Banking Awareness Notes by Banking Teacher Das Sir, Kolkata (09038870684) PDF

THIS STUDY NOTES IS PREPARED BY DAS SIR WHO PREPARES STUDENTS FOR BANKING EXAMS
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BANKING AWARENESS STUDY NOTES BY DAS
SIR,KOLKATA(09038870684)

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Electronic Fund Transfer System (EFT)

Q.1. What is RBI-EFT System?
Ans RBI EFT is a Scheme introduced by Reserve Bank of India (RBI) to
help banks offering their customers money transfer service from account to
account of any bank branch to any other bank branch in places where EFT
services are offered.
Q.2. At how many centres and bank branches is the EFT facility
available?
Ans The EFT system presently covers all the branches of the 27 public
sector banks and 55 scheduled commercial banks at the 15 centres (viz.,
Ahmedabad, Bangalore, Bhubneshwar, Kolkata, Chandigarh, Chennai,
Guwahati, Hyderabad, Jaipur, Kanpur, Mumbai, Nagpur, New Delhi, Patna
and Thiruvananthpuram). Funds transfer is possible from any branch of
these banks at these centres to other branch of any bank at these centres
both inter-city and intra-city.
Q.3. What is the funds availability schedule for the beneficiary?

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Ans The remitting bank transmits the funds transfer message to RBI so as
to reach NCC, before the cut off time for the settlement, the receiving
banks account is credited by RBI at the destination centre and beneficiary
gets credit on the same day.
Q.4. How does the RBI EFT system operate?
Ans Step-1: The remitter fills in the EFT Application form giving the
particulars of the beneficiary (city, bank, branch, beneficiarys name,
account type and account number) and authorises the branch to remit a
specified amount to the beneficiary by raising a debit to the remitters
account.
Step-2: The remitting branch prepares a schedule and sends the duplicate
of the EFT application form to its Service branch for EFT data preparation.
If the branch is equipped with a computer system, data preparation can be
done at the branch level in the specified format.
Step-3: The Service branch prepares the EFT data file by using a software
package supplied by RBI and transmits the same to the local RBI (National
Clearing Cell) to be included for the settlement.
Step-4: The RBI at the remitting centre consolidates the files received from
all banks, sorts the transactions city-wise and prepares vouchers for
debiting the remitting banks on Day-1 itself. City-wise files are transmitted
to the RBI offices at the respective destination centres.
Step-5: RBI at the destination centre receives the files from the originating
centres, consolidates them and sorts them bank-wise. Thereafter, bank-
wise remittance data files are transmitted to banks on Day 1 itself. Bank-
wise vouchers are prepared for crediting the receiving banks accounts the
same day or next day.
Step-6: On Day 1/2 morning the receiving banks at the destination centres
process the remittance files transmitted by RBI and forward credit reports
to the destination branches for crediting the beneficiaries accounts.
Q.5. How is this RBI EFT System an improvement over the existing
facilities?

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Ans The primary modes of funds transfer at present are demand draft, mail
transfer and telegraphic transfer. The demand draft facility is paper based.
The remitter, after purchasing demand draft from a bank branch,
dispatches the same by post/courier to the beneficiary. The beneficiary, in
turn, lodges the draft to his/her bank for collection and clearing. The time
taken for completing the process is about 10 days. In the case of
telegraphic transfer, fund reaches the beneficiary either on the same day or
the next; but both the remitter and the beneficiary would have to be account
holders of the same bank. If they are customers of different banks, a good
deal of paper processing is required. On the other hand, RBI EFT system is
an inter-bank oriented system. RBI acts as an intermediary between the
remitting bank and the receiving bank and effects inter-bank funds transfer.
The customers of banks can request their respective branches to remit
funds to the designated customers irrespective of bank affiliation of the
beneficiary.
Q.6. Any limit on the amount of individual transaction?
Ans There is no value limit for individual transactions.
Q.7. What is the procedure for acknowledgment? How would the
sending branch know that the remitted amount has been credited to
the beneficiary?
Ans The receiving branch acknowledges every transaction it receives after
crediting the beneficiarys account. The acknowledgment particulars reach
the remitting branch as an inward message on Day 3 of the EFT
processing cycle. The remitting branch will, therefore, have precise
information as to when the beneficiarys account was credited.
Q.8. Is it necessary for all branches to install computer system?
Ans No. It is not necessary for all branches to have computer systems.
Branches can send the remittance details to their service branch in paper
format (the copies of the EFT Application Forms submitted by the remitting
customers accompanied by a Remittance Scroll). The Service branch will
make data entry and transmit the funds transfer information electronically to
local NCC. But, if a branch has computer facility, it can transmit funds
transfer information electronically to its service branch either on a floppy or
through a network. This would minimise the data entry work at the service
branch.

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Q.9. What additional organisational structure banks would be required
to create?
Ans Each participating bank has to identify a branch at the respective
centre to act as the link point for transmitting all outward messages and
receiving all inward messages. The Service Branches/Main Branches of
banks who have been coordinating the cheque-clearing work are in the
best position to discharge this role. So no additional organisational
infrastructure is required to be created.
Q.10. What about Processing charges/Service charges
Ans While RBI has waived processing charges till March 31, 2008, levy of
service charges by banks is left to the discretion of respective banks.

ECONOMIC TERMS IN BANKING:

Active Market

This is a term used by stock exchange which specifies the particular
stock or share which deals in frequent and regular transactions. It helps
the buyers to obtain reasonably large amounts at any time.

Administered Price

The administrative body e.g., the government a marketing board or a
trading group determines this price. The competitive market force are
not entitled to determine this price. The government fixes a price in
accordance with demand supply portion in the market.

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Ad-valorem TaxAd-valorem tax is a kind of indirect tax in which goods
are taxed by their values. In the case of ad-volorem tax, the tax amount
is calculated as the proportion of the price of the goods. Value added
Tax (VAT) is an ad-volorem Tax.

Advanced Countries

Advanced countries are countries which are industrially advanced,
having high national and per capita income and ensure high rate of
capital formation. These countries possess highly developed
infrastructure and apply most updated and advanced technical know-
how in their productive activities. A strong and well organised financial
structure is found in these advanced countries.

Amalgamation

It means merger. As and when necessity arises two or more
companies are merged into a large organisation. This merger takes
place in order to effect economies, reduce competition and capture
market. The old firms completely lose their identity when the merger
takes place.

Appreciation

Appreciation means an increase in the value of something e.g., stock of
raw materials or manufactured goods. It also includes an increase in the
traded value of a currency. It is the antonym of Depreciation. When the

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prices rise due to inflation, appreciation may occur. It causes scarcity or
increase in earning power.

Arbitrage

When a person performs functions of middle man and buys and sells
goods at a particular time to cash the price differences of two markets,
this action is termed as arbitrage. Purchases are made in the market
where price is low and at the same time, goods are sold in other market
where the price are high. Thus the middleman earns profit due to price
difference in two markets.

Arbitration

Where there is an industrial dispute, the Arbitration comes to the force.
The judgement is given by the Arbitrator. Both the parties have to
accept and honour the Arbitration. Arbitration is the settlement of
labour disputes that takes place between employer and the employees.

Auction

When a commodity is sold by auction, the bids are made by the buyers.
Whose ever makes the highest bid, gets the commodity which is being
sold. The buyers make the bid
taking into consideration the quality and quantity of the commodity.

Autarchy


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If a country is self-sufficient, it does not require the imports for the
country. Autarchy is an indicator of self-sufficiency. It means that the
country itself can satisfy the needs of its population without making
imports from other countries.

Automation

Automation means the use of machinery & technology to replace the
labours work. Automation increases the demand of skilled workers.
Unskilled and semiskilled workers are reduced as a result of
automation.

Balanced Budget

When the total revenue of the government exactly equals the total
expenditure incurred by the government, the budget becomes a
balanced budget. But it is a conservative view point. In present days,
the welfare government has to regulate a number of economic and
social activities which increase the expenditure burden on the
government and results in deficit budget.

Balance of Payment

Balance of payment of a country is a systematic record of all economic
transactions completed between its residents and the residents of
remaining world during a year. In other words, the balance of payment
shows the relationship between the one country's total payment to all
other countries and its total receipts from them. Balance of payment is

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a comprehensive term which includes both visible and invisible items.
Balance of payment not only include visible export and imports but also
invisible trade like shipping, banking, insurance, tourism, royalty,
payments of interest on foreign debts.

Balance of Trade

Balance of trade refers to the total value of a country's export
commodities and total value of imports commodities. Thus balance of
trade includes only visible trade i.e., movement of goods (exports and
imports of goods). Balance of trade is a part of Balance of payment
statement.

