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Important Banking Awareness Capsule for IBPS PO-V Mains 2015
CONTENT
S.no
Topics
Page No
1.
02
2.
03
3.
04
4.
05
5.
06
6.
08
7.
41
8.
44
9.
46
10.
Types of Banks
47
11.
49
12.
50
13.
52
14.
Negotiable Instruments
53
15.
54
16.
56
17.
59
18.
61
19.
61
20.
62
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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
Priority Sector Lending is an important role given by RBI to the banks for providing a
specified portion of the bank lending to few specific sectors like agriculture and allied
activities, micro and small enterprises, poor people for housing, students for education and
other low income groups and weaker sections
The following are the categories of the Priority Sector
Agriculture and Allied Activities (Direct and Indirect finance) - Direct finance to agriculture
shall include short, medium and long term loans given for agriculture and allied activities
directly to individual farmers, Self-Help Groups (SHGs) or Joint Liability Groups (JLGs) of
individual farmers without limit and to others (such as corporates, partnership firms and
institutions) up to Rs. 20 lakh, for taking up agriculture/allied activities
Small Scale Industries (Direct and Indirect Finance) - Direct finance to small scale
industries (SSI) shall include all loans given to SSI units which are engaged in
manufacture, processing or preservation of goods and whose investment in plant and
machinery (original cost) excluding land and building
Small Business / Service Enterprises - shall include small business, retail trade,
professional & self-employed persons, small road & water transport operators and other
service enterprises
Micro Credit - Provision of credit and other financial services and products of very small
amounts not exceeding Rs. 50,000 per borrower to the poor in rural, semi-urban and urban
areas, either directly or through a group mechanism, for enabling them to improve their
living standards, will constitute micro credit
Education loans - Education loans include loans and advances granted to only individuals
for educational purposes up to Rs. 10 lakh for studies in India and Rs. 20 lakh for studies
abroad, and do not include those granted to institutions
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Housing loans: Loans up to Rs. 28 lakh in metropolitan cities where population is above
Rs.10 lakh and Rs. 20 Lakh at other center s for construction/purchase of a dwelling unit
per family provided total cost of the unit in metropolitan centres and at other centres does
not exceed Rs. 35 Lacs and Rs. 25 Lacs respectively
They act as regulators of their country's interest rates by controlling the amount of
money in circulation and buying and selling currencies
They act as lenders of last resort, should another bank get into trouble
Retail Banking
They take deposits from individuals, provide saving facilities and pay interest on these
accounts
They also lend money to individuals, in the form of loans and overdrafts, and charge
interest on the money they lend
Commercial Banking
They help companies raise finance to expand their businesses and to maintain their
cash-flow by lending them money
Investment Banking
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Investment banks distribute and underwrite (guarantee the sale of) share and bond
issues
They trade securities on the financial markets and advise corporations on capital market
activities such as mergers and acquisitions
Investment banks originally developed in the US and these banks have now taken over
many roles that were previously carried out by UK merchant banks
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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 digits bank code, 2 digits country code, 2 digits location code and 3 branch
code (optional)
NEFT And RTGS
National Electronic Funds Transfer (NEFT) system is a nationwide funds transfer system to
facilitate transfer of funds from any bank branch to any other bank branch
The Step by Step operation of NEFT is as follows
Step-1: The remitter fills in the NEFT Application form giving the particulars of the
beneficiary (bank-branch, beneficiary's name, account type and account number)
and authorises the branch to remit the specified amount to the beneficiary by raising
a debit to the remitter's account. (This can also be done by using net banking
services offered by some of the banks)
Step-3: The Service Centre forwards the same to the local RBI (National Clearing
Cell, Mumbai) to be included for the next available settlement. Presently, NEFT is
settled in six batches at 0930, 1030, 1200, 1300, 1500 and 1600 hours on weekdays
and 0930, 1030 and 1200 hours on Saturdays
Step-4: The RBI at the clearing centre sorts the transactions bank-wise and
prepares accounting entries of net debit or credit for passing on to the banks
participating in the system. Thereafter, bank-wise remittance messages are
transmitted to banks.
Step-5: The receiving banks process the remittance messages received from RBI
and affect the credit to the beneficiaries' accounts.
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Real Time Gross Settlement(RTGS) - the continuous (real-time) settlement of funds
transfers individually on an order by order basis
Real Time - the processing of instructions at the time they are received rather than
at some later time
The fundamental difference between RTGS and NEFT, is that while RTGS is based
on gross settlement, NEFT is based on net-settlement
RTGS transactions involve large amounts of cash, basically only funds above Rs
100,000 may be transferred using this system. For NEFT, any amount below Rs
100,000 may be transferred, and this system is generally for smaller value
transactions involving smaller amounts of money
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Objective to provide for the benefit of depositors in bank, insurance against the loss of all
of their deposits in all branches of a bank to a maximum of Rs. 100,000
Head Office Mumbai
It has four branches in Delhi, Chennai, Kolkata and Nagpur
The management of the Corporation consists of a Board of Directors, of which a Deputy
Governor of the RBI is the Chairman. The Board consist of the following members besides
the Chairman
five Directors nominated by the Central Government in consultation with the RBI
a) three of whom are persons having special knowledge of commercial banking,
insurance, commerce, industry or finance
b) two of whom shall be persons having special knowledge of, or experience in
co-operative banking or co-operative movement
four Directors, nominated by the Central Government in consultation with the RBI,
having special knowledge or practical experience in respect of accountancy,
agriculture and rural economy, banking, co-operation, economics, finance, law or
small scale industry or any other matter which may be considered to be useful to
the Corporation
The Corporation maintains the following 2 separate funds which are funded by the premium
and guarantee fees received
One more fund called General Fund is maintained which holds the capital of the
Corporation, the staff establishment and administrative expenses
The following are the types of deposits covered DICGC insures all bank deposits
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Saving
Fixed
Current
Recurring
The following are the deposits which are not covered by DICGC
Inter-bank deposits
Deposits of the State Land Development Banks with the State co-operative banks
Any amount which has been specifically exempted by the corporation with the
previous approval of the RBI
Financial Inclusion
1). Financial inclusion or inclusive financing is the provision of financial services to low income
and disadvantaged sections of the society at affordable costs. Financial Inclusion Committee is
headed by Deepak Mohanty.
