All About NBFC'S
About the term NBFC:
A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares/stocks/bonds/debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit fund business.
Difference between BANK & NBFC:
NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:
i. NBFC cannot accept demand deposits;
ii. NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;
iii. deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
Different types/categories of NBFCs registered with RBI:
NBFCs are categorized
a) In terms of the type of liabilities into Deposit and Non-Deposit accepting NBFCs,
b) Non deposit taking NBFCs by their size into systemically important and other non-deposit holding companies (NBFC-NDSI and NBFC-ND) and
c) By the kind of activity they conduct.
Within this broad categorization the different types of NBFCs are as follows:
i. Asset Finance Company(AFC) : An AFC is a company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines.
ii. Investment Company (IC) : IC means any company which is a financial institution carrying on as its principal business the acquisition of securities.
iii. Loan Company (LC): LC means any company which is a financial institution carrying on as its principal business the providing of finance whether by making loans or advances or otherwise for any activity other than its own but does not include an Asset Finance Company.
iv. Infrastructure Finance Company (IFC): IFC is a non-banking finance company
a) which deploys at least 75 per cent of its total assets in infrastructure loans,
b) has a minimum Net Owned Funds of Rs. 300 crore,
c) has a minimum credit rating of ‘A ‘or equivalent d) and a CRAR of 15%.
v. Infrastructure Debt Fund: Non- Banking Financial Company (IDF-NBFC) : IDF-NBFC is a company registered as NBFC to facilitate the flow of long term debt into infrastructure projects. IDF-NBFC raise resources through issue of Rupee or Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies (IFC) can sponsor IDF-NBFCs.
vi. Non-Banking Financial Company - Micro Finance Institution (NBFC-MFI): NBFC-MFI is a non-deposit taking NBFC having not less than 85%of its assets in the nature of qualifying assets which satisfy the following criteria:
a. loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not exceeding Rs. 60,000 or urban and semi-urban household income not exceeding Rs. 1,20,000.
b. tenure of the loan not to be less than 24 months for loan amount in excess of Rs. 15,000 with prepayment without penalty;
vii. Non-Banking Financial Company – Factors (NBFC-Factors): NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The financial assets in the factoring business should constitute at least 75 percent of its total assets and its income derived from factoring business should not be less than 75 percent of its gross income.
Register with RBI:
A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should comply with the following:
i. it should be a company registered under Section 3 of the companies Act, 1954
ii. It should have a minimum net owned fund of Rs 200 lakh.
Deposits in NBFC:
a) Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be paid or compounded at rests not shorter than monthly rests.
b) The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand.
c) The deposits with NBFCs are not insured.
d) The repayment of deposits by NBFCs is not guaranteed by RBI.
Brief about RNBC
a) Residuary Non-Banking Company is a class of NBFC which is a company and has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner and not being Investment, Asset Financing, Loan Company.
b) These companies are required to maintain investments as per directions of RBI, in addition to liquid assets.
c) The amount payable by way of interest, premium, bonus or other advantage, by whatever name called by a RNBC in respect of deposits received shall not be less than the amount calculated at the rate of 5% (to be compounded annually) on the amount deposited in lump sum or at monthly or longer intervals; and at the rate of 3.5% (to be compounded annually) on the amount deposited under daily deposit scheme.
d) Further, a RNBC can accept deposits for a minimum period of 12 months and maximum period of 84 months from the date of receipt of such deposit. They cannot accept deposits repayable on demand.
Some other regulators:
Category of Companies
Respective State Governments
Housing Finance Companies
Venture Capital Fund /
Merchant Banking companies
Stock broking companies
Ministry of corporate affairs, Government of India
Currency System in India
Present Denomination of Bank Notes:
At present, banknotes in India are issued in the denomination of Re.1, Rs.5 Rs.10, Rs.20, Rs.50, Rs.100, Rs.500 and Rs.1000. These notes are called banknotes as they are issued by the Reserve Bank of India (Reserve Bank).
Denomination of Bank Notes & Coins:
The Reserve Bank can also issue banknotes in the denominations of five thousand rupees and ten thousand rupees, or any other denomination that the Central Government may specify. There cannot, though, be banknotes in denominations higher than ten thousand rupees in terms of the current provisions of the Reserve Bank of India of Act, 1934. Coins can be issued up to the denomination of Rs.1000.
Role of Government of India in Currency System:
In terms of Section 25 of RBI Act, 1934 the design of banknotes is required to be approved by the Central Government on the recommendations of the Central Board of the Reserve Bank of India. The responsibility for coinage vests with the Government of India on the basis of the Coinage Act, 1906 as amended from time to time. The Government of India also attends to the designing and minting of coins in various denominations.
How much currency to be produced?
The Reserve Bank decides the volume and value of banknotes except Re. 1 note to be printed each year. The quantum of banknotes that needs to be printed, broadly depends on the requirement for meeting the demand for banknotes due to inflation, GDP growth, replacement of soiled banknotes and reserve stock requirements.
Who decides the coins issue?
The Government of India decides the quantity of coins to be minted on the basis of indents( official order) received from the Reserve Bank.
How does the Reserve Bank estimate the demand for banknotes?
The Reserve Bank estimates the demand for banknotes on the basis of the growth rate of the economy, the replacement demand and reserve stock requirements by using statistical models/techniques.
What is a currency chest?
To facilitate the distribution of banknotes and rupee coins, the Reserve Bank has authorized select branches of scheduled banks to establish Currency Chests. These are actually storehouses where banknotes and rupee coins are stocked on behalf of the Reserve Bank.
What is a small coin depot?
Some bank branches are also authorized to establish Small Coin Depots to stock small coins. The Small Coin Depots also distribute small coins to other bank branches in their area of operation.
What are soiled, mutilated and imperfect banknotes?
(i) "soiled note:" means a note which, has become dirty due to usage and also includes a two piece note pasted together wherein both the pieces presented belong to the same note, and form the entire note.
