Saturday, 31 December 2016
WHAT IS SIDBI, NABARD AND ECGC ?
**SIDBI: Small Industries Development Bank of India (SIDBI), set up on April 2, 1990 under an
Act of Indian Parliament, is the Principal Financial Institution for the Promotion, Financing and
Development of the Micro, Small and Medium Enterprise (MSME) sector and for Co-ordination
of the functions of the institutions engaged in similar activities.
**National Bank for Agriculture and Rural Development (NABARD) is an apex development
bank in India having headquarters based in Mumbai (Maharashtra) and other branches are all
over the country. The Committee to Review Arrangements for Institutional Credit for Agriculture
and Rural Development (CRAFICARD), set up by the Reserve Bank of India (RBI) under the
Chairmanship of Shri B. Sivaraman, conceived and recommended the establishment of the
National Bank for Agriculture and Rural Development (NABARD). It was established on 12 July
1982 by a special act by the parliament and its main focus was to uplift rural India by increasing
the credit flow for elevation of agriculture & rural non-farm sector and completed its 25 years on
12 July 2007. It has been accredited with "matters concerning policy, planning and operations in
the field of credit for agriculture and other economic activities in rural areas in India". RBI sold its
stake in NABARD to the Government of India, which now holds 99% stake.
**Export-Import Bank of India is the premier export finance institution of the country, established
in 1982 under the Export-Import Bank of India Act 1981.
**Export Credit Guarantee Corporation of India Limited (ECGC) is a company wholly owned by
the Government of India based in Mumbai, Maharashtra. It provides export credit insurance
support to Indian exporters and is controlled by the Ministry of Commerce. Government of India
had initially set up Export Risks Insurance Corporation (ERIC) in July 1957. It was transformed
into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit
Guarantee Corporation of India in 1983. Provides a range of credit risk insurance covers to
exporters against loss in export of goods and services.
Act of Indian Parliament, is the Principal Financial Institution for the Promotion, Financing and
Development of the Micro, Small and Medium Enterprise (MSME) sector and for Co-ordination
of the functions of the institutions engaged in similar activities.
**National Bank for Agriculture and Rural Development (NABARD) is an apex development
bank in India having headquarters based in Mumbai (Maharashtra) and other branches are all
over the country. The Committee to Review Arrangements for Institutional Credit for Agriculture
and Rural Development (CRAFICARD), set up by the Reserve Bank of India (RBI) under the
Chairmanship of Shri B. Sivaraman, conceived and recommended the establishment of the
National Bank for Agriculture and Rural Development (NABARD). It was established on 12 July
1982 by a special act by the parliament and its main focus was to uplift rural India by increasing
the credit flow for elevation of agriculture & rural non-farm sector and completed its 25 years on
12 July 2007. It has been accredited with "matters concerning policy, planning and operations in
the field of credit for agriculture and other economic activities in rural areas in India". RBI sold its
stake in NABARD to the Government of India, which now holds 99% stake.
**Export-Import Bank of India is the premier export finance institution of the country, established
in 1982 under the Export-Import Bank of India Act 1981.
**Export Credit Guarantee Corporation of India Limited (ECGC) is a company wholly owned by
the Government of India based in Mumbai, Maharashtra. It provides export credit insurance
support to Indian exporters and is controlled by the Ministry of Commerce. Government of India
had initially set up Export Risks Insurance Corporation (ERIC) in July 1957. It was transformed
into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit
Guarantee Corporation of India in 1983. Provides a range of credit risk insurance covers to
exporters against loss in export of goods and services.
DIFFERENCE BETWEEN WHITE AND BLACK LABEL ATMS
WHITE LABEL ATMs
Background / White Label ATM in Canada and India
White label ATMs are popular in Canada. Since 2006, some banks have been pressing with RBI to
introduce white label ATMs in India too. On 14th February, 2012, RBI has issued DRAFT
guidelines and asked the comments of the bankers and public in this regard. Thus, these guidelines
are still not applicable but are likely to be soon approved.
Definition and Meaning of White Label ATM - India ? or What is White Label ATM ? or What is
WLA ?
White Label ATM or White Label Automated Teller Machines or WLAs in India will be owned and
operated by Non Bank entities. From such White Label ATM customer from any bank will be able to
withdraw money, but will need to pay a fee for the services. These white label automated teller
machines (ATMs) will not display logo of any particular bank and are likely to be located in non
traditional places.
What is the purpose for introduction of White Label ATMs in India
In India only Banks are allowed to set up ATMs. Although between 2008 - 2011, there has been 30%
growth in number of ATMs and by the beginning of 2012, we have about 87,000 ATMs in India, yet the
penetration of ATMs in Tier III and Tier IV cities has been low and downtime of such ATMs has been
high. Thus, RBI is feeling that there is a need to expand ATM network, which can be done by only with
the help of private operators.
Who will benefit from White Label ATMs
The white label automated teller machines are likely to benefit customers as well as banks. With the
expansion of ATM network, customers will be able to withdraw funds at more locations which will be
convenient and located near to their home or place of work. Banks too support introduction of white
label ATMs as such machines are likely to reduce pre-transaction cost for them and will be free from the
problems relating to maintaining and running such a payment channel.
What Problems are Likely to be Faced by Bankers and Customers
Bankers are already sounding caution about the pitfalls of white label ATMs. The first and foremost
concern for customers will be the inconvenience they may feel in case of failed transactions on WLAs.
