Banking and Finance terms in India
What is a Repo Rate?
A: Repo rate is the rate at which our banks borrow rupees from RBI.
Whenever the banks have any shortage of funds they can borrow it from
RBI. A reduction in the repo rate will help banks to get money at a
cheaper rate. When the repo rate increases, borrowing from RBI becomes
more expensive.
What is Reverse Repo Rate?
A: This is exact opposite of Repo rate. Reverse Repo rate is the rate
at which Reserve Bank of India (RBI) borrows money from banks. RBI uses
this tool when it feels there is too much money floating in the banking
system. Banks are always happy to lend money to RBI since their money
is in safe hands with a good interest. An increase in Reverse repo rate
can cause the banks to transfer more funds to RBI due to this attractive
interest rates.
What is corporate governance?
The way in which a company is governed and how it deals with the
various interests of its customers, shareholders, employees and society
at large. Corporate governance is the set of processes, customs,
policies, laws, and institutions affecting the way a corporation (or
company) is directed, administered or controlled.Is defined as the
general set of customs, regulations, habits, and laws that determine to
what end a firm should be run.
Functions of RBI?
The Reserve Bank of India is the central bank of India,
was established on April 1, 1935 in accordance with the provisions of
the Reserve Bank of India Act, 1934. The Reserve Bank of India was set
up on the recommendations of the Hilton Young Commission. The commission
submitted its report in the year 1926, though the bank was not set up
for nine years.To regulate the issue of Bank Notes and keeping of
reserves with a view to securing monetary stability in India and
generally to operate the currency and credit system
of the country to its advantage.” Banker to the Government: performs
merchant banking function for the central and the state governments;
also acts as their banker.Banker to banks: maintains banking accounts of all scheduled banks.
What is monetary policy?
A Monetary policy is the process by which the government, central
bank, of a country controls (i) the supply of money, (ii) availability
of money, and (iii) cost of money or rate of interest, in order to
attain a set of objectives oriented towards the growth and stability of
the economy.
What is Fiscal Policy?
Fiscal policy is the use of government spending and revenue collection to influence the economy. These policies affect tax rates,
interest rates and government spending, in an effort to control the
economy. Fiscal policy is an additional method to determine public
revenue and public expenditure.
What is Core Banking Solutions?
Core banking is a general term used to describe the services provided by a group of networked bank branches.
Bank customers may access their funds and other simple transactions
from any of the member branch offices. It will cut down time, working
simultaneously on different issues and increasing efficiency. The
platform where communication technology and information technology are
merged to suit core needs of banking is known as Core Banking Solutions.
What is bank and its features and types?
A bank is a financial organization where people deposit their money
to keep it safe.Banks play an important role in the financial system and
the economy. As a key component of the financial system, banks allocate
funds from savers to borrowers in an efficient manner.
Regional Rural Banks were established with an objective to ensure
sufficient institutional credit for agriculture and other rural
sectors. The RRBs mobilize financial resources from rural / semi-urban
areas and grant loans and advances mostly to small and marginal farmers,
agricultural labourers and rural artisans. The area of operation of
RRBs is limited to the area as notified by GoI covering
one or more districts in the State.
ii. Banking services for individual customers is known as retail banking.
iii. A bank that deals mostly in but international finance, long-term loans for companies and underwriting. Merchant banks do not provide regular banking services to the general public
iv. Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by their retail or virtual bank.
v. Mobile Banking is a service that allows you to do banking
transactions on your mobile phone without making a call , using the SMS
facility. Is a term used for performing balance checks, account
transactions, payments etc. via a mobile device such as a mobile phone.
vi. Traditional banking is the normal bank accounts we have. Like,
put your money in the bank and they act as a security and you will get
only the normal interests (decided by RBI in our case, FED bank in US).
vii. Investment banking is entirely different. Here, people who are
having so much money (money in excess which will yield only less
interest if in Banks) will invest their money and get higher returns.
For example, If i have more money instead of taking the pain of
investing in share market, buying properties etc. I will give to
investment banks and they will do the money management and give me higher returns when compared to traditional banks.
What is E-Governance?
E-Governance is the public sector’s use of information and
communication technologies with the aim of improving information and
service delivery, encouraging citizen participation in the
decision-making process and making government more
accountable,transparent and effective.
