Legal Tender | Banknotes | Coins | Currency of India

What is meant by Legal tender? (tender=offer): Any official medium of payment recognized by law. A creditor (~predator) is obligated to accept legal tender toward repayment of a debt.

The Indian rupee (INR) is legal tender in Nepal, Bhutan & Zimbabwe, but the Nepalese rupee and Bhutanese ngultrum are not legal tenders in India (Zimbabwean $ has been suspended by Govt due to hyperinflation).

Nepalese rupee's value was pegged to the INR in 1993 at a rate of 1.6 Nepalese Rs = 1 INR. Bhutanese ngultrum is pegged at par with Indian rupee.


What would you prefer as payment - legal tender or not-a-legal-tender?
Bitcoin is a virtual online currency that can be used for a growing number of transactions but its not considered legal tender anywhere. As INR is guaranteed by Indian Central Govt (s/26 RBI Act) it is more stable & accepted by all. (Do you've a right to recover from GOI/RBI value of a lost, stolen, imperfect note?)


Can you guess how much stamp duty does RBI pay to Govt on banknotes?
Well each note is a 'legal-note' & have a value attached to it but RBI pay nothing to govt for it to make legally binding on itself or Govt, as its exempted from paying stamp duty under s/29 RBI Act (Not under Indian Stamp Act).


Do shops or individuals have the right to refuse payment in coins or notes, even legal tender ones?

Contrary to popular belief, shops or individuals do have the right to refuse payment in coins or notes, even legal tender ones, before a transaction has taken place, and to demand payment in whatever form they choose.

However, when the debt has already been incurred (which, under the legal concept of 'invitation to treat' the vendor has already supplied a good or service prior to payment), then they are obliged to accept settlement of that debt in currency up to the amount authorized in law.

1 Rupee coin & notes are legal tender for unlimited amounts. 50 Paisa are legal tender for any sum not above Rs 10. Coins of smaller than 50 paisa value are legal tenders of a sum below Rs 1. (under Indian Coinage Act 1906).

So if you want to purchase 1 toffee of Rupee one with One Thousand rupee note, then shopkeeper can refuse accepting the 'legal tender'. Same way if you've had good meal at a restaurant & now want to pay them in 1 rupee coins then they can't refuse it - as you've already accepted their service - and 1 rupee coins are legal tender for unlimited amounts.


Legal Tender of India
The Indian rupee i.e INR is the only legal tender in India,

Its symbol was officially adopted in 2010. The first series of notes/coins with the rupee symbol was launched on 2011. Historically, the rupee (derived from the Sanskrit word raupya which means "wrought silver, a coin of silver"), was a silver coin.

RBI introduced "Mahatma Gandhi Series" banknotes on 1996 - it's called so because on the obverse there is a pic of Mahatma Gandhi (along with other features).

 A Mahatma Gandhi Series Note

A Pre Mahatma Gandhi series note - Ashoka emblem

Currency Management in India
Under s/22 of RBI Act; RBI has the sole right for issue of notes in India. Denomination of notes that are issued: 5,10,20,50, 100, 500, 1000. The design, form and material of the bank notes are recommended by Central Board of Directors of RBI and approved by GOI.

Like every country India's central bank - RBI looks after currency management. Interestingly Hong Kong, Scotland & Northern Ireland are exceptions where a commercial bank is the note issuing authority.

Can banknotes be issued only in some specific denominations?
Not necessarily. RBI can issue notes of 5000, 10000 or any other denomination that the Central Government may specify, but not greater than 10000.


COINS
Indian coins have a different story. GoI has the sole right to mint coins  (NOT RBI), [not higher than Rs 100/-]. The dimensions, designs, composition, weights of coins are also responsibility of GoI (Indian Coinage Act).

One Rupee note is issued by Min. of Finance & bears sign of Finance Secretary.

The coins are issued for circulation only through RBI in terms of the RBI Act. The RBI places an annual indent for this purpose and GoI draws up the production programme for the 'India Government Mints' on the basis of the indent. The 'India-Govt-Mints' are at Mumbai, Alipore(Kolkata), saifabad(Hyderabad), Cherlapally (Hyderabad) and NOIDA (UP).


How does the currency reach to the people?
Notes are printed at 4 presses: Dewas(MP), Nasik (Maharashtra), Mysore (AP) & Salboni (WB) & coins at above centers. All the notes/coins travel by way of Rail/ Spl trucks accompanied by heavy Police force to RBI Offices & then to Currency chest branches (of your banks). Journey from these chest branches to individual non-chest neighborhood branch is carried out by the bank concerned.