2). Globally about 2 billion working age adults have no access to any type of formal financial
services delivered by the financial institutions
3). The goals of Financial inclusion as defined by the United nations is as follows
To provide sound and safe institutions governed by clear regulation and industry
performance standard
To provide financial services like savings, deposit, payments, transfer, credit and
insurance services at a reasonable cost to all
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4). Alliance for Financial Inclusion (AFI) worlds largest and most prominent network of
financial inclusion
It is a Bill & Melinda Gates foundation funded project supported by AusAid to speed
up the development of smart financial inclusion policy in developing countries
Its main aim is to adopt and expand effective inclusive financial policies in
developing nations to uplift 2.5 billion impoverished and unbanked citizens
In 2011 GPF, AFI adopted Maya Declaration a set of principles and goals for
financial inclusion policy development
5). In partnership with NABARD the United Nations aims to increase financial inclusion of the
poor by developing appropriate financial products
6). UNs financial inclusion is financed by United Nations Development Program
7). In India the term financial inclusion was 1st used in the Annual Policy Statement presented
by Y. Venugopal Reddy former Governor of RBI
8). Some of the services provided under the term Financial Inclusion in India
Mangalam 1st village in India where all households were provided banking facilities
Norms of banks were relaxed for people intending to open accounts with annual
deposits less than Rs. 50,000
General Credit Cards(GCC) were issued to poor and the disadvantaged to help
them with easy access to credit
RBI asked the commercial banks in different regions to start 100% financial inclusion
campaign
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Pradhan Mantri Jan Dhan Yojna a national financial inclusion mission which aims
to provide bank accounts to low income people
9). Deposit Penetration key driver of financial inclusion, the number of savings account - 624
million, is 4 times the number of loan accounts -160 million
10). The top three states/ union territories which tops in financial inclusion are as follows
Pondicherry
Chandigarh
Kerala
Pathanamthitta Kerala
Karaikal Pondicherry
Thiruvananthapuram Kerala
As per RBI norms, non-bank company that owns white labeled ATMs should provide
banking services to customers based on cards issued by banks
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RBI it provides license to open White Label ATMs under the Payment and
Settlement Systems Act, 2007
Sponsor Bank
a. Loads cash in the White Label ATM
b. Ensures that counterfeit currency notes are not circulated through these
ATMs
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10).This approval will make FDI inflows in WLAO easier thus promoting financial inclusion in
the country including Pradhan Mantri Jan Dhan Yojana (PMJDY)
11).Some important non-bank companies that own and operate White Label ATMs in India are
as follows
Muthoot Finance
Srei Infrastructure
Vakrangee Software
Prizm Payments
It mainly focused on credit or default risk i.e., the risk of counter party failure
It defined the capital requirement and structure of risk weights for banks
3). Assets of banks were classified and grouped in five categories according to credit risk,
carrying the following risk weights
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4). Banks with an international presence are required to hold capital equal to 8% of their riskweighted assets (RWA).
5).From 1988 this framework was introduced within the G-10 nations initially and then over 100
countries adopted the rules prescribed by the Basel I
BASEL II
1). Basel II was introduced in 2004 with more refined definitions for capital adequacy, risk
management and disclosure requirements
2). It used external rating agencies to set the risk weights for corporate and banks
3). Disclosure requirements allowed market participants to access the capital adequacy of the
institution based on information on the following aspects
Scope of application
Capital
Risk exposure
4). In Basel II norms Operational Risk has been defined as the risk of loss resulting from
inadequate or failed internal processes, people and systems
5). Basel II uses a "three pillars" concept namely
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a. The credit risk component can be calculated in three different ways of varying
degree of sophistication, namely standardized approach, Foundation IRB,
Advanced IRB and General IB2 Restriction. IRB stands for "Internal RatingBased Approach"
b. For operational risk, there are three different approaches basic indicator
approach or BIA, standardized approach or TSA, and the internal
measurement approach
c. For market risk the preferred output its value at risk
supervisory review
a. This is a regulatory response to the first pillar, giving regulators better 'tools'
over those previously available
b. It also provides a framework for dealing with systemic risk, pension risk,
concentration risk, strategic risk, reputational risk, liquidity risk and legal risk,
which the accord combines under the title of residual risk
c. Banks can review their risk management system
d. The Internal Capital Adequacy Assessment Process (ICAAP) is a result of
Pillar 2 of Basel II accords
BASEL III
1). The Basel II regulations did not have any explicit norm on the debt that banks could take
but focused on financial institutions ignoring the systematic risks
2). Therefore to ensure that banks dont take excessive debt and not rely on short term funds
the Basel III norms were proposed in 2010
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3). Basel III promoted a more resilient banking system on the following 4 important banking
parameters namely
o Capital
o Leverage
o Funding
o Liquidity
4). Requirements of common equity and Tier 1 capital will be 4.5% and 6% respectively
5). Leverage ratio calculated by dividing Tier 1 capital by the banks average total consolidated
assets will be greater than 3%
6). The minimum Liquidity Coverage Ratio (LCR) will reach upto 100% by 1st January 2019 to
prevent situations like Bank Run
Gold Monetization Scheme
1). The Union Finance Minister Arun Jaitley announced several steps for monetizing gold in