(ii) Mutilated banknote is a banknote, of which a portion is missing or which is composed of more than two pieces.
(iii) Imperfect banknote means any banknote, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated banknote.
Can soiled and mutilated banknotes be exchanged for value?
Yes. Such banknotes can be exchanged for value.
Clean Note Policy:
Reserve Bank of India has been continuously making efforts to make good quality banknotes available to the members of public. To help RBI and banking system, the members of public are requested to ensure the following:
a) Not to staple the banknotes
b) Not to write / put rubber stamp or any other mark on the banknotes
c) Store the banknotes safely to prevent any damage
1) Seeking to spread awareness among public about fake notes, the Reserve Bank has launched a website explaining ways to detect counterfeit notes. With a tagline 'Pehchano Paise Ki Boli, Kyunki Paisa Bolta Hai', the website- www.paisaboltahai.rbi.org.in -- gives visual presentation with pointers on currency notes of 10, 20, 50, 100, 500 and 1,000 rupee denominations.
2) MINIMUM RESERVE SYSTEM
The Reserve Bank has the sole right to issue currency notes, except one rupee notes which are issued by the Ministry of Finance. The RBI follows a minimum reserve system in the note issue. Initially, it used to keep 40 per cent of gold reserves in its total assets. But, since 1957, it has to maintain only Rs. 200 crores of gold and foreign exchange reserves, of which gold reserves should be of the value of Rs. 115 crores.
3) After a gap of over 20 years, Re 1 note has been released in the country and it bears the signature of Finance Secretary Rajiv Mehrishi. Incidentally, the note was released at Shrinathji temple in Nathdwara, Rajasthan, on March 6 by Mehrishi.
Foreign Exchange Reserves
Today we are providing you the notes on one of the most important financial terms FOREIGN EXCHANGE RESERVES. This is important as it can be asked in the General Awareness section in the upcoming exams.
As it was in the news that, our country's foreign exchange reserves rose by $321.7 million to $353.648 billion in the week to July 24 on account of increase in foreign currency assets. The country's gold reserves remained unchanged at $19.074 billion. The special drawing rights with the International Monetary Fund were up by $5.8 million to $4.024 billion in the week under review, while the country's reserve position with the Fund also rose by $1.8 million to $1.304 billion.
Lets discuss What actually is FOREX?
Reserves are maintained by countries for meeting their international payment obligations — both short and long terms, including sovereign and commercial debts, financing of imports, for intervention in the foreign currency markets during periods of volatility, besides helping to boost the confidence of the market in the ability of a country to meet its external obligations and to absorb any unforseen external shocks, contingencies or unexpected capital movements.
India's foreign exchange reserves comprise foreign currency assets, gold and special drawing rights allocated to it by the International Monetary Fund (IMF) in addition to the reserves it has parked with the fund. Foreign exchange reserves are held and managed by the RBI.
The Foreign currency assets are investment mainly in instruments abroad which have the highest credit rating and which do not pose any credit risk. These include sovereign bonds, treasury bills and short-term deposits in top-rated global banks besides cash accounts.
The Special Drawing Right (SDR) is an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries. The SDR is based on a basket of international currencies comprising the U.S. dollar, Japanese yen, euro and pound sterling. It is not a currency, nor a claim on the IMF, but is potentially a claim on freely usable currencies of IMF members. It can be held and used by member countries, the IMF, and certain designated official entities called "prescribed holders"—but it can not be held, for example, by private entities or individuals.
It is the delivery of financial services at affordable costs to vast sections of disadvantaged and low income groups
Financial inclusion involves
1) Give formal banking services to poor people in urban & rural areas.
2) Promote habit of money-savings, insurance, pension-investment among poor-people.
3) Help them get loans at reasonable rates from normal banks. So they don’t become victims in the hands of local moneylender.
Some Important initiatives for financial inclusion:
1) Lead banking scheme (LBS).
2) No frills account.
4) Business Correspondents (BC) system.
5) Swabhiman Campaign
Lead Bank Scheme
The Lead Bank Scheme, introduced towards the end of 1969, envisages assignment of lead roles to individual banks (both in public sector and private sector) for the districts allotted to them. A bank having a relatively large network of branches in the rural areas of a given district and endowed with adequate financial and manpower resources has generally been entrusted with the lead responsibility for that district. Accordingly, all the districts in the country have been allotted to various banks. The lead bank acts as a leader for coordinating the efforts of all credit institutions in the allotted districts to increase the flow of credit to agriculture, small-scale industries and other economic activities included in the priority sector in the rural and semi-urban areas, with the district being the basic unit in terms of geographical area.
No Frill Account
'No Frills 'account is a basic banking account. Such account requires either nil minimum balance or very low minimum balance. Charges applicable to such accounts are low. Services available to such account is limited. In what can be described as a watershed Annual Policy Statement, the RBI in 2005-06 called upon Indian banks to design a ‘no frills account’ – a no precondition, low ‘minimum balance maintenance’ account with simplified KYC (Know Your Customer) norms. But All the existing ‘No-frills’ accounts opened were converted into BSBDA in compliance with the guidelines issued by RBI in 2012 .
RBI in 2012 came out with fresh guidelines and asked banks to offer a ‘Basic Savings Bank Deposit Account’ which will offer following minimum common facilities to all their customers. These guidelines includes:-
(a) This account shall not have the requirement of any minimum balance.
(b) The services available in the account will include deposit and withdrawal of cash at bank branch as well as ATMs; receipt/credit of money through electronic payment channels or by means of deposit/collection of cheques drawn by Central/State Government agencies and departments;
(c ) While there will be no limit on the number of deposits that can be made in a month, account holders will be allowed a maximum of four withdrawals in a month, including ATM withdrawals; and
(d) Facility of ATM card or ATM-cum-Debit Card.
