Some Important Questions

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.

What is BPS (Basis Points)?

BPS (Basis point) : - BPS is an acronym for basic points is used to indicate changes in rate of interest and other financial instrument. 1 BASIC POINT IS EQUAL TO 0.01% So when we say that repo rate has been increased by 25 bps, it means that the rate has been increased by 0.25% .

NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

 NBFC cannot accept demand deposits;

 NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself;

 deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.

What is NEFT?

National Electronic Funds Transfer (NEFT) is a nation-wide payment system facilitating one-to-one funds transfer. Under this Scheme, individuals, firms and corporates can electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country participating in the Scheme.

Is there any limit on the amount that could be transferred using NEFT?

No. There is no limit – either minimum or maximum – on the amount of funds that could be transferred using NEFT. However, maximum amount per transaction is limited to Rs.50,000/- for cash-based remittances and remittances to Nepal.

What is IFSC?

IFSC or Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEFT system. This is an 11 digit code with the first 4 alpha characters representing the bank, and the last 6 characters representing the branch. The 5th character is 0 (zero). IFSC is used by the NEFT system to identify the originating / destination banks / branches and also to route the messages appropriately to the concerned banks / branches.

What is RTGS System?

The acronym 'RTGS' stands for Real Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting). 'Real Time' means the processing of instructions at the time they are received rather than at some later time; 'Gross Settlement' means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable.

How RTGS is different from National Electronics Funds Transfer System (NEFT)?

NEFT is an electronic fund transfer system that operates on a Deferred Net Settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place with all transactions received till the particular cut-off time. These transactions are netted (payable and receivables) in NEFT whereas in RTGS the transactions are settled individually. For example, currently, NEFT operates in hourly batches. [There are twelve settlements from 8 am to 7 pm on week days and six settlements from 8 am to 1 pm on Saturdays.] Any transaction initiated after a designated settlement time would have to wait till the next designated settlement time Contrary to this, in the RTGS transactions are processed continuously throughout the RTGS business hours.

Is there any minimum / maximum amount stipulation for RTGS transactions?

The RTGS system is primarily meant for large value transactions. The minimum amount to be remitted through RTGS is `2 lakh. There is no upper ceiling for RTGS transactions.

What is the time limit for resolution of the complaint pertaining to failed ATM transaction?

 The time limit, for resolution of customer complaints by the issuing banks, is within 7 working days from the date of receipt of customer complaint. Hence the bank is supposed to re-credit the customer’s account within 7 working days. For failure to re-credit the customer’s account within 7 working days of receipt of the complaint from the customer, the bank is liable to pay Rs 100 per day as compensation to the customer.

What is Speed Clearing?

Speed clearing refers to collection of outstation cheques (a cheque drawn on non-local bank branch) through the local clearing. It facilitates collection of cheques drawn on outstation core-banking-enabled branches of banks, if they have a net-worked branch locally.

What is Electronic Clearing Service (ECS)?

Ans : ECS is an electronic mode of payment / receipt for transactions that are repetitive and periodic in nature. ECS is used by institutions for making bulk payment of amounts towards distribution of dividend, interest, salary, pension, etc., or for bulk collection of amounts towards telephone / electricity / water dues, cess / tax collections, loan installment repayments, periodic investments in mutual funds, insurance premium etc. Essentially, ECS facilitates bulk transfer of monies from one bank account to many bank accounts or vice versa.

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 cannot. Cheque is written by an individual and Demand draft is issued by a bank. People believe banks more than individuals.

What is the difference between Cheque and Demand Draft?

Cheque: Cheuqe is a negotiable instrument instructing a bank to pay a specific amount from a specific account held in the maker/depositor name with that Bank. Demand Draft: A demand draft is an instrument used for effecting transfer of money. It is a negotiable instrument.

What is Cheque Truncation?

Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point by the presenting bank en-route to the drawee bank branch. In its place an electronic image of the cheque is transmitted to the drawee branch through the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. Cheque truncation thus obviates the need to move the physical instruments across branches, other than in exceptional circumstances for clearing purposes. This effectively eliminates the associated cost of movement of the physical cheques, reduces the time required for their collection and brings elegance to the entire activity of cheque processing.

Is there any minimum and maximum cash withdrawal limit per day?

Yes. Broadly the withdrawal limits are set by the card issuing banks.  This limit is displayed at the respective ATM locations.

