BANKING AWARENESS PART-1

Banking Ombudsman Scheme: The Banking Ombudsman Scheme enables an expeditious and inexpensive
forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking
Ombudsman Scheme introduced by RBI in 1995. There after many norms were issued by RBI and the important
one was issued in 2006.
Banking Ombudsman is a quasi-judicial authority (the Banking Ombudsman- is a senior officials appointed by the
Reserve Bank of India) to redress customer complaints against deficiency in certain banking services. The
Banking Ombudsman Scheme functioning under Indias Banking Ombudsman Scheme 2006, and the authority
was created pursuant to the decision by the Government of India to enable resolution of complaints of customers
of banks relating to certain services rendered by the banks.
The Banking Ombudsman provides speedy solutions to the grievances faced by the customers from various
banks. It addresses grievances by way of its legal framework and redressal is done accordingly. It is set up
specifically for handling grievances related to banking services and related matters under its purview. As on date,
fifteen Banking Ombudsmen have been appointed with their offices located mostly in state capitals. All
Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered
under the Scheme.
Bank Rate: It is the rate at which the RBI discounts bill of exchange or other commercial papers. Simply put,
bank rate is the rate at which the RBI extends credit to the commercial bank. Bank rate is also called discount
rate.
Cash Reserve Ratio (CRR):
The RBI Act, 1934 stipulates that a commercial bank is required to keep in cash a portion of its deposits with the
RBI. This is known as Cash Reserve Ratio. The RBI can vary this ratio between 3 and 15 per cent.
Statutory Liquidity Ratio (SLR):
The SLR specifies that a commercial bank invests a designated minimum proportion of its total assets in liquid
assets, such as cash, gold and unecumbered approved securities (not government securities but having the
status of the same). This is in addition to the Cash Reserve Ratio. The SLR cannot be raised beyond 40%.
In other words, SLR refers to that protion of total deposits of a commercial bank which RBI has to keep with itself
in the form of cash resevers. SLR is an effective instrument of credit control with RBI. By varying the SLR, the RBI
controls the expansion and contraction of credit. If SLR is reduced, the lendable resources with the scheduled
commercial banks gets correspondingly increased and vice versa
Repo Rate-Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges
on the loans and advances to a commercial bank. Whenever a bank has a shortage of funds they can typically
borrow it from the central bank based on the monetary policy of the country. The borrowing is commonly done
via Repos (Repurchases) where the Repo Rate is the rate at which the central bank lends short-term money to
the banks against securities. A reduction in the repo rate will help banks to get money at a cheaper rate. When
the repo rate increases borrowing from the central bank becomes more expensive. It is more applicable when
there is a liquidity crunch in the market.
The Reverse Repo Rate is the rate at which the commercial banks can park surplus funds with the Reserve Bank.
It is mostly done when there is surplus liquidity in the market.
Balloon Payment
A large, lump-sum payment scheduled at the end of a series of considerably smaller periodic payments. A
balloon payment may be included in the payment schedule for a loan, lease or other stream of payments.
Bancassurance
Selling of insurance through the vast network of banks. It is part of what is today called as relationship banking.
Bank Credit
The borrowing capacity provided to an individual by the banking system in the form of credit or a loan. The total
bank credit the individual has is the sum of the borrowing capacity each lender bank provides to the individual.
Bank Discount
The bank charge made for payment of a note prior to maturity, expressed as a percentage of the notes face
value. In short, front-end interest discounted on an instrument or the amount paid to the holder/bearer of the
instrument (borrower) after interest is deducted. The full amount expressed in the instrument is collected as
repayment.
Bank Draft
A cheque drawn by one bank against funds deposited into its account at another bank, authorising the second
bank to make payment to the individual named in the draft.
Bank Guarantee
A guarantee from a bank ensuring that the liability of a debtor will be met. It is used in trade finance. Unlike a
line of credit, the sum is only paid if the counterparty does not fulfill the stipulated obligations under the
contract.
Bank Rate
The rate at which RBI lends long term loans to scheduled commercial banks.
Bank Run
It occurs when a large number of customers withdraw their deposits because they believe the bank is, or might
become, insolvent.
Bank Reconciliation
The process of adjusting balance in an account reported by a bank to reflect transactions that have occurred
since the reporting date. For instance, cheque issued by account holder may not yet reflect in the banks books
but accounted for by the issuer. Hence, the need to know the likely balance.
Bankers Acceptance
A written demand accepted by a bank to pay a specified amount at a future date.
Banking
In general terms, the business activity of accepting and safeguarding money owned by other individuals and
entities and then lending out this money in order to earn a profit.
Banking Code and Standards Board of India (BCSBI)
It was set up in 2005 by the RBI as an independent and autonomous watch dog to monitor and ensure that the
Banking Codes and Standards adopted by the banks are adhered to in true spirit.
Banking Ombudsman
The Banking Ombudsman is a senior official appointed by the RBI to redress customer complaints against
deficiency in certain banking services.
Banking Ombudsman Scheme
It enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to
certain services rendered by banks. Introduced in 1995 and revised in 2002 and 2006.
Barter System
It refers to a primitive exchange system where there is an exchange of goods or services without involving
money.
Base Currency
The first currency quoted in a currency pair on foreign exchange. It is also typically considered the domestic
currency or accounting currency.
Base Effect
The base effect refers to the impact of the rise in price level (ie last years inflation) in the previous year over the
corresponding rise in price levels in the current year (ie current inflation). For example, if the price index had
risen at a high rate in the corresponding period of the previous year, then a similar absolute increase in the Price
index in current year will be relatively lower and vice-versa.
Base Rate
It is the minimum rate of interest that a bank is allowed to charge from its customers. It was recommended by
Deepak Mohanty Committee in 2009-10 and has replaced Benchmark Prime Lending Rate (BPLR) since July 2010.
Base Year
In the construction of an index, the year from which the weights assigned to the different components of the
index, is drawn is called Base Year. It is conventional to