RBI:
The Reserve Bank of India was established on April 1, 1935 in accordance
with the provisions of the RBI Act, 1934. RBI was nationalized in 1949 and it
is fully owned by the Government of India. RBI was established on the
recommendation of the Hilton Young Commission.
RBI’s FUNCTIONS:
- Issue of currency notes
- Controlling the monetary
policy
- Regulator and supervisor of
the financial system
- Banker to other banks
- Banker to the government
- Granting licenses to banks
- Control over NBFIs (Non
Banking Financial Institutions)
- Manager of Foreign Exchange
of India (also known as FOREX)
RBI & Monetary Policy:
Monetary policy refers to the use of instruments under the control of
the central bank to regulate the availability, cost and use of money and
credit.
The main objectives of monetary policy in India are:
- Maintaining price stability.
- Ensuring adequate flow of
credit to the productive sectors of the economy to support economic
growth.
- Financial stability.
There are several direct and indirect instruments that are used in the
formulation and implementation of monetary policy.
Direct instruments:
- Cash Reserve Ratio (CRR): The share of net demand and
time liabilities that banks must maintain as cash balance with the Reserve
Bank.
- Statutory Liquidity Ratio
(SLR): The
share of net demand and time liabilities that banks must maintain in safe
and liquid assets, such as government securities, cash and gold.
- Refinance facilities: Sector-specific refinance
facilities (e.g., against lending to export sector) provided to banks.
Indirect instruments:
- Liquidity Adjustment
Facility (LAF): Consists of daily infusion or absorption of
liquidity on a repurchase basis, through repo (liquidity injection) and
reverse repo (liquidity absorption) auction operations, using government
securities as collateral.
- Open Market Operations
(OMO): Outright
sales/purchases of government securities, in addition to LAF, as a tool to
determine the level of liquidity over the medium term.
- Market Stabilisation Scheme
(MSS): This
instrument for monetary management was introduced in 2004. Liquidity of a
more enduring nature arising from large capital flows is absorbed through
sale of short-dated government securities and treasury bills. The
mobilised cash is held in a separate government account with the Reserve
Bank.
- Repo/reverse repo
rate: These
rates under the Liquidity Adjustment Facility (LAF) determine the corridor
for short-term money market interest rates. In turn, this is expected to
trigger movement in other segments of the financial market and the real
economy.
- Bank rate: It is the rate at
which the Reserve Bank is ready to buy or rediscount bills of exchange or
other commercial papers. It also signals the medium-term stance of
monetary policy.
Some Key financial terms:
- APR: It stands for
Annual Percentage Rate. APR is a percentage that is calculated on the
basis of the amount financed, the finance charges, and the term of the
loan.
- ABS: Asset-Backed
Securities. It means a type of security that is backed by a pool of bank
loans, leases, and other assets.
- EPS: Earnings Per Share
means the amount of annual earnings available to common stockholders as
stated on a per share basis.
- CHAPS: Clearing House
Automated Payment System. It’s a type of electronic bank-to-bank payment
system that guarantees same-day payment.
- IPO: Initial Public
Offerings is defined as the event where the company sells its shares to
the public for the first time. (or the first sale of stock by a private
company to the public.)
- FPO: Follow on Public
Offerings: An issuing of shares to investors by a public company that is
already listed on an exchange. An FPO is essentially a stock issue of
supplementary shares made by a company that is already publicly listed and
has gone through the IPO process.(Difference: IPO is for the companies
which have not been listed on an exchange and FPO is for the companies
which have already been listed on an exchange but want to raise funds by
issuing some more equity shares.)
- RTGS: Real Time Gross
Settlement systems is a funds transfer system where transfer of money or
securities takes place from one bank to another on a “real time”. (‘Real
time’ means within a fraction of seconds.) The minimum amount to be
transferred through RTGS is Rs 2 lakh. Processing charges/Service charges
for RTGS transactions vary from bank to bank.
- NEFT: National Electronic
Fund Transfer. This is a method used for transferring funds across banks
in a secure manner. It usually takes 1-2 working days for the transfer to
happen. NEFT is an electronic fund transfer system that operates on a
Deferred Net Settlement (DNS) basis which settles transactions in batches.
(Note: RTGS is much faster than NEFT.)
- CAR: Capital Adequacy Ratio. It’s
a measure of a bank’s capital. Also known as “Capital to Risk Weighted
Assets Ratio (CRAR)”, this ratio is used to protect depositors and
promote the stability and efficiency of financial systems around the
world. It is decided by the RBI.
- NPA: Non-Performing Asset. It
means once the borrower has failed to make interest or principal payments
for 90 days, the loan is considered to be a non-performing asset.
Presently it is 2.39%.
- IMPS: Immediate Payment Service.
It is an instant interbank electronic fund transfer service through mobile
phones. Both the customers must have MMID (Mobile Money Identifier
Number). For this service, we don’t need any GPS-enabled cell phones.
- BCBS: Basel Committee on
Banking Supervision is an institution created by the Central Bank
governors of the Group of Ten nations.
- IFSC code: Indian Financial
System Code. The code consists of 11 characters for identifying the bank
and branch where the account in actually held. The IFSC code is used both
by the RTGS and NEFT transfer systems.
- MICR Code: Magnetic ink character
recognition (MICR) is a character-recognition technology used mainly by
the banking industry to ease the processing and clearance of cheques and
other documents. It is at the bottom of cheques and other vouchers
and typically includes the document-type indicator, bank code, bank account
number, cheque number, cheque amount, and a control indicator.
- MSME and SME: Micro Small and Medium
Enterprises (MSME), and SME stands for Small and Medium Enterprises. This
is an initiative of the government to drive and encourage small
manufacturers to enjoy facilities from banks at concessional rates.
- LIBOR: London InterBank
Offered Rate. An interest rate at which banks can borrow funds, in
marketable size, from other banks in the London interbank market.
- LIBID: London Interbank Bid
Rate. The average interest rate at which major London banks borrow
Eurocurrency deposits from other banks.
- ECGC: Export Credit
Guarantee Corporation of India. This organisation provides risk as well as
insurance cover to the Indian exporters.
- SWIFT: Society for Worldwide
Interbank Financial Telecommunication. It operates a worldwide financial
messaging network which exchanges messages between banks and other
financial institutions.
- STRIPS: Separate Trading for
Registered Interest & Principal Securities.
- CIBIL: Credit Information Bureau of
India Limited. CIBIL is India’s first credit information bureau. Whenever
a person applies for new loans or credit card(s) to a financial
institution, they generate the CIBIL report of the said person or concern
to judge the credit worthiness of the person and also to verify their
existing track record. CIBIL actually maintains the borrower’s history.
- CRISIL: Credit Rating
Information Services of India Limited. Crisil is a global analytical
company providing ratings, research, and risk and policy advisory
services.
Some Key
Financial Terms for Various Exams
APR: It stands for
Annual Percentage Rate. APR is a percentage that is calculated on the basis of
the amount financed, the finance charges, and the term of the loan.
ABS: Asset-Backed Securities. It means a type of security that is backed by a pool of bank loans, leases, and other assets.
EPS: Earnings Per Share means the amount of annual earnings available to common stockholders as stated on a per share basis.
CHAPS: Clearing House Automated Payment System. It’s a type of electronic bank-to-bank payment system that guarantees same-day payment.
IPO: Initial Public Offerings is defined as the event where the company sells its shares to the public for the first time. (or the first sale of stock by a private company to the public.)
FPO: Follow on Public Offerings: An issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.
Difference: IPO is for the companies which have not been listed on an exchange and FPO is for the companies which have already been listed on an exchange but want to raise funds by issuing some more equity shares.
RTGS: Real Time Gross Settlement systems is a funds transfer system where transfer of money or securities takes place from one bank to another on a “real time”. (‘Real time’ means within a fraction of seconds.) The minimum amount to be transferred through RTGS is Rs 2 lakh. Processing charges/Service charges for RTGS transactions vary from bank to bank.
NEFT: National Electronic Fund Transfer. This is a method used for transferring funds across banks in a secure manner. It usually takes 1-2 working days for the transfer to happen. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. (Note: RTGS is much faster than NEFT.)
CAR: Capital Adequacy Ratio. It’s a measure of a bank’s capital. Also known as “Capital to Risk Weighted Assets Ratio (CRAR)”, this ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. It is decided by the RBI.
NPA: Non-Performing Asset. It means once the borrower has failed to make interest or principal payments for 90 days, the loan is considered to be a non-performing asset. Presently it is 2.39%.
IMPS: Inter-bank Mobile Payment Service. It is an instant interbank electronic fund transfer service through mobile phones. Both the customers must have MMID (Mobile Money Identifier Number). For this service, we don’t need any GPS-enabled cell phones.
BCBS: Basel Committee on Banking Supervision is an institution created by the Central Bank governors of the Group of Ten nations.
RSI: Relative Strength Index.
IFSC code: Indian Financial System Code. The code consists of 11 characters for identifying the bank and branch where the account in actually held. The IFSC code is used both by the RTGS and NEFT transfer systems.
MSME and SME: Micro Small and Medium Enterprises (MSME), and SME stands for Small and Medium Enterprises. This is an initiative of the government to drive and encourage small manufacturers to enjoy facilities from banks at concessional rates.
LIBOR: London InterBank Offered Rate. An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.
LIBID: London Interbank Bid Rate. The average interest rate at which major London banks borrow Eurocurrency deposits from other banks.
ECGC: Export Credit Guarantee Corporation of India. This organisation provides risk as well as insurance cover to the Indian exporters.
SWIFT: Society for Worldwide Interbank Financial Telecommunication. It operates a worldwide financial messaging network which exchanges messages between banks and other financial institutions.
STRIPS: Separate Trading for Registered Interest & Principal Securities.
CIBIL: Credit Information Bureau of India Limited. CIBIL is India’s first credit information bureau. Whenever a person applies for new loans or credit card(s) to a financial institution, they generate the CIBIL report of the said person or concern to judge the credit worthiness of the person and also to verify their existing track record. CIBIL actually maintains the borrower’s history.
CRISIL: Credit Rating Information Services of India Limited. Crisil is a global analytical company providing ratings, research, and risk and policy advisory services.
AMFI: Association of Mutual Funds of India. AMFI is an apex body of all Asset Management Companies (AMCs) which have been registered with SEBI. (Note: AMFI is not a mutual funds regulator)
FCCB: Foreign Currency Convertible Bond. A type of convertible bond issued in a currency different from the issuer’s domestic currency.
CAC: Capital Account Convertibility. It is the freedom to convert local financial assets into foreign financial assets and vice versa. This means that capital account convertibility allows anyone to freely move from local currency into foreign currency and back, or in other words, transfer of money from current account to capital account.
BANCASSURANCE: Is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.
Balloon payment: Is a specific type of mortgage payment, and is named “balloon payment” because of the structure of the payment schedule. For balloon payments, the first several years of payments are smaller and are used to reduce the total debt remaining in the loan. Once the small payment term has passed (which can vary, but is commonly 5 years), the remainder of the debt is due - this final payment is the one known as the “balloon” payment, because it is larger than all of the previous payments.
CPSS: Committee on Payment and Settlement Systems
FCNR Accounts: Foreign Currency Non-Resident accounts are the ones that are maintained by NRIs in foreign currencies like USD, DM, and GBP.
M3 in banking: It’s a measure of money supply. It is the total amount of money available in an economy at a particular point in time.
OMO: Open Market Operations. The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Open market operations are the principal tools of monetary policy. RBI uses this tool in order to regulate the liquidity in economy.
Umbrella Fund: A type of collective investment scheme. A collective fund containing several sub-funds, each of which invests in a different market or country.
ECS: Electronic Clearing Facility is a type of direct debit.
Tobin tax: Suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another.
Z score is a term widely used in the banking field.
POS: Point Of Sale, also known as Point Of Purchase, a place where sales are made and also sales and payment information are collected electronically, including the amount of the sale, the date and place of the transaction, and the consumer’s account number.
LGD: Loss Given Default. Institutions such as banks will determine their credit losses through an analysis of the actual loan defaults.
Junk Bonds: Junk bonds are issued generally by smaller or relatively less well-known firms to finance their operations, or by large and well-known firms to fund leveraged buyouts. These bonds are frequently unsecured or partially secured, and they pay higher interest rates: 3 to 4 percentage points higher than the interest rate on blue chip corporate bonds of comparable maturity period.
ARM: Adjustable Rate Mortgage is basically a type of loan where the rate of index is calculated on the basis of the previously selected index rate.
ABO: Accumulated Benefit Obligation, ABO is a measure of liability of pension plan of an organisation and is calculated when the pension plan is terminated.
Absorption: A term related to real estate, it is a process of renting a real estate property which is newly built or recently approved.
AAA: A type of grade that is used to rate a particular bond. It is the highest rated bond that gives maximum returns at the time of maturity.
DSCR: Debt Service Coverage Ratio, DSCR is a financial ratio that measures the company’s ability to pay their debts.
FSDC: Financial Stability and Development Council, India’s apex body of the financial sector.
ITPO: India Trade Promotion Organisation is the nodal agency of the Government of India for promoting the country’s external trade.
FLCC: Financial Literacy and Counseling Centres.
ANBC: Adjusted Net Bank Credit is Net Bank Credit added to investments made by banks in non-SLR bonds.
Priority sector lending: Some areas or fields in a country depending on its economic condition or government interest are prioritised and are called priority sectors i.e. industry, agriculture.
M0, M1, M2 AND M3: These terms are nothing but money supply in banking field.
BIFR: Bureau of Industrial and Financial Reconstruction.
FRBM Act 2003: Fiscal Responsibility and Budget Management act was enacted by the Parliament of India to institutionalise financial discipline, reduce India’s fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget.
The main objectives of FRBM Act are:-
1. To reduce fiscal deficit.
2. To adopt prudent debt management.
3. To generate revenue surplus.
Gold Standard: A monetary system in which a country’s government allows its currency unit to be freely converted into fixed amounts of gold and vice versa.
Fiat Money: Fiat money is a legal tender for settling debts. It is a paper money that is not convertible and is declared by government to be legal tender for the settlement of all debts.
BCSBI: The Banking Codes and Standards Board of India is a society registered under the Societies Registration Act, 1860 and functions as an autonomous body, to monitor and assess the compliance with codes and minimum standards of service to individual customers to which the banks agree to.
OLTAS: On-Line Tax Accounting System.
EASIEST: Electronic Accounting System in Excise and Service Tax.
SOFA: Status of Forces Agreement, SOFA is an agreement between a host country and a foreign nation stationing forces in that country.
CALL MONEY: Money loaned by a bank that must be repaid on demand. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule. Brokerages use call money as a short-term source of funding to cover margin accounts or the purchase of securities. The funds can be obtained quickly.
Scheduled bank: Scheduled Banks in India constitute those banks which have been included in the Second Schedule of RBI Act, 1934 as well as their market capitalisation is more than Rs 5 lakh. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.
FEDAI: Foreign Exchange Dealers Association of India. An association of banks specialising in the foreign exchange activities in India.
PPF: Public Provident Fund. The Public Provident Fund Scheme is a statutory scheme of the Central Government of India. The scheme is for 15 years. The minimum deposit is Rs 500 and maximum is Rs 70,000 in a financial year.
SEPA: Single Euro Payment Area.
GAAP: Generally Accepted Accounting Principles. The common set of accounting principles, standards and procedures that companies use to compile their financial statements.
Indian Depository Receipt: Foreign companies issue their shares and in return they get the depository receipt from the National Security Depository in return of investing in India.