In such cases the dispute resolution mechanism will involve three entities — the WLA operator, the
sponsor bank of the operator, and the customer's bank. The WLA operators being non bank entities
and running purely on profit basis may take longer time or avoid payments on account of failed
transactions. The second concern for customers will be the high cost they are likely to pay for use of
such ATMs
BROWN LABEL ATMs
Description and Meaning of Brown Label ATMs
'Brown label' ATM are those Automated Teller Machines where hardware and the lease of the ATM
machine is owned by a service provider, but cash management and connectivity to banking networks is
provided by a sponsor bank whose brand is used on the ATM.
The `brown label' has come up as an alternative between bank-owned ATMs and 'white label' ATMs.
As in India white label ATMs were not allowed by RBI (in February, 2012, RBI has issued the draft
guidelines for introduction of white ATMs, but final approval has yet to come.), the concept of Brown
Label ATMs started picking up.
What is the Status of Brown label ATMs in India
In view of the high cost of ATM machines and RBI's guidelines for expansion of ATMs, the concept of
Brown Label ATM network is likely to expand at a brisk pace in next few years. In the recent years,
there is a visible shift in the way banks look at the ATM business. From the earlier model where banks
used to buy outright the ATM machines and bear the cost of service, they are now preferring brown
label ATMS i.e. where the machine and service is outsourced. There are indications that as many as
50% may soon be under this category.
However, after approval of white label ATMs, the bankers will review the expansion model for their
ATMs.
Background / White Label ATM in Canada and India
White label ATMs are popular in Canada. Since 2006, some banks have been pressing with RBI to
introduce white label ATMs in India too. On 14th February, 2012, RBI has issued DRAFT
guidelines and asked the comments of the bankers and public in this regard. Thus, these guidelines
are still not applicable but are likely to be soon approved.
Definition and Meaning of White Label ATM - India ? or What is White Label ATM ? or What is
WLA ?
White Label ATM or White Label Automated Teller Machines or WLAs in India will be owned and
operated by Non Bank entities. From such White Label ATM customer from any bank will be able to
withdraw money, but will need to pay a fee for the services. These white label automated teller
machines (ATMs) will not display logo of any particular bank and are likely to be located in non
traditional places.
What is the purpose for introduction of White Label ATMs in India
In India only Banks are allowed to set up ATMs. Although between 2008 - 2011, there has been 30%
growth in number of ATMs and by the beginning of 2012, we have about 87,000 ATMs in India, yet the
penetration of ATMs in Tier III and Tier IV cities has been low and downtime of such ATMs has been
high. Thus, RBI is feeling that there is a need to expand ATM network, which can be done by only with
the help of private operators.
Who will benefit from White Label ATMs
The white label automated teller machines are likely to benefit customers as well as banks. With the
expansion of ATM network, customers will be able to withdraw funds at more locations which will be
convenient and located near to their home or place of work. Banks too support introduction of white
label ATMs as such machines are likely to reduce pre-transaction cost for them and will be free from the
problems relating to maintaining and running such a payment channel.
What Problems are Likely to be Faced by Bankers and Customers
Bankers are already sounding caution about the pitfalls of white label ATMs. The first and foremost
concern for customers will be the inconvenience they may feel in case of failed transactions on WLAs.
In such cases the dispute resolution mechanism will involve three entities — the WLA operator, the
sponsor bank of the operator, and the customer's bank. The WLA operators being non bank entities
and running purely on profit basis may take longer time or avoid payments on account of failed
transactions. The second concern for customers will be the high cost they are likely to pay for use of
such ATMs
BROWN LABEL ATMs
Description and Meaning of Brown Label ATMs
'Brown label' ATM are those Automated Teller Machines where hardware and the lease of the ATM
machine is owned by a service provider, but cash management and connectivity to banking networks is
provided by a sponsor bank whose brand is used on the ATM.
The `brown label' has come up as an alternative between bank-owned ATMs and 'white label' ATMs.
As in India white label ATMs were not allowed by RBI (in February, 2012, RBI has issued the draft
guidelines for introduction of white ATMs, but final approval has yet to come.), the concept of Brown
Label ATMs started picking up.
What is the Status of Brown label ATMs in India
In view of the high cost of ATM machines and RBI's guidelines for expansion of ATMs, the concept of
Brown Label ATM network is likely to expand at a brisk pace in next few years. In the recent years,
there is a visible shift in the way banks look at the ATM business. From the earlier model where banks
used to buy outright the ATM machines and bear the cost of service, they are now preferring brown
label ATMS i.e. where the machine and service is outsourced. There are indications that as many as
50% may soon be under this category.
However, after approval of white label ATMs, the bankers will review the expansion model for their
ATMs.
RBI LIQUIDITY MANAGEMENT
RBI LIQUIDITY MANAGEMENT
There has been a lot of confusion among bankers as well as students about various concepts used by
RBI in liquidity management. Therefore, I thought of writing about these in simple language. I
hope this will be of great use to young bankers as well as students.
What are the Open Market Operations (OMOs)?
An open market operation (popularly also known as OMO) is an activity by a central bank to buy or sell
government securities on the open market. Central banks use these operations as the primary
means of implementing monetary policy.
Thus we can say that in India OMOs are the market operations conducted by the Reserve Bank of India
(it is central bank of India) by way of sale/ purchase of Government securities to/ from the market with
an objective to adjust the rupee liquidity conditions in the market on a durable basis.
Sale of Government Securities
When the RBI feels there is excess liquidity in the market, it resorts to sale of securities thereby sucking
out the rupee liquidity. It is simple operation, wherein RBI sells the government securities to banks, who
pay for these investments. Thus excess liquidity goes to RBI.
Purchase or Buy Back of Government Securities
When RBI feels that the liquidity conditions are tight, it will purchase / buy back securities from the
market, thereby releasing liquidity into the market. Under this operation, RBI purchases government
securities from banks and thus pays the bank equivalent amount to banks. Thus, liquidity is injected
into the system.