Network of Notes Presses & Mints

Flow of new printed currency

All this involves heavy use of security, logistics, coordination & the cost of transferring to banks is borne by RBI.

What happened to torn, defaced, dirty currency?
Soiled notes (dirty, limp due to excessive use) & Mutilated notes (torn, disfigured, burnt, eaten by white ants, washed etc) are taken out of circulation. If you deposit such notes across counters in banks then they are kept separately from good notes & sent to RBI. RBI has statutory obligation to not to re-issue such torn, deface notes to public (s/27 of RBI Act).

Where do banks hoard currency?

Currency chests are stores where stocks of banknotes & coins are kept by banks on behalf of RBI. Its an extended arm of Issue Department. All PSU banks, 1 foreign bank (Stan Chart), 1 State Co-op bank (Rajasthan State Coop bank), 1 Regional Rural bank (Prathama Bank, Moradabad) have these chest branches. RBI has 1 Currency chest in Kochi.


How RBI oversees currency management function?
Issue Department
RBI has 2 major symbolic Depts a) Issue Dept & b) Banking dept.  Issue dept as name suggests oversees only currency issuance business of RBI and Banking dept deals with the banking system. The difference is just symbolic anyways as there are large linkages between the two.

This dept is given statutory role by RBI Act to manage currency.

"Department of Currency Management" in RBI attends to the core statutory function of note and coin issue and currency management. This dept do the forecasting the demand for fresh banknotes & coins, placing indent, receiving supplies & distributing them through network of currency chests.

Preamble and Management of RBI

RBI: established on 1 April 1935 under RBI act 1934 (on recommendations of John Hilton Young Commission 1926 - called Royal commission on Indian Currency & Finance). RBI used to be shareholder's bank, then nationalized w.e.f 1st Jan 1949.

Earlier SBI (Imperial bank of India) was conducting Central bank's functions.


Central office in Mumbai since 1937 (initially in Calcutta) formulates policies.


Preamble of RBI: "...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage."


Paid-up Capital of RBI: Rs. 5 crores



Management: RBI affairs are governed by Central Board of Directors, which is appointed by GOI under RBI act. It consists of:

1) Official Directors: 1 Governor (Dr. Raghuram Rajan), not more than 4 Dy. Governor appointed by GOI.

By convention out of 4 DGs 2 are promoted from within RBI ranks, 1 is economist & 1 is commercial banker. Right now the DGs are:

Sh. H.R. Khan, Dr. Urjit Patel, Sh. R. Gandhi.


2) Non-official Directors: 10 nominated by GOI from various fields & 2 Govt officials.


3) 4 Directors 1 each from Local boards.


Local Boards are situated at 4 metros their basic function is : "To advise the Central Board on local matters and to represent territorial and economic interests of local cooperative and indigenous banks..."

For present list of Governor, Dy. Governors, Directors click here.

buy Mutural funds with 50000 cash

SEBI has decided to increase the limit of cash transactions in mutual funds from the existing limit of Rs 20,000 per investor, per mutual fund, per financial year to Rs 50,000/-.

Reason: To expand the reach of mutual funds in hinterland.

Financial Inclusion in India

Why Financial Inclusion?

Financial inclusion (FI) means delivery of banking services at an affordable cost. Banking services = public good. So availability of banking and payment services to the entire population needs to be given without discrimination. It includes getting cheaper loans, Insurance (life, med, non-life, crop etc), Investment (Equity, MF, Pension plans etc).

Why?

Inculcate habit of saving in poor. Capital formation will get a boost.

Adequate, transparent & cheaper credits/ loans - will raise entrepreneurial spirit in poor people & result in prosperity.

Plug gaps & leaks in public subsidies & welfare progs. A study by McKinsey estimated that Rs. 1 lac crore could be saved each year in terms of manpower/time/ paperwork/ leaks if all govt subsidy/ benefit payments are done via e-payments.

Inequality falls more rapidly in areas that have more developed financial intermediaries = Empowerment.

Economic well being = social harmony. Bring Govt closer to poor people. It'll help inclusive growth efforts, and reduce poverty. No brainwashing by extremist/ Maoist/ Sucessionist elements.


What is being done by RBI/ Govt.

Access to banking network

1. Post office has vast network. They open Savings, RD, FD accounts. Also  Insurance, investments in Mutual funds, Payment & remittance services is being provided.

2. RRBs, cooperative banks, primary agricultural societies established for delivers.

3. Lead bank schemes (1969): RBI assigns a district to a bank which is responsible for promoting banking services and financial literacy there.