What are the services/facilities available at ATMs?

In addition to cash dispensing ATMs may have many services/facilities enabled by the bank owning the ATM such as:

• Account information
• Cash Deposit
• Regular bills payment
• Purchase of Re-load Vouchers for Mobiles
• Mini/Short Statement
• Loan account enquiry etc.

What is KYC?

The Reserve Bank of India (RBI) has advised banks to follow KYC guidelines, wherein certain personal information of the account-opening prospect or the customer is obtained. The objective of doing so is to enable the Bank to have positive identification of its customers. This is also in the interest of customers to safeguard their hard earned money. The KYC guidelines of RBI mandate banks to collect three proofs from their customers. They are-

 Photograph

 Proof of identity

 Proof of address

What is BSBDA?

Under the guidelines issued on August 10, 2012 by RBI: Any individual, including poor or those from weaker section of the society, can open zero balance account in any bank. BSBDA guidelines are applicable to "all scheduled commercial banks in India, including foreign banks having branches in India".

All the accounts opened earlier as 'no-frills' account should be renamed as BSBDA. Banks are required to convert the existing 'no-frills' accounts‟ into 'Basic Savings Bank Deposit Accounts'. The 'Basic Savings Bank Deposit Account' should be considered as a normal banking service available to all customers, through branches. The aim of introducing 'Basic Savings Bank Deposit Account' is very much part of the efforts of RBI for furthering Financial Inclusion objectives.

What is Base Rate?

It is the minimum rate of interest that a bank is allowed to charge from its customers. Unless mandated by the government, RBI rule stipulates that no bank can offer loans at a rate lower than BR to any of its customers. It is effective from, July 1, 2010. However, all existing loans, including home loans and car loans, will continue to be at the current rate. Only the new loans taken on or after July 1 and old loans being renewed after this date will be linked to BR.

What is SWIFT?

SWIFT: - Society for worldwide Interbank financial tele- communication.

 India was 74th Nation to join SWIFT Network.

 SWIFT Code is a standard format of bank Identifier code. This code is used particularly in International transfer of money between banks.

 A majority of FOREX related message are sent to correspondent banks abroad through SWIFT.

 SWIFT Code consist 8 or 11 character when code is 8 digit, It is referred to primary office 4 – bank code

2 – Country code 2 – location code 3 – branch code (optional).

What is NOSTRO and VOSTRO account?

NOSTRO Account: A NOSTRO account is maintained by an Indian bank in the foreign countries.

VOSTRO Account: a vostro a/c is maintained by a foreign bank in India with their corresponding bank.

What is RuPay Card?

RuPay is the Indian domestic card payment network set up by National Payments Corporation of India (NPCI) at the behest of banks in India. The RuPay project had been conceived by Indian Banks Association (IBA) and had the approval of Reserve Bank of India (RBI).

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 Bancassurance ?

Bancassurance stands for distribution of financial products particularly the insurance policies (both the life and non-life), also called referral business, by banks as corporate agents, through their branches located in different parts of the country.

What is Money Laundering?

Money laundering is the processes of concealing the source of obtain money. Money or funds obtained through illegal activities are presented as legitimate.

What is the difference between Nationalized bank and Private Bank?

A Nationalized bank is one that is owned by the government of the country. Since the people decide who the government is, they are also referred to as public sector banks. The government is responsible for the money deposited into the accounts of these banks. Whereas a private sector bank is one that is owned by an independent individual or a company that is controlled by a few individuals. In short, the bank is owned by someone else and they run the bank. The person owning/running the bank is responsible for the money deposited into the accounts of these banks.

What are non-perfoming assets?

A classification used by financial institutions that refer to loans that are in jeopardy of default. Once the borrower has failed to make interest or principal payments for 90 days the loan is considered to be a non-performing asset. Also known as "non-performing loan".

What is SEZ?

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 the 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. 29 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 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 TREASURY BILLS (TB)?

Treasury bills (T-Bills) are the short term liabilities of the central government .theoretically government of India issued three types of T-bills through auctions, namely 91 days, 182days,and 364 days. There are no treasury bills issued by state government. Minimum amount of T –Bills is Rs. 2500and in multiple of RS. 2500.T-bills are issued at a discount and are redeemed at par from 1st April 1997 treasury bills have been replaced by WAYS AND MEANS ADVANCES .