What is buyback of Government securities and What Are its Results ?
Buyback of Government securities is a process whereby the Government of India and State
Governments buy back their existing securities from the holders. The buy back of securities by RBI is
done to achieve any one or all results:-
(i) The objectives of buyback can be reduction of cost (by buying back high coupon securities),
(ii) reduction in the number of outstanding securities; and
(iii) improving liquidity in the Government securities market (by buying back illiquid securities) and
infusion of liquidity in the system.
Governments make provisions in their budget for buying back of existing securities. Buyback can be
done through an auction process or through the secondary market route, i.e., NDS/NDS-OM.
What is Liquidity Adjustment Facility (LAF)?
LAF is a facility extended by RBI to scheduled commercial banks (excluding RRBs) and primary dealers to
avail of liquidity in case of requirement or park excess funds with the RBI in case of excess liquidity on an
overnight basis against the collateral of Government securities including State Government securities.
As we have seen above OMO is also a liquidity management tool in the hands of RBI, but that is a tool
used to adjust long term liquidity in the banking system. However, LAF enables liquidity
management on a day to day basis.
The operations of LAF are conducted by way of repurchase agreements (repos and reverse repos with
RBI being the counter-party to all the transactions. The latest rates can be viewed at www.rbi.org.in or
also at our website www.allbankingsolutions.com
Banking Ombudsman Scheme: The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank
customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme
introduced by RBI in 1995. There after many norms were issued by RBI and the important one was issued in 2006.
Banking Ombudsman is a quasi-judicial authority (the Banking Ombudsman- is a senior officials appointed by the Reserve Bank
of India) to redress customer complaints against deficiency in certain banking services. The Banking Ombudsman Scheme
functioning under India’s Banking Ombudsman Scheme 2006, and the authority was created pursuant to the decision by the
Government of India to enable resolution of complaints of customers of banks relating to certain services rendered by the banks.
The Banking Ombudsman provides speedy solutions to the grievances faced by the customers from various banks. It addresses
grievances by way of its legal framework and redressal is done accordingly. It is set up specifically for handling grievances
related to banking services and related matters under its purview. As on date, fifteen Banking Ombudsmen have been appointed
with their offices located mostly in state capitals. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled
Primary Co-operative Banks are covered under the Scheme.
Bank Rate: It is the rate at which the RBI discounts bill of exchange or other commercial papers. Simply put, bank rate is the rate
at which the RBI extends credit to the commercial bank. Bank rate is also called discount rate.
Cash Reserve Ratio (CRR):
The RBI Act, 1934 stipulates that a commercial bank is required to keep in cash a portion of its deposits with the RBI. This is
known as Cash Reserve Ratio. The RBI can vary this ratio between 3 and 15 per cent.
Statutory Liquidity Ratio (SLR):
The SLR specifies that a commercial bank invests a designated minimum proportion of its total assets in liquid assets, such as
cash, gold and unecumbered approved securities (not government securities but having the status of the same). This is in
addition to the Cash Reserve Ratio. The SLR cannot be raised beyond 40%.
In other words, SLR refers to that protion of total deposits of a commercial bank which RBI has to keep with itself in the form of
cash resevers. SLR is an effective instrument of credit control with RBI. By varying the SLR, the RBI controls the expansion and
contraction of credit. If SLR is reduced, the lendable resources with the scheduled commercial banks gets correspondingly
increased and vice versa
Repo market
Repo : We have seen above LAF and now that it is conducted through Repos and Reverse Repos. The
Repo is also known as ready forward contact, and is an instrument for borrowing funds by selling
securities with an agreement to repurchase the said securities on a mutually agreed future date at an
agreed price which includes interest for the funds borrowed. Thus under Repo, banks borrow from RBI
and thus liquidity comes to banking system.
Reverse Repo : The reverse of the repo transaction is called ‘reverse repo’ which is lending of funds
against buying of securities with an agreement to resell the said securities on a mutually agreed future
date at an agreed price which includes interest for the funds lent. Thus, under Revere Repo banks
lend money to RBI and thus liquidity reduces in the banking system.
Thus, we can conclude that there are two legs to the same transaction in a repo/ reverse repo. The
duration between the two legs is called the ‘repo period’. Predominantly, repos are undertaken on
overnight basis, i.e., for one day period. Settlement of repo transactions happens along with the outright
trades in government securities.
Now from June 2014, RBI has also started conducting Term Reverse Repo too, under which the Reverse
Repo is done for periods longer than overnight. On 2nd June 2014 it conducted 4 day Term Reverse
Repo. Now onwards RBI will conduct these even for longer periods.
Collateralised Borrowing and Lending Obligation (CBLO)
This is another money market instrument used in India. This is operated by the Clearing Corporation
of India Ltd. (CCIL), for the benefit of the entities who have either no access to the inter bank call money
market or have restricted access in terms of ceiling on call borrowing and lending transactions.
CBLO is a discounted instrument available in electronic book entry form for the maturity period ranging
from one day to ninety days (up to one year as per RBI guidelines). In order to enable the market
participants to borrow and lend funds, CCIL provides the Dealing System through Indian Financial
Network (INFINET), a closed user group to the Members of the Negotiated Dealing System (NDS) who
maintain Current account with RBI and through Internet for other entities who do not maintain Current
account with RB
Balloon Payment
A large, lump-sum payment scheduled at the end of a series of considerably smaller periodic payments. A balloon payment may
be included in the payment schedule for a loan, lease or other stream of payments.
Bank assurance
Selling of insurance through the vast network of banks. It is part of what is today called as relationship banking.
Bank Credit
The borrowing capacity provided to an individual by the banking system in the form of credit or a loan. The total bank credit the
individual has is the sum of the borrowing capacity each lender bank provides to the individual.