the Budget 2015-16 speech, one of them being Gold Monetization Scheme (GMS)
2).As per the Budget speech the stocks of gold in India were estimated to be over 20,000
tonnes but most of this gold is neither traded nor monetized
3).The Gold Monetization Scheme will replace the already existing Gold Deposit and Gold
Metal Loan Schemes
4). Objectives of the Gold Monetization Scheme are as follows
To provide a push up to the gems and jewellery sector in the country by making gold
available as raw material on loan from the banks
To be able to reduce the dependency on import of gold over time to meet the
domestic demand
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Once the gold is deposited in metal account, it will start earning interest on the same
The banks would also be able to monetize the gold under this scheme
6). When a customer takes gold to deposit in a specified bank or agency the purity of the gold
is determined by a preliminary test which includes melting the gold and checking with the
consent of the customer
7). A preliminary XRF machine test is also conducted to tell the customer the approximate
amount of pure gold
8). If the customer agrees then he will have to fill a Know Your Customer (KYC) form to allow
the melting of gold
9). A fire array test will be conducted and the gold will be melted in the presence of the
customer to remove dirt or studs in the gold
10).The removed dirt or studs will be handed over to the customer and the purity of the gold
will be informed. After which the customer will be given a choice if he/she is willing to deposit
the gold or take it back
11). If the customer is willing to deposit the gold in the metal account then he/she will be given
a certificate by the Collection Center certifying the amount and purity of the deposited gold
12).The minimum quantity of gold that can be deposited by a customer is set as 30gms to
encourage even small depositors
13).The deposited gold will lent by the banks to jewelers at an interest rate little higher than the
interest paid to the customers
14).Both the principal and interest to be paid to the depositors of gold will be valued in gold
15).The tenure of gold deposits is likely to be for a minimum of 1 year. The customers will have
a choice to take cash or gold on redemption as per the preference stated at the time of deposit
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Payments Bank
1). A Payments bank is a type of non-full service niche bank in India
2). On 23rd September 2013, RBI formed a Committee on Comprehensive Financial Services
for Small Businesses and Low Income Households under the chairmanship of Nachiket Mor
3). The Nachiket Mor Committee submitted its report on 7th January 2014 recommending the
formation of a new category of bank called payments bank
4). On 27th November 2014 RBI released the final guidelines for payments banks
5). 41 entities had applied to the RBI for Payments bank license and an External Advisory
Committee(EAC) headed by Nachiket Mor evaluated the applications
6). During the presentation of the Union Budget it was announced that the India Post will use
its large network to run payments bank
7). On 19th August 2015 RBI gave in-principle licenses to 11-entities to establish payments
bank with a validity period of 18 months. The following are the 11-entities which were granted
licenses
Department of Posts
Reliance Industries
Vodafone M-Pesa
Tech Mahindra
8). The RBI will consider to grant full licenses under Section 22 of the Banking Regulation Act
1949 after it is satisfied that all the conditions have been satisfied the above entities
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9). Payments bank can only receive deposits and provide remittances
10). It cannot carry out lending activities
11). The payments bank targets at
Migrant laborers
Small businesses
12). The minimum capital requirement to establish a payments bank is Rs. 100 crore
13). For the 1st 5 years the stake of the promoter should be 40% minimum
14). The voting rights in payments bank are regulated by the Banking Regulation Act 1949
15). The voting right of any shareholder is capped at 10%, it can be increased to 26% by the
Reserve Bank of India(RBI)
16). RBI also regulates any acquisition over than 5%
17). Foreign investments will be allowed in these banks as per the rules of FDI in private banks
of India
18). Payments bank can accept utility bills but cannot form subsidiaries to undertake nonbanking activities
19). Initially the deposits will be capped at Rs. 1,00,000 per customer but can be raised by the
RBI based on the performance of the bank
20). 25% of branches of payments banks should be in the unbanked rural areas
21). A bank will be licensed as Payments bank by the RBI under the Section 22 of the
Banking Regulation Act 1949 and will be registered as Public Limited Company under the
Companies Act 2013
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Bandhan Bank
Bandhan Bank appoints its Chairman, Boards of Directors:
Bandhan Bank Ltd on 9 July 2015 appointed its Chairman and Board of Directors. The bank
will commence its operations in India from 23 August 2015. It will be the first bank to be
established in Eastern India post Independence. Ashok Kumar Lahiri, former Chief Economic
Advisor to the Union Government, was appointed as the Chairman of the bank. While,
Chandra Shekhar Ghosh, Founder of Bandhan Financial Services Ltd, was appointed as the
Managing Director and Chief Executive Officer of the bank. They both will be in the board of
directors as well.
Bandhan Bank Logo of Bandhan Bank Ltd
Apart from appointing the directors, the bank unveiled its logo as well, an image of the
traditional Indian Diya. The extensive use of the colour red in the logo is associated with all
thats auspicious. The flame or the Diya symbolizes a ray of hope, a new morning.
Between the red colour and the flame, the Bandhan Bank logo holds the promise of good
things to look forward to.
About Bandhan Bank Ltd
Micro-lender Bandhan Financial Services in June 2015 received approval from the Reserve
Bank of India to set up a universal bank.Bandhan Bank will have 630 branches across 27
States. Nearly 247 of these new branches are expected to be in West Bengal.
The bank will have two distinct wings. One will cater to the micro-banking segment, targeting
the rural and un-banked areas. The other will look at general banking.