Hot Money: Money that is moved by its owner quickly from one form of investment to another, as to take advantage of changing international exchange rates or gain high short-term returns on investments.
NMCEX: National Multi-Commodity Exchange.
PE RATIO: Price to Earnings Ratio, a measure of how much investors are willing to pay for each dollar of a company’s reported profits.
CASA: Current Account, Savings Account.
CAMELS: CAMELS is a type of Bank Rating System. (C) stands for Capital Adequacy, (A) for Asset Quality, (M) for Management ,(E) for Earnings, (L) for Liquidity and (S) for Sensitivity to Market Risk.
OSMOS: Off-site Monitoring and Surveillance System.
Free market: A market economy based on supply and demand with little or no government control.
Retail banking: It is mass-market banking in which individual customers use local branches of larger commercial banks.
Eurobond: A bond issued in a currency other than the currency of the country or market in which it is issued.
PPP: Purchasing Power Parity is an economic technique used when attempting to determine the relative values of two currencies.
FEMA Act: Foreign Exchange Management Act, it is useful in controlling HAWALA.
Hawala transaction: It’s a process in which large amount of black money is converted into white.
Teaser Loans: It’s a type of home loans in which the interest rate is initially low and then grows higher. Teaser loans are also called terraced loans.
ECB: External Commercial Borrowings, taking a loan from another country. Limit of ECB is $500 million, and this is the maximum limit a company can get.
CBS: Core Banking Solution. All the banks are connected through internet, meaning we can have transactions from any bank and anywhere. (e.g. deposit cash in PNB, Delhi branch and withdraw cash from PNB, Gujarat)
CRAR: For RRB’s it is more than 9% (funds allotted 500 cr) and for commercial banks it is greater than 8% (6000 cr relief package).
NBFCs: NBFC is a company which is registered under Companies Act, 1956 and whose main function is to provide loans. NBFC cannot accept deposit or issue demand draft like other commercial banks. NBFCs registered with RBI have been classified as AssetFinance Company (AFC), Investment Company (IC) and Loan Company (LC).
IIFCL: India Infrastructure Finance Company Limited. It gives guarantee to infra bonds.
IFPRI: International Food Policy Research Institute. It identifies and analyses policies for meeting the food needs of the developing world.
Currency swap: It is a foreign-exchange agreement between two parties to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency. Currency swap is an instrument to manage cash flows in different currency.
WPI: Wholesale Price Index is an index of the prices paid by retail stores for the products they ultimately resell to consumers. New series is 2004 2005. (The new series has been prepared by shifting the base year from 1993-94 to 2004-05). Inflation in India is measured on WPI index.
MAT: Minimum Alternate Tax is the minimum tax to be paid by a company even though the company is not making any profit.
Future trading: It’s a future contract/agreement between the buyers and sellers to buy and sell the underlying assets in the future at a predetermined price.
Reverse mortgage: It’s a scheme for senior citizens.
Basel 2nd norms: BCBS has kept some restrictions on bank for the maintenance of minimum capital with them to ensure level playing field. Basel II has got three pillars:
ABS: Asset-Backed Securities. It means a type of security that is backed by a pool of bank loans, leases, and other assets.
EPS: Earnings Per Share means the amount of annual earnings available to common stockholders as stated on a per share basis.
CHAPS: Clearing House Automated Payment System. It’s a type of electronic bank-to-bank payment system that guarantees same-day payment.
IPO: Initial Public Offerings is defined as the event where the company sells its shares to the public for the first time. (or the first sale of stock by a private company to the public.)
FPO: Follow on Public Offerings: An issuing of shares to investors by a public company that is already listed on an exchange. An FPO is essentially a stock issue of supplementary shares made by a company that is already publicly listed and has gone through the IPO process.
Difference: IPO is for the companies which have not been listed on an exchange and FPO is for the companies which have already been listed on an exchange but want to raise funds by issuing some more equity shares.
RTGS: Real Time Gross Settlement systems is a funds transfer system where transfer of money or securities takes place from one bank to another on a “real time”. (‘Real time’ means within a fraction of seconds.) The minimum amount to be transferred through RTGS is Rs 2 lakh. Processing charges/Service charges for RTGS transactions vary from bank to bank.
NEFT: National Electronic Fund Transfer. This is a method used for transferring funds across banks in a secure manner. It usually takes 1-2 working days for the transfer to happen. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. (Note: RTGS is much faster than NEFT.)
CAR: Capital Adequacy Ratio. It’s a measure of a bank’s capital. Also known as “Capital to Risk Weighted Assets Ratio (CRAR)”, this ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. It is decided by the RBI.
NPA: Non-Performing Asset. It means once the borrower has failed to make interest or principal payments for 90 days, the loan is considered to be a non-performing asset. Presently it is 2.39%.
IMPS: Inter-bank Mobile Payment Service. It is an instant interbank electronic fund transfer service through mobile phones. Both the customers must have MMID (Mobile Money Identifier Number). For this service, we don’t need any GPS-enabled cell phones.
BCBS: Basel Committee on Banking Supervision is an institution created by the Central Bank governors of the Group of Ten nations.
RSI: Relative Strength Index.
IFSC code: Indian Financial System Code. The code consists of 11 characters for identifying the bank and branch where the account in actually held. The IFSC code is used both by the RTGS and NEFT transfer systems.
MSME and SME: Micro Small and Medium Enterprises (MSME), and SME stands for Small and Medium Enterprises. This is an initiative of the government to drive and encourage small manufacturers to enjoy facilities from banks at concessional rates.
LIBOR: London InterBank Offered Rate. An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market.
LIBID: London Interbank Bid Rate. The average interest rate at which major London banks borrow Eurocurrency deposits from other banks.
ECGC: Export Credit Guarantee Corporation of India. This organisation provides risk as well as insurance cover to the Indian exporters.
SWIFT: Society for Worldwide Interbank Financial Telecommunication. It operates a worldwide financial messaging network which exchanges messages between banks and other financial institutions.
STRIPS: Separate Trading for Registered Interest & Principal Securities.
CIBIL: Credit Information Bureau of India Limited. CIBIL is India’s first credit information bureau. Whenever a person applies for new loans or credit card(s) to a financial institution, they generate the CIBIL report of the said person or concern to judge the credit worthiness of the person and also to verify their existing track record. CIBIL actually maintains the borrower’s history.
CRISIL: Credit Rating Information Services of India Limited. Crisil is a global analytical company providing ratings, research, and risk and policy advisory services.
AMFI: Association of Mutual Funds of India. AMFI is an apex body of all Asset Management Companies (AMCs) which have been registered with SEBI. (Note: AMFI is not a mutual funds regulator)
FCCB: Foreign Currency Convertible Bond. A type of convertible bond issued in a currency different from the issuer’s domestic currency.
CAC: Capital Account Convertibility. It is the freedom to convert local financial assets into foreign financial assets and vice versa. This means that capital account convertibility allows anyone to freely move from local currency into foreign currency and back, or in other words, transfer of money from current account to capital account.
BANCASSURANCE: Is the term used to describe the partnership or relationship between a bank and an insurance company whereby the insurance company uses the bank sales channel in order to sell insurance products.
Balloon payment: Is a specific type of mortgage payment, and is named “balloon payment” because of the structure of the payment schedule. For balloon payments, the first several years of payments are smaller and are used to reduce the total debt remaining in the loan. Once the small payment term has passed (which can vary, but is commonly 5 years), the remainder of the debt is due - this final payment is the one known as the “balloon” payment, because it is larger than all of the previous payments.
CPSS: Committee on Payment and Settlement Systems
FCNR Accounts: Foreign Currency Non-Resident accounts are the ones that are maintained by NRIs in foreign currencies like USD, DM, and GBP.
M3 in banking: It’s a measure of money supply. It is the total amount of money available in an economy at a particular point in time.
OMO: Open Market Operations. The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Open market operations are the principal tools of monetary policy. RBI uses this tool in order to regulate the liquidity in economy.
Umbrella Fund: A type of collective investment scheme. A collective fund containing several sub-funds, each of which invests in a different market or country.
ECS: Electronic Clearing Facility is a type of direct debit.
Tobin tax: Suggested by Nobel Laureate economist James Tobin, was originally defined as a tax on all spot conversions of one currency into another.
Z score is a term widely used in the banking field.
POS: Point Of Sale, also known as Point Of Purchase, a place where sales are made and also sales and payment information are collected electronically, including the amount of the sale, the date and place of the transaction, and the consumer’s account number.
LGD: Loss Given Default. Institutions such as banks will determine their credit losses through an analysis of the actual loan defaults.
Junk Bonds: Junk bonds are issued generally by smaller or relatively less well-known firms to finance their operations, or by large and well-known firms to fund leveraged buyouts. These bonds are frequently unsecured or partially secured, and they pay higher interest rates: 3 to 4 percentage points higher than the interest rate on blue chip corporate bonds of comparable maturity period.
ARM: Adjustable Rate Mortgage is basically a type of loan where the rate of index is calculated on the basis of the previously selected index rate.
ABO: Accumulated Benefit Obligation, ABO is a measure of liability of pension plan of an organisation and is calculated when the pension plan is terminated.
Absorption: A term related to real estate, it is a process of renting a real estate property which is newly built or recently approved.
AAA: A type of grade that is used to rate a particular bond. It is the highest rated bond that gives maximum returns at the time of maturity.
DSCR: Debt Service Coverage Ratio, DSCR is a financial ratio that measures the company’s ability to pay their debts.
FSDC: Financial Stability and Development Council, India’s apex body of the financial sector.
ITPO: India Trade Promotion Organisation is the nodal agency of the Government of India for promoting the country’s external trade.
FLCC: Financial Literacy and Counseling Centres.
ANBC: Adjusted Net Bank Credit is Net Bank Credit added to investments made by banks in non-SLR bonds.
Priority sector lending: Some areas or fields in a country depending on its economic condition or government interest are prioritised and are called priority sectors i.e. industry, agriculture.
M0, M1, M2 AND M3: These terms are nothing but money supply in banking field.
BIFR: Bureau of Industrial and Financial Reconstruction.
FRBM Act 2003: Fiscal Responsibility and Budget Management act was enacted by the Parliament of India to institutionalise financial discipline, reduce India’s fiscal deficit, improve macroeconomic management and the overall management of the public funds by moving towards a balanced budget.
The main objectives of FRBM Act are:-
1. To reduce fiscal deficit.
2. To adopt prudent debt management.
3. To generate revenue surplus.
Gold Standard: A monetary system in which a country’s government allows its currency unit to be freely converted into fixed amounts of gold and vice versa.
Fiat Money: Fiat money is a legal tender for settling debts. It is a paper money that is not convertible and is declared by government to be legal tender for the settlement of all debts.
BCSBI: The Banking Codes and Standards Board of India is a society registered under the Societies Registration Act, 1860 and functions as an autonomous body, to monitor and assess the compliance with codes and minimum standards of service to individual customers to which the banks agree to.
OLTAS: On-Line Tax Accounting System.
EASIEST: Electronic Accounting System in Excise and Service Tax.
SOFA: Status of Forces Agreement, SOFA is an agreement between a host country and a foreign nation stationing forces in that country.
CALL MONEY: Money loaned by a bank that must be repaid on demand. Unlike a term loan, which has a set maturity and payment schedule, call money does not have to follow a fixed schedule. Brokerages use call money as a short-term source of funding to cover margin accounts or the purchase of securities. The funds can be obtained quickly.
Scheduled bank: Scheduled Banks in India constitute those banks which have been included in the Second Schedule of RBI Act, 1934 as well as their market capitalisation is more than Rs 5 lakh. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (6) (a) of the Act.
FEDAI: Foreign Exchange Dealers Association of India. An association of banks specialising in the foreign exchange activities in India.
PPF: Public Provident Fund. The Public Provident Fund Scheme is a statutory scheme of the Central Government of India. The scheme is for 15 years. The minimum deposit is Rs 500 and maximum is Rs 70,000 in a financial year.
SEPA: Single Euro Payment Area.
GAAP: Generally Accepted Accounting Principles. The common set of accounting principles, standards and procedures that companies use to compile their financial statements.
Indian Depository Receipt: Foreign companies issue their shares and in return they get the depository receipt from the National Security Depository in return of investing in India.
Hot Money: Money that is moved by its owner quickly from one form of investment to another, as to take advantage of changing international exchange rates or gain high short-term returns on investments.
NMCEX: National Multi-Commodity Exchange.
PE RATIO: Price to Earnings Ratio, a measure of how much investors are willing to pay for each dollar of a company’s reported profits.
CASA: Current Account, Savings Account.
CAMELS: CAMELS is a type of Bank Rating System. (C) stands for Capital Adequacy, (A) for Asset Quality, (M) for Management ,(E) for Earnings, (L) for Liquidity and (S) for Sensitivity to Market Risk.
OSMOS: Off-site Monitoring and Surveillance System.
Free market: A market economy based on supply and demand with little or no government control.
Retail banking: It is mass-market banking in which individual customers use local branches of larger commercial banks.
Eurobond: A bond issued in a currency other than the currency of the country or market in which it is issued.
PPP: Purchasing Power Parity is an economic technique used when attempting to determine the relative values of two currencies.
FEMA Act: Foreign Exchange Management Act, it is useful in controlling HAWALA.
Hawala transaction: It’s a process in which large amount of black money is converted into white.
Teaser Loans: It’s a type of home loans in which the interest rate is initially low and then grows higher. Teaser loans are also called terraced loans.
ECB: External Commercial Borrowings, taking a loan from another country. Limit of ECB is $500 million, and this is the maximum limit a company can get.
CBS: Core Banking Solution. All the banks are connected through internet, meaning we can have transactions from any bank and anywhere. (e.g. deposit cash in PNB, Delhi branch and withdraw cash from PNB, Gujarat)
CRAR: For RRB’s it is more than 9% (funds allotted 500 cr) and for commercial banks it is greater than 8% (6000 cr relief package).
NBFCs: NBFC is a company which is registered under Companies Act, 1956 and whose main function is to provide loans. NBFC cannot accept deposit or issue demand draft like other commercial banks. NBFCs registered with RBI have been classified as AssetFinance Company (AFC), Investment Company (IC) and Loan Company (LC).
IIFCL: India Infrastructure Finance Company Limited. It gives guarantee to infra bonds.
IFPRI: International Food Policy Research Institute. It identifies and analyses policies for meeting the food needs of the developing world.
Currency swap: It is a foreign-exchange agreement between two parties to exchange aspects (namely the principal and/or interest payments) of a loan in one currency for equivalent aspects of an equal in net present value loan in another currency. Currency swap is an instrument to manage cash flows in different currency.
WPI: Wholesale Price Index is an index of the prices paid by retail stores for the products they ultimately resell to consumers. New series is 2004 2005. (The new series has been prepared by shifting the base year from 1993-94 to 2004-05). Inflation in India is measured on WPI index.
MAT: Minimum Alternate Tax is the minimum tax to be paid by a company even though the company is not making any profit.
Future trading: It’s a future contract/agreement between the buyers and sellers to buy and sell the underlying assets in the future at a predetermined price.
Reverse mortgage: It’s a scheme for senior citizens.
Basel 2nd norms: BCBS has kept some restrictions on bank for the maintenance of minimum capital with them to ensure level playing field. Basel II has got three pillars:
- Pillar 1- Minimum capital
requirement based on the risk profile of bank.
- Pillar 2- Supervisory review
of banks by RBI if they go for internal ranking.
- Pillar 3- Market discipline.
Microfinance institutions: Those institutions that provide financial services to low-income clients. Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients.