Bank Discount
The bank charge made for payment of a note prior to maturity, expressed as a percentage of the note’s face value. In short,
front-end interest discounted on an instrument or the amount paid to the holder/bearer of the instrument (borrower) after interest
is deducted. The full amount expressed in the instrument is collected as repayment.
Bank Draft
A cheque drawn by one bank against funds deposited into its account at another bank, authorising the second bank to make
payment to the individual named in the draft.
Bank Guarantee
A guarantee from a bank ensuring that the liability of a debtor will be met. It is used in trade finance. Unlike a line of credit, the
sum is only paid if the counterparty does not fulfill the stipulated obligations under the contract.
Bank Rate
The rate at which RBI lends long term loans to scheduled commercial banks.
Bank Run
It occurs when a large number of customers withdraw their deposits because they believe the bank is, or might become,
insolvent.
Bank Reconciliation
The process of adjusting balance in an account reported by a bank to reflect transactions that have occurred since the reporting
date. For instance, cheque issued by account holder may not yet reflect in the bank’s books but accounted for by the issuer.
Hence, the need to know the likely balance.
Banker’s Acceptance
A written demand accepted by a bank to pay a specified amount at a future date.
Banking
In general terms, the business activity of accepting and safeguarding money owned by other individuals and entities and then
lending out this money in order to earn a profit.
Banking Code and Standards Board of India (BCSBI)
It was set up in 2005 by the RBI as an independent and autonomous watch dog to monitor and ensure that the Banking Codes
and Standards adopted by the banks are adhered to in true spirit.
Banking Ombudsman
The Banking Ombudsman is a senior official appointed by the RBI to redress customer complaints against deficiency in certain
banking services.
Banking Ombudsman Scheme
It enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services
rendered by banks. Introduced in 1995 and revised in 2002 and 2006.
Barter System
It refers to a primitive exchange system where there is an exchange of goods or services without involving money.
Base Currency
The first currency quoted in a currency pair on foreign exchange. It is also typically considered the domestic currency or
accounting currency.
Base Effect
The base effect refers to the impact of the rise in price level (ie last year’s inflation) in the previous year over the corresponding
rise in price levels in the current year (ie current inflation). For example, if the price index had risen at a high rate in the
corresponding period of the previous year, then a similar absolute increase in the Price index in current year will be relatively
lower and vice-versa.
Base Rate
It is the minimum rate of interest that a bank is allowed to charge from its customers. It was recommended by Deepak Mohanty
Committee in 2009-10 and has replaced Benchmark Prime Lending Rate (BPLR) since July 2010.
Base Year
In the construction of an index, the year from which the weights assigned to the different components of the index, is drawn is
called Base Year. It is conventional to set the value of an index in its base year equal to 100.
Basel Accords
It refer to the banking supervision Accords prescribed by Basel Committee on Banking Supervision (BCBS). By far, BCBS has
issued three accords known as Basel I, Basel II and Basel III.
Basel Committee on Banking Supervision (BCBS)
Under Bank for International Settlement, the BCBS provides a forum for regular cooperation on banking supervisory matters. Its
objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.
Basel-I
It is the first international accord to develop standardised risk-based capital requirements for banks across countries. It became
operational in 1988 and was replaced with a Basel-II in June 2004.
Basel-II
It is based on three mutually reinforcing pillars that allow banks and supervisors to evaluate various risks that banks face. These
are: Piller-I Minimum Capital Requirements (MCR); Pillar-II Supervisory Review Process (SRP); and Pillar-III Market Discipline
(MD).
Basel-III
It is a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk agreed upon by the members
of the Basel Committee on Banking Supervision in 2010-11. It was developed in a response to the deficiencies in financial
regulation revealed by the late-2000s financial crisis. It, therefore, attempts to reduce risk in banking by increasing quality and
quantity of capital
There has been a lot of confusion among bankers as well as students about various concepts used by
RBI in liquidity management. Therefore, I thought of writing about these in simple language. I
hope this will be of great use to young bankers as well as students.
What are the Open Market Operations (OMOs)?
An open market operation (popularly also known as OMO) is an activity by a central bank to buy or sell
government securities on the open market. Central banks use these operations as the primary
means of implementing monetary policy.
Thus we can say that in India OMOs are the market operations conducted by the Reserve Bank of India
(it is central bank of India) by way of sale/ purchase of Government securities to/ from the market with
an objective to adjust the rupee liquidity conditions in the market on a durable basis.
Sale of Government Securities
When the RBI feels there is excess liquidity in the market, it resorts to sale of securities thereby sucking
out the rupee liquidity. It is simple operation, wherein RBI sells the government securities to banks, who
pay for these investments. Thus excess liquidity goes to RBI.
Purchase or Buy Back of Government Securities
When RBI feels that the liquidity conditions are tight, it will purchase / buy back securities from the
market, thereby releasing liquidity into the market. Under this operation, RBI purchases government
securities from banks and thus pays the bank equivalent amount to banks. Thus, liquidity is injected
into the system.
What is buyback of Government securities and What Are its Results ?
Buyback of Government securities is a process whereby the Government of India and State
Governments buy back their existing securities from the holders. The buy back of securities by RBI is
done to achieve any one or all results:-
(i) The objectives of buyback can be reduction of cost (by buying back high coupon securities),
(ii) reduction in the number of outstanding securities; and
(iii) improving liquidity in the Government securities market (by buying back illiquid securities) and
infusion of liquidity in the system.
Governments make provisions in their budget for buying back of existing securities. Buyback can be
done through an auction process or through the secondary market route, i.e., NDS/NDS-OM.