Business correspondents are bank representatives. They personally goes to the area allotted to them and carry out banking.
They help villagers to open bank accounts.
They help villagers in banking transactions. (deposit money, take money out of savings account, loans etc.)
The Business Correspondent carries a mobile device.
The villager gives his thumb impression or electronic signature, and get the money.
Business Correspondents get commission from bank for every new account opened, every transaction made via them, every loan-application processed etc.
Recently on Financial Inclusion
The Reserve Bank of India (RBI) has constituted a committee with the objective of working out a medium-term (five-year) measurable action plan for financial inclusion. The terms of reference will include reviewing the existing policy of financial inclusion, including supportive payment system and customer protection framework, taking into account the recommendations made by various committees set up earlier.
It will also study the cross-country experience in financial inclusion to identify key learnings, particularly in the area of technology-based delivery models, that could inform policies and practices. The committee will also suggest a monitorable medium-term plan for financial inclusion in terms of its various components like payments, deposit, credit, social security transfers, pension and insurance.
Deepak Mohanty, RBI executive director, will chair the committee.
"Money Market" refers to the market for short-term requirement and deployment of funds. Money market instruments are those instruments, which have a maturity period of less than one year.
The most active part of the money market is the market for overnight call and term money between banks and institutions and repo transactions. Money Market is regulated by RBI.
Money Market can be further divided into 3 parts. These are:
a) Call Money Market
b) Term Money Market
c) Notice Money Market
The market to get funds for 1 day only is called as Call Money Market. The market to get funds for 2 days to 14 days is called as Notice Money Market. The market to get funds for 15 days to 1 year is called as Term Money Market.
Some of the Money Market instruments are:
1) Commercial Paper
2) Certificate of Deposit
4) Cash Management Bills
a) A CP is a short term security (7 days to 365 days) issued by a corporate entity (other than a bank), at a discount to the face value.
b) Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.
c) CPs normally give a higher return than fixed deposits & CDs.
d) CP can be issued in denominations of Rs. 5 lakh or multiples thereof. Amount invested by a single investor should not be less than Rs. 5 lakh (face value).
e) Only corporates who get an investment grade rating can issue CPs, as per RBI rules. It is issued at a discount to face value.
f) Bank and FI’s are prohibited from issuance and underwriting of CP’s.
Certificates of Deposit
a) CDs are negotiable money market instrument issued in demat form or as a Usance Promissory Notes.
b) CDs issued by banks should not have the maturity less than seven days and not more than one year.
c) Financial Institutions are allowed to issue CDs for a period between 1 year and up to 3 years.
d) CDs are like bank term deposits but unlike traditional time deposits these are freely negotiable and are often referred to as Negotiable Certificates of Deposit.
e) CDs normally give a higher return than Bank term deposit.
f) All scheduled banks (except RRBs and Co-operative banks) are eligible to issue CDs.
g) CDs are issued in denominations of Rs. 1 Lac and in the multiples of Rs. 1 Lac thereafter.
h) Discount/Coupon rate of CD is determined by the issuing bank/FI.
i) Loans cannot be granted against CDs and Banks/FIs cannot buy back their own CDs before maturity
a) Treasury Bills are short term (up to one year) borrowing instruments of the Government of India which enable investors to park their short term surplus funds while reducing their market risk.
b) They are auctioned by Reserve Bank of India at regular intervals and issued at a discount to face value.
c) Any person in India including Individuals, Firms, Companies, Corporate bodies, Trusts and Institutions can purchase Treasury Bills.
d) Treasury Bills are eligible securities for SLR purposes.
e) Treasury Bills are available for a minimum amount of Rs. 25,000 and in multiples of Rs. 25,000 thereafter.
f) At present, RBI issues T-Bills for three different maturities: 91 days, 182 days and 364 days.
Cash Management Bills (CMBs)
a) Government of India, in consultation with the Reserve Bank of India, has decided to issue a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government.
b) The CMBs have the generic character of T-bills but are issued for maturities less than 91 days.
c) Like T-bills, they are also issued at a discount and redeemed at face value at maturity.
d) The tenure, notified amount and date of issue of the CMBs depends upon the temporary cash requirement of the Government.
Cheques and Types
It is an instrument in writing containing an unconditional order, 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 or to the order of certain person or to the bearer of instrument."
Types of Cheque
1. Bearer Cheque or open Cheque
When the words "or bearer" appearing on the face of the cheque are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person specified therein or to any other else who presents it to the bank for payment. However, such cheques are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the bank.
2. Order Cheque
When the word "bearer" appearing on the face of a cheque is cancelled and when in its place the word "or order" is written on the face of the cheque, the cheque is called an order cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is endorsed (transferred).
3. Crossed Cheque
Crossing of cheque means drawing two parallel lines on the face of the cheque with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's account.
4. Ante-Dated Cheque
If a cheque bears a date earlier than the date on which it is presented to the bank, it is called as "anti-dated cheque". Such a cheque is valid upto three months from the date of the cheque.
5. Post-Dated Cheque
If a cheque bears a date which is yet to come (future date) then it is known as post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.
6. Stale Cheque
If a cheque is presented for payment after 3 months from the date of the cheque it is called stale cheque. A stale cheque is not honoured by the bank.
7. A self cheque
A self cheque is written by the account holder as pay self to receive the money in the physical form from the branch where he holds his account.
Types of Bank A/C
Types of Bank Accounts
A bank account can be a time deposit account or a term deposit account or a no frill account ie BSBDA .