NPCI: National Payments Corporation of India.
DWBIS: Data Warehousing and Business Intelligence System, a type of system which is launched by SEBI. The primary objective of DWBIS is to enhance the capability of the investigation and surveillance functions of SEBI.
TRIPS: Trade Related Intellectual Property Rights is an international agreement administered by the World Trade Organisation (WTO) that sets down minimum standards for many forms of intellectual property (IP) regulation as applied to nationals of other WTO Members.
TRIMs: Trade Related Investment Measures. A type of agreement in WTO.
SDR: Special Drawing Rights, SDR is a type of monetary reserve currency, created by the International Monetary Fund. SDR can be defined as a “basket of national currencies”. These national currencies are Euro, US dollar, British pound and Japanese yen. Special Drawing Rights can be used to settle trade balances between countries and to repay the IMF. American dollar gets highest weightage.
LTD: Loan-To-Deposit Ratio. A ratio used for assessing a bank’s liquidity by dividing the bank’s total loans by its total deposits. If the ratio is too high, it means that banks might not have enough liquidity to cover any fund requirements, and if the ratio is too low, banks may not be earning as much as they could be.
CAD: Current Account Deficit. It means when a country’s total imports of goods, services and transfers is greater than the country’s total export of goods, services and transfers.
LERMS: Liberalized Exchange Rate Management System.
FRP: Fair and Remunerative Price, a term related to sugarcane. FRP is the minimum price that a sugarcane farmer is legally guaranteed. However sugar Mills Company gives more than FRP price.
STCI: Securities Trading Corporation of India Limited was promoted by the Reserve Bank of India (RBI) in 1994 along with Public Sector Banks and All India Financial Institutions with the objective of developing an active, deep and vibrant secondary debt market.
IRR: Internal Rate of Return. It is a rate of return used in capital budgeting to measure and compare the profitability of investments.
CMIE: Centre for Monitoring Indian Economy. It is India’s premier economic research organisation. It provides information solutions in the form of databases and research reports. CMIE has built the largest database on the Indian economy and companies.
TIEA: Tax Information Exchange Agreement. TIEA allows countries to check tax evasion and money laundering. Recently India has signed TIEA with Cayman Islands.
Contingency Fund: It’s a fund for emergencies or unexpected outflows, mainly economic crises. A type of reserve fund which is used to handle unexpected debts that are outside the range of the usual operating budget.
FII: Foreign Institutional Investment. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market.
P-NOTES: “P” means participatory notes.
MSF: Marginal Standing Facility. Under this scheme, banks will be able to borrow upto 1% of their respective net demand and time liabilities. The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.
FIU: Financial Intelligence Unit set by the Government of India on 18 November 2004 as the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions.
SEBI: Securities and Exchange Board of India. SEBI is the primary governing/regulatory body for the securities market in India. All transactions in the securities market in India are governed and regulated by SEBI. Its main functions are:
1. New issues (Initial Public Offering or IPO)
2. Listing agreement of companies with stock exchanges
3. Trading mechanisms 4. Investor protection
5. Corporate disclosure by listed companies etc.
Note: SEBI is also known as capital regulator or mutual funds regulator or market regulator. SEBI also created investors protection fund and SEBI is the only organization which regulates the credit rating agencies in India. (CRISIL and CIBIL).
ASBA: Application Supported by Blocked Amount. It is a process developed by the SEBI for applying to IPO. In ASBA, an IPO applicant’s account doesn’t get debited until shares are allotted to him.
DEPB Scheme: Duty Entitlement Pass Book. It is a scheme which is offered by the Indian government to encourage exports from the country. DEPB means Duty Entitlement Pass Book to neutralise the incidence of basic and special customs duty on import content of export product.
LLP: Limited Liability Partnership, is a partnership in which some or all partners (depending on the jurisdiction) have limited liability.
Balance sheet: A financial statement that summarises a company’s assets, liabilities and shareholders’ equity at a specific point in time.
TAN: Tax Account Number, is a unique 10-digit alphanumeric code allotted by the Income Tax Department to all those persons who are required to deduct tax at the source of income.
PAN: Permanent Account Number, as per section 139A of the Act obtaining PAN is a must for the following persons:-
1. Any person whose total income or the total income of any other person in respect of which he is assessable under the Act exceeds the maximum amount which is not chargeable to tax.
2. Any person who is carrying on any business or profession whose total sales, turnover or gross receipts are or are likely to exceed Rs. 5 lakh in any previous year.
3. Any person who is required to furnish a return of income under section 139(4) of the Act.
JLG: Joint Liability Group, when two or more persons are both responsible for a debt, claim or judgment.
REER: Real Effective Exchange Rate.
NEER: Nominal Effective Exchange Rate.
Contingent Liability: A liability that a company may have to pay, but only if a certain future event occurs.
IRR: Internal Rate of Return, is a rate of return used in capital budgeting to measure and compare the profitability of investments.
MICR: Magnetic Ink Character Recognition. A 9-digit code which actually shows whether the cheque is real or fake.
UTR Number: Unique Transaction Reference number. A unique number which is generated for every transaction in RTGS system. UTR is a 16-digit alphanumeric code. The first 4 digits are a bank code in alphabets, the 5th one is the message code, the 6th and 7th mention the year, the 8th to 10th mentions the date and the last 6 digits mention the day’s serial number of the message.
RRBs: Regional Rural Banks. As its name signifies, RRBs are specially meant for rural areas, capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank.
MFI: Micro Finance Institutions. Micro Finance means providing credit/loan (micro credit) to the weaker sections of the society. A microfinance institution (MFI) is an organisation that provides financial services to the poor.
PRIME LENDING RATE: PLR is the rate at which commercial banks give loans to its prime customers (most creditworthy customers).
BASE RATE: A minimum rate that a bank is allowed to charge from the customer. Base rate differs from bank to bank. It is actually a minimum rate below which the bank cannot give loan to any customer. Earlier base rate was known as BPLR (Base Prime Lending Rate).
EMI: Equated Monthly Installment. It is nothing but a repayment of the loan taken. A loan could be a home loan, car loan or personal loan. The monthly payment is in the form of post dated cheques drawn in favour of the lender. EMI is directly proportional to the loan taken and inversely proportional to time period. That is, if the loan amount increases the EMI amount also increases and if the time period increases the EMI amount decreases.
Basis points (bps): A basis point is a unit equal to 1/100th of a percentage point. i.e. 1 bps = 0.01%. Basis points are often used to measure changes in or differences between yields on fixed income securities, since these often change by very small amounts.
Liquidity: It refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset.
Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form for funds deposited at a bank or other eligible financial institution for a specified time period.
Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990. Corporates and the All-India Financial Institutions are eligible to issue CP.
Some Basic
Banking Terms
1) RBI –
The Reserve Bank of India is the apex bank of the country, which was
constituted under the RBI Act, 1934 to regulate the other banks, issue of bank
notes and maintenance of reserves with a view to securing the monetary
stability in India.
2) Demand Deposit – A Demand deposit is the one which can be withdrawn at any time, without any notice or penalty; e.g. money deposited in a checking account or savings account in a bank.
3) Time Deposit – Time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term.
4) Fixed Deposits – FDs are the deposits that are repayable on fixed maturity date along with the principal and agreed interest rate for the period. Banks pay higher interest rates on FDs than the savings bank account.
5) Recurring Deposits – These are also called cumulative deposits and in recurring deposit accounts, a certain amounts of savings are required to be compulsorily deposited at specific intervals for a specified period.
6) Savings Account – Savings account is an account generally maintained by retail customers that deposit money (i.e. their savings) and can withdraw them whenever they need. Funds in these accounts are subjected to low rates of interest.
7) Current Accounts – These accounts are maintained by the corporate clients that may be operated any number of times in a day. There is a maintenance charge for the current accounts for which the holders enjoy facilities of easy handling, overdraft facility etc.
8) FCNR Accounts – Foreign Currency Non-Resident accounts are the ones that are maintained by the NRIs in foreign currencies like USD, DM, and GBP etc. The account is a term deposit with interest rates linked to the international rates of interest of the respective currencies.
9) NRE Accounts – Non-Resident External accounts are the ones in which NRIs remit money in any permitted foreign currency and the remittance is converted to Indian rupees for credit to NRE accounts. The accounts can be in the form of current, saving, FDs, recurring deposits. The interest rates and other terms of these accounts are as per the RBI directives.
10) Cheque Book - A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank with your account number, sort-code and cheque number printed on it. The account number distinguishes your account from other accounts; the sort-code is your bank's special code which distinguishes it from any other bank.
11) Cheque Clearing - This is the process of getting the money from the cheque-writer's account into the cheque receiver's account.
12) Clearing Bank - This is a bank that can clear funds between banks. For general purposes, this is any institution which we know of as a bank or as a provider of banking services.
13) Bounced Cheque - when the bank has not enough funds in the relevant account or the account holder requests that the cheque is bounced (under exceptional circumstances) then the bank will return the cheque to the account holder.
14) Credit Rating - This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual's credit history, the details of which are available from specialist organisations like CRISIL in India.
15) Credit-Worthiness - This is the judgement of an organization which is assessing whether or not to take a particular individual on as a customer. An individual might be considered credit-worthy by one organisation but not by another. Much depends on whether an organization is involved with high risk customers or not.
16) Interest - The amount paid or charged on money over time. If you borrow money interest will be charged on the loan. If you invest money, interest will be paid (where appropriate to the investment).
17) Overdraft - This is when a person has a minus figure in their account. It can be authorized (agreed to in advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because the account holder represents too great a risk to lend to in this way or because the account holder has not asked for an overdraft facility).
18) Payee - The person who receives a payment. This often applies to cheques. If you receive a cheque you are the payee and the person or company who wrote the cheque is the payer.
19) Payer - The person who makes a payment. This often applies to cheques. If you write a cheque you are the payer and the recipient of the cheque is the payee.
20) Security for Loans - Where large loans are required the lending institution often needs to have a guarantee that the loan will be paid back. This takes the form of a large item of capital outlay (typically a house) which is owned or partly owned and the amount owned is at least equivalent to the loan required.
21) Internet Banking - Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by the bank.
22) Credit Card - A credit card is one of the systems of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services.
23) Debit Card – Debit card allows for direct withdrawal of funds from customers bank accounts. The spending limit is determined by the available balance in the account.
24) Loan - A loan is a type of debt. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. There are different kinds of loan such as the house loan, auto loan etc.
25) Bank Rate - This is the rate at which central bank (RBI) lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa.
26) CRR - Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
27) SLR - SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits). It regulates the credit growth in India.
28) ATM - An automated teller machine (ATM) is a computerised telecommunications device that provides the clients with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip, that contains a unique card number and some security information such as an expiration date or CVV. Authentication is provided by the customer entering a personal identification number (PIN)
29) REPO RATE: - Under repo transaction the borrower places with the lender certain acceptable securities against funds received and agree to reverse this transaction on a predetermined future date at agreed interest cost. Repo rate is also called (repurchase agreement or repurchase option).
30) REVERSE REPO RATE: is the interest rate earned by the bank for lending money tothe RBI in exchange of govt. securities or "lender buys securities with agreement to sell them back at a predetermined rate".
31) CASH RESERVE RATIO: specifies the percentage of their total deposits the commercial bank must keep with central bank or RBI. Higher the CRR lower will be the capacity of bank to create credit.
32) SLR: known as Statutorily Liquidity Ratio. Each bank is required statutorily maintain a prescribed minimum proportion of its demand and time liabilities in the form of designated liquid asset.
OR
"Every bank has to maintain a percentage of its demand and time liabilities by way of cash, gold etc".
33) BANK RATE: is the rate of interest which is charged by RBI on its advances to commercial banks. When reserve bank desires to restrict expansion of credit it raises the bank rate there by making the credit costlier to commercial bank.
34) OVERDRAFT: It is the loan facility on customer current account at a bank permitting him to overdraw up to a certain agreed limit for a agreed period ,interest is payable only on the amount of loan taken up.
35) PRIME LENDING RATE: It is the rate at which commercial banks give loan to its prime customers.
36) IFSC: IFSC stands for Indian Financial System Code. It is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEFT system.
ii. This is an 11 digit code with the first 4 alpha characters representing the bank, The 5th character is 0 (zero) and the last 6 characters representing the bank branch.
iii. IFSC is used by the NEFT system to identify the originating / destination banks / branches and also to route the messages appropriately to the concerned banks / branches.
For ex: SBIN0015986 :
(a) First 4 character SBIN – refers to State Bank of India.
(b) 0 is a control number.
(c) Last six characters (015986) represents the SBI branch name.
37) MICR : MICR stands for Magnetic Ink Character Recognition. MICR Code is a 9 numeric digit code which uniquely identifies a bank branch participating in the ECS Credit scheme. MICR code consists of 9 digits e.g 400229128
i. First 3 digits represent the city (400)
ii. Next 3 digits represent the bank (229)
iii. Last 3 digits represent the branch (128)
The MICR Code allotted to a bank branch is printed on the MICR band of cheque leaves issued by bank branches.
38) Cheque Truncation:
i. Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch.
ii. In its place an electronic image of the cheque is transmitted to the drawee branch by the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.
iii. Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefiting the system as a whole.
2) Demand Deposit – A Demand deposit is the one which can be withdrawn at any time, without any notice or penalty; e.g. money deposited in a checking account or savings account in a bank.
3) Time Deposit – Time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term.
4) Fixed Deposits – FDs are the deposits that are repayable on fixed maturity date along with the principal and agreed interest rate for the period. Banks pay higher interest rates on FDs than the savings bank account.
5) Recurring Deposits – These are also called cumulative deposits and in recurring deposit accounts, a certain amounts of savings are required to be compulsorily deposited at specific intervals for a specified period.
6) Savings Account – Savings account is an account generally maintained by retail customers that deposit money (i.e. their savings) and can withdraw them whenever they need. Funds in these accounts are subjected to low rates of interest.
7) Current Accounts – These accounts are maintained by the corporate clients that may be operated any number of times in a day. There is a maintenance charge for the current accounts for which the holders enjoy facilities of easy handling, overdraft facility etc.
8) FCNR Accounts – Foreign Currency Non-Resident accounts are the ones that are maintained by the NRIs in foreign currencies like USD, DM, and GBP etc. The account is a term deposit with interest rates linked to the international rates of interest of the respective currencies.
9) NRE Accounts – Non-Resident External accounts are the ones in which NRIs remit money in any permitted foreign currency and the remittance is converted to Indian rupees for credit to NRE accounts. The accounts can be in the form of current, saving, FDs, recurring deposits. The interest rates and other terms of these accounts are as per the RBI directives.
10) Cheque Book - A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank with your account number, sort-code and cheque number printed on it. The account number distinguishes your account from other accounts; the sort-code is your bank's special code which distinguishes it from any other bank.
11) Cheque Clearing - This is the process of getting the money from the cheque-writer's account into the cheque receiver's account.
12) Clearing Bank - This is a bank that can clear funds between banks. For general purposes, this is any institution which we know of as a bank or as a provider of banking services.
13) Bounced Cheque - when the bank has not enough funds in the relevant account or the account holder requests that the cheque is bounced (under exceptional circumstances) then the bank will return the cheque to the account holder.
14) Credit Rating - This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual's credit history, the details of which are available from specialist organisations like CRISIL in India.
15) Credit-Worthiness - This is the judgement of an organization which is assessing whether or not to take a particular individual on as a customer. An individual might be considered credit-worthy by one organisation but not by another. Much depends on whether an organization is involved with high risk customers or not.