What is Liquidity Adjustment Facility (LAF)?
LAF is a facility extended by RBI to scheduled commercial banks (excluding RRBs) and primary dealers to
avail of liquidity in case of requirement or park excess funds with the RBI in case of excess liquidity on an
overnight basis against the collateral of Government securities including State Government securities.
As we have seen above OMO is also a liquidity management tool in the hands of RBI, but that is a tool
used to adjust long term liquidity in the banking system. However, LAF enables liquidity
management on a day to day basis.
The operations of LAF are conducted by way of repurchase agreements (repos and reverse repos with
RBI being the counter-party to all the transactions. The latest rates can be viewed at www.rbi.org.in or
also at our website www.allbankingsolutions.com
Banking Ombudsman Scheme: The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank
customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme
introduced by RBI in 1995. There after many norms were issued by RBI and the important one was issued in 2006.
Banking Ombudsman is a quasi-judicial authority (the Banking Ombudsman- is a senior officials appointed by the Reserve Bank
of India) to redress customer complaints against deficiency in certain banking services. The Banking Ombudsman Scheme
functioning under India’s Banking Ombudsman Scheme 2006, and the authority was created pursuant to the decision by the
Government of India to enable resolution of complaints of customers of banks relating to certain services rendered by the banks.
The Banking Ombudsman provides speedy solutions to the grievances faced by the customers from various banks. It addresses
grievances by way of its legal framework and redressal is done accordingly. It is set up specifically for handling grievances
related to banking services and related matters under its purview. As on date, fifteen Banking Ombudsmen have been appointed
with their offices located mostly in state capitals. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled
Primary Co-operative Banks are covered under the Scheme.
Bank Rate: It is the rate at which the RBI discounts bill of exchange or other commercial papers. Simply put, bank rate is the rate
at which the RBI extends credit to the commercial bank. Bank rate is also called discount rate.
Cash Reserve Ratio (CRR):
The RBI Act, 1934 stipulates that a commercial bank is required to keep in cash a portion of its deposits with the RBI. This is
known as Cash Reserve Ratio. The RBI can vary this ratio between 3 and 15 per cent.
Statutory Liquidity Ratio (SLR):
The SLR specifies that a commercial bank invests a designated minimum proportion of its total assets in liquid assets, such as
cash, gold and unecumbered approved securities (not government securities but having the status of the same). This is in
addition to the Cash Reserve Ratio. The SLR cannot be raised beyond 40%.
In other words, SLR refers to that protion of total deposits of a commercial bank which RBI has to keep with itself in the form of
cash resevers. SLR is an effective instrument of credit control with RBI. By varying the SLR, the RBI controls the expansion and
contraction of credit. If SLR is reduced, the lendable resources with the scheduled commercial banks gets correspondingly
increased and vice versa
Repo market
Repo : We have seen above LAF and now that it is conducted through Repos and Reverse Repos. The
Repo is also known as ready forward contact, and is an instrument for borrowing funds by selling
securities with an agreement to repurchase the said securities on a mutually agreed future date at an
agreed price which includes interest for the funds borrowed. Thus under Repo, banks borrow from RBI
and thus liquidity comes to banking system.
Reverse Repo : The reverse of the repo transaction is called ‘reverse repo’ which is lending of funds
against buying of securities with an agreement to resell the said securities on a mutually agreed future
date at an agreed price which includes interest for the funds lent. Thus, under Revere Repo banks
lend money to RBI and thus liquidity reduces in the banking system.
Thus, we can conclude that there are two legs to the same transaction in a repo/ reverse repo. The
duration between the two legs is called the ‘repo period’. Predominantly, repos are undertaken on
overnight basis, i.e., for one day period. Settlement of repo transactions happens along with the outright
trades in government securities.
Now from June 2014, RBI has also started conducting Term Reverse Repo too, under which the Reverse
Repo is done for periods longer than overnight. On 2nd June 2014 it conducted 4 day Term Reverse
Repo. Now onwards RBI will conduct these even for longer periods.
Collateralised Borrowing and Lending Obligation (CBLO)
This is another money market instrument used in India. This is operated by the Clearing Corporation
of India Ltd. (CCIL), for the benefit of the entities who have either no access to the inter bank call money
market or have restricted access in terms of ceiling on call borrowing and lending transactions.
CBLO is a discounted instrument available in electronic book entry form for the maturity period ranging
from one day to ninety days (up to one year as per RBI guidelines). In order to enable the market
participants to borrow and lend funds, CCIL provides the Dealing System through Indian Financial
Network (INFINET), a closed user group to the Members of the Negotiated Dealing System (NDS) who
maintain Current account with RBI and through Internet for other entities who do not maintain Current
account with RB
Balloon Payment
A large, lump-sum payment scheduled at the end of a series of considerably smaller periodic payments. A balloon payment may
be included in the payment schedule for a loan, lease or other stream of payments.
Bank assurance
Selling of insurance through the vast network of banks. It is part of what is today called as relationship banking.
Bank Credit
The borrowing capacity provided to an individual by the banking system in the form of credit or a loan. The total bank credit the
individual has is the sum of the borrowing capacity each lender bank provides to the individual.
Bank Discount
The bank charge made for payment of a note prior to maturity, expressed as a percentage of the note’s face value. In short,
front-end interest discounted on an instrument or the amount paid to the holder/bearer of the instrument (borrower) after interest
is deducted. The full amount expressed in the instrument is collected as repayment.
Bank Draft
A cheque drawn by one bank against funds deposited into its account at another bank, authorising the second bank to make
payment to the individual named in the draft.
Bank Guarantee
A guarantee from a bank ensuring that the liability of a debtor will be met. It is used in trade finance. Unlike a line of credit, the
sum is only paid if the counterparty does not fulfill the stipulated obligations under the contract.
