos? Trends
may be analysed (on a daily basis) bank wise, bank group wise, and cut-off rates
vis-à-vis call rates. (Individual bank’s overnight exposure in call money market if
sourced would improve the effectiveness of the analysis.)
Variables to be tracked:

CLF limits and utilizations (Source: BASIS, Frequency: Daily)

Export refinance limits and utilizations (Source: BASIS, Frequency: Daily)

Bank wise and Facility wise interest income earned.

Call money market lending rates (Source: MPD

Frequency: Daily)
Bank wise transaction details (quantum, cut-off rate) of repos / reverse repos
on daily basis. (Source – Mumbai DAD)

DTL of the banks (Source: DBOD, Frequency: Fortnightly)

Capital Adequacy of banks (Source: DBS, Frequency: Half-yearly)

Net clearing (credit / debit) balances (Source: NCC, Frequency: Daily)
6.7
Clearing transactions monitoring
The clearing system involves large-scale transfer of funds through various instruments
between banks and is an indication of the transaction activity going on in the banking
system. Settling systems are a conduit for systemic risk spreading across the financial
system.
The key objective of this analysis is for identifying abnormal transactions. Alerts, based
on user-defined rules could also help in flagging potentially risky transactions (e.g. Alerts
can be raised on exceptionally large amount transactions).
Analytical issues:
Some of the key issues that may be considered are:

What are the bank wise trends in volumes and value of clearing transactions vis-àvis NDTL, CRAR and bank’s net outstanding position (loans and advances taken
from RBI)?

What are the bank wise trends in volumes of clearing transactions (type of
instrument wise and bank wise)?
Variables to be tracked

NDTL of the banks (Source: DBOD, Frequency: Fortnightly)

Capital Adequacy of banks (Source: DBS, Frequency: Half-yearly)
Loans and advances sanctioned and outstanding (Source: DADs, Frequency:

Daily)

Net clearing (credit / debit) balances (Source: NCC, Frequency: Daily)

Volume and Value of transactions (Source: NCC, Frequency: Daily)

Type of instrument (Savings, Current, OD/CC, Drafts etc.) cleared
(Note: The completeness and success of analysis depends on how the data can be sourced
from various DADs, a constraint to be addressed by RBI. Also, the scope of this study
did not cover Payment and Clearing systems. Hence, the data availability for the above
analysis has not been confirmed)
6.8
Customer service and work flow
This will involve study of the various types of banking transactions undertaken at DAD.
E.g. Number of Cash /Transfer/ Clearing transactions undertaken during the day. The
key objective of the analysis is to provide better customer service to the banks.
Analytical issues:
The analysis under this area will not only give an understanding of movement of funds in
Customers’ (banks) accounts but also provide the analysis on the transactions undertaken
by DADs.

What is the value and volume of transactions (bank wise, type of transaction wise,
terminal id wise)?
Variables to be tracked:

Volume of transactions (Classified by DAD, Type of transaction & terminal id.
Source: BASIS, Frequency: Daily)

Amount of transaction (Classified by DAD, Type of transaction & terminal id.
Source: BASIS, Frequency: Daily)