What is Right to information Act?
The Right to Information act is a law enacted by the Parliament of
India giving citizens of India access to records of the Central
Government and State overnments.The Act applies to all States and Union
Territories of India, except the State of Jammu and Kashmir – which is
covered under a State-level law. This law was passed by Parliament on 15
June 2005 and came fully into force on 13 October 2005.
Credit Rating Agencies in India?
The credit rating agencies in India mainly include ICRA and CRISIL.
ICRA wasformerly referred to the Investment Information and Credit
Rating Agency of India Limited. Their main function is to grade the
different sector and companies in terms of performance and offer
solutions for up gradation. The credit rating agencies in India mainly
include ICRA and CRISIL(Credit Rating Information Services of India
Limited)
What is Cheque?
Cheque is a negotiable instrument instructing a Bank to pay a
specific amount from a specified account held in the maker/depositor’s
name with that Bank.A bill of exchange drawn on a specified banker and
payable on demand.“Written order directing a bank to pay money”.
What is demand Draft?
A demand draft is an instrument used for effecting transfer of money. It is a Negotiable Instrument. Cheque and Demand-Draft both are used for Transfer of money.
You can 100% trust a DD. It is a banker’s check. A check may be
dishonored for lack of funds a DD can not. Cheque is written by an individual and Demand draft is issued by a bank. People believe banks more than individuals.
What is a NBFC?
A non-banking financial company (NBFC) is a company registered under the
Companies Act, 1956 and is engaged in the business of loans and
advances, acquisition of shares/stock/bonds/debentures/securities issued
by government, but does not include any institution whose principal
business is that of agriculture activity, industrial activity,
sale/purchase/construction of immovable property.
NBFCs are doing functions akin to that of banks; however there are a few differences:
(i)A NBFC cannot accept demand deposits (demand deposits are funds
deposited at a depository institution that are payable on demand —
immediately or within a very short period — like your current or savings
accounts.)
(ii) it is not a part of the payment and settlement system and as such cannot issue cheques to its customers; and
(iii) Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case of banks.
Difference between banking & Finance?
Finance is generally related to all types of financial, this could be
accounting, insurances and policies. Whereas banking is everything that
happens in a bank only.The term Banking and Finance are two very
different terms but are often associated together. These two terms are
often used to denote services that a bank and other financial
institutions provide to its customers.
What is NASSCOM ?
The National Association of Software and Services Companies
(NASSCOM), the Indian chamber of commerce is a consortium that serves as
an interface to the Indian software industry and Indian BPO industry.
Maintaining close interaction with the Government of India in
formulating National IT policies with specific focus on IT software and
services maintaining a state of the art information database of IT
software and services related activities for use of both the software
developers as well as interested companies overseas. Mr. Som Mittal –
President. Chairman-Pramod Bhasin
What is ASSOCHAM?
The Associated Chambers of Commerce and Industry of India (ASSOCHAM),
India’s premier apex chamber covers a membership of over 2 lakh
companies and professionals across the country. It was established in
1920 by promoter chambers, representing all regions of India. As an apex
industry body, ASSOCHAM represents the interests of industry and trade,
interfaces with Government on policy issues and interacts with
counterpart international organizations to promote bilateral economic
issues. President-Swati Piramal
What is NABARD?
NABARD was established by an act of Parliament on 12 July 1982 to
implement the National Bank for Agriculture and Rural Development Act
1981. It replaced the Agricultural Credit Department (ACD) and Rural
Planning and Credit Cell (RPCC) of Reserve Bank of India, and
Agricultural Refinance and Development Corporation (ARDC). It is one of
the premiere agency to provide credit in rural areas. NABARD is set up
as an apex Development Bank with a mandate for facilitating credit flow
for promotion and development of agriculture, small-scale industries,
cottage and village industries, handicrafts and other rural crafts.
What is SIDBI?
The Small Industries Development Bank of India is a state-run bank
aimed to aid the growth and development of micro, small and medium scale
industries in India. Set up in 1990 through an act of parliament, it
was incorporated initially as a wholly owned subsidiary of Industrial
Development Bank of India.
What is SENSEX and NIFTY?