Bank Rate
The rate at which RBI lends long term loans to scheduled commercial banks.
Bank Run
It occurs when a large number of customers withdraw their deposits because they believe the bank is, or might become,
insolvent.
Bank Reconciliation
The process of adjusting balance in an account reported by a bank to reflect transactions that have occurred since the reporting
date. For instance, cheque issued by account holder may not yet reflect in the bank’s books but accounted for by the issuer.
Hence, the need to know the likely balance.
Banker’s Acceptance
A written demand accepted by a bank to pay a specified amount at a future date.
Banking
In general terms, the business activity of accepting and safeguarding money owned by other individuals and entities and then
lending out this money in order to earn a profit.
Banking Code and Standards Board of India (BCSBI)
It was set up in 2005 by the RBI as an independent and autonomous watch dog to monitor and ensure that the Banking Codes
and Standards adopted by the banks are adhered to in true spirit.
Banking Ombudsman
The Banking Ombudsman is a senior official appointed by the RBI to redress customer complaints against deficiency in certain
banking services.
Banking Ombudsman Scheme
It enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services
rendered by banks. Introduced in 1995 and revised in 2002 and 2006.
Barter System
It refers to a primitive exchange system where there is an exchange of goods or services without involving money.
Base Currency
The first currency quoted in a currency pair on foreign exchange. It is also typically considered the domestic currency or
accounting currency.
Base Effect
The base effect refers to the impact of the rise in price level (ie last year’s inflation) in the previous year over the corresponding
rise in price levels in the current year (ie current inflation). For example, if the price index had risen at a high rate in the
corresponding period of the previous year, then a similar absolute increase in the Price index in current year will be relatively
lower and vice-versa.
Base Rate
It is the minimum rate of interest that a bank is allowed to charge from its customers. It was recommended by Deepak Mohanty
Committee in 2009-10 and has replaced Benchmark Prime Lending Rate (BPLR) since July 2010.
Base Year
In the construction of an index, the year from which the weights assigned to the different components of the index, is drawn is
called Base Year. It is conventional to set the value of an index in its base year equal to 100.
Basel Accords
It refer to the banking supervision Accords prescribed by Basel Committee on Banking Supervision (BCBS). By far, BCBS has
issued three accords known as Basel I, Basel II and Basel III.
Basel Committee on Banking Supervision (BCBS)
Under Bank for International Settlement, the BCBS provides a forum for regular cooperation on banking supervisory matters. Its
objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide.
Basel-I
It is the first international accord to develop standardised risk-based capital requirements for banks across countries. It became
operational in 1988 and was replaced with a Basel-II in June 2004.
Basel-II
It is based on three mutually reinforcing pillars that allow banks and supervisors to evaluate various risks that banks face. These
are: Piller-I Minimum Capital Requirements (MCR); Pillar-II Supervisory Review Process (SRP); and Pillar-III Market Discipline
(MD).
Basel-III
It is a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk agreed upon by the members
of the Basel Committee on Banking Supervision in 2010-11. It was developed in a response to the deficiencies in financial
regulation revealed by the late-2000s financial crisis. It, therefore, attempts to reduce risk in banking by increasing quality and
quantity of capital
FIDUCIARY ISSUES
*Fiduciary issue: is the part of the issue of notes and coins that is not backed by gold. In the past bank notes were
issued and were backed by gold. You could always redeem your notes and have gold back in exchange. However,
the system quickly developed so that the value of notes issued exceeded the amount of gold. That part of the note
issue in excess of the amount of gold was the fiduciary issue. In other words the amount of money issued on trust.
Today the whole note issue is fiduciary.
*Fiduciary: This term can be used both as an adjective and a noun. It is used in the context of a trust relationship.
For example, if one is said to have a fiduciary obligation, it means that one is acting in trust for other parties. A
fiduciary is one who is in a position of trust. One can also use the adjective fiducial - for example, one has fiducial
dependence on someone else.
*Rights issue: An new share issue to existing shareholders giving them the right to buy new shares at a
predetermined price.
*Vanilla issue: A security issue that has no unusual features.
*Unseasoned issue: Issue of a security for which there is no existing market.
*Mirror Account Service: Mirror Account Service is a concentration service that enables you to pool your funds
from accounts maintained by your various subsidiaries, divisions or related entities while maintaining operating
account autonomy among the participants. By consolidating funds, you are able to earn higher interest returns or
minimize the use of operating bank credit lines through inter-entity lending, while maintaining autonomy in day-to-
day banking activities
*An asset–liability mismatch occurs when the financial terms of an institution's assets and liabilities do not
correspond.
*TARC-Tax Administration Reforms Commission. The government set up a seven-member panel under the
chairmanship of Parthasarathi Shome to revisit tax laws and recommend measures for putting in place a stable
and non-adversarial tax administration.
issued and were backed by gold. You could always redeem your notes and have gold back in exchange. However,
the system quickly developed so that the value of notes issued exceeded the amount of gold. That part of the note
issue in excess of the amount of gold was the fiduciary issue. In other words the amount of money issued on trust.
Today the whole note issue is fiduciary.
*Fiduciary: This term can be used both as an adjective and a noun. It is used in the context of a trust relationship.
For example, if one is said to have a fiduciary obligation, it means that one is acting in trust for other parties. A
fiduciary is one who is in a position of trust. One can also use the adjective fiducial - for example, one has fiducial
dependence on someone else.
*Rights issue: An new share issue to existing shareholders giving them the right to buy new shares at a
predetermined price.
*Vanilla issue: A security issue that has no unusual features.