4. Business Correspondents (BC) system: Banks extend their services to villagers with help of agents, where opening brick-mortar branch is not profitable.

5. Bhartiya mahila bank setup for women empowerment.

6. White label ATMs: 2/3rd of these ATMs to be opened in semi urban and rural areas.

7. Banks to open at least 25% of their new branches in unbanked rural centres.

8. No Frills accounts for poor people. Later renamed to Basic Savings Bank Deposit Account (BSBDA): with relaxed KYC norms.

Giving Access to Credit (Loans)

Priority sector lending targets to banks.
Microfinance, various schemes for Self-help groups by NABARD
Interest Subvention scheme for farmers.
General Purpose Credit Card (GCC) and Kisan Credit Card (KCC) to help people get loans easily.

Giving More Access to Investment

National Savings certificates
Public Provident Funds
New Pension Scheme (NPS), Swavalamban (for people in unorganised sector).
Rajiv Gandhi equity savings scheme (Investing in equity Market: for First timers, upto 50K).
Inflation indexed bonds

Giving Access to Insurance
1. By Post office: tie-up with LIC & its own - offering various schemes.
2. Rashtriya Swasthya Bima Yojana (for BPL families, biometric smart-card based - cashless insurance for hospitalisation in public as well private hospitals, avail inpatient medical care of up to Rs 30K).

3. Rajiv Gandhi Shilpi Swasthya Bima Yojana: by Union Ministry of Textiles, in association with ICICI Lombard (for Craft persons, total medical cover of Rs.15K, death and permanent/partial disability by accident Rs.1.00 lakh).

4. Aam Aadmi Bima Yojana: for landless agricultural families, those involved in 46 other trades including beedi workers, carpenters, cobblers, fishermen etc. Life cover of Rs. 30K for natural death, Rs. 75K for death due to accidents. Scholarship of Rs 100/- per month for 2 children.


A recent committee by RBI named "Nachiket Mor committee" had outlined an ambitious plan of achieving total Financial inclusion by 1/1/2016. It recommended NBFCs to play major role in FI. But its report are being put on back burner as RBI & Finance ministry are not comfortable with the idea of NBFCs getting status of banks (via Payment banks- to open SB a/c & Wholesale banks - to give loans) without obligation of CRR, SLR.

Banking History | Private banks

Birth of RBI
By early 30s, there were >1200 banks in India! With Great depression of 1930s, Indian banks started to collapse - so British Indian Govt set-up RBI to supervise over banks in 1934.

Post Independence
Target of banks were merchants, upper middle class. They were not aiding Five-year plans of GOI (like cheaper loans to farmers). They were owned by industrialists & their policies were meant for their benefit. Hence GOI started nationalizaling banks.

Nationalisation: 1955 SBI, 1969- 14 banks, 1980 - 6 banks. Now govt majority share holder, GOI can pick board-of-directors, policy of its choice.

=>Now Banks were forced to give loans at very cheap rates, recovery became an issue (no quick legal recource available at that time), RBI kept CRR & SLR high (15, 40 % resp) all this means banks are left with little money to lend. No business expansion leads to decline in exports, in some ways it lead to BOP crises of 1991.

Narsimhan Committee I (by GOI in 1991)

Bank licences: 1st Round (1993):10 licences given, out of which 6 are running successfully viz. ICICI, HDFC, UTI (Axis bank in 2007), IDBI, Indus, DCB. Four banks failed at various stages.


Narsimhan Committee II (1998)
Introduce VRS. Legal reforms in loan Recovery => SARFAESI 2002.
Computerization, Electronic fund transfers (ECS, NEFT, RTGS). Allow more private & foreign players.

New Bank licences 2nd round (2001): Kotak Mahindra, Yes Bank.
New Bank licences 3rd Round (2013-14: Given to 2 out of 25: IDFC, Bandhan.

Pro & Against arguments for New Pvt Banks can be read here.

Few takeaways are:

-> As per census 2011:
Only 67% of Urban households & 54% of rural households are getting banking services.

-> Existing banks not sufficient for 100% financial inclusion.
only one in two Indians have bank account
Only one in seven Indians gets loan from banks (others have to rely on money lenders who charge 36% compound interest rate!)

-> "Inside RBI this is seen as an Experiment. RBI wants local/ niche banks". Bandhan is a micro-finance company based in WB. Giving license to it is RBI's push for Financial Inclusion, where "Lead banks/ mainstream banks" have failed.