TYPES OF BANK ACCOUNTS
a. Savings Bank Account
b. Current Deposit Account
c. Fixed Deposit Account
d. Recurring Deposit Account.
e. No-Frill Account
a. Savings Bank Account
This type of account can be opened with a minimum initial deposit that varies from bank to bank. Money can be deposited any time in this account. Withdrawals can be made either by signing a withdrawal form or by issuing a cheque or by using ATM card. Normally banks put some restriction on the number of withdrawal from this account. Interest is allowed on the balance of deposit in the account. The rate of interest on savings bank account varies from bank to bank and also changes from time to time. A minimum balance has to be maintained in the account as prescribed by the bank. Interest rate is paid to the account holders on daily balance basis.
b. Current Deposit Account
Big businessmen, companies and institutions such as schools, colleges, and hospitals have to make payment through their bank accounts. Since there are restrictions on number of withdrawals from savings bank account, that type of account is not suitable for them. They need to have an account from which withdrawal can be made any number of times. Banks open current account for them. On this deposit bank does not pay any interest on the balances. Rather the account holder pays certain amount each year as operational charge. For the convenience of the account holders banks also allow withdrawal of amounts in excess of the balance of deposit. This facility is known as overdraft facility.
c. Fixed Deposit Account (also known as Term Deposit Account)
Many a time people want to save money for long period. If money is deposited in savings bank account, banks allow a lower rate of interest. Therefore, money is deposited in a fixed deposit account to earn interest at a higher rate.
d. Recurring Deposit Account
This type of account is suitable for those who can save regularly and expect to earn a fair return on the deposits over a period of time. While opening the account a person has to agree to deposit a fixed amount once in a month for a certain period. The total deposit along with the interest therein is payable on maturity. However, the depositor can also be allowed to close the account before its maturity and get back the money along with the interest till that period. The rate of interest allowed on the deposits is higher than that on a savings bank deposit but lower than the rate allowed on a fixed deposit for the same period.
e. No Frill Account, ie BSBDA
The Basic Savings Bank Deposit Account allows you to bank with a zero minimum balance requirement. All the existing ‘Nofrills’ accounts opened by the banks are now converted into BSBDA in compliance with the guidelines issued on August 22, 2012 by the Reserve Bank of India (RBI). BSBDA guidelines are applicable to “all scheduled commercial banks in India, including foreign banks having branches in India”. No charge will be levied for nonoperation/activation of inoperative ‘Basic Savings Bank Deposit Account’.
a) Minimum age to open a bank account is now 10 years.
b) Maximum Interest rate is given on FD A/c.
c) The maximum period of an FD is 10 years & for RD is 5 years.
Accounts for NRI/PIO
What are the different types of accounts which can be maintained by an NRI/PIO in India?
Types of accounts which can be maintained by an NRI / PIO in India:
A. Non-Resident Ordinary Rupee Account (NRO Account)
NRO accounts may be opened / maintained in the form of current, savings, recurring or fixed deposit accounts. Interest rates offered by banks on NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
? Account should be denominated in Indian Rupees.
? Permissible credits to NRO account are transfers from rupee accounts of non-resident banks, remittances received in permitted currency from outside India through normal banking channels, permitted currency tendered by account holder during his temporary visit to India, legitimate dues in India of the account holder like current income like rent, dividend, pension, interest, etc., sale proceeds of assets including immovable property acquired out of rupee/foreign currency funds or by way of legacy/ inheritance.
? NRI/PIO may remit from the balances held in NRO account an amount not exceeding USD one million per financial year, subject to payment of applicable taxes.
? The limit of USD 1 million per financial year includes sale proceeds of immovable properties held by NRIs/PIOs.
B. Non-Resident (External) Rupee Account (NRE Account)
1) NRE account may be in the form of savings, current, recurring or fixed deposit accounts.
2) Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney.
3) Account will be maintained in Indian Rupees.
4) Accrued interest income and balances held in NRE accounts are exempt from Income tax.
5) Authorised dealers/authorised banks may at their discretion allow for a period of not more than two weeks, overdrawings in NRE savings bank accounts, up to a limit of Rs.50,000.
6) Loans up to Rs.100 lakh can be extended against security of funds held in NRE Account either to the depositors or third parties.
C. Foreign Currency Non Resident (Bank) Account – FCNR (B) Account
? FCNR (B) accounts are only in the form of term deposits of 1 to 5 years
? Account can be in any freely convertible currency.
? Loans up to Rs.100 lakh can be extended against security of funds held in FCNR (B) deposit either to the depositors or third parties.
? The interest rates are stipulated by the Department of Banking Operations and Development, Reserve Bank of India.
All About NPAs
What are NPA’s (Non Performing Assets):
A mortgage in default would be considered non-performing, after a prolonged period of non-payment(90 days).
The lender will force the borrower to liquidate any assets that were pledged as part of the debt agreement. If no assets were pledged, the lenders might write-off the asset as a bad debt and then sell it at a discount to a collections agency.
Here is an example to help you understand what NPA’s are and how Banks counter it-
Mr. X decided to start a business for that he needed money (the fuel) , X had 25% of the money in his pocket, he decided to go through the route of Initial Public Offering(IPO) to generate 25% more by offering his company shares to public , the remaining 50% he borrowed from Lena bank by mortgaging his papa’s land.
Days passed and the company started to do badly then to worse and the loan installments lapsed month on month, Lena bank issued warning but X continued the bad practice for more than 90 days (condition for NPA) and the bank labeled X as defaulter and the loan as a Non Performing Asset.
Now what X will do?
He could take his case against the bank to Debt recovery tribunal (DRT- A court for such cases).
What are Lena bank’s options?
In 2002, Govt. gave bank’s a lifeline called as SARFAESI Act (Securitization and Reconstruction of Financial Assets and Enforcement of security interest Act)
With this Act Lena bank has the power to take possession of Mr.X’s property or can transfer this to some other ownership.
What bank will do with the acquired property?
Ø Bank can use this for their own purpose like , opening a new branch on it, installing of ATM’s etc.
Ø Bank can advertise in newspapers for the auction of the property acquired and could auction them on any pre decided day.
Ø Bank can sell the property to ARC (Asset Reconstruction Company), these are registered companies under RBI, they buy such assets from banks and sell them at higher prices to gain profits.