Balance Sheet

Balance sheet is a statement showing the assets and liabilities of a
business at a certain date. Balance sheet helps in estimating the real
financial situation of a firm.

Bank

Bank is a financial institution. It accepts funds on current and deposit
accounts. It also lends money. The bank pays the cheques drawn by
customers against current and deposits accounts. The bank is a trader
that deals in money and credit.

Bank Draft


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Banker's draft is a negotiable claim drawn upon a bank. Drafts are as
good as cash. The drafts cannot be returned and unpaid. Draft is issued
when a customer shows his unwillingness to accept cheque in payment
for his services or mercantile goods. Bank Draft is safer than a cheque.

Bank Rate

Bank Rate is the rate of discount at which the central bank of the
country discounts first class bills. It is the rate of interest at which the
central bank lends money to the lower banking institutions. Bank rate is
a direct quantitative method of credit control in the economy.

Bilateralism

It implies an agreement between two countries to extend to each other
specific privileges in their international trade which are not extended to
others.

Birth Rate

Birth Rate (or Crude Birth Rate) is number of the births per thousand of
the population during a period, usually a year. Only live births are
included in the calculation of birth rate.

Black Money

It is unaccounted money which is concealed from tax authorities. All
illegal economic activities are dealt with this black Money. Hawala

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market has deep roots with this black money. Black money creates
parallel economy. It puts an adverse pressure on equitable distributi on
of wealth and income in the economy.

Blue Chip

It is concerned with such equity shares whose purchase is extremely
safe. It is a safe investment. It does not involve any risk.

Blue Collar Jobs

These Jobs are concerned with factory. Persons who are unskilled and
depend upon manual jobs that require physical strain on human muscle
are said to be engaged in Blue Collar Jobs. In the age of machinery, such
Jobs are on the decline these days.

Brain-Drain

It means the drift of intellectuals of a country to another country.
Scientists, doctors and technology experts generally go to other
prominent countries of the world to better their lot and earn huge
sums of money. This Brain-Drain deprives a country of its genius and
capabilities.

Bridge Loan

A loan made by a bank for a short period to make up for a temporary
shortage of cash. On the part of borrower, mostly the companies for

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example, a business organization wants to install a new company with
new equipments etc. while his present installed company / equipments
etc. are not yet disposed off. Bridge loan covers this period between
the buying the new and disposing of the old one.

Budget

It is a document containing a preliminary approved plan of public
revenue and public expenditure. It is a statement of the estimated
receipt and expenses during a fixed period, it is a comparative table
giving the accounts of the receipts to be realized and of the expenses to
be incurred.

Budget Deficit

Budget may take a shape of deficit when the public revenue falls short
to public expenditure. Budget deficit is the difference between the
estimated public expenditure and public revenue. The government
meets this deficit by way of printing new currency or by borrowing.

Bull

Bull is that type of speculator who gains with the rise in prices of shares
and stocks. He buys share or commodities in anticipation of rising prices
and sells them later at a profit.

Bull Market


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It is a market where the speculators buy shares or commodities in
anticipation of rising prices. This market enables the speculators to
resale such shares and make a profit.

Buoyancy

When the government fails to check inflation, it raises income tax and
the corporate tax. Such a tax is called Buoyancy. It concerns with the
revenue from taxation in the period of inflation.

Business Cycle

Business cycle (also known as trade cycle) are species of fluctuations in
the economic activity of organised communities. It is composed of
period of good trade characterised
by rising prices and low unemployment, alternating with period of bad
trade characterised by falling prices and high unemployment. Every
trade cycle have five different subphasesdepression, recovery, full
employment, prosperity (boom) and recession.

Call Money

Call money is in the form of loans and advances which are payable on
demand or within the number of days specified for the purpose.

Capital Budgeting

Capital budgeting represents the process of preparing budget for a

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period of a year or even for several years allocating capital outlays f or
the various investment projects. In other words, it is the process of
budgeting capital expenditure by means of an annual or longer period
capital budget.

Capital-labour Ratio

Latest models of machinery and equipment raise the labour efficiency
and the output is maximized. Capitallabour ratio is the amount of
capital against the given labours that a firm employs. Capital-labour
ratio is the ratio of capital to labour.

Capital Market

Capital market is the market which gives medium term and long term
loans. It is different from money market which deals only in short term
loans.

Capitalism

Capitalism is an economic system in which all means of production are
owned by private individuals Selfprofit motive is the guiding feature for
all the economic activates under capitalism. Under pure capitalism
system economic conditions are regulated solely by free market forces.
This system is based on Laissez-faire system i.e., no state intervention.
Sovereignty of consumer prevails in this system. Consumer behaves like
a king under capitalism.


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Cash Reserve Ratio (CRR)

The commercial banks are required to keep a certain amount of cash
reserves at the central bank. This percentage amount is called CRR. It
influences the commercial banks volume of credit because variation in
CRR affects the liquidity position of the banks and hence their ability to
lend.

Census

Census gives us estimates of population. Census is of great economic
importance for the country. It tells us the rate at which the total
population is increasing among different age groups. In India census is
done after every 10 years. The latest census in India has been done in
2001.

Central Bank

Central Bank may be defined as the apex barking and monetary
institution whose main function is to control, regulate and stabilize the
banking and the monetary system of the country in the national
interest.

Cheque

Cheque is an order in writing issued by the drawer to a bank. If the
customer has sufficient amount in his account, the cheque is paid by
the bank. Cheques are used in place of cash money.

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Clearing Bank

Clearing bank is one which settles the debits and credits of the
commercial banks. Even of the cash balances are lesser, clearing bank
facilitates banking operation of the commercial bank.

Clearing House

Clearing house is an institution which helps to settle the mutual
indebtedness that occurs among the members of its organisation.

Closed Economy

Closed economy refers to the economy having no foreign trade (i.e.,
export and import). Such economies depend exclusively on their own
internal domestic resources and have
no dependence on outside world.

Collusion

Producers of an industry reduce competition among themselves to
raise their profits. They fix the price themselves with a clear
understanding in this regard. This understanding among different firms
is called collusion.

Coinage


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Art and practice of making coins is called coinage. The metal is melted
and moulded to shape into a coin. The coinage is a medium of
exchange (money).

Collectivism

Collectivism is a belief that nation's interest is superior to individual
interest. This is the collective thinking of the society and polity national
leaders and also communist opine the theory of collection.

Commercial Bank

Commercial Bank is an institution of finance. It deals with the banking
services through its branches in whole of the country. Operation of
current accounts, deposits, granting of loans to individuals and
companies etc. are various functions of the commercial bank.

CommunismCommunism is a political and economic system in which
the state makes the major economic decision State owns the bulk of
capital assets. Responsibility for production and distribution lies with
the state in this system.

Core SectorEconomy needs basic infrastructure for accelerating
development. Development of infrastructure industries like cement,
iron and steel, petroleum, heavy machinery etc. can only ensure the
development of the economy as a whole. Such industries are core
sector industries.


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Corporation Tax

It is a tax on company's profit. It is a direct tax which is calculated on
profits after interest payments and allowance (i.e., Capital allowance)
have been deducted but before dividends are allowed for.

Cost-push InflationIt arises due to an increase in production cost. Such
type of inflation is caused by three factors : (i) an increase in wages, (ii)
an increase in the profit margin and (iii) imposition of heavy taxation.

Credit RationingCredit rationing takes place when the banks
discriminates between the borrowers. Credit rationing empowers the
bank to lend to some and to refuse to lend to others. In this way credit
rationing restricts lending on the part of bank.

Credit SqueezeMonetary authorities restrict credit as and when
required. This credit restriction is called credit squeeze. Monetary
authorities adopt the policy of credit squeeze to control inflationary
pressure in the economy.

Custom DutyCustom duty is a duty that is imposed on the products
received from exporting nations of the world. It is also called protective
duty as it protects the home industries.

Cyclical UnemploymentIt is that phase of unemployment which
appears due to the occurrence of the downward phase of the trade
cycle. Such an employment is reduced or eliminated when the business
cycle turns up again.

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Dear Money

Dear money is that money which can only be borrowed at a high rate of
interest. In dear money policy, bank rate and other rates of interest are
high and as a result borrowing becomes expensive. Dear money policy
is deliberate policy which is adopted by the monetary authorities to
check inflation in the economy.

Death Duty

It is a direct tax which is imposed on the estate of deceased person.
Death duty or Death Tax is a form of personal tax on property which is
levied when property passes from one person to other at the time of
death of the former.

Death Rate

Death rate signifies the number of deaths in a year per thousand of the
population. It is mostly known as crude death rate. Life expectancy is
important determinant of death rate.
A country having high life expectancy will have a high crude death rate.