SENSEX is the short term for the words “Sensitive Index” and is
associated with the Bombay (Mumbai) Stock Exchange (BSE). The SENSEX was
first formed on 1-1-1986 and used the market capitalization of the 30
most traded stocks of BSE. Where as NSE has 50 most traded stocks of
NSE.SENSEX IS THE INDEX OF BSE. AND NIFTY IS THE INDEX OF NSE.BOTH WILL
SHOW DAILY TRADING MARKS. Sensex and Nifty both are an “index”. An index
is basically an indicator it indicates whether most of the stocks have
gone up or most of the stocks have gone down.
What is SEBI?
SEBI is the regulator for the Securities Market in India. Originally set up by the
Government of India in 1988, it acquired statutory form in 1992 with
SEBI Act 1992 being passed by the Indian Parliament. Chaired by C B
Bhave.
What is Mutual funds?
Mutual funds are investment companies that pool money from investors
at large and offer to sell and buy back its shares on a continuous basis
and use the capital thus raised to invest in securities of different
companies. The mutual fund will have a fund manager that trades the
pooled money on a regular basis. The net proceeds or losses are then
typically distributed to the investors annually.
What is Asset Management Companies?
A company that invests its clients’ pooled fund into securities that
match its declared financial objectives. Asset management companies
provide investors with more diversification and investing options than
they would have by themselves. Mutual funds, hedge funds and pension
plans are all run by asset management companies. These companies earn
income by charging service fees to their clients.
What are non-performing assets?
Non-performing assets, also called non-performing loans, are
loans,made by a bank or finance company, on which repayments or interest
payments are not being made on time. A debt obligation where the
borrower has not paid any previously agreed upon interest and principal
repayments to the designated lender for an extended period of time. The
nonperforming asset is therefore not yielding any income to the lender
in the form of principal and interest payments.
What is Recession?
A true economic recession can only be confirmed if GDP (Gross
Domestic Product)growth is negative for a period of two or more
consecutive quarters.
What is foreign exchange reservers?
Foreign exchange reserves (also called Forex reserves) in a strict
sense are only the foreign currency deposits and bonds held by central
banks and monetary authorities.However, the term in popular usage
commonly includes foreign exchange and gold,SDRs and IMF reserve
positions.
What is CRR Rate?
A: Cash reserve Ratio (CRR) is the amount of funds that the banks
have to keep with RBI. If RBI decides to increase the percent of this,
the available amount with the banks comes down. RBI is using this method
(increase of CRR rate), to drain out the excessive money from the
banks.3
What is SLR Rate?
A: SLR (Statutory Liquidity Ratio) is the amount a commercial bank
needs to maintain in the form of cash, or gold or govt. approved
securities (Bonds) before providing credit to its customers.
SLR rate is determined and maintained by the RBI (Reserve Bank of
India) in order to control the expansion of bank credit. SLR is
determined as the percentage of total demand and percentage of time
liabilities. Time Liabilities are the liabilities a commercial bank
liable to pay to the customers on their anytime demand. SLR is used to
control inflation and propel growth. Through SLR rate tuning the money
supply in the system can be controlled efficiently.
What is Bank Rate?
A: Bank rate, also referred to as the discount rate, is the rate of
interest which a central bank charges on the loans and advances that it
extends to commercial banks and other financial intermediaries. Changes
in the bank rate are often used by central banks to control the money
supply.
What is Inflation?
A: Inflation is as an increase in the price of bunch of Goods and
services that projects the Indian economy. An increase in inflation
figures occurs when there is an increase in the average level of prices
in Goods and services. Inflation happens when there are fewer Goods and
more buyers; this will result in increase in the price of Goods, since
there is more demand and less supply of the goods.
What is Deflation?
A: Deflation is the continuous decrease in prices of goods and
services. Deflation occurs when the inflation rate becomes negative
(below zero) and stays there for a longer period.
What is PLR?
A: The Prime Interest Rate is the interest rate charged by banks to
their most creditworthy customers (usually the most prominent and stable
business customers). The rate is almost always the same amongst major
banks. Adjustments to the prime rate are made by banks at the same time;
although, the prime rate does not adjust on any regular basis. The
Prime Rate is usually adjusted at the same time and in correlation to
the adjustments of the Fed Funds Rate. The rates reported below are
based upon the prime rates on the first day of each respective month.