What is COMMERCIAL PAPER (CP)?

Commercial paper was introduced by RBI in 1991. It is a short term money market instrument issued in the form of promissory note .Corporate; primary dealers and the all India financial institution are eligible to issue CP. The maturity period of each commercial paper is 7days to 1year from the date of issue .CP can be issued denominations of Rs. 5lakh or multiples thereof. Only a schedule bank can act as an issuing and paying agent (IPA) for issuance of CP.

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 dematerialisation ?

Dematerialisation is a process by which the paper certificates of an investor are taken back by the company/registrar and actually destroyed and an equivalent number of securities are credited in electronic holdings of that investor.

What is LAF ?

Liquidity Adjustment Facility (LAF) was introduced by RBI during June, 2000 in phases, to ensure smooth transition and keeping pace with technological upgradation.

What is Reverse Repo Rate?

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 a Repo Rate?

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 CRR Rate?

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.

What is Bank Rate?

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 PLR?

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 Bitcoin?

Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence.

What is SLR Rate?

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 Deposit Rate?

Interest Rates paid by a depository institution on the cash on deposit.

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 Inflation?

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?

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 FII?

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?

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?

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.

What is GDP?

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.

What is Revenue deficit?

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.

What is Disinvestment?

The Selling of the government stake in public sector undertakings.

What is Fiscal Deficit?

It is the difference between the government‟s total receipts (excluding borrowings) and total expenditure.

What is National Income?

National Income is the money value of all goods and services produced in a Country during the year.

What are 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. 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 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 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.

SOME FINANCIAL TERMS

1) Type of assets

The assets portfolio of the banks is required to be classified as

(1) standard assets(2) sub-standard assets(3) doubtful assets and(4) loss assets.Standard asset is one that does not disclose any problems and which does not carry more than normal risk attached to the business .An asset which has been classified as NPA for a period not exceeding 12 months is considered as sub-standard asset.Doubtful asset is one which has remained NPA for a period exceeding 12 months.An asset which is considered uncollectible and loss has been identified by the bank or internal or external auditors or the RBI inspection and the loss has not been written off is regarded as loss asset. 

2) Core Banking Solutions (CBS)

Core Banking Solutions is a buzz word in Indian banking at present, where branches of the bank are connected to a central host and the customers of connected branches can do banking at any breach with core banking facility.

3) Prime Lending Rate

The minimum short-term interest rate charged by commercial banks to their most creditworthy clients. It is a reference interest rate used by banks for its lending purposes.

4) Parties of a Cheque:

There are three parties to the cheque

1-Drawer or Maker

2-The bank (Drawee) - on whom the cheque is drawn (i.e. the bank with whom the account is maintained by the drawer)

3- Payee – Payee is the person whose name is mentioned on the cheque to whom or to whose order the money is directed to be paid.

5) Special Drawing Rights (SDRs)

It is a reserve asset (known as ‘Paper Gold’) created within the framework of the International Monetary Fund in an attempt to increase international liquidity, and now forming a part of countries official forex reserves along with gold, reserve positions in the IMF and convertible foreign currencies.

6) Negotiated Dealing System

The Negotiated Dealing System (NDS) for electronic dealing and reporting of transactions in government securities was introduced in February 2002. It facilitates the members to submit electronically, bids or applications for primary issuance of Government Securities when auctions are conducted. NDS also provides an interface to the Securities Settlement System (SSS) of the Public Debt Office, RBI, Mumbai thereby facilitating settlement of transactions in Government Securities (both outright and repos) conducted in the secondary market.

7) NDS OM (Order Match)

In August, 2005, RBI introduced an anonymous screen based order matching module on NDS, called NDS-OM. This is an order driven electronic system, where the participants can trade anonymously by placing their orders on the system or accepting the orders already placed by other participants. NDS-OM is operated by the Clearing Corporation of India Ltd. (CCIL) on behalf of the RBI.

8) 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.

9) "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.

10) Imperfect banknote means any banknote, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated banknote.

FOREIGN EXCHANGE RESERVES

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. 

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

Note:

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 Former Finance Secretary Rajiv Mehrishi. Incidentally, the note was released at Shrinathji temple in Nathdwara, Rajasthan, on March 6 by Mehrishi.