DecentralisationDecentralisation means the establishment of various
unit of the same industry at different places. Large scale organisation or
industry can not be run at one particular place or territory. In order to
increase the efficiency of the industry, various units at different places
are located.

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Debt Service (Total)

The sum of principal repayments and interest actually paid in foreign
currency, goods and services on longterm debt (having maturity of
more than one year), interest paid on shortterm debt and repayments
to IMF.

Deficit Financing

It is a practice resorted to by modern government of spending more
money than it receives in revenue. It is a policy of bridging a deficit
between governments expenditure and revenue. Deliberately
budgeting for a deficit is called deficit financing. This practice was
popularised by Prof. J. M. Keynes to deal with the depression and
unemployment situations and to stimulate economic activity. Deficit
financing, though having inflationary effects, has now become a
common practice in all countries.

Deflation

Deflation is the reverse case of inflation. Deflation is that state of falling
prices which occurs at that time when the output of goods and services
increases more rapidly than the volume of money in the economy. In
the deflation the general price level falls and the value of money rises.

Devaluation


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The loss of value of currency of a country relative to other foreign
currency is known as devaluation. Devaluation is a process in which the
government deliberately cheapens the exchange value of its own
currency in terms of other currency by giving it a lower exchange value.
Devaluation is used for improving, the balance of payment situation in
the country.

Direct Tax

A tax is said to be a direct tax when it is not intended to be shifted to
anybody else. The person who pays it in the first instance is also
excepted to bear it. Thus the impact and incidence of di rect tax fall on
the same person shifting of direct tax is not possible Income Tax is a
example of direct tax.

Disinflation

It refers to a process of bringing down prices moderately from their
high level without any adverse impact on production and employment.
Thus, disinflation is an anti-inflationary measure.

DissavingDissaving occurs when expenditure exceeds income. Raising
of loans or utilization of past accumulated savings takes place in such
eventuality.

Dividend

Dividend is the amount which the company distributes to shareholders

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when the profits of the company are calculated by the board of
directors.

Economic Integration

Economic integration appears when two or more nations coordinate
themselves and their economies are linked up. It may exhibit itself in
the form of free trade area or a full economic union. EEC is an example
of economic integration.

Engel's Law

This law was formulated by Ernst Engel. This law states that, with given
taste and preference, the portion of income spend on food diminishes
as income increases. According to this law, smaller a person's income,
the greater the proportion of it that he will spend on food and vice
versa.

Estate DutyIt is a tax which is levied on the estate of a decreased
person. It is also known as death duty. The ownership of state changes
hands only after the payments of the estate duty. It is an progressive
tax in nature.

Excise Duty

It is a tax which is imposed on certain indigenous production (e.g.,
petroleum products, cigarettes etc.) of the country. Excise duty may be
imposed either to raise revenue or to check the consumption of the

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commodities on which they are imposed. Excise duty is progressive in
nature.

Face ValueIt refers to that normal value of coin at which the coin
circulates and is accepted in the discharge of debit or obligation.
Broadly speaking, the face value refers to domination stamped on a
coin / or documents when it is issued. In securities, it refers to par
value.

Fascism

It is a form of political system. In it every economic consideration rests
on one criterionthe increase in the people's standard of living. It also
lays emphasis on military
strength and prestige of the country. It is the extreme nationalism and
the ultimate goal is self-sufficiency.

Federal EconomyIt refers to a federation which is an association of two
and more states. A federal state is a union of state in which authority is
divided between the federal (or central) government and the state
governments. In a federal economy both the centre and the states are
independent in the exercise of this authority.

Fiduciary IssueGenerally bank-note are backed by gold. But when they
are not backed by gold and government securities replace gold, it is
called fiduciary issue. Such fiduciary issue results in inflation.

Fertility Rate

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The term fertility refers to the actual bearing of children or occurrence
of births. Fertility rate measures the average number of the live births
per 1000 women. This rate is one of the most important and useful aids
to population projection. It helps in assessing population trends in the
economy.

Fiscal PolicyFiscal policy is that part of government economic policy
which deals with taxation, expenditure, borrowing, and the
management of public debt in the economy. Fiscal policy primarily
concerns itself with the flow of funds in the economy. Fiscal policy
primarily concerns itself with the flow of funds in the economy. It
exerts a very powerful influence on the working of economy as a whole.

GEM

GEM (Gender Empowerment Measure) is a composite index measuring
gender inequality in three basic dimensions of empowerment
economic participation and decision making, political participation and
decision making, and power over economic resources.

GDI

GDI (Gender Related Development Index) is a composite index
measuring average achievement in the three basic dimensions captured
in the human development indexa long and healthy life, knowledge
and a decent standard of livingadjusted to account for inequalities
between men and women.

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Gini-coefficientIt represents the measurement of inequality derived
from the Lorenz Curve, with every increase in the degree of inequality,
the curvature of the Lorenz Curve also increases and
the area between the curve and 45 line becomes larger.
The Gini-coefficient is measured as
G =Area between Lorenz Curve & 45 Line/Area above the 45 Line

Giffin Goods

Giffin goods have the positive relationship between price and quantity
demanded and as a result demand curve of Giffin goods slopes upward
from left to right. This phenomenon was first observed by Sir Robert
Giffin in relation to the demand for bread by poor labours.

Gresham's Law

Bad money (if not limited in quantity) drives good money out of
circulationThis statement was given by Sir Thomas Gresham, the
economic Adviser of Queen Elizabeth. This law states that people
always want to hoard good money and spend bad money when two
forms of money are in circulation at the same time.

Gross Domestic Product (GDP)It is the money value of all final goods
and services produced within the geographical boundaries of the
country during a given period of time (usually a year). GDP can be
calculated both at current prices and at constant prices. If we add net
factor income from abroad to the GDP, we get Gross National Product

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(GNP).

Gross National Product (GNP)

It refers to the money value of total output or production of final goods
and services produced by the nationals of a country during a given
period of time, generally a year.

Gross National Product Deflator

It is a Price Index Number used to correct the money value of Gross
National Product (GNP) for price changes so as to isolate the changes
which have taken place in the physical output of goods and services.

Guild Socialism

This form of socialism accepts the leadership of artisans. The operation
of the whole economy specially the management and control of
industries lies in the hands of artisans Socialism established by artisans
is termed a Guild Socialism.

HDI

HDI (Human Development Index) is a composite index measuring
average achievement in three basic dimensions of human lifea long
and healthy life, knowledge and a decent standard of living.

Import Duty

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Import duty is a tax on imports imposed on an ad-valorem basis i.e.,
fixed in the form of a percentage on the value of the commodity
imported.

Indirect Tax

Indirect tax is that tax which is levied on goods or services produced or
purchased. Indirect taxes are those which are demanded from one
person in the expectation and intention that he shall indemnify himself
at the expense to another.

Inflation

A situation of a steady and sustained rise in general prices is usually
known as inflation. Inflation is a state in which the value of money is
falling i.e., prices are rising.

Joint Demand

Joint demand appears in case of complementary goods. When two
commodities are complementary to one another and cannot be used
separately, they have joint demand. Bread and butter, sugar and tea,
pen and ink are a few examples of joint demand. In joint demand a
change in demand of one commodity bring about the proportionate
change in demand for the other.

Joint Sector

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When a sector is jointly owned, managed and run by both public and
private sector, it is called joint sector. This sector indicates the
partnership between the two i.e., public and private sector.

Labour Union

Labour union represents that organisation of workers which works for
improving working condition of labours and also for raising their wage
by adopting collective bargaining measures with the management of
the industry in particular.

Laffer Curve

This curve is given by American economist Prof. Arthur Laffer. It
represents relationship between total tax revenue and corresponding
tax rates.

Laissez Faire

It is a French word meaning non-interference. This doctrine was
popularised by classical economists who gave the view that
government should interfere as little as possible in the economic
activities of the individuals.

Life Expectancy at Birth

The number of years a newborn infant would live if prevailing pattern

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of age specific mortality rates at the time of birth were to stay the same
throughout the childs life.

Liquidation

It refers to the termination (or winding up) of a registered company.
Liquidation takes place because of company's insolvency. In liquidation,
assets are turned into cash for settling outstanding debts and for
apportioning the balance, if any, amongst the owners.

Liquidity

Assets which can easily be converted into cash money are said to have
liquidity. Land does not possess liquidity at it takes longer time to get
converted into cash.

Liquidity Ratio

The commercial banks under banking regulations have to maintain a
certain specified proportion of their total deposits of various categories
in liquid assets. This maintainable proportion is called liquidity ratio.