16) Interest - The amount paid or charged on money over time. If you borrow money interest will be charged on the loan. If you invest money, interest will be paid (where appropriate to the investment).
17) Overdraft - This is when a person has a minus figure in their account. It can be authorized (agreed to in advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because the account holder represents too great a risk to lend to in this way or because the account holder has not asked for an overdraft facility).
18) Payee - The person who receives a payment. This often applies to cheques. If you receive a cheque you are the payee and the person or company who wrote the cheque is the payer.
19) Payer - The person who makes a payment. This often applies to cheques. If you write a cheque you are the payer and the recipient of the cheque is the payee.
20) Security for Loans - Where large loans are required the lending institution often needs to have a guarantee that the loan will be paid back. This takes the form of a large item of capital outlay (typically a house) which is owned or partly owned and the amount owned is at least equivalent to the loan required.
21) Internet Banking - Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by the bank.
22) Credit Card - A credit card is one of the systems of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services.
23) Debit Card – Debit card allows for direct withdrawal of funds from customers bank accounts. The spending limit is determined by the available balance in the account.
24) Loan - A loan is a type of debt. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. There are different kinds of loan such as the house loan, auto loan etc.
25) Bank Rate - This is the rate at which central bank (RBI) lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa.
26) CRR - Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
27) SLR - SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits). It regulates the credit growth in India.
28) ATM - An automated teller machine (ATM) is a computerised telecommunications device that provides the clients with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip, that contains a unique card number and some security information such as an expiration date or CVV. Authentication is provided by the customer entering a personal identification number (PIN)
29) REPO RATE: - Under repo transaction the borrower places with the lender certain acceptable securities against funds received and agree to reverse this transaction on a predetermined future date at agreed interest cost. Repo rate is also called (repurchase agreement or repurchase option).
30) REVERSE REPO RATE: is the interest rate earned by the bank for lending money tothe RBI in exchange of govt. securities or "lender buys securities with agreement to sell them back at a predetermined rate".
31) CASH RESERVE RATIO: specifies the percentage of their total deposits the commercial bank must keep with central bank or RBI. Higher the CRR lower will be the capacity of bank to create credit.
32) SLR: known as Statutorily Liquidity Ratio. Each bank is required statutorily maintain a prescribed minimum proportion of its demand and time liabilities in the form of designated liquid asset.
OR
"Every bank has to maintain a percentage of its demand and time liabilities by way of cash, gold etc".
33) BANK RATE: is the rate of interest which is charged by RBI on its advances to commercial banks. When reserve bank desires to restrict expansion of credit it raises the bank rate there by making the credit costlier to commercial bank.
34) OVERDRAFT: It is the loan facility on customer current account at a bank permitting him to overdraw up to a certain agreed limit for a agreed period ,interest is payable only on the amount of loan taken up.
35) PRIME LENDING RATE: It is the rate at which commercial banks give loan to its prime customers.
36) IFSC: IFSC stands for Indian Financial System Code. It is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEFT system.
ii. This is an 11 digit code with the first 4 alpha characters representing the bank, The 5th character is 0 (zero) and the last 6 characters representing the bank branch.
iii. IFSC is used by the NEFT system to identify the originating / destination banks / branches and also to route the messages appropriately to the concerned banks / branches.
For ex: SBIN0015986 :
(a) First 4 character SBIN – refers to State Bank of India.
(b) 0 is a control number.
(c) Last six characters (015986) represents the SBI branch name.
37) MICR : MICR stands for Magnetic Ink Character Recognition. MICR Code is a 9 numeric digit code which uniquely identifies a bank branch participating in the ECS Credit scheme. MICR code consists of 9 digits e.g 400229128
i. First 3 digits represent the city (400)
ii. Next 3 digits represent the bank (229)
iii. Last 3 digits represent the branch (128)
The MICR Code allotted to a bank branch is printed on the MICR band of cheque leaves issued by bank branches.
38) Cheque Truncation:
i. Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch.
ii. In its place an electronic image of the cheque is transmitted to the drawee branch by the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc.
iii. Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefiting the system as a whole.
BANKING CONCEPTS :
Q1. What is RTGS System?
Ans. The acronym 'RTGS' stands for Real Time Gross Settlement, which
can be defined as the continuous (real-time) settlement of funds transfers individually
on an order by order basis (without netting). 'Real Time' means the processing
of instructions at the time they are received rather than at some later
time.'Gross Settlement' means the settlement of funds transfer instructions
occurs individually (on an instruction by instruction basis). Considering that
the funds settlement takes place in the books of the Reserve Bank of India, the
payments are final and irrevocable.
Q2. How RTGS is different from National Electronics Funds Transfer System (NEFT)?
Ans. NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place with all transactions received till the particular cut-off time. These transactions are netted (payable and receivables) in NEFT whereas in RTGS the transactions are settled individually. For example, currently, NEFT operates in hourly batches - there are eleven settlements from 9 am to 7 pm on week days and five settlements from 9 am to 1 pm on Saturdays. Any transaction initiated after a designated settlement time would have to wait till the next designated settlement time Contrary to this, in the RTGS transactions are processed continuously throughout the RTGS business hours.
Q3. Is there any minimum /
maximum amount stipulation for RTGS transactions?
Ans. The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is ` 2 lakh. There is no upper ceiling for RTGS transactions.
Ans. The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is ` 2 lakh. There is no upper ceiling for RTGS transactions.
Q4. What is the time taken
for effecting funds transfer from one account to another under RTGS?
Ans. Under normal circumstances the beneficiary branches are expected to receive the funds in real time as soon as funds are transferred by the remitting bank. The beneficiary bank has to credit the beneficiary's account within two hours of receiving the funds transfer message.
Ans. Under normal circumstances the beneficiary branches are expected to receive the funds in real time as soon as funds are transferred by the remitting bank. The beneficiary bank has to credit the beneficiary's account within two hours of receiving the funds transfer message.
Q5. Would the remitting
customer get back the money if it is not credited to the beneficiary's account?
When?
Ans. Yes.It is expected that the receiving bank will credit the account of the beneficiary instantly. If the money cannot be credited for any reason, the receiving bank would have to return the money to the remitting bank within 2 hours. Once the money is received back by the remitting bank, the original debit entry in the customer's account is reversed.
Ans. Yes.It is expected that the receiving bank will credit the account of the beneficiary instantly. If the money cannot be credited for any reason, the receiving bank would have to return the money to the remitting bank within 2 hours. Once the money is received back by the remitting bank, the original debit entry in the customer's account is reversed.
Q6. Till what time RTGS
service window is available?
Ans. The RTGS service window for customer's transactions is available from 9.00 hours to 16.30 hours on week days and from 9.00 hours to 13.30 hours on Saturdays for settlement at the RBI end. However, the timings that the banks follow may vary depending on the customer timings of the bank branches.
Ans. The RTGS service window for customer's transactions is available from 9.00 hours to 16.30 hours on week days and from 9.00 hours to 13.30 hours on Saturdays for settlement at the RBI end. However, the timings that the banks follow may vary depending on the customer timings of the bank branches.
Q7. What about Processing
Charges / Service Charges for RTGS transactions?
Ans. With a view to rationalize the service charges levied by banks for offering funds transfer through RTGS system, a broad framework has been mandated as under:
a) Inward transactions – Free, no charge to be levied.
b) Outward transactions –
Rs. 2 lakh to Rs. 5 lakh - not exceeding Rs. 30 per transaction.
Above Rs. 5 lakh - not exceeding Rs. 55 per transaction.
Ans. With a view to rationalize the service charges levied by banks for offering funds transfer through RTGS system, a broad framework has been mandated as under:
a) Inward transactions – Free, no charge to be levied.
b) Outward transactions –
Rs. 2 lakh to Rs. 5 lakh - not exceeding Rs. 30 per transaction.
Above Rs. 5 lakh - not exceeding Rs. 55 per transaction.
Q8. What is the essential
information that the remitting customer would have to furnish to a bank for the
remittance to be effected?
Ans. The remitting customer has to furnish the following information to a bank for effecting a RTGS remittance:
1. Amount to be remitted
2. Remitting customer’s account number which is to be debited
3. Name of the beneficiary bank
4. Name of the beneficiary customer
5. Account number of the beneficiary customer
6. Sender to receiver information, if any
7. The IFSC Number of the receiving branch
Ans. The remitting customer has to furnish the following information to a bank for effecting a RTGS remittance:
1. Amount to be remitted
2. Remitting customer’s account number which is to be debited
3. Name of the beneficiary bank
4. Name of the beneficiary customer
5. Account number of the beneficiary customer
6. Sender to receiver information, if any
7. The IFSC Number of the receiving branch
Q9. How would one know the
IFSC code of the receiving branch?
Ans. The beneficiary customer can obtain the IFSC code from his bank branch. The IFSC code is also available on the cheque leaf. This code number and bank branch details can be communicated by the beneficiary to the remitting customer.
Ans. The beneficiary customer can obtain the IFSC code from his bank branch. The IFSC code is also available on the cheque leaf. This code number and bank branch details can be communicated by the beneficiary to the remitting customer.
Q10. Do all bank branches in
India provide RTGS service?
Ans. No. All the bank branches in India are not RTGS enabled. As on September 29, 2011, there are more than 78,000 RTGS enabled bank branches
Ans. No. All the bank branches in India are not RTGS enabled. As on September 29, 2011, there are more than 78,000 RTGS enabled bank branches
- GDP: It is the money value
of all the final goods and services produced within the geographical
boundaries of the country during a given period of time.
- GNP: It refers to the money
value of total output or production of find goods and service produced by
the nationals of a country during a given period of time.
- Producers
Price Index: It
is the cost incurred by the producer in producing single unit in terms of
GDP. It does not include any indirect taxes.
- Credit
Control: By
credit control we mean to regulate the volume of credit created by banks
in India. It is the principal function of Reserve Bank of India. The basic
objective of credit control mechanism is to realize both price stability
and exchange stability in the economy. RBI uses two types of methods to
control credit: (i) Quantitative Methods, and (ii) Qualitative Methods.
1. Quantitative Measures are used to
control the volume of credit or indirectly to control inflationary and
deflationary pressures caused by expansion and contraction of credit. These are
also known as general credit measures. These consist of Bank Rate, Cash Reserve
Ratio, Statutory Liquidity Ratio and Open Market Operations.
2. Qualitative
Measures are used to control the quantum as well as purpose for which credits are
given by banks. RBI uses measures like Publicity, Rationing of Credit,
Regulation of consumer credit, Moral suasion and Variation in margin requirement
for qualitative credit control.
- Bank
Rate: Bank
rate is the rate at which the RBI is prepared to buy or re-discount
eligible bills of exchange or other commercial papers. In simple words,
bank rate is the rate at which RBI extends advises (Credit) to commercial
banks. A change in the bank rate will result in a change in the prime
lending rate of banks and thus act as an independent instrument of
monetary control.
- Cash
Reserve Ratio (CRR): Cash reserve ratio is the cash parked by
the banks in their specified current account maintained with RBI. In other
words, it is the percentage of deposit (both demand and time deposit)
which a bank has to keep with the RBI. RBI was empowered to vary the CRR
between 3% to 15%. But now there is no minimum limit of CRR in India but
the maximum limit is still retained at 15%. The purpose of reducing CRR is
to leave large cash reserve with banks so as to enable them to expand bank
credit. Similarly increasing of CRR means squeezing the cash reserve of
the banks and limits their credit providing capacity.
- Statutory
liquidity Ratio (SLR): Statutory liquidity ratio is the liquid
assets commercial banks maintain with the RBI in the form of cash (book
value), gold (current market value) and balances in unencumbered approved
securities. The maximum limit of SLR is 40% and minimum limit of SLR is
23% In India. RBI can change SLR from time to time. Both CRR and SLR
reduce or increase the capacity to expand credit to business and industry.
Thus both of these are anti-inflationary.
- Open
Market Operations (OMO): The buying and selling of eligible
securities in the money market by RBI for the purpose of curtailing or
expanding the volume of credit. By selling securities the RBI can absorb
funds, and buying the securities can release funds also into the market.
The purpose of OMO is to influence the volume of cash reserves with the
commercial banks and thus influence the volume of loans and advances they
can make to the industrial and commercial sector.
- Selective
Credit Controls: Under the Banking Regulation Act 1949,
section 21 empowers RBI to issue directives to the banking companies
regarding their advance in order to check speculation and rising prices.
The controls are selective as they are used to control and check the
rising tendency of price and hording of certain individual commodities of
common use. However, while imposing selective control, RBI takes care that
bank credit for production and transportation of commodities and exports
is not affected. These are mainly focused on credit to traders who use
such credit for financing hoarding and speculation. Since 1956-57 RBI is
employing this method.
- Prime
Lending Rate (PLR): It is rate of interest of which
commercial banks lend to their prime high profile blue chip corporate
borrowers. (From 1990’s banks are free to determine PLR).
- Repo
Rate: Repurchasing
option is traded in this market for a short time periods. Repo is
Repurchasing by RBI.
- Priority
Sector Lending: Priority sector refers to those sectors
of the economy which may not get timely and adequate credit in the absence
of this special dispensation. Typically, these are small value loans to
farmers for agriculture and allied activities, micro and small
enterprises, poor people for housing, students for education and other low
income groups and weaker sections.
- Market
Stabilization Scheme: It is a scheme under which RBI buys and
sells Government of India securities in order to control liquidity.
- Money in
Circulation: Money
in use to finance current transactions as distinct from idle money.
- Investment
Bank: A
Bank that provides long term fixed capital for industry, generally by
taking up shares in limited companies.
- Regional
Rural Bank: It
was established in 1975 under the provision of RRB Act 1976, with a view
to develop rural economy.
- Lead
Banking Scheme: Under this scheme all the nationalized banks
and few private sector banks were allowed specially and were asked to play
the “Lead Role”. The lead banks act as a leader to bring about
co-ordination of cooperative banks, commercial banks and other financial
institutions in their respective demises to bring about rapid economic
development.
- CAMELS: Capital Adequacy, Asset
Quality, Management, Earnings Liquidity and Systems.
- Capital
Adequacy Ratio (CAR): It is the ratio of total capital fund of
a bank to its risk weighted assets. It is an indicator of banks financial
health.
- Over
Heating of Economy: When the supply is not able to keep
phase with demand, it is as called over heating of economy. It leads to
inflation and shortage goods.
- Cost-push
Inflation: General
prices of goods and services in the economy rises due to an increase in
production cost. Such types of Inflation are caused by three factors (i)
an increase in wages, (ii) an increase in profit and (iii) imposition of
heavy tax.
- Demand-
pull inflation: The most common cause of inflation is
the pressure of ever-rising demand on a less rapidly increasing supply of
goods and services. The expansion in aggregate demand may be the result of
rapidly increasing private investment and/or spending government money for
war or for economic development.
- Forward
Market Commission: It is a regulatory body for commodity
futures, and forward trade in India. It was set up under Forward Contract
(Regulation) Act 1952. It’s headquarter is in Mumbai.
- CARE: Credit Analysis and
Research Ltd. It was started in November 1993. It was set up by IDBI.
- ICRA: Investment Information
and Credit Rating Agents of India Limited. It was established in 1991. It
primarily rates short, medium and long debt instruments. But, since 1995
it has been doing equity rating also.
- NSDL: National Securities
Depository Limited
- CDSL: Central Depository
Services Limited.
A brief of Capital Market
Financial Market-
Any marketplace where buyers and sellers participate in the trade of
assets such as equities, bonds, currencies and derivatives. Financial markets
are typically defined by having transparent pricing, basic regulations on
trading, costs and fees and market forces determining the prices of securities
that trade.