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	Regulator
Chit Funds	Respective State Governments
Insurance companies	IRDA
Housing Finance Companies	NHB
Venture Capital Fund /	SEBI
Merchant Banking companies	SEBI
Stock broking companies	SEBI
Nidhi Companies	Ministry of corporate affairs, Government of India

ATM’s

1. Onsite ATM -within the premises of bank

2. Offsite ATM - Outside the bank premises

3. White Label ATM - Provided by NBFC

4. Green Label ATM - Provided for Agricultural Transaction

5. Orange Label ATM - Provided for ShareTransactions

6. Yellow Label ATM - provided for E-commerce

7. PINK label ATM---women banking

8.BROWN label ATM-- 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 .

IMPORTANT BANKING TERMS

• GDP: It is the money value of all the final goods and services produced within the geographical boundaries of the country during a given period of time.
• GNP: It refers to the money value of total output or production of find goods and service produced by the nationals of a country during a given period of time.
• Producers Price Index: It is the cost incurred by the producer in producing single unit in terms of GDP. It does not include any indirect taxes. 
• Credit Control: By credit control we mean to regulate the volume of credit created by banks in India. It is the principal function of Reserve Bank of India. The basic objective of credit control mechanism is to realize both price stability and exchange stability in the economy. RBI uses two types of methods to control credit: (i) Quantitative Methods, and (ii) Qualitative Methods.

1. Quantitative Measures are used to control the volume of credit or indirectly to control inflationary and deflationary pressures caused by expansion and contraction of credit. These are also known as general credit measures. These consist of Bank Rate, Cash Reserve Ratio, Statutory Liquidity Ratio and Open Market Operations.
2. Qualitative Measures are used to control the quantum as well as purpose for which credits are given by banks. RBI uses measures like Publicity, Rationing of Credit, Regulation of consumer credit, Moral suasion and Variation in margin requirement for qualitative credit control.