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2).The NBFC is a financial institution which carries out the following operations as their
principle business
Housing finance
Investment
Loan
Equipment leasing
3). According to the RBI (Amendment Act) 1997, a NBFC is an institution which can be defined
as
4). The Reserve Bank of India (Amendment Act) 1997 demands compulsory registration with
the RBI of all the NBFCs irrespective of their public deposits for commencing and carrying out
business
5). Norms to be followed by the NBFCs operating in India
They should create a Reserve Fund and transfer 20% of profit after tax annually to
the fund
A new NBFC seeking registration with the RBI should satisfy the entry point norm of
Rs. 2 crores as the minimum Net Owned Fund (NOF)
6). Based on their Liability Structure NBFCs are divided into 2 categories as follows
7). NBFCs operating in India fall under the following categories based on their businesses
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Loan Company a small partnership company which obtain funds in the form of
deposits from the public and give loans to wholesale, retail traders, small scale
industries and self-employed individuals
Mutual Benefit Finance Company any company that comes under the Section
620A of the Companies Act 1956. The main source of funds are share capital and
deposits from their members and public
Chit Fund Company a company which collects subscriptions from the public
periodically and in turn distributes the same as prizes back to them. These
companies are governed by Chit Fund Act 1982
HDFC established in 1977 provides mortgages, life Insurance, mutual funds and
Micro Finance
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Rural Electricity Corp. 1969 provides investment and private banking and asset
management
Shree Ram Transport Finance 1974 provides consumer vehicle finance, city
union finance and micro finance
M & M financial 1991 financial services, micro finance and asset management
To protect the rights of investors and ensure the safety of their investment
8). SEBI is responsible for the needs of the following three groups
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Issuers SEBI provides a market place in which the issuers can raise finance fairly
Investors SEBI provides protection and supply of accurate and correct information
1 member from the Reserve Bank of India Anand Sinha (Deputy Governor, RBI)
Protective Functions are performed to protect the interest of investors and provide
safety for their investment
a. It involves to keep a check on Price Rigging i.e., manipulation of prices of
securities with the main objective of creating inflation
b. It involves prevention of insider trading i.e., a person from the company with
sensitive information that can affect the prices of securities uses that
information to make profit
c. To prohibit Fraudulent and Unfair Trade Practices i.e., not allowing the
companies to make misleading statements which will induce the sale of
purchase of securities by any other person
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Developmental Functions are performed by the SEBI to promote and develop the
activities of the stock exchange and increase its business
a. It promotes training of intermediaries of the securities market
b. SEBI promotes the activities of the stock exchange by adopting flexible and
adoptable ways like internet trading and initial public offer of primary market
Advisory Committee for the SEBI Investor Protection and Education Fund
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3). High Level Group under the Championship of Dr. C. Rangarajan, the then Deputy Governor
of RBI, recommended the setting up of the National Housing Bank as an autonomous housing
finance institution
4). The National Housing Bank Bill (91 of 1987) provided the legislative framework for the
establishment of NHB was passed in the Parliament
5). NHB was established to achieve the following objectives
To augment resources for the sector and channelize them for housing
To integrate the housing finance system with the overall financial system
Alok Tandon IAS, Joint Secretary to the Government of India, Ministry of Finance
Sanjeev Kumar IAS, Joint Secretary (RAY) to Government of India and Mission
Dirtector (JNNURM), Ministry of Housing and Urban Poverty Alleviation
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7). Vision of NHB Promoting inclusive expansion with stability in housing finance market
NABARD
1). National Bank for Agriculture and Rural Development (NABARD) is an apex development
bank in India
2). Headquarters Mumbai
3). It was established by the Committee set up by RBI to Review Arrangements for Institutional
Credit for Agriculture and Rural Development (CRAFICARD) under the Chairman Shri. B.
Sivaraman on 12th July 1982
4). Its main aim is to uplift rural India by increasing the credit flow for evaluation of agricultural
and rural farm sector
5). Chairman Dr. Harsh Kumar Bhanwala
6). The government of India now holds 99% of NABARDs shares which were sold by RBI
7). NABARD is active member of Alliance for Financial Inclusion
8). NABARD replaced the following organizations
11). NABARD takes measures towards institutions which help in improving absorptive capacity
of the credit delivery system including
Monitoring
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Training of personnel
Government of India
State Governments
13). NABARD refinances financial institutions which finance the rural sector. These refinances
are availed by the following organizations
Commercial Banks(CB)
14). It has 336 District offices across the country including 1-sub office at Port Blair and one
special cell at Srinagar
15). It has 6 training establishments
16). NABARD is also known as Self Help Group (SHG) Bank Linkage Programme. About 22
lakh SGHs were credited through this programme
17). NADARD has a portfolio of Natural Resource Management Programmes in the following
fields
Watershed development
Tribal development
Farm innovation
18). The RBI and NABARD has laid out guidelines for commercial, Regional Rural and
Cooperative banks to provide data regarding loans given by banks to the microfinance
institutions
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MICRO UNITS DEVELOPMENT & REFINANCE AGENCY (MUDRA) BANK
Headquarters
Announcement
New Delhi
February 2015, in Union Budget of India 2015 by Finance
Minister Arun Jaitley.
Launched on
(CEO)
Manager of NABARD.
8.) Additional fund of Rs.1,00,000 crore was allotted to MUDRA increasing the percentage of
loans provided to its customers as follows.
40% to Shishu
35% to Kishore
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25% to Tarun
9.) Customers who are eligible to avail loans from MUDRA bank are as follows.
Shopkeepers
Artisans
Assist the reconstruction of the worlds international payment system post the World
War II
8). Now the role of IMF is much more active managing the economic policy instead of just
exchange rates
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9). Low income countries can borrow on concessional terms i.e., there is a period of time with
no interest rates through the
10). IMF also provides non-concessional loans which has interest rates as follows
Standby Arrangements(SBA)
11). IMF provides emergency assistance to all its members facing urgent balance of payment
needs through the newly introduced Rapid Financing Instrument(RFI)
12). To become a member of IMF, a country must apply and then be accepted by a majority of
the existing 188 members
Each member is assigned a quota based on its relative size of their economy upon
joining
A member must pay its subscription 25% to be paid in the IMFs own currency
called as Special Drawing Rights(SDR) and the remaining 75% in the members own
currency
13). Each member of IMF has 250 Basic votes and one additional vote for each SDR 100,000
of quota.