Lock-out

Lock-out refers to such a situation when the management does not
permit the workers to work unless they agree to accept the employer's
term. Lock-out is the closing of work by the management for an
uncertain period of time to put pressure on the labour union. It is an

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action by the employer equivalent to a strike by employees.

Lorentz Curve

This curve shows the degree of inequalities of a frequency distribution
in a graphical manner. It is a curve on a graph which shows the
cumulative proportion of a statistical population against this cumulative
share of some characteristic. This curve is commonly used to depict
income distribution showing the cumulative percentage of people from
the poorest up and their cumulative share of national income.

Lump Sum Tax

Lump sum tax is a fixed amount which has imperative nature
irrespective of the income level. This tax is not equitable in nature.

Merit Goods

Merit goods refer those goods that are very essential to the society as a
whole and hence the government ensures their availability to all
consumers, regardless of their ability to pay to reasonable price.

Mixed EconomyIt refers to that economic system in which both private
and public sector co-exists. Indian economy is an example of a mixed
economy.

Monetary Policy


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Monetary policy comprises all measures applied by the monetary
authorities with a view to produce a deliberate impact on the nature
and volume of money so as to achieve the objectives of general
economic policy. It aims at regulating the flow of currency, credit and
other money substitutes in an economy with a view to affect the total
stock of such assets as well as to influence the demand of the
community for such assets.

Monetary Reforms

When a new currency is introduced in a country due to hyperinflation
or due to a deliberate policy measure (such as decimalization) it is
termed as monetary reform.

Monopoly

Monopoly refers to that market structure where there is only one sel ler
in the market who controls the entire market supply and no substitute
of the product is available in the market.

Monopsony

Monopsony is that market situation in which there is only one single
buyer of the product in the market. In other word, buyer's monopoly
is termed as monopsony.

Multinational Company


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It is a large scale company which has its production base in several
countries and the bulk of the production is produced in outside nations.
This company produces more overseas
than they do in its parent country. Increased trade and economies of
scale have encouraged such type of companies in the recent years.

National Income

In the simplest way it can be defined as factor income accruing to the
national residents of a country. It is the sum of domestic factor income
and net factor income earned from abroad. Net national product at
factor cost is called national income.

Net National Product (NNP)

When depreciation is deducted from GNP i.e., Gross National Product,
we get Net National Product (NNP).

Oligopoly

Oligopoly is that form of imperfect competition in which there are only
a few firms in the industry (or group) producing either homogeneous
products or may be having product differentiation in a given line of
production.

Open Economy

Open economy is that economy which is left free and the government

32

imposes no restrictions on trade with areas outside that economy.

Okuns Law

Arthur Okun presented an empirical relationship between cyclical
movements in GNP and unemployment. Okun found that an annual
25% increase in the rate of real growth above the trend growth results
in a 1% decrease in the rate of unemployment. This relationship is
known as Okuns Law.

Perfect Competition

Perfect competition is the market in which there are many firms selling
identical products with no firm large enough relative to the entire
market to be able to influence market price.

Poverty Line

Poverty line is a virtual line demarcating persons living below and above
it. In India all those persons are treated living below poverty line who
are not able to earn that much of income which is not sufficient to
acquire food equivalent to 2100 calories per person per day in urban
areas and 2400 calories per person per day in rural areas. As per UNDP,
one US dollar (1993 PPP US $) per person per day is treated as poverty
line.

PQLI


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PQLI is known as Physical Quality of Life Index which is used to assess
the level of social development. This index was developed by Jim Grant
for The Overseas Development Council PQLI is calculated by using
indices of (i) Adult literacy rate, (ii) IMR, (iii) Life Expectancy.

Price Mechanism

Price mechanism signifies the working of those market forces which
establishes equilibrium in the economy. Laissez faire policy is the basis
for the working of price mechanism.

Price Ring

It is an unofficial syndicate by which the prices are controlled with the
prior understanding among the traders. These dealers under a price
ring decide not to over-bid one another at the public auction to keep
the prices low. This price ring may discourage outsiders from coming to
the auctions.

Private Sector

Private Sector is that part of the economy which is not owned by the
government and is under the hands of private enterprise. In other
words, private sector is not under direct government control. Private
sector includes the personal as well as the corporate sector.

Privatisation


34

Privatisation is the antithesis of nationalisation. When the government
owned public industries are denationalised and the disinvestment
process is initiated, it is called privatisation.

Public Debt

Public debt represents borrowing by the state and public authorities. All
loans taken by the public authorities constitute public debt.

Public Goods

Public goods are those goods which belong to the entire community.
None of the individual of the society can be made deprived of using
these public goods. National defence, Police, Street lighting etc. are
examples of public goods.

Public SectorPublic sector signifies those undertakings which are
owned, managed and run by public authorities. Public sector includes
direct government enterprise, the nationalized industries and public
corporations. In this sector of the economy the government acts itself
as an entrepreneur.

Peril Point

It indicates that point beyond which tariff reductions would threaten
the existence of domestic industry.

Quick Asset

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Those assets are quick assets which are liquid or nearly liquid in nature
and easily be turned into cash.

Quoted Company

That company is called quoted company whose share prices are quoted
on a stock exchange.

Reflation

It signifies general increase in the level of business activity in the
economy. Reflation generally involves greater government expenditure
and the easing of credit to encourage increased production.

Regressive Tax

It is a tax in which rate of taxation falls with an increase in income. In
regressive taxation incidence falls more on people having lower
incomes than that of those having higher incomes.

Repressed Inflation

It is a state in which aggregate demand is greater than the total supply
of goods and services in an economy, but prices are prevented from
rising to eliminate excess demand. The holding down of price is
sometimes done by government as a means of suppressing inflation.


36

Reserve Asset Ratio

It is the ratio of a banks reserve assets to its eligible liabilities.

Revolving Credit

It is a bank credit that is renewed automatically until notice of
cancellation is recei ved. Revolving credits may be sanctioned for an
unlimited amount in total but with a limit on
the amount that may be drawn at any one time or within a specified
period, e.g., one month.

Seasonal UnemploymentIt is that unemployment which is caused by
seasonal variation in demand for labour by various industries, such as
agriculture, construction and tourism. Seasonal unemployment
normally declines in spring as more outdoor work can be undertaken.

Security

Security refers to a share, bond or government stock that can be
bought and sold, usually on the stock exchange or on a secondary
market, and carries a right to some form of income, either in the form
of a fixed rate of interest or dividends.

Shadow PriceIt is an imputed value for a good based on the
opportunity costs of the resources used to produce it such values are of
particular significance in resolving problems of resource allocating with
respect to the effect on welfare.

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Share Capital

It is the amount of money raised by a company by issuing shares. The
authorized share capital is the amount that a company is allowed to
issue as laid down in its Articles of Association. The issued share capital
is the amount actually issued i.e., the number of issued shares
multiplied by their par value. Fully paid share capital is the amount
raised by payment of the full par value of the issued shares.

Single Tax System

It is a system in which all tax revenues are raised from one form of
taxation.

Socialism

The political doctrine that the means of production (machines,
materials and output) should be owned by society and specifically
either by the state, as in the case of nationalized industries or by the
workers directly, as in the case of producer co-operatives.

Social SecurityProvision by the state out of taxation of welfare
assistance to those in need as a result of illness, unemployment, or old
age compare national insurance refers to social security.

Soft CurrencyA currency with limited convertibility into gold and other
currencies, either because it is depreciating due to balance of payments

38

difficulties or because controls have been placed on it to prevent the
exchange rate falling.

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 reserves along with gold, reserve positions in the IMF and
convertible foreign currencies.

Special Tax (Unit Tax)

It is a tax imposed per unit of a commodity rather than on the value of
the commodity compare ad-valorem.

Stabilization Policy

It is Government economic policy announced at reducing the cyclical
and other fluctuations that take place in a market economy.

Stagflation

It is a state of the economy in which economic activity is slowing down,
but wages and prices continue to rise. The term is a blend of the words
stagnation and inflation.

Surplus Value

39

It is the difference between the amount paid to a factor and the
revenue earned by selling the output it produced.

Tariff

It is a tax or a duty on imports, which can be levied either on physical
units, e.g., per tonne (specific), or on value (ad-valorem). Tariffs may be
imposed for a variety of reasons including; to raise government
revenue, to protect domestic industry from subsidized or low-wage
imports, to boost domestic employment, or to ease a deficit on the
balance of payments.

Trade Gap

It signifies the size of the deficit (or surplus) in the balance of trade i.e.,
the difference in value between visible imports and exports.

Trade Union

It is an organisation of employees who join together to further their
interests. Trade Unions negotiate on behalf of their members in
collective bargaining with employers, and in the event of a dispute may
put pressure on employers by withdrawing labour (i.e. strike) or by
some less drastic form of action (i.e. go-slow, working to rule).