• Bank Rate: Bank rate is the rate at which the RBI is prepared to buy or re-discount eligible bills of exchange or other commercial papers. In simple words, bank rate is the rate at which RBI extends advises (Credit) to commercial banks. A change in the bank rate will result in a change in the prime lending rate of banks and thus act as an independent instrument of monetary control. 
• Cash Reserve Ratio (CRR): Cash reserve ratio is the cash parked by the banks in their specified current account maintained with RBI. In other words, it is the percentage of deposit (both demand and time deposit) which a bank has to keep with the RBI. RBI was empowered to vary the CRR between 3% to 15%. But now there is no minimum limit of CRR in India but the maximum limit is still retained at 15%. The purpose of reducing CRR is to leave large cash reserve with banks so as to enable them to expand bank credit. Similarly increasing of CRR means squeezing the cash reserve of the banks and limits their credit providing capacity. 
• Statutory liquidity Ratio (SLR): Statutory liquidity ratio is the liquid assets commercial banks maintain with the RBI in the form of cash (book value), gold (current market value) and balances in unencumbered approved securities. The maximum limit of SLR is 40% and minimum limit of SLR is 23% In India. RBI can change SLR from time to time. Both CRR and SLR reduce or increase the capacity to expand credit to business and industry. Thus both of these are anti-inflationary.
• Open Market Operations (OMO): The buying and selling of eligible securities in the money market by RBI for the purpose of curtailing or expanding the volume of credit. By selling securities the RBI can absorb funds, and buying the securities can release funds also into the market. The purpose of OMO is to influence the volume of cash reserves with the commercial banks and thus influence the volume of loans and advances they can make to the industrial and commercial sector.
• Selective Credit Controls: Under the Banking Regulation Act 1949, section 21 empowers RBI to issue directives to the banking companies regarding their advance in order to check speculation and rising prices. The controls are selective as they are used to control and check the rising tendency of price and hording of certain individual commodities of common use. However, while imposing selective control, RBI takes care that bank credit for production and transportation of commodities and exports is not affected. These are mainly focused on credit to traders who use such credit for financing hoarding and speculation. Since 1956-57 RBI is employing this method.
• Prime Lending Rate (PLR): It is rate of interest of which commercial banks lend to their prime high profile blue chip corporate borrowers. (From 1990’s banks are free to determine PLR).
• Repo Rate: Repurchasing option is traded in this market for a short time periods. Repo is Repurchasing by RBI.
• Priority Sector Lending: Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.
• Market Stabilization Scheme: It is a scheme under which RBI buys and sells Government of India securities in order to control liquidity.
• Money in Circulation: Money in use to finance current transactions as distinct from idle money.
• Investment Bank: A Bank that provides long term fixed capital for industry, generally by taking up shares in limited companies.
• Regional Rural Bank: It was established in 1975 under the provision of RRB Act 1976, with a view to develop rural economy.
• Lead Banking Scheme: Under this scheme all the nationalized banks and few private sector banks were allowed specially and were asked to play the “Lead Role”. The lead banks act as a leader to bring about co-ordination of cooperative banks, commercial banks and other financial institutions in their respective demises to bring about rapid economic development.
• CAMELS: Capital Adequacy, Asset Quality, Management, Earnings Liquidity and Systems.
• Capital Adequacy Ratio (CAR): It is the ratio of total capital fund of a bank to its risk weighted assets. It is an indicator of banks financial health.
• Over Heating of Economy: When the supply is not able to keep phase with demand, it is as called over heating of economy. It leads to inflation and shortage goods.
• Cost-push Inflation: General prices of goods and services in the economy rises due to an increase in production cost. Such types of Inflation are caused by three factors (i) an increase in wages, (ii) an increase in profit and (iii) imposition of heavy tax.
• Demand- pull inflation: The most common cause of inflation is the pressure of ever-rising demand on a less rapidly increasing supply of goods and services. The expansion in aggregate demand may be the result of rapidly increasing private investment and/or spending government money for war or for economic development.
• Forward Market Commission: It is a regulatory body for commodity futures, and forward trade in India. It was set up under Forward Contract (Regulation) Act 1952. It’s headquarter is in Mumbai.
• CARE: Credit Analysis and Research Ltd. It was started in November 1993. It was set up by IDBI.
• ICRA: Investment Information and Credit Rating Agents of India Limited. It was established in 1991. It primarily rates short, medium and long debt instruments. But, since 1995 it has been doing equity rating also.
• NSDL: National Securities Depository Limited
• CDSL: Central Depository Services Limited
• Cheque: Cheque is a bill of exchange drawn on a specified banker ordering the banker to pay a certain sum of money to the drawer of cheque or another person. Money is generally withdrawn by clients by cheques. Cheque is always payable on demand.
• Cheque Truncation: Cheque truncation truncates or stops the flow of cheques through the banking system. Generally truncation takes place at the collecting branch, which sends the electronic image of the cheques to the paying branch through the clearing house and stores the paper cheques with it.
• Debit Card: A plastic card issued by banks to customers to withdraw money electronically from their accounts. When you purchase things on the basis of Debit Card the amount due is debited immediately to the account. Many banks issue Debit-Cum-ATM Cards.
• Debtor: A person who takes some money on loan from another person.
• Demand Deposits: Deposits which are withdrawn on demand by customers. E.g.  Savings bank and current account deposits.
• Demat Account: Demat Account concept has revolutionized the capital market of India. When a depository company takes paper shares from an investor and converts them in electronic form through the concerned company, it is called Dematerialization of Shares. These converted Share Certificates in Electronic form are kept in a Demat Account by the Depository Company, like a bank keeps money in a deposit account. Investor can withdraw the shares or purchase more shares through this demat Account.

·         E-Banking : E-Banking or electronic banking is a form of banking where funds are transferred through exchange of electronic signals between banks and financial institution and customers ATMs, Credit Cards, Debit Cards, International Cards, Internet Banking and new fund transfer devices like SWIFT, RTGS belong to this category.

·         EFT - (Electronic Fund Transfer): EFT is a device to facilitate automatic transmission and processing of messages as well as funds from one bank branch to another bank branch and even from one branch of a bank to a branch of another bank. EFT allows transfer of funds electronically with debit and credit to relative accounts.

·         Either or Survivor: Refers to operation of the account opened in two names with a bank. It means that any one of the account holders have powers to withdraw money from the account, issue cheques, give stop payment instructions etc. In the event of death of one of the account holder, the surviving account holder gets all the powers of operation.

·         Electronic Commerce (E-Commerce): E-Commerce is the paperless commerce where the exchange of business takes place by Electronic means.

·         Endorsement: When a Negotiable Instrument contains, on the back of the instrument an endorsement, signed by the holder or payee of an order instrument, transferring the title to the other person, it is called endorsement.

·         Bouncing of a cheque: Where the name of the endorsee or transferee is not mentioned on the instrument.