NOTE- Total amount of NPA’s are around 4.4% of the total assets of banks in India and expected to increase to 4.7% till the end of FY’15
The First Among All Banks
1. The First Bank in India – Bank of Hindustan
2. First Governor of RBI – Mr. Osborne Smith
3. First Indian governor of RBI – Mr. C D Deshmukh
4. First Bank to Introduce ATM in India – HSBC
5. First Bank to introduce saving Bank in India – Presidency bank in 1830
6. First Bank to Introduce Cheque system in India – Bengal Bank 1784
7. First Bank to introduce Internet Banking – ICICI BANK
8. First Bank to introduce Mutual Fund – State Bank of India
9. First Bank to introduce Credit Card in India – Central Bank of India
10. First Foreign Bank in India – Comptoire d’Escompte de Paris of France in 1860
11. First Joint Stock Bank of India – Allahabad Bank
12. First Indian bank to open branch outside India in London in 1946 – Bank of India
13. First Indian Bank started with Indian capital – Punjab National Bank
14. First Regional Rural Bank name Prathama Grameen Bank was started by – Syndicate Bank
15. First Universal Bank in India – ICICI Bank
16. First bank in India listed in New York Stock Exchange (NYSE) – ICICI Bank
17. First Bank in India to launch Talking ATMs for differently able person – Union Bank of India
18. First Bank in India to launch its own Payment Aggregators – State Bank of India. (SBIePay)
19. Country’s first all woman bank – Bhartiya Mahila Bank
20. First India bank Got ISO – Canara Bank
ATM’s & WLA’s
Q.1. What is an Automated Teller Machine (ATM)?
Ans 1. Automated Teller Machine is a computerized machine that provides the customers of banks the facility of accessing their account for dispensing cash and to carry out other financial & non-financial transactions without the need to actually visit their bank branch.
Q.2. What are White Label ATMs (WLAs)?
Ans 2. ATMs set up, owned and operated by non-banks are called White Label ATMs. Non-bank ATM operators are authorized under Payment & Settlement Systems Act, 2007 by the Reserve Bank of India.
Q.3. What has been the rationale of allowing non-bank entities for setting up of WLAs ?
Ans 3. The rationale of allowing non-bank entity to set up White Label ATMs has been to increase the geographical spread of ATM for increased / enhanced customer service.
Q.4. What type of cards can be used at an ATM/WLA?
Ans 4. The ATM/ATM cum debit cards, credit cards and open prepaid cards (that permit cash withdrawal) issued by banks can be used at ATMs/WLAs for various transactions.
Q.5. What are the services/facilities available at ATMs/WLAs?
Ans 5. In addition to cash dispensing, ATMs/WLAs may offer many other services/facilities to bank customers. Some of these services include:
Cash Deposit (Acceptance of deposits are not permitted at WLAs)
Regular Bills Payment (not permitted at WLAs)
Purchase of Re-load Vouchers for Mobiles (not permitted at WLAs)
Request for Cheque Book
Q.6. What is Personal Identification Number (PIN)?
Ans 6. PIN is the numeric password which is separately mailed / handed over to the customer by the bank while issuing the card. Most banks require the customers to change the PIN on the first use. Customer should not disclose PIN to anybody, including to bank officials. Customers should change the PIN at regular intervals.
Q.7. Can these cards be used at any bank/non-bank ATM (WLA) in the country?
Ans 7. Yes. The cards issued by banks in India may be used at any bank / white label ATM in the country.
Q.8. Is the customer charged for ATM transactions?
Ans.8. With effect from November 01, 2014, Savings bank account holders can do a minimum of three transactions (including both financial and non-financial transactions) free of charge in a month at other bank ATMs in case of ATMs located in six metro locations, viz. Mumbai, New Delhi, Chennai, Kolkata, Bengaluru and Hyderabad. At other locations, the savings bank account holders can transact a minimum of five transactions (including both financial and non-financial transactions) free of charge in a month at other bank ATMs. Similarly, Basic Savings Bank Deposit Account holders will continue to get five free transactions. Banks on their own can decide to offer more number of transactions free of cost to their customers. In case of charges to be levied on customers, the customer can be charged a maximum of Rs. 20/- per transaction (plus service tax, if any) by his/her bank.
Q.9. What steps should a customer take in case of failed ATM transaction at other bank/white label ATMs, when his / her account is debited?
Ans 9. The customer should lodge a complaint with the card issuing bank at the earliest. This process is applicable even if the transaction was carried out at another bank’s/non-bank’s ATM. In case of WLAs, the contact number/toll free numbers are also available for lodging complaints regarding failed transactions at their ATMs.
Q.10. Is there any time limit for the card issuing banks for recrediting the customers account for a failed ATM/WLA transaction indicated under Q. No. 9?
Ans 10. As per the RBI instructions, banks have been mandated to resolve customer complaints by re-crediting the customer’s account within 7 working days from the date of complaint.
Q.11. Are the customers eligible for compensation for delays beyond 7 working days?
Ans 11. Yes. Effective from July 1, 2011, banks have to pay compensation of Rs. 100/- per day for delays in re-crediting the amount beyond 7 working days from the date of receipt of complaint for failed ATM transactions. The compensation has to be credited to the account of the customer without any claim being made by the customer. If the complaint is not lodged within 30 days of transaction, the customer is not entitled for any compensation for delay in resolving his / her complaint.
Q.12. What is the course of action for the customer if the complaint is not addressed by his/her bank within the stipulated time / not addressed to his satisfaction?
Ans 12. The customer can take recourse to the Banking Ombudsman, if the grievance is not redressed by the his/her card issuing bank.
Important Banking Terms
Accrued interest: Interest due from issue date or from the last coupon payment date to the settlement date. Accrued interest on bonds must be added to their purchase price.
Arbitrage: Buying a financial instrument in one market in order to sell the same instrument at a higher price in another market.
Ask Price: The lowest price at which a dealer is willing to sell a given security.