Transfer PaymentIt is a payment made by public authority other than
one made in exchange for goods or services produced. Transfer

40

payments are not the part of National Income. Examples includes
unemployment benefit and child benefits.

Vital Statistics

Vital statistics refers to those data which are associated with vital
events of masses like birth, death, marriage divorce etc.

VAT (Value Added Tax)

VAT seeks to tax the value added at every stage of manufacturing and
sale, with a provision of refunding the amount of VAT already paid at
the earlier stages to avoid double taxation. In other words, the tax
already paid can be claimed at the next stage of value addition.

Wealth Tax

Wealth tax is that tax which is imposed on the value of total assets but
the wealth upto a certain limit is exempted from such tax.

Welfare State

It refers to a nation that provides to all at least the minimum standards
in respect of education, health, housing, pensions and other social
benefits.

Wholesale Price Index


41

Wholesale Price Index is that index which is calculated on the basis of
wholesale prices. It is calculated in a similar way to the Retail Price
Index.

IMPORTANT BANKING TERMS FOR IBPS EXAMS

AER Annual earnings rate on an investment.
Annuity A life insurance product which pays income over the course
of a set period. Deferred annuities allow assets to grow before the
income is received and immediate annuities (usually taken from a year
after purchase) allow payments to start from about a year after purchase.
APR The annual percentage rate of interest, usually on a loan or
mortgage, usually displayed in brackets and representing the true cost of
the loan or mortgage as it shows any additional payments beyond the
interest rate.
Bank Statements This is a statement from the bank giving details of
transactions in the relevant account. It can be requested at any intervals
required, usually monthly.
Bear Market A bear is somebody who believes that the market is
falling and a bear market is a falling market. See bull market for the
opposite.
Bounced Cheque when the bank has not enough funds in the relevant
account or the account holder requests that the cheque is bounced (under
exceptional circumstances) then the bank will return the cheque to the
account holder. The beneficiary of the cheque will have not been paid.
This normally incurs a fee from the bank.

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Bonds These are securities which pay interest at specified intervals
and the principle amount of the loan is paid at maturity.
Bull Market A bull is somebody who believes that the market is rising
and a bull market is a rising market. See bear market for the opposite.
Cashback Mortgages This is when the mortgage provider lends the
money for the mortgage and, in addition, a lump sum to pay for, for
example, building work to be carried out.
Central Clearing Time (in England and Wales) This is the time that
it takes for the monies from a cheque to be taken out of the payees
account and put into the payers account. This is three working days in
England and Wales, as long as the cheque was paid in before 16.30.
Certified Documents These are photocopies of original documents
that have been signed by a professional i.e. a solicitor, accountant,
teacher, doctor or bank official. The professional also states, on the
document, "original seen" since they must be able to verify that these are
genuine copies and therefore have to have seen the original, they also
date the document and put their full name, profession and their address.
Charges This is the money paid to the bank for services rendered.
Charges include overdraft fees, charges for bouncing cheques, interest
on overdraft and any charges that a business account might normally
incur.
Charge Cards Cards which can be used like a credit card but the
charge has to be paid off on the due date. They usually have a high limit
or no limit.
Cheque Book A small, bound booklet of cheques. A cheque is a piece
of paper produced by your bank with your account number, sort-code
and cheque number printed on it. The account number distinguishes your
account from anyone elses, the sort-code is your banks special code
which distinguishes it from any other bank. In times gone by, anything

43

with the correct details and a verifiable signature could act as a cheque.
Even an elephant was once used!
Cheque Clearing This is the process of getting the money from the
cheque-writers account into the cheque receivers account.
CHIP and PIN A Chip is a small electronic insert placed into a
cheque or credit card. The PIN is a four digit personal identification
number which is used with the card by the card-holder.
Clearing Bank This is a bank that can clear funds between banks. For
general purposes, this is any institution which we know of as a bank or
as a provider of banking services.
Contract Hire This is a way of hiring an item of large capital value
where the maintenance is the responsibility of the company that hires out
the item. A fixed monthly figure is paid and the item can be sold, usually
to an unconnected third party.
Credit Rating This is the rating which an individual (or company)
gets from the credit industry. This is obtained by the individuals credit
history, the details of which are available from specialist organisations
(Equifax and Experian are the two big operators in the U.K.
www.equifax.co.uk and www.experian.co.uk).
Credit Scoring This is the process of assessing an individuals credit-
worthiness. The process involves taking information from an individual
on an application form (for example when applying for a store card) and
weighting the answers given. Certain responses will attract higher scores
than others and the total score will determine whether or nor the
organization wants to do business with the individual, or if they
represent too high a credit risk.
Credit-Worthiness This is the judgement of an organization which is
assessing whether or not to take a particular individual on as a customer.
An individual might be considered credit-worthy by one organisation but

44

not by another. Much depends on whether an organization is involved
with high risk customers or not.
County Court Judgement This is when a judge at a county or small
claims court finds against an individual and they have a county court
judgement made against them. This is recorded nationwide (and by the
credit tracking organizations Experian and Equifax) so anyone wanting
to know the credit-worthiness of an individual will know that the county
court judgement exists. Once it is paid off then the record remains but it
is shown as being paid which reduces the credit risk associated with the
person with the county court judgement.
Direct Debit An amount of money taken from a bank account, set up
by the recipient and can vary in amount and exact time that it is taken
from an account. Mortgages are usually direct debits.
Endowment Mortgage Interest only is paid over the term of this sort
of mortgage and the capital is repaid at the end of the term by using the
monies from an endowment policy.
Factoring This is when a business sells its invoices to a specialist
company or bank which chases payment and pays a percentage of the
invoice back to the original business. The business can then continue
with its work and problems from cash-flow are reduced by having
money from unpaid invoices up-front.
Hire Purchase When an item of large capital value is bought over
time by paying a deposit and fixing a period over which the loan will run
(usually between 12 and 60 months) and then paying fixed and equal
repayments over this period.
Identity Theft This is when criminals use an innocent persons details
to open or use an account to carry out financial transactions. It is very
easy to do with an individuals personal details, which is why shredding
confidential information is so important.

45

Identity Verification This is often used by financial institutions to
verify the customer and usually takes the form of a pass-word and the
answer to an obscure personal question such as the customers mothers
maiden-name.
Interest The amount paid or charged on money over time. If you
borrow money interest will be charged on the loan. It you invest money,
interest will be paid (where appropriate to the investment). Interest rates
usually bear a close relationship to the Bank of Englands base rate. It is
expressed in percent.
ISAs This stands for Individual Savings Accounts. These are available
to all UK residents over 18 (mini ISAs are available to 16 and 17-year-
olds). Investment limits apply to the total contributions made in any tax
year, not to the total in the ISA itself. ISAs can be cash, stocks and
shares or life insurance.
Lease Purchase This is an agreement made on an item of high capital
outlay (for example, a car) where the ownership is transferred to the
person who is leasing the item at the end of the contract, providing all
the terms and conditions of the purchase have been fulfilled.
Money Laundering This is when money gained from crime is put into
a bank so that it can be accessed safely by the criminals and terrorists. It
makes the proceeds of illegal activities easier to get to.
Money Transfer This is the movement of money from one account to
another.
Money Transfer Abroad This is the movement of money from one
account to another, the second being in a different country from the first.
Offsetting This is when the credit balances in a current and savings
account are netted off against the account holders borrowings (typically
a mortgage) so that the rate paid on the borrowing is reduced as a result

46

of the credit held in other accounts, which reduces the amount that is
being borrowed.
Overdraft This is when a person has a minus figure in their account. It
can be authorized (agreed to in advance or retrospect) or unauthorized
(where the bank has not agreed to the overdraft either because the
account holder represents too great a risk to lend to in this way or
because the account holder has not asked for an overdraft facility).
Payee The person who receives a payment. This often applies to
cheques. If you receive a cheque you are the payee and the person or
company who wrote the cheque is the payer.
Payer The person who makes a payment. This often applies to
cheques. If you write a cheque you are the payer and the recipient of the
cheque is the payee.
PEP Personal Equity Plans have been replaced by ISAs. Existing
PEPs can be retained but, since April 1999, no new ones can be opened.
Phishing This is when a criminal uses the internet to try to
fraudulently obtain details of peoples accounts so that they can use these
accounts themselves, usually to take money out of.
Repayment mortgage This is a mortgage where the sum borrowed is
paid off by the end of the mortgage term. It involves monthly
repayments which consist of the interest on the loan plus some of the
capital borrowed.
Security for Loans Where large loans are required the lending
institution often needs to have a guarantee that the loan will be paid
back. This takes the form of a large item of capital outlay (typically a
house) which is owned or partly owned and the amount owned is at least
equivalent to the loan required.
Standing Order A regular payment made out of a current account
which is of a set amount and is originated by the account holder.