Equipped with a licence Bandhan can now raise money from public @ 6-7 % & lend it at 10-15% as against ~20-24% it charges now. Read full ET article here. Now it needs to be seen how a NBFC makes transition to becoming a bank & how successful  it'll be for the rural poor.

GI tag

1) Geographical Indicator tagging: More to be added.

Organizational Structure and Designing it

Que.What is "organisational structure". What are steps involved in designing the organisational structure. (RBI Grade B 2009 exam)


Organisations perform their functions to achieve set goals and objectives. Functions of government department’s are defined through their various acts. The structure, management and functions of organisations will differ due to the nature and type of the organisation as well as their respective goals and objectives.

A structure ensures the application of process, management and further creates a framework of order and command through which, the activities of the organisation can be planned, organised, directed and controlled.

Organisation structure (OS) is defined as "The logical arrangement of task and the network of relationships and roles among the various positions established to carry out the activities necessary to achieve the predetermined objectives of business". 

It is the pattern of relationships among various components or parts of the organisation which prescribes the relations among various activities and positions.

Internal Organisation structure constitutes the arteries and veins through which the blood of work flows in the body of Organisation. They are required for smooth functioning of day-to-day activities of organisation and increase their profitability.

Structures are designed as per the organisation's objectives and strategy. An organisation chart illustrates the organisational structure, it shows the way the chain of command works.

OS is arrangement of jobs & groups of jobs within an organisation.

Benefits of Good Organisation Structure (Important topic another question can be framed around it)
The structure of an organisation does not only affect the productivity and efficiency but also the morale and job satisfaction of the staff. According to Drucker, the correct design of the structure determines the organisational performance. Drucker says:

“Good organisation structure does not by itself produce good performance. But a poor organisation structure makes good performance impossible, no matter how good the individual managers may be. To improve organisation structure will therefore always improve performance”.

According to Child, the allocation of responsibilities, the grouping of functions, decision-making, coordination, control and reward, are all fundamental requirements for the continued operation of an organisation and the structure will affect how well these requirements are met.

The objectives of structures are to provide for:
The economic and efficient performance of the organisation;
The monitoring of activities;
Ensure accountability for areas of work performed;
The effective coordination of the various parts of the organisation;
Flexibility to respond to future demands and developments and to adapt to the ever changing external environment


Organisation structures can be broadly classified into the following forms:

Line Organisation Structure: Hierarchy derived from a scalar process. Organisation is quite simple in understanding and implementation. this does not offer scope for specialization. Authority flows downwards and responsibility upwards.

Line and Staff Organisation Structure: Staff personnel generally specialists in their fields advice line managers to perform their duties. Staff personnel have right to recommend, but have no authority.

Functional Organisation: Grouping of activities on the basis of functions required for the achievement of ultimate objectives.

Divisional Organisation Structure: Several fairly self-contained autonomous units were created. Each unit was headed by a manager and is directly accountable to the organisation.


Designing Organizational Structure
There is no best way to organize, the structure must take into account the current & possible future situations. Organizing doesn't imply extreme specialization which leads to work being tedious, uninteresting. For tasks to be specific doesn't mean it should be mechanical and limited. Jobs can be defined to be allow little or no personal leeway or giving widest discretion.

Organizing as a process requires several fundamentals be considered:

1) the structure must reflect objectives and plans of organisation because activities are derived from them.
2) it must reflect authority available to enterprise's management.
3) it must reflect its environment just like premises of plans. A good organisational structure can never remain static, an effective structure depends on situation.
4) grouping of activities and authority relationship must take into account people's limitations and customs. This is not to say structure should be designed around people/staff instead of goals.


Steps in designing structure
1. Establish the objectives of the organization

2. Formulating supporting objectives, policies and plans.

3. Identifying, analyzing, and classifying the activities necessary to accomplish these objectives.

4. Grouping these activities in light of the human and material resources available and the best way, under the circumstances, of using them. Groups could be based on function, area/geography or product or a matrix. Departmentalize the activities under groups. If it were not by departmentalization the limitation on no. of subordinates that can be directly managed would have restricted the size of organisations. Grouping activities and people into departments makes it possible to expand organisations infinitely, at least in theory.

5. Frame the key persons handling the top management positions. Delegating to the head of each group the authority necessary to perform the activities.

6. Define the way of communication, line of authority and control and responsibilities of designations,

7. Frame the organizational hierarchy keeping in mind whether decision-making need to be slow and centralized (Tall) or fast and decentralized (Flat)or a mix.

8. Follow up the performance and evaluate them often,

9. Make correction if necessary and update the structure.

The process can be shown by diagram as below: