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Banking Awareness Capsule Sbi Po Bob Po
Banking Awareness Capsule Sbi Po Bob Po
CAPSULE FOR
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Exclusively prepared for RACE students
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BOB PO EXAM
TOPIC : BANKING AWARENESS CAPSULE
BANK ➢ Savings banks interest rates, fixed deposit interest rates, Loan Rates etc
Bank is an institution which attracts deposits from the public and are decided by Individual Banks.
lends the money to the needy persons at various interest rates. Under ➢ The bank which has launched Mobile Bank Accounts in association with
Banking Regulation Act 1949, controls Banking Activities in India. Vodafone’s m-paisa- HDFC Bank
➢ Largest Public-Sector Bank in India – SBI
➢ Largest Private Sector Bank in India – ICICI
History of Banking in India
➢ Largest Foreign Bank in India – Standard Chartered Bank
➢ First bank established in India: Bank of Hindustan in 1770.
➢ Frist Indian Bank to open branch outside India (London in 1946) – Bank
➢ Second Bank: General Bank of India, 1786
of India
➢ The Imperial Bank of India (IBI) was the oldest and the largest
➢ First RRB named Prathama Grameen Bank was started by Syndicate
commercial bank of the Indian subcontinent. It was created in Jan 1921 by
Bank.
amalgamation of three presidency banks, those are, Bank of Bengal, Bank
➢ First Bank to introduce ATM in India: HSBC in 1987, Mumbai
of Bombay, Bank of Madras.
➢ Capital Market Regulator is SEBI.
➢ After nationalization in 1955, the Imperial Bank of India was named as
State Bank of India (SBI).
➢ State Bank of India merged with three banks namely Bank of Bengal, Bank
of Bombay and Bank of Madras in 1921 to form the Imperial Bank of India
which was converted as State Bank of India.
➢ Central Bank of India was the first public bank to introduce credit card.
➢ Central Bank of India is the first commercial bank which was managed
by Indians.
➢ ICICI Bank was the first bank to provide Mobile ATM
➢ Bank of Baroda has the maximum number of overseas branches.
➢ India’s first “Talking” Automated Teller Machine (ATM) launched by Union
Bank of India (UBI) for visually impaired, was launched in Ahmedabad
(Gujarat).
➢ The National Payments Corporation of India (NPCI) launches India’s first
rural bank ATM card with a regional rural bank in Varanasi.
➢ First Indian bank got ISO: Canara Bank
➢ First Indian Bank started solely with Indian capital investment is PNB
(Punjab National Bank). Founder of Punjab National Bank is Lala Lajpat
Rai.
➢ Reserve Bank of India (RBI) was instituted in 1935.
➢ First Governor of RBI: Mrs. Osborne Smith
➢ First Indian Governor of RBI: Mr. C. D. Deshmukh
➢ First Bank to introduce Savings Account in India: Presidency Bank in
1833
➢ First Bank to introduce Cheque System in India: Bengal Bank in 1833
➢ First Bank to introduce Internet Banking: ICICI Bank
➢ First Bank to introduce Mutual Fund: State Bank of India Reserve Bank of India (RBI)
➢ Largest Commercial Bank in India – State Bank of India
➢ The Reserve Bank of India (RBI) is India's central banking institution,
➢ First Bank to introduce Credit Card in India: Central Bank of India
which controls the monetary policy of the Indian rupee.
➢ Credit cards are known as Plastic Money
➢ The Reserve Bank of India was established on April 1, 1935 in accordance
➢ Open market operations are carried out by RBI
with the provisions of the Reserve Bank of India Act, 1934
➢ India’s First Financial Archive has been set up at – Kolkata
(recommendations of Hilton Young Commission).
➢ CRR, SLR, Repo Rate, Reverse Repo Rate are decided by RBI
➢ The Central Office of the Reserve Bank was initially established in Calcutta Before DICGC, there were two corporations named Deposit Insurance
but was permanently moved to Mumbai in 1937. The Central Office is Corporation (DIC) and Credit Guarantee Corporation of India Ltd.
where the Governor sits and where policies are formulated. (CGCI) which were merged to form DICGC with a view to integrate the
➢ Though originally privately owned, since nationalisation in 1949, the functions of both DIC and CGCI.
Reserve Bank is fully owned by the Government of India. RBI was DICGC insures all bank deposits, such as saving, fixed, current, recurring
nationalised on 1 January 1949. deposit for up to the limit of Rs. 100,000 of each deposit in a bank.
➢ The RBI has four zonal offices at Chennai, Delhi, Kolkata and Mumbai. However, if there are more accounts in same bank, all of those are treated
List of Members: as a single account. The insurance premium is paid by the insured banks
➢ The general superintendence and direction of the RBI is entrusted with the itself.
21-member central board of directors: The functions of the DICGC (Deposit Insurance and Credit Guarantee
➢ The governor; 4 Deputy Governors; 2 Finance Ministry representatives Corporation) are governed by the provisions of 'The Deposit Insurance
(usually the Economic Affairs Secretary and the Financial Services Secretary) and Credit Guarantee Corporation Act, 1961' (DICGC Act) and 'The
; 10 government-nominated directors to represent important elements of Deposit Insurance and Credit Guarantee Corporation General Regulations,
India's economy; and 4 directors to represent local boards headquartered at 1961' framed by the Reserve Bank of India in exercise of the powers
Mumbai, Kolkata, Chennai and New Delhi. conferred by sub-section (3) of Section 50 of the said Act. Chairman of
➢ Each of these local boards consists of 5 members who represent regional DICGC - B.P.Kanungo. Its head office is located in Mumbai, Maharashtra.
interests, the interests of co-operative and indigenous banks. Banks covered by Deposit Insurance Scheme
(I) All commercial banks including the branches of foreign banks functioning
Main Functions of RBI: in India, Local Area Banks and Regional Rural Banks.
Monetary Authority: (II) Co-operative Banks - All eligible co-operative banks as defined in Section
➢ Formulates, implements and monitors the monetary policy. 2(gg) of the DICGC Act are covered by the Deposit Insurance Scheme
➢ Objective: maintaining price stability while keeping in mind the objective
of growth. Bharatiya Reserve Bank Note Mudran Private Limited:
Regulator and supervisor of the financial system: Bharatiya Reserve Bank Note Mudran Private Limited (BRBNMPL) is a
➢ Prescribes broad parameters of banking operations within which the wholly owned subsidiary of Reserve Bank of India which prints bank notes
country's banking and financial system functions such as commercial banks, (Indian rupees) for the Reserve Bank of India (RBI). It was established in
financial institutions and non-banking finance companies. 1995 to address the demand of bank notes. Its headquarters is located
➢ Objective: maintain public confidence in the system, protect depositors' in Bangalore, Karnataka. Chairman of BRBNMPL - B. P. Kanungo.
interest and provide cost-effective banking services to the public. BRBNMPL supplies a major portion of bank note requirement in the country
Manager of Foreign Exchange: with the remaining requirements met through Security Printing and
➢ Manages the Foreign Exchange Management Act, 1999. Minting Corporation of India Limited (SPMCIL), a public sector
➢ Objective: to facilitate external trade and payment and promote orderly undertaking wholly owned by Government of India. BRBNMPL has two
development and maintenance of foreign exchange market in India. presses in Mysore and Salboni.
Issuer of currency: The company made a world record by printing more than 20,000 million
➢ Issues and exchanges or destroys currency and coins not fit for circulation. pieces of bank notes in financial year 2016-17. The company has its own
➢ Objective: to give the public adequate quantity of supplies of currency design cell. It has the capability to print all the denominations of Indian bank
notes and coins and in good quality. Notes. The other two bank note presses of SPMCIL are Currency Note
Developmental role: Press (Nashik) and Bank Note Presses (Dewas) which print bank notes
➢ Performs a wide range of promotional functions to support national in small quantities.
objectives. Under SPMCIL, Security Paper Mill (SPM), Hoshangabad was established
Banking Related Functions: in 1968 and notified as non-commercial undertaking under the
➢ Banker to the Government: performs merchant banking function for the administrative control of Ministry of Finance, Govt. of India. SPM, a IISO
central and the state governments; also acts as their banker. 9001:2000 unit is responsible for manufacturing of different types of
➢ Banker to banks: maintains banking accounts of all scheduled banks. Security Papers.
The Mints are situated at Mumbai, Hyderabad, Kolkata and Noida have
Subsidiaries of RBI rich minting heritage and legacy of producing quality products. These mints
Fully owned: Deposit Insurance and Credit Guarantee Corporation of India are carrying out minting of all coins circulated in the country.
Deposit Insurance and Credit Guarantee Corporation of India Bank of India (RBI), was set up on 9 July 1988 under the National
(DICGC) Housing Bank Act, 1987. NHB is an apex financial institution for
Deposit Insurance and Credit Guarantee Corporation (DICGC) is a housing. NHB has been established with an objective to operate as a
subsidiary of Reserve Bank of India. It was established on 15 July 1978 principal agency to promote housing finance institutions both at local
under Deposit Insurance and Credit Guarantee Corporation Act, 1961 for and regional levels and to provide financial and other support incidental
the purpose of providing insurance of deposits and guaranteeing of to such institutions and for matters connected therewith.
credit facilities. Under the Chairmanship of Dr. C. Rangarajan, the then Deputy Governor,
RBI to examine the proposal and recommended the setting up of National
Housing Bank as an autonomous housing finance institution. NHB Credit Management Techniques:
RESIDEX was launched first official residential housing price index. Its The basic premise of macro-prudential and micro-prudential policies is early
Headquarters is in New Delhi, India. MD & CEO of NHB - Sriram detection of such build-ups and initiation of suitable corrective action. Two
Kalyanaraman. types of techniques, i.e., Quantitative (Policy Rates, Reserve Ratios,
and Open Market Operation) and Qualitative credit controls (Margin
Ways and Means Advances (WMA) Requirements/ LTV, Consumer credit regulation, Selective credit
WMA is a mechanism used by Reserve Bank of India (RBI) under its credit control, Moral Suasion) have been used by the central banks world-wide
policy by which to provide to States banking with it to help them to tide to achieve their objective of managing flow of credit in the economy.
over temporary mismatches in the cash flow of their receipts and payments.
This is guided under Section 17(5) of RBI Act, 1934, and are repayable Quantitative Credit Control
in each case not later than three months from the date of making that Policy Rates
advance'. Repo Rate:
There are two types of WMA – Normal and Special. While Normal WMA The (fixed) interest rate at which the Reserve Bank provides overnight
are clean advances, Special WMA are secured advances provided against liquidity to banks against the collateral of government and other approved
the pledge of government of India–dated securities. securities under the liquidity adjustment facility (LAF).
Under Section 17(5) of RBI Act allows RBI to make WMA both to the Repo (Repurchase) rate also known as the benchmark interest rate is the
Central and State Govt. Objective: To bridge the interval between rate at which the RBI lends money to the banks for a short-term (max. 90
expenditure and receipts. They are not a sources of finance but are meant days). When the repo rate increases, borrowing from RBI becomes more
to provide support, for purely temporary difficulties that arise on account of expensive.
mismatch/shortfall in revenue or other receipts for meeting the govt.
liabilities. Reverse Repo Rate:
Minimum Reserve System The (fixed) interest rate at which the Reserve Bank absorbs liquidity, on
For the issue of currencies, the RBI follows Minimum Reserve System at an overnight basis, from banks against the collateral of eligible government
present. The Minimum Reserve System (MRS) is followed from 1956 securities under the LAF. It is opposite to that of Repo Rate.
onwards. An increase in the reverse repo rate means that the banks will get a higher
Under the Minimum Reserve System, the RBI has to keep a minimum rate of interest from RBI. As a result, banks prefer to lend their money to
reserve of Rs.200 crore comprising of gold coin and gold bullion and foreign RBI which is always safe instead of lending it to others (people, companies
currencies. Out of the total Rs 200 crores, Rs.115 crore should be in the etc.) which is always risky.
form of gold coins or gold bullion. The purpose of shifting to MRS was to
expand money supply to meet the needs of increasing transactions in the Liquidity Adjustment Facility (LAF) :
economy. LAF is a monetary policy which allows banks borrow money through
Monetary Policy & Its Framework: repurchase agreements. LAF consists of repo and reverse repo
The Reserve Bank of India (RBI) is vested with the responsibility of operations. In LAF, money transaction is done via RTGS (Real time Gross
conducting monetary policy. This responsibility is explicitly mandated under settlement). RTGS is an online money transfer method.
the Reserve Bank of India Act, 1934. The aim of term repo is to help develop the inter-bank term money market,
Monetary policy refers to the use of monetary instruments under the which in turn can set market-based benchmarks for pricing of loans and
control of the central bank to regulate magnitudes such as interest deposits, and hence improve transmission of monetary policy. LAF is used
rates, money supply and availability of credit with a view to achieving the to aid banks in adjusting the day to day mismatches in liquidity.
The framework aims at setting the policy (repo) rate based on an A facility under which scheduled commercial banks can borrow additional
assessment of the current and evolving macroeconomic situation; and amount of overnight money from the Reserve Bank by dipping into their
modulation of liquidity conditions to anchor money market rates at or around Statutory Liquidity Ratio (SLR) portfolio up to a limit at a penal rate of
the repo rate. interest. This provides a safety valve against unanticipated liquidity shocks
As per the provisions of the RBI Act, out of the six Members of Monetary All Scheduled Commercial Banks having Current Account and SGL
Policy Committee, three Members will be from the RBI and the other three (Subsidiary General Ledger Account) Account with Reserve Bank, Mumbai
Members of MPC will be appointed by the Central Government. The will be eligible to participate in the MSF Scheme.
Governor of Reserve Bank of India is the chairperson ex officio of the The Facility will be available on all working days in Mumbai, excluding
committee. Saturdays between 3.30 P.M. and 4.30 P.M. Requests will be received for
The committee was created in 2016 to bring transparency and accountability a minimum amount of Rs. One crore and in multiples of Rs. One crore
in fixing India's Monetary Policy. The current mandate of the committee is thereafter. MSF will be undertaken in all SLR-eligible transferable
to maintain 4% annual inflation until March 31, 2021 with an upper Government of India (GoI) dated Securities/Treasury Bills and State
Instruments of Monetary Policy Corridor: The MSF rate and reverse repo rate determine the corridor for the
There are several direct and indirect instruments that are used for daily movement in the weighted average call money rate.
Reserve Ratio bank has to maintain in the form of cash, gold, and other approved securities
Cash Reserve Ratio (CRR) : ➢ CRR controls liquidity in economy while SLR regulates credit growth in the
The average daily balance that a bank is required to maintain with the country
Reserve Bank as a share of such per cent of its Net Demand and Time ➢ While banks themselves maintain SLR in liquid form, CRR is with RBI
Liabilities (NDTL) that the Reserve Bank may notify from time to time in maintained as cash.
the Gazette of India. Banks can’t lend the money to corporates or individual
borrowers, banks can’t use that money for investment purposes. So, that Open Market Operations (OMOs) :
CRR remains in current account and banks don’t earn anything on that. OMOs are the market operations conducted by the RBI by way of sale/
In terms of Section 42(1) of the RBI Act, 1934, all Scheduled Banks are purchase of G-Secs (Govt Securities) to/ from the market with an objective
required to maintain with Reserve Bank of India a Cash Reserve Ratio (CRR) to adjust the rupee liquidity conditions in the market on a durable
of 4% of Net Demand and Time Liabilities (NDTL). basis. When the RBI feels that there is excess liquidity in the market, it
If RBI increases CRR, the available amount with banks comes down, RBI resorts to sale of securities thereby sucking out the rupee liquidity. Similarly,
uses it to drain out excessive money from the banks and vice versa. when the liquidity conditions are tight, RBI may buy securities from the
market, thereby releasing liquidity into the market.
Demand Liabilities:
Demand liabilities are such deposits of the customers which are payable Market Stabilisation Scheme (MSS) :
on demand. An example of demand liability is a deposit maintained in a The Reserve Bank under Governor YV Reddy initiated the MSS scheme
saving account or current account that is payable on demand through a in 2004. Market Stabilisation Scheme or MSS is a tool used by the
withdrawal form such as a cheque. Reserve Bank of India to suck out excess liquidity from the market through
Time Liabilities: issue of securities like Treasury Bills, Dated Securities etc. on behalf of the
Time liabilities refer to the liabilities which the commercial banks are liable government.
to pay to the customers after a certain period mutually agreed upon. The money raised under MSS is kept in a separate account called MSS
An example of time liability is a six-month fixed deposit which is not payable Account and not parked in the government account or utilised to fund its
on demand but only after six months. expenditures. The Reserve Bank sharply raised the Market Stabilisation
Scheme (MSS) ceiling to Rs 6 lakh crore from Rs 30,000 crore.
Direct Action: • The Industrial Development Bank (Transfer of Undertaking and Repeal)
Under the banking regulation Act, the central bank has the authority to Act, 2003
take strict action against any of the commercial banks that refuses to obey • The Industrial Finance Corporation (Transfer of Undertaking and Repeal)
the directions given by Reserve Bank of India. There can be a restriction on Act, 1993
advancing of loans imposed by Reserve Bank of India on such banks. e.g. – Some Important Acts under RBI
RBI had put up certain restrictions on the working of the Metropolitan co- Reserve Bank of India Act, 1934
operative banks. Reserve Bank of India Act, 1934 is the legislative act under which the
Reserve Bank of India was formed. This act along with the Companies Act,
Moral Suasion: which was amended in 1936, were meant to provide a framework for the
This method is also known as "moral persuasion" as the method that the supervision of banking firms in India.
Reserve Bank of India, being the apex bank uses here, is that of persuading The First schedule of the RBI Act 1934 defines the 4 areas under which
the commercial banks to follow its directions/orders on the flow of the Indian states should come. The 4 areas are Western Area, Eastern Area,
credit. It is part of meetings between RBI and Commercial Banks. RBI Northern Area, and Southern Area.
persuade the commercial bank to follow their policies. RBI puts a pressure The Second schedule of the Act lists all the Scheduled Banks in India
on the commercial banks to put a ceiling on credit flow during inflation and (Sections 2(e) and 42).
be liberal in lending during deflation.
I. Acts administered by Reserve Bank of India The RBI can accept deposits from the central and state governments without
• Reserve Bank of India Act, 1934 interest. It can purchase and discount bills of exchange from commercial
• Public Debt Act, 1944/Government Securities Act, 2006 banks. It can purchase foreign exchange from banks and sell it to them.
• Government Securities Regulations, 2007 Section 18: Deals with emergency loans to banks.
• Banking Regulation Act, 1949 Section 20: Obligation of the Bank to transact Government business.
• Foreign Exchange Management Act, 1999 Section 21: States that RBI must conduct the banking affairs for the central
• Securitisation and Reconstruction of Financial Assets and Enforcement of government and manage public debt.
Security Interest Act, 2002 (Chapter II) Section 22: Says that only RBI has the exclusive rights to issue currency
• Payment and Settlement Systems Act, 2007 Section 24: States that the maximum denomination a note can be
• Payment and Settlement Systems Regulations, 2008 and Amended up to Rs.10,000 (US$150).
2011 and BPSS Regulations, 2008 Section 26: Describes the legal tender character of Indian bank notes.
• The Payment and Settlement Systems (Amendment) Act, 2015 - No. 18 of Section 27: Re -issue of notes.
2015 Section 28: Allows the RBI to form rules regarding the exchange of
II. Other relevant Acts issue and accept promissory notes that are payable on demand. However,
• Negotiable Instruments Act, 1881 cheque, that are payable on demand, can be issued by anyone.
• Bankers' Books Evidence Act, 1891 Section 42(1) : Says that every scheduled bank must have an average
• State Bank of India Act, 1955 daily balance with the RBI. The amount of the deposit shall be more that a
• Companies Act, 1956/ Companies Act, 2013 certain percentage of its net time and demand liabilities in India.
• Deposit Insurance and Credit Guarantee Corporation Act, 1961 The Banking Regulation Act, 1949 is a legislation in India that regulates
• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 all banking firms in India. Passed as the Banking Companies Act 1949, it
• Regional Rural Banks Act, 1976 came into force from 16 March 1949 and changed to Banking Regulation Act
• Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 1949 from 1st March 1966. Initially, the law was applicable only to banking
• National Bank for Agriculture and Rural Development Act, 1981 companies. But, 1965 it was amended to make it applicable to cooperative
• National Housing Bank Act, 1987 banks and to introduce other changes. It is applicable only in Jammu and
• Recovery of Debts Due to Banks and Financial Institutions Act, 1993 Kashmir in 1956 but now applicable throughout India.
• Competition Act, 2002 The Act provides a framework using which commercial banking in India
• Indian Coinage Act, 2011: Governs currency and coins is supervised and regulated. The Act supplements the Companies Act,
• Banking Secrecy Act 1956. Primary Agricultural Credit Society and cooperative land mortgage
banks are excluded from the Act.
In 1965, the Act was amended to include cooperative banks under its Remittance Facilities under FEMA
purview by adding the Section 56. Cooperative banks, which operate Money Changing Activity:
only in one state, are formed and run by the state government. But, RBI ➢ Authorised Money Changers (AMCs) are entities, authorised by the Reserve
controls the licensing and regulates the business operations. Bank under Section 10 of the Foreign Exchange Management Act,
Important Section under Banking Regulation Act, 1949: 1999. An AMC is a Full-Fledged Money Changer (FFMC).
Section 6: Form and business in which banking companies may engage ➢ FFMCs are authorised (a) to purchase foreign exchange from non-
Section 7: Use of words “bank”, “banker”, “banking” or “banking company” residents visiting India and residents; and (b) to sell foreign exchange for
Section 8: Prohibition of Trading Section certain approved purposes.
Section 9: Disposal of non-banking assets
Section 11: Requirement as to minimum paid- up capital and reserves Money Transfer Service Scheme (MTSS)
Section 12: Regulation of paid-up capital, subscribed capital and authorised ➢ Money Transfer Service Scheme (MTSS) is a quick and easy way of
capital and voting rights of shareholders transferring personal remittances from abroad to beneficiaries in
Section 13: Restriction on commission, brokerage, discount, etc. on sale of India.
shares ➢ Only inward personal remittances into India such as remittances
Section 14: Prohibition of charge on unpaid capital towards family maintenance and remittances favouring foreign tourists
Section 17: Reserve Fund visiting India are permissible.
Section 18: Cash reserve ➢ No outward remittance from India is permissible under MTSS.
Section 20: Restrictions on loans and advances ➢ The system envisages a tie-up between reputed money transfer companies
Section 21: Power of Reserve Bank to control advances by banking abroad known as Overseas Principals and agents in India known as
companies Indian Agents who would disburse funds to beneficiaries in India at
Section 22: Licensing of banking companies ongoing exchange rates.
Section 26: Return of unclaimed deposits ➢ The Indian Agent is not allowed to remit any amount to the Overseas
Section 26 A: Establishment of Depositor Education and Awareness Fund Principal. Under MTSS the remitters and the beneficiaries are individuals
Section 29: Accounts and balance -sheet only.
Section 29A: Power in respect of associate enterprises ➢ A cap of USD 2,500 has been placed on individual remittances under the
Section 30: Audit scheme. In addition, thirty remittances can be received by a single
Section 33: Display of audited balance-sheet by companies incorporated individual beneficiary under the scheme during a calendar year.
outside India ➢ Amounts up to INR 50,000/- may be paid in cash to a beneficiary in
Section 35AB: Power of Reserve Bank to issue directions in respect of India. These can also be loaded on to a pre-paid card issued by banks. Any
stressed assets amount exceeding this limit shall be paid by means of account payee
Section 45 - Power of Reserve Bank to apply to Central Government for cheque/ demand draft/ payment order, etc., or credited directly to the
suspension of business by a banking company and to prepare scheme of beneficiary's bank account. However, in exceptional circumstances,
reconstitution or amalgamation where the beneficiary is a foreign tourist, higher amounts may be disbursed
Section 46 - Penalties in cash.
Section 56 - Act to apply to co-operative societies subject to modifications
Rupee Drawing Arrangements (RDA) :
➢ Under the Rupee Drawing Arrangements (RDAs), cross-border inward
Foreign Exchange Management Act, 1999 (FEMA)
remittances are received in India through Exchange Houses situated in
The main objective of Foreign Exchange Management Act,
Gulf countries, Hong Kong, Singapore, Malaysia (for Malaysia only under
1999 (FEMA) is to consolidate and amend the law relating to foreign
Speed Remittance Procedure) and all other countries which are FATF
exchange with the objective of facilitating external trade and
compliant only under Speed Remittance Procedure.
payments and for promoting the orderly development and maintenance of
➢ No cash disbursement of remittances is allowed under RDA. The
foreign exchange market in India.
remittances have to be credited to the bank account of the beneficiary.
It was passed in the winter session of Parliament in 1999, replacing
➢ There is no limit on the remittance amount as well as on the number
the Foreign Exchange Regulation Act (FERA) due to Foreign exchange
of remittances. However, there is an upper cap of Rs.15.00 lakh for trade
reserves were low.
related transactions.
It also paved the way for the introduction of the Prevention of Money
Laundering Act, 2002, which came into effect from 1 July 2005.
About FATF:
FEMA is applicable to all parts of India. The act is also applicable to all
The Financial Action Task Force (FATF) is an intergovernmental
branches, offices and agencies outside India owned or controlled by a person
organization founded in 1989 on the initiative of the G7 to develop
who is a resident of India.
policies to combat money laundering. In 2001 its mandate expanded to
The FEMA head-office, also known as Enforcement Directorate is situated
include terrorism financing. Its headquarters is in Paris, France.
in New Delhi and is headed by a Director. The Directorate is further divided
First issued in 1990, the FATF Recommendations were revised in 1996,
into 5 zonal offices in Delhi, Mumbai, Kolkata, Chennai and Jalandhar and
2001, and 2003 and most recently in 2012 to ensure that they remain up
each office is headed by a Deputy Director.
to date and relevant, and they are intended to be of universal application.
David Lewis joined the FATF as its Executive Secretary in November 2015.
Difference Between Hypothecation, Pledge, Mortgages: Every Scheduled bank enjoys two types of principal facilities: it becomes
Hypothecation Pledge Mortgages eligible for debts/loans at the bank rate from the RBI; and, it automatically
Securities are Movable Securities are Movable Securities are acquires the membership of clearing house.
Immovable
Securities are remains Securities are remains with Securities are Classification:
with Borrower Lender remains with The Scheduled banks comprise Scheduled Commercial Banks and
Borrower Scheduled Co-operative banks. The further classification is as follows:
Ex: Car / Vehicle Ex: Gold Loan, Advance Ex: Housing • Scheduled Commercial banks
Loans, Adv against against NSCs, Adv against Loans • Public Sector Banks
stock and debtors goods (also given under ➢ State Bank of India and its associates, and
perform its functions and discharge its duties under this statute. the second schedule of RBI Act 1934 and which carry out the normal
Board for Regulation and Supervision of Payment and Settlement Systems business of banking such as accepting deposits, giving out loans and other
Regulations, 2008 and the Payment and Settlement Systems Regulations, banking services. The major difference between Scheduled Commercial
2008. Both these Regulations came into force along with the PSS Act, 2007 Banks and Scheduled Cooperative Banks is their holding pattern, since
on 12th August 2008. cooperatives are registered under the Cooperative Societies Act as
The PSS Act 2007 does not prohibit foreign entities from operating a cooperative credit institutions.
payment system in India and the Act does not discriminate/differentiate Previously, there are 27 Public Sector Banks in India including SBI (plus its
between foreign entities and domestic entities. 5 associates) and 19 nationalized banks. Further, there are two banks which
have been categorized by RBI as “Other Public-Sector Banks”. IDBI and
Scheduled Banks in India refer to those banks which have been included
But now, there are 21 Public Sector Banks in India, SBI has merged its
in the Second Schedule of Reserve Bank of India Act, 1934. RBI in turn
Associates Bank & Bhartiya Mahila Bank and 19 Nationalized Banks and one
includes only those banks in this Schedule which satisfy the criteria laid down
more IDBI has been categorized by RBI as “Other Public-Sector Banks”.
vide section 42(6) (a) of the said Act. Banks not under this Schedule are
called Non-Scheduled Banks.
5 Bank of Maharashtra Pune, Maharashtra Ravindra Prabhakar Marathe (CMD) - One Family One Bank
Bangalore,
6 Canara Bank T. N. Manoharan Rakesh Sharma Together We Can
Karnataka
Mumbai, “CENTRAL” TO YOU SINCE
7 Central Bank of India Rajeev Rishi (CMD) -
Maharashtra 2011
Mangalore,
8 Corporation Bank - Jai Kumar Garg A Premier Public-Sector Bank
Karnataka
Mumbai,
9 Dena Bank Ashwani Kumar (CMD) - Trusted Family Bank
Maharashtra
14 Punjab National Bank New Delhi, India - Sunil Mehta The Name you can BANK upon
1 Axis Bank Ltd. Mumbai, Maharashtra Sanjiv Misra Shikha Sharma Badhti Ka Naam Zindagi
Chandra Shekhar
2 Bandhan Bank Limited Kolkata, West Bengal - Aapka Bhala, Sabki Bhalai
Ghosh
Trust and Excellence since
3 City Union Bank Ltd. Tanjavur, Tamil Nadu - Dr. N Kamakodi
1904
Vijayawada, Andhra
4 Coastal Local Area Bank Ltd - N Sambasiva Rao
Pradesh
6 Dhanlaxmi Bank Ltd. Thrissur, Kerala Jayaram Nayar T Latha Tann. Mann. Dhan
8 HDFC Bank Ltd. Mumbai, Maharashtra Deepak S Parekh Aditya Puri We understand your world
M. K. Sharma,
Girish Chandra
7 ICICI Bank Ltd. Mumbai, Maharashtra Chaturvedi Chanda Kochhar Khayaal Apka
(Part time Exceutive
Chairman)
8 IndusInd Bank Ltd. Mumbai, Maharashtra R. Seshasayee Romesh Sobti We make you feel richer
Parvez Ahmed
9 Jammu and Kashmir Bank Ltd. Srinagar - Serving to Empower
(Chairman & CEO)
11 Karur Vysya Bank Ltd. Karur, Tamil Nadu B. Swaminathan P R Seshadri Smart way to bank
Uday S Kotak
12 Kotak Mahindra Bank Ltd. Mumbai, Maharashtra - Let’s make money simple
(CMD)
17 Tamil Nadu Mercantile Bank Ltd. Tuticorin, Tamil Nadu - K.V. Rama Moorthy Be a step ahead of life
18 The Catholic Syrian Bank Ltd. Thrissur, Kerala T.S. Anantharaman C V R Rajendran Support all the way
19 Yes Bank Ltd. Mumbai, Maharashtra Ashok Chawla Rana Kapoor Experience Our Expertise
7 Bank of Ceylon Colombo, Sri Lanka Senarath Bandara The Bank you can trust.
8 Barclays Bank Plc London, UK Ramanathan Gopalakrishnan (India) Fluent in Finance
9 BNP PARIBAS Paris, France Jean-Laurent Bonnafé (Paris). Joris The Bank for the changing
Dierckx (India) world.
10 Citibank New York, USA Michael Corbat (USA), Pramit Jhaveri The City never sleeps.
(India)
11 Cooperative Rabobank Utrecht, Netherlands Todd Charteris (Netherlands), Jaideep A Bank with Ideas
Singh (India)
12 DBS Bank Marina Bay, Singapore Piyush Gupta (Singapore), Surojit Living, Breathing Asia
Shome (India)
13 Deutsche Bank Frankfurt, Germany John Cryan (Germany), Ravneet sing A Passion to perform.
Gill (India)
14 Doha Bank Doha, Qatar Manish Mathur (India) There is so much to look
forward too
15 HSBC London, UK John Flint (UK), Jayant Rikhye (India) The world’s local bank.
16 Industrial and Commercial Bank of Beijing, China Yi Huiman (chairman) Integrity leads to prosperity
China Ltd. (ICBC) Zheng Bin (India)
17 J P Morgan Chase Bank New York, United States Jamie Dimon (USA), The right relationship is
Kalpana Morparia (India) everything
• If the customer already has a savings bank account, the same will have to • A higher CASA ratio means higher portion of the deposits of the bank
be closed within 30 days of opening a Basic Savings Bank Deposit or BSBD has come from current and savings deposit, which is generally a cheaper
account. There is no charge on activation of inoperative BSBD accounts and source of fund. Hence, higher the CASA ratio better the net interest margin,
no-account closure charges. which means better operating efficiency of the bank.
• Net interest margin is difference between total interest income and
Conditions: expenditure and is shown as a percentage of average earning assets.
➢ Total credits in such accounts should not exceed one lakh rupees in a
year. TIME DEPOSITS
➢ Maximum balance in the account should not exceed fifty thousand 1. Recurring Deposits Account:
rupees at any time. • These are popularly known as RD accounts and are special kind of Term
➢ The total of debits by way of cash withdrawals and transfers will not Deposits and are suitable for people who do not have lump sum amount of
exceed ten thousand rupees in a month. savings but are ready to save a small amount every month.
➢ Foreign remittances cannot be credited to Small Accounts without • Normally, such deposits earn interest on the amount already deposited
completing normal KYC formalities. (through monthly installments) at the same rates as are applicable for Fixed
➢ Small accounts are valid for a period of 12 months initially which may Deposits / Term Deposits.
be extended by another 12 months if the person provides proof of having • These are best if you wish to create a fund for your child's education or
applied for an Officially Valid Document. marriage of your daughter or buy a car without loans or save for the future.
➢ Small Accounts can only be opened at CBS linked branches of banks or • The RD interest rates paid by banks in India are usually the same as
at such branches where it is possible to manually monitor the fulfilments of payable on Fixed Deposits, except when specific rates on FDs are paid for
the conditions particular number of days.
• Recurring Deposit accounts are normally allowed for maturities ranging
4. Current Account Savings Account (CASA) : from 6 months to 120 months (10 Yrs).
• CASA deposit is the amount of money that gets deposited in the • These accounts can be opened in single or joint names. Nomination facility
current and savings accounts of bank customers. It is the cheapest and is also available.
major source of funds for banks. The savings accounts portion pays more
interest compared to current accounts. 2. Fixed Deposits Accounts:
• A CASA operates like a normal bank account in which funds may be • All Banks in India (including SBI, PNB, ICICI Bank, Yes Bank etc.) offer
utilized at any time. Because of this flexibility, a CASA has a lower interest fixed deposits schemes with a wide range of tenures for periods from 7 days
rate than a term deposit because the bank does not have a guarantee that to 10 years.
all the funds are available to lend for a specific period of time. • These are also popularly known as FD accounts. However, in some other
• These deposits can move out of banks’ books anytime, leading to asset- countries these are known as "Term Deposits" or "Bond".
liability mismatches. While in case of term deposits, banks are almost • The term "fixed" in Fixed Deposits (FD) denotes the period of maturity or
certain that the depositor may not withdraw money before the maturity of tenor. Therefore, the depositors are supposed to continue such Fixed
the deposit and may also renew the deposit on maturity. Deposits for the length of time for which the depositor decides to keep the
money with the bank.
CASA Ratio: • In case of urgent need, depositor can close the account prematurely by
• The CASA ratio shows how much deposit in a bank has in the form of paying penalty. Penalty and Interest rate varies from different banks.
current and saving account deposits in the total deposit.
Note: PIO - A ‘Person of Indian Origin (PIO) ’ is a person resident outside India who is a citizen of any country other than Bangladesh or Pakistan or such
other country as may be specified by the Central Government.
7A of the Citizenship Act, 1955 is an OCI. • For example, HSBC account is held with SBI in India.
total of at least 183 days in a visa status. It is the closest thing to dual • Loro accounts are generally held by a third party bank, other than the
financial year (from April 1 to citizenship that India offers. account maintaining bank or with whom account is maintained.
March 31). • For example, BOI wants to transact with HSBC, but doesn't have any
account, while SBI maintains an account with HSBC in U.K. Then BOI could
use SBI account. In this case, for SBI this account is known as Nostro
account and for BOI it is known as Loro Account.
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➢ The certainty of the amount payable should be there. • Payee, the recipient of the money (A person whose name is mentioned in
➢ It should be stamped. the cheque or to whom the drawee makes payment. If drawer has drawn
the cheque in favour of self, then drawer is payee)
Bill of exchange • Drawee, the bank or other financial institution where the cheque can be
A Bill of Exchange is an instrument in writing containing an presented for payment. (The Person who is directed to make the payment
unconditional order, signed by the maker, directing a certain person to against cheque)
pay a certain sum of money only to, or to the order of, a certain person or
• Amount, the currency amount
to the bearer of the instrument.
History of Cheques in India
The bill of exchange is defined as written order for payment issued by the
• The Cheque was introduced in India by the Bank of Hindustan. In 1881,
creditor to his debtor.
the Negotiable Instruments Act was enacted in India. The NI Act provided a
Conditions:
legal framework for non-cash paper payment instruments in India.
➢ Bills of exchange must be in writing.
• In 1938, the Calcutta Clearing Banks’ Association, which was the largest
➢ Bills of exchange are not a request to pay and an order to pay.
bankers’ association at that time, adopted clearing house.
➢ The order must be signed by the drawer, i.e. the maker.
• Until 1 April 2012, cheques in India were valid for a period of six months
➢ The order must be for the payment of money only.
from the date of their issue, before the Reserve Bank of India issued a
notification reducing their validity to three months from the date of issue.
Difference between Promissory Notes and Bill of exchange
Different Types of Cheque:
Specification Promissory Note Bill of exchange
A promissory note is a Bill of Exchange is an 1) Open cheque or bearer cheque:
written promise made by instrument in writing • The issuer of the cheque would just fill the name of the person to whom
the debtor to pay a certain showing the the cheque is issued, writes the amount and attaches his signature and
Definition
sum of money to the indebtedness of a buyer nothing else.
creditor at a future towards the seller of • When the word “Bearer” on the cheque is not crossed or cancelled,
specified date. goods. the cheque is called a bearer cheque. This type of issuing a cheque is also
Section 4 of Negotiable Section 5 of Negotiable known as open cheque or uncrossed cheque.
Defined in
Instrument Act, 1881. Instrument Act, 1881. • In simple words, Bearer cheque means the person who is holding the
Three parties, i.e. instrument can withdraw money from the bank account.
Two parties, i.e. drawer
Parties drawer, drawee and • In case of cheque is lost, person who find it can collect payment from the
and payee.
payee. bank. So, issuing these types of cheques are risky.
Drawn by Debtor Creditor
Secondary and 2) A crossed cheque or an account payee cheque:
Liability of Maker Secondary and conditional
conditional • It is written in the same as that of bearer cheque, but issuer can cross
Can maker and it by adding two parallel lines on the right hand top corner.
payee be the No Yes • This type of cheque cannot be encashed over the counter. Considered
same person? as safest type of cheque, it can only be credited to payee’s account whose
Promissory Note cannot be Bill can be drawn in name is mentioned in the Cheque.
Copies
drawn in copies. copies.
Notice is necessary to be 3) Order Cheque:
Notice is not necessary to given to all the parties • When the word “bearer” appearing on the face of a cheque is cancelled and
Dishonor
be given to the maker. involved. when in its place the word “or order” is written on the face of the cheque,
the cheque is called an order cheque.
• In case of order cheque the payee in whose name the cheque has been
Cheque and its Different Types issued can only withdraw the money.
Cheque • Such a cheque is payable to the person specified therein as the payee,
Cheque is an instrument in writing containing an unconditional order, or to any one else to whom it is endorsed (transferred).
addressed to a banker, sign by the person who has deposited money with
the banker, requiring him to pay on demand a certain sum of money only to 4) Post Dated Cheque (PDCs) :
or to the order of certain person or to the bearer of instrument. • PDCs are cheques issued with future date on it. The cheque issued today
A cheque is a document that orders a bank to pay a specific amount of will be vailed for three months from the date of issue.
money from a person's account to the person in whose name the cheque has • It is used for business purposes or making of payment in future date.
been issued. • For example; on 11/1/2015 you are issuing it dated 15/4/2015 than it will
Parts of a Cheque called postdated cheque and will be vailed for three months from 15/4/2015.
• For example, on 11/1/2015 you are issuing a cheque dated 1/1/2015 than a cheque truncation or online image-based cheque clearing system where
it will called anti dated cheque and will be vailed for three months form cheque images and Magnetic Ink Character Recognition (MICR) data
1/1/2015. are captured at the collecting bank branch and transmitted electronically.
Cheque truncation means stopping the flow of the physical cheques
6) Stale Cheque: issued by a drawer to the drawee branch.
• If a cheque is presented for payment after three months from the date
of the cheque, it is called stale cheque. A stale cheque is not honoured by Demand Draft
the bank. A bank issues a demand draft to a client (drawer), directing another bank
(drawee) or one of its own branches to pay a certain sum to the specified
7) Multilated Cheque: party (payee).
• If a cheque is torn into two or more pieces such cheque is Mutilated
Cheque. Difference between Cheque and Demand Draft
• If it presented for payment, such a cheque the bank will not make payment Cheque Demand Draft
against such a cheque without getting confirmation of the drawer.
Cheque is issued by customer Demand draft issued by bank
• In case, if a cheque is torn at the corners and no material fact is erased or
cancelled, the bank may make payment against such a cheque. In cheque payment is made after DD is given after making payment to
Note: Cheques in India were valid for a period of three months from the presenting cheque to bank bank.
Cheque Truncation System (CTS) • The RTGS system is primarily meant for large value transactions.
• The minimum amount to be remitted through RTGS is Rs.2 lakh.
Cheque Truncation System (CTS) or Image-based Clearing System
• There is no upper ceiling for RTGS transactions.
(ICS), in India, is a project of the Reserve Bank of India (RBI),
commencing in 2010, for faster clearing of cheques. CTS is based on
• The beneficiary bank has to credit the recipient's account within 30 • Special ink, which is sensitive to magnetic fields, is used in the printing of
minutes of receiving the funds transfer message. certain characters on the original documents.
Processing Charges / Service Charges for RTGS transactions: • The MICR code is a 9-digit code, which is printed at the bottom of a
• With a view to rationalize the service charges levied by banks for offering cheque and in the right-hand side of the cheque number. A MICR code is
funds transfer through RTGS system, a broad framework has been mandated unique to each bank branch. Thus, a MICR code can be used to uniquely
as under: identify any bank branch. It also uniquely identifies a bank and a branch
a) Inward transactions – Free, no charge to be levied. participating in an Electronic Clearing System (ECS).
b) Outward transactions – `2 lakh to ` 5 lakh - not exceeding ` 30.00 per
transaction; MMID (Mobile Money Identifier) Code:
Above ` 5 lakh – not exceeding ` 55.00 per transaction. • Mobile Money Identifier is a 7 digit number, issued by banks.
• MMID is one of the input which when clubbed with mobile number
NEFT (National Electronic Funds Transfer) facilitates fund transfer. Combination of Mobile no. & MMID is uniquely linked
• National Electronic Funds Transfer (NEFT) is a nation-wide payment with an Account number and helps in identifying the beneficiary details.
system facilitating one-to-one funds transfer. NEFT is an electronic fund • Different MMID’s can be linked to same Mobile Number.
transfer system that operates on a Deferred Net Settlement (DNS) basis
which settles transactions in batches. SWIFT (Society for Worldwide Interbank Financial
• Under this transfer, individuals, firms and corporates can electronically Telecommunication) Code:
transfer funds from any bank branch to any individual, firm or corporate • A SWIFT code is an international bank code that identifies particular
having an account with any other bank branch in the country participating banks worldwide. It's also known as a Bank Identifier Code (BIC).
in the transfer. However, NEFT has no limit - either minimum or • Bank uses SWIFT codes to send money to overseas banks. A SWIFT code
maximum - on the amount of funds transferred. consists of 8 or 11 characters.
• In case of Individuals who do not have a bank, account can also deposit • The robustness of the message format design allowed huge scalability
cash using NEFT. However, such cash remittances are restricted to a through which SWIFT gradually expanded to provide services to the
maximum of Rs. 50,000 per transaction. following:
• The NEFT system also facilitates one-way cross-border transfer of funds 1. Banks
from India to Nepal and it is known as the Indo-Nepal Remittance Facility 2. Brokerage Institutes and Trading Houses
Scheme. However, the remittances are restricted to a maximum of Rs. 3. Securities Dealers
50,000 per transaction in this type of scheme. 4. Asset Management Companies
Processing or Service Charges for NEFT Transactions 5. Clearing Houses
The structure of charges that can be levied on the customer for NEFT is given 6. Depositories
below: 7. Exchanges
a) Inward transactions at destination bank branches (for credit to beneficiary 8. Corporate Business Houses
accounts) – Free, no charges to be levied on beneficiaries 9. Treasury Market Participants and Service Providers
b) Outward transactions at originating bank branches – charges applicable 10. Foreign Exchange and Money Brokers
for the remitter For example: Bank's SWIFT code is “CSTAAU2B”. You’ll need to give this
For transactions up to Rs. 10,000 - Rs.2.50 (+ Applicable GST) code to anyone sending money to you from overseas. The code is made up
For transactions above Rs.10,000 up to Rs.1 lakh - Rs.5 (+ Applicable GST) of letters and numbers as follows:
For transactions above Rs.1 lakh and up to Rs.2 lakhs - Rs.15 (+ Applicable ✓ CSTA – Bank code (4 digits)
GST) ✓ AU – Location Code (2 digits)
For transactions above Rs.2 lakhs - Rs.25 (+ Applicable GST) ✓ 2B – Country Code (2 digits)
List of codes used for various transactions and cheque ATM (Automated Teller Machine)
clearing in banks • An Automated Teller Machine (ATM) is an electronic
IFSC (Indian Financial System Code) telecommunications device that enables customers of financial institutions
• IFSC or Indian Financial System Code is an alpha-numeric code that to perform financial transactions, such as cash withdrawals, deposits,
uniquely identifies a bank-branch participating in the NEFT system. transfer funds, or obtaining account information, at any time and without
• This is an 11-digit code with the first 4 alpha characters representing the need for direct interaction with bank staff.
the bank, the 5th character is 0 (zero) and the last 6 characters Note: State having highest number of ATM’s: Maharashtra; India’s first
representing the branch. talking ATM’s: Ahmedabad, Gujarat
• All the banks have also been advised to print the IFS code of the branch Types of ATM
on cheques issued by branches to their customers. Different Types of ATM are as Follows:
• IFSC is used by the NEFT system to identify the originating / destination 1. Onsite ATM - Within the premises of bank
banks / branches and also to route the messages appropriately to the 2. Offsite ATM - Outside the bank premises (Shopping Malls, shopping
concerned banks / branches. markets, airports, hospitals, business areas etc)
MICR (Magnetic Ink Character Recognition) : 3. White Label ATM - Provided by NBFC
• MICR (Magnetic Ink Character Recognition) is a technology used to 4. Green Label ATM - Provided for Agricultural Transaction
verify the legitimacy or originality of paper documents, especially cheques. 5. Pink label ATM - Women Banking (Launched by SBI)
6. Worksite ATM - Is located within the premises of an organisation and is • Mobile banking is a service provided by a bank or other financial institution
generally meant only for the employees of the organisation. that allows its customers to conduct financial transactions remotely
7. Orange Label ATM - Provided for Share Transactions using a mobile device such as a smartphone or tablet.
8. Yellow Label ATM - Provided for E-commerce • Unlike the related internet banking it uses software, usually called an app,
9. Brown label ATM – Hardware and the lease of the ATM machine is owned provided by the financial institution for the purpose. Mobile banking is
by a service provider, but cash management and connectivity to banking usually available on a 24-hour basis.
networks is provided by a sponsor bank. • Transactions through mobile banking may include obtaining account
10. Cash Dispenser -Allows only cash withdrawals, balance enquiry and balances and lists of latest transactions, electronic bill payments, and
mini statement requests, Cash Dispenser (CD). funds transfers between a customer's or another's accounts.
11. Mobile ATM - refers to an ATM that moves in various areas for the • It reduces the cost of handling transactions by reducing the need for
customers. Few private banks have introduced ATM on wheels. customers to visit a bank branch for non-cash withdrawal and deposit
transactions.
LATEST BANKING TECHNOLOGIES
Plastic Money 5. POS (Point-Of-Sale)
Plastic Money consists in a shape of Master card, debit card, credit card • A Point-Of-Sale (POS) or point of purchase (POP) is the time and place
and ATM card. The basic purpose of plastic Money is to facilitate the where a retail transaction is completed. After receiving payment, the
People easily and quickly in case of Cash/Money Transaction. merchant may issue a receipt for the transaction, which is usually printed
Technology for banking has simplified banking and reduced time it but is increasingly being dispensed with or sent electronically.
consumed to process transaction by introducing the following and there are • Any form of payment can be used, such as cash, debit cards, credit cards,
1. Debit cards & Credit Cards NATIONAL PAYMENTS CORPORATION OF INDIA (NPCI)
• A debit card (also known as a bank card, plastic card or check card) is a AND ITS PRODUCTS
plastic payment card that can be used instead of cash when making National Payments Corporation of India (NPCI) is an umbrella
purchases. It is similar to a credit card, but unlike a credit card, the money organization for all retail payments system in India, which aims to allow
comes directly from the user's bank account when performing a all Indian citizens to have unrestricted access to e-payment services.
transaction. ➢ NPCI is a not-for-profit organisation registered under section 8 of the
• Debit cards are issued by banks and are linked to a bank account. Companies Act 2013.
Whereas Credit cards are issued by banks / other entities approved by ➢ It was set up in December, 2008 with the guidance and support of the
RBI. Reserve Bank of India (RBI) and Indian Banks’ Association (IBA).
• Debit cards can be used for shopping, paying for fuel, grocery, ➢ The core objective was to consolidate and integrate the multiple
withdrawing money from the automated teller machine. The credit cards are systems with varying service levels into nation-wide uniform and standard
used for purchase of goods and services at Point of Sale (POS) and E- business process for all retail payment systems.
commerce (online purchase) / through Interactive Voice Response (IVR) ➢ NPCI has ten core promoter banks namely, State Bank of India, Punjab
/Recurring transactions/ Mail Order Telephone Order (MOTO). National Bank, Canara Bank, Bank of Baroda, Union Bank of India, Bank of
India, ICICI Bank, HDFC Bank, Citibank and HSBC.
2. Pay bills online ➢ Its Headquarters is located in Mumbai, Maharashtra. MD & CEO of NPCI
• This technology is set up just to pay bills online; the reason behind setting is Dilip Asbe
up this technology is minimizing the use of paper and going green by
simply transferring money online to the beneficiary be it your electricity bill, Product and Services of NPCI
gas bill, phone bill, DTH recharges, etc, most of your bill payments can be 1) National Financial Switch (NFS)
made on line through internet and wire transfers. • The National Financial Switch is the largest interconnected network of
• Using this facility, you can keep a track on your account, estimate the Automated Teller Machines (ATMs) in India. The primary headquarters is
money you consumer monthly, analyze your budget and also plan your located at Mumbai.
savings online by seeing various investment options available for you online. • This system was developed by Institute of Development and Research
in Banking Technology (IDRBT), Hyderabad in 2004. It is run by the
3. CORE (Centralized Online Real-time Exchange) banking National Payments Corporation of India (NPCI).
• CORE banking is anywhere banking with the same bank be it any location. • The National Financial Switch enabled the interconnectivity between the
• All this can be done without sending the cheque outstation for clearing the bank’s switches such that the transactions made at any ATM could be routed
transaction. This saves on time and money for sending the cheque for to the connected banks.
clearing to another city. • The NPCI has allowed any bank offering the core banking services
• Banking software and network technology allow a bank to centralize its round the clock (24/7) with or without ATM can be a part of this National
record keeping and allow access from any location. Financial Switch through a sponsor bank.
• For example, if you have an account with ABCD Bank LTD, in X location • The objective behind such a move is to enable the non-scheduled
or X branch you can also process your transaction in Y location or Y branch. cooperative banks and other regional rural banks to access the wide network
of ATMs in the country.
4. Mobile banking • Thereby, enabling the customers of such bank to access banking
services through any ATM of a connected bank.
10) Cheque Truncation System (CTS) • ISIN codes have a total of 12 characters, consisting of both letters and
• CTS is based on a cheque truncation or online image-based cheque numbers. These include the country in which the issuing company is
clearing system where cheque images and Magnetic Ink Character headquartered (first two digits), along with a number specific to the
Recognition (MICR) data are captured at the collecting bank branch and security (middle nine digits), and a final character, which acts as a
transmitted electronically. check. An example of an ISIN number for a US company’s stock
• For faster clearing of cheques, Cheque Truncation System (CTS) or certificate could look like: US-000402625-0.
Image-based Clearing System (ICS), was introduced in India.
• Truncation is the process of stopping the flow of the physical cheque Permanent Retirement Account Number (PRAN) :
issued by a drawer at some point by the presenting bank en-route to the • The National Securities Depository Limited (NSDL) is the Central
paying bank branch. Recordkeeping Agency (CRA) for NPS. Therefore application for PRAN is
• It is preferable to present instruments complying with CTS-2010 made on the NSDL portal. Every subscriber is allotted a unique 12 digit
standards for clearing through CTS for faster realisation. Instruments not Permanent Retirement Benefit Number for a lifetime and can accessible
complying with CTS-2010 standards will continue be accepted but will be from any location in India.
cleared at less frequent intervals i.e. once a week (every Monday). • Two types of account in PRAN, Tier I Account: This is a non-withdrawable
account meant for savings for retirement.
11) BHIM (Bharat Interface for Money) • Tier II Account: This is simply a voluntary savings facility. The subscriber
• BHIM (Bharat Interface for Money) is a mobile app developed by is free to withdraw savings from this account whenever subscriber wishes.
National Payments Corporation of India (NPCI), based on the Unified No tax benefit is available on this account.
Payment Interface (UPI). • It is mandatory for all subscribers to the NPS are required to have a
• It was launched by Prime Minister Narendra Modi, at Digi Dhan mela at PRAN.
Talkatora Stadium in New Delhi on 30 December 2016.
• The app supports all Indian banks which use that platform, which is Permanent Account Number (PAN) :
built over the Immediate Payment Service infrastructure and allows the • Permanent Account Number (PAN) is a code that acts as an
user to instantly transfer money between bank accounts of any two parties. identification for individuals, families and corporates (Indian and
It can be used on all mobile devices. Foreign as well), especially those who pay Income Tax.
• BHIM allow users to send or receive money to or from UPI payment • It is a unique, 10-character alpha-numeric identifier, issued to all
addresses, or to non-UPI based accounts (by scanning a QR code with judicial entities identifiable under the Indian Income Tax Act, 1961.
account number and IFSC code or MMID (Mobile Money Identifier) Code). • The Income Tax PAN code and its linked card are issued under Section
Transaction fees and limits 139A of the Income Tax Act. It is issued by the Indian Income Tax
• At present, there is no charge for transactions from Rs.1 to Rs.1 lakh. Department under the supervision of the Central Board for Direct Taxes
• Currently the fund transfer limit has been set to a maximum of (CBDT) and it also serves as an important proof of identification.
Rs.20,000 per transaction and a maximum of Rs. 1,00,000 in a day and • An example of a PAN code number would be in the form of AAAPL1234C.
maximum number of transaction count of 20 in a day. The PAN structure is as follows: AAAPL1234C: The five (5) first characters
• BHIM app currently supports 13 languages (including English), though are letters, followed by four (4) numerals, and the last (10th) character is a
there are 22 official languages of India (excluding English) under 8th letter.
Schedule of Constitution of India.
Tax Deduction and Collection Account Number (TAN) :
Other Important Product used in various sectors • In India, a Tax Deduction and Collection Account Number (TAN) is a 10
Universal Account Number (UAN) : digit number issued to persons who are required to deduct or collect tax
• The UAN is a 12-digit number allotted to employee who is contributing on payments made by them under the Indian Income Tax Act, 1961.
to EPF will be generated for each of the PF member by EPFO. For example, Each tax deductor is uniquely identified by a TAN.
• The UAN will act as an umbrella for the multiple Member Ids allotted payment challans and all TDS/TCS certificates to be issued. TDS/TCS returns
to an individual by different establishments and also remains same through will not be accepted if TAN is not quoted and challans for TDS/TCS payments
the lifetime of an employee. It does not change with the change in jobs. will not be accepted by banks.
• The idea is to link multiple Member Identification Numbers (Member • Failure to apply for TAN or not quoting the same in the specified documents
Id) allotted to a single member under single Universal Account Number. attracts a penalty of Rs.10,000.
International Securities Identification Number (ISIN) : • TAN structure is as follows: DELA99999B: First four characters are letters,
• An International Securities Identification Number (ISIN) uniquely next five are numerals, and last character is a letter.
identifies a security. Its structure is defined in ISO 6166. • The first three characters represent the city or state where the TAN
• The ISIN code is a 12-character alphanumeric code that serves for was issued.
uniform identification of a security through normalization of the assigned • The fourth character represents first character of name of the deductor.
National Number, where one exists, at trading and settlement. • And the next 5 characters are numerics.
• All internationally traded securities issuers are urged to use the ISIN
numbering scheme, which is now the accepted standard by virtually all Legal Entity Identifier (LEI) :
countries. The United States and Canada primarily use a similar scheme, • The Legal Entity Identifier (LEI) code is conceived as a key measure
known as a CUSIP number. to improve the quality and accuracy of financial data systems for
better risk management post the Global Financial Crisis.
• LEI is a 20-digit unique code to identify parties to financial transactions 20 digit Identifies distinct legal entities
Legal Entity
worldwide. alphanumeric that engage in financial
Identifier
• These directions are issued under Section 21 and Section 35(A) of the code transactions.
Banking Regulation Act, 1949.
Margin on Loans and Implications
Quick Review A loan that is able to be used for a variety of purposes. Typically offered
Numbers/ to an investor by a broker for purchasing securities in a margin account and
TERMS Description
Codes secured via the collateral of the investor.
Society for What is a margin loan?
8 – 11 Identifies particular banks
Worldwide • A margin loan is a flexible line of credit that can be used to borrow money
Alphabetic worldwide and to send money to
Interbank for investment purposes, such as investing in shares and managed funds.
Code overseas banks.
Financial • For example, you can provide existing approved shares, or managed funds
Uniquely identifies a bank-branch as your deposit, or equity contribution.
participating in the NEFT system. • You can then use the loan to pay for other new investments.
Indian Financial 11 – Alpha
1 Four Characters – Bank Name
st • The assets you contribute, plus those acquired with the borrowed funds,
System Code Numeric Code
5th character -0 (zero) become security for your margin loan.
Magnetic Ink Uniquely identifies a bank and a • Margin loan availability describes the amount in a margin account that is
Character 9 – Digit Code branch participating in an currently available for purchasing securities on margin or the amount that is
Uniquely linked with an Account • A margin account makes loans available to the customer of a brokerage
Mobile Money number and helps in identifying firm using the customer's securities in their account as collateral.
7– Digit Code • Margin loan availability can be used in a couple of specific contexts.
Identifier the beneficiary details like in
AEPS, APBS. 1. The dollar amount in an existing margin account that is currently available
for purchasing securities. For new accounts, this represents the percentage
Allotted to employee who is
Universal Account contributing to EPF will be value of the current balance that is available for future margin purchases.
12– Digit Code 2. The dollar amount available for withdrawal from an account with existing
Number generated for each of the PF
member by EPFO marginable positions being used as collateral.
• An unsecured loan may be one of the followings: • An overdraft allows the individual to continue withdrawing money even if
➢ Personal loans the account has no funds in it or not enough to cover the withdrawal.
➢ Credit card debt Basically, overdraft means that the bank allows customers to borrow a set
• Sometimes in the subsidized loan the whole amount of interest is paid by pay a minimum interest on a predetermined amount or the amount
Types of assets • Compared to the ordinary court procedures, DRTs were able to handle
1. Standard assets: large number of cases with low delay during the initial phases.
Assets which are generating regular income to the bank
2. Sub-standard assets: Asset Reconstruction Companies (ARCs)
An asset which is overdue for a period of more than 90 days but less than • The Securitization and Reconstruction of Financial Assets and Enforcement
12 months of Security Interest (SARFAESI) Act, 2002; enacted in December 2002
3. Doubtful assets: provides the legal basis for the setting up ARCs in India. Section 2 (1) of
An asset which is overdue for a period of more than 12 months. the Act explains the meaning of Asset Securitization.
4. Loss assets: • Asset Reconstruction Companies or ARCs purchases bad assets or NPAs
Assets which are doubtful and considered as non-recoverable by bank, from banks at a negotiable price and helps banks to clean up their balance
internal or external auditor or central bank inspectors sheets (by removing the NPAs). ARCs are also elaborated under Section 3
5. Sub-standard assets: of the Act.
Doubtful assets and Loss assets are NPA. • At the same time, the new Insolvency and Bankruptcy Act will give a critical
Causes of NPA role to the ARCs in settling the bad assets through the insolvency process.
➢ Default Capital needs for ARCs
One of the main reason behind NPA is default by borrowers. • As per amendment made on the SARFAESI Act in 2016, an ARC should
➢ Economic conditions have a minimum net owned fund of Rs 2 crore.
The Economic condition of a region affected by natural calamities or any • The RBI plans to raise this amount to Rs 100 crore by end March 2019.
other reason may cause NPA. • Similarly, the ARCs have to maintain a capital adequacy ratio of 15% of its
➢ No more proper risk management risk weighted assets.
Speculation is one of the major reason behind default. Sometimes banks
provide loans to borrowers with bad credit history. There is a high probability Equated Monthly Installment (EMI)
of default in these cases. Definition:
➢ Mis-management Equated monthly installments are used to pay off both interest and principal
Often ill-minded borrowers bribe bank officials to get loans with an intention each month so that over a specified number of years, the loan is paid off in
of default. full.
➢ Diversion of funds Description:
Many times, borrowers divert the borrowed funds to purposes other than The EMI is dependent on multiple factors, such as:
mentioned in loan documents. It is very hard to recover from this kind of 1) Principal borrowed
borrowers. 2) Rate of interest
Prompt Corrective Action 3) Tenure of the loan
PCA framework is one of such supervisory tools, which involves 4) Monthly/annual resting period
monitoring of certain performance indicators of the banks as an early • For a fixed interest rate loan, the EMI remains fixed for the entire tenure
warning exercise and is initiated once such thresholds as relating to capital, of the loan, provided there is no default or part-payment in between.
asset quality etc. are breached. • The EMI is used to pay off both the principal and interest components of
Its objective is to facilitate the banks to take corrective measures an outstanding loan.
including those prescribed by the Reserve Bank, in a timely manner, in • The first EMI has the highest interest component and the lowest principal
order to restore their financial health. component. In case the rate of interest reduces through the tenure of the
The framework also provides an opportunity to the Reserve Bank to pay loan (as in the case of floating rate loans) the subsequent EMIs get reduced
focussed attention on such banks by engaging with the management or the tenure of the loan falls or a mix of both.
more closely in those areas. The PCA framework is, thus, intended to • It further explains that, with most common types of loans, such as real
encourage banks to eschew certain riskier activities and focus on conserving estate mortgages, the borrower makes fixed periodic payments to the lender
capital so that their balance sheets can become stronger. over the course of several years with the goal of retiring the loan.
The Reserve Bank has emphasized that the PCA framework has been in
operation since December 2002. Differential Rate of Interest Scheme (DRI)
• DRI, a scheme for extending financial assistance at concessional rate of
Debt Recovery Tribunals (DRTs) interest to a selected low-income group for productive endeavours is
• Debt Recovery Tribunals were established to facilitate the debt recovery known as Differential Rate of Interest Scheme (DRI) is now being
involving banks and other financial institutions with their customers like NPA. implemented by all Scheduled Commercial Banks.
• DRTs were set up after the passing of Recovery of Debts due to Banks • Under the DRI Scheme, banks provide finance up to Rs.15,000/- at a
and Financial Institutions Act (RDBBFI), 1993. concessional rate of interest of 4 percent per annum to the weaker sections
• Appeals against orders passed by DRTs lie before Debts Recovery Appellate of the community for engaging in productive and gainful activities.
Tribunal (DRAT). The civil courts were directed to hand over all such cases • In the case of physically handicapped persons, a sum of Rs.5,000/- for
to Debt Recovery Tribunals (DRTs) and Debt Recovery Appellate purchase of aids, appliances and equipments may be granted, apart from
Tribunals (DRATs), constituted under the Act the loan amount of Rs.15,000/-. In case of housing loan under DRI scheme,
• DRTs can take cases from banks for disputed loans above Rs 10 Lakhs. a maximum loan amount of Rs.20,000 is allowed.
• At present, there are 33 DRTs and 5 DRATs functioning at various parts of
the country.
• Eligible participants are free to decide on interest rates in call/notice ➢ Sanctioned work capital limit by banks.
money market. ➢ The borrowal accounts are classified as a standard asset by financing banks
• With the implementation of the core banking solution, the Negotiated ➢ Minimum credit rating from SEBI approved credit rating agency.
Dealing System (NDS) has been discontinued for reporting of OTC Maturity
Call/Notice/Term Money transactions. ➢ CP can be issued for maturities between a minimum of 7 days and a
maximum of up to one year from the date of issue.
Types of Money ➢ However, the maturity date of the CP should not go beyond the date up to
Money can be described as a generally accepted medium of exchange for which the credit rating of the issuer is valid.
goods and services. They are divided into four types, they are commodity Time Period Ceilings
money, fiat money, fiduciary money, and commercial bank money. ➢ The total amount should be raised with in a period of 2 weeks from the
date on which the issue opens.
Commodity money: ➢ Each CP shall have the same maturity date even when issued on different
system, where goods and services are directly exchanged for other goods ➢ Every issue of CP, including renewal, should be treated as a fresh issue.
and services. Commodity money facilitates this process, because it acts as Investors
a generally accepted medium of exchange. Examples of commodity money ➢ Individuals, banking companies, other corporate bodies
include gold coins, beads, shells, spices, etc. registered/incorporated in India and unincorporated bodies, Non-Resident
Indians and FIIs.
the government declares fiat money to be legal tender, which requires all term debt instruments issued by the Government of India. It is first
people and firms within the country to accept it as a means of payment. issued in India in 1917.
Examples of fiat money include coins and bills. • Treasury bills are zero coupon securities and pay no interest. They are
issued at a discount and redeemed at the face value at maturity.
Fiduciary Money: • The return to the investors is the difference between the maturity value or
Fiduciary money depends for its value on the confidence that it will be the face value (that is Rs.100) and the issue price. They are issued at a
generally accepted as a medium of exchange. Unlike fiat money, it is not discount and redeemed face value at maturity.
declared legal tender by the government, which means people are not • Treasury bills can be purchased by any one (including individual) expect
Instead, the issuer of fiduciary money promises to exchange it back for a Types:
commodity or fiat money if requested by the bearer. Examples of fiduciary ➢ The bills are of two kinds - Adhoc and Regular.
money include cheques, bank notes, or drafts. ➢ The Adhoc bills are issued for investment by the state governments, semi
government departments and foreign central banks for temporary
Commercial Bank Money: investment. They are not sold to banks and general public. Ad-hoc bills
Commercial bank money can be described as claims against financial were abolished in April 1997.
institutions that can be used to purchase goods or services. It represents the ➢ The Regular treasury bills are sold to the public and banks. They are
portion of a currency that is made of debt generated by commercial banks. freely marketable and commercial banks buy entire quantities of such bills,
At this point just note that in essence, commercial bank money is debt issued on tender. They are bought and sold on discount basis.
generated by commercial banks that can be exchanged for “real” money or Denomination
to buy goods and services. ➢ Minimum amount of face value Rs. 25000 & in multiples thereof. There
is no specific amount/limit on the extent to which these can be issued or
issued in the form of a promissory note. ➢ Presently issued in three tenors, namely, 91 days, 182 days and 364
• It was introduced in India in 1990 with a view to enabling highly rated days.
and to provide an additional instrument to investors. ➢ RBI sells treasury bills on auction basis (to bidders quoting above the cut-
• It is issued by Corporates, primary dealers (PDs) and the All-India off price fixed by RBI) by calling bids. Auctions are conducted every
Financial Institutions (FIs) are eligible to issue CP. CP can be issued in Wednesday to issue T-bills.
registered with SEBI. Banks, FIs and PDs can hold CP only in issued in dematerialised form (only wef June 30, 2002) or as a Usance
dematerialised form. Promissory Note against funds deposited at a bank or other eligible
Eligibility criteria for a company financial institution for a specified time period. It was introduced in India in
➢ Its tangible net worth, as per latest audited balance sheet, is not less • Guidelines for issue of CDs are presently governed by various directives
than Rs.4 Crores. issued by the Reserve Bank of India (RBI), as amended from time to
time. There is no lock-in period for the CDs. It cannot buy back their own to investors, usually on an overnight basis, and buys them back the following
CDs before maturity. day.
• Banks have the freedom to issue CDs depending on their funding
requirements. CDs in physical form are freely transferable by endorsement FIMMDA
and delivery. CDs in demat form can be transferred as per the procedure • FIMMDA stands for the Fixed Income Money Market and Derivatives
applicable to other demat securities. Banks/FIs cannot grant loans Association of India (FIMMDA) is an association of Commercial Banks,
against CDs. Financial Institutions and Primary Dealers.
Eligibility • FIMMDA was incorporated as a Company under section 25 of the
CDs can be issued by Companies Act, 1956 on June 3rd, 1998. FIMMDA is a voluntary market
➢ Scheduled commercial banks {excluding Regional Rural Banks and body for the bond, Money and Derivatives Markets.
Local Area Banks} and • It acts as an interface with the regulators on various issues that impact
➢ Selected All-India Financial Institutions (FIs) that have been the functioning of these markets. It also undertakes developmental
permitted by RBI to raise short-term resources within the umbrella limit activities, such as, introduction of benchmark rates and new derivatives
fixed by RBI. instruments, etc.
Minimum Size of Issue and Denominations • FIMMDA releases rates of various Government securities that are used by
➢ Minimum amount of a CD should be Rs.1 lakh, i.e., the minimum deposit market participants for valuation purposes. FIMMDA also plays a
that could be accepted from a single subscriber should not be less than Rs.1 constructive role in the evolution of best market practices by its
lakh, and in multiples of Rs. 1 lakh thereafter. members so that the market as a whole operates transparently as well as
Investors efficiently.
➢ CDs can be issued to individuals, corporations, companies (including • The Reserve Bank has appointed the Financial Benchmark India Pvt
banks and PDs), trusts, funds, associations, etc. Ltd (FBIL) for valuation of portfolios of government securities, which earlier
➢ Non-Resident Indians (NRIs) may also subscribe to CDs, but only on non- used to be done by FIMMDA. (As of current news)
repatriable basis, which should be clearly stated on the Certificate. • As per RBI directive, FIMMDA has ceased to publish prices/yield of
➢ Such CDs cannot be endorsed to another NRI in the secondary government securities from March 31, 2018.
market.
Maturity CAPITAL MARKET
➢ The maturity period of CDs issued by banks should not be less than 7 A capital market is a financial market in which long-term debt (over a
days and not more than one year, from the date of issue. year) or equity-backed securities are bought and sold. Capital markets
➢ The FIs can issue CDs for a period not less than 1 year and not exceeding channel the wealth of savers to those who can put it to long-term productive
3 years from the date of issue. use, such as companies or governments making long-term investments.
Reserve Requirements Capital markets help channelize surplus funds from savers to institutions
➢ Banks have to maintain appropriate reserve requirements, i.e., cash which then invest them into productive use. Generally, this market trades
reserve ratio (CRR) and statutory liquidity ratio (SLR), on the issue price of mostly in long-term securities.
the CDs. Securities Market
A securities market is a market where securities are traded either on
CASH MANAGEMENT BILLS physical or electronic exchanges. Securities markets are generally divided
• The Government of India, in consultation with the Reserve Bank of between stock markets and bond markets. A stock market involves the
India, has decided to issue a new short-term instrument, known as Cash trade of equity securities, which are ownership interests of a company
Management Bills, to meet the temporary cash flow mismatches of the commonly known as shares.
Government. It is also classified into two interdependent segments, i.e.
• The Cash Management Bills will be non-standard, discounted instruments They are
issued for maturities less than 91 days. 1. Primary Market
• The Cash Management Bills will have the generic character of Treasury 2. Secondary Market
Bills. The proposed Bills will be issued at discount to the face value BASIS FOR PRIMARY SECONDARY
through auctions, as in the case of the Treasury Bills. COMPARISON MARKET MARKET
• The Non-Competitive Bidding Scheme for Treasury Bills will not be
The place where
extended to the Cash Management Bills.
The market place for new formerly issued
• The tenure or maturity notified amount (how much total CMBs to be
shares is called primary securities are traded is
issued) and date of issue of the CMBs depends upon the temporary cash
market. known as Secondary
requirement of the Government.
Market.
• CMBs are eligible as SLR securities. Investment in CMBs is also Meaning
or or
recognized as an eligible investment in Government securities by banks for
Issued securities is
SLR purpose under Section 24 of the Banking Regulation Act, 1949. The securities are
then listed on a
formerly issued in a
recognised stock
REPURCHASE AGREEMENT market.
exchange for trading.
A repurchase agreement (repo) is a form of short-term borrowing for
Another name New Issue Market (NIM) After Market
dealers in government securities. The dealer sells the government securities
Type of Purchasing Direct Indirect
It supplies funds to trading facility to the investors spread across the length and breadth of the
budding enterprises and country. Vikram Limaye is Managing Director & Chief Executive Officer (MD
It does not provide
Financing also to existing & CEO) of NSE. Ashok Chawla is the chairman of NSE. Its headquarters is
funding to companies.
companies for expansion located in Mumbai, Maharashtra.
and diversification. National Stock Exchange has a total market capitalization of more than
How many times a US$2.27 trillion, making it the world’s 11th-largest stock exchange as
security can be Only once Multiple times of April 2018. NSE's flagship index, the NIFTY 50, the 50-stock index is
sold? used extensively by investors in India and around the world as a barometer
Buying and Selling of the Indian capital markets. Nifty 50 index was launched in 1996 by the
Company and Investors Investors
between NSE.
Not rooted to any specific securitised instruments such as floating rate notes and fixed rate bonds etc.
Organizational It has physical
spot or geographical RBI has decided to increase ECB Liability to Equity Ratio for ECB raised from
difference existence.
location. direct foreign equity holder under automatic route to 7:1.
It should be noted that ECBs are not FDI. In case of FDI, foreign money is
used only to finance the equity Capital. But in case ECBs, foreign money is
The public issue is of two types, they are: used to finance any kind of funding other than equity.
Individual Limits:
• Initial Public Offer (IPO) : Public issue made by an unlisted company
➢ Up to USD 750 million or equivalent - for the companies in
for the very first time, which after making issue lists its shares on the
infrastructure and manufacturing sectors, Non-Banking Financial Companies
securities exchange is known as the Initial Public Offer.
- Infrastructure Finance Companies (NBFC-IFCs), NBFCs-Asset Finance
• Further Public Offer (FPO) : Public issue made by a listed company, for
Companies (NBFC-AFCs), Holding Companies and Core Investment
one more time is also known as a Follow-On Offer. An FPO is a stock issue
Companies.
of additional shares made by a company that is already publicly listed and
➢ Up to USD 200 million or equivalent - for companies in software
has gone through the IPO process.
development sector.
➢ Up to USD 100 million or equivalent - for entities engaged in micro
Two Important Stock Exchanges in India
finance activities.
Bombay Stock Exchange (BSE)
➢ Up to USD 500 million or equivalent for remaining entities.
The Bombay Stock Exchange (BSE) is an Indian stock exchange established
in 1875, the BSE (formerly known as Bombay Stock Exchange Ltd.). It is
Foreign Direct Investment (FDI)
the Asia’s first stock exchange. It claims to be the world's fastest stock
Foreign direct investment (FDI) is an investment made by a firm or
exchange, with a median trade speed of 6 microseconds. The BSE is the
individual in one country into business interests located in another
world's 10th largest stock exchange with an overall market capitalization of
country. Generally, FDI takes place when an investor establishes foreign
more than $2.3 trillion on as of April 2018.
business operations or acquires foreign business assets, including
Over the past 141 years, BSE has facilitated the growth of the Indian
establishing ownership or controlling interest in a foreign company.
corporate sector by providing it an efficient capital-raising platform.
Foreign Direct Investments are distinguished from portfolio investments in
BSE's popular equity index - the S&P BSE SENSEX - is India's most widely
which an investor merely purchases equities of foreign-based
tracked stock market benchmark index. It is traded internationally on the
companies.
EUREX as well as leading exchanges of the BRCS nations (Brazil, Russia,
China and South Africa).
Indian company receive foreign investment
The BSE is also a Partner Exchange of the United Nations Sustainable
There are two routes under which foreign investment can be made is as
Stock Exchange initiative, joining in September 2012. BSE established India
under:
INX on 30 December 2016. India INX is the first international exchange
➢ Automatic Route: Foreign Investment is allowed under the automatic
of India. Its headquarters is located in Mumbai, Maharashtra. Chairman
route without prior approval of the Government or the Reserve Bank of
of BSE – S Ravi; Ashishkumar Chauhan (MD & CEO).
India, in all activities/ sectors as specified in the Regulation 16 of FEMA
20 (R).
National Stock Exchange (NSE)
➢ Government Route: Foreign investment in activities not covered under
The National Stock Exchange of India Limited (NSE) is the leading stock
the automatic route requires prior approval of the Government.
exchange of India. The NSE was established in 1992 as the first
Foreign Investment Promotion Board (FIPB) which was the responsible
demutualized electronic exchange in the country.
agency to oversee this route was abolished on May 24, 2017.
NSE was the first exchange in the country to provide a modern, fully
automated screen-based electronic trading system which offered easy
Qualified Foreign Investor (QFI) paid up capital in the case of public sector banks.
The Qualified Foreign Investor (QFI) is sub-category of Foreign Portfolio Recently SEBI allowed FIIs to invest in unlisted exchanges as well, which
Investor and refers to any foreign individuals, groups or associations, or means both BSE and NSE (the unlisted bourses) can now allot shares to
resident, however, restricted to those from a country that is a member of FIIs also.
Financial Action Task Force (FATF) or a country that is a member of a American Depositary Receipt (ADR)
group which is a member of FATF and a country that is a signatory to An American Depositary Receipt (ADR) is a negotiable certificate
International Organization of Securities Commission’s (IOSCO) issued by a U.S. bank representing a specified number of shares (or one
Multilateral Memorandum of Understanding (MMOU). share) in a foreign stock traded on a U.S. exchange.
QFI scheme was introduced by Government of India in consultation with ADRs are denominated in U.S. dollars, with the underlying security held by
RBI and SEBI in the year 2011. The policy decision is aimed to increase a U.S. financial institution overseas, and holders of ADRs realize any
the depth of the Indian Market and widen the range of investors. QFIs, have dividends and capital gains in U.S. dollars, but dividend payments in euros
now been merged in to Foreign Portfolio Investors (FPI), when the FPI are converted to U.S. dollars, net of conversion expenses and foreign taxes.
regulations were introduced in 2014. ADRs are listed on either the NYSE, AMEX or NASDAQ but they are also
The objective of enabling QFIs is to deepen and infuse more foreign sold OTC. ADR holders do not have to transact in foreign currencies
funds in the Indian capital market and to reduce market volatility as because ADRs trade in U.S. dollars and clear through U.S. settlement
FDI is a long-term process wherein equity of issuing company to enable foreign companies to raise funds from
the investor reflects a long-lasting FPI is a short-term process the Indian securities Markets.
and controlling interest in the firm. The foreign company IDRs will deposit shares to an Indian depository. The
depository would issue receipts to investors in India against these
FDI is a direct investment in FPI is an indirect investment in the
shares. The benefit of the underlying shares (like bonus, dividends etc.)
buildings, technologies, equipment foreign firm by simply buying the
would accrue to the depository receipt holders in India.
and machinery belonging to the stocks of the company and not getting
Operation instructions under the Foreign Exchange Management Act
firm of a host country (foreign involved in any major activities of the
were issued by the Reserve Bank of India on July 22, 2009. Standard
firm). firm.
Chartered PLC became the first global company to file for an issue of Indian
It is difficult to sell off the shares
It is easy to sell off the shares in FPI depository receipts in India in 2010.
in FDI
FPI investors are less vulnerable to FPI investors are more vulnerable to
liquidity. liquidity.
Securities and Exchange Board of India (SEBI)
The Securities and Exchange Board of India (SEBI) is the designated
Investment is greater than 10% Investment is less than 10%
regulatory body for the finance and investment markets in India. The
Investment gives investors Investment gives investors only
Securities and Exchange Board of India was established on April 12, 1992 in
ownership right as well as ownership right and not management
accordance with the provisions of the Securities and Exchange Board of
management right right
India Act, 1992.
The board plays a vital role in maintaining stable and efficient financial
and investment markets by creating and enforcing effective regulation in
India's financial marketplace. India's SEBI is similar to the U.S. Securities Note: Lien is a right to keep possession of property belonging to another
and Exchange Commission (SEC). person until a debt owed by that person is discharged.
SEBI has its headquarters at Mumbai, Maharashtra. Chairman of SEBI –
Ajay Tyagi. RISK IN BANKING SECTOR
Management Risk
• SEBI is managed by its chairman and 5 members and has departments Risk refers to a condition where there is a possibility of undesirable
such as primary market Dept, Issue Management Dept, Secondary Market occurrence of a particular result. It also be defined as the unplanned
Dept, Institutional Investment Dept. event which causes financial consequences resulting in loss or decreased
• It has 2 advisory committees, one each for primary and secondary profit.
market to provide advisory guidance in framing policies and regulation. Risk can be referred as the chances of having an unexpected or negative
• SEBI has to be responsive to the needs of three groups, which constitute outcome. Any action or activity that leads to loss of any type can be termed
the market: 1) the issuers of securities 2) the investors 3) the market as risk.
intermediaries. Ultimately, the board has three powers: quasi-judicial, Types of Risk
quasi-legislative and quasi-executive. The banks are exposed to
1. Liquidity risk.
National Securities Depository Limited (NSDL) 2. Interest rate risk.
National Securities Depository Limited (NSDL) is an Indian central 3. Market risk.
securities depository based in Mumbai, Maharashtra. 4. Credit risk.
It was established on 8 November 1996 as the first electronic securities 5. Operational risk.
depository in India with national coverage based on a suggestion by a 6. Systemic Risk
national institution responsible for the economic development of India. MD 7. Business Risk:
& CEO of NSDL - G.V. Nageswara Rao. These risks can be further broken up in various other types of risk as under:
Promoters / shareholders
NSDL is promoted by Industrial Development Bank of India Limited 1. Liquidity risk
(IDBI) - the largest development bank of India, Unit Trust of India (now, It is the risk arising from funding from funding of long term assets by short
Administrator of the Specified Undertaking of the Unit Trust of India) and term liabilities or funding short term assets by long term liabilities.
National Stock Exchange of India Limited (NSE) - the largest stock Ex: Person A is going to a bank to withdraw money. Imagine the bank saying
exchange in India. Some of the prominent banks in the country have also that it doesn’t have cash temporarily. That is the liquidity risk a bank has to
taken a stake in NSDL. They are Axis Bank Limited, State Bank of India, save itself from.
Oriental Bank of Commerce, Citibank NA, Standard Chartered Bank, HDFC
Bank Limited, The Hongkong and Shanghai Banking Corporation Limited, 2. Interest Rate Risk
Deutsche Bank, Dena Bank, Canara Bank It is the risk arising from adverse movement of interest rates during the
period when the asset or liability was held by the bank. This risk affects the
Central Depository Services (India) Ltd (CDSL) net interest margin or market value of equity.
Central Depository Services (India) Ltd (CDSL), is the second Indian
central securities depository based in Mumbai, Maharashtra. Its main 3. Market risk or price risk
function is the holding securities either in certificated or uncertificated It is the risk that arises due to adverse movement of the value of the
(dematerialized) form, to enable book entry transfer of securities. Chairman investments/trading portfolio, during the period when the securities are held
of CDSL - T. S. Krishna Murthy. by a bank. Market risk as the risk of losses in the bank’s trading book due
Promoters / shareholders to changes in equity prices, interest rates, credit spreads, foreign-
• CDSL is promoted by Bombay Stock Exchange Limited (BSE) jointly exchange rates, commodity prices, and other indicators whose values are
with State Bank of India, Bank of India, Bank of Baroda, HDFC Bank, set in a public market.
Standard Chartered Bank, Axis Bank and Union Bank of India.
4. Default risk or Credit risk
Applications Supported by Blocked Amount (ASBA) The risk to a bank when there is possibility of default by the counter party
ASBA (Applications Supported by Blocked Amount) is a process developed to meet its obligation. Credit risk is most likely caused by loans, acceptances,
by the India’s Stock Market Regulator Securities and Exchange Board of interbank transactions, trade financing, foreign exchange transactions,
India (SEBI) for applying to IPO. In ASBA, an IPO applicant’s account financial futures, swaps, bonds, equities, options, and in the extension of
doesn’t get debited until shares are allotted to them. commitments and guarantees, and the settlement of transactions.
ASBA can be used for Initial and Follow-on Public Offers (IPO & FPO), Ex: If person A borrows loan from a bank and is not able to repay the
Rights Issues, Debt Issues and Mutual Funds. Under ASBA, funds will loan because of inadequate income, loss in business, death, unwillingness
continue to earn interest during the application processing period. or any other reasons, the bank faces credit risk. Similarly, if you do not
Bank will mark a lien on the deposit account of the investor to the extent pay your credit card bill, the bank faces a credit risk.
transferred to the applicant’s Demat account. An Investor can make 5 It is the risk that arises due to failed internal processes, people or systems
applications from a single deposit account. or from external events. It includes a no of risk such as fraud risk,
Communication risk, documentation risk, competence risk, model risk,
cultural risk, external event risk, legal risk, regulatory risk, compliance risk, ISSUNACE OF CURRENCY
system risk etc. It does not include strategic risk or reputation risk. The issuance of the currency is controlled by the Reserve Bank of India.
Ex: Operational risk may be incorrect information filled in during The Reserve Bank manages currency in India and derives its role in currency
clearing a check or confidential information leaked due to system failure. management on the basis of the Reserve Bank of India Act, 1934. And
the first paper currency issued by RBI was a 5 rupee note bearing King
6. Systemic Risk George VI’s portrait, in January 1938.
Systemic risk is the risk that doesn’t affect a single bank or financial Coins can be issued up to the denomination of Rs.1000 as per the Coinage
institution, but it affects the whole industry. Systemic risks are Act, 1906. The Reserve Bank has introduced banknotes in the Mahatma
associated with cascading failures where the failure of a big entity can cause Gandhi Series since 1996 and has so far issued notes in the denominations
the failure of all the others in the industry. of Rs.5, Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000 in this
The global crisis of 2008 is the best example of a loss to all the financial series.
institutions that occurred due to systemic risk. The legal tender character of the bank notes in denominations of Rs. 500
and Rs.1000 mentioned above, issued by the Reserve Bank of India was
7. Business Risk: withdrawn with the promulgation of the Specified Bank Notes
It is risk mainly due to non-payment of a loan by a businessman to (Cessation of Liabilities) Ordinance 2016 (GoI Ordinance No. 10 of 2016
banks or creditor at maturity led to the origin of the risk. dated December 30, 2016). As a result, with effect from December 31, 2016,
the above Bank Notes ceased to be the liabilities of the Reserve Bank of
6.Other risk India and ceased to have the guarantee of the Central Government.
These may include strategic risk or reputation risk.
a) Strategic risk: Arises due to adverse business decision, improper
Quick Review of Currency Printing in India
implementation of decisions etc.
➢ Currency paper is imported from Dubai.
b) Reputation risk: It is the risk that arises from negative public opinion.
➢ Paper for currency and securities process at Hoshangabad (MP).
It can expose an institution to litigation, financial loss or decline in customer
➢ Currency Notes Press, Nasik Road – Denomination of 1, 2, 5, 10, 50,
base.
100.
➢ Bank Notes Press, Dewas (MP) : 20, 50, 100, 500.
Capital Adequacy Ratio (CAR)
➢ Modernized Currency notes Press: at Mysore, Salboni (West Bengal).
• Capital Adequacy Ratio (CAR) is the ratio of a bank’s capital in relation ➢ Minting of Coins: Mumbai, Kolkata, Hyderabad, Noida (UP).
to its risk weighted assets and current liabilities. ➢ OVI (Optical Variable Ink) is used for printing currency which is
• It is decided by central banks and bank regulators to prevent commercial imported from Switzerland.
banks from taking excess leverage and becoming insolvent in the ➢ Currency denomination is printed in 15 Languages.
process. ➢ Indian Security Press, Nasik Road: Printing of Postal Stamps, Postal
• Capital Adequacy Ratio, also known as Capital-To-Risk weighted Assets Material, Judicial, Non-Judicial Stamps, Cheques, Bonds, NSCs, Indira Vikas
Ratio (CRAR), is used to protect depositors and promote the stability and Patra, Kisan Vikas Patra, Securities of States and PSUs.
efficiency of financial systems around the world. ➢ Security Printing Press Hyderabad (1982) : Printing of Court Fee
• Two types of capital are measured: Tier One capital, which can absorb Stamps, Commemorative Stamps, Kisan Vikas Patra, NSS Certificates.
losses without a bank being required to cease trading, and Tier Two ➢ “1 rupee” denomination printed under the control of Government of India.
capital, which can absorb losses in the event of a winding-up and so ➢ Plastic Currency issued first by Australia.
provides a lesser degree of protection to depositors.
DEMONETISATION
CURRENCY CHEST IN INDIA
Demonetisation is a situation where the Central Bank of the country
Distribution of notes and coins throughout the country is done through
(Reserve Bank in India) withdraws the old currency notes of certain
designated bank branches, called chests. Chest is a receptacle in a
denomination as an official mode of payment.
commercial bank to store notes and coins on behalf of the Reserve Bank.
In 1936, Rs 10,000, which was the highest denomination note, was
Deposit into chest leads to credit of the commercial bank’s account and
introduced but was demonetised in 1946. Though, it was re-introduced in
withdrawal, debit.
1954 but later, in 1978, the then Prime Minister Morarji Desai in his
Functions of Currency Chests
intensive move to counter the black money, introduced The High
1. To meet currency requirement of public
Denomination Banks Act (Demonetisation) and declared Rs 500, Rs
2. To withdraw unfit notes
1000 and Rs 10,000 notes illegal.
3. To provide exchange facility from one denomination to another
On November 8, 2016, Prime Minister Narendra Modi in a surprise
4. To make payment requirement of the Government
announcement said the existing higher denomination currency (Rs 500 and
5. To exchange the mutilated notes
Rs 1000) will cease to be legal tenders, effective from the midnight of
6. To avoid frequent movement of cash
the same day, and announced the issuance of new Rs.500 and Rs.2,000
Apart from having its own chests at certain places, RBI also has
banknotes of the Mahatma Gandhi New Series in exchange for the old
arrangements with other banks which are entrusted with custody of the
notes. So, as of now three times demonetisation taken place in India –
currency notes and coins for the same purpose.
1946, 1978, 2016.
Denomination
Signature Colour Motif Dimension Identification
(Rs) Logo
500 Dr. Urjit R. Patel stone grey Red Fort 66 mm x 150mm - Swachh Bharat
200 Dr. Urjit R. Patel Bright Yellow Sanchi Stupa 66 mm × 146 mm H Swachh Bharat
Fluores
50 Dr. Urjit R. Patel Hampi with Chariot 66 mm x 135 mm - Swachh Bharat
cent Blue
10 Dr. Urjit R. Patel Chocolate Brown Sun Temple, Konark 63 mm x 123 mm - Swachh Bharat
ONICRA
Main Headquarters Share holder CEO/
Function & Ratings Chairman
• ONICRA Credit Rating Agency is the private rating agency Gurugram, • It is one of the seven agencies licensed by the KR Kim
established by Sonu Mirchandani under ONIDA Finance. Haryana. National Small Industries Corporation (NSIC) for the
• The agency provides credit ratings, conducts risk assessment rating of SMEs
and provides analytical solutions to individuals, corporates and • Its grading services include education grading,
MSMEs. healthcare grading, solar energy grading and APMC
• Its establishment in 1993, the agency has gained expertise grading
in assessing micro, small and medium enterprises.
Moody's Investors Service, often referred to as New York city, It is the bond credit rating business of Moody's Raymond W. McDaniel,
Moody's. New York Corporation, representing the company's Jr. (President & CEO)
Moody's Investors Service provides international traditional line of business.
financial research on bonds issued by commercial and
government entities.
Moody's, along with Standard & Poor's and Fitch
Group, is considered one of the Big Three credit rating
agencies.
Standard & Poor's Financial Services LLC (S&P) is an New York city, New S&P is known for its stock market indices such as the U.S.- Douglas L.
American financial services company. York based S&P 500, the Canadian S&P/TSX, and the Australian Peterson
• S&P is considered one of the Big Three credit-rating S&P/ASX 200
agencies.
It is a division of S&P Global that publishes financial
research and analysis on stocks, bonds, and
commodities.
Fitch Ratings Inc. is one of the "Big Three credit rating Dual-headquartered in New Hearst owns 100 percent of the company • Paul Taylor
agencies”. York, US, and London, UK following its acquisition of an additional 20 (CEO)
It is one of the three nationally recognized statistical percent for $2.8 billion on April 12, 2018.
rating organizations (NRSRO) designated by the U.S. Fitch Ratings and Fitch Solutions are part of the
Securities and Exchange Commission in 1975. Fitch Group.
CAMELS Rating System ➢ Ratings are assigned for each component in addition to the overall rating
➢ The acronym “CAMELS” refers to the five components of a bank’s condition of a bank’s financial condition.
that are assessed: Capital adequacy, Asset quality, Management, ➢ Indian commercial banks are rated as per supervisory rating model
Earnings, and Liquidity and system and control. approved by the BFS which is based on ‘CAMELS’ concept.
Developments Banks in India ➢ Its headquarters is in Mumbai, Maharashtra. Chairman of NABARD - Dr.
Harsh Kumar Bhanwala.
IFCI (Industrial Finance Corporation of India) ➢ Government of India had initially set up Export Risks Insurance
➢ IFCI Ltd. was set up in 1948 as Industrial Finance Corporation of India, Corporation (ERIC) in July 1957. It was transformed into Export Credit and
a Statutory Corporation, through `The Industrial Finance Corporation of Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit
India Act, 1948’ of Parliament to provide medium and long term finance to Guarantee Corporation of India in 1983.
➢ IFCI became a Public Limited Company registered under the Companies exporters to obtain better facilities from them.
➢ IFCI is also a Systemically Important Non-Deposit taking Non- investing in joint ventures abroad in the form of equity or loan and advances.
Banking Finance Company (NBFC-ND-SI), registered with the Reserve ➢ Its headquarters is in Mumbai, Maharashtra. CMD of ECGC - Geetha
President Ahamad Mohamed Ali Al Madani • It mainly focuses on risks to banks and the financial system are called
which helps in the development of member states. The • India has accepted Basel accords for the banking system. Basel Accord
basic condition for membership is that the prospective has given us three Basel Norms which are Basel I, II and III.
(iv) Renewable Energy: an affordable cost” (Rangarajan, 2008) in the report of the Committee
Bank loans up to a limit of Rs. 15 crore to borrowers for purposes like on financial inclusion in India.
solar based power generators, biomass based power generators, wind mills, RBI set up the Rangarajan Committee in 2004 to look into financial
micro-hydel plants and for non-conventional energy based public utilities viz. inclusion. Financial inclusion first featured in 2005 & Mangalam,
street lighting systems, and remote village electrification are eligible to be Puducherry became the first village in India where all households were
classified under priority sector loans under ‘Renewable Energy’. provided banking facilities.
For individual households, the loan limit is Rs. 10 lakh per borrower. RBI Initiatives for Financial Inclusion
(v) Education loans: 1. Opening of Basic Saving Bank Deposit, a/c.
Education loans include loans and advances granted to only individuals for 2. Relaxed KYC norms for small deposits a/c.
educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh 3. Allowing engaging business correspondents.
for studies abroad, and do not include those granted to institutions. 4. Effective use of information and communication technology(ICT), to
(vi) Housing loans: provide door step banking services.
Loans to individuals up to Rs. 28 lakh in metropolitan centres (with 5. Implementation of Electronic Benefit Transfer (EBT) by leveraging ICT-
population of ten lakh and above) and loans up to Rs. 20 lakh in other Based Banking.
centres for purchase/construction of a dwelling unit per family, are eligible 6. Issue of general credit cards.
to be considered as priority sector provided the overall cost of the dwelling 7. Simplified branch authorization for tier III to tier VI centres (population
unit in the metropolitan centre and at other centres does not exceed Rs. 35 of less than 50,000) under general permission.
lakh and Rs. 25 lakh, respectively. Housing loans to banks’ own employees
are not eligible for classification under priority sector. Financial Inclusion Fund (FIF)
(vii) Under Weaker Sections: • As you may be aware, the Financial Inclusion Fund (FIF) and
➢ Small and Marginal Farmers, Distressed farmers indebted to non- Financial Inclusion Technology Fund (FITF) was constituted in the year
institutional lenders. 2007-08 for a period of five years with a corpus of Rs. 500 crore each to be
➢ Artisans, village and cottage industries where individual credit limits do not contributed by Government of India (GOI), RBI and NABARD in the
exceed Rs. 1 lakh. ratio of 40:40:20. The guidelines for these two funds were framed by GOI.
➢ Beneficiaries under Government Sponsored Schemes such as National • In April 2012, RBI decided to fund FIF by transferring the interest
Rural Livelihoods Mission (NRLM), National Urban Livelihood Mission (NULM) differential in excess of 0.5% on RIDF and STCRC deposits on account of
and Self Employment Scheme for Rehabilitation of Manual Scavengers shortfall in priority sector lending.
(SRMS). • Keeping in view the various developments over the years, GOI has merged
➢ Scheduled Castes and Scheduled Tribes, Minority communities. the FIF and FITF to form a single Financial Inclusion Fund.
➢ Beneficiaries of Differential Rate of Interest (DRI) scheme. • The Reserve Bank of India has finalised the new scope of activities and
➢ Self Help Groups, Persons with disabilities, Individual women beneficiaries guidelines for utilisation of the new FIF in consultation with GOI.
up to Rs.1 lakh per borrower. • The new FIF will be administered by the reconstituted Advisory Board
➢ Distressed persons other than farmers, with loan amount not exceeding constituted by GOI and will be maintained by NABARD.
Rs. 1 lakh per borrower to prepay their debt to non-institutional lenders.
➢ Overdrafts upto Rs. 5,000/- under Pradhan Mantri Jan-DhanYojana Important Initiatives launched under Financial Inclusion
(PMJDY) accounts, provided the borrowers’ household annual income does ➢ No Frill Accounts (Refer Page no.
not exceed Rs.100,000/- for rural areas and Rs. 1,60,000/- for non-rural ➢ BSBDA (Refer Page no.
areas. ➢ Lead Banking Scheme
Note: The priority sector lending targets for Scheduled Commercial Bank ➢ Business Correspondents
are defined by RBI in terms of percentage of Adjusted Net Bank Credit ➢ Swabhimaan
(ANBC). ➢ Pradhan Mantri Jan-Dhan Yojana (PMJDY)
ANBC is the Net Banking Credit after taking into account bill discounting, ➢ Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJY)
non-SLR securities and other exemption via long-term bonds. ➢ Pradhan Mantri Suraksha Bima Yojana (PMSBY)
➢ Atal Pension Yojana (APY)
Priority Sector Lending Certificates (PSLCs) ➢ Pradhan Mantri Jan Dhan Yojana (PMMY)
Priority Sector Lending Certificates (PSLCs) are a mechanism to enable ➢ Direct Benefit Transfer (DBT)
banks to achieve the priority sector lending target and sub-targets ➢ Small Finance Banks
by purchase of these instruments in the event of shortfall. ➢ Payments Bank
This also incentivizes surplus banks as it allows them to sell their excess
achievement over targets thereby enhancing lending to the categories Lead Bank Scheme:
under priority sector. The Lead Bank Scheme was launched by the RBI in 1969 as an area
Under the PSLC mechanism, the seller sells fulfilment of priority sector approach for providing banking facilities in rural areas. The LBS was
obligation and the buyer buys the obligation with no transfer of risk or loan recommended by DR Gadgil study group that pioneered the idea of
assets. providing social banking in the post-independence period.
Financial Inclusion Under LBS, every district across the country would be assigned to a
Financial Inclusion is defined as “the process of ensuring access commercial bank. The bank should have major presence in that district to
to financial services and timely and adequate credit where needed by do the work of the Lead Bank. The lead bank makes surveys and makes loan
vulnerable groups such as weaker sections and low-income groups at facility to various sectors.
Business correspondents (BCs) • The scheme provides life cover of Rs. 30,000/- payable on death of
• The business correspondent is nothing but a bank-in-person, who is the beneficiary, subject to fulfilment of the eligibility condition.
authorised to collect small ticket deposits and extend small credit on • Easy Transfer of money across India
behalf of the banks. A BC also does the following activities: Recovering the • Beneficiaries of Government Schemes will get Direct Benefit Transfer in
• The RBI has allowed banks to appoint entities and individuals as • After satisfactory operation of the account for 6 months, an overdraft
agents for providing basic banking services in remote areas where they facility will be permitted.
can’t practically start a branch. These agents are called Business • Access to Pension, insurance products.
Correspondents. • The Claim under Personal Accidental Insurance under PMJDY shall be
• Business Correspondents are hence instrumental in facilitating financial payable if the Rupay Card holder have performed minimum one successful
inclusion in the country. financial or non-financial customer induced transaction at any Bank Branch,
• As per the RBI guidelines the products provided by BCs are: Small Bank Mitra, ATM, POS, E-COM etc. Channel both Intra and Inter-bank i.e.
Savings Accounts, Fixed Deposit and Recurring Deposit with low minimum on-us (Bank Customer/rupay card holder transacting at same Bank
deposits, Remittance to any BC customer, Micro Credit and General channels) and off-us (Bank Customer/Rupay card holder transacting at other
Insurance. Bank Channels) within 90 days prior to date of accident including accident
• The BC model allows banks to provide door-step delivery of services date will be included as eligible transactions under the Rupay Insurance
especially ‘cash in – cash out’ transactions at a location much closer to Program 2016-2017.
the rural population, thus addressing the last-mile problem. • Overdraft facility up to Rs.5000/- is available in only one account per
• This campaign is a big step towards socio-economic equality by bringing insurance scheme in India. It was launched by Prime Minister Narendra
the underprivileged segments of Indian population into the formal Modi on 9 May 2015 in Kolkata.
banking fold for the first time. The vision for this programme is social Pradhan Mantri Jeevan Jyoti Bima Yojana is available to people between 18
application of modern technology. and 50 years of age with bank accounts. It has an annual premium
Inclusion, a financial security programme to ensure banking facilities in The GST is exempted on Pradhan Mantri Jeevan Jyoti Bima Yojana. The
habitation with a population in excess of 2000 by March 2012. amount will be automatically debited from the account. In case of death due
• This nationwide programme on financial inclusion, was launched in to any cause, the payment to the nominee will be Rs.2 lakh (US$3,000).
February 2011 with its focus on bringing the deprived sections of the This scheme will be linked only to the bank accounts opened under
society in the banking network to ensure that the benefits of economic the Pradhan Mantri Jan Dhan Yojana scheme. Most of these accounts
growth reach everyone at all levels. had zero balance initially. The government aims to reduce the number of
• Banks provide basic services like deposits, withdrawals and remittances such zero balance accounts by using this and related schemes. PMJJBY is
using the services of Business Correspondents (BCs) also known as Bank administered through LIC and other Indian private life insurance
Saathi. companies.
• The initiative also enables Government subsidies and social security Now all Bank account holders can avail this facility through their net-banking
benefits to now be directly credited to the accounts of the beneficiaries service facility or filling a form at the bank branch at any time of the year.
so that they could draw the money from the Business Correspondents (BCs) As of 30 May 2018, 5.33 crore people have already enrolled for this
in their village itself. scheme. 60,422 claims have been disbursed against 63,767 claims received.
Pradhan Mantri Suraksha Bima Yojana (PMSBY)
Pradhan Mantri Jan-Dhan Yojana (PMJDY) Pradhan Mantri Suraksha Bima Yojana is a government-backed accident
Pradhan Mantri Jan-Dhan Yojana (PMJDY) is National Mission for Financial insurance scheme in India. It was formally launched by Prime Minister
Inclusion to ensure access to financial services, namely, Banking/ Narendra Modi on 9 May 2015 in Kolkata.
Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an Pradhan Mantri Suraksha Bima Yojana is available to people between 18
affordable manner. This financial inclusion campaign was launched by the and 70 years of age with bank accounts. It has an annual premium of Rs.12
Prime Minister of India Narendra Modi on 28 August 2014. (18¢ US) exclusive of taxes.
• Account can be opened in any bank branch or Business Correspondent The GST is exempted on Pradhan Mantri Suraksha Bima Yojana. The
(Bank Mitr) outlet. Accounts opened under PMJDY are being opened with amount will be automatically debited from the account. The accident
Zero balance. However, if the account-holder wishes to get cheque book, insurance scheme will have one-year cover from June 1 to May 31 and
he/she will have to fulfil minimum balance criteria. would be offered through banks and administered through public sector
• By 10 February 2018, over 31 crore (310 million) bank accounts were general insurance companies.
opened and over Rs.745 billion (US$12 billion) were deposited under the In case of accidental death or full disability, the payment to the nominee will
scheme. be Rs.2 lakh (US$3,000) and in case of partial Permanent disability Rs.1
Special Benefits under PMJDY Scheme lakh (US$1,500). Full disability has been defined as loss of use in both eyes,
• Interest on deposit. hands and feet. Partial Permanent disability has been defined as loss of use
This scheme will be linked to the bank accounts opened under the Pradhan Direct Benefit Transfer (DBT)
Mantri Jan Dhan Yojana scheme. Most of these accounts had zero Direct Benefit Transfer or DBT is an attempt to change the mechanism of
balance initially. The government aims to reduce the number of such transferring subsidies launched by Government of India on 1 January
zero balance accounts by using this and related schemes. The scheme is 2013. This program aims to transfer subsidies directly to the people
being offered by Public Sector General Insurance Companies or any through their bank accounts. It is hoped that crediting subsidies into bank
other General Insurance Company who are willing to offer the product on accounts will reduce leakages, delays, etc
similar terms with necessary approvals and tie up with banks for this The primary aim of this Direct Benefit Transfer program is to bring
purpose. transparency and terminate pilferage from distribution of funds
Atal Pension Yojana (APY) sponsored by Central Government of India. In DBT, benefit or subsidy
Atal Pension Yojana (previously known as Swavalamban Yojana) is a will be directly transferred to citizens living below poverty line.
government-backed pension scheme in India targeted at the Central Plan Scheme Monitoring System (CPSMS), being implemented
unorganised sector. It was mentioned in the 2015 Budget speech by Finance by the Office of Controller General of Accounts, will act as the common
Minister Arun Jaitley. It was launched by Prime Minister Narendra Modi platform for routing DBT.
on 9 May 2015 in Kolkata. Transfer from the government to the people especially the popular ones and
Swavalamban Yojana was a government-backed pension scheme targeted that involving millions of people as beneficiaries are made through the
at the unorganised sector in India. It was applicable to all citizens in the platform of DBT over the last few years. Two such major programmes are
unorganised sector who joined the National Pension Scheme (NPS) the LPG subsidy scheme – PAHAL and wage payment under MGNREGS.
administered by the Pension Fund Regulatory and Development
Authority (PFRDA) Act 2013. SMALL FINANCE BANK
Swavalamban scheme has been replaced with Atal Pension Yojana. The Objective:
minimum age of joining APY is 18 years and maximum age is 40 years. The aim behind these to provide financial inclusion to sections of the
The age of exit and start of pension would be 60 years. Therefore, minimum economy not being served by other banks, such as small business units,
period of contribution by the subscriber under APY would be 20 years or small and marginal farmers, micro and small industries and unorganised
more. sector entities.
The subscribers are required to opt for a monthly pension from Rs.1,000 The small finance bank shall be registered as a public limited company under
(US$15) to Rs. 5,000 (US$75) and ensure payment of the stipulated the Companies Act, 2013. It will be licensed under Section 22 of the
monthly contribution regularly. The subscribers can opt to decrease or Banking Regulation Act, 1949 and governed by the provisions of the
increase pension amount during the course of accumulation phase, as per Banking Regulation Act, 1949; Reserve Bank of India Act, 1934.
the available monthly pension amounts. This scheme will be linked to the
bank accounts opened under the Pradhan Mantri Jan Dhan Yojana Eligibility:
scheme and the contributions will be deducted automatically. Resident individuals/professionals with 10 years of experience in banking
and finance; and companies and societies owned and controlled by
Pradhan Mantri MUDRA Yojana (PMMY) residents will be eligible to set up small finance banks. Existing Non-Banking
Pradhan Mantri MUDRA Yojana (PMMY) is a scheme launched by the Finance Companies (NBFCs), Micro Finance Institutions (MFIs), and Local
Prime Minister on April 8, 2015 for providing loans upto 10 lakh to the Area Banks (LABs) that are owned and controlled by residents can also opt
non-corporate, non-farm small/micro enterprises. These loans are for conversion into small finance banks. The validity of the in-principle
classified as MUDRA loans under PMMY. There is no subsidy for the loan approval issued by the Reserve Bank will be eighteen months.
given under PMMY. The minimum paid-up equity capital for small finance banks shall be Rs.
These loans are given by Commercial Banks, RRBs, Small Finance Banks, 100 crore. Foreign shareholding will be allowed in these banks as per the
Cooperative Banks, MFIs and NBFCs. Under the aegis of PMMY, MUDRA has rules for FDI in private banks in India. Promoter’s initial contribution should
created three products namely 'Shishu', 'Kishore' and 'Tarun' to signify be 40% lowered to 26% in 12 years.
the stage of growth / development and funding needs of the beneficiary Benefits:
micro unit / entrepreneur and also provide a reference point for the next 75% of its net credits should be as Adjusted Net Bank Credit (ANBC)
phase of graduation / growth. in priority sector lending and 50% of the loans in its portfolio must in Rs.25
MUDRA, which stands for Micro Units Development & Refinance Agency lakh (US$38,000) range.
Ltd, is a financial institution being set up by Government of India for Conditions:
development and refinancing micro unit’s enterprises. It is a wholly-owned ➢ They can accept any deposit like savings, current, fixed deposits, and
subsidiary of the SIDBI and provides refinancing facilities to banks and recurring deposits.
microfinancing institutions against the loans that they have provided to small ➢ They will be allowed to lend money but not allowed to lend the deposited
enterprises in order to promote the development of these micro units. money to big businesses or industries.
Term Loan and/or Working Capital up to maximum Rs.10 lakhs under 3 ➢ Small banks can undertake financial services like distribution of mutual
categories fund units, insurance products, pension products, and so on, but not without
➢ Shishu: covering loans upto 50,000/- prior approval from the RBI.
➢ Kishore: covering loans above 50,000/- and upto 5 lakhs ➢ A fundamental requirement is that it must have 25% of its branches set
➢ Tarun: covering loans above 5 lakhs to 10 lakhs up in unbanked areas.
4. Equitas Holdings P Limited. (Equitas Small Chennai, Tamil Nadu Arun Ramanathan PN Vasudevan Its Fun Banking’
Finance Bank)
5. ESAF Microfinance and Investments Private Thrissur, Kerala Raveendranathan K. Paul Thomas Joy of Banking’
Ltd. (ESAF Small Finance Bank) Prabha
6. Janalakshmi Financial Services Private Bangalore, Ramesh Ramanathan Ajay Kanwal Likho Apni Kahaani
Limited. (Jana Small Finance Bank) Karnataka
7. RGVN (North East) Microfinance Limited. Guwahati, Assam Deep Chandra Joshi Rupali Kalita Your Door step Banker’
(North East Small Finance Bank)
8. Suryoday Micro Finance Private Ltd. Navi Mumbai, R Baskar Babu A bank of smiles
(Suryoday Small Finance Bank) Maharashtra
9. Ujjivan Financial Services Private Ltd. (Ujjivan Bangalore, Sunil Patel Samit Ghosh We belive in your belief/
Small Finance Bank) Karnataka Aap ke Bharose Par
10. Utkarsh Micro Finance Private Ltd. (Utkarsh Varanasi, Uttar Govind Singh Aapki Umeed Ka Khata’
Small Finance Bank) Pradesh
PAYMENT BANK are owned and controlled by residents; and public sector entities may apply
The objectives of setting up of payments banks will be to further financial issued by the Reserve Bank will be eighteen months.
inclusion by providing (i) small savings accounts and (ii) The minimum paid-up equity capital for payments banks shall be Rs. 100
payments/remittance services to migrant labour workforce, low income crore. For the first five years, the stake of the promoter should remain at
households, small businesses, other unorganised sector entities and other least 40%. Foreign shareholding will be allowed in these banks as per the
Section 23 of the Banking Regulation Act, 1949, and will be registered ➢ Offer internet banking, sell mutual funds, insurance and pension.
as public limited company under the Companies Act, 2013. ➢ They can offer forex services at charges lower than bank.
Conditions:
On 19 August 2015, the Reserve Bank of India gave "in-principle" licenses ➢ Accept Deposits, Issue Debit Cards, Remittance services. Cannot issue
Distribution Services, Sun Pharmaceuticals and Tech Mahindra have ➢ They will not lend to customers, so it can accept only current saving
surrendered their licenses. deposits. It will have to deploy their funds in government papers and bank
deposits.
Existing non-bank Pre-paid Payment Instrument (PPI) issuers; and other to holding a maximum balance of Rs. 100,000 per individual customer.
entities such as individuals / professionals; Non-Banking Finance Companies ➢ It cannot handle cross-border remittances and NRI deposits.
1. Airtel M Commerce Services Limited New Delhi, India - Anubrata Bharti Airtel Ltd and Kotak Mahindra Bank
(Airtel Payment Bank) Biswas Ltd
[1 st
Payment Bank in India]
2. India Post Payment Bank (Department New Delhi, India - Suresh Sethi 100% equity of GOI
of Posts)
3. Paytm Payment Bank Noida, Uttar Pradesh Vijay Shekhar Renu Satti Vijay Sekhar Sharma & One 97
Sharma Communications
4. Fino Payment Bank (Fino PayTech Navi Mumbai, - Rishi Gupta ICICI Bank & Fino Paytech
Limited) Maharashtra
5. Aditya Birla Idea Payment Bank (Aditya Mumbai, KM Birla - Aditya Birla Nuvo Ltd (ABNL) and Telecom
Birla Nuvo Limited) Maharashtra major Idea Cellular
6. Jio Payment Bank (Reliance Industries Mumbai, Vivek Bhandari Reliance Industries (RIL) and State Bank
Limited) Maharashtra Srikrishnan H of India (SBI)
Acquired Bank Merged Bank Year of Amalgamation is a combination of one or more companies into a new entity
Merger and it is distinct from a merger because neither of the combining companies
State Bank of State Bank of Bikaner and Jaipur, 2017 survives as a legal entity and a completely new entity is formed to house the
India (SBI) State Bank of Patiala, State Bank of combined assets and liabilities of both companies. This sense of the term
Hyderabad, State Bank of Travancore, amalgamation has generally fallen out of popular use, and the terms
State Bank of Mysore and Bharatiya "merger" or "consolidation” are often used instead.
Kotak Mahindra ING Vysya Bank 2015 Amortization is an accounting technique used to incrementally lower the
Bank cost value of a finite life or intangible asset through scheduled charges to
ICICI Bank Bank of Rajasthan 2010 income. Amortization is the paying off of debt with a fixed repayment
schedule in regular instalments over a period of time for example with a
HDFC Bank Centurion Bank of Punjab 2008
mortgage or a car loan.
ICICI Bank Sangli Bank 2007
Annuity:
Indian Overseas Bharat Overseas Bank 2007
An annuity is a financial product that pays out a fixed stream of payments
Bank
to an individual, primarily used as an income stream for retirees. Annuities
Federal Bank Ganesh Bank of Kurundwad 2006
are created and sold by financial institutions, which accept and invest funds
IDBI Union Western Bank 2006
from individuals and then, upon annuitization, issue a stream of payments
Bank of Baroda South Gujarat Local Area Bank Ltd 2004
at a later point in time.
Oriental Bank of Global Trust Bank 2004
Arbitrage:
Commerce
Arbitrage is the simultaneous purchase and sale of an asset to profit from
Punjab National Nedungadi Bank Ltd 2003
an imbalance in the price. It is a trade that profits by exploiting the price
Bank
differences of identical or similar financial instruments on different markets
Bank of Baroda Benares State Bank Ltd 2002
or in different forms. Arbitrage exists as a result of market inefficiencies and
ICICI Bank Bank of Madura 2001
would therefore not exist if all markets were perfectly efficient.
ICICI Bank ICICI (Financial Service Firm) 2001
Asset Liability Management:
HDFC Bank Times Bank Ltd. 2000
Asset Liability Management (ALM) can be defined as a mechanism to
Bank of Baroda Bareilly Corporation Bank 1998
address the risk faced by a bank due to a mismatch between assets and
Oriental Bank of Bari Doab Bank Ltd 1997 liabilities either due to liquidity or changes in interest rates. Liquidity is an
Commerce institution's ability to meet its liabilities either by borrowing or converting
Oriental Bank of Punjab Co-operative Bank Ltd 1997 assets.
Commerce Auction:
Bank of India Bank of Karad Ltd 1994 An auction is a sales process in which potential buyers place competitive
Punjab National New Bank of India 1993 bids on assets or services, either in an open format or closed. The asset or
Bank service in question will be sold to the party that places the highest bid in an
Canara Bank Lakshmi Commercial Bank 1985 open auction, and usually to the highest bidder in a closed auction.
Indian Overseas Bank of Tamil Nadu 1988 Audit:
Bank An audit is an objective examination and evaluation of the financial
statements of an organization to make sure that the records are a fair and
accurate representation of the transactions they claim to represent. The
IMPORTANT BANKING TERMINOLOGIES audit can be conducted internally by employees of the organization, or
Arbitrage: externally by an outside firm.
Arbitrage is the simultaneous purchase and sale of an asset to profit from Authentication:
an imbalance in the price. It is a trade that profits by exploiting the price It is a verification that a legal document is genuine or valid, such as
differences of identical or similar financial instruments on different markets through a seal from an authorised public official. It is act of confirming the
or in different forms. truth of an attribute of a single piece of data claimed true by an entity.
Bailment:
Bailment arises when property is given to someone for safekeeping and is Benchmark:
a legal course of action independent of contract or tort. To create a bailment, A benchmark is an unmanaged group of securities which are considered as
the bailee must both intend to possess, and physically possess, the a 'benchmark' to measure a fund's/stock's performance. Benchmarks are
bailable chattel. generally broad market indices like BSE Sensex, CNX Nifty of the Indian
Bailout: stock market with which mutual fund returns are compared.
A bailout is a situation in which a business, an individual or a government Bill of exchange:
offers money to a failing business to prevent the consequences of A bill of exchange is a written order used primarily in international trade
its downfall. Bailouts can take the form of loans, bonds, stocks or cash, and that binds one party to pay a fixed sum of money to another party on
they may require reimbursement. Bailouts have traditionally occurred in demand or at a predetermined date.
industries or businesses that are perceived as no longer viable or sustaining Bill of Lading:
huge losses. A bill of lading is a legal document between a shipper and a carrier that
Balance of Payment: details the type, quantity and destination of the goods being carried. The bill
The Balance of Payments is a statement of all transactions made between of lading also serves as a shipment receipt when the carrier delivers the
entities in one country and the rest of the world over a defined period of goods at the predetermined destination. This document must accompany the
time, such as a quarter or a year. shipped goods, no matter the form of transportation, and an authorized
Balance of Trade: representative from the carrier, shipper and receiver must sign it.
The balance of trade is the difference between the value of a country's Bitcoin:
imports and exports for a given period. The balance of trade is the largest Bitcoin (฿) is the world's first cryptocurrency, a form of electronic cash. It is
component of a country's balance of payments. Economists use the BOT to the first decentralized digital currency: the system was designed to work
measure the relative strength of a country's economy. The balance of trade without a central bank or single administrator. Bitcoins are sent from user
is also referred to as the trade balance or the international trade balance. to user on the peer-to-peer bitcoin network directly, without the need for
intermediaries. These transactions are verified by network nodes through
Balance Sheet: cryptography and recorded in a public distributed ledger called a blockchain.
A balance sheet reports a company's assets, liabilities and shareholders' Bridge Loan:
equity at a specific point in time and provides a basis for computing rates of A bridge loan is a short-term loan used until a person or company secures
return and evaluating its capital structure. It is a financial statement that permanent financing or removes an existing obligation. This type of
provides a snapshot of what a company owns and owes, as well as the financing allows the user to meet current obligations by providing
amount invested by shareholders. immediate cash flow. The loans are short term, up to one year, with
Bancassurance: relatively high interest rates and are usually backed by some form
Bancassurance is an arrangement between a bank and an insurance of collateral such as real estate or inventory.
company allowing the insurance company to sell its products to the bank's Bull Market:
client base. This partnership arrangement can be profitable for both A bull market is a financial market of a group of securities in which prices
companies. Banks earn additional revenue by selling insurance products and are rising or are expected to rise. This is when the market is showing
insurance companies expand their customer bases without increasing their confidence. Indicators of confidence are prices going up, market indices like
sales force or paying agent and broker commissions. the NASDAQ go up too. Number of shares traded is also high and even the
Banking Ombudsman: number of companies entering the stock market show that the market is
The Banking Ombudsman is a senior official appointed by the Reserve Bank confident.
of India to redress customer complaints against deficiency in certain banking Buoyancy:
services covered under the grounds of complaint specified under Clause 8 of When the government fails to check inflation, it raises income tax and the
the Banking Ombudsman Scheme 2006. corporate tax. Such a tax is called Buoyancy. It concerns with the revenue
Base rate: from taxation in the period of inflation.
Base rate is the minimum rate set by the Reserve Bank of India below Business Correspondent:
which banks are not allowed to lend to its customers. Base rate is decided The business correspondent is nothing but a bank-in-person, who is
in order to enhance transparency in the credit market and ensure that authorised to collect small ticket deposits and extend small credit on behalf
banks pass on the lower cost of fund to their customers. of the banks. A BC also does the following activities: Recovering the principal
Bear Market: interest of small value deposits.
A bear market is the opposite to a bull. If the markets fall by more than CBLO:
20% then we have entered a bear market. A bear market is a market A Collateralized Borrowing and Lending Obligation (CBLO) is a money
showing a lack of confidence. Prices hover at the same price then go down, market instrument that represents an obligation between a borrower and a
indices fall too, and volumes are stagnant. In a bear market people are lender as to the terms and conditions of a loan. In the CBLO market, financial
waiting for the bulls to start driving the prices up again. However, a bear is entities can avail short term loans by providing prescribed securities as
a very tentative bull or a bull that is asleep. collateral. It is all most similar to the call money market.
Bearer Cheque: CDR:
When the words “or bearer” printed on the cheque is not cancelled, the Corporate Debt Restructuring (“CDR”) mechanism is a voluntary non-
cheque is called a bearer cheque. A bearer cheque is made payable to the statutory mechanism under which financial institutions and banks come
bearer i.e. it is payable to the person who presents it to the bank for together to restructure the debt of companies facing financial difficulties due
encashment. In simple words a cheque which is payable to any person who to internal or external factors, in order to provide timely support to such
presents it for payment at the bank counter is called ‘Bearer cheque’. companies.
CDS: external auditor or central bank inspectors. But the amount has not been
Certificate of Deposit (CD) is a negotiable money market instrument and written off, wholly or partly.
issued in dematerialised form or as a Usance Promissory Note against funds Earnings per share:
deposited at a bank or other eligible financial institution for a specified time Earnings per Share (EPS) is the portion of a company's profit allocated to
period. each outstanding share of common stock. Earnings per share serves as an
Corporate Social Responsibility: indicator of a company's profitability. EPS is calculated as: EPS = (Net
Corporate Social Responsibility often abbreviated "CSR," is a corporation's Income - Dividends on Preferred Stock) / Average Outstanding Shares.
initiatives to assess and take responsibility for the company's effects on Endorsement:
environmental and social wellbeing. An individual will authorize payment to an unknown party. The most common
Commercial Paper: is writing a check endorsed with the word "cash" on it.
Commercial paper is an unsecured, short-term debt instrument issued by Exchange Trade Funds:
a corporation, typically for the financing of accounts receivable, inventories Exchange Traded Funds are essentially Index Funds that are listed
and meeting short-term liabilities. Commercial paper is usually issued at a and traded on exchanges like stocks. An ETF is a basket of stocks that
discount from face value and reflects prevailing market interest rates. reflects the composition of an Index, like S&P CNX Nifty or BSE Sensex.
Cross Selling: The ETFs trading value is based on the net asset value of the underlying
Cross-selling is the action or practice of selling an additional product or stocks that it represents.
service to an existing customer. In practice, businesses define cross-selling External Commercial Borrowing:
in many different ways. The objective of cross-selling can be either to ECBs are loans in India made by non-resident lenders in foreign currency
increase the income derived from the client or to protect the relationship to Indian borrowers. They are used widely in India to facilitate access to
with the client or clients. The approach to the process of cross-selling can be foreign money by Indian corporations and PSUs (Public Sector
varied. Undertakings).
Currency Chest:
Currency chest is the place where currency is stored. These chests act as Factoring:
the distributives of RBI cash and enables RBI to take back soiled notes and Factoring is a financial transaction and a type of debtor finance in which a
mutilated notes from the public business sells its accounts receivable (i.e., invoices) to a third party (called
Double Taxation Avoidance Agreement: a factor) at a discount. A business will sometimes factor its receivable assets
A DTAA is a tax treaty signed between two or more countries. Its key to meet its present and immediate cash needs.
objective is that tax-payers in these countries can avoid being taxed twice Fiscal Deficit:
for the same income. A DTAA applies in cases where a tax-payer resides in A fiscal deficit occurs when a government's total expenditures exceed the
one country and earns income in another. DTAAs can either be revenue that it generates, excluding money from borrowings. Deficit differs
comprehensive to cover all sources of income or be limited to certain areas from debt, which is an accumulation of yearly deficits.
such as taxing of income from shipping, air transport, inheritance, etc. Fiscal policy:
Debts Recovery Tribunal: Fiscal policy is how a government adjusts its spending levels and tax rates
The Debts Recovery Tribunal have been constituted under Section 3 of the to monitor and influence a nation's economy.
Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The Foreign Exchange Regulation Act:
original aim of the Debts Recovery Tribunal was to receive claim applications The Foreign Exchange Regulation Act (FERA) imposed strict regulations on
from Banks and Financial Institutions against their defaulting borrowers. transactions involving foreign exchange and controlled the import and export
Demand Liabilities: of currency. Due to FERA did not succeed in restricting activities such as the
Demand Liabilities of a bank are liabilities which are payable on demand. expansion of Multinational Corporations, replaced by the Foreign Exchange
These include current deposits, demand liabilities portion of savings bank Management Act, which liberalised foreign exchange controls and
deposits, margins held against letters of credit/guarantees, balances in restrictions on foreign investment.
overdue fixed deposits, cash certificates and cumulative/recurring deposits Follow on Public Offer:
and deposits held as security for advances which are payable on demand. A Follow-On Public Offer (FPO) is the issuance of shares to investors by a
Dematerialization: public company that is currently listed on a stock market exchange.
In finance and financial law, dematerialization refers to the substitution of An FPO is a stock issue of additional shares made by a company that is
paper-form securities by book-entry securities. This is a form of indirect already publicly listed and has gone through the IPO process
holding System where an intermediary, such as a broker or central securities General Anti-Avoidance Rules (GAAR):
depository, or the issuer itself holds a record of the ownership of shares The rules are framed in different countries to minimize such avoidance of
usually in electronic format. tax. Such rules in simple terms are known as " General Anti Avoidance
Disinvestment: Rules " or GAAR. Thus GAAR is a set of general rules enacted so as to
Disinvestment is aimed at reducing the financial burden on the government check the tax avoidance. GAAR is a concept which generally empowers the
due to inefficient PSUs and to improve public finances. It introduces Revenue Authorities in a country to deny the tax benefits of transactions or
competition and market discipline and helps to depoliticise non-essential arrangments which do not have any commercial substance or consideration
services. other than achieving the tax benefit.
Doubtful Assets: Garnishee order:
A doubtful asset is one which has remained NPA for a period exceeding 12 A garnishee order is a common form of enforcing a judgment debt against
months. Loss assets: where loss has been identified by the bank, internal or a creditor to recover money. Put simply, the court directs a third party that
owes money to the judgement debtor to instead pay the judgment creditor. Lines of credit are often extended by banks, financial institutions and other
The third party is called a garnishee. licensed consumer lenders to creditworthy customers (though certain
Green Bonds: special-purpose lines of credit may not have creditworthiness requirements)
A green bond is a bond specifically earmarked to be used for climate and to address liquidity problems.
environmental projects. These bonds are typically asset-linked and backed Masala bonds:
by the issuer's balance sheet and are also referred to as climate bonds. Masala bonds are bonds issued outside India but denominated in Indian
Guarantees: Rupees, rather than the local currency. Masala is an Indian word and it
A bank guarantee, like a letter of credit, guarantees a sum of money to a means spices. The term was used by the International Finance Corporation
beneficiary however, unlike a letter of credit, the sum is only paid if the (IFC) to evoke the culture and cuisine of India.
opposing party does not fulfil the stipulated obligations under the contract. Money Laundering:
Hedging: Money laundering is the process of creating the appearance that large
A hedge is an investment position intended to offset potential losses or amounts of money obtained from criminal activity, such as drug trafficking
gains that may be incurred by a companion investment. In simple language, or terrorist activity, originated from a legitimate source. The money from the
a hedge is a risk management technique used to reduce any substantial illicit activity is considered dirty, and the process "launders" the money to
losses or gains suffered by an individual or an organization. make it look clean.
Indemnity: Moratorium:
Undertaking given to compensate for (or to provide protection against) A period during which a certain activity is not allowed or required. For
injury, loss, incurred penalties, or from a contingent liability. The concept of instance, when repayment on a loan starts only after a lapse of a certain
indemnity is based on a contractual agreement made between two parties, period after its disbursement, then that period is called the moratorium on
in which one party agrees to pay for potential losses or damages caused by the loan.
the other party. Mutual Funds:
An MF is a professionally managed type of collective investment scheme
that pools money from many investors to buy stocks, bonds, short-term
Initial Public Offering: money market instruments and /or other securities.
An Initial Public Offering (IPO) is when a private company or corporation Net Asset Value:
raises investment capital by offering its stock to the public for the first time. Net Asset Value (NAV) is the value of an entity's assets minus the value of
Growing companies seeking capital to expand are those that generally use its liabilities, often in relation to open-end or mutual funds, since shares of
initial public offerings, but large, privately owned companies or corporations such funds registered with the U.S. Securities and Exchange Commission are
looking to become publicly traded can also do them. redeemed at their net asset value.
Know Your Customer: Net Demand Time Liabilities:
Know your customer (alternatively know your client or 'KYC') is the process NDTL is sum of demand and time liabilities (deposits) of banks with public
of a business verifying the identity of its clients and assessing potential risks and other banks wherein assets with other banks is subtracted to get net
of illegal intentions for the business relationship. The term is also used to liability of other banks. Deposits of banks are its liability and consist of
refer to the bank regulations and anti-money laundering regulations which demand and time deposits of public and other banks.
govern these activities. Net Interest Margin:
Liquidity adjustment facility (LAF) : Net interest margin is a ratio that measures how successful a firm is at
Liquidity adjustment facility (LAF) is a monetary policy tool which investing its funds in comparison to its expenses on the same investments.
allows banks to borrow money through repurchase agreements. LAF is used A negative value denotes that the firm has not made an optimal investment
to aid banks in adjusting the day to day mismatches in liquidity. LAF consists decision because interest expenses exceed the amount of returns generated
of repo and reverse repo operations. by investments.
Loan to Value: Non-Performing Asset:
The Loan-To-Value (LTV) ratio is a financial term used by lenders to A Non-Performing Asset (NPA) refers to a classification for loans on the
express the ratio of a loan to the value of an asset purchased. The term is books of financial institutions that are in default or are in arrears on
commonly used by banks and building societies to represent the ratio of the scheduled payments of principal or interest. In most cases, debt is classified
first mortgage line as a percentage of the total appraised value of real as non-performing when loan payments have not been made for a period of
property. 90 days.
Letter of Credit: Overdraft:
A letter of credit is a letter from a bank guaranteeing that a buyer's An overdraft allows the individual to continue withdrawing money even if
payment to a seller will be received on time and for the correct amount. the account has no funds in it or not enough to cover the withdrawal.
Letter of Undertaking: Basically, overdraft means that the bank allows customers to borrow a set
Letter of undertaking (LOU) is a form of bank guarantee under which a bank amount of money.
can allow its customer to raise money from another Indian bank's foreign Point Of Sale (POS) :
branch in the form of a short-term credit. A Point Of Sale (POS), or point of purchase, is the place where a customer
Lien: executes the payment for goods or services, and where sales taxes may
A right to keep possession of property belonging to another person until a become payable, whether it be in a physical store, where POS terminals and
debt owed by that person is discharged. systems are used to process card payments, or a virtual sales point such as
Line of Credit: a computer or mobile electronic device.
Recession: If an investment is held till its maturity date, the rate of return that it will
A recession is a decline in the GDP for two or more consecutive quarters. generate will be Yield to Maturity. The rate of return yield by a bond held to
Repurchase Agreement: maturity when both compound interest payments and the investor’s capital
An arrangement in which a security is sold and later bought back at an gain or loss on the security are taken into account.
agreed price and time.
Retail Banking: BANKING ABBREVIATIONS
Banking services which are regarded as retail include provision of savings A
and transactional accounts, mortgages, personal loans, debit cards, and ACF – Auto-Correlation Function
credit cards. Retail banking is also distinguished from investment banking or AD – Authorized Dealer
commercial banking. ADB – Asian Development Bank
Short selling: ADR – American Depository Receipt
Short selling is the sale of a security that is not owned by the seller or that ADSL - Asymmetric Digital Subscriber Line
the seller has borrowed. Short selling is motivated by the belief that a AEOI – Automatic Exchange of Information
security's price will decline, enabling it to be bought back at a lower price to AEPS – Aadhaar Enabled Payment System
make a profit. AFS – Annual Financial Statement
Substandard Asset: AGM – Annual General Meeting
A Non-Performing Asset (NPA) is a loan or advance for which the principal AIIB – Asian Infrastructure Investment bank
or interest payment remained overdue for a period of 90 days. Banks are ASSOCHAM – Associated Chambers of Commerce and Industry of India
required to classify NPAs further into Substandard, Doubtful and Loss assets. AMFI – Association of Mutual Funds in India
If this loan remains SMA for a period less than or equal to 12 months; it is AML – Anti Money Laundering
termed as Sub-standard Asset. AMRUT - Atal Mission for Rejuvenation and Urban Transformation
Sub Prime Lending: ALM – Asset Liability Management
It refers to lending loans to those who are not creditworthy customers. APBS - Aadhaar Payment Bridge System
Sub-prime loans are usually charged with high interest rates. It means ASBA - Application Supported by Blocked Amount
making loans to people who may have difficulty maintaining the repayment ATM – Automated Teller Machine
schedule, sometimes reflecting setbacks, such as unemployment, divorce, B
medical emergencies, etc BACS - Bankers Automated Clearing System
Time Liabilities: BBB – Bank Boards Bureau
Time Liabilities of a bank are those which are payable otherwise than on BHIM – BHarat Interface for Money
demand. These include fixed deposits, cash certificates, cumulative and BIS – Bank for International Settlements
recurring deposits. BoP – Balance of Payments
Underwriting: BCBS – Basel Committee on Banking Supervision
Underwriting is the process by which investment bankers raise investment BCSBI - Banking Codes and Standards Board of India
capital from investors on behalf of corporations and governments that are BSR – Basic Statistical Returns
issuing either equity or debt securities. Underwriting services are provided BSE – Bombay Stock Exchange
by some large specialist financial institutions, such as banks, insurance or C
investment houses, whereby they guarantee payment in case of damage or CAD – Capital Account Deficit
financial loss and accept the financial risk for liability arising from such CAG – Comptroller and Auditor General of India
guarantee. CAR – Cash Adequacy Ratio
Virtual Banking: CARE - Credit Analysis and Research Limited
It is a system where all the transactions of the bank are done online and CBS – Core Banking Solution
there are no physical branches of the banks. Virtual banking is also called CCEA – Comprehensive Economic Cooperation Agreement
internet banking, through which financial and banking services are accessed CCT – Conditional Cash Transfer
via internet's World Wide Web. CDBS – Committee of Direction of Banking Statistics
Whole Sale Banking: CDR- Corporate Debt Restructuring
Wholesale banking refers to banking services between merchant banks and CEPA – Comprehensive Economic Partnership Agreement
other financial institutions. This type of banking deals with larger clients, CFMS - Centralised Funds Management System
such as large corporations and other banks, whereas retail banking focuses CFRA – Combined Finance and Revenue Accounts
more on the individual or small business. Wholesale banking services include CGRA – Currency and Gold Revaluation Account
currency conversion, working capital financing, large trade transactions and CIBIL – Credit Information Bureau of India Limited
other types of services. CII – Confederation of Indian Industries
Wilful Defaulter: CMIS - Currency Management Information System
A 'wilful default' would be deemed to have occurred if any of the following CPI – Consumer Price Index
events is noted: The unit has defaulted in meeting its payment / repayment CRR – Cash Reserve Ratio
obligations to the lender even when it has the capacity to honour the said CRAR - Capital to Risk (Weighted) Assets Ratio
obligations. A wilful defaulter is an entity or a person that has not paid the CNP- Card Not Present
loan back despite the ability to repay it. CVV – Card Verification Value
Yield to Maturity:
NUUP - National Unified USSD Platform SEAC - Standing External Advisory Committee
O SEPA - Single Euro Payment Area.
OCAS – Online Customer Acquisition Solution SFMS - Structured Financial Messaging Services
OCB - Overseas Corporate Bodies SGB - Sovereign Gold Bond
ODIs- Offshore/Overseas Derivative Instruments SIDBI – Small Industries and Development Bank of India
OECD- Organisation for Economic Cooperation and Development SIDC - State Industrial Development Corporation
OLP – Online Learning Portal SIFI - Systematically Important Financial Intermediaries
OLTAS- Online Tax Accounting System SIP - Systematic Investment Plans
OMO – Open Market Operations SIPS - Systemically Important Payment System
OTCEI - Over the Counter Exchange of India SJSRY - Swarna Jayanthi Shahari Rozgar Yojana
OTP - One-Time Password SLR - Statutory Reserve Ratio
P SLRS - Scheme for Liberation and Rehabilitation of Scavengers
PACS - Primary Agricultural Credit Societies SME - Small and Medium Industries
PAN - Permanent Account Number SMERA - SME Rating Agency of India Limited
PCA - Prompt Corrective Action SMILE - SIDBI Make in India Loan for small Enterprises
PCR – Provision Coverage Ratio / Public Credit Registry SPNS - Shared Payment Network System.
PDO - Public Debt Office SSC – Selective Credit Control
PFRDA - Pension Fund Regulatory and Development Authority SSI - Small Scale Industries
PGS - Payment Gateway System SSSBE - Small Scale Service and Business Enterprises
PIN - Personal Identification Number SWIFT - Society For Worldwide Inter Bank Financial Telecommunication.
PIS - Portfolio Investment Scheme SHGs – Self Help Groups
PLR – Prime Lending Rate SEBI – Securities and Exchange Board of India
P-Notes - Participatory Notes SECC – Socio Economic & Caste Census
PoA - Power of Attorney T
PoS - Point of Sale TDS - Tax Deducted at Source
P2P – Peer – to - Peer TIN - Tax Information Network
PPF - Public Provident Fund U
PPI – Prepaid payment Instrument UBIN - Unique Business Identification Number
PPP - Public-Private Partnership and Purchasing Power Parity UCB - Urban Cooperative Bank.
PRSF - Partial Risk Sharing Facility UCT – Unconditional Cash Transfer
Q UCNs - Uniform Code Numbers
QIB - Qualified Institutional Bankers UEBA - Universal Electronic Bank Account.
R UIDAI - Unique Identification Authority of India
RBI - Reserve Bank of India ULIP – Unit Linked Insurance Plan
RBS - Royal Bank of Scotland. UPI – Unified Payments Interface
RDBMS - Relational Database Management System UPIN - Unique Property Identification Numbers.
RDDBFI - Recovery of Debt due to Banks and Financial Institutions USB - Ultra Small Branch.
REC - Rural Electrification Corporation USD - United States Dollar.
REER – Real Effective Excahnge Rate USSD - Unstructured Supplementary Service Data
RERA - Real Estate Regulation Act UTI - Unit Trust of India
RFC - Resident Foreign Currency V
RFID – Radio Frequency IDentifier VAT – Value Added Tax
RIDF - Rural Infrastructure Development Fund VDBS - Vertically Differentiated Banking System.
RTGS – Real Time Gross Settlement VPA - Virtual Payment Address
RoA - Return on Assets VVPAT - Voter Verifiable Paper Audit Trail
RoE - Return on Equity W
RRB - Regional Rural Bank. WBCIS - Weather Based Crop Insurance Scheme.
RSOC – Rapid Survey on Children WCTL - Working Capital Term Loan
RWA - Risk Weighted Assets WL ATM - White Label ATM.
WMA - Ways and Means Advances
S WPI – Wholesale Price Index
SARFAESI- Securitization and Reconstruction of Financial Assets and Y
Enforcement of Security Interest YTM - Yield to Maturity
SBI - State Bank of India
SCB - Scheduled Commercial Bank
SDBS - Service Discharge Benefit Scheme
SDR - Special Drawing Rights
SDR – Strategic Debt Restructuring