47

Tessas Tax Exempt Special Savings Accounts.

What is E-Banking ? Online Banking

E-banking refers to electronic banking. It is like e-business in banking industry. E-
banking is also called as "Virtual Banking" or "Online Banking".
E-banking is a result of the growing expectations of bank's customers.

E-banking involves information technology based banking. Under this I.T system,
the banking services are delivered by way of a Computer-Controlled System. This
system does involve direct interface with the customers. The customers do not
have to visit the bank's premises.

Popular services covered under E-Banking

The popular services covered under E-banking include :-
1. Automated Teller Machines
2. Credit Cards,
3. Debit Cards,
4. Smart Cards,
5. Electronic Funds Transfer (EFT) System,
6. Cheques Truncation Payment System,
7. Mobile Banking,

48

8. Internet Banking,
9. Telephone Banking, etc.

Advantages of E-Banking

The main advantages of E-banking are :-
1. The operating cost per unit services is lower for the banks.
2. It offers convenience to customers as they are not required to go
to the bank's premises.
3. There is very low incidence of errors.
4. The customer can obtain funds at any time from ATM machines.
5. The credit cards and debit cards enables the Customers to obtain
discounts from retail outlets.
6. The customer can easily transfer the funds from one place to
another place electronically.

Current Banking Awareness Important Points
1. Nachiket Mor panel to study financial services for small businesses
i. The Reserve Bank of India has set up a committee headed by Nachiket Mor on
comprehensi ve fi nancial services for small busi nesses and low-i ncome households.
ii. The committee has been asked to come out with a set of design pri nciples that will
guide the development of i nstitutional frameworks,
iii. The committee has also been asked to develop a comprehensive monitoring
framework to track progress of the financial inclusion and deepening efforts on a
nationwide basis.
iv. It will review existing strategies and develop new ones that address specific barriers
to progress and that encourage participants to work swiftly towards achievi ng full
inclusion and fi nancial deepeni ng, consistent with the design principles.

49

2. Mayaram submits report on NSEL
i. A high- level panel, headed by Economic Affairs Secretary Arvind Mayaram, submitted its
report to Finance Minister P. Chidambaram on the alleged irregularities at the National Spot
Exchange Ltd (NSEL).
ii. Panel was set up i n August 2013 to look into the 5600 crore Rupees payment crisis
at the Fi nancial Technologies-promoted NSEL. Secretaries from the Union Corporate
Affairs and the Union Consumer Affairs Mi nistries, the Revenue Department, and head
of Enforcement Directorate, are part of the committee.
iii. The report was finalised based on the reports of two working group from
Enforcement Directorate and Reserve Bank.
iv. NSEL is grappling with a payment crisis for settli ng dues worth 5600-crore Rupees
and had to suspend trading activities on 31 July 2013 following a government directi ve.

About National Spot Exchange Limited (NSEL)
i. National Spot Exchange Limited (NSEL) is the national level, institutionali zed,
electronic, transparent spot tradi ng platform for commodities.
ii. It is a structured market place, set-up to transform the commodity market by way of
reduci ng the cost of i ntermediation and thereby improvi ng marketing efficiency. Its state-
of-the-art technology facilitates risk free and hassle free purchase and sale of various
commodities.
iii. NSEL provides customi zed solution to farmers, traders, processors, exporters,
importers, arbitrageurs, investors and other stakeholders pertai ning to commodity
procurement, storage, marketing, warehouse receipt financi ng, etc.
iv. NSEL commenced Li ve trading on 15 October 2008. At present, NSEL is operational
in 16 States in India, providing deli very-based spot trading in 52 commodities.

3. First-ever India International Bullion Summit to be held in Mumbai
i. The Bombay Bullion Association, the apex body of all bullion and jewellery
associations in India, said it would host the first-ever India International Bullion Summit,
IIBS in Mumbai on October 5th.
ii. BBA President Mohit Kamboj said in a release that IIBS is likely to see participation
of more than 2,000 delegates from India and abroad.
iii. The IIBS would serve as a platform for industry experts, suppliers and buyers to
converge and address concerns of the industry.

4. Own Your NPA campaign launched by IDBI
i. In a bid to speedily recover Non-Performing Assets (NPA), the IDBI Bank has
launched a campaign named Own Your NPA.
ii. It is a NPA recovery drive launched by the IDBI Bank through which it has tasked its
managers at the zonal, regional and branch levels to focus their on maki ng
recoveries from the top 20 bad loan accounts in their jurisdiction.
Non-Performing Assets (NPA)
i. In simple words, the assets of the Banks which dont perform (means dont bring any
return) are called Non Performi ng Assets. In more general sense they are bad Loans.

50

ii. Any asset, including a leased asset, becomes non performi ng when it ceases to
generate income for the bank.

However, there is a prescribed definition by the RBI which defines the NPAs as:
i. Terms Loans on which interest and / or installment of pri ncipal remain overdue for a
particular quarter for a period of more than 90 days from the end of that particular
quarter.
ii. The Bills those remain overdue for a period of More than 90 Days from the end of a
quarter.
iii. Any amount to be recei ved remains overdue for a period of more than 90 days.
iv. The Cash Credit account remai ns out of order for a period of more than 90 days. Out
of order means over the sanctioned limit.

5. Investment through P-Notes hits 3-month high of $26 billion
i. As per share market regulator SEBI, investments into Indian shares through
participatory notes (P-Notes), hit a three-month high of Rs 1.65 lakh crore (about $26
billion) in August 2013.

Participatory Notes or P-notes are deri vative instruments, used by Foreign
Institutional Investors (FIIs) who are NOT registered with SEBI.
i. The major characteristics of P-notes are:
ii. They are derivati ve i nstruments
iii. They are used by Foreign Institutional Investors (FIIs) who are NOT registered with
SEBI.
iv. They are used on Indian shares, but at a location outside of India.

Note: This means that the FIIs who are not registered with SEBI but wish to take
exposure i n the Indian securities markets can use P-notes.
ii. P-Notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds
and other foreign i nstitutions, allow them to invest in Indian markets through registered
Foreign Institutional Investors (FIIs), while saving on time and costs associated with
direct registrations.
iii. Brokers buy or sell securities on behalf of their clients on their proprietary account
and issue such notes in favor of such foreign i nvestors.

6. Moodys cuts 2013-14 GDP growth forecast to 4.5%
i. Moodys has lowered its outlook for India's GDP growth to 4.5 per cent for 2013-14
from 5.5 per cent.
ii. This reflects the recent depreciation of the rupee, which will exacerbate inflationary
pressures, keep domestic interest rates relati vely high, and hinder a recovery in
domestic demand growth

Moodys lowers SBIs debt rating
i. Global rating firm, Moodys Investors Service, has downgraded State Bank of Indias
senior unsecured debt and local currency deposit ratings to Baa3 or lowest investment

51

grade rating from Baa2 and altered the outlook on SBIs financial strength rating
to negative from stable as the economic slowdown impacts banks credit quality.

Why did Moodys downgrade SBIs rating?
i. As per rating agency, the combination of mounting pressure on credit fundamentals
and the ongoing dependence on the fiscally constrained Indian government to maintai n
Capital Adequacy Ratio (CAR) are key players behi nd the rating downgrade at a level
no higher than the sovereign.

7. Fitch slashed Indias growth projection
i. Global rating agency Fitch has scaled down its projections on Indias growth to 4.8%
for the current fiscal from the earlier estimate of 5.7% made in June, 2013.
The following are the key reasons behind the cut in growth projections
i. Weak Indian currency against dollar
ii. Expandi ng Current Account Deficit (CAD) on account of rising crude prices and falli ng
rupee
iii. Weak demand

8. White-label ATM Indicash ATMs opened in Mysore
i. Tata Communications Payment Solutions Ltd (TCPSL), a wholly owned subsidiary of
Tata Communications Ltd, today inaugurated Indicash ATMs i n Mysore.
ii. The company simultaneously launched more than fi ve ATMs across Mysore.
iii. TCPSL is planni ng to deploy a mi nimum of 1,000 Indicash ATMs in Karnataka, a
region which plays a vital role in the companys rollout plans of 15,000 Indicash ATMs
across India over the next three years.

Note: The companys first white-label ATM was launched at Chandrapada village
in Thane district on June 27. This is i n keeping with the Reserve Bank of Indias vision
to accelerate growth and improve ATM penetration across the country.