Asset-Backed Securities (ABS): A type of security that is backed by a pool of bank loans, leases, and other assets. Most ABS are backed by auto loans and credit cards – these issues are very similar to mortgage-backed securities.
At-the-money: The exercise price of a derivative that is closest to the market price of the underlying instrument.
Basis Point: One hundredth of 1%. A measure normally used in the statement of interest rate e.g., a change from 5.75% to 5.81% is a change of 6 basis points.
Bear Markets: Unfavorable markets associated with falling prices and investor pessimism.
Bid-ask Spread: The difference between a dealer’s bid and ask price.
Bid Price: The highest price offered by a dealer to purchase a given security.
Blue Chips: Blue chips are unsurpassed in quality and have a long and stable record of earnings and dividends. They are issued by large and well-established firms that have impeccable financial credentials.
Bond: Publicly traded long-term debt securities, issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal at maturity.
Book Value: The amount of stockholders’ equity in a firm equals the amount of the firm’s assets minus the firm’s liabilities and preferred stock
Broker: Individuals licensed by stock exchanges to enable investors to buy and sell securities.
Brokerage Fee: The commission charged by a broker.
Bull Markets: Favorable markets associated with rising prices and investor optimism.
Call Option: The right to buy the underlying securities at a specified exercise price on or before a specified expiration date.
Callable Bonds: Bonds that give the issuer the right to redeem the bonds before their stated maturity.
Capital Gain: The amount by which the proceeds from the sale of a capital asset exceed its original purchase price.
Capital Markets: The market in which long-term securities such as stocks and bonds are bought and sold.
Certificate of Deposits (CDs): Savings instrument in which funds must remain on deposit for a specified period, and premature withdrawals incur interest penalties.
Closed-end (Mutual) Fund: A fund with a fixed number of shares issued, and all trading is done between investors in the open market. The share prices are determined by market prices instead of their net asset value.
Collateral: A specific asset pledged against possible default on a bond. Mortgage bonds are backed by claims on property. Collateral trusts bonds are backed by claims on other securities. Equipment obligation bonds are backed by claims on equipment.
Commercial Paper: Short-term and unsecured promissory notes issued by corporations with very high credit standings.
Common Stock: Equity investment representing ownership in a corporation; each share represents a fractional ownership interest in the firm.
Compound Interest: Interest paid not only on the initial deposit but also on any interest accumulated from one period to the next.
Contract Note: A note which must accompany every security transaction which contains information such as the dealer’s name (whether he is acting as principal or agent) and the date of contract.
Controlling Shareholder: Any person who is, or group of persons who together are, entitled to exercise or control the exercise of a certain amount of shares in a company at a level (which differs by jurisdiction) that triggers a mandatory general offer, or more of the voting power at general meetings of the issuer, or who is or are in a position to control the composition of a majority of the board of directors of the issuer.
Convertible Bond: A bond with an option, allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm. A conversion price is the specified value of the shares for which the bond may be exchanged. The conversion premium is the excess of the bond’s value over the conversion price.
Corporate Bond: Long-term debt issued by private corporations.
Coupon: The feature on a bond that defines the amount of annual interest income.
Coupon Frequency: The number of coupon payments per year.
Coupon Rate: The annual rate of interest on the bond’s face value that a bond’s issuer promises to pay the bondholder. It is the bond’s interest payment per dollar of par value.
Covered Warrants: Derivative call warrants on shares which have been separately deposited by the issuer so that they are available for delivery upon exercise.
Credit Rating: An assessment of the likelihood of an individual or business being able to meet its financial obligations. Credit ratings are provided by credit agencies or rating agencies to verify the financial strength of the issuer for investors.
Currency Board: A monetary system in which the monetary base is fully backed by foreign reserves. Any changes in the size of the monetary base has to be fully matched by corresponding changes in the foreign reserves.
Current Yield: A return measure that indicates the amount of current income a bond provides relative to its market price. It is shown as: Coupon Rate divided by Price multiplied by 100%.
Custody of Securities: Registration of securities in the name of the person to whom a bank is accountable, or in the name of the bank’s nominee; plus deposition of securities in a designated account with the bank’s bankers or with any other institution providing custodial services.
Default Risk: The possibility that a bond issuer will default ie, fail to repay principal and interest in a timely manner.
Derivative Call (Put) Warrants: Warrants issued by a third party which grant the holder the right to buy (sell) the shares of a listed company at a specified price.
Derivative Instrument: Financial instrument whose value depends on the value of another asset.
Discount Bond: A bond selling below par, as interest in-lieu to the bondholders.
Diversification: The inclusion of a number of different investment vehicles in a portfolio in order to increase returns or be exposed to less risk.
Duration: A measure of bond price volatility, it captures both price and reinvestment risks to indicate how a bond will react to different interest rate environments.
Earnings: The total profits of a company after taxation and interest.
Earnings per Share (EPS): The amount of annual earnings available to common stockholders as stated on a per share basis.
Earnings Yield: The ratio of earnings to price (E/P). The reciprocal is price earnings ratio (P/E).
Equity: Ownership of the company in the form of shares of common stock.
Equity Call Warrants: Warrants issued by a company which give the holder the right to acquire new shares in that company at a specified price and for a specified period of time.
Ex-dividend (XD): A security which no longer carries the right to the most recently declared dividend or the period of time between the announcement of the dividend and the payment (usually two days before the record date). For transactions during the ex-dividend period, the seller will receive the dividend, not the buyer. Ex-dividend status is usually indicated in newspapers with an (x) next to the stock’s or unit trust’s name.
Face Value/ Nominal Value: The value of a financial instrument as stated on the instrument. Interest is calculated on face/nominal value.
Fixed-income Securities: Investment vehicles that offer a fixed periodic return.
Fixed Rate Bonds: Bonds bearing fixed interest payments until maturity date.
