KYC has two components - Identity and Address. Identity (Name, date of birth etc) of a customer will remain the same, but the address may change. This is the reason why banks ask you to update KYC details periodically."
"Each bank is required statutorily to maintain a prescribed minimum proportion of its demand and time liabilities in the form of designated liquid asset. This proportion is called SLR, and it refers to the supplementary liquid reserve requirements of banks, in addition to Cash Reserve Ratio (CRR). SLR is maintained by all banks (scheduled and nonscheduled) in the form of cash in hand (exclusive of the minimum CRR), current account balances with SBI and other public sector commercial banks, unencumbered approved securities and gold. RBI can prescribe SLR from 0 per cent to 40 per cent of bank's DTL (presently it is 25 per cent).
SLR has three objectives:
- To restrict expansion of banks' credit
- To increase banks' investment in approved securities
- To ensure solvency of banks
The effect of an increase in SLR by RBI is the reduction in the lending capacity of banks by pre-empting (blocking) a certain portion of their DTL (Demand & Time Liability) for government or other approved securities. It has therefore a deflationary impact on the economy, not only by reducing the supply of loanable funds of banks, but also by increasing the lending rates in the face of an increasing demand for bank credit. The reverse phenomena happens in case of a cut in SLR." "Cash Reserve Ratio (CRR) refers to the cash that all banks (scheduled and nonscheduled) are required to maintain with RBI as a certain percentage of their demand and time liabilities (DTL). As you know, demand liabilities of a bank represent its deposits which are payable on demand of the depositors (viz., current and savings deposits) and time liabilities refer to its time deposits which are repayable on the specified maturities. In order to meet these liabilities in time (i.e. to keep liquidity), a bank has to keep a regulatory cash reserve with RBI.
If a bank fails to maintain the prescribed CRR at prescribed intervals, it has to pay penal interest on the shortfall by adjustment from the interest receivable on the balances with RBI. A cut in the CRR enhances loanable funds with banks and reduces their dependence on the call and term money market. This will bring down the call rates. An increase in CRR will squeeze the liquidity in the banking system and reduce their lending operations and the call rate will tend to increase." "Reserve Bank of India is the central banking authority and regulator of the Indian Banking System, like the Federal Reserve Board in USA and Bank of England in UK. RBI was constituted under the Reserve Bank of India Act, 1934 and it draws its regulatory powers from this Act and also the Banking Regulation Act.
RBI's main objectives are to maintain financial solvency and liquidity in the banking system, stability in the exchange rate and internal value of the Rupee, to regulate the volume and flow of bank credit in tune with the national priorities and to develop financial institutions on sound lines. RBI performs multifarious functions to achieve the above said objectives. Its main functions include Notes Issuance, Government's Banker, Bankers' Bank, Banks' Supervision, Development of the Financial System, Exchange Control, and Monetary Control.
RBI's main tools of Monetary Control are Cash Reserve Ratio, Statutory Liquidity Ratio, Open Market Operations, Bank Rate and Selective Credit Control. RBI uses these tools singly or in combination to control and rectify specific monetary situations in the economy or banking system from time to time. These measures affect the volume and cost of bank credit, besides maintaining the stability of the financial system." "The Reserve Bank of India was established on April 1, 1935 according to the Reserve Bank of India Act, 1934. The chief of RBI is RBI governor. Main functions of RBI are given below:
- Banker to the Government: RBI performs merchant banking function for the central and the state governments and also acts as their banker.
- Banker to banks: RBI maintains banking accounts of all scheduled banks.
- Monetary Authority: RBI formulates implements and monitors the monetary policy of India. The objective is to maintain price stability and ensure adequate flow of credit to productive sectors.
- Regulator and supervisor of the financial system: RBI prescribes broad parameters of banking operations within which the country's banking and financial system functions. This is to maintain public confidence in the system, protect depositors’ interest and provide cost-effective banking services to the public.
- Regulator and supervisor of payment systems: RBI authorises setting up of payment systems.
- Layout standards: RBI lays down standards for operation of the payment system. Issues direction, calls for returns/information from payment system operators.
- Foreign exchange: RBI acts as the manager of Foreign Exchange based on the Foreign Exchange Management Act, 1999. This is to facilitate external trade and payment and promote orderly development and maintenance of foreign exchange market in India.
- Issuer of currency: Issues and exchanges or destroys currency and coins not fit for circulation. This is to give the public adequate quantity of supplies of currency notes and coins and in good quality.
RBI's general guidelines on SCC are:
- Banks should not allow customers dealing in SCC commodities any credit facilities including against book debts/receivables or even collateral securities like insurance policies, shares, stocks and real estate) that would directly or indirectly defeat the purpose of the SCC directives
- Credit limits against each commodity covered by SCC directives should be segregated and the SCC restrictions be applied to each of such segregated limits.
Presently, only buffer stocks of sugar, unreleased stocks of sugar with sugar mills representing free sale sugar and levy sugar are covered by SCC directives." Bank Rate is the standard rate at which RBI is prepared to buy or rediscount bills of exchange or other eligible commercial paper from banks. It is the basic cost of rediscounting and refinance facilities from RBI. The Bank Rate is therefore used by RBI to affect the cost and availability of refinance and to change the loanable resources of banks and other financial institutions. Change in the Bank Rate by RBI affects the interest rates on loans and deposits in the banking system across the board in the same direction, if not to the same extent.
After deregulation and banking reforms since 1991, RBI has gradually loosened its direct regulation of deposit and lending rates and these are left to banks to decide through their boards, with only a few exceptions. However, RBI can still affect the interest rates via changes in its Bank Rate, whenever the situation of the economy warrants it. Open Market Operations (OMOs) refer to sale or purchase of government securities (of Central or State governments or both) by RBI in the open market with a view to increase or decrease the liquidity in the banking system and thereby affect the loanable funds with banks. RBI can also alter the interest rate structure through its pricing policy for open market sale/purchase "Following are the tools used by RBI for monetary control:
- Cash Reserve Ratio (CRR)
- Statutory Liquidity Ratio (SLR)
- Bank rate
- Open Market Operations (OMOs)
- Selective Credit Control (SCC)
BSBDA allows you to bank with a zero minimum balance requirement. All the existing ‘No-frills’ accounts opened by the banks are now converted into BSBDA in compliance with the guidelines issued on August 22, 2012 by the Reserve Bank of India (RBI).
The aim of introducing BSBDA is part of the efforts of RBI for furthering financial inclusion objectives." Floating rate Term Deposits is a relatively new product and was introduced in September 2010 by a leading public sector bank. It means that the product will offer no guarantee on returns as the interest rate will change in tandem with the base rate, as and when a revision in the benchmark rate takes place. If a depositor wants flexibility in returns he can go in for the floating option. Floating rate term deposit will allow the investor to take advantage of any interest rate changes even in the short term. The primary disadvantage of Floating rate Term Deposits is that it is a complicated procedure. The customer has to be aware which way interest rate is going to go in the future and accordingly has to take an informed decision. Otherwise he may end up getting lesser returns than fixed rate products. If the base rate is revised upwards, the customer is benefited but in case of downward revision, the customer stands to lose vis-a-vis a fixed rate product. "Mobile banking in layman's terms means the using of a mobile phone to offer banking services. Banks have introduced two different products in mobile banking. One is a personal/retail banking product and the other is a product to promote financial inclusion. As a personal banking product it is offered to every savings/current account holder and provides anytime anywhere banking. The mobile banking initiatives were started by foreign and private banks followed by public sector banks.
Mobile banking service is primarily available over SMS (Short Messaging Service) or data connection or sometimes through USSD (Unstructured Supplementary Service Data). The services generally available are:
- Funds transfer (intra and interbank)
- Balance enquiry services/mini statements
- Request services (cheque book)
- Utility bill payments and credit card payments
- Demat account services
- Mobile top up
- Merchant payment, life insurance premium
- Stop payment instructions
- Providing banking service to unbanked areas and to those customers who otherwise would not have got the banking service.
- The wage earners staying away from their homes and finding it difficult and expensive to remit money to their families, can send money instantly through mobile banking.
- The wage earners can do bank transactions without visiting the bank. The advantage being that they do not lose a day’s wages which they would otherwise lose by going to the branch for getting any banking service.
- All non cash banking requirements can be carried out using mobile phones.
- ATMs
- POS terminals
- Internet banking
- Phone banking
- Mobile banking
- Branch banking
The BOP is divided into three main categories: the current account, the capital account and the financial account. " "Balance Of Trade ( BOT) is the difference between a country's imports and its exports. Balance of trade is the largest component of a country's balance of payments. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy. A country has a trade deficit if it imports more than it exports; the opposite scenario is a trade surplus.
Also referred to as ""trade balance"" or ""international trade balance.""" "Base Year is the first of a series of years in an economic or financial index. A base year is normally set to an arbitrary level of 100, so that percentage changes (either rising or falling) can be easily depicted. Any year can be chosen as a base year, but typically recent years are chosen.
For example, to find that rate of inflation (or any other economic index) between 2005 and 2010, one would make calculations using 2005 as the base year, or the first year in the time set. New, more up-to-date base years are periodically introduced to keep data current in a particular index." Variable Interest Rate is an interest rate on a loan or security that fluctuates over time, because it is based on an underlying benchmark interest rate or index that changes periodically. The obvious advantage of a variable interest rate is that if the underlying interest rate or index declines, the borrower's interest payments also fall. Conversely, if the underlying index rises, interest payments increase. "Bill Of Exchange is a non-interest-bearing written order used primarily in international trade that binds one party to pay a fixed sum of money to another party at a predetermined future date.
Bills of exchange are similar to checks and promissory notes. They can be drawn by individuals or banks and are generally transferable by endorsements. The difference between a promissory note and a bill of exchange is that this product is transferable and can bind one party to pay a third party that was not involved in its creation. If these bills are issued by a bank, they can be referred to as bank drafts. If they are issued by individuals, they can be referred to as trade drafts." "Bretton Woods was an international monetary system, in which the value of the dollar was fixed in terms of gold, and every other country held its currency at a fixed exchange rate against the dollar. When trade deficits occurred, the central bank of the deficit country financed the deficit with its reserves of international currencies.
The Bretton Woods system operated from 1946-1973 and collapsed in 1971 when the US abandoned the gold standard." Capital account is the part of a nation's balance of payments that includes purchases and sales of assets, such as stocks, bonds, and land. A nation has a capital account surplus when receipts from asset sales exceed payments for the country's purchases of foreign assets. The sum of the capital and current accounts is the overall balance of payments. Current account is the part of a nation's balance of payments which includes the value of all goods and services imported and exported, as well as the payment and receipt of dividends and interest. A nation has a current account surplus if exports exceed imports plus net transfers to foreigners. The sum of the current and capital accounts is the overall balance of payments. Currency appreciation denotes an increase in the value of one currency relative to another currency. Appreciation occurs because of a change in exchange rates; a unit of one currency buys more units of another currency. Opposite is the case with currency depreciation. "The difference between total revenue and total expenditure of the government is termed as fiscal deficit. It is an indication of the total borrowings needed by the government. While calculating the total revenue, borrowings are not included.
Generally fiscal deficit takes place either due to revenue deficit or a major hike in capital expenditure. Capital expenditure is incurred to create long-term assets such as factories, buildings and other development. A deficit is usually financed through borrowing from either the central bank of the country or raising money from capital markets by issuing different instruments like treasury bills and bonds." Foreign exchange reserves are 'only' the foreign currency deposits and bonds held by central banks and monetary authorities. Reserves enable the monetary authorities to intervene in foreign exchange markets to affect the exchange value of their domestic currency in the market. Reserves are invested in low-risk and liquid assets, often in foreign government securities. These are also known as forex reserves or FX reserves. GDP refers to the market value of all officially recognized final goods and services produced within a country in a given period, usually in one year. GDP per capita is often considered an indicator of a country's standard of living, but is is not a measure of personal income. GDP per capita exactly equals the gross domestic income (GDI) per capita. GNP is the value of all final goods and services produced within a nation in a given year by labour and property supplied by the residents of a country. It adds income earned by its citizens abroad, minus income earned by foreigners from domestic production. The Gross Domestic Income (GDI) is the total income received by all sectors of an economy within a state. It includes the sum of all wages, profits, and taxes, minus subsidies. Since all income is derived from production (including the production of services), the gross domestic income of a country should exactly equal its gross domestic product (GDP) Inflation is a rise in the prices for goods and services in an economy over a period of time. It leads to less purchasing power of goods and services by each unit of currency. It is a loss of real value in the internal medium of exchange. Central banks of most countries will try to sustain an inflation rate of 2-3%. "International Monetary Fund is an international organisation that was created in the Bretton Woods Conference of 1944. IMF serves the purpose of:
- Promoting global monetary and exchange stability (to stabilize exchange rates of world currencies in a bid to alleviate severe balance of payments problems)
- Facilitating the expansion and balanced growth of international trade
- Assisting in the establishment of a multilateral system of payments for current transactions
The IMF plays three major roles in the global monetary system:
- Surveys and monitors economic and financial developments
- Lends funds to countries with balance-of-payment difficulties
- Provides technical assistance and training for countries requesting it.
Benefits of T-Bills are that they are one among few money market instruments that are affordable to the individual investors. They are considered risk-free as they are considered to be the safest investments in the world because the respective government backs them. The only downside to T-bills is that the returns are less because Treasuries are exceptionally safe." "World Trade Organization (WTO) is an intergovernmental organization which regulates international trade. The WTO officially commenced on 1 January 1995 under the Marrakech Agreement, replacing the General Agreement on Tariffs and Trade (GATT). The WTO deals with regulation of trade between participating countries by providing a framework for negotiating trade agreements and a dispute resolution process aimed at enforcing participants' adherence to WTO agreements, which are signed by representatives of member governments.
The most important functions are to oversees the implementation, administration and operation of the covered agreements and provides a forum for negotiations and for settling disputes concerning multilateral trade relations.The WTO describes itself as ""a rules-based, member-driven organization - all decisions are made by the member governments, and the rules are the outcome of negotiations among members"". WTO cooperates closely with the two other components of the Bretton Woods system, the IMF and the World Bank" A black market or underground economy is a market in which goods or services are traded illegally. The key distinction of a black market trade is that the transaction itself is illegal. The goods or services themselves may or may not be illegal to own, or to trade through other, legal channels. Because the transactions are illegal, the market itself is forced to operate outside the formal economy that is supported by the established state power.
Common motives for operating in black markets are to trade contraband, avoid taxes, or skirt price controls or rationing. The black market is distinct from the grey market, in which commodities are distributed through channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer. The black market is considered a subset of the informal economy. Income inequality metrics or income distribution metrics are used by social scientists to measure the distribution of income, and economic inequality among the participants in a particular economy, such as that of a specific country or of the world in general. A SSI unit is any entity engaged in manufacturing, processing or preservation of goods, where the original investment in plant and machinery does not exceed Rs.100 lacs. An exception in this is that, for certain activities like hand tools, sports, hosiery, stationery, drugs and pharma etc., the capital investment limit is Rs.500 lacs. Biflation is the simultaneous existence of inflation and deflation in an economy. Biflation results when inflation in commodity assets coexists with deflation in debt-based assets. Biflation typically occurs when a fragile economic recovery causes the central bank to open up the monetary policies /actions in a bid to stimulate the economy. This may result in higher prices for certain assets such as energy and precious metals, and declining prices for leveraged assets such as real estate and automobiles. A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. These type of taxes are levied by governments to discourage individuals from such activities without making the use of the products illegal. These taxes also provide a source of government revenue Brown label ATM are those Automated Teller Machines where hardware, switching, technical management and the lease of the ATM machine is owned by a service provider, but cash management and connectivity to banking networks is provided by a sponsor bank whose brand is used on the ATM. Thus this model is about a shared network that results in tremendously cutting costs within banks. Its in view of the high cost of ATM machines and RBI's guidelines for expansion of ATMs that the the concept of Brown Label ATM network is gaining its speed. Around 50 to 60% of the current ATMs are Brown label ones. Overdraft is a deficit in a bank account caused by drawing more money than the account holds. An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the negative balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply. Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country. An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market. Repo rate is the rate at which RBI lends to commercial banks generally against government securities. Reduction in Repo rate helps the commercial banks to get money at a cheaper rate there by liquidity in the market would increase. Increase in Repo rate discourages the commercial banks to get money as the rate increases and becomes expensive. "In India, banks offer cash credit accounts to businesses to finance their ""working capital"" requirements (requirements to buy raw materials or ""current assets"", as opposed to machinery or buildings, which would be called ""fixed assets""). The cash credit account is similar to current accounts as it is a running account (i.e., payable on demand) with cheque book facility. But unlike ordinary current accounts, which are supposed to be overdrawn only occasionally, the cash credit account is supposed to be overdrawn almost continuously. The extent of overdrawing is limited to the cash credit limit that the bank sanctioned. This sanction is based on an assessment of the maximum working capital requirement of the organization minus the margin. The organization finances the margin amount from its own funds.
Generally, a cash credit account is secured by a charge on the current assets (inventory) of the organization. The kind of charge created can be either pledge or hypothecation." "SHG stands for Self Help Group. A self-help group (SHG) is a village-based financial intermediary usually composed of 10–20 local women or Men. Members make small regular savings contributions over a few months until there is enough capital in the group to begin lending. Funds may then be lent back to the members or to others in the village for any purpose.
A Self-Help Group may be registered or unregistered. It typically comprises a group of micro entrepreneurs having homogenous social and economic backgrounds, all voluntarily coming together to save regular small sums of money, mutually agreeing to contribute to a common fund and to meet their emergency needs on the basis of mutual help. They pool their resources to become financially stable, taking loans from the money collected by that group and by making everybody in that group self-employed. The group members use collective wisdom and peer pressure to ensure proper end-use of credit and timely repayment. This system eliminates the need for collateral and is closely related to that of solidarity lending, widely used by micro finance institutions.To make the bookkeeping simple, flat interest rates are used for most loan calculations.
Many self-help groups under NABARD's SHG-bank-linkage program, borrow from banks once they have accumulated a base of their own capital and have established a track record of regular repayments." "Financial inclusion or inclusive financing is the delivery of financial services at affordable costs to sections of disadvantaged and low-income segments of society, in contrast to financial exclusion where those services are not available or affordable.
Financial inclusion is the availability of banking services at an affordable cost in order to include the weaker section of the society in the banking system. The term “Financial Inclusion” was used for the first time by Kofi Annan (UN Secretary-General), during his speech in the 2004 UNESCO conference." Credit cards are often referred to as "plastic money" because they facilitate transactions and make it possible to purchase goods when currency and checkable deposits are not available. The "plastic" portion of this term refers to the plastic construction of credit cards, as opposed to paper and metal of currency, however they are not in fact money. Money is an asset. Credit cards are a liability. Credit cards are only a intermediate step when used to make purchase. The purchase is eventually completed when the credit card liability is paid off. "An account held with a commercial bank, for encouraging savings and investments is known as a Saving Account. It is the most common type of deposit account, and provides an array of facilities like ATM cum Debit Card facility with different variants, calculation of interest on a daily basis, internet banking, mobile banking, online money transfer etc.
A savings account can be opened by any individual, agency or institution (if they are registered under the Societies Registration Act, 1860). A Pvt. Ltd and a Ltd. company is not allowed to open a savings account.
A deposit account maintained with any commercial bank, for supporting frequent money transactions is known as Current Account. A number of features accompany a current account, like payment on standing instructions, transfers, overdraft facility, direct debits, no limit on the number of withdrawals/deposits, Internet Banking, etc. This type of account fulfills the very need of an organization that requires frequent money transfers in its day-to-day activity.
This type of account could be opened by an individual, Hindu Undivided Family (HUF), a company, etc. Account maintenance charges are applicable as per the bank rules. The current account is also known as checking account or a transactional account." Internet banking is a system wherein customers can conduct their transactions through the Internet. This kind of banking is also known as e-banking or online banking. Automatic bank drafts, which have become popular ways to pay recurring bills in recent years, work the same way as one-time bank drafts except that the customer's bank withdraws a fixed amount of money at the same time each month for payment of the bank draft. Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices. Banks use core banking applications to support their operations where CORE stands for "centralized online real-time environment", referencing that all the bank's branches access applications from centralized data centers. This means that the deposits made are reflected immediately on the bank's servers and the customer can withdraw the deposited money from any of the bank's branches throughout the world. A few decades ago it used to take at least a day for a transaction to reflect in the account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the datacenter only at the end of the day (EoD). Normal core banking functions will include deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels like ATMs, Internet banking, and branches. "Interest rate is the cost of borrowing or, essentially, the price of money. By manipulating interest rates, the central bank can make it easier or harder to borrow money. When money is cheap, there is more borrowing and more economic activity. For example, businesses find that projects that are not viable if they have to borrow money at 5% are viable when the rate is only 2%. Lower rates also disincentivize saving and induce people to spend their money rather than save it because they get so little return on their savings.
Savings Interest rate: Banks give a certain percentage of amount you deposited (called principal amount) this percentage is called interest rate. For example interest rate of 7% means Bank will pay you 7 INR per 100 INR per year. Central Bank (RBI) decides interest rates." "An exchange rate is a basically a rate, with the help of which one country's currency can be exchanged with the currency of another country. An exchange rate regime is closely related to that country's monetary policy. There are three basic types of exchange regimes: floating exchange, fixed exchange, and pegged float exchange.
- Fixed exchange rate system refers to a system in which exchange rate for a currency is fixed by the government
Debit cards offer the convenience of a credit card, but work in a different way. Debit cards draw money directly from your checking account when you make the purchase. They do this by placing a hold on the amount of the purchase. The then merchant sends in the transaction to their bank and it is transferred to the merchants account. It can take a few days for this to happen, and the hold may drop off before the transaction goes through. For this reason, it is important to keep a running balance of your checking account to make sure you do not accidentally overdraw your account.
A credit card is a card that allows you to borrow money in small amounts from the credit card company, typically for transactions like purchases, payments etc. The credit card company then charges you interest on your purchases, though there is generally a grace period of approximately thirty days before interest is charged if you do not carry your balance over from month to month." Debit is amount deducted from your account. Credit is amount deposited in your account. When user transfers money to another account then money is debited from your account and is credited to the other friends account. Maturity is used to denote end term for fixed deposits. For example, if you have deposited INR 1000 for 1 year under interest rate 10% on 1st Jan, then at the end of year on 31st Dec, you will get INR 1100. The date on which the term matures (here, 31st Dec) is called maturity date, and the amount (here, INR 1100) is called maturity. Money deposited for a fixed term under a interest rate is called Fixed deposit (FD). Fixed deposit is a financial instrument where a sum of money given to a bank, financial institution or company whereby the receiving entity pays interest at a specified percentage for the time duration of the deposit. The rate of interest paid for fixed deposit vary according to amount, period and from bank to bank. At the end of the time period of the deposit the amount that is originally given is returned to the investor. There also exists tax-saver fixed deposits in which you cannot withdraw money before certain number of years. For example there is a SBI plan of 5 years in which you can deposit money for 5 years but can not withdraw in mid. "Nominal GDP figures are used to determine the total value of the products and services manufactured in a country during a particular year. Real GDP figures are used when one wants to compare GDP in one year with past years, to study trends in economic growth
By definition (since real GDP is calculated using prices of a given ""base year""), real GDP has no meaning by itself unless it is compared to GDP of a different year. If a set of real GDPs from various years are calculated, each calculation uses the quantities from its own year, but all use the prices from the same base year. The differences in those real GDPs will, therefore, reflect merely differences in volume." "An index called the GDP deflator can be obtained by dividing, for each year, the nominal GDP by the real GDP. It gives an indication of the overall level of inflation or deflation in the economy. GDP Deflator can be calculated using the following formula:
GDPDeflator = \frac{Nominal GDP}{Real GDP} \times 100
"
"Fiscal Policy:- Definition: Fiscal policy is the use of government expenditure and revenue collection to influence the economy.
- Policy Tools: Taxes; amount of government spending.
- Policy-maker: Government.
Monetary policy
- Definition: Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest to attain a set of objectives oriented towards the growth and stability of the economy.
- Policy Tools: Interest rates; reserve requirements; currency peg; discount window; quantitative easing; open market operations; signalling.
- Policy-maker: Apex Banking institutions.
A common rule of thumb for recession is two quarters of negative GDP growth. The corresponding rule of thumb for a depression is a 10 percent decline in gross domestic product (GDP). Considered a rare but extreme form of recession, a depression is characterized by ""unusual"" increases in unemployment, restriction of credit, shrinking output and investment, price deflation or hyperinflation, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile/erratic relative currency value fluctuations, mostly devaluations. Generally periods labeled depressions are marked by a substantial and sustained shortfall of the ability to purchase goods relative to the amount that could be produced given current resources and technology (potential output).
A devastating breakdown of an economy (essentially, a severe depression, or hyperinflation, depending on the circumstances) is called economic collapse." "A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. A very common use of secured loans is to purchase mortgage. In this arrangement, the money from loan is used to purchase a property. The financial institution, however, is given security - a lien on the title to the house - until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it and thus recover sums owing to it. The duration of a secured loan is considerably shorter, for instance, often corresponding to the useful life of the car. While on the topic, there are also two types of auto loans: direct and indirect. A direct auto loan is where a bank gives the loan directly to a consumer. An indirect auto loan is where a car dealership acts as an intermediary between the bank or financial institution and the consumer.
Unsecured Loan is a loan that is issued and supported only by the borrower's creditworthiness, rather than by a type of collateral. An unsecured loan is one that is obtained without the use of property as collateral for the loan. Borrowers generally must have high credit ratings to be approved for an unsecured loan. These may be available from financial institutions under many different guises or marketing packages:
- credit card debt
- personal loans
- bank overdrafts
- credit facilities or lines of credit
- corporate bonds
The interest rates applicable to these different forms may vary depending on the lender, the borrower. These may or may not be regulated by law." "To calculate Real GDP, you must determine how much GDP has been changed by inflation since the base year, and divide out the inflation each year. Real GDP, therefore, accounts for the fact that if prices change but output doesn't, nominal GDP would change. Thus, when you adjust nominal GDP for price changes (inflation or deflation), you get what is known as the Real GDP. The following formula can be used in the calculation:
Real GDP = ∑ pbqt, where b denotes the base year.
To effectively compare the real GDP of two years, one can construct an index using a base year. A base year is usually an arbitrary figure (here, a particular year) which is used as a yardstick for comparison of the GDP numbers." "A Credit Union is owned by its members, who are depositors of money in the institution, and are not for profit. Any money left over after expenses and reserves is passed back to customers (members) in the form of lower fees, lower loan rates, higher deposit yields and free services.
Banks, on the other hand, are owned by shareholders and are aimed to make a profit for shareholders. Different types of banks are commercial banks, community banks, community development banks, savings banks, postal savings banks and private banks." "The various banking remittance products and services units are:
Debit Cards: Debit cards deducts money directly from a consumer’s checking account to pay for a purchase. Debit cards eliminate the need to carry cash or physical checks to make purchases. Debit card purchases can usually be made with or without a PIN.
Credit Cards: Credit cards are issued by financial company giving the holder an option to borrow funds, usually at point of sale. Credit cards charge interest and are primarily used for short-term financing. Interest usually begins one month after a purchase is made and borrowing limits are pre-set according to the individual's credit rating. Credit cards have higher interest rates than most consumer loans or lines of credit.
Travel Cards are prepaid debit cards and are useful for traveling abroad." The various banking collection services are:
- Transfer
- Local Clearing
- Electronic Clearing System
- Cheque Collection
- National Clearing
- Cash Management Service
- Bill Collection
- Global Collection
Following can be considered as some of the benefits of ECS:
- Speed and Accuracy
- Secured channel avoids manual interference (processing of transactions)
- Saves time due to systemic handling
- Benefits flow to bank, customer and user public
These services enables large customers with wide network of operations manage liquidity efficiently through speedier collection, efficient management of payments etc. Availability of MIS (management information systems) on collections and payments is a major benefit of CMS. Distributed collection and payment at point of occurrence of transactions Enables customers under CMS to reconcile their payments and collections on a daily basis. Need for Forex services arise when payments are to be made to a beneficiary in an overseas country in foreign currency, or when payments received in foreign currency needs to be realised in Indian currency. Banks maintain accounts in an overseas country to facilitate transactions involving foreign currency. Such accounts are known as "Nostro" accounts. Instead of paying through cheques, business houses draw bills at times. Bill can be demand bill or usance bill.
In case of demand bill, the invoice, bill, and document of title to goods (trade documents) are handed over to bank by seller. Banks send these to buyer’s bank for collecting payment. Buyer’s bank hands over all trade documents upon receipt of payment from buyer on a demand bill or receipt of acceptance.
In case of usance bill from buyer, Buyer’s bank remits to seller’s bank and seller gets money for goods / services sold. "Following are the fee-based services offered by banks:
- Distribution services
- Collection of taxes and bills
- DeMAT accounts
- Safekeeping and Advisory services
- Safe deposit Vaults
- Safe custody
Safe Deposit Vaults: Safekeeping facility is a traditional function of banks. Lockers are typically provided at very reasonable rates. Rents are charged per size of the locker and are payable in advance. Lockers can be hired by individuals, firms, limited companies, associations, and societies. Lockers are usually rented out for a minimum period of one year.
Safe Custody: Banks accept sealed packets for safekeeping in their strong rooms, for which a receipt is issued. Articles are returned upon the customer handing over the receipt. Banks deposit the duplicate keys of branches for safe custody with other banks in the area for use in emergencies." Advisory Service is a fee based service provided by banks.
The product offered by banks within the advisory service is investment advice. Investors need professional assistance for following purposes:
- To select the right investment options
- To track the performance of the investments
- To track the performance of the organisations in which investments have been made.
Distribution service has assumed a great importance these days as a result of:
- Generation of fee income
- Ability to provide single umbrella service
- Ability to create exit barrierc
In India, a Depository Participant (DP) is described as an agent of the depository. They are the intermediaries between the depository and the investors. At present there are two depositories registered with SEBI: Central Depository Services Limited (CDSL) and National Security Depository Limited (NSDL). Transfer Instruction For Delivery (TIFD) or delivery slip given by the seller to his DP Shares will be transferred out of seller’s DeMat account into the buyer’s DeMat account .The entire clearing process is put through a central depository." "In India, Black money refers to funds earned on the black market, on which income and other taxes have not been paid. The total amount of black money deposited in foreign banks by Indians is unknown. Some reports claim a total exceeding US$12.4 trillion are stashed in Switzerland. Other reports, including those reported by Swiss Bankers Association and the Government of Switzerland, claim that these reports are false and fabricated, and the total amount held in all Swiss banks by citizens of India is about US$2 billion.
In February 2012, the director of the Central Bureau of Investigation said that Indians have $500 billion of illegal funds in foreign tax havens, more than any other country. In March 2012, the Government of India clarified in its parliament that the CBI Director's statement on $500 billion of illegal money was an estimate based on a statement made to India's Supreme Court in July 2011." "Money laundering can be construed to mean directly or indirectly attempting to indulge in any process or activity connected with the proceeds of crime and projecting it as untainted property.
Money laundering involves a process of getting the money from illegal sources, layering it in any legal source, integrating it as part of any legal system like banking and actually using it. Since the banking as an industry has a major and significant role to play in the act of money laundering, it's a serious responsibility/ a major compliance issue on the part of banks to ensure that banking channel is not used in the criminal activity. " "Black Money is illegally earned income. Black money has always been a serious evil in any developing economy. A major initiative taken in this direction in India is the Anti Money Laundering Act 2002. A main objective of the Act was to provide for confiscation of property derived from, or involved in, money laundering.
The Act stipulates that whoever commits the offence of money laundering shall be punishable with rigorous imprisonment for a term which shall not be less than three years but may extend to seven years and also be liable to a fine which may extend to five lakh rupees. " "To prevent money laundering, banks employ a combination of various processes, such as maintenance of records of all transactions of the nature and value specified in the rules, furnish information of the transactions within the prescribed time whenever warranted and verify and maintain records of the identity of all customers are few main acts/obligations of banks to prevent Money Laundering.
Adherence to Know Your Customer norms and maintenance of all KYC records assumes a very major significance and becomes a compliance issue. Records of cash transactions and suspicious transactions are to be kept and reported as stipulated. Non compliance on any of these will render the concerned bank official liable for the offence of money laundering and guilty under the money laundering Act." "Bank clerks handle various tasks that include financial, personnel, interest & accounts administration, security and many more.
- Account clerks are responsible for opening and closing of customer accounts.
- Exchange clerks are responsible for managing translations of amount from one currency to another during transactions.
- Interest clerks keep track of interests involving those due on savings account customers and interests owed to the bank on loans and other investments.
- Statement Clerks are responsible for creating monthly balance sheets for checking customer account activities. Balance sheets reflect the transactions done over the last month.
- Loan Clerks organize information about currently running Loans.
- Security clerks are responsible for maintaining security of confidential transactional data. They keep track of various bonds, investment documents and other confidential data.
- Besides these basic clerk job profiles, bank clerks also do other administrative tasks such as data entry, typing customer letters and other important tasks.
- Registration: Registration of a company is compulsory under the Companies Act, 1956. Registration of a partnership is not compulsory under the Indian Partnership Act, 1932.
- Number of members/partners Minimum of two and maximum of fifty in case of a private company and a minimum of seven and no limit on maximum number of members in case of public company. Minimum number of two persons is required to form a partnership. The maximum number is ten for banking business and twenty for any other business.
- Legal status: A company has a legal existence separate from its own members and is viewed as a separate legal person from its members. A firm does not have, a separate legal existence different from its own partners.
- Ownership of property: The property of the company is owned by the company itself and not its members as the company has a separate legal existence. The property of the firm is owned by the partners themselves and not by the firm as a firm does not have a separate legal existence different from its own partners.
- Management: The company is managed by a board of directors elected by the shareholders. A partnership is managed by the partners except the dormant and sleeping partners.
- Perpetual existence: A company has a perpetual existence. A partnership does not have a perpetual existence.
- Contracts: A member of the company can contract with the company. A partner cannot contract with the partnership firm.
- Liability: Except in case of a company with unlimited liability, the liability of the members of the company is limited. The liability of partners in a partnership is unlimited.
- Transfer: A transferee of shares in a company becomes a member of the company and the consent of all members is not required to become a member. A person can become a partner in a partnership firm with the consent of all the partners.
- Death: The death of any or all members of the company does not determine (end) the existence of the company. Death of a partner dissolves the partnership unless the partnership deed provides otherwise.
- Agency The members of a company are not the agents of each other or of the company. Every partner of a firm is an agent of the other.
- Genuine concerns about security aspects of mobile banking
- Different mobile operating systems and diversity of devices calls in the need for Banks and telecom companies have to launch multiple mobile apps.
- Customers are reluctant to learn new technology and fail to perceive the value of incentives from the use of a new channel.
- Lack of pertinent initiatives from banks to move people to mobile banking channels
- Mobile banking in retail banking, for functions such as self service
- As a channel of financial inclusion (in retail banking), for functions such as to enable a business correspondent
- The target group is the urban middle and high income individual customers
- There are no intermediaries; the customer deals directly with the bank. This essentially provides a self service where customer makes a payment himself, or requests the bank for issue of a cheque book etc. All instructions are carried out by self.
- Account opening, cash in and cash out are generally not included in features
- Security is usually by PIN
- The target group is low income urban and rural individuals / customers
- A Business Correspondent is usually the intermediary
- Account opening, cash in and cash out are usually part of features
- Self service is generally limited to certain activities, like remittances and balance enquiry
- Other facilities like Demat etc are generally not included
- Security is either biometric or PIN
- What is invested: Involves the transfer of non-financial assets e.g.technology and intellectual capital, in addition to financial assets.
- Volatility: Having smaller in net inflows
- Management:Projects are efficiently managed
- Involvement - direct or indirect- Involved in management and ownership control; long-term interest
- Sell off: It is more difficult to sell off or pull out.
- Comes from: Tends to be undertaken by Multinational organisations
- What is invested:Only investment of financial assets.
- Volatility:Having larger net inflows
- Management: Projects are less efficiently managed
- Involvement - direct or indirect: No active involvement in management. Investment instruments that are more easily traded, less permanent and do not represent a controlling stake in an enterprise.
- Sell off: It is fairly easy to sell securities and pull out because they are liquid.
- Comes from more diverse sources e.g. a small company's pension fund or through mutual funds held by individuals; investment via equity instruments (stocks) or debt (bonds) of a foreign enterprise.
Loans or credit agreements can vary in terms of interest-rate structure, transaction fees, late penalties and other factors. A standardized computation such as the APR provides borrowers with a bottom-line number they can easily compare to rates charged by other potential lenders.
By law, credit card companies and loan issuers must show customers the APR to facilitate a clear understanding of the actual rates applicable to their agreements. Credit card companies are allowed to advertise interest rates on a monthly basis (e.g. 2% per month), but are also required to clearly state the APR to customers before any agreement is signed. For example, a credit card company might charge 1% a month, but the APR is 1% x 12 months = 12%. This differs from annual percentage yield, which also takes compound interest into account." "Annual Percentage Rate (APR) is an expression of the effective interest rate that the borrower will pay on a loan, taking into account one-time fees and standardizing the way the rate is expressed. Interest is a fee on borrowed capital. Interest rate is a ""rent on money"" to compensate the lender for foregoing other useful investments that could have been made with the loaned money.
Transaction costs and fees are taken into account when calculating APR whereas typically interest rates do not include transaction costs." "APR (Annual Percentage Rate) and APY (Annual Percentage Yield) are both related to the effective interest rate in financial transactions.
When consumers borrow from a financial institution (for a loan or a mortgage), they pay interest. The term APR is used in such cases when the financial institution lends and the consumer borrows.
APY is an analogous term used when the consumer invests (for example in a time deposit such as a CD or a savings account), the consumer earns interest. The deposit gives an yield on the amount of money invested." "Due to transactions costs and fees, the APR is always higher than the nominal interest rate. Therefore, APR represents the ""true cost"" to the borrower, and is a better measure of the cost of borrowing.
Another advantage of APR is that it allows the borrower to better compare the cost of borrowing from different lenders, since they may all have different fee structures. It is quite possible that a lender may charge a higher interest rate but a lower fees. This may be a better deal than a lender charging lower interest but high upfront transaction costs.
Since APR factors these costs in, the comparisons between lenders are fair and accurate." "APY (Annual Percentage Yield) is related to the effective interest rate in financial transactions.
APY is an analogous term used when the consumer invests (for example in a time deposit such as a CD or a savings account), the consumer earns interest. The deposit gives an yield on the amount of money invested." While in theory APR should make it easy for borrowers to compares loan offers from different lenders, in practice things are a little more complicated. This is because the in Lending Act requires lenders to include certain fees in their APR calculations, but some of these are optional to include. Different lenders calculate APR differently; the closing date they assume also impacts APR calculation. "
- GDP Stands for Gross Domestic Product and GNP for Gross National Product
- Definition: GDP is an estimated value of the total worth of a country’s production and services, on its land, by its nationals and foreigners, calculated over the course on one year GNP is an estimated value of the total worth of production and services, by citizens of a country, on its land or on foreign land, calculated over the course on one year
- GDP is calculated as consumption + investment + (government spending) + (exports − imports). GNP is calculated as GDP + NR (Net income inflow from assets abroad or Net Income Receipts) - NP (Net payment outflow to foreign assets).Both are Used in Business, Economic Forecasting calculations
- Application (Context in which these terms are used): GDP - To see the strength of a country’s local economy whereas GNP to see how the nationals of a country are doing economically
- Layman Definition: GDP is the total value of products & Services produced within the territorial boundary of a country whereas GNP is the total value of Goods and Services produced by all nationals of a country (whether within or outside the country)
- Reduction in transaction costs and procurement costs
- Efficiency of services
- Increase in reach to global customers
- Large basket of services offered
- Increase of customer loyalty
- Attraction for new customers
- Reduction of customer’s attrition
- Easier access and quicker services
- Safer in terms of virtual money
- Convenience of banking
- Global access
- Round the clock services available
- Cheaper services
- Integration of domestic and foreign markets
- Increased investments and capital flows
- Improved technology
- Increased competition
- Better quality of products
- New business opportunities
- Opportunities for overseas expansion
Globalisation brings:
- Fresh investments & Capital flows
- Improved technology and business practices
- Better quality / quantity of products in the market giving more choice to buyers
- Cheque purchase
- Bill purchase
- Bill discount
- Letter of credit
- Bill negotiation
- Guarantees
- Business cards, a replacement for the cash credit facility in which no interest free period is allowed for payment
In simpler terms, a borrowing facility provided by a financial institution to help an exporter finance the costs of buying or making a set of products, and then packing and transporting them before shipment occurs. A packing credit loan will often be extended if a letter of credit has been issued by a purchaser of the products that is based in another country or a confirmed order for exporting the goods exists. Packing Credit is granted for a period depending upon the circumstances of the individual case, such as the time required for procuring, manufacturing or processing (where necessary) and shipping the relative goods. Packing credit is released in one lump sum or in stages, as per the requirement for executing the orders/LC. The pre-shipment / packing credit granted has to be liquidated out of the proceeds of the bill dawn for the exported commodities, once the bill is purchased / discounted etc., thereby converting pre-shipment credit into post-shipment credit" "The process performed by banks of taking in funds from a depositor and then lending them out to a borrower is known as financial intermediation. The banking business thrives on the financial intermediation abilities of financial institutions that allow them to lend out money at relatively high rates of interest while receiving money on deposit at relatively low rates of interest.
The savings/investment process in capitalist economies is organized around financial intermediation, making them a central institution of economic growth. Financial intermediaries are firms that borrow from consumer/savers and lend to companies that need resources for investment. In contrast, in capital markets investors contract directly with firms, creating marketable securities. The prices of these securities are observable, while financial intermediaries are opaque." "Savers or Lenders are entities who have extra money or surplus savings, and Spenders of Borrowers are those entities who do not have enough money to carry out a desired activity. A financial intermediary typically facilitates the channeling of funds between lenders and borrowers indirectly.
In economics, the loanable funds market is a hypothetical market that brings savers and borrowers together, also bringing together the money available in commercial banks and lending institutions available for firms and households to finance expenditures, either investments or consumption. Savers supply the loanable funds; for instance, buying bonds will transfer their money to the institution issuing the bond, which can be a firm or government. In return, borrowers demand loanable funds; when an institution sells a bond, it is demanding loanable funds." "Banks are financial institutions that deal with common man on a day to day basis. Right from deposits to providing loans to being a collection or payment agents, banks play a critical role in today’s environment. Functions of a bank can be summarised as below:
- Accepting deposits
- Providing loans - Personal loans/Housing loans
- Providing bank accounts
- Overdraft
- Investment of Funds
- Agency Functions (collection and paying agents)
- Circulating notes / Currencies
Different types of MFs are:
- Growth funds MFs
- Dividend funds
- Income funds
- Balanced funds
- Facilitate the productive use of the community’s surplus money
- Transfer funds from savers to entrepreneurs, without any chances of loss
- Manage the following risks during lending: Credit risk, Liquidity risk, Interest rate risk
- Generate employment and promote economic welfare
- Provide business opportunities to depositors
Entities in the unorganised sector:
- Money lenders Indigenous bankers Chit funds Nidhis or mutual benefit funds Self Help Groups
Entities arising from government initiatives:
- Development Financial Institutions (DFIs)
- State Financial Corporations (SFCs)
- Insurance companies
- Mutual Funds (MFs)
- Non Banking Finance Companies (NBFCs)
All India development financial institutions:
- IFCI IDBI ICICI IIBI SIDBI
The Central Government entered the banking business with the nationalization of the Imperial Bank Of India in 1955, naming the new bank as the State Bank of India. The seven other state banks became the subsidiaries of the new bank when nationalised in 1960. In 1969, under prime minister Indira Gandhi, the Central Government nationalised an additional 14 major banks. The total deposits in the banks nationalised in 1969 amounted to 50 crores, with 84% of the total branches under government control.
Nationalization effort continued through the 1980s, and by 1991 the public sector banks accounted for 90% of the banking sector in India. In March 1992, the combined total of branches held by public sector banks was 60,646 across India, and deposits accounted for Rs. 1,10,000 crore. The majority of these banks were profitable, with only one out of the 27 public sector banks reporting a loss." There are a total of 27 PSBs in India:
- 19 Nationalised banks (Bank of Baroda, Bank of India etc)
- 6 State bank group (SBI, SBBJ, SBH, SBP, SBM, SBT)
- IDBI bank
- Bhartiya Mahila Bank
- It was created by Finance Bill 2012.
- The first BMB was opened in Mumbai on 19th November 2013, on the 94th birth anniversary of Indira Gandhi.
- India is the third country in the world to have a bank specifically for women, after Pakistan and Tanzania.
- The bank's tagline is ""Empowering Women Economically""
- The bank allows deposit from everyone, but lends solely for women.
Despite belonging to a network, the functions available at particular ATMs may vary. For example, special services such as the purchase of mobile phone minutes, may be available to own-bank, but not to network ATM cardholders. Furthermore, the network ATM owner may charge a fee for use of network cards (in addition to any fees imposed by the own-bank).
Interbank networks enable ATM cards to have access to ATMs of other banks who are members of the network when their own bank's ATM is unavailable. This is especially convenient for travelers traveling abroad, where multinational interbank networks, like Plus or Cirrus, are widely available.
Interbank networks also, through different means, permit the use of ATM cards at a point of sale through the use of a special EFTPOS terminal where ATM cards are treated as debit cards." Following are some interbank networks in India:
- BANCS
- Cashnet
- Cash Tree
- Cirrus
- IMPS
- MITR
- NFS
- PLUS
- RuPay
- Debit cards
- Credit cards
- Life Insurance products
- Cash Management services etc.
Microfinance usually includes small loan + training on financial matters. You could also say, Microfinance= Microcredit + Financial Literacy." "Base Rate is the minimum rate of interest which a bank has to charge from its customers, below which it cannot sanction a loan. This rate came into effect from July 1, 2010. Prior to ""Base Rate"", there was ""Basic Prime Lending Rate"" or BPLR introduced in 2003. It was replaced with ""Base Rate"" because in BPLR, banks had an option to loan their special customers below BPLR.
Banks may choose any benchmark to decide on the base rate. The exceptions of base rate are:
- Agriculture loans
- Govt. sponsored schemes
- Staff loans
Tier I capital consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital.
Tier II capital, also known as supplementary capital, consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities. Tier II's capital loss absorption capacity is lower than that of Tier I capital." "A cheque is a Bill of Exchange drawn on a specified banker, and not expressed to be payable otherwise than on demand. The Demand Draft is a pre-paid Negotiable Instrument, wherein the drawee bank acts as guarantor to make payment in full when the instrument is presented. Following are some of the differences between the two:
- A cheque is issued by an individual, whereas a demand draft is issued by a bank.
- A cheque is drawn by an account holder of a bank, whereas a draft is drawn by one branch of a bank on another branch of the same bank.
- In a cheque, the drawer and the drawee are different persons. But in a draft both the drawer and the drawee are the same bank.
- A cheque is defined in the Negotiable Instrument Act, 1881, whereas a demand draft has not be precisely defined in the NI Act.
- A Cheque can be dishonored for want of sufficient balance in the account. Whereas a draft cannot be dishonoured. Hence there is certainty of the payment in the case of a demand draft.
- Payment of a cheque can be stopped by the drawer of the cheque, whereas, the payment of a draft cannot be stopped.
- A cheque can be made payable either to a bearer or order. But a demand draft is always payable to order of a certain person.
- Credit Risk: Loan or NPA
- Market Risk: Money invested in the market.
- Operational risk: Day-to-Day working risks
NPA is shown at the assets side of the balance sheet whereas deposits are shown at the liability side." "A private sector bank is owned by an independent individual or company.
Public sector banks start out as banks started by the Government of a country. Majority shareholding will be with the government of the country.
Nationalized banks are banks which have had the action of nationalization performed to them due to a crisis that was destabilizing enough for the whole economy on a whole caused mainly due to the lack of liquidity in the bank, when the government steps in and tries to inject capital into the bank by lending them money in the form of debt or buying part or majority of the company." "A NBFC is a company registered under the companies act, 1956 which is involved in the business of loans, shares/stocks, etc. Non-banking financial companies are financial institutions that provide banking services, but do not hold a banking license. These institutions are not allowed to take deposits from the public. NBFCs do offer all sorts of banking services, such as loans and credit facilities, retirement planning, money markets, underwriting, and merger activities.
The basic differences between a bank and NBFC are:
- They can't accept demand deposits.
- They are not a part of the payment and settlement system and can’t issue cheques drawn on themselves
- They are not registered in the banking act and don’t have a banking license.
- They don't have to maintain CRR, SLR or CASA like banks.
Priority sector includes the following:
- Agriculture
- Micro and small enterprise
- Education loan (upto 10 lakh for study in India and upto 20 lakhs for study in foreign nations)
- Housing loan
Priority sector lending is one of the most important part of a bank’s lending and it is devoted towards those sector which are important for public welfare." "Following are some of the steps taken by banks for promote financial inclusion:
- Publicity and advertisements so that more and more people open the accounts.
- BSBDA so that potential customers who are economically backward can also open an account.
- Provide Kisan Credit card to customers with agriculture land.
- General Purpose Credit card to customers with no agricultural land, where maximum limit of withdrawal is Rs.15,000 and rate of interest is 4%.
- Ultra small banking and banking correspondents.
- Serves as an apex financing agency for the institutions providing investment and production credit for promoting the various developmental activities in rural areas
- Takes measures towards institution building for improving absorptive capacity of the credit delivery system, including monitoring, formulation of rehabilitation schemes, restructuring of credit institutions, training of personnel, etc.
- Co-ordinates the rural financing activities of all institutions engaged in developmental work at the field level and maintains liaison with Government of India, State Governments, Reserve Bank of India (RBI) and other national level institutions concerned with policy formulation
- Undertakes monitoring and evaluation of projects refinanced by it.
- NABARD refinances the financial institutions which finances the rural sector.
- NABARD helps develop,the institutions which help the rural economy,
- NABARD also keeps a check on its client institutes.
- It regulates the institution which provides financial help to the rural economy.
- It provides training facilities to the institutions working in the field of rural upliftment.
CRISIL Inclusix measures financial inclusion on the three critical parameters of basic banking services - branch penetration, deposit penetration, and credit penetration. The index uses parameters that focus only on the 'number of people' whose lives have been touched by various financial services, rather than on the 'amounts' deposited or loaned." "State Bank of India (SBI) introduced “green-channel banking” at more of its branches to promote paperless work and to facilitate faster transactions for customers. All major transactions, including withdrawals, deposits and remittances up to Rs 40,000, will be made through green-channel banking. Its called green-channel banking, since there is no paperwork in this initiative.
The customers need not fill up any pay-in slip or cheque for depositing or withdrawing money from their account. Instead they could access the services of ATMs, thus there will be no requirement of paperwork and the process of money transaction will be fast." GCC stands for Green Channel Counter. A counter meant for green channel banking where the customers need not fill up any pay-in slip or cheque for depositing or withdrawing money from their account. Instead they could access the services of ATMs, thus there will be no requirement of paperwork and the process of money transaction will be fast. "Polymer banknotes are banknotes made from a polymer such as biaxially oriented polypropylene (BOPP). Such notes incorporate many security features not available to paper banknotes, including the use of specific inks. They also last significantly longer than paper notes, resulting in a decrease in environmental impact and a reduction of production and replacement costs. Modern polymer banknotes were first developed by the Reserve Bank of Australia (RBA).
In 2015, the Reserve Bank of India plans to introduce polymer banknotes on a pilot basis and improve security features to defeat the efforts of counterfeiters." Automated Teller Machine is a computerized machine that provides the customers of banks the facility of accessing their account for dispensing cash and to carry out other financial & non-financial transactions without the need to actually visit their bank branch. ATMs are known by various other names including ATM machine, automated banking machine, "Current accounts: A current account is the form of transactional account; a current account offers various flexible payment methods to allow customers to distribute money directly to others. Most current accounts come with a cheque book and offer the facility to arrange standing orders, direct debits and payment via a debit card. Current accounts may also allow borrowing via an overdraft facility.
Savings accounts: Accounts maintained by Banks that pay interest but cannot be used directly as money in the narrow sense of a medium of exchange (for example, by writing a cheque). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. For the bank, money in a savings account may not be callable immediately and therefore often does not incur a reserve requirement freeing up cash from the bank's vault to be lent out with interest.
Fixed Deposit accounts: Also known as FD, is a financial instrument provided by Indian banks which provides investors with a higher rate of interest than a regular savings account, until the given maturity date . It may or may not require the creation of a separate account. The defining criteria for a Fixed Deposit is that the money cannot be withdrawn for the FD as against Recurring Deposit or Demand deposit before maturity. Some banks may offer additional services to FD holders such as loans against FD certificates at competent interest rates. Its important to note that banks may offer lesser interest rates under uncertain economic conditions. The interest rate varies between 4 and 11%.
Recurring Deposit accounts: Are a special kind of Term Deposits offered by banks in India which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate applicable to Fixed Deposits. It is similar to making FDs of a certain amount in monthly installments. This deposit matures on a specific date in the future along with all the deposits made every month. Thus, Recurring Deposit schemes allow customers with an opportunity to build up their savings through regular monthly deposits of fixed sum over a fixed period of time. The Recurring Deposit can be funded by Standing instructions--instructions by the customer to the bank to withdraw a certain sum of money from his Savings/ Current account and credit to the Recurring Deposit every month." "The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their non-performing assets without the intervention of the Court.
The Act provides three alternative methods for recovery of non-performing assets:
- Securitisation
- Asset Reconstruction
- Enforcement of Security without the intervention of the Court
- To issue demand notice to the defaulting borrower and guarantor, calling upon them to discharge their dues in full within 60 days from the date of the notice
- To give notice to any person who has acquired any of the secured assets from the borrower to surrender the same to the Bank.
- To ask any debtor of the borrower to pay any sum due or becoming due to the borrower.
For an example, Bank of Baroda, as of July 2015, has minimum period for a term deposit as 7 days for deposit amount of Rs.100/- lacs and above, and minimum 15 days for amounts less than Rs.100/- lacs. In certain special cases, the bank accepts deposits for periods over 10 years, although the period of deposit should not exceed 20 years. " Tax-saver FDs are popular instruments for saving on taxes. The amount invested in these FDs qualify for deductions U/S 80C of the Income Tax Act,1961. Money invested in these FDs is locked-in for at least 5 years. This is the minimum time-requirement to qualify for the deduction. Premature withdrawal is not allowed. If the deposit is encashed before maturity, the amounts held under this scheme do not qualify for deductions. 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 . "The fundamental difference between RTGS (Real Time Gross Settlement) and NEFT (National Electronic Funds Transfer), is that while RTGS is based on gross settlement, NEFT is based on net-settlement.
- Gross settlement is where a transaction is completed on a one-to-one basis without bunching with other transactions. On the other hand a Deferred Net Basis (DNS), or net-settlement means that the transactions are completed in batches at specific times. Here, all transfers will be held up until a specific time. RTGS transactions are processed throughout the working hours of the system.
- RTGS transactions involve large amounts of cash, basically only funds above Rs 2,00,000 may be transferred using this system. For NEFT, any amount below Rs 2,00,000 may be transferred, and this system is generally for smaller value transactions involving smaller amounts of money.
- RTGS processes in real-time (‘push’ transfer), while NEFT processes in cycles during the given working day. This causes a NEFT transaction that is initiated later than the last cycle to be completed the next day.
- TDR means Term Deposit and STDR means special term deposit.
- The TDR pays out the interest earned by you at a periodicity (monthly, quarterly, half yearly or yearly) chosen by you at the time of opening of the account. However, in the case of a STDR, the interest earned by you is reinvested instead of getting paid out.
- If you don't need a regular income in the form of interest payouts, it makes sense to go for a STDR as it allows you to reap the dividends of compounding. The interest accruing on your deposit with the Bank gets reinvested (or compounded) quarterly, giving you superior returns from the first year itself.
- Also Minimum tenure is 7 days for TDR and 180 days for STDR and Maximum tenure is 3650 days for TDR and STDR.
As an example consider the current interest rate of 9.25%, offered by SBI for domestic term deposits of period one year and above. While a TDR will yield a return of 9.25%, a STDR will give an yield of 9.58% at the end of the first year itself. And the longer the deposit remains with the Bank, the better the returns. A STDR for 120 months, the maximum period for which SBI accepts term deposits, will give an annual return of 14.95%." Gift Cards are Prepaid Cards, It is a better substitute for Gift Vouchers sold by many retail houses as its use is not restricted to any particular Merchant Establishment / Point of Sale. Its a product which gives the comfort of convenience and wide acceptability and also unlimited options for the beneficiary to choose. CBS (Core Banking system), Core banking is a general term used to describe the services provided by a group of networked bank branches. Bank customers may access their funds and other simple transactions from any of the member branch offices. Banks use core banking applications to support their operations where CORE stands for "centralized online real-time environment". This basically means that all the bank's branches access applications from centralized data centers. "The Dubai Debt Crisis 2009 has been called by economists a consequence of real estate bubble burst when Dubai proposed to delay repayment of its debt which includes delay in the payment of ~60 Billion debt on ""Dubai World"", the investment vehicle for the emirates for 6 months.
""Dubai World"" is an investment company that manages and supervises a portfolio of businesses and projects for the Dubai government across a wide range of industry segments and projects that promote Dubai as a hub for commerce and trading. Real estate skyrocketed the prices to unrealistic levels and Banks were willing to lend money to royal family in return for ""sovereign guarantee"". This guarantee is issued only by countries, rather than individuals. And it's considered totally safe. It's like USA issuing a guarantee that come what may, they are responsible for repaying a certain debt. These loans went to unrealistic amount and there was no check done to see if these money actually existed to pay off the banks. Soon Dubai World refused to pay back debt and proved themself bankrupt, affecting the banking industry worldwide." "Subprime" is an adjective relating to or for personnel with poor credit scores. Persons with poor credit scores would not typically qualify for conventional mortgage or loans due to higher risk that they would not able to make repayments owing to their poor credit history. Banks come out a special type of loan for this category of customers - this loan or mortgage is called "Subprime Mortgage" or "Subprime Loan". Subprime lending typically involves higher interest rates than conventional loans. "The main reasons why banks engage in subprime lending are:
- They predict the value of the property tp go up. So they increase the mortgage interest rate (higher than the conventional loan) and they call it a subprime mortgage.
- They earn more with the higher mortgage interest rate, and just in case the borrowers can’t continue the payment, they still can sell the houses with higher value due to the property appreciation.
To further reduce the risks and to get more loans (earn more money by loan interest), the banks repackage all mortgages into an investment product and may choose to sell to various financial institutions in all over the world. These financial institutions around the world are linked directly or indirectly." "The U.S. subprime mortgage crisis was a nationwide banking emergency that coincided with the U.S. recession of December 2007 – June 2009. There were many causes of the crisis, with commentators assigning different levels of blame to financial institutions, regulators, credit agencies, government housing policies, and consumers, among others. A proximate cause was the rise in subprime lending.
The trigger of the crisis was the bursting of the United States housing bubble which peaked in approximately 2005–2006. An increase in loan incentives such as easy initial terms and a long-term trend of rising housing prices had encouraged borrowers to assume risky mortgages in the anticipation that they would be able to quickly refinance at easier terms. However, once interest rates began to rise and housing prices started to drop moderately in 2006–2007 in many parts of the U.S., borrowers were unable to refinance. Defaults and foreclosure activity increased dramatically as easy initial terms expired, home prices fell, and ARM interest rates reset higher.
As housing prices fell, global investor demand for mortgage-related securities evaporated, creating a cascade of selling in these securities, which lowered their value further. The losses experienced by financial institutions on their mortgage-related securities impacted their ability to lend, slowing economic activity. Interbank lending dried-up initially and then loans to non-financial firms were affected. Concerns regarding the stability of key financial institutions drove central banks to take action to provide funds to encourage lending and to restore faith in the commercial paper markets, which are integral to funding business operations. Governments also bailed out key financial institutions, assuming significant additional financial commitments." The CRR (cash reserve ration) and SLR (Statutorily Liquidity Ratio) together is known as VRR (Variable Reserve Ratio). "When RBI wants to control inflation, it will reduce the supply of money by increasing the repo rate and/or CRR/SLR, so banks will be forced to pay a higher rate for money borrowed from RBI, hence interest rates for customers of the bank will increase. Due to this borrowings will decrease and there will be a decrease in the liquidity in the system.
If RBI wants to promote growth, it can reduce the repo rate and/or CRR/SLR or increase the reverse repo rate or do both. This will ensure that money is available cheaply to banks and to its customers hence increasing the liquidity and as a result spending power in the system." ASBA (Applications Supported by Blocked Amount) is a process developed by the India's Stock Market Regulator SEBI for applying to Initial Public Offers (IPO) and Follow-On Public Offers (FPO). If an investor is applying through ASBA, his application money shall be debited from the bank account only if his/her application is selected for allotment after the basis of allotment is finalized, or the issue is withdrawn/failed. This eliminates the need for refunds on shares not being allotted. Call Money rate is the interest rate charged by banks to brokers for money used to finance investors' margin loans. For both brokers and investors, this type of loan does not have a set repayment schedule, and must be repaid on demand. Sometimes the call money rate is also called the "broker loan rate", as it is a rate that is generally not available to individuals.
Because call loans are unsecured and callable, they are in some ways riskier than other loans, but they also provide short-term liquidity to the financial markets. This is the benchmark rate for what investors pay to buy securities on margin. A service charge or markup is typically added by the broker. Prime rate or prime lending rate is a term applied in many countries to reference an interest rate used by banks. The term originally indicated the interest rate at which banks lent to favored customers, i.e., those with good credit; but this is no longer always the case. Some variable interest rates may be expressed as a percentage above or below prime rate. Electronic commerce or EC is the buying and selling of goods and services, or the transmitting of funds or data, over an electronic network, primarily the Internet.
These business transactions occur either business-to-business, business-to-consumer, consumer-to-consumer or consumer-to-business. In other words, E-commerce is commercial transactions conducted electronically on the Internet. M-commerce, which stands for mobile commerce, was a phrase originally coined in 1997 by Kevin Duffey at the launch of the Global Mobile Commerce Forum, to mean "the delivery of electronic commerce capabilities directly into the consumer’s hand, anywhere, via wireless technology". It refers to the use of wireless handheld devices such as cellular phones and tablets to conduct commercial transactions online. "Banks and other financial institutions use mobile commerce to allow their customers to access account information and make transactions, such as purchasing stocks, remitting money. This service is often referred to as Mobile Banking, or M-Banking.
Mobile banking differs from mobile payments, which involve the use of a mobile device to pay for goods or services either at the point of sale or remotely, analogously to the use of a debit or credit card to effect an Electronic fund transfer payment." "An initial public offering, or IPO, is the first sale of stock by a company to the public. A company can raise money by issuing either debt or equity. If the company has never issued equity to the public, it's known as an IPO. Through this process, a private company transforms into a public company. The IPO process is colloquially known as ""going public"". Details of the proposed offering are disclosed to potential purchasers in the form of a lengthy document known as a prospectus.
An IPO accords several benefits to the previously private company:
- Enlarging and diversifying equity base
- Enabling cheaper access to capital
- Increasing exposure, prestige, and public image
- Attracting and retaining better management and employees through liquid equity participation
- Facilitating acquisitions (potentially in return for shares of stock)
- Creating multiple financing opportunities: equity, convertible debt, cheaper bank loans, etc.
There are several disadvantages to completing an initial public offering:
- Significant legal, accounting and marketing costs, many of which are ongoing
- Requirement to disclose financial and business information
- Meaningful time, effort and attention required of senior management
- Risk that required funding will not be raised
- Public dissemination of information which may be useful to competitors, suppliers and customers.
- Loss of control and stronger agency problems due to new shareholders
- Increased risk of litigation, including private securities class actions and shareholder derivative actions
SWIFT codes are used when transferring money between banks, particularly for international wire transfers. Banks also used the codes for exchanging other messages between them. A majority of FOREX related message are sent to correspondent banks abroad through SWIFT.
The SWIFT code consists of 8 or 11 characters. When a 8-digit code is provided, it usually refers to the primary office.
- First 4 characters: bank code (only letters)
- Next 2 characters: country code (only letters)
- Next 2 characters: location code (letters and digits)
- Last 3 characters: branch code, optional ('XXX' for primary office) (letters and digits)
The registrations of SWIFT Codes are handled by Society for Worldwide Interbank Financial Telecommunication (“SWIFT”) and their headquarters is located in La Hulpe, Belgium." Immediate Payment Service (IMPS) is an instant interbank electronic fund transfer service through mobile phones, started in Nov. 2010. It is also being extended through other channels such as ATM, Internet Banking, etc. IMPS is one of the most prominent electronic funds transfer systems of India, offering real-time remittance service anytime, anywhere across the country.Using IMPS, customers can transfer money to any person or to a merchant, for any personal or commercial purpose. MMID (Mobile Money Identifier) is an acronym usually used in association with IMPS (Immediate Payment Service). MMID is a 7 digit code issued by a participating bank to their Mobile Banking registered customers for availing IMPS service as a beneficiary. Customers will have different MMIDs for different accounts and all these could be linked to a single registered mobile number. "Yes, following beneficiary details are required for person to person remittance:
- MMID of the beneficiary
- Mobile number of the beneficiary
- Name of the beneficiary
For IMPS remittance of Person to Account, the beneficiary details required are:
- Name of the beneficiary
- Account Number of the beneficiary
- IFSCCode of the beneficiary bank
The data source is typically a spreadsheet or a database which has a field or column for each variable in the template. When the mail merge is run, the word processing system creates an output document for each row in the database, using the fixed text exactly as it appears in the template, but substituting the data variables in the template with the values from the matching columns.
Mail merging is done in following simple steps:
- Creating a Main document.
- Creating a Data Source.
- Adding the merge fields into main document.
- Merging the data with the main document.
Bancassurance concept originated in France and soon became a success story in other European countries. In India a number of insurers have already partnered with banks, of which some have already commenced bancassurance through select products. Bancassurance is still prohibited in many countries.
Bancassurance has become significant in India; banks are now a major distribution channel for insurance companies, and insurance sales pause a significant source of profits for banks, primarily resting on the relationship the customer has developed over a period of time with the bank." "Bancassurance or bank insurance model (BIM) allows the insurance company to maintain smaller direct sales teams as their products are sold through the bank to bank customers by bank staff and employees as well. Bank staff and tellers, rather than an insurance salesperson, become the point of sale and point of contact for the customer. Bank staff are advised and supported by the insurance company through product information, marketing campaigns and sales training.
The bank and the insurance company share the commission. Insurance policies are processed and administered by the insurance company. This partnership arrangement can be profitable for both companies. Banks can earn additional revenue by selling the insurance products, while insurance companies are able to expand their customer base without having to expand their sales forces or pay commissions to insurance agents or brokers.
Pushing risk products through banks is a much more cost-effective measure for an insurance company compared to the agent route, while, for banks, considering the falling interest rates, fee based income coming in at a minimum cost is a great revenue channel. The profit for banks also partly rests on the fact that banks can often sell insurance at better prices (i.e., higher premiums) than many other channels, and they have low costs as they use the infrastructure (branches and systems) that they use for banking." Cold calling is defined as the solicitation of business from potential customers who have had no prior contact with the salesperson conducting the call, therefore making the call cold. Cold calling is used to attempt to convince potential customers to purchase either the salesperson’s product or service. Cold calling is generally referred to as an over-the-phone process, making it a source of telemarketing, but can also be done in-person by door-to-door salespeople. This is one among various marketing techniques widely used. "Warm calling is the solicitation of a potential customer with whom a sales representative or business has had prior contact, such as an introduction at a business event or a referral, or with a customer who filled out a postcard or online request for information. It is the opposite of cold calling – the solicitation of prospects who were not anticipating such an interaction, with whom the sales representative or business has not had prior contact.
Warm calling and the use of more effective sales channels such as email, text message marketing and social media portals are considered to be more efficient and effective than cold calling in generating new leads. Modern social media portals – such as LinkedIn, Twitter and Facebook – also allow opportunities for potential clients to reach out indirectly or directly to businesses by posting comments on a blog, sharing an article with a peer or tweeting something that is of interest." "Marketing refers to the broad range of activities performed by an entity in relation to buying and selling a product or service. Marketing includes advertising, selling and delivering products to people. Marketing departments try to get the attention of target audiences by using slogans, packaging design, celebrity endorsements and general media exposure. The four 'Ps' of marketing are product, place, price and promotion.
Marketing is sometimes defined as ‘putting the right product in the right place, at the right place, at the right time.’ The ultimate goal of marketing is to match a company's products and services to the people who need and want them, thereby ensure profitability." "The Marketing mix is a set of four decisions which needs to be taken before launching any new product. These variables, also known as the 4 P’s of marketing, are Price, Product, Promotion and Place. These four variables help the firm in making strategic decisions necessary for the smooth running of any product / organization. The term ""marketing-mix"" was first coined by Neil Borden, the president of the American Marketing Association in 1953.
In the 1990s, the concept of four C's was introduced as a more customer-driven replacement of four P's. There are two theories based on four Cs: Lauterborn's four Cs (consumer, cost, communication, convenience), and Shimizu's four Cs (commodity, cost, communication, channel).
In 2012, a new four P's theory was proposed with people, processes, programs, and performance." Product is one among the 4Ps of Marketing Mix. A product is either a tangible good or an intangible service that is seem to meet a specific customer need or demand. All products follow a logical product life cycle and it is vital for marketers to understand and plan for the various stages and their unique challenges. It is key to understand those problems that the product is attempting to solve. The benefits offered by the product and all its features need to be understood and the unique selling proposition of the product need to be studied. In addition, the potential buyers of the product need to be identified and understood. Price is one among the 4Ps of Marketing Mix. Price covers the actual amount the end user is expected to pay for a product. How a product is priced will directly affect how it sells. This is linked to what the perceived value of the product is to the customer rather than an objective costing of the product on offer. If a product is priced higher or lower than its perceived value, then it will not sell. This is why it is imperative to understand how a customer sees what you are selling. If there is a positive customer value, than a product may be successfully priced higher than its objective monetary value. Price may also be affected by distribution plans, value chain costs and markups and how competitors price a rival product. Promotion is one among the 4Ps of Marketing Mix. The marketing communication strategies and techniques all fall under the promotion heading. These may include advertising, sales promotions, special offers and public relations. Whatever the channel used, it is necessary for it to be suitable for the product, the price and the end user it is being marketed to. It is important to differentiate between marketing and promotion. Promotion is just the communication aspect of the entire marketing function. Place is one among the 4Ps of Marketing Mix, and refers to the distribution channel of a product, about how the product will be provided to the customer. The placement strategy will help assess what channel is the most suited to a product. For example, If the product is a consumer product, it should to be available as far and wide as possible. On the other hand, if the product is a premium consumer product, it probably should to be available only in selected stores. Similarly, if the product is a business product, a team should probably be organized to interact with businesses and make the product available to them. Thus the place where the product is distributed, depends on the product and pricing decisions, as well as any business decisions taken by a firm. "A target market is a specific, well-defined segment of consumers that a company plans to target with its products, services and marketing activities. Target marketing orients all of the various components of the marketing function toward a single group, maximizing the appeal of brands to specific markets.
In terms of advertising, target group is the particular group of people that an advertisement is intended to reach. An ad may be of no interest to a viewer or reader who is not in the target group." Banking Ombudsman is a quasi judicial authority functioning under India's Banking Ombudsman Scheme 2006, and the authority was created pursuant to a decision made by the Government of India to enable an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme. "Capital Adequacy Ratio (CAR), also known as Capital to Risk (Weighted) Assets Ratio (CRAR), is the ratio of a bank's capital to its risk. National regulators track a bank's CAR to ensure that it can absorb a reasonable amount of loss and complies with statutory Capital requirements. CAR is calculated using the following formula:
CAR = \frac{(Tier 1 Capital + Tier 2 Capital)}{Risk Weighted Assets}
This ratio is used to protect depositors and promote the stability and efficiency of financial systems around the world. Two types of capital are measured: tier one capital, which can absorb losses without a bank being required to cease trading, and tier two capital, which can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors." Insurance Regulatory and Development Authority of India (IRDAI) is the autonomous apex statutory body which regulates and develops the insurance industry in India. Mission of IRDA is to protect the interests of the policyholders, to regulate, promote and ensure orderly growth of the insurance industry and for matters connected therewith or incidental thereto. "Insurance Regulatory and Development Authority of India (IRDAI) is the autonomous apex statutory body which regulates and develops the insurance industry in India. The powers and functions of IRDA are:
- Registering and regulating insurance companies
- Protecting policyholders’ interests
- Licensing and establishing norms for insurance intermediaries
- Promoting professional organisations in insurance
- Regulating and overseeing premium rates and terms of non-life insurance covers
- Specifying financial reporting norms of insurance companies
- Regulating investment of policyholders’ funds by insurance companies
- Ensuring the maintenance of solvency margin by insurance companies
- Ensuring insurance coverage in rural areas and of vulnerable sections of society
- Direct finance to exporter of goods
- Direct finance to software exports and consultancy services
- Finance for overseas joint ventures and turnkey construction project
- Finance for import and export of machinery and equipment on lease basis
- Finance for deferred payment facility
- Issue of guarantees
- Multi-currency financing facility to project exporters
- Export bills re-discounting
- Refinance to commercial banks in India
- Guaranteeing the obligations
SIDBI's functions include:
- Providing guarantees to banks for collateral-free loans extended to SME
- Providing refinance support to banks/development finance institutions.
- Undertaking direct financing of SMEunits.
- Coordination of functions of various institutions engaged in finance to SMEs
NHB registers, regulates and supervises Housing Finance Company (HFCs), keeps surveillance through On-site & Off-site Mechanisms and co-ordinates with other Regulators." "National Housing Bank (NHB) has been established to achieve, among others, the following objectives:
- To promote a sound, healthy, viable and cost effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system.
- To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups.
- To augment resources for the sector and channelise them for housing.
- To make housing credit more affordable.
- To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act.
- To encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the housing stock in the country.
- To encourage public agencies to emerge as facilitators and suppliers of serviced land, for housing.
- Security thread: Rs.10, Rs.20 and Rs.50 notes contain a readable but fully embedded security-windowed security thread. Rs.100, Rs.500 and Rs.1000 notes contain a readable-windowed security thread. This thread is partially exposed and partially embedded. When held against light, this thread can be seen as one continuous line. Other than on Rs.1000 notes, this thread contains the words 'Bharat' in the Devanagri script and 'RBI' appearing alternately. The security thread of the Rs.1000 note contains the inscription 'Bharat' in the Devanagri script, '1000' and 'RBI'. Notes issued earlier have a plain, non-readable fully embedded security thread.
- Latent Image: A vertical band behind on the right side of the Mahatma Gandhi’s portrait, which contains a latent image, showing the denominational value 20, 50, 100, 500 or 1000 as the case may be. The value can be seen only when the note is held on the palm and light allowed to fall on it at 45°; otherwise this feature appears only as a vertical band.
- Microletterings: This feature appears between the vertical band and Mahatma Gandhi portrait. It contains the word ‘RBI’ in Rs.10. Notes of Rs.20 and above also contain the denominational value of the notes. This feature can be seen better under a magnifying glass.
- Identification mark: A special intaglio feature has been introduced on the left of the watermark window on all notes except Rs.10/- note. This feature is in different shapes for various denominations (Rs.20-Vertical Rectangle, Rs.50-Square, Rs.100-Triangle, Rs.500-Circle, Rs.1000-Diamond) and helps the visually impaired to identify the denomination.
- Intaglio Printing: The portrait of Mahatma Gandhi, Reserve Bank seal, guarantee and promise clause, Ashoka Pillar Emblem on the left, RBI Governor's signature are printed in intaglio i.e. in raised prints in Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 notes.
- Fluorescence: The number panels of the notes are printed in fluorescent ink. The notes also have optical fibres. Both can be seen when the notes are exposed to ultra-violet lamp.
- Optically Variable Ink: The numeral 500 & 1000 on the Rs.500 [revised colour scheme of mild yellow, mauve and brown] and Rs.1000 notes are printed in Optically Variable Ink viz., a colour-shifting ink. The colour of these numerals appear green when the notes are held flat but would change to blue when the notes are held at an angle.
The central bank issued guidelines for this business in June 2012, and authorized eight companies to set up WLAs; according to data available on the National Payments Corp. of India (NCPI) website, these companies have collectively opened 7,100 ATMs until February 2015." "Following are some differences between ATM and WLA from a customer's perspective:
- The logo displayed on While Label ATM machine and in ATM premises would be that of the WLA Operator instead of a bank. However, for a customer, using WLA is just like using the ATM of other bank (ie, any bank other than the bank which issued the card).
- Acceptance of cash deposits is not permitted at present at WLAs
- Being non-bank owned ATMs, the guidelines on five free transactions in a month for using other bank ATMs would not be applicable for transactions effected on the WLAs. The charges for the transactions should be displayed on the screen before the customer initiates the transaction.
- Account Information
- Mini/Short Statement
- PIN change
- Request for Cheque Book
- Cash Deposit (not permitted at WLAs)
- Regular Bills Payment (not permitted at WLAs)
- Purchase of Re-load Vouchers for Mobiles (not permitted at WLAs)
- Debit cards
- Credit cards
- Prepaid cards
If a complainant does not get satisfactory response from his/her bank within a maximum period of thirty (30) days from the date of his lodging the complaint, he/she will have the option to approach the Office of the Banking Ombudsman (in appropriate jurisdiction) for redressal of his grievance." Speed Clearing refers to collection of outstation cheques (a cheque drawn on non-local bank branch) through the local clearing. It facilitates collection of cheques drawn on outstation core-banking-enabled branches of banks, if they have a networked branch locally. "The collection of outstation cheques, earlier required movement of cheques from the Presentation centre (city where the cheque is presented) to Drawee centre (city where the cheque is payable) which increases the realisation time for cheques. Speed Clearing aims to reduce the time taken for realisation of outstation cheques.
Even though Speed clearing hastens the process of cheque collection as compared to outstation cheque collection, it pre-supposes the presence of the drawee bank branch in the clearing house location.
As on date, the local cheques are processed on T+1 working day basis and customers get the benefit of withdrawal of funds on a T+1 or 2 basis. 'T' denotes transaction day viz. date of presentation of cheque at the Clearing House. So, the outstation cheques under Speed Clearing will also be paid on T+1 or 2 basis like any other local cheque." "A person who had an outstation cheque used to deposit it with the person's bank branch. This bank branch is called the Presenting branch. The cheque, would be sent for collection to the city where it was payable / drawn called Destination centre or Drawee centre. The branch providing the collection service is called the Collecting branch. On receipt of the cheque, the Collecting branch use to present the physical instrument in local clearing at the drawee bank branch location through its branch at the drawee bank branch location. Once the cheque was paid, the Collecting branch use to remit the proceeds to the Presenting branch. On receipt of realisation advice of the cheque from the Collecting branch, the customer’s account was credited. This was the process of Collection before the introduction of Speed Clearing.
When a cheque was accepted on a collection basis by a bank, the customer’s account was credited only after realisation of proceeds. In the absence of a clearing arrangement at the Destination centre, the Presenting branch would send the cheque directly to the Destination branch for payment. On receipt of proceeds from Destination branch, Presenting branch credited it to customer’s account." Generally, it takes around a week to three weeks’ time depending on the drawee centre and collection arrangements to get outstation cheques realised on a Collection basis. "Following are some of the characteristics of Local Cheque Clearing:
- In Local Cheque Clearing at major centres, cheques are processed by using Cheque Truncation Systems (CTS) through movement of images. In addition, Express Cheque Clearing Systems (ECCS) application package is used in small clearing houses.
- Local Clearing handles only those cheques that are drawn on branches within the jurisdiction of the local Clearing House. Generally, the jurisdiction is determined taking into account the logistics available to physically move to and from the Clearing House
- It may however be noted, under grid-based CTS clearing, all cheques drawn on bank branches falling within in the grid jurisdiction are treated and cleared as local cheques. The grid clearing allows banks to present/ receive cheques to/ from multiple cities to a single clearing house through their service branches in the grid location.
- Step 1: An individual / firm / corporate intending to originate transfer of funds through NEFT has to fill an application form providing details of the beneficiary (like name of the beneficiary, name of the bank branch where the beneficiary has an account, IFSC of the beneficiary bank branch, account type and account number) and the amount to be remitted. The application form will be available at the originating bank branch. The remitter authorizes his/her bank branch to debit his account and remit the specified amount to the beneficiary. Customers enjoying net banking facility offered by their bankers can also initiate the funds transfer request online. Some banks offer the NEFT facility even through the ATMs. Walk-in customers will, however, have to give their contact details (complete address and telephone number, etc.) to the branch. This will help the branch to refund the money to the customer in case credit could not be afforded to the beneficiary’s bank account or the transaction is rejected / returned for any reason.
- Step 2: The originating bank branch prepares a message and sends the message to its pooling center (also called the NEFT Service Center).
- Step 3: The pooling center forwards the message to the NEFT Clearing Centre (operated by National Clearing Cell, Reserve Bank of India, Mumbai) to be included for the next available batch.
- Step 4: The Clearing Center sorts the funds transfer transactions destination bank-wise and prepares accounting entries to receive funds from the originating banks (debit) and give the funds to the destination banks(credit). Thereafter, bank-wise remittance messages are forwarded to the destination banks through their pooling center (NEFT Service Center).
- Step 5: The destination banks receive the inward remittance messages from the Clearing Center and pass on the credit to the beneficiary customers’ accounts.
- Bharatiya Reserve Bank Note Mudran Pvt Ltd (BRBNMPL)
- Security Printing and Minting Corporation of India Ltd (SPMCIL).
Based on Ministry of Finance data, cost of printing currency are as below:
- Printing cost one Rs.1000 note: Rs. 2.6 (BRBNMPL) and Rs. 3.1 (SPMCIL)
- Printing cost one Rs.100 note: Rs. 1.2 (BRBNMPL) and Rs. 1.4 (SPMCIL)
This act makes offences related to foreign exchange civil offenses. It enabled a new foreign exchange management regime consistent with the emerging framework of the World Trade Organisation (WTO). It also paved the way for the introduction of the Prevention of Money Laundering Act 2002, which came into effect from 1 July 2005.
Unlike other laws where everything is permitted unless specifically prohibited, under this act everything was prohibited unless specifically permitted. Hence the tenor and tone of the Act was very drastic. It required imprisonment even for minor offences. Under FERA a person was presumed guilty unless he proved himself innocent, whereas under other laws a person is presumed innocent unless he is proven guilty.
FEMA is thus a regulatory mechanism that enables the Reserve Bank of India and the Central Government to pass regulations and rules relating to foreign exchange in tune with the Foreign Trade policy of India." "A foreign currency convertible bond (FCCB) is a type of corporate bond issued by an Indian listed company in an overseas market and hence, in a currency different from that of the issuer. The highlight of the FCCB, however, is the option of converting the bonds into equity at a price determined at the time the bond is issued. It also has the benefits of a debt instrument as it includes guaranteed returns or yields which are payable in foreign currency.
FCCBs have a maturity period of about five years during which no call or put option can be exercised. They are generally viewed as a means of foreign investment into a company and have to comply with the limits imposed depending on the sector." Demand Liabilities of a bank are liabilities which are payable on demand. These include current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/guarantees, balances in overdue fixed deposits, cash certificates and cumulative/recurring deposits, outstanding Telegraphic Transfers (TTs), Mail Transfers (MTs), Demand Drafts (DDs), unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand. Money at Call and Short Notice from outside the Banking System should be shown against liability to others Time Liabilities of a bank are those which are payable otherwise than on demand. These include fixed deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits, staff security deposits, margin held against letters of credit, if not payable on demand, deposits held as securities for advances which are not payable on demand and Gold deposits. Assets with the banking system include balances with banks in current account, balances with banks and notified financial institutions in other accounts, funds made available to banking system by way of loans or deposits repayable at call or short notice of a fortnight or less and loans other than money at call and short notice made available to the banking system. Any other amounts due from banking system which cannot be classified under any of the above items are also to be taken as assets with the banking system. DTL stands for Demand and Time Liabilities. Demand Liabilities of a bank are liabilities which are payable on demand. Time Liabilities of a bank are those which are payable otherwise than on demand. 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. Basel guidelines refer to broad supervisory standards formulated by this group of central banks- called the Basel Committee on Banking Supervision (BCBS). The set of agreement by the BCBS, 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. "At a high level, following are the the main difference between various Basel norms:
- Basel 1 covered only Credit Risk
- Basel 1.1 covered Credit risk and Market Risk
- Basel 2 covered Credit Risk, Market Risk and Operational Risk
- Basel 3 covered Credit Risk, Market Risk, Operational Risk and Liquidity Risk
- Better Capital Quality: One of the key elements of Basel III is the introduction of much stricter definition of capital. Better quality capital means the higher loss-absorbing capacity. This in turn will mean that banks will be stronger, allowing them to better withstand periods of stress.
- Capital Conservation Buffer: Another key feature of Basel III is that now banks will be required to hold a capital conservation buffer of 2.5%. The aim of asking to build conservation buffer is to ensure that banks maintain a cushion of capital that can be used to absorb losses during periods of financial and economic stress.
- Countercyclical Buffer: This is also one of the key elements of Basel III. The countercyclical buffer has been introducted with the objective to increase capital requirements in good times and decrease the same in bad times. The buffer will slow banking activity when it overheats and will encourage lending when times are tough i.e. in bad times. The buffer will range from 0% to 2.5%, consisting of common equity or other fully loss-absorbing capital.
- Minimum Common Equity and Tier 1 Capital Requirements: The minimum requirement for common equity, the highest form of loss-absorbing capital, has been raised under Basel III from 2% to 4.5% of total risk-weighted assets. The overall Tier 1 capital requirement, consisting of not only common equity but also other qualifying financial instruments, will also increase from the current minimum of 4% to 6%. Although the minimum total capital requirement will remain at the current 8% level, yet the required total capital will increase to 10.5% when combined with the conservation buffer.
- Leverage Ratio: A review of the financial crisis of 2008 has indicted that the value of many assets fell quicker than assumed from historical experience. Thus, now Basel III rules include a leverage ratio to serve as a safety net. A leverage ratio is the relative amount of capital to total assets (not risk-weighted). This aims to put a cap on swelling of leverage in the banking sector on a global basis. 3% leverage ratio of Tier 1 will be tested before a mandatory leverage ratio will be introduced by January 2018.
- Liquidity Ratios: Under Basel III, a framework for liquidity risk management will be created. A new Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) are to be introduced in 2015 and 2018, respectively.
- Systemically Important Financial Institutions (SIFI): As part of the macro-prudential framework, systemically important banks will be expected to have loss-absorbing capability beyond the Basel III requirements. Options for implementation include capital surcharges, contingent capital and bail-in-debt.
Bitcoin-to-Bitcoin transactions are made by digitally exchanging anonymous, heavily encrypted hash codes across a peer-to-peer (P2P) network. The P2P network monitors and verifies the transfer of Bitcoins between users. Each user's Bitcoins are stored in a program called a digital wallet, which also holds each address the user sends and receives Bitcoins from, as well as a private key known only to the user.
Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government issued currencies." "Primary market is one in which a stock is being offerred directly from a company to investors for the first time. This happens most commonly during an initial public offer.
In contrast to this, a secondary market is a market in which investors are buying stocks from and selling stocks to one another. These are stocks that have already been issued by the firm and sold to some investor on the primary market. Investors and traders engage in market activity through different exchanges, such as the New York Stock Exchange and Nasdaq. Investors can trade on the secondary market among each other, and the issuing company is not involved." "Features of primary financial markets are:
- This is the market for new long term capital. The primary market is the market where the securities are sold for the first time. Therefore it is also called New Issue Market (NIM).
- In a primary issue, the securities are issued by the company directly to investors.
- The company receives the money and issues new security certificates to the investors.
- Primary issues are used by companies for the purpose of setting up new business or for expanding or modernizing the existing business.
- The primary market performs the crucial function of facilitating capital formation in the economy.
Methods of issuing securities in the primary market are:
- Initial public offering
- Rights issue (for existing companies)
- Preferential issue
- FDI is when a foreign company invests in India directly by setting up a wholly owned subsidiary or getting into a joint venture, and conducting their business in India. In FII, the companies only need to get registered in the stock exchange to make investments.
- FII can enter the stock market easily and also withdraw from it easily. But FDI cannot enter and exit that easily. This difference is what makes the receiving nations to choose FDI’s more than then FIIs.
- Also FDI allows wholistics development of economy whereas FII is limited to secondary stock markets. Foreign Direct Investment targets a specific enterprise. It aims to increase the enterprises capacity or productivity or change its management control. In an FDI, the capital inflow is translated into additional production. The FII investment flows only into the secondary market and increasing capital availability in general.
- The Foreign Direct Investment is considered to be more stable than Foreign Institutional Investor. FDI not only brings in capital but also helps in good governance practises and better management skills and even technology transfer.
- FIIs are short-term investments, the FDI’s are long term.
- The basic purpose of adopting this system is to ensure stability in foreign trade and capital movements.
- To achieve stability, government undertakes to buy foreign currency when the exchange rate becomes weaker and sell foreign currency when the rate of exchange gets stronger.
- For this, government has to maintain large reserves of foreign currencies to maintain the exchange rate at the level fixed by it.
- Under this system, each country keeps value of its currency fixed in terms of some ‘External Standard’.
- This external standard can be gold, silver, other precious metal, another country’s currency or even some internationally agreed unit of account.
A fixed exchange rate is usually used to stabilize the value of a currency, with respect to the currency or the other valuable it is pegged to. Pegging a currency to another currency facilitates trade and investments between the two countries, and is especially useful for small economies where external trade forms a large part of their GDP. Pegging is also used as a means to control inflation. However, as the reference value rises and falls, so does the currency pegged to it. In addition, a fixed exchange rate prevents a government from using domestic monetary policy in order to achieve macroeconomic stability." "Devaluation refers to reduction in price of domestic currency in terms of all foreign currencies under fixed exchange rate regime whereas depreciation refers to fall in market price of domestic currency in terms of a foreign currency under flexible exchange rate regime.
- Devaluation takes place due to Government activities whereas depreciation takes place due to market forces of demand and supply.
- Devaluation takes place under fixed exchange rate system whereas depreciation takes place under flexible exchange rate system.
On the other hand, Revaluation refers to increase in the value of domestic currency by the government. Revaluation of a currency is a calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. central bank) can alter the official value of the currency. For example, suppose a government has set 10 units of its currency equal to one US dollar. To revalue, the government might change the rate to 9.9 units per dollar. This would result in that currency being slightly more expensive to people buying that currency with U.S. dollars than previously and the US dollar costing slightly less to those buying it with foreign currency." Altering the face value of a currency without reducing its exchange rate is a redenomination. It is the process of changing the face value of banknotes or coins used in circulating currency. When redenomination occurs, financial data that spans the change must be correctly accounted for. In times of inflation, the same number of monetary units have continually decreasing purchasing power. In other words, prices of products and services must be expressed in higher numbers. If these numbers become excessively large, the authorities may alleviate this problem by redenomination: a new unit replaces the old unit with a fixed number of old units being converted to 1 new unit. If inflation is the reason for redenomination, this ratio is much larger than 1, usually a positive integral power of 10 like 100, 1000 or 1 million, and the procedure can be referred to as "cutting zeroes". "Flexible exchange rate system refers to a system in which exchange rate is determined by forces of demand and supply of different currencies in the foreign exchange market.
- The value of currency is allowed to fluctuate freely according to changes in demand and supply of foreign exchange.
- There is no official (Government) intervention in the foreign exchange market.
- Flexible exchange rate is also known as ‘Floating Exchange Rate’.
- The exchange rate is determined by the market, i.e. through interactions of thousands of banks, firms and other institutions seeking to buy and sell currency for purposes of making transactions in foreign exchange.
- It is a hybrid of a fixed exchange rate and a flexible exchange rate system.
- In this system, central bank intervenes in the foreign exchange market to restrict the fluctuations in the exchange rate within certain limits. The aim is to keep exchange rate close to desired target values.
- For this, central bank maintains reserves of foreign exchange to ensure that the exchange rate stays within the targeted value.
- It is also known as ‘Dirty Floating'
Hyperinflations are usually caused by large persistent government deficits financed primarily by money creation (rather than taxation or borrowing). As such, hyperinflation is often associated with wars, their aftermath, sociopolitical upheavals, or other crises that make it difficult for the government to tax the population. A sharp decrease in real tax revenue coupled with a strong need to maintain the status quo, together with an inability or unwillingness to borrow, can lead a country into hyperinflation." EMV cards are smart cards (also called chip cards or IC cards) which store their data on integrated circuits rather than magnetic stripes. They can be contact cards which must be physically inserted (or "dipped") into a reader, or contactless cards which can be read over a short distance using radio-frequency identification technology. Payment cards which comply with the EMV standard are often called chip-and-PIN or chip-and-signature cards, depending on the exact authentication methods required to use them.
There are two major benefits to moving to smart-card-based credit card payment systems: improved security (with associated fraud reduction), and the possibility for finer control of "offline" credit-card transaction approvals. EMV stands for Europay, MasterCard, and Visa, the three companies which originally created the standard. "An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank. A non performing asset (NPA) is a loan or an advance where;
- Interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan,
- the account remains ‘out of order’ in respect of an Overdraft/Cash Credit (OD/CC).
◦An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'. - the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank. - the installment of principal or interest there on remains overdue for two crop seasons for short duration crops,
- the installment of principal or interest there on remains overdue for one crop season for long duration crops,
- the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction
- in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.