*Unseasoned issue: Issue of a security for which there is no existing market.
*Mirror Account Service: Mirror Account Service is a concentration service that enables you to pool your funds
from accounts maintained by your various subsidiaries, divisions or related entities while maintaining operating
account autonomy among the participants. By consolidating funds, you are able to earn higher interest returns or
minimize the use of operating bank credit lines through inter-entity lending, while maintaining autonomy in day-to-
day banking activities
*An asset–liability mismatch occurs when the financial terms of an institution's assets and liabilities do not
correspond.
*TARC-Tax Administration Reforms Commission. The government set up a seven-member panel under the
chairmanship of Parthasarathi Shome to revisit tax laws and recommend measures for putting in place a stable
and non-adversarial tax administration.
IMPORTANT NOTES ON BANKS
As per the
existing policy of the Cash Reserve Ratio (CRR) of scheduled banks is fixed at
a certain percentage of their NDTL. What is the Full form of NDTL?—Net Demand
& Time Liabilities.
Basel
Committee on Banking Supervision is also popularly known as—Bank for
International Settlements Committee.
While
investing in mutual funds we come across a term called NAV. What is the meaning
of NAV?—Net Asset Value.
Commercial
Papers are issued by—Banks to Banks.
MAT
Provision in Income Tax stands for—Minimum Alternate Tax.
Many times
we read about SWIFT in newspapers. Full form of SWIFT—Society for world-wide
interbank financial telecommunication.
India is
following a system of fiat money, while issuing currency. What is fiat
money?—the currency backed by Government Guarantee.
Initial
repayment holiday given to a borrower for repayment of loan is called
as—Moratorium.
Almost all
banks in our country have introduced— Kisan Credit Cards—facility for granting
crops loans for farmers.
Full Form of
CBS—Core Banking Solutions.
Sub Prime
Lending is a term applied to the loans made to—those borrowers who don’t have a
good credit history.
Financial
Inclusion is the latest powerful tool adopted by Reserve Bank of India, to
fulfill the basic objective of—Connecting every Indian to the Country’s Banking
System.
Full Form of
FLCC—Financial Literacy and Credit Counselling.
The rate of
interest charged by RBI for lending money to various commercial banks by
rediscounting of the bills in India is called—Bank Rate.
Basel II
norms are to be followed by Commercial Banks for—Risk Management.
NABARD—will
set up core banking infrastructure for rural banks.
NPA in
banking terminology denotes—Non-performing Assets.
Full Form of
ALM—Asset Liability Management.
Full Form of
LIBOR—London Inter Bank Offered rate.
Full Form of
FSDC—Financial Stability and Development Council.
One single
statement that depicts the financial position of a bank and business enterprise
at a given point of time is called—Balance Sheet.
ECGC—Export
Credit Guarantee Corporation—is the organization that provides guarantee to the
exporters.
CIBIL—provides
credit history of the borrowers.
FIMMDA
stands for—Fixed Income Money Markets & Derivatives Association.
Operation by
cheques is permitted in—savings bank accounts and current accounts.
Real Time
Gross Settlement or RTGS enables—immediate transfer of money from customer of
one bank to customer of another bank.
Para banking
—utility services provided by banks.
Hot
Money—this is the fund which is dumped into a country to get the advantage of a
favourable interest rate and hence brings higher returns.
If a crossed
cheque is presented for payment—can be paid through only a banker.
A savings
bank account opened with a commercial bank with zero balance or very minimal
balance is known as—NO FRILLS Account.
Minimum
lending rate decided by RBI which shall be adopted by all Public Sector
Banks—Base Rate.
Opening the
savings bank account of a minor girl will be called as—Retail Banking—in
Banking terminology.
Banking Sector
will fall under the – Service Sector.
An account
in which trading of shares in their electronic form is done, is known as—Demat
Account.
RBI’s open
market operation transactions are carried out with a view to regulate—Liquidity
of economy.
When a bank
dishonours a cheque—it is called return of the cheque unpaid.
The funds
which are created to be used as relief funds or bailouts packages are known
as—sovereign funds.
If a cheque
is post dated—bank on whom it is drawn will not honour the cheque before the
date of the cheque.
Banking
Regulation Act, 1949 deals with—the regulation of banking companies; the
control over the management of banking companies; suspension and winding up of
banking companies.
Bank
Marketing—deals with providing services to satisfy customers’ financial needs
and wants.
Disadvantages
to Credit Card holders include: over spending ending in Debt Trap; Frauds due
to loss of theft of cards; Forged Signatures.
The
instrument used in RBI under general credit control is—Exchange Control.
Open Market
Operation (OMO)—is a tool for general credit control used by RBI which not only
influences the flow of liquidity for the purpose of expansion or contraction of
credit but also helps RBI to stabilize money supply and prices of Government
Securities.
Mutual Funds
in India are regulated by: SEBI.
Basel II
accord differs from the earlier accord by the introduction of an explicit
treatment for – Operational Risk—in the definition of risk weighted assets.
By Financial
Inclusion, we mean provision of – Affordable Financial Services—by the formal
financial system to those who are hitherto excluded.
RBI was
established in 1935 pursuant to the recommendations of: Hilton Young
Commission.
The Banking
Companies Act, 1949 was enacted to consolidate and amend the law relating to
banking companies with effect from 1st March 1966; the name of the
Act has been changed as—The Banking Regulation Act.
A scheduled
bank is one, the name of which is included in the 2nd Schedule of
RBI Act, 1934. Such a bank should have a paid up Capital and Reserves of an aggregate
value of not less than: Rs. 5 Lakhs.
The working
of RRBs was reviewed in 1986 and their continuance and greater involvement of
the sponsor bank in their management was recommended by: Kelkar Committee.