Floating Rate Bonds: Bonds bearing interest payments that are tied to current interest rates.
Fundamental Analysis: Research to predict stock value that focuses on such determinants as earnings and dividends prospects, expectations for future interest rates and risk evaluation of the firm.
Future Value: The amount to which a current deposit will grow over a period of time when it is placed in an account paying compound interest.
Future Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will grow over a period of time when it is placed in an account paying compound interest.
Futures Contract: A commitment to deliver a certain amount of some specified item at some specified date in the future.
Hedge: A combination of two or more securities into a single investment position for the purpose of reducing or eliminating risk.
Income: The amount of money an individual receives in a particular time period.
Index Fund: A mutual fund that holds shares in proportion to their representation in a market index, such as the S&P 500.
Initial Public Offering (IPO): An event where a company sells its shares to the public for the first time. The company can be referred to as an IPO for a period of time after the event.
Inside Information: Non-public knowledge about a company possessed by its officers, major owners, or other individuals with privileged access to information.
Insider Trading: The illegal use of non-public information about a company to make profitable securities transactions
Intrinsic Value: The difference of the exercise price over the market price of the underlying asset.
Investment: A vehicle for funds expected to increase its value and/or generate positive returns.
Investment Adviser: A person who carries on a business which provides investment advice with respect to securities and is registered with the relevant regulator as an investment adviser.
IPO price: The price of share set before being traded on the stock exchange. Once the company has gone Initial Public Offering, the stock price is determined by supply and demand.
Junk Bond: High-risk securities that have received low ratings (i.e. Standard & Poor’s BBB rating or below; or Moody’s BBB rating or below) and as such, produce high yields, so long as they do not go into default.
Leverage Ratio: Financial ratios that measure the amount of debt being used to support operations and the ability of the firm to service its debt.
Libor: The London Interbank Offered Rate (or LIBOR) is a daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market (or interbank market). The LIBOR rate is published daily by the British Banker’s Association and will be slightly higher than the London Interbank Bid Rate (LIBID), the rate at which banks are prepared to accept deposits.
Limit Order: An order to buy (sell) securities which specifies the highest (lowest) price at which the order is to be transacted.
Limited Company: The passive investors in a partnership, who supply most of the capital and have liability limited to the amount of their capital contributions.
Liquidity: The ability to convert an investment into cash quickly and with little or no loss in value.
Listing: Quotation of the Initial Public Offering company’s shares on the stock exchange for public trading.
Listing Date: The date on which Initial Public Offering stocks are first traded on the stock exchange by the public
Margin Call: A notice to a client that it must provide money to satisfy a minimum margin requirement set by an Exchange or by a bank / broking firm.
Market Capitalization: The product of the number of the company’s outstanding ordinary shares and the market price of each share.
Market Maker: A dealer who maintains an inventory in one or more stocks and undertakes to make continuous two-sided quotes.
Market Order: An order to buy or an order to sell securities which is to be executed at the prevailing market price.
Money Market: Market in which short-term securities are bought and sold.
Mutual Fund: A company that invests in and professionally manages a diversified portfolio of securities and sells shares of the portfolio to investors.
Net Asset Value: The underlying value of a share of stock in a particular mutual fund; also used with preferred stock.
Offer for Sale: An offer to the public by, or on behalf of, the holders of securities already in issue.
Offer for Subscription: The offer of new securities to the public by the issuer or by someone on behalf of the issuer.
Open-end (Mutual) Fund: There is no limit to the number of shares the fund can issue. The fund issues new shares of stock and fills the purchase order with those new shares. Investors buy their shares from, and sell them back to, the mutual fund itself. The share prices are determined by their net asset value.
Open Offer: An offer to current holders of securities to subscribe for securities whether or not in proportion to their existing holdings.
Option: A security that gives the holder the right to buy or sell a certain amount of an underlying financial asset at a specified price for a specified period of time.
Oversubscribed: When an Initial Public Offering has more applications than actual shares available. Investors will often apply for more shares than required in anticipation of only receiving a fraction of the requested number. Investors and underwriters will often look to see if an IPO is oversubscribed as an indication of the public’s perception of the business potential of the IPO company.
Par Bond: A bond selling at par (i.e. at its face value).
Par Value: The face value of a security.
Perpetual Bonds: Bonds which have no maturity date.
Placing: Obtaining subscriptions for, or the sale of, primary market, where the new securities of issuing companies are initially sold.
Portfolio: A collection of investment vehicles assembled to meet one or more investment goals.
Preference Shares: A corporate security that pays a fixed dividend each period. It is senior to ordinary shares but junior to bonds in its claims on corporate income and assets in case of bankruptcy.
Premium (Warrants): The difference of the market price of a warrant over its intrinsic value.
Premium Bond: Bond selling above par.
Present Value: The amount to which a future deposit will discount back to present when it is depreciated in an account paying compound interest.
Present Value of an Annuity: The amount to which a stream of equal cash flows that occur in equal intervals will discount back to present when it is depreciated in an account paying compound interest.
Price/Earnings Ratio (P/E): The measure to determine how the market is pricing the company’s common stock. The price/earnings (P/E) ratio relates the company’s earnings per share (EPS) to the market price of its stock.
Privatization: The sale of government-owned equity in nationalized industry or other commercial enterprises to private investors.
Prospectus: A detailed report published by the Initial Public Offering company, which includes all terms and conditions, application procedures, IPO prices etc, for the IPO
Put Option: The right to sell the underlying securities at a specified exercise price on of before a specified expiration date.
Rate of Return: A percentage showing the amount of investment gain or loss against the initial investment.
Real Interest Rate: The net interest rate over the inflation rate. The growth rate of purchasing power derived from an investment.
Redemption Value: The value of a bond when redeemed.
Reinvestment Value: The rate at which an investor assumes interest payments made on a bond which can be reinvested over the life of that security.