·         Endorsement in Full: Where the name of the endorsee or transferee appears on the instrument while making endorsement.

·         Equity: Ownership of the company in the form of shares of common stock.

·         Kiosk Banking: Doing banking from a cubicle from which food, newspapers, tickets etc. are also sold.

·         KYC Norms: Know your customer norms are imposed by R.B.I. on banks and other financial institutions to ensure that they know their customers and to ensure that customers deal only in legitimate banking operations and not in money laundering or frauds.

·         Letter of Credit: A document issued by importers bank to its branch or agent abroad authorizing the payment of a specified sum to a person named in Letter of Credit (usually exporter from abroad). Letters of Credit are covered by rules framed under Uniform Customs and Practices of Documentary Credits framed by International Chamber of Commerce in Paris.

·         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.

·         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.

·         Marginal Standing Facility Rate: MSF scheme has become effective from 09th May, 2011 launched by the RBI. Under this scheme, Banks will be able to borrow upto 1% of their respective Net Demand and Time Liabilities.  The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.

·         Money Market: Market in which short-term securities are bought and sold.

·         Merchant Banking : When a bank provides to a customer various types of financial services like accepting bills arising out of trade, arranging and providing underwriting, new issues, providing advice, information or assistance on starting new business, acquisitions, mergers and foreign exchange.

·         Micro Finance: Micro Finance aims at alleviation of poverty and empowerment of weaker sections in India. In micro finance, very small amounts are given as credit to poor in rural, semi-urban and urban areas to enable them to raise their income levels and improve living standards.

·         Minor Accounts: A minor is a person who has not attained legal age of 18 years. As per Contract Act a minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw, negotiate, endorse, receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their deposits many banks open minor accounts with some restrictions.

·         Mobile Banking : With the help of M-Banking or mobile banking customer can check his bank balance, order a demand draft, stop payment of a cheque, request for a cheque book and have information about latest interest rates.

·          

·         Money Laundering: When a customer uses banking channels to cover up his suspicious and unlawful financial activities, it is called money laundering.

·         Mortgage: Transfer of an interest in specific immovable property for the purpose of offering a security for taking a loan or advance from another. It may be existing or future debt or performance of an agreement which may create monetary obligation for the transferor (mortgagor).

·         Mutual Fund: A company that invests in and professionally manages a diversified portfolio of securities and sells shares of the portfolio to investors.

·         NABARD: National Bank for Agriculture & Rural Development was setup in 1982 under the Act of 1981. NABARD finances and regulates rural financing and also is responsible for development agriculture and rural industries.

·         Negotiation: In the context of banking, negotiation means an act of transferring or assigning a money instrument from one person to another person in the course of business.

·         Net Asset Value: The underlying value of a share of stock in a particular mutual fund; also used with preferred stock.

·         NPA Account: If interest and instalments and other bank dues are not paid in any loan account within a specified time limit, it is being treated as non-performing assets of a bank.

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·         Off Balance Sheet Items: Those items which affect the financial position of a business concern, but do not appear in the Balance Sheet E,g guarantees, letters of credit . The mention "off Balance Sheet items" is often found in Auditors Reports or Directors Reports.

·         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.

·         Online Banking: Banking through internet site of the bank which is made interactive.

·         Personal Identification Number (PIN): Personal Identification Number is a number which an ATM card holder has to key in before he is authorized to do any banking transaction in a ATM .

·         Plastic Money: Credit Cards, Debit Cards, ATM Cards and International Cards are considered plastic money as like money they can enable us to get goods and services.

·         Pledge: A bailment of goods as security for payment of a debt or performance of a promise, e.g pledge of stock by a borrower to a banker for a credit limit. Pledge can be made in movable goods only.

·         Post-Dated Cheque:  A Cheque which bears the date which is subsequent to the date when it is drawn. For example, a cheque drawn on 8th of February, 2007 bears the date of 12th February, 2007.

·         Power of Attorney: It is a document executed by one person - Donor or Principal, in favour of another person, Donee or Agent - to act on behalf of the former, strictly as per authority given in the document.

·         Portfolio: A collection of investment vehicles assembled to meet one or more investment goals.

·         Virtual Banking: Virtual banking is also called internet banking, through which financial and banking services are accessed via internet's World Wide Web. It is called virtual banking because an internet bank has no boundaries of brick and mortar and it exists only on the internet.

·         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.