Main objective
of Land Development Bank is: providing investment credit for agriculture.
Regulatory
authority for the activities of Merchant Banking in India: Securities and
Exchange Board of Delhi.
Industrial
Development Bank of India is an apex body in the field of industrial finance in
the country.
As per the
provision of Section 29 of the Banking Regulation Act, 1949 every banking
company is required to prepare its final accounts; viz. Profit & Loss
Account and Balance Sheet in the firms prescribed in: the 3rd Schedule
to the Banking Regulation Act, 1949.
World over
most of the supervisory authorities have adopted the following as the basis of
assessment of capital adequacy: Risk Assets Ratio System.
Basic
Committee has defined capital in two tiers (Tier-I and Tier-II). Tier-I is
known as: Core Capital.
Treasury
Bill means: an instrument is used by the Central Government for short term
borrowing.
Commercial
Banking System in India comprises of: Scheduled and Non-Scheduled Banks.
Banking
Regulation Act, 1949, applies to the following categories of banks:
Nationalised Banks; Non-Nationalised Banks; Co-operative Banks.
Full Form of ECB—External Commercial
Borrowing.
Forward
Markets Commission is responsible for regulation of Commodities Futures Trading
in India.
SEBI is a
Non-statutory body.
Scheme is
related exclusively to Financial Inclusion: Swabhiman.
Full Form of
KYC: Know Your Customer.
Insurance
Cover for bank deposits in our country is provided by: DICGC.
Full Form of
CDR—Corporate Debt Restructuring.
Banking Ombudsman—resolves
complaints of customers.
The rate
below which banks cannot generally lend is called as: Base Rate.
1st
state in the country to launch RBI’s e-payment system for commercial tax
payers-Karnataka.
Full Form of
IFRS—International Financial Reporting Standards.
NRE Deposit
is—Non-Resident External deposit.
Banks in
India are regulated under—Banking Regulation Act, 1949.
Banking
Sector falls under- Service Sector.
Negotiable
Instruments are: Cheque, Fixed Deposit receipt, Promissory Note, Bill of
Exchange.
Banking
Ombudsman Scheme is applicable is applicable to the business of—all scheduled
commercial banks excluding RRBs.
A bank is
called as Scheduled Bank when—it is included in the 2nd Schedule of
the RBI Act.
Upper limit
prescribed for RTGS transaction is—Rs. 2 lacs.
Full form of
FRBM—Financial Responsibility and Budget Management.
Money Market
Instruments are: treasury Bills, Commercial Papers, Certificate of Deposit and
Share of Bonds.
Finance
Ministry has asked the Reserve Bank of India to allow common ATMs that will be
owned and managed by non-banking entities hoping to cut transaction costs for
banks. Such ATMs are known as—White Label ATMs.
Insurance Regulatory and Development Authority(IRDA)
Insurance Regulatory and Development Authority (IRDA) is an autonomous apex statutory body which regulates
and develops the insurance industry in India. It was constituted by a Parliament of India act called Insurance
Regulatory and Development Authority Act, 1999 and duly passed by the Government of India.
The agency operates its headquarters at Hyderabad, Andhra Pradesh where it shifted from Delhi in 2001. The
Insurance regulatory and Development Authority (IRDA), batted for a hike in the foreign direct investment (FDI)
limit to 49 per cent in the sector from the present 26 per cent.
The IRDA Act, 1999 was passed as per the major recommendation of the Malhotra Committee report (1994) which
recommended establishment of an independent regulatory authority for insurance sector in India. Later, It was
incorporated as a statutory body in April, 2000. The IRDA Act, 1999 also allows private players to enter the
insurance sector in India besides a maximum foreign equity of 26 per cent in a private insurance company having
operations in India. It serves as an Authority to protect the interests of holders of insurance policies, to regulate,
promote and ensure orderly growth of the insurance industry and for matters connected therewith. IRDA role is to
protect rights of policy holders & they provides registration certification to life insurance companies & responsible
for renewal, modification, cancellation & suspension of this registered certificate.
Former LIC chief T S Vijayan today took over as the chairman of the Insurance Regulatory and Development
Authority (IRDA). Mr Vijayan succeeds J Hari Narayan, who completed his five-year term yesterday. IRDA
chairperson's tenure is for five years.
and develops the insurance industry in India. It was constituted by a Parliament of India act called Insurance
Regulatory and Development Authority Act, 1999 and duly passed by the Government of India.
The agency operates its headquarters at Hyderabad, Andhra Pradesh where it shifted from Delhi in 2001. The
Insurance regulatory and Development Authority (IRDA), batted for a hike in the foreign direct investment (FDI)
limit to 49 per cent in the sector from the present 26 per cent.
The IRDA Act, 1999 was passed as per the major recommendation of the Malhotra Committee report (1994) which
recommended establishment of an independent regulatory authority for insurance sector in India. Later, It was
incorporated as a statutory body in April, 2000. The IRDA Act, 1999 also allows private players to enter the
insurance sector in India besides a maximum foreign equity of 26 per cent in a private insurance company having
operations in India. It serves as an Authority to protect the interests of holders of insurance policies, to regulate,
promote and ensure orderly growth of the insurance industry and for matters connected therewith. IRDA role is to
protect rights of policy holders & they provides registration certification to life insurance companies & responsible
for renewal, modification, cancellation & suspension of this registered certificate.
Former LIC chief T S Vijayan today took over as the chairman of the Insurance Regulatory and Development
Authority (IRDA). Mr Vijayan succeeds J Hari Narayan, who completed his five-year term yesterday. IRDA
chairperson's tenure is for five years.
Friday, 30 December 2016
Subscribe to:
Posts (Atom)