9. What is Financial Stability Board (FSB)?
i. FSB is an i nternational body which was established after the 2009 G-20 London
summit in April 2009 as a successor to the Financial Stability Forum.
ii. FSB work is to coordinate at the i nternational level the work of national financial
authorities and i nternational standard-setting bodies and to develop and promote the
implementation of effecti ve regulatory, supervisory and other financial sector policies.
iii. The Board i ncludes all G-20 major economies, FSF members, and the European
Commission. It is headquartered in Basel, Switzerland.

Note: The Reserve Bank of India (RBI), the Securities and Exchange Board of India
(SEBI) and the Ministry of Finance are the members of FSB from India.

10. China launches its first direct bank
i. China launched its first direct bank, a new mode of providing online
banking services without any entity outlets.

52

ii. The direct bank has been launched by the Bank of Beijing i n co-operation with
the Netherlands-based ING Group.

Note: i. A direct bank is a bank without any branch network that offers its services
remotely via onli ne banking and telephone banki ng and may also provide access
via ATMs (often through i nterbank network alliances), mail and mobile.
ii. By elimi nati ng the costs associated with bank branches, direct banks can make
substantial savings which they may pass on to clients via higher i nterest rates or
lower service charges.

11. Nachiket Mor panel to study financial services for small businesses
i. The Reserve Bank of India has set up a committee headed by Nachiket Mor on
comprehensi ve fi nancial services for small busi nesses and low-i ncome households.
ii. The committee has been asked to come out with a set of design pri nciples that will
guide the development of i nstitutional frameworks,
iii. The committee has also been asked to develop a comprehensive monitoring
framework to track progress of the financial inclusion and deepening efforts on a
nationwide basis.
iv. It will review existing strategies and develop new ones that address specific barriers
to progress and that encourage participants to work swiftly towards achievi ng full
inclusion and fi nancial deepeni ng, consistent with the design principles.

12. Mayaram submits report on NSEL
i. A high- level panel, headed by Economic Affairs Secretary Arvind Mayaram, submitted its
report to Finance Minister P. Chidambaram on the alleged irregularities at the National Spot
Exchange Ltd (NSEL).
ii. Panel was set up i n August 2013 to look into the 5600 crore Rupees payment crisis
at the Fi nancial Technologies-promoted NSEL. Secretaries from the Union Corporate
Affairs and the Union Consumer Affairs Mi nistries, the Revenue Department, and head
of Enforcement Directorate, are part of the committee.
iii. The report was finalised based on the reports of two working group from
Enforcement Directorate and Reserve Bank.
iv. NSEL is grappling with a payment crisis for settli ng dues worth 5600-crore Rupees
and had to suspend trading activities on 31 July 2013 following a government directi ve.

About National Spot Exchange Limited (NSEL)
i. National Spot Exchange Limited (NSEL) is the national level, institutionali zed,
electronic, transparent spot tradi ng platform for commodities.
ii. It is a structured market place, set-up to transform the commodity market by way of
reduci ng the cost of i ntermediation and thereby improvi ng marketing efficiency. Its state-
of-the-art technology facilitates risk free and hassle free purchase and sale of various
commodities.

53

iii. NSEL provides customi zed solution to farmers, traders, processors, exporters,
importers, arbitrageurs, investors and other stakeholders pertai ning to commodity
procurement, storage, marketing, warehouse receipt financi ng, etc.
iv. NSEL commenced Li ve trading on 15 October 2008. At present, NSEL is operational
in 16 States in India, providing deli very-based spot trading in 52 commodities.

13. First-ever India International Bullion Summit to be held in Mumbai
i. The Bombay Bullion Association, the apex body of all bullion and jewellery
associations in India, said it would host the first-ever India International Bullion Summit,
IIBS in Mumbai on October 5th.
ii. BBA President Mohit Kamboj said in a release that IIBS is likely to see participation
of more than 2,000 delegates from India and abroad.
iii. The IIBS would serve as a platform for industry experts, suppliers and buyers to
converge and address concerns of the industry.

14. Own Your NPA campaign launched by IDBI
i. In a bid to speedily recover Non-Performing Assets (NPA), the IDBI Bank has
launched a campaign named Own Your NPA.
ii. It is a NPA recovery drive launched by the IDBI Bank through which it has tasked its
managers at the zonal, regional and branch levels to focus their on maki ng
recoveries from the top 20 bad loan accounts in their jurisdiction.
Non-Performing Assets (NPA)
i. In simple words, the assets of the Banks which dont perform (means dont bring any
return) are called Non Performi ng Assets. In more general sense they are bad Loans.
ii. Any asset, including a leased asset, becomes non performi ng when it ceases to
generate income for the bank.

However, there is a prescribed definition by the RBI which defines the NPAs as:
i. Terms Loans on which interest and / or installment of pri ncipal remain overdue for a
particular quarter for a period of more than 90 days from the end of that particular
quarter.
ii. The Bills those remain overdue for a peri od of More than 90 Days from the end of a
quarter.
iii. Any amount to be recei ved remains overdue for a period of more than 90 days.
iv. The Cash Credit account remai ns out of order for a period of more than 90 days. Out
of order means over the sanctioned limit.

15. Investment through P-Notes hits 3-month high of $26 billion
i. As per share market regulator SEBI, investments into Indian shares through
participatory notes (P-Notes), hit a three-month high of Rs 1.65 lakh crore (about $26
billion) in August 2013.

Participatory Notes or P-notes are deri vative instruments, used by Foreign
Institutional Investors (FIIs) who are NOT registered with SEBI.
i. The major characteristics of P-notes are:
ii. They are derivati ve i nstruments

54

iii. They are used by Foreign Institutional Investors (FIIs) who are NOT registered with
SEBI.
iv. They are used on Indian shares, but at a location outside of India.

Note: This means that the FIIs who are not registered with SEBI but wish to take
exposure i n the Indian securities markets can use P-notes.
ii. P-Notes, mostly used by overseas HNIs (High Networth Individuals), hedge funds
and other foreign i nstitutions, allow them to invest in Indian markets through registered
Foreign Institutional Investors (FIIs), while saving on time and costs associated with
direct registrations.
iii. Brokers buy or sell securities on behalf of their clients on their proprietary account
and issue such notes in favor of such foreign i nvestors.

16. Moodys cuts 2013-14 GDP growth forecast to 4.5%
i. Moodys has lowered its outlook for India's GDP growth to 4.5 per cent for 2013-14
from 5.5 per cent.
ii. This reflects the recent depreciation of the rupee, which will exacerbate inflationary
pressures, keep domestic interest rates relati vely high, and hinder a recovery in
domestic demand growth

Moodys lowers SBIs debt rating
i. Global rating firm, Moodys Investors Service, has downgraded State Bank of Indias
senior unsecured debt and local currency deposit rati ngs to Baa3 or lowest investment
grade rating from Baa2 and altered the outlook on SBIs financial strength rating
to negative from stable as the economic slowdown impacts banks credit quality.

Why did Moodys downgrade SBIs rating?
i. As per rating agency, the combination of mounting pressure on credit fundamentals
and the ongoing dependence on the fiscally constrained Indian government to maintai n
Capital Adequacy Ratio (CAR) are key players behi nd the rating downgrade at a level
no higher than the sovereign.

17. Fitch slashed Indias growth projection
i. Global rating agency Fitch has scaled down its projections on Indias growth to 4.8%
for the current fiscal from the earlier estimate of 5.7% made in June, 2013.
The following are the key reasons behind the cut in growth projections
i. Weak Indian currency against dollar
ii. Expandi ng Current Account Deficit (CAD) on account of rising crude prices and falli ng
rupee
iii. Weak demand

18. White-label ATM Indicash ATMs opened in Mysore
i. Tata Communications Payment Solutions Ltd (TCPSL), a wholly owned subsidiary of
Tata Communications Ltd, today inaugurated Indicash ATMs i n Mysore.
ii. The company simultaneously launched more than fi ve ATMs across Mysore.

55

iii. TCPSL is planni ng to deploy a mi nimum of 1,000 Indicash ATMs in Karnataka, a
region which plays a vital role in the companys rollout plans of 15,000 Indicash ATMs
across India over the next three years.

Note: The companys first white-label ATM was launched at Chandrapada village
in Thane district on June 27. This is i n keeping with the Reserve Bank of Indias vision
to accelerate growth and improve ATM penetration across the country.

19. What is Financial Stability Board (FSB)?
i. FSB is an i nternational body which was established after the 2009 G-20 London
summit in April 2009 as a successor to the Financial Stability Forum.
ii. FSB work is to coordinate at the i nternational level the work of national financial
authorities and i nternational standard-setting bodies and to develop and promote the
implementation of effecti ve regulatory, supervisory and other financial sector policies.
iii. The Board i ncludes all G-20 major economies, FSF members, and the European
Commission. It is headquartered in Basel, Switzerland.