Some banks use the name “Reference Rate” or “Base Lending Rate” to refer
to their Prime Lending Rate.
What is Deposit Rate?
A: Interest Rates paid by a depository institution on the cash on deposit.
What is FII?
A: FII (Foreign Institutional Investor) used to denote an investor,
mostly in the form of an institution. An institution established outside
India, which proposes to invest in Indian market, in other words buying
Indian stocks. FII’s generally buy in large volumes which has an impact
on the stock markets. Institutional Investors includes pension funds,
mutual funds, Insurance Companies, Banks, etc.
What is FDI?
A: FDI (Foreign Direct Investment) occurs with the purchase of the
“physical assets or a significant amount of ownership (stock) of a
company in another country in order to gain a measure of management
control” (Or) A foreign company having a stake in a Indian Company.
What is IPO?
A: IPO is Initial Public Offering. This is the first offering of
shares to the general public from a company wishes to list on the stock
exchanges.
13. What is Disinvestment?
A: The Selling of the government stake in public sector undertakings.
What is Fiscal Deficit?
A: It is the difference between the government’s total receipts
(excluding borrowings) and total expenditure. Fiscal deficit in 2009-10
is proposed at 6.8% of GDP.
What is Revenue deficit?
A: It defines that, where the net amount received (by taxes &
other forms) fails to meet the predicted net amount to be received by
the government. Revenue deficit in 2009-10 is proposed at 4.8% of GDP.
What is GDP?
A: The Gross Domestic Product or GDP is a measure of all of the
services and goods produced in a country over a specific period;
classically a year. GDP during 2008-09 is 6.7%.
What is GNP?
A: Gross National Product is measured as GDP plus income of residents
from investments made abroad minus income earned by foreigners in
domestic market.
What is National Income?
A: National Income is the money value of all goods and services produced in a country during the year.
What is Per Capita Income?
A: The national income of a country, or region, divided by its
population. Per capita income is often used to measure a country’s
standard of living.Per capita income during 2008-09 estimated by CSO:
Rs.25, 494.
What is Vote on Account?
A: A vote-on account is basically a statement ,where the government
presents an estimate of a sum required to meet the expenditure that it
incurs during the first three to four months of an election financial
year until a new government is in place, to keep the machinery running.
Difference between Vote on Account and Interim Budget?
A: Vote-on-account deals only with the expenditure side of the
government’s budget, an interim Budget is a complete set of accounts,
including both expenditure and receipts.
What is SDR?
A: The SDR (Special Drawing Rights) is an artificial currency created
by the IMF in 1969. SDRs are allocated to member countries and can be
fully converted into international currencies so they serve as a
supplement to the official foreign reserves of member countries. Its
value is based on a basket of key international currencies (U.S. dollar,
euro, yen and pound sterling).
What is SEZ?
A: SEZ means Special Economic Zone is the one of the part of
government’s policies in India. A special Economic zone is a
geographical region that economic laws which are more liberal than the
usual economic laws in the country. The basic motto behind this is to
increase foreign investment, development of infrastructure, job
opportunities and increase the income level of the people.
What is Open Market operations(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
by RBI. Open market operations are the principal tools of monetary
policy.
What is Micro Credit?
It is a term used to extend small loans to very poor people for
self-employment projects that generate income, allowing them to care for
themselves and their families.
What is Liquidity Adjustment Facility(LAF)?
A tool used in monetary policy that allows banks to borrow money
through repurchase agreements. This arrangement allows banks to respond
to liquidity pressures and is used by governments to assure basic
stability in the financial markets.
What is RTGS System?
The acronym ‘RTGS’ stands for Real Time Gross Settlement. RTGS system
is a funds transfer mechanism where transfer of money takes place from
one bank to another on a ‘real time’ and on ‘gross’ basis. This is the
fastest possible money transfer system through the banking channel.
Settlement in ‘real time’ means payment transaction is not subjected to
any waiting period. The transactions are settled as soon as they are
processed. ‘Gross settlement’ means the transaction is settled on one to
one basis without bunching with any other transaction.
What is Bancassurance?
It is the term used to describe the partnership or relationship
between a bank and an insurance company whereby the insurance company
uses the bank sales channel in order to sell insurance products.
What is Wholesale Price Index(WPI)?