Relative Strength Index (RSI): A stock’s price that changes over a period of time relative to that of a market index such as the Standard & Poor’s 500, usually measured on a scale from 1 to 100, 1 being the worst and 100 being the best.
Repurchase Agreement: An arrangement in which a security is sold and later bought back at an agreed price and time.
Resistance Level: A price at which sellers consistently outnumber buyers, preventing further price rises.
Return: Amount of investment gain or loss.
Rights Issue: An offer by way of rights to current holders of securities that allows them to subscribe for securities in proportion to their existing holdings.
Risk-Averse, Risk-Neutral, Risk-Taking:
Risk-averse describes an investor who requires greater return in exchange for greater risk.
Risk-neutral describes an investor who does not require greater return in exchange for greater risk.
Risk-taking describes an investor who will accept a lower return in exchange for greater risk.
Senior Bond: A bond that has priority over other bonds in claiming assets and dividends.
Short Hedge: A transaction that protects the value of an asset held by taking a short position in a futures contract.
Settlement: Conclusion of a securities transaction when a customer pays a broker/dealer for securities purchased or delivered, securities sold, and receives from the broker the proceeds of a sale.
Short Position: Investors sell securities in the hope that they will decrease in value and can be bought at a later date for profit.
Short Selling: The sale of borrowed securities, their eventual repurchase by the short seller at a lower price and their return to the lender.
Speculation: The process of buying investment vehicles in which the future value and level of expected earnings are highly uncertain.
Stock Splits: Wholesale changes in the number of shares. For example, a two for one split doubles the number of shares but does not change the share capital.
Subordinated Bond: An issue that ranks after secured debt, debenture, and other bonds, and after some general creditors in its claim on assets and earnings. Owners of this kind of bond stand last in line among creditors, but before equity holders, when an issuer fails financially.
Substantial Shareholder: A person acquires an interest in relevant share capital equal to, or exceeding, 10% of the share capital.
Support Level: A price at which buyers consistently outnumber sellers, preventing further price falls.
Technical Analysis: A method of evaluating securities by relying on the assumption that market data, such as charts of price, volume, and open interest, can help predict future (usually short-term) market trends. Contrasted with fundamental analysis which involves the study of financial accounts and other information about the company. (It is an attempt to predict movements in security prices from their trading volume history.)
Time Horizon: The duration of time an investment is intended for.
Trading Rules: Stipulation of parameters for opening and intra-day quotations, permissible spreads according to the prices of securities available for trading and board lot sizes for each security.
Trust Deed: A formal document that creates a trust. It states the purpose and terms of the name of the trustees and beneficiaries.
Underlying Security: The security subject to being purchased or sold upon exercise of the option contract.
Valuation: Process by which an investor determines the worth of a security using risk and return concept.
Warrant: An option for a longer period of time giving the buyer the right to buy a number of shares of common stock in company at a specified price for a specified period of time.
Window Dressing: Financial adjustments made solely for the purpose of accounting presentation, normally at the time of auditing of company accounts.
Yield (Internal rate of Return): The compound annual rate of return earned by an investment
Yield to Maturity: The rate of return yield by a bond held to maturity when both compound interest payments and the investor’s capital gain or loss on the security are taken into account.
Zero Coupon Bond: A bond with no coupon that is sold at a deep discount from par value.
Monetary Policy of India
Monetary policy is the process by which monetary authority of a country i.e. RBI controls the supply of money in the economy by its control over interest rates in order to maintain price stability and achieve high economic growth. In India, the central monetary authority is the Reserve Bank of India (RBI) is so designed as to maintain the price stability in the economy.
MEASURES OF MONETARY POLICY:
Quantitative measures to control amount of credit.
Qualitative measures to control the allocation to different sections of economy.
TOOLS OF QUANTITATIVE MEASURES :
BANK RATE: The bank rate also known as the discount rate, is the rate of interest charged by the RBI for providing funds or loans to the Banking system in india. It also signals the medium-term stance of monetary policy.
OPEN MARKET OPERTIONS(OMO): The buying and selling of government securities in the open market in order to expand or contract the amount of money in the banking system. Purchases inject money into the banking system and stimulate growth while sales of securities do the opposite.
LIQUIDITY ADJUCTMENT FACILITY(LAF): Liquidity Adjustment Facility is the primary instrument of Reserve Bank of India for modulating liquidity and transmitting interest rate signals to the market. Under the scheme, repo auctions (for absorption of liquidity) and reverse repo auctions (for injection of liquidity) are conducted on a daily basis (except Saturdays). It is same-day transactions, with interest rates decided on a cut-off basis and derived from auctions on uniform price basis.
REPO/REVERSE REPO RATE: These rates under the Liquidity Adjustment Facility (LAF) determine the corridor for short-term money market interest rates. In turn, this is expected to trigger movement in other segments of the financial market and the real economy.
MARKET STABLISATION SCHEME (MSS): This instrument for monetary management was introduced in 2004. Liquidity of a more enduring nature arising from large capital flows is absorbed through sale of short-dated government securities and treasury bills. The mobilised cash is held in a separate government account with the Reserve Bank.
TOOLS OF QUALITATIVE MEASURES:
CREDIT CEILING: In this operation RBI issues prior information or direction that loans to the commercial banks will be given up to a certain limit. In this case commercial bank will be tight in advancing loans to the public. They will allocate loans to limited sectors. Few example of ceiling are agriculture sector advances, priority sector lending.
MORAL SUASION: Moral Suasions are suggestion and guidelines by the RBI to the commercial banks to take so and so action and measures in so and so trend of the economy. RBI may request commercial banks not to give loans for unproductive purpose which does not add to economic growth but increases inflation in the economy.
CREDIT AUTHORIZATION SCHEME: Credit Authorization Scheme was introduced in November, 1965 when P C Bhattacharya was the chairman of RBI. Under this instrument of credit regulation RBI as per the guideline authorizes the banks to advance loans to desired sectors