Note: The Reserve Bank of India (RBI), the Securities and Exchange Board of India
(SEBI) and the Ministry of Finance are the members of FSB from India.

20. China launches its first direct bank
i. China launched its first direct bank, a new mode of providing online
banking services without any entity outlets.
ii. The direct bank has been launched by the Bank of Beijing i n co-operation with
the Netherlands-based ING Group.

Note: i. A direct bank is a bank without any branch network that offers its services
remotely via onli ne banking and telephone banki ng and may also provide access
via ATMs (often through i nterbank network alliances), mail and mobile.
ii. By elimi nati ng the costs associated with bank branches, direct banks can make
substantial savings which they may pass on to clients via higher i nterest rates or
lower service charges.

Finance Commission

56

The government has constituted the 14th Finance Commission under
the chairmanship of former RBI Governor YV Reddy. The commission
will submit its report by October 31, 2014.

Finance Commission of India:
A finance commission is set up every five years by the President under
Article 280 of the Constitution. Finance Commission of India came into
existence in 1951.

It was formed to define the financial relations between the centre and the
state. These recommendations cover a period of five years.

The commission also lays down rules by which the centre should provide
grants-in-aid to states out of the Consolidated Fund of India. It is also
required to suggest measures to augment the resources of states and ways
to supplement the resources of panchayats and municipalities.

Composition of the Fourteenth Finance Commission:

The Fourteenth Finance Commission has been set up under the
Chairmanship of Dr. Y.V.Reddy [Former Governor Reserve Bank of India].

Other Members of the Commission are:
i. Ms. Sushma Nath [ Former Union Finance Secretary ],
ii. Dr. M.Govinda Rao [ Director, National Institute for Public Finance and
Policy, New Delhi ),
iii. Dr. Sudipto Mundle, Former Acting Chairman, National Statistical
Commission.
iv. Prof Abhijit Sen (Member, Planning Commission) is the part-time
Member of the Fourteenth Finance
v. Commission. Shri Shri Ajay Narayan Jha is the Secretary, Fourteenth
Finance Commission.

Qualifications of the members: The Chairman of the Finance
Commission is selected among people who have had the experience of
public affairs. The other four other members are selected from people who:

1. Are, or have been, or are qualified, as judges of High Court, or
2. Have knowledge of Government finances or accounts, or
3. Have had experience in administration and financial expertise; or

57

4. Have special knowledge of economics

Procedure and Powers of the Commission: The Commission has the
power determine their own procedure and:

1. Has all powers of the civil court as per the Court of Civil Procedure,
1908.
2. Can summon and enforce the attendance of any witness or ask any
person to deliver information or produce a document, which it deems
relevant.
3. Can ask for the production of any public record or document from any
court or office.
4. Shall be deemed to be a civil court for purposes of Sections 480 and 482
of the Code of Criminal Procedure, 1898

Tenure of the 14th Finance Commission: The Finance Commission is
required to give its report by 31st October, 2014. Its recommendations will
cover the five year period commencing from 1st April, 2015.

Note: The First Finance Commission was constituted vide Presidential
Order dated 22.11.1951 under the chairmanship of Shri K.C. Neogy on
6th April, 1952.

DIFFERENCE BETWEEN UNIT BANKING & BRANCH
BANKING

1. Operational Freedom
Branch Banking - Less operational freedom
Unit Banking - More Operational freedom


58

2. Loans and advances
Branch Banking - Loans and advances are based on merit, irrespective of the status
Unit Banking - Loans and advances can be influenced by authority and power

3. Financial Resources
Branch Banking - Larger financial resources in each branch.
Unit Banking - Larger financial resources in one branch

4. Decision-making
Branch Banking - Delay in Decision-making as they have to depend on the head
office.
Unit Banking - Time is saved as Decision-making is in the same branch.

5. Funds
Branch Banking - Funds are transferred from one branch to
another.Underutilisation of funds by a branch would lead to regional imbalances
Unit Banking - Funds are allocated in one branch and no support of other
branches.During financial crisis,unit bank has to close down.hence lead to regional
imbalances or no balance growth

6. Cost of Supervision
Branch Banking - High
Unit Banking - Less

7. Concentration of power in the hand of few people
Branch Banking - Yes
Unit Banking - No

8. Specialisation
Branch Banking - Division of labour is possible and hence specialisation possible
Unit Banking - Specialisation not possible due to lack of trained staff and
knowledge

9. Competition
Branch Banking - High competition with the branches
Unit Banking - Less competition within the bank

10. Profits
Branch Banking - Shared by the bank with its branches
Unit Banking - Used for the development of the bank

59

11. Specialised knowledge of the local borrowers
Branch Banking - Not possible and hence bad debits are high
Unit Banking - Possible and less risk of bad debts

12. Distribution of Capital
Branch Banking - Proper distribution of capital and power.
Unit Banking - No proper distribution of capital and power.

13. Rate of Interest
Branch Banking - Rate of interest is uniformed and specified by the head office or
based on instructions from RBI.
Unit Banking - Rate of interest is not uniformed as the bank has own policies and
rates.

14. Deposits and assets
Branch Banking - Deposits and assets are diversified,scattered and hence risk is
spread at various places.
Unit Banking - Deposits and assets are nt diversified and are at one place,hence
risk is not spread.

Unit Banking
The Unit Banking System is that system of banking under which an individual
bank carries on banking business either through a single office or through a few
offices operating with a limited area. In this system, independent, isolated units
perform banking business. The size of operation of Unit Banking are much smaller
when compared to branch banking. Unit banking system originated in the USA.

60

MERITS OF UNIT BANKING

1. Local Development: Unit banking is localized banking. The unit bank has the
specialised knowledge of the local problems and serves the requirements of the
local people in a better manner than branch banking. The funds of the locality are
utilised for the local development and are not transferred to other areas.

2. Promotes Regional Balance: Under unit banking system, there is no transfer of
resources from rural and backward areas to the big industrial commercial centres.
This tends to reduce regional in balance.

3. Easy Management: The management and supervision of a unit bank is much
easier and more effective than that under branch banking system. There are fewer
chances of fraud and irregularities in the financial management of the unit banks.

4. Initiative in Banking Business: Unit banks have full knowledge of and greater
involvement in the local problems. They are in a position to take initiative to tackle
these problems through financial help.

5. No Monopolistic Tendencies: Unit banks are generally of small size. Thus,
there is no possibility of generating monopolistic tendencies under unit banking
system.

6. No Inefficient Branches: Under unit banking system, weak and inefficient
branches are automatically eliminated. No protection is provided to such banks.

7. No dis-economies of Large Scale Operations: Unit banking is free from the
dis-economies and problems of large-scale operations which are generally
experienced by the branch banks.

8. No delay in taking decisions: In unit banking system, every bank is an
independent unit. Hence, there will be no delay in decisions taking.

9. Personal Contact with the customers: Unit Banking System being a small
scale independent unit can maintain good personal contacts with the customers for
efficient management of the bank. It is said that in case of unit banking system the
manager can maintain good personal contact with the customers and businessmen.

10. Low overhead cost: In case of Unit Banking, the overhead cost will be low

61

than in case of branch banking system.

11. More operational freedom: The managers of the Unit Banking system are
given more discretionary powers so that they can study the problems of local
customers and provide better services to them on merit.

DISADVANTAGES OF UNIT BANKING

The following are the disadvantages of unit banking system:
1. No. Distribution of Risks: Under unit banking, the bank operations are highly
localised. Therefore, there is little possibility of distribution and diversification of
risks in various areas and industries.

2. Inability to Face Crisis: Limited resources of the unit banks also restrict their
ability to face financial crisis. These banks are not in a position to stand a sudden
rush of withdrawals.

3. No Banking Development in Backward Areas: Unit banks, because of their
limits resources, cannot afford to open uneconomic banking business is smaller
towns and rural area. As such, these areas remain unbanked.

4. Lack of Specialization: Unit banks, because of their small size, are not able to
introduce, and get advantages of, division of labour and specialization. Such banks
cannot afford to employ highly trained and specialized staff.

5. Costly Remittance of Funds: A unit bank has no branches at other place. As a
result, it has to depend upon the correspondent banks for transfer of funds which is
very expensive.

6. Disparity in Interest Rates: Since easy and cheap movement of does not exist
under the unit banking system, interest rates vary considerably at different places.

7. Local Pressures: Since unit banks are highly localised in their business, local
pressures and interferences generally disrupt their normal functioning.


62

8. Undesirable Competition: Unit banks are independently run by different
managements. This results in undesirable competition among different unit banks.

******************************************************************************

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YOUR SUCCESS AHEADDAS SIR,KOLKATA.

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