Top 5-members of IMF based on their voting power are as follows
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World Bank
3). Aims to mobilize resources for infrastructure and sustainable development projects in
BRICS and other emerging economies and developing countries
4). Headquarters in Shanghai, China
5). Participant countries:
Brazil
Russia
India
China
South Africa
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10). BRICS states signed the Agreement of Articles for NDB 6th BRICS summit 2014, Brazil
11). Initial capital for NDB 100 billion, of which 12.5% to be paid by each member in 1st 7
years
12). Separate agreement for 100 billion reserve currency pool was also signed
13). 1st President of NDB from India K. V. Kamath former non-executive chairman of ICICI
bank
14). Main organs of Articles of Agreement:
Board of Directors
15). NDB will allow new member to join but the BRICS capital share cannot fall below 55%
16). For all the BRICS states
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6). Major Organs of Bank
Board of Governors
President
PRESIDENTS
DATES
Takeshi Watanabe
1966-1972
Shiro Inoue
1972-1976
Taroichi Yoshida
1976-1981
Masao Fujioka
1981-1989
Kimimasa Tarumizu
1989-1993
Mitsuo Sato
1993-1999
Tadao Chino
1999-2005
Haruhiko Kuroda
2005-2013
Japan 15.67%
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China 6.47%
India 6.35%
Australia 5.81%
Japan 12.84%
China 5.47%
India 5.38%
Australia 4.94%
37 regional members
20 non-regional members
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8). 7-countries from the PFM did not sign the Articles of agreement. They are
Denmark
Malaysia
Kuwait
Holland
Philippines
South-Africa
Thailand
9). Shares are based on the size of each member countrys economy
10). 3- categories of votes exist:
Basic votes: equal for all members and constitute 18% of the total votes
11). China is the highest share holder with 30.34% and voting share 26.06%
12). India 2nd highest share holder with 8.52% and voting share of 7.5%
13). Russia 3rd highest share holder with 6.66% and voting share of 5.92%
14). Maldives is the smallest PFM
WORLD BANK
1). The World Bank is an international financial institution that provides loans to developing
countries for capital programs
2). It comprises of 2-institutions
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4). It was established in 1944
5). Headquarters Washington DC, United States
6). Founders Lord Keynes and Harry Dexter White Fathers of both the World Bank and the
International Monetary Fund
7). Parent Organization World Bank Group (WBG)
8). President same as the President of WBG presently Jim Yong Kim
9). Objectives of World Bank
To provide guarantee for loans granted to small and large units and other projects of
member countries
By written notice to the bank, but such country has to repay the granted loans on
terms and conditions decided at the time of sanctioning the loan
Any country working against the guidelines of Bank can be debarred by the Board of
Governors
Japan 6.84%
China 4.42%
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Germany 4%
16). The initial authorized capital of the World Bank was 10,000 million which was divided into
1lakh shares each
17). The authorized capital of the Bank has been increased from time to time with the approval
of the member countries. The member countries repay the share amount to the World Bank in
the following ways:
Remaining 80% share is deposited by the member country on the demand of World
Bank
18). World Bank can grant loans up to 20% of the member countrys share paid up as capital
19). World Bank takes guidance of the following international institutions
FAO
WHO
UNESCO
UNIDO
20). 75% of its total loans are sanctioned to developing countries while 25% to developed
countries
E-Banking Systems
1). E-banking is an electronic payment system that enables customers of a financial institution
to conduct financial transactions on a website operated by a bank or financial institution
2). E-banking is also referred to as
Internet banking
Virtual banking
Online banking
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3). A customer with internet access would need to register with the bank or financial institution
to access its online banking facilities
4). They should set up some password for customer verification
5). To access e-banking a customer should log-in to the online banking facility using the
customer number and password given to him/her by the bank
6). The common features of e-banking comes under 6-categories as follows
A customer can carry out banking tasks through online banking like
a) Funds transfer between the customer linked accounts
b) Paying 3rd parties like bill payments
c) Investment purchase or sale
d) Loan applications and transactions
e) Credit card applications
f) Register utility billers and make bill payments
Personal financial management support like importing data into personal accounting
software
7). Advantages of e-banking for both the banks and the customers are as follows
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8). Some potential threats on e-banking for deceiving the user to steal login data and valid
Transaction authentication number(TAN) are as follows
Pharming a cyber attack intended to redirect a websites traffic to another fake site
9). Some of the counter-measures that can be implemented to avoid such threats are as
follows
Use of Secoder card readers can avoid the manipulation of the transaction data
Virus scanners can be used to protect the customers account details against Trojan
horses
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A signature based online banking can be used where all the transactions are signed
ATMs
E-commerce websites
10). About 240 banks including all major public sector banks and 200 cooperative and rural
banks issued RuPay cards to promote financial inclusion
11). RuPay cards are accepted at all the ATMs across India under National Financial Switch
12). Details of ATMs, PoS and e-commerce websites are as follows
ATMs 145,270
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E-commerce websites 10,000
13). NPCI entered into partnership with Discover Financial Services(DFS) for enabling the
acceptance of RuPay globally as RuPay Global Cards on DFSs payment network outside
India
14). RuPay chip cards launched by NPCI for high security transactions have an embedded
microprocessor circuit containing information about the card holder
15). RuPay chip cards use EMV(Europay, Mastercard, Visa) chip technology
16). RuPay enables the banks to issue a unified Kisan Card for farmers under the Kisan Credit
Card scheme
17). The Punjab Grains Procurement Corporation Ltd.(PUNGRAIN) pays the commission
agents through the RuPAy Debit Card
18). 75 cooperative societies of AMUL in regions of Burdwan and Hooghly of West Bengal
were enabled to get their payments directly into their bank accounts on the same day of sale of
milk through an initiative taken by the Kotak Mahindra Bank in partnership with RuPay
funds insufficient.
Computer network
Bank Account
Bancassurance
banks
Bank Rate
as
corporate
agents
through
their
Bouncing of a cheque
loans it extends.
Base rate
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It is the rate of interest on which banks base their
electronically.
Demat Account
Basis Point
company
Call Money
converts
share
certificates
into
account.
Dishonour of Cheque
Cheque
payment
E-Banking
the account.
Core Banking
financial
category.
Fiscal Deficit
Inflation
Current Account
price level
Debit Card
transactions
electronically.
RTGS,
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Kiosk Banking
by a bank
Leverage Ratio
financial losses.
Plastic Money
Liquidity
issued by banks
Market Capitalization
Mortgage
Mutual Fund
risk
Pass Book
securities.
Monetary Policy
Repo Rate
rate
banking system
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It is a reserve asset (Paper Gold) created within
Virtual Banking
liquidity
wide web.
which
Wholesale Banking
should
be
either
in
the
form
of
gold,money or bonds.
Teller
industry.
Universal Banking
has no coupon.