The Wholesale Price Index (WPI) is the index used to measure the
changes in the average price level of goods traded in wholesale market. A
total of 435 commodity prices make up the index. It is available on a
weekly basis. It is generally taken as an indicator of the inflation
rate in the Indian economy. The Indian Wholesale Price Index (WPI) was
first published in 1902, and was used by policy makers until it was
replaced by the Producer Price Index (PPI) in 1978.
What is Consumer price Index(CPI)?
It is a measure estimating the average price of consumer goods and services purchased by households.
What is Venture Capital?
Venture capital is money provided by an outside investor to finance a
new, growing, or troubled business. The venture capitalist provides the
funding knowing that there’s a significant risk associated with the
company’s future profits and cash flow. Capital is invested in exchange
for an equity stake in the business rather than given as a loan, and the
investor hopes the investment will yield a better-than-average return.
What is a Treasury Bills?
Treasury Bills (T-Bills) are short term, Rupee denominated
obligations issued by the Reserve Bank of India (RBI) on behalf of the
Government of India. They are thus useful in managing short-term
liquidity. At present, the Government of India issues three types of
treasury bills through auctions, namely, 91-day, 182-day and 364-day.
There are no treasury bills issued by State Governments.
What is Banking Ombudsmen 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 is a senior official appointed by the Reserve
Bank of India to redress customer complaints against deficiency in
certain banking services.
The Banking Ombudsman Scheme was first introduced in India in 1995,
and was revised in 2002. The current scheme became operative from the 1
January 2006, and replaced and superseded the banking Ombudsman Scheme
2002.
What is Subsidy?
A subsidy is a form of financial assistance paid to a business or
economic sector. Most subsidies are made by the government to producers
or distributors in an industry to prevent the decline of that industry
or an increase in the prices of its products or to encourage it to hire
more labor.
What is a Debenture? How many types of debentures are there? What are they?
A debenture is basically an unsecured loan to a corporation. A type
of debt instrument that is not secured by physical asset. Debentures are
backed only by the general creditworthiness and reputation of the
issuer.
i)Convertible Debentures: Any type of debenture that can be converted
into some other security or it can be converted into stock..
ii)Non-Convertibility Debentures(NCB): Non Convertible Debentures are
those that cannot be converted into equity shares of the issuing
company, as opposed to Convertible debentures. Non-convertible
debentures normally earn a higher interest rate than convertible
debentures do.
What is a hedge fund?
‘Hedge’ means to reduce financial risk.
A hedge fund is an investment fund open to a limited range of
investors and requires a very large initial minimum investment. It is
important to note that hedging is actually the practice of attempting to
reduce risk, but the goal of most hedge funds is to maximize return on
investment.
What is FCCB?
A Foreign Currency Convertible Bond (FCCB) is a type of convertible
bond issued in a currency different than the issuer’s domestic currency.
In other words, the money being raised by the issuing company is in
the form of a foreign currency. A company may issue an FCCB if it
intends to make a large investment in a country using that foreign
currency.
What is Capital Account Convertibility(CAC)?
It is the freedom to convert local financial assets into foreign
financial assets and vice versa at market determined rates of
exchange. This means that capital account convertibility allows anyone
to freely move from local currency into foreign currency and back.
The Reserve Bank of India has appointed a committee to set out the framework for fuller Capital Account Convertibility.
Capital account convertibility is considered to be one of the major
features of a developed economy. It helps attract foreign investment.
capital account convertibility makes it easier for domestic companies to
tap foreign markets.
What is Current Account Convertibility?
It defines at one can import and export goods or receive or make
payments for services rendered. However, investments and borrowings are
restricted.
What is Arbitrage?
The opportunity to buy an asset at a low price then immediately selling it on a different market for a higher price.
What is Capitalism?
Capitalism as an economy is based on a democratic political ideology
and produces a free market economy, where businesses are privately owned
and operated for profit; in capitalism, all of the capital investments
and decisions about production, distribution, and the prices of goods,
services, and labor, are determined in the free market and affected by
the forces of supply and demand.
What is Socialism?
Socialism as an economy is based on a collectivist type of political
ideology and involves the running of businesses to benefit the common
good of a vast majority of people rather than of a small upper class
segment of society.
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