Money Market-
A segment of the financial market in which financial instruments with
high liquidity and for very short time are traded. The money market is used by
participants as a means for borrowing and lending in the short term, from
several days to just under a year. Money market securities consist of
negotiable certificates of deposit (CDs), Treasury bills, commercial paper and
repurchase agreements (repos).
Capital Market-
These are the financial market for buying and selling of funds for long
terms, these consists of Shares, Debentures, equities etc,
Capital market is regulated by- SEBI
(Securities and Exchange Board of India)
Lets understand Capital Market instruments in deep :
Capital Market consists of two main blocks, they are-
- Primary Market
- Secondary
Market
Primary Market (New Issue Market)-
A market that issues new securities on an exchange. Companies,
governments and other groups obtain financing through debt or equity based
securities.
Secondary Market-
Secondary market is basically a reselling market , Here the stocks that
are already sold in the primary market are resold mostly by the stockholders or
companies to gain more returns.
Mr. Bye Bye (rival of Tata) decided to enter in the Retail industry for
this he had 50 percent of funds with him, to raise the remaining amount he
decided to take the route of Primary market, He offered his company shares to
public and this step of offering the securities for the first time in the
Capital market is called as Initial Public Offering (IPO), He can raise the
money by the following means-
Bonds and Debentures –
The common man which invested in the bond agreement of Mr. Bye Bye’s
company will receive a bond/Debt agreement , this will say that the common man
will get the same amount of money plus interests by Mr. Bye after the specified
time limit . The person subscribing the Bond instrument does not have a
ownership in the company. As a debenture holder, you provide unsecured loan to
the company. It carries a higher rate of interest as the company does not give
any collateral to you for your money. For this reason bond holders receive a
lower rate of interest but are more secure.
Shares/Equities-
Companies usually divide their capital into small parts of equal value.
This smallest part is known as a share. Companies usually issue shares in the
public to raise capital. People who buy or are allotted shares are called
shareholders. If a person is subscribing the equities issued by Mr. Bye then he
will get the same amount of money that he subscribed plus he will get the
additional amount that will depand on the profit of the company, equity means
you are a part of the company and will get your due if the company earns a big
amount of profit in the financial year, but you are in a danger to loose if the
company does not do well, equities are more dangerous and high returns oriented
than the bonds.
ACRONYMS CORNER-
SEBI- Securities and Exchange Board of India
IPO- Initial Public Offerings
FINANCIAL
SECTOR REGULATORS IN INDIA
RBI-Reserve
Bank of India
RBI
was established on 1 April 1935 with the sole aim to work as
banking sector
regulator .RBI was
nationalized in 1949.RBI regulate the banking sector (government
and private banks)
by banking reglation act 1949 and RBI act 1935 which entrusted
responsibility on
the RBI to work foru the enhancement of banking sector in India
.RBI is the sole
authority to issue banking licenses to entities who want to open bank
in India , and if
any bank want to open new branch it has to be take prior approval
from RBI.
The main aim of RBI
is to provide banking services to the last mile of country .To full
this initiative RBI
has started financial inclusion program .In this RBI mandated all
banks in India to
open at least 25 percent braches in rural areas. RBI also ensure that
adequate credit is
provide to rural areas by priority sector lending In this RBI has
mandated all banks
including foreign banks working in India to provide 40 percent of
their loans to
priority sector like agriculture, student loans etc .If any bank found
violating RBI
policy ,it has power to take action against it .
RBI do supervision
functions and regular checks to ensure that financial health of
banks is maintained
.RBI ensure that all banks follow the government guidelines for
the banking sector.
If any bank found indulging in activities against people interest
and violating
government polices RBI can fine bank including private banks.
The term of RBI
governor is for three years and appointed by GOI.
Present Governor of
RBI - Raghuram Rajan
Headquarter – Mumbai
IRDA
– Insurance Regulatory And Development Authority
IRDA was
establishes in 1999 by the IRDA act ,1999 .It is the autonomous body
established by act
of parliament .It aim is to ensure growth of insurance sector in India.
IRDA was
established as sole authority to regulate the insurance industry in India , to
ensure the growth
of insurance industry and protect the interest of policy holders.
For any company
want to work in insurance sector needs prior approval of IRDA .It
also perform
supervision functions to ensure that different insurance companies
including private
following rules and regulations or not .It can take action against
erring companies
.IRDA works to protect the interest of policy holder and to regulate,
promote and ensure
orderly growth of the insurance industry.
The chairman of
IRDA is appointed by GOI .The term of IRDA chairman is for five
years.
Present chairman of
IRDA - T.S.Vijayan
Headquarter - Hyderabad
SEBI-
Securities And Exchange Board Of India
SEBI was enacted on
April 12, 1992 in accordance with the provisions of the
Securities and
Exchange Board of India Act, 1992. The main aim of SEBI is to
protect the
interest of investor in securities .It is sole regulator for all stock
exchanges
in India. SEBI
regulate the capital markets in India .If any company want to bring IPO
it needs prior
approval from SEBI .It is entrusted with responsibility to protect the
interest of
investor in stock exchange , ensure the growth of securities market
,regulate and
develop a code of conduct for intermediaries such as brokers,
underwriters, etc. The
chairman of SEBI is appointed by GOI .
The term of SEBI
chairman is for three
years
Present Chairman of
SEBI- Upendra kumar Sinha
Headquarter of SEBI
- Mumbai
NABARD-
National Bank For Agriculture And Rural
Development
NABARD
was established on 12 July 1982 by the act of parliament .NABARD
is the
apex institution
for the development of farm sector , cottage industries and small scale
industries in rural
areas. The Banking Regulation Act, 1949, empowers NABARD to
conduct inspection
of State Cooperative Banks (SCBs), Central Cooperative Banks
(CCBs) and Regional
Rural Banks (RRBs) and protect interest of the present and
future depositor
and also provide short and medium term loan to those banks working
in rural areas
development .It provides his expertise in rural areas to RBI and GOI in
making policies.
The chairman of
NABARD is appointed by GOI .The term of NABARD chairman is
forthree years
Present Chairman of
NABARD - Dr. Harsh Kumar Bhanwala
Headquarter - Mumbai
PFRDA-
Pension Fund Regulatory And Development Authority
PFRDA is the
regulatory body for all the pension funds in India .The Pension Fund
Regulatory &
Development Authority Act was passed on 19th September,
2013.PFRDA regulate
the pension sector and works for its development, formulate
policies for
pension sector.PFRDA is regulating NPS, subscribed by employees of
Govt. of India,
State Governments and by employees of private
institutions/organizations
& unorganized sectors.
Term of PFRDA
chairman is for five years and appointed by GOI.
Present Chairman of
PFRDA- Hemant Contractor
Headquarter - New
Delhi
BASEL
NORMS
In the recent few
days we have heard a lot that government is been
infusing lot of
money in the public sector banks….. To understand
why??? We have to
first understand that what BASEL ACCORD or
BASEL
NORMS is all about.
Basel is a city in
Switzerland which is also the headquarters of Bureau of
International
Settlement (BIS).
BIS fosters
co-operation among central banks with a common goal of financial
stability and
common standards of banking regulations.
The
Bank for International Settlements (BIS) established on 17 May
1930, is
the world's oldest international financial organization. There are
two representative
offices in the Hong Kong and in Mexico City. In total
BIS has 60 member
countries from all over the world and covers approx
95% of the world GDP.
OBJECTIVEThe
set of agreement by
the BCBS(BASEL COMMITTEE ON
BANKING
SUPERVISION), which mainly focuses on risks to banks and
the financial
system are called Basel accord. The purpose of the accord is to ensure that
financial institutions have enough capital on account to
meet obligations
and absorb unexpected losses. India has accepted Basel
accords for the
banking system.
Up till now BASEL
ACCORD has given us three BASEL NORMS
which are BASEL 1,2
and 3 but before coming to that we have to
understand
following terms-
CAR/CRAR- Capital
Adequacy Ratio/ Capital to Risk Weighted Asset
Ratio
RWA- Risk
Weighted Assets
Formulae for
CAR=Total Capital/RWA*100
Now here, Total
Capital= Tier1+ Tier2 capital
Tier
1 - The Tier-I Capital is the core capital…….
For
example - Paid up Capital, Statutory Reserves, Other disclosed free
reserves, Capital
Reserves which represent surplus arising out of the sale
proceeds of the
assets, other intangible assets are belongs from the
category of Tier1
capital.
Tier
2 - Tier-II capital can be said to be subordinate capitals.
For
example - Undisclosed reserves, Revaluation Reserves, General
Provisions and loss
reserves , Hybrid debt capital instruments such as
bonds, Long term
unsecured loans, Debt Capital Instruments etc. are
belongs from the
category of Tier2 capital.
RISK
WEIGHTED ASSETS -
RWA means assets
with different risk profiles; it means that we all know
that is much larger
risk in personal loans in comparison to the housing
loan, so with
different types of loans the risk percentage on these loans
also varies.
BASEL-1
In
1988,The Basel Committee on Banking Supervision (BCBS)
introduced
capital measurement
system called Basel capital accord, also called as
Basel 1. . It
focused almost entirely on credit risk, It defined capital and
structure of risk
weights for banks.
The
minimum capital requirement was fixed at 8% of risk weighted assets
(RWA).
India
adopted Basel 1 guidelines in 1999.
BASEL-2
In 2004, Basel II
guidelines were published by BCBS, which were
considered to be
the refined and reformed versions of Basel I accord.
The guidelines
were based on three parameters which are as follows-
Banks should
maintain a minimum capital adequacy requirement of 8% of risk assets.
Banks were needed
to develop and use better risk management techniques in
monitoring and
managing all the three types of risks that is credit and increased
disclosure requirements.
The three types of
risk are- operational risk, market risk, capital risk.
Banks need to
mandatory disclose their risk exposure, etc to the central bank.
Basel II norms in
India and overseas are yet to be fully implemented.
The three pillars
of BASEL-3 can be understand from the following
figure---
BASEL-3
In 2010, Basel
III guidelines were released. These guidelines were
introduced in
response to the financial crisis of 2008.
In 2008, Lehman
Brothers collapsed in September 2008, the need for
a fundamental
strengthening of the Basel II framework had become
apparent.
Basel III norms
aim at making most banking activities such as their trading
book activities
more capital-intensive.
The guidelines
aim to promote a more resilient banking system by
focusing on four
vital banking parameters viz. capital, leverage, funding
and liquidity.
Presently Indian
banking system follows basel II norms.
The Reserve Bank
of India has extended the timeline for
full implementation
of the Basel III capital regulations by a year to March
31, 2019.
Important
points regarding to the Implementation of BASEL-3
Government of
India is scaling disinvesting their holdings in PSBs to 52 per
cent.
Government will
soon infuse Rs 6,990 crore in nine public sector banks
including SBI, Bank
of Baroda (BoB), Punjab National Bank (PNB) for
enhancing their
capital and meeting global risk norms.
This is the first
tranche of capital infusion for which the government had
allocated Rs 11,200
crore in the Budget for 2014-15.
The government
has infused Rs 58,600 crore between 2011 to 2014 in the
state-owned banks.
Finance Minister
Arun Jaitley in the Budget speech had said that "to be in line
with Basel-III
norms there is a requirement to infuse Rs 2,40,000 crore as
equity by 2018 in
our banks. To meet this huge capital requirement we need to
raise additional resources to fulfill
this obligation.
STOCK
MARKET INDEXES IN THE WORLD
‘Sensex loses 556
points, slips below 28K’ screams Economic Times! But what does
it mean? What is
Sensex? Why has it lost 556 points? What does it mean that it has
slipped below 28K?
Dear readers, today
we attempt to unmystify the world share/ stock market indexes
(indices) – which
until now we’d come across while turning pages in the newspaper!
What
are stock indexes?
Stock Market, as we all know, is a market (a real/virtual market) where stock or
shares are bought
and sold – companies raise money through stock markets. In stock
markets the shares
of those companies which are listed with the Stock Exchange are
bought and sold. Stock
markets will have stocks of numerous companies – at various price levels –
activity levels
floating around.
Imagine your city’s
biggest and most popular vegetable market – where vendors from
all over the city
come to sell their produce – so many vendors – so many vegetables –
so many buyers and
so many different prices!
Stock
Exchange is essentially an organization – which enables the trade in
shares by
providing a
‘trading area’, staff, infrastructure and making connections between
buyers and sellers
and agents possible. Every stock exchange has its rules and
regulations, which
any company which wishes to get listed with it have to comply
with.
Now – when you come
back from your veggie shopping trip – and someone at home
asks you how were
the prices at the market – were they cheap or not? – How would
you gauge that?
Will you, when at market note down the prices of every vegetable –
compare it with
prices in other markets – what will you do?!
You will look at
the prices of potatoes and onions – because they are the most
important veggies
out their – the basic, regularly required veggies – and decide if
they’ve become
costlier than before!
Same principle here
– some companies are taken as indicators – these companies are
obviously doing
well and indicate the overall performance of their industries.
Thus, Stock
Index is a numeric/ statistical measurement – an index – a number –
which shows the
performance of an economy taking some key companies (a segment
of stock market) as its indicator.
In other words –
looking at it from another angle – there is an ‘index’ which includes
some stocks of some
companies – the prices of these companies are measured and put
through a formula –
to give us the stock market index – the overall picture!
Through these
indexes, investors, company owners, economists, traders etc. – who are
known as
stakeholders – glean useful information depending on their needs. An
investor will invest
if the markets are doing well and keep his money on the company
showing progress –
where performance falls – the investors take their monies away
from the markets
and that is when the indexes fall!
So more the
positive activity – index rises – and vice versa.
How
are they calculated?
Indices can differ
based on their method of calculation – which is based on certain
specific theory of
what elements will give a near perfect indicator of industry average
etc.
Indices may be
price-weighted (prices of the stock are considered for calculating the
index), or,
capitalization-weighted index which looks at market value of the stocks.
Mostly used method
is market capitalization method, where
Market
capitalization = market price of shares x number of shares outstanding
(issued
by the company)
Another method used
is free float market capitalization method, where
Market
capitalization = market price of shares x number of share which are
available
for trading in the open market
How Sensex is
Calculated
Famous
indices and trivia:
Some very popular
stock indices followed worldwide:
1.
Dow Jones Industrial Average, The Global Dow
2.
Dow Jones Asia Titans 50
3.
S & P – Global 1000/1200 – (S&P = Standard and Poor’s)
4.
S & P Asia 50
5.
BBC Global 30
6.
EURO STOXX 50
7.
FTSE indices
8.
NASDAQ indices
and, Indian stock indexes are:
1.
Nifty – of NSE
2.
Sensex of BSE
3.
MCX-SX of MCX Stock Exchange
Famous
Stock Exchanges:
(i) NYSE – New York
Stock Echange – is the market leader.
(ii) NASDAQ
(iii) Tokyo Stock Exchange
(iv) LSE – London
Stock Exchange
(v) Euronext
and, Indian Stock
Exchanges are:
(vi) BSE – Bombay
Stock Exchange
(vii) NSE –
National Stock Echange
(viii) MCX Stock
Exchange
Some
more indexes for g.k. purpose!
1.
Iran’s – Tepix
2.
Japan’s – Nikkei 225
3.
China’a – SSE, SZCE, CSI 300
4.
Hong Kong’s – Hang Seng Index
5.
Malaysia’s – Kuala Lumpur Composite Index
6.
Nepal’s – Nepal Stock Exchange – NEPSE
7.