FUNCTIONS OF RESERVE BANK OF INDIA:There are seven major functions of the Reserve Bank of India. They are,
1. Issue of Bank Notes:
The Reserve Bank of India has the right to issue currency notes except one rupee notes
which are issued by the Ministry of Finance.
There are many advantages of Reserve Bank of India.
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2.
I.
II.
III.
IV.
Banker to Government:
The Reserve Bank manages the banking needs of the Government.
It has to maintain and operate the Governments deposit accounts.
It represents the Government of India as the member of the IMF and the World Bank.
3.
7. Controller of Credit:
The supply of money has important implications for economic stability and the importance
of control of credit becomes obvious
Credit is controlled by the Reserve Bank in accordance with the economic priorities of the
Government.
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MAJOR ROLES OF RESERVE BANK OF INDIA: In every country there is one organization which works as the Central Bank.
The function of the central bank of a country is to control and monitor the banking and
financial system of the country
In, India the Reserve Bank of India (RBI) is the Central Bank.
RBI is the Regulator of Financial System. The objectives of these regulation include:
Controlling money supply in the system,
Monitoring different key indicators.
Maintaining peoples confidence in banking and financial system.
RBI is the Controller and Supervisor of Banking systems. These banks may be:
Public sector banks
Private sector banks
Foreign banks
Co-operative banks, or
Regional rural banks.
Public Debt Act, 1944/Government Securities Act (proposed): Governs the government debt
market.
Securities Contract (Regulation) Act, 1956: It regulates the government securities market.
Indian Coinage Act, 2011: Governs laws related to currency and coins.
Foreign Exchange Regulation Act, 1973/ Foreign Exchange Management Act, 1999:
Governs foreign exchange market.
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Payment and Settlement System Act, 2007: Provides for regulation and supervision of
payment systems in India.
The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003.
The Industrial Finance Corporation (Transfer of Undertaking and Repeal) Act, 1993.
Types of Banks
There are seven types of Banks in India, and they are given below.
1.) Savings Banks:
A savings bank is a financial institution whose primary purpose is to accept savings deposits. It
may also perform some other functions. These banks are helpful for salaried people and low income
groups. The deposits collected from the customers are invested in bonds, securities etc,. At present,
most of the commercial banks carry out the functions of Savings Banks; Postal Department also
performs the functions of savings bank.
2.) Commercial Banks:
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A Commercial Bank is an institution which accepts deposits, makes business loans and offers
related services. Commercial Banks also allow for a variety of deposit accounts, such as current,
savings and time deposit. These institutions are run to make profit. Commercial Banks provide various
services like collection cheques, bills of exchange, remitting money from one place to another place. In
India, Commercial Banks have been established under Companies Act, 1956. In 1969, 14 Commercial
Banks were nationalized by the Government of India.
3.) Industrial Banks/ Development Banks:
Development Banks are those financial institutions engaged in the promotion and development
of industry, agriculture and other key sectors. These banks react to the socio-economic needs. They
satisfy the developmental needs of the economy and their success is linked to the satisfactory growth
of the economy. The main objective of these banks is to provide long term loans for expansion and
modernization of industries. In India, such banks were established o a large scale after independence.
They are Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment Corporation of
India (ICICI) and Industrial Development Bank of India (IDBI).
4.) Land Development Banks:
The Long term credit needs of the agricultural sector are met by another type of Cooperative
institution called as Land Development Banks. The structure of these banks is a two-tier one-at the
state level there are Central Land Development Banks and at the district or taluka level, there are
primary Land Development Banks. In a few States, e.g Gujarat, Jammu and Kashmir and UP, the
structure is unitary i.e., there are Apex Land Development Banks which operate directly through their
own branches at the district level.
5.) Indigenous Banks:
Indigenous Banks means money lenders and sahukars. They collect deposits from general
public and grant loans to the needy persons out of their own funds as well as from deposits. These
indigenous banks are popular in villages and small towns. They perform combined functions of trading
and banking activities. Certain well-known Indian communities like Marwaries and Multanis even today
run specialized indigenous banks.
6.) Central Bank:
Every country of the world has a Central Bank. In India, Reserve Bank of India; in USA
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Federal Reserve and in UK, Bank of England are example of the Central Banks. These Central Banks
are the bankers of the other banks. They perform specialized functions, i.e., issue of paper currency,
work as bankers to governments, supervise and control foreign exchange. A Central Bank is a nonprofit making institution. It does not deal with the public but it deals with the other banks. The principal
responsibility of the Central Bank is thorough control on currency of a country.
7.) Co-operative Banks:
In India, Cooperative Banks are registered under the Cooperative Societies Act 1912. They
generally give credit facilities to small farmers, salaried employees, small scale industries, etc.
Cooperative banks are in rural as well as in urban areas. The functions of these banks are just similar
to that of Commercial Banks.
8.) Foreign Banks:
Standard Chartered Banks, City Bank, HSBC are the examples of Foreign Banks working in
India. These banks are mainly concerned with financial foreign trade. Following are the various
functions of Exchange Banks.
Saving Account
Demat Account
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Cash is deposited in this account for a fixed period. This is not transferable. If the depositor
stands in need of the amount before the expiry of the fixed period, he can withdraw the same after
paying the penalty to the bank. This type of deposit attracts high rate of interest. Longer the period of
deposit higher is the rate of interest. It is also called Time Liability of the Bank.
Current Account or Demand Deposit Account:
A depositor can deposit his funds any number of times he likes and can withdraw the same any
number of times he wishes. Ordinarily businessmen deposit their funds in this account. No interest is
paid by the bank on this account. The bank demands some charges from the depositors if the amount
lying in the account falls below the minimum limit.
Saving Account:
In this account, interest is given now on per day basis between 10th and 30th of every month.
Recurring Deposit Account:
Under this account, a specified amount is deposited every month for a specific period, such as,
12, 24, 36, or 60 months it can be even for 120 months. This amount cannot be withdrawn before the
expiry of the given period except under exceptional circumstances. Interest on the amount deposited is
also credited to the account of the depositor. Like time deposit account, interest paid on this account is
higher than other accounts.
Demat Account:
Demat refers to a dematerialized account. Demat account is just like a bank account where
actual money is replaced by shares. Just as a bank account is required if we want to save money or
make cheque payments, we need to open a demat account in order to buy or sell shares.
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Pass it to someone else by signing on the back of a cheque.
Ante-dated cheques: Cheque in which the drawer mentions the date earlier to the date of
presenting it for payment. For example a cheque issued on 20th August, 2014may bear a
date 5th August 2014.
Stale Cheque: A cheque which is issued today must be presented to the bank for payment
within a stipulated period. After expiry of that period, on payment will be made and it is then
called Stale Cheque.
Mutilated Cheque: In case a cheque is torn into two or more pieces and presented for
payment, such cheque is called Mutilated Cheque. The bank will not make payment
against such a cheque without getting confirmation of the drawer. But is a cheque is torn at
the corners and no material fact is erased or cancelled, the bank may make payment
against such a cheque.
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Post-date Cheque: Cheque on which drawer mentions a date which is subsequent to the
date on which it is presented, is called Post-dated Cheque. For example, if a cheque
presented on 5th April 2015 bears a date of 20th April 2015, is is a post dated cheque. The
bank will make payment only mon or after 20th April 2015.
Types of Loans:
Cash Credit
Overdraft
Cash Credit:
The debtor is allowed to withdraw a certain amount against a given security. The debtor
withdraws the amount within this limit, as per his requirement and also repays it. Interest is charged by
the bank on the actually withdrawn.
Overdraft:
Clients who have current account with the bank get the sanction to withdraw more money than
is lying in the said account. It is called Overdraft. This facility is availability for short term to reliable
parties.
Loans and Advances:
These loans are given in the form of a fixed amount. Bank credits the amount of loan in the
account books of the debtor. The latter can withdraw it any time. The interest is chargeable on the
whole amount from the day; the loan is disbursed irrespective of the fact that the debtor withdraws the
whole amount or part of it.
Discounting of the Bill of Exchange:
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Under this, banks give advance to their clients on the basis of their bills of exchange before the
maturity of such bills. (A deduction is made out of the not clear face value of the bill of the period the bill
is yet to run). This deduction is called Discounting to the Bill.
Investment in Government Securities:
Purchasing of government securities by the banks tantamount to advancing loans by them to
the government. Banks prefer to buy government securities as these are considered to be the safest
investment.
Negotiable Instruments
There are certain Documents used for payment in business transaction and are transferred
freely from one person to another. Such documents are called Negotiable Instruments like Cheque,
Bank Draft, bill of exchange, Promissory notes, etc.
Features of Negotiable Instruments:
It is a written document.
The holder of a Negotiable Instrument can sue upon it in his own name.
The consideration is not mentioned on the Negotiable Instrument. It is presumed that the
Negotiable Instrument has been drawn for a valuable consideration.
It works in the same manner as money and like money; it may also be transferred from one
person to another.
The transferor does not need to give notice to any person at the time of transferring the
instrument.
The title to the instrument received by a bonafide transferee is not affected by any defected in
the title of the transferor.
Types of Negotiable Instruments:
Promissory Note
Bill of Exchange
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Cheque
Exchequer Bill
Circular Note
Dividend Warrant
Share Warrant
Bearer Debenture
Bank Note
Bank Draft
EMV chip
Hologram
Card number
Expiration Date
Contactless Chip
4). Similarly the reverse side of a credit card consists of the following parts:
Magnetic Strip
Signature Strip
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Card issuing bank the financial institution or other organizations that issued the credit
card to the consumer
Merchant the individual or business accepting credit card payments for the products or
services sold to the consumer
Acquiring Bank the financial institution accepting the payment on behalf of the merchant
Credit card association an association of the card issuing banks that set transaction terms
for merchants, card issuing banks and acquiring banks.
Transaction networks the system that implements the mechanics of the electronic
transactions
Affinity partner an institution that lends their names to an issuer to attract customers that
have a strong relationship with that institution and get paid a percentage of the balance for
each card issued using their name
6). The transaction steps that are involved in the usage of a credit card are as follows:
Authorization verification done by the acquiring bank on the card number, the transaction
type and the amount with the issuing bank
Batching the authorized transactions are stored in batches which are sent to the acquirer
Clearing and Settlement the acquirer sends the batch transactions through the credit card
association which debits the issuers for payment and credits the acquirer
Funding once the acquirer has been paid, the acquirer in turn pays the merchant
Business credit cards specialized credit cards issued in the name of a registered business
and can only be used typically for business purposes
Secured credit cards its a card that is secured by a deposit account owned by the
cardholder. The cardholder must deposit between 100% to 200% of the total amount of
credit needed
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8). Advantages of credit card system to the banks
Scope and potential for better profitability out of share earned from the merchants income
Systematic accounting since sale receipts are routed through banking channels
Increase in sale because of increased purchasing power of the cardholder due to the
unbilled credit available to him
It provides proof of purchase through banking channels thus strengthening the cardholders
position in case of any disputes with the sellers
1). Letter of Credit (LC) is a document from a bank guaranteeing that a seller will receive payments in
full as long as certain delivery conditions have been met
2). If the buyer is unable to make payments on the purchase then the bank will cover the remaining
amount
3). LC are often used in international transactions where buyer and seller may not know each other and
are from different countries thus exposing the seller to credit and legal risks caused by
Distance
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Differing laws
4). The bank that writes the LC will act on behalf of the buyer and will make sure that all delivery
conditions have been met before making the payment to the seller
5). LC are governed by guidelines given by the International Chamber of Commerce known as Uniform
Customs and Practice for Documentary Credits (UCP)
6). LC is widely used in the importing and exporting companies and also in land development
7). To receive payments an exporter must present the documents required by the LC. The Payee
presents a document proving that the goods were sent instead of showing actual goods
8). Bill of lading (BOL) is the document accepted by the bank as proof that goods have been shipped
9). Types of documents required by the LC are as follows
Financial documents
a) Bill of exchange
b) Co-accepted draft
Commercial documents
a) Invoice
b) Packing list
Shipping documents
a) Transport document
b) Insurance certificate
c) Commercial, official or legal papers
Official documents
a) License embassy legalization
b) Origin certificate
c) Inspection certificate
d) Phytosanitary certificate
Transport documents
a) Bill of Lading
b) Airway bill
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c) Lorry/truck receipt
d) Railway receipt
Insurance documents
a) Insurance policy/certificate
10). The banks obligation is defined by the terms of the LC alone and the sale contract is irrelevant
according to the Article 4a of UCP
11). Article 5 of the UCP states that banks deal with documents only and they will not be accountable
for the goods
12). The different types of LCs are as follows
Import/Export LC
a) For importer Import LC
b) For exported Export LC
Revocable LC
a) The buyer and the bank that established the LC will be able to manipulate or make
corrections in the LC
b) This type of LC is obsolete
Irrevocable LC
a) Any changes or cancellation of LC is done by the applicant through the issuing bank
b) It must be authorized and approved by the beneficiary
Restricted LC - Only one advising bank can purchase a bill of exchange from the seller
Unrestricted LC the confirmation bank is not specified that means the exporter can show
the bill of exchange to any bank and receive a payment
Transferrable LC
a) It can be transferred to a second party at the request of the 1st beneficiary
b) A transferrable LC can be transferred to more than one alternate beneficiary as long
as it allows partial shipments
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Un-transferrable LC
a) The seller cannot assign all or part of LC to another party
b) In international commerce all credits are un-transferrable
Deferred/Usance LC
a) A credit that is not paid immediately after the presentation but after an indicated
period that is accepted by both the seller and buyer
b) Seller allows buyer to pay the required money after taking the related goods and
selling them
At Sight LC a credit that the announcer bank immediately pays after inspecting the
carriage documents from the seller
Back to Back LC
a) A pair of LCs in which one is to the benefit of a seller who is not able to provide the
corresponding goods for unspecified reasons
b) In that situation a second credit is opened for another seller to provide the desired
goods
c) It is issued to facilitate intermediary trade
Standby LC
a) Operates like a Commercial LC except that it is retained as a standby instead of
being the intended payment mechanism
Red Clause LC
a) The terms and conditions are particularly written in red ink
b) Before sending the products seller can take the pre-paid part of the money from
the bank
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Some of the important money market instruments are briefly discussed below;
1. Call/ Notice Money
2. Treasury Bills
3. Term Money
4. Certificate of Deposit
5. Commercial Papers
1. Call/Notice- Money Market: 1. Call/Notice money is the money borrowed or lent on demand for a
very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money.
Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and
repaid on the next working day, (irrespective of the number of intervening holidays) is Call Money.
Notice Money: When money is borrowed or lent for more than a day and up to 14 days, it is Notice
Money. No collateral security is required to cover these transactions.
2. Inter-Bank Term Money: Inter-bank market for deposits of maturity beyond 14 days is referred to as
the term money market. The entry restrictions are the same as those for Call/Notice Money except that,
as per existing regulations, the specified entities are not allowed to lend beyond 14 days.
3. Treasury Bills: Treasury Bills are short term (up to one year) borrowing instrument of the union
government. It is a promise by the Government to pay a stated sum after expiry of the stated period
from the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the
face value, and on maturity the face value is paid to the holder. The rate of discount and the
corresponding issue price are determined at each auction.
4. Certificate of Deposits: Receipt issued by a depository institution (such as a bank, credit union, or a
finance or insurance company) to a depositor who opens a certificate account or time deposit account.
Issued in a negotiable or non-negotiable form, it states the (1) amount deposited, (2) rate of interest,
and (3) minimum period for which the deposit should be maintained without incurring early withdrawal
penalties.
5. Commercial Paper: An unsecured obligation issued by a corporation or bank to finance its short-term
credit needs, such as accounts receivable and inventory- Commercial paper is available in a wide
range of denominations, can be either discounted or interest- bearing, and usually have a limited have
or nonexistent secondary market.
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Important Points
1.
2.
Central Bank of India is the first Indian bank to be fully owned by Indians.
3.
Bank of India is the first bank to open its branch outside the India (at London, 1946).
4.
5.
ICICI Bank is the largest Private Sector Bank in India to have Rs. One Trillion Market value. It is
the first Universal Bank in India.
6.
Punjab National Bank is the First Indian Bank to have unlimited liability.
7.
8.
Canara Bank has received ISO 9002 certificate to its one of the branch.
9.
SBI is the largest commercial Bank in India, and Government holds 51% of Shares of the SBI.
10.
Indian Postal Department has launched a Stamp in the name of the Central Bank of India
celebrating its 100 years in 2011.
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Abbreviations
Full Forms
1.
NABARD
2.
RTGS
3.
NEFT
4.
NAV
5.
NPA
6.
ASBA
7.
BIFR
8.
CAMELS
9.
BCSBI
10.
BIS
11.
BCBS
12.
BOP
Balance of Payment
13.
BOT
Balance of Trade
14.
BPLR
15.
CCIL
16.
CIBIL
17.
CRISIL
18.
CBLO
19.
CPI
20.
ADR
21.
GDR
22.
ALM
23.
ARC
24.
FINO
25.
CTT
26.
CRM
27.
KYC
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28.
SLR
29.
CRR
30.
MSF
31.
REPO
Repurchase Option
32.
NBFC
33.
OSMOS
34.
IFSC
35.
BSE
36.
NSE
37.
SWIFT
38.
FSLRC
39.
LAF
40.
DRT
41.
REER
42.
PPP
43.
QFI
44.
AMFI
45.
TIEA
46.
FTA
47.
GAAR
48.
FEMA
49.
FII
50.
FINO
51.
FRBMA
52.
GIRO
53.
CRAR
54.
DICGC
55.
FIPB
56.
EFSF
57.
DTAA
58.
TIN
59.
CAD
60.
AML
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61.
ALM
62.
ASBA
63.
CBS
64.
MSF
65.
OLTAS
66.
InvITs
67.
CDR
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