Pakistan’s – KSE indices
8.
Russia’s – Moscow Inter-bank currency exchange –MISEX
9.
Sri Lanka’s – All share Price Index – ASPI
10.
UK – has all the FTSE indices! So easy to remember
11.
USA – has got plenty, am just going to list em – the names are
popular enough! -
Dow Jones, NASDAQ,
Russell’s, S & P’s, Goldman Sach’s, Amex indices,
Wilshire’s and CPMKTE
(capital markets equity index)!
(The numbers after
the names of the indices represent the number of companies in the
index.)
and
some unique indices:
12.
Space Foundation Index (SFI)
13.
Palidas Water Index (PWI)
14.
Cleantech Index
15.
Solactive Indices
Interesting to know –
BSE is India’s and Asia’s oldest stock exchange! It happened in
1878! Yep!!
Followed by Tokyo’s
stock Exchange in 1878 being the second oldest in Asia.
As far the
international scenario is concerned – Amsterdam Stock Exchange is the
oldest, having been
established in 1602 by Dutch East India Company!
Knowing
the Indian ones properly!
In Indian scenario
– SEBI, the Stock Exchange regulator – recognizes only three stock
exchanges:
SENSEX =
Sensitive index, which is the index given by BSE or Bombay
Stock Exchange.
It was founded in
1875 by Premchand Roychand and is the oldest stock
exchange in India –
of the three!
It is Head
Quartered at the famous Dalal Street in Mumbai.
CEO is Ashish
Chauhan.
It uses free
float market capitalization method = value of shares which are
available for
trading = the value taken into the index.
It consists of 30
major companies listed with the BSE.
Some of them are –
SBI, ICICI Bank, Axis Bank, HDFC, Wipro, Infosys,
TCS, ONGC, Airtel,
HAL, BHEL, BEL, Coal India, Tata Motor etc.
Sensex is India’s
foremost stock market indicator.
Nifty =
National Stock Enchange’s 50 major companies
Controlled by
India Index Services and Products.
It was founded in
1992 and is head quartered in Mumbai.
NSE’s MD and CEO
is Chitra Ramkrishna
It uses free
float market capitalization weighted method = value of shares
which are available
for trading and calculation done using weights = the value
taken into the
index.
The 50 companies
include the 30 of sensex and extra 20 companies.
MCX-SX-40
Founded in 2008 –
it is the youngest exchange with its Head Quarter in
Mumbai.
CEO is Saurabh
Sarkar.
It specializes in
using state of the art infrastructure and technology to provide
trading services
for a variety of instruments.
VARIOUS
PAYMENTS SYSTEMS IN BANKS IN INDIA
In a series of
providing useful material for Banking Awareness section of
various
banking exams.
Today I am explaining various payment systems available in banks in
a very simple
language.
1.
RTGS: Real Time Gross Settlement
It is a
centralized payment system through which inter bank payment
instructions are
processed and settled, on GROSS basis, in REAL TIME.
Which simply
means, that the transactions are settled as they happen.
Minimum amount is
Rs. 2 lacs and there is no limit to maximum amount.
A ‘service
charge’ is charged by the banks for outwards transactions (making
an RTGS) and nil for inwards
transactions (receiving an RTGS).
RTGS is used by
banks to settle their inter-bank account transactions as well
as customer’s high
value transactions.
It uses INFINET
(Indian Financial Network) platform to operate.
2.
NEFT: National Electronic Funds Transfer
It is a
nation-wide funds transfer system which facilitates fund transfer from
any bank’s branch
to any other bank’s branch.
The difference
between NEFT and RTGS is that NEFT settlements happen in
batches, and on net
settlement basis. Where as RTGS is real time and gross
settlement.
Net Settlement
means, that transaction pertaining to a particular bank branches
are kept on hold
and accumulated and then processed together in a batch with
the ‘net’ amount,
which would either be incoming or outgoing transfer.
There is no limit
to minimum/maximum transaction value.
NEFT cannot be
used for foreign remittances.
3.
AEPS: AADHAR Enabled Payment System
It is a payment
system which uses Aadhar card number and an individuals
online UIDAI
authentication, which are linked to a customers Bank account.
A customer will
have to register his/her Aadhar number to their existing bank
account, provided
their bank is AEPS enabled.
Through AEPS,
customer can withdraw or deposit cash, make balance
enquiry, and
transfer funds.
The maximum
amount of transaction per account per day is Rs.50,000.
These
transactions are normally conducted by Business Correspondents (BCs)
service centres.
4.
MTSS: Money Transfer Service Scheme
It is a system of
money transfer for transferring personal remittances from
abroad to
beneficiaries in India.
Through this only
inward remittances into India are permissible. No outward
remittance allowed.
A maximum of
Rs.50,000 can be remitted inwards as per the money value.
And a maximum of 30
transactions per calendar year.
5.
Nepal Remittance Scheme:
It is a
cross-border one-way remittance facility scheme for remittance from
India to Nepal.
Maximum amount
remittance is INR 50,000 and beneficiaries will receive in
Nepalese Rupees.
TYPES
OF ATM’S
List of various
types of ATMs and their features.
White
Label ATM
White Label ATMs
are those ATMs which set up, owned and operated by non-bank
entities, which
have been incorporated under Companies Act 1956, and after
obtaining RBI’s
approval.
Brown
Label ATMs
These ATMs are
owned and maintained by service provider whereas bank whose
brand is used on
ATM takes care of cash management and network connectivity.
Online
ATM
Online ATMs: These
ATMs are connected to the bank’s database at all times and
provide real time
transactions online. The withdrawal limits and account balances are
constantly
monitored by the bank. Online ATMs are always watching out for you!
Offline
ATM
Offline ATMs: These
ATMs are not connected to bank’s database- hence they have a
predefined
withdrawal limit fixed and you can withdraw that amount irrespective of
the balance in your
account. So if you did not have balance in your account, and you went to a
‘offline ATM’ and withdrew money more than the balance – you’ll still get the
cash at that time, and
later on will run
afoul with your bank balance! Where banks may charge some penalty
for exceeding your
balance!
Stand
Alone ATM
Stand Alone ATMs
are not connected with any ATM network- hence their
transactions are
restricted to the ATM’s branch and link branches only.
The opposite of
Stand alone ATMs are Networked ATMs, which are connected on the
ATM Network.
Onsite
ATM
Onsite ATMs: are
the ATMs you find next to your Bank’s branch. They go side-byside!
Or in proper terms,
they are the ATMs installed within a branch’s premises.
Off-site ATM
Off-site ATMs are the ones which are
installed anywhere, but within the branchpremises. That is these are not
installed next to branch. So where are they installed? Shopping Malls, shopping
markets, airports, hospitals, business areas etc.!
TYPES
OF BANK ACCOUNTS
This topic is
important for bank exams, as generally many questions are asked in bank
exams and interview
on bank accounts like what are different types of accounts in
bank ,what is
difference between current account and saving account .So
understanding this
topic is very important.
VARIOUS TYPES OF BANK
ACCOUNTS
1. Saving Account
2. Current Account
3. Recurring
deposit Account
4. Fixed deposit
Account
5. FCNR Deposit
Account
6. NRO Account
7. NRE Account
Saving
Account :
Saving accounts are
opened by individuals in banks to save some share of their
earnings .Main aim
of saving account is to promote saving habit among individuals.
These saving
accounts are opened on the name of individuals only.
On saving account
an individual earns some rate of interest, these rate of interest
varies from bank to
bank ,earlier this rate of interest in fixed by RBI but now RBI has
given power to
banks to decide their own rate of interest on saving account .This rate
of interest is
usually 4% but some private banks offering 6% rate of interest too.
When a person open
a saving account he is provided with a passbook , ATM card ,
cheque book . In
saving accounts there is restriction a person can deposit or withdrawal money
within month .
Minimum deposit a individual has to maintain in account (In PSU
banks) is Rs1000 or
less as some bank offering zero balance accounts.
Current
Account :
Current account are
opened for business transactions , on the name of firm or
company .Banks
offered no rate of interest on money held in current account but
provide extra features
as compared to current account like there is not limit on deposit
or withdrawal in
current account but no passbook is issued for current account holder.
Minimum deposit
needed to open current account is Rs5000 or depends on respective
bank. Many facilities
are provided to current account holder like overdraft facility,
statement of
account.
Recurring
Deposit Account or R.D.
In recurring
deposit account is a saving feature that bank offers to their customers,
who can save only
small amount of money per month. In recurring deposit account a
person deposit a
fixed sum of money for fixed period like a person deposit Rs 500 per
month for one year
bank pays interest on the deposit money every month after the
completion of fixed
period bank pay the deposit money along with interest to his
customer.
Recurring deposit
account are generally meant for salary earning people who can save
a fixed sum of
money every month.
Fixed
Deposit Account or Term Deposit Account
In fixed deposit
account , a person deposit a fixed sum of money one time only for the
fixed period bank
pays the rate of interest on the fixed deposit account depends on
tenure of deposit
account , after the completion of period bank pay the amount along
with rate of
interest incurred on the amount .banks also charge penalty is premature
withdrawal is done
if person need money before the completion of fixed period .
For
NRI to invest in India and earn interest on their hard earn money , as rate of
interest
offered by Indian banks is higher than western counterparts so it is
attraction option to
deposit money in Indian banks and earn good rate of interest .
RBI
allow three type of account to NRI by which they can deposit their money
in
India
FCNR
Deposit Account
FCNR
stand for Foreign Currency Non -Resident account
This account is
opened by NRIs In this account a person invest a fixed sum of money
for a period not
less than one year and max five years in any foreign currency in fcnr
account . After the
completion of fixed period principal and interest is paid in foreign
currency in which
he had deposited .In this way NRI are save from foreign exchange
rate risk
NRO
Deposit Account
NRO
stand for Non Resident Ordinary saving account
The Non Resident
Ordinary Account (NRO Account) is a Savings / Current.
Recurring Deposit /
Fixed Deposit bank account held in India, in Indian
Rupees. NRO
account is opened by any person resident outside India only who
want to earn
attractive rate of interest in India and also have some earnings in India
(such as rent
income, dividend, pension, etc).This account is best suited for NRI or
PIO who have some
earnings in India as these earnings are deposit in NRO account
.NRO account is
only operated in Indian currency only .Average monthly balance in
NRO saving account
is Rs1,50,000. NRIs can remit up to 1 million per calendar year .
Banks are free to
determine their interest rates on savings deposits under Ordinary
Non-Resident (NRO)
Accounts. However, interest rates offered by banks on NRO
deposits cannot be
higher than those offered by them on comparable domestic rupee
deposits
NRE
Account
NRE
stands for Non Resident External Account
The Non Resident
External Account (NRE Account) is a Savings / Current. Recurring
Deposit / Fixed
Deposit bank account held in India, in Indian Rupees. Such accounts
can be opened only
by the NRI. Balances held in NRE account are fully repatriable.
With effect from
March 1, 2014, interest rates offered by banks on NRE deposits
cannot be higher
than those offered by them on comparable domestic rupee deposits
BANKING
OMBUDSMAN
You all are familiar
from the term BANKING OMBUDSMAN. Lets know more
about it thoroughly.
The Banking
Ombudsman Scheme was introduced under Section 35 A of the
Banking
Regulation Act, 1949 by RBI with effect from 1995.
The Banking
Ombudsman Scheme was first introduced in India in 1995and
it was revised in
2002.
Current Banking
Ombudsman Scheme introduced in 2006.
From 2002 until
2006, around 36,000 complaints have been dealt by the
Banking Ombudsmen.
Banking Ombudsman
is appointed by Reserve Bank of India.
Banking Ombudsman
is a senior official appointed by RBI. He handle and
redress customer
complaints against deficiency in certain banking services.
The offices of
Banking Ombudsman is mostly situated at State Capitals.
Around 15 Banking
Ombudsmen have been appointed.
All Scheduled
Commercial Banks, Regional Rural Banks and Scheduled
Primary
Co - operative Banks are covered under the Banking Ombudsman
Scheme.
GROUNDS OF
COMPLAINTS
ONE CAN FILE A
COMPLAINT ON THE FOLLOWING GROUNDS OF COMPLAINTS:
1. Any excessive
delay or non - payment of collection of cheques, drafts, bills
etc.
2. Without any
sufficient cause non acceptance of small denomination notes.
3. Charging any
commission for acceptance of small denominations notes
4. Any delay in
payment of inward remittances or non payment of inward
remittances.
5. If any banking
organization refuses to accept taxes or any delaying in
accepting taxes (as
required by RBI or Government of India).
6. Any delay in
issuing government securities
7. Refusal to issue
or redemption of government securities.
8. Without any
sufficient reason, forced close the deposit accounts by bankers.
9. If any banker
refuse to close the accounts
10. If any banker
deliberately delaying in closing the accounts.
11. Non compliance of
the provisions of Banking Codes and Standard Board of
India.
12. If any banker
commits non - observance of Reserve Bank of India's guidelines
or instructions or
any violation of the directives issued by the Reserve Bank in
relation to banking
or other services.
13. Without any
sufficient cause, non acceptance of coins tendered or charging of
commission in respect
thereof.
14. Delay or Failure
in issue of drafts, pay orders or banker's cheques.
15. Performance of
work is not as per prescribed working hours.
16. Delay or failure
in providing any bank facility.
17. Complaints file
by Non - resident Indians having accounts in India in relation
to their remittance
from abroad, deposits and other bank related matters.
18. Without any
reason, refusal to open deposit accounts.
19. Without adequate
prior notice to the customer, charges levied by the banker.
20. Any violation of
guidelines or instructions of RBI on ATM/Debit Card/Credit
Card operations.
21. Non -
disbursement or delay in disbursement of pension.
Other
Grounds
A customer can also
file a complaint on the following grounds of deficiency in service
with respect to loans
and advances:
1. The Banking
Ombudsman may also deal with such other matter as may be
specified by the
Reserve Bank from time to time.
2. Without any valid
reason non - acceptance of application of loans.
3. Any violation of the
provisions of the fair practices code for lenders as
adopted by the bank
or Code of Bank's Commitment to Customers, as the case
may be.
4. Any type of
violation of the instruction, guidelines, recommendations of the
RBI
5. If any non -
observance of Reserve Bank Directives on interest rates;
6. Any delays in
sanction of loan applications
Reasons,
when you can File a Complaint
1. If reply is not
received from the bank within a period of one month after
concerned bank has
received complaint representation.
2. If bank rejects
the complaint.
3. If complainant is
not satisfied with bank's reply.
Banking Ombudsman
does not charge any fee for filing and resolving
customer's complaints.
If any loss
suffered by the complainant then complainant is limited to the
amount
arising directly out of the act or omission of the bank or Rs.10
Lakhs whichever is lower.
DIFFERENT
TYPES OF CHEQUES
A cheque is an
unconditional order addressed to a banker,signed by the person who
has deposited money
with a banker, requesting him to pay on demand a certain sum of
money only to the
order of certain person or to the bearer of the instrument.
TYPES OF CHEQUES
1)
BEARER CHEQUEBearer
cheque are the
cheques which withdrawn to the cheque's owner.These types of
cheques normally
used for cash transaction.
2)
ORDER CHEQUEOrder
cheque are the
cheques which is withdrawn for the payee(the cheque withdrawn
for whose
person).Before withdrawn to that payee,banks cross check the identity of
the payee.
3)
CROSSED CHEQUEOn
that type of
cheques two parallel line made on the upper part of the cheques,then
that cheques formed
to crossed cheques.This type of cheques payment does not
formed in cash
while the payment of that type pf cheques transferred to the payee
account and the
normal person's account who recommend by the holder on the
cheque.
4)
ACCOUNT PAYEE CHEQUE
When two parallel
lines along with a crossed made on the cheque and the word
'ACCOUNT PAYEE'
written between these lines,then that types of cheques are called
account payee
cheque.The payment of the account payee cheque taken place on the
person,firm or
company on which name the cheque issue.
5)
COMPANY CROSSED CHEQUESWhen
two parallel lines
along with a crossed made on the cheque and the word
'COMPANY' written
between these lines,then that types of cheques are called
company crossed
cheques.Then type of withdrawn does not taken in cash while the
person on which the
cheque issue,transferred on its account.Normally crossed cheque
and company crossed
cheque are same.
6)
STALE CHEQUEIf
any cheque issue by
a holder does not get withdrawn from the bank till three
months, then that
type of cheques are called stale cheque.
7)
POST DATED CHEQUEIf
any cheque issue by
a holder to the payee for the upcoming withdrawn date,then
that type of
cheques are called post dated cheque.
8)
ANTI DATED CHEQUE
If any cheque issue
for the upcoming withdrawn date but it withdraw before the date
printed on the cheque, then that type
of cheques are called anti dated cheques.
Sectors
where FDI is ALLOWED and the latest caps.
Railways – 100%
Defence – 49%
Telecom – 49%
under automatic route and rest as per FIPB’s approval
Insurance – 49%
News Media –
currently 26% and increase to 49% is in the talks
Courier Services
– 100%
Single Brand
Retail – 100%
Civil aviation –
49%
Construction
Sector – 100%
Credit
Information Companies – 74%
Power Trading –
49%
Commodity
Exchanges – 49%
Oil refineries –
49%
Stock Exchanges – 49%
BANDHAN
BANK
Recently, there is
a buzz about BANDHAN BANK, Lets know about it:
Bandhan Bank was
set up in 2001 to handle dual objective of poverty
alleviation
and women empowerment.
It was previously
a Non - Banking Financial Company
(NBFC)
butBandhan Bank received its universal banking licence
from Reserve
Bank of India.
The bank rolled
out its services on 23rd August, 2015 (Founded).
The bank started
with 501 branches in all most 22 states in India which is
highest branches of
any private bank on the first day.
The bank will
provide funds to help and develop the Small and Medium
Enterprises
(SME).
The saving
interest rates have been fixed at 4.25% below Rs. 1,00,000 and5%
above
Rs. 1,00,000.
It is interesting
to know that Bandhan was the only micro-finance institution
that applied for a
banking licence.
Headquarters is
located at Kolkata, West Bengal.
Slogan of
bank is "Aapka Bhala, Sabki Bhalai".
Incidentally,
Bandhan is the first bank to be set up in eastern part of India
after
Independence.
MD and CEO of bank is Chandra
Shekhar Ghosh.
SOCIAL
SECURITY SCHEMES
On his first visit
to West Bengal after becoming Prime Minister of India, Narendra
Modi surprised
financial analysts by declaring three social security schemes for 1.25
billion people. Now
accidental insurance is available at mere Rs.12 for a coverage of
Rs.200,000. Read
summary of schemes :-
Pradhan
Mantri Suraksha Bima Yojna
Eligibility
18 to 70 years of
age
Having a savings account
with a public sector bank
Insurer allows
auto withdrawal for the payment of annual premium
Policy
cost and coverage
Rs.12 per
subscriber for a coverage of Rs.2,00,000
Maturity
Death due to
accident or total physical disability due to accident
Pradhan
Mantri Jeevan Jyoti Yojana
Eligibility
18 to 50 years of
age
Having a savings
account with a public sector bank
Insurer allows
auto withdrawal for the payment of annual premium
Policy
cost and coverage
Rs.330 per
subscriber for a coverage of Rs.2,00,000
Maturity
Death due to any
reason
Atal
Pension Yojana
Subscriber should
have saving account
Eligible age for
entering into scheme - 18 to 40 years
Provides
subscribers a fixed minimum pension of Rs 1,000, Rs 2,000, Rs
3,000, Rs 4,000 or
Rs 5,000 per month starting at the age of 60 years
Period of contribution by subscriber
should be equal to or more than 20 years
Central
government will contribute 50% of the contribution by subscriber or
Rs.1000 per annum, whichever is lower
for 5 years.
MUDRA
BANK
What
is Mudra Bank?
MUDRA means Micro
Units Development and Refinance Agency(known as
the MUDRA bank)
Mudra bank is
being set up through a statutory enactment and will be
responsible for
developing and refinancing through a Pradhan Mantri Mudra
Yojna.
It is first set
up as a subsidiary of the Small Industries Develpoment Bank of
India(SIDBI).
It will later be converted into full-fledged bank through an act
of the parliament.
MUDRA Bank
is a public sector financial institution in India, It provides loan
at low rates to
small entrepreneurs.
OBJECTIVE
-
It was launched
in 8th April 2015 with the objective of regulating micro and
small enterprise
financing business, and supporting them particularly those
members who belongs
from scheduled castes and scheduled tribes.
MUDRA Bank will
also register MFIs(Micro Finance Institutions) and will
be responsible for
accreditation and rating of MFI.
It will also make
proper last mile practices to be followed by MFI to provide
proper client
protection and to prevent from indebtedness.
AIM
-
The finance
ministry said measures to be taken up by the MUDRA are
targeted mainly on
young, educated or skilled workers and entrepreneurs
including women
entrepreneurs.
Basically small
entrepreneurs and small businessman are often cut from
banking system
because of limited branch presence, so MUDRA bank will
partner with local
coordinators and provide finance to small and micro
businesses.
IMPORTANT
FIGURES ABOUT MUDRA BANK
The bank will be
set up with the initial corpus of Rs 20000 cr and a credit
guarantee corpus of
Rs 3000cr.
The bank have
categorized the amount of loan to be given in three different
categories-
SHISHU-
This is the first stage and in it the loan will be given for upto 50000
Rs.
KISHOR- In
the second stage a loan amount will be ranging from 50,000 to
Rs 5 lakh.
TARUN- This is last category
which will provide upto Rs 10 lakh.
Key financial terms
APR: It stands for
Annual Percentage Rate. APR is a percentage that is calculated on
the basis of the amount financed,
the finance charges, and the term of the loan.
ABS: Asset-Backed
Securities. It means a type of security that is backed by a pool of
bank loans, leases, and other
assets.
EPS: Earnings Per
Share means the amount of annual earnings available to common
stockholders as stated on a per
share basis.
CHAPS: Clearing House
Automated Payment System. It’s a type of electronic bankto-
bank payment system that
guarantees same-day payment.
IPO: Initial Public
Offerings is defined as the event where the company sells its
shares to the public for the
first time. (or the first sale of stock by a private company
to the public.)
FPO: Follow on Public
Offerings: An issuing of shares to investors by a public
company that is already listed on
an exchange. An FPO is essentially a stock issue of
supplementary shares made by a
company that is already publicly listed and has gone
through the IPO process.
Difference: IPO is for the
companies which have not been listed on an exchange and
FPO is for the companies which
have already been listed on an exchange but want to
raise funds by issuing some more
equity shares.
RTGS: Real Time Gross
Settlement systems is a funds transfer system where transfer
of money or securities takes
place from one bank to another on a “real time”. (‘Real
time’ means within a fraction of
seconds.) The minimum amount to be transferred
through RTGS is Rs 2 lakh.
Processing charges/Service charges for RTGS
transactions vary from bank to
bank.
NEFT: National
Electronic Fund Transfer. This is a method used for transferring
funds across banks in a secure
manner. It usually takes 1-2 working days for the transfer
to happen. NEFT is an electronic fund transfer system that operates on a
Deferred Net
Settlement (DNS) basis which settles transactions in batches. (Note:
RTGS is much faster
than NEFT.)
CAR:
Capital Adequacy Ratio. It’s a measure of a bank’s capital. Also
known as
“Capital to Risk
Weighted Assets Ratio (CRAR)”, this ratio is used to protect
depositors and
promote the stability and efficiency of financial systems around the
world. It is decided
by the RBI.
NPA:
Non-Performing Asset. It means once the borrower has failed to
make interest
or principal payments
for 90 days, the loan is considered to be a non-performing asset.
Presently it is
2.39%.
IMPS:
Inter-bank Mobile Payment Service. It is an instant interbank
electronic fund
transfer service
through mobile phones. Both the customers must have MMID
(Mobile Money
Identifier Number). For this service, we don’t need any GPS-enabled
cell phones.
BCBS:
Basel Committee on Banking Supervision is an institution created
by the
Central Bank
governors of the Group of Ten nations.
RSI:
Relative Strength Index.
IFSC
code: Indian Financial System Code. The code consists of 11 characters
for
identifying the bank
and branch where the account in actually held. The IFSC code is
used both by the RTGS
and NEFT transfer systems.
MSME
and SME: Micro Small and Medium Enterprises (MSME), and SME stands
for Small and Medium
Enterprises. This is an initiative of the government to drive
and encourage small
manufacturers to enjoy facilities from banks at concessional
rates.
LIBOR:
London InterBank Offered Rate. An interest rate at which banks can
borrow
funds, in marketable
size, from other banks in the London interbank market.
LIBID:
London Interbank Bid Rate. The average interest rate at which
major London
banks borrow
Eurocurrency deposits from other banks.
ECGC:
Export Credit Guarantee Corporation of India. This organisation
provides
risk as well as
insurance cover to the Indian exporters.
SWIFT:
Society for Worldwide Interbank Financial Telecommunication. It
operates
a worldwide financial
messaging network which exchanges messages between banks
and other financial
institutions.
STRIPS:
Separate Trading for Registered Interest & Principal
Securities.
CIBIL:
Credit Information Bureau of India Limited. CIBIL is India’s first
credit
information bureau.
Whenever a person applies for new loans or credit card(s) to a
financial
institution, they generate the CIBIL report of the said person or concern to
judge the credit worthiness of
the person and also to verify their existing track record.
CIBIL actually maintains the
borrower’s history.
CRISIL: Credit Rating
Information Services of India Limited. Crisil is a global
analytical company providing
ratings, research, and risk and policy advisory services.
AMFI: Association of
Mutual Funds of India. AMFI is an apex body of all Asset
Management Companies (AMCs) which
have been registered with SEBI. (Note:
AMFI is not a mutual funds regulator)
FCCB: Foreign Currency
Convertible Bond. A type of convertible bond issued in a
currency different from the
issuer’s domestic currency.
CAC: Capital Account
Convertibility. It is the freedom to convert local financial
assets into foreign financial
assets and vice versa. This means that capital account
convertibility allows anyone to
freely move from local currency into foreign currency
and back, or in other words,
transfer of money from current account to capital
account.
BANCASSURANCE: Is the term used
to describe the partnership or relationship
between a bank and an insurance
company whereby the insurance company uses the
bank sales channel in order to
sell insurance products.
Balloon payment:
Is
a specific type of mortgage payment, and is named “balloon
payment” because of the structure
of the payment schedule. For balloon payments, the
first several years of payments
are smaller and are used to reduce the total debt
remaining in the loan. Once the
small payment term has passed (which can vary, but
is commonly 5 years), the
remainder of the debt is due - this final payment is the one
known as the “balloon” payment,
because it is larger than all of the previous
payments.
CPSS: Committee on
Payment and Settlement Systems
FCNR Accounts: Foreign Currency
Non-Resident accounts are the ones that are
maintained by NRIs in foreign
currencies like USD, DM, and GBP.
M3 in banking: It’s a measure
of money supply. It is the total amount of money
available in an economy at a
particular point in time.
OMO: Open Market
Operations. The buying and selling of government securities in
the open market in order to
expand or contract the amount of money in the banking
system. Open market operations
are the principal tools of monetary policy. RBI uses
this tool in order to regulate
the liquidity in economy.
Umbrella Fund: A type of
collective investment scheme. A collective fund
containing several sub-funds,
each of which invests in a different market or country.
ECS: Electronic
Clearing Facility is a type of direct debit.
Tobin tax: Suggested by Nobel
Laureate economist James Tobin, was originally
defined as a tax on all spot
conversions of one currency into another.
Z score is a term widely used in the banking field.
POS: Point Of Sale,
also known as Point Of Purchase, a place where sales are made
and also sales and payment
information are collected electronically, including the
amount of the sale, the date and
place of the transaction, and the consumer’s account
number.
LGD: Loss Given
Default. Institutions such as banks will determine their credit
losses through an analysis of the
actual loan defaults.
Junk Bonds: Junk bonds are
issued generally by smaller or relatively less wellknown
firms to finance their
operations, or by large and well-known firms to fund
leveraged buyouts. These bonds
are frequently unsecured or partially secured, and
they pay higher interest rates: 3
to 4 percentage points higher than the interest rate on
blue chip corporate bonds of
comparable maturity period.
ARM: Adjustable Rate
Mortgage is basically a type of loan where the rate of index is
calculated on the basis of the
previously selected index rate.
ABO: Accumulated
Benefit Obligation, ABO is a measure of liability of pension plan
of an organisation and is
calculated when the pension plan is terminated.
Absorption: A term related
to real estate, it is a process of renting a real estate
property which is newly built or
recently approved.
AAA: A type of grade
that is used to rate a particular bond. It is the highest rated
bond that gives maximum returns
at the time of maturity.
DSCR: Debt Service
Coverage Ratio, DSCR is a financial ratio that measures the
company’s ability to pay their
debts.
FSDC: Financial
Stability and Development Council, India’s apex body of the
financial sector.
ITPO: India Trade
Promotion Organisation is the nodal agency of the Government of
India for promoting the country’s
external trade.
FLCC: Financial
Literacy and Counseling Centres.
ANBC: Adjusted Net
Bank Credit is Net Bank Credit added to investments made by
banks in non-SLR bonds.
Priority sector
lending: Some
areas or fields in a country depending on its economic
condition or government interest
are prioritised and are called priority sectors i.e.
industry, agriculture.
M0, M1, M2 AND
M3: These
terms are nothing but money supply in banking field.
BIFR: Bureau of Industrial and
Financial Reconstruction.
FRBM Act 2003: Fiscal
Responsibility and Budget Management act was enacted by
the Parliament of India to institutionalise
financial discipline, reduce India’s fiscal
deficit, improve macroeconomic
management and the overall management of the
public funds by moving towards a
balanced budget.
The main
objectives of FRBM Act are:-
1. To reduce fiscal deficit.
2. To adopt prudent debt
management.
3. To generate revenue surplus.
Gold Standard: A monetary
system in which a country’s government allows its
currency unit to be freely
converted into fixed amounts of gold and vice versa.
Fiat Money: Fiat money is a
legal tender for settling debts. It is a paper money that is
not convertible and is declared
by government to be legal tender for the settlement of
all debts.
BCSBI: The Banking
Codes and Standards Board of India is a society registered
under the Societies Registration
Act, 1860 and functions as an autonomous body, to
monitor and assess the compliance
with codes and minimum standards of service to
individual customers to which the
banks agree to.
OLTAS: On-Line Tax
Accounting System.
EASIEST: Electronic
Accounting System in Excise and Service Tax.
SOFA: Status of Forces
Agreement, SOFA is an agreement between a host country
and a foreign nation stationing
forces in that country.
CALL MONEY: Money loaned by
a bank that must be repaid on demand. Unlike a
term loan, which has a set
maturity and payment schedule, call money does not have
to follow a fixed schedule.
Brokerages use call money as a short-term source of
funding to cover margin accounts
or the purchase of securities. The funds can be
obtained quickly.
Scheduled bank: Scheduled Banks
in India constitute those banks which have been
included in the Second Schedule
of RBI Act, 1934 as well as their market
capitalisation is more than Rs 5
lakh. RBI in turn includes only those banks in this
schedule which satisfy the
criteria laid down vide section 42 (6) (a) of the Act.
FEDAI: Foreign Exchange
Dealers Association of India. An association of banks
specialising in the foreign
exchange activities in India.
PPF: Public Provident
Fund. The Public Provident Fund Scheme is a statutory
scheme of the Central Government
of India. The scheme is for 15 years. The
minimum deposit is Rs 500 and
maximum is Rs 70,000 in a financial year.
SEPA: Single Euro
Payment Area.
GAAP: Generally
Accepted Accounting Principles. The common set of accounting
principles, standards and
procedures that companies use to compile their financial
statements.
Indian
Depository Receipt: Foreign
companies issue their shares and in return they
get the depository receipt from
the National Security Depository in return of investing
in India.
Hot Money: Money that is
moved by its owner quickly from one form of investment
to another, as to take advantage
of changing international exchange rates or gain high
short-term returns on
investments.
NMCEX: National
Multi-Commodity Exchange.
PE RATIO: Price to
Earnings Ratio, a measure of how much investors are willing to
pay for each dollar of a
company’s reported profits.
CASA: Current Account,
Savings Account.
CAMELS: CAMELS is a type
of Bank Rating System. (C) stands for Capital
Adequacy, (A) for Asset Quality,
(M) for Management ,(E) for Earnings, (L) for
Liquidity and (S) for Sensitivity
to Market Risk.
OSMOS: Off-site
Monitoring and Surveillance System.
Free market: A market economy
based on supply and demand with little or no
government control.
Retail banking: It is
mass-market banking in which individual customers use local
branches of larger commercial
banks.
Eurobond: A bond issued in
a currency other than the currency of the country or
market in which it is issued.
PPP: Purchasing Power
Parity is an economic technique used when attempting to
determine the relative values of
two currencies.
FEMA Act: Foreign Exchange
Management Act, it is useful in controlling
HAWALA.
Hawala
transaction: It’s
a process in which large amount of black money is
converted into white.
Teaser Loans: It’s a type of
home loans in which the interest rate is initially low and
then grows higher. Teaser loans
are also called terraced loans.
ECB: External
Commercial Borrowings, taking a loan from another country. Limit of
ECB is $500 million, and this is
the maximum limit a company can get.
CBS: Core Banking
Solution. All the banks are connected through internet, meaning
we can have transactions from any
bank and anywhere. (e.g. deposit cash in PNB,
Delhi branch and withdraw cash from PNB, Gujarat)
CRAR: For RRB’s it is
more than 9% (funds allotted 500 cr) and for commercial
banks it is greater than 8% (6000
cr relief package).
NBFCs: NBFC is a
company which is registered under Companies Act, 1956 and
whose main function is to provide
loans. NBFC cannot accept deposit or issue
demand draft like other
commercial banks. NBFCs registered with RBI have been
classified as AssetFinance
Company (AFC), Investment Company (IC) and Loan
Company (LC).
IIFCL: India
Infrastructure Finance Company Limited. It gives guarantee to infra
bonds.
IFPRI: International
Food Policy Research Institute. It identifies and analyses
policies for meeting the food
needs of the developing world.
Currency swap: It is a
foreign-exchange agreement between two parties to exchange
aspects (namely the principal
and/or interest payments) of a loan in one currency for
equivalent aspects of an equal in
net present value loan in another currency. Currency
swap is an instrument to manage
cash flows in different currency.
WPI: Wholesale Price
Index is an index of the prices paid by retail stores for the
products they ultimately resell
to consumers. New series is 2004 2005. (The new
series has been prepared by
shifting the base year from 1993-94 to 2004-05). Inflation
in India is measured on WPI
index.
MAT: Minimum
Alternate Tax is the minimum tax to be paid by a company even
though the company is not making
any profit.
Future trading: It’s a future
contract/agreement between the buyers and sellers to
buy and sell the underlying
assets in the future at a predetermined price.
Reverse
mortgage: It’s
a scheme for senior citizens.
Basel 2nd norms:
BCBS
has kept some restrictions on bank for the maintenance of
minimum capital with them to
ensure level playing field. Basel II has got three pillars:
Pillar 1- Minimum capital
requirement based on the risk profile of bank.
Pillar 2- Supervisory review of
banks by RBI if they go for internal ranking.
Pillar 3- Market discipline.
Microfinance
institutions: Those
institutions that provide financial services to lowincome
clients. Microfinance is a broad
category of services, which includes
microcredit. Microcredit is
provision of credit services to poor clients.
NPCI: National
Payments Corporation of India.
DWBIS: Data Warehousing
and Business Intelligence System, a type of system
which is launched by SEBI. The
primary objective of DWBIS is to enhance the
capability of the investigation and surveillance
functions of SEBI.
TRIPS: Trade Related
Intellectual Property Rights is an international agreement
administered by the World Trade
Organisation (WTO) that sets down minimum
standards for many forms of
intellectual property (IP) regulation as applied to
nationals of other WTO Members.
TRIMs: Trade Related
Investment Measures. A type of agreement in WTO.
SDR: Special Drawing
Rights, SDR is a type of monetary reserve currency, created
by the International Monetary
Fund. SDR can be defined as a “basket of national
currencies”. These national
currencies are Euro, US dollar, British pound and
Japanese yen. Special Drawing
Rights can be used to settle trade balances between
countries and to repay the IMF.
American dollar gets highest weightage.
LTD: Loan-To-Deposit
Ratio. A ratio used for assessing a bank’s liquidity by
dividing the bank’s total loans
by its total deposits. If the ratio is too high, it means
that banks might not have enough
liquidity to cover any fund requirements, and if the
ratio is too low, banks may not
be earning as much as they could be.
CAD: Current Account
Deficit. It means when a country’s total imports of goods,
services and transfers is greater
than the country’s total export of goods, services and
transfers.
LERMS: Liberalized
Exchange Rate Management System.
FRP: Fair and
Remunerative Price, a term related to sugarcane. FRP is the minimum
price that a sugarcane farmer is
legally guaranteed. However sugar Mills Company
gives more than FRP price.
STCI: Securities
Trading Corporation of India Limited was promoted by the Reserve
Bank of India (RBI) in 1994 along
with Public Sector Banks and All India Financial
Institutions with the objective
of developing an active, deep and vibrant secondary
debt market.
IRR: Internal Rate of
Return. It is a rate of return used in capital budgeting to
measure and compare the
profitability of investments.
CMIE: Centre for
Monitoring Indian Economy. It is India’s premier economic
research organisation. It
provides information solutions in the form of databases and
research reports. CMIE has built
the largest database on the Indian economy and
companies.
TIEA: Tax Information
Exchange Agreement. TIEA allows countries to check tax
evasion and money laundering.
Recently India has signed TIEA with Cayman Islands.
Contingency
Fund: It’s
a fund for emergencies or unexpected outflows, mainly
economic crises. A type of
reserve fund which is used to handle unexpected debts that
are outside the range of the
usual operating budget.
FII: Foreign Institutional
Investment. The term is used most commonly in India to
refer to outside companies investing in the
financial markets of India. International
institutional investors must
register with the Securities and Exchange Board of India
to participate in the market.
P-NOTES: “P” means
participatory notes.
MSF: Marginal
Standing Facility. Under this scheme, banks will be able to borrow
upto 1% of their respective net
demand and time liabilities. The rate of interest on the
amount accessed from this
facility will be 100 basis points (i.e. 1%) above the repo
rate. This scheme is likely to
reduce volatility in the overnight rates and improve
monetary transmission.
FIU: Financial
Intelligence Unit set by the Government of India on 18 November
2004 as the central national
agency responsible for receiving, processing, analysing
and disseminating information
relating to suspect financial transactions.
SEBI: Securities and
Exchange Board of India. SEBI is the primary
governing/regulatory body for the
securities market in India. All transactions in the
securities market in India are
governed and regulated by SEBI. Its main functions are:
1. New issues (Initial Public
Offering or IPO)
2. Listing agreement of companies
with stock exchanges
3. Trading mechanisms 4. Investor
protection
5. Corporate disclosure by listed
companies etc.
Note: SEBI is also
known as capital regulator or mutual funds regulator or market
regulator. SEBI also created
investors protection fund and SEBI is the only
organization which regulates the
credit rating agencies in India. (CRISIL and CIBIL).
FINANCIAL REGULATORS IN INDIA:
RBI, SEBI, FMCI (Forward Market
Commission of India), IRDA etc.
ASBA: Application
Supported by Blocked Amount. It is a process developed by the
SEBI for applying to IPO. In
ASBA, an IPO applicant’s account doesn’t get debited
until shares are allotted to him.
DEPB Scheme: Duty Entitlement
Pass Book. It is a scheme which is offered by the
Indian government to encourage
exports from the country. DEPB means Duty
Entitlement Pass Book to
neutralise the incidence of basic and special customs duty
on import content of export
product.
LLP: Limited
Liability Partnership, is a partnership in which some or all partners
(depending on the jurisdiction)
have limited liability.
Balance sheet: A financial
statement that summarises a company’s assets, liabilities
and shareholders’ equity at a
specific point in time.
TAN: Tax Account
Number, is a unique 10-digit alphanumeric code allotted by the
Income Tax Department to all
those persons who are required to deduct tax at the
source of income.
PAN: Permanent
Account Number, as per section 139A of the Act obtaining PAN is
a must for the following
persons:-
1. Any person whose total income
or the total income of any other person in respect
of which he is assessable under
the Act exceeds the maximum amount which is not
chargeable to tax.
2. Any person who is carrying on
any business or profession whose total sales,
turnover or gross receipts are or
are likely to exceed Rs. 5 lakh in any previous year.
3. Any person who is required to
furnish a return of income under section 139(4) of
the Act.
JLG: Joint Liability
Group, when two or more persons are both responsible for a
debt, claim or judgment.
REER: Real Effective
Exchange Rate.
NEER: Nominal
Effective Exchange Rate.
Contingent Liability: A liability
that a company may have to pay, but only if a certain
future event occurs.
IRR: Internal Rate of
Return, is a rate of return used in capital budgeting to measure
and compare the profitability of
investments.
MICR: Magnetic Ink
Character Recognition. A 9-digit code which actually shows
whether the cheque is real or
fake.
UTR Number: Unique
Transaction Reference number. A unique number which is
generated for every transaction
in RTGS system. UTR is a 16-digit alphanumeric
code. The first 4 digits are a
bank code in alphabets, the 5th one is the message code,
the 6th and 7th mention the year,
the 8th to 10th mentions the date and the last 6 digits
mention the day’s serial number
of the message.
RRBs: Regional Rural
Banks. As its name signifies, RRBs are specially meant for
rural areas, capital share being
50% by the central government, 15% by the state
government and 35% by the
scheduled bank.
MFI: Micro Finance
Institutions. Micro Finance means providing credit/loan (micro
credit) to the weaker sections of
the society. A microfinance institution (MFI) is an
organisation that provides
financial services to the poor.
PRIME LENDING
RATE: PLR
is the rate at which commercial banks give loans to
its prime customers (most
creditworthy customers).
BASE RATE: A minimum rate
that a bank is allowed to charge from the customer.
Base rate differs from bank to
bank. It is actually a minimum rate below which the
bank cannot give loan to any
customer. Earlier base rate was known as BPLR (Base
Prime Lending Rate).
EMI: Equated Monthly
Installment. It is nothing but a repayment of the loan taken. A loan could be a
home loan, car loan or personal loan. The monthly payment is in the
form of post dated cheques drawn
in favour of the lender. EMI is directly proportional
to the loan taken and inversely
proportional to time period. That is, if the loan amount
increases the EMI amount also
increases and if the time period increases the EMI
amount decreases.
Basis points
(bps): A
basis point is a unit equal to 1/100th of a percentage point. i.e.
1 bps = 0.01%. Basis points are
often used to measure changes in or differences
between yields on fixed income
securities, since these often change by very small
amounts.
Liquidity: It refers to how
quickly and cheaply an asset can be converted into cash.
Money (in the form of cash) is
the most liquid asset.
Certificate of
Deposit (CD) is
a negotiable money market instrument and issued in
dematerialised form for funds
deposited at a bank or other eligible financial institution
for a specified time period.
Commercial Paper
(CP) is
an unsecured money market instrument issued in the
form of a promissory note. It was
introduced in India in 1990. Corporates and the All-
India Financial Institutions are
eligible to issue CP.
Indian Banking
Structure
Types of banks in India
Central Bank (RBI)
Specialised banks
Commercial banks
Development banks
Co-operative banks
Central Bank:
As its name signifies, a bank
which manages and regulates the banking system of a
particular country. It provides
guidance to other banks whenever they face any
problem (that is why the Central
Bank is also known as a banker’s bank) and
maintains the deposit accounts of
all other banks. Central Banks of different
countries: Reserve Bank of India
(INDIA), Federal Reserve System (USA), Swiss
National Bank (SWITZERLAND),
Reserve Bank of Australia (AUSTRALIA), State
Bank of Pakistan (PAKISTAN).
Specialised
Banks:
Those banks which are meant for
special purposes. For examples: NABARD, EXIM
bank, SIDBI, IDBI.
NABARD: National Bank
for Agriculture and Rural Development. This bank is
meant for financing the
agriculture as well as rural sector. It actually promotes
research in agriculture and rural development.
EXIM bank: Export Import
Bank of India. This bank gives loans to exporters and
importers and also provides
valuable information about the international market. If
you want to set up a business for
exporting products abroad or importing products
from foreign countries for sale
in our country, EXIM bank can provide you the
required support and assistance.
SIDBI: Small Industries
Development Bank of India. This bank provides loans to set
up the small-scale business unit
/ industry. SIDBI also finances, promotes and
develops small-scale industries.
Whereas IDBI (Industrial Development Bank of
India) gives loans to big
industries.
Commercial
banks:
Normal banks are known as commercial
banks, their main function is to accept
deposits from the customer and on
the basis of that they grant loans. (Loans could be
short-term, medium-term and
long-term loans.) Commercial banks are further
classified into three types.
(a) Public sector banks
(b) Private sector banks
(c) Foreign banks
(a) Public Sector Banks (PSB):
Government banks are known as PSB. Since the
majority of their stakes are held
by the Government of India. (For example: Allahabad
Bank, Andhra Bank, Bank of
Baroda, Bank of India, Bank of Maharastra, Canara
Bank, Central Bank of India etc).
(b) Private Sector Banks: In
these banks, the majority of stakes are held by the
individual or group of persons.
(For example: Bank of Punjab, Bank of Rajasthan,
Catholic Syrian Bank, Centurion
Bank etc).
(c) Foreign Banks: These banks
have their headquarters in a foreign country but they
operate their branches in India.
For e.g. HSBC, Standard Chartered Bank, ABN Amro
Bank.
Development
banks:
Such banks are specially meant
for giving loans to the business sector for the purchase
of latest machinery and
equipments. Examples: SFCs (State Financial Corporation of
India) and IFCI (Indian Finance
Corporation of India).
Co-operative
banks:
These banks are nothing but an
association of members who group together for selfhelp
and mutual-help. Their way of
working is the same as commercial banks. But
they are quite different. Co
operative banks in India are registered under the Cooperative
Societies Act, 1965. The
cooperative bank is regulated by the RBI.
Note: Co-operative banks cannot
open their branches in foreign countries while
commercial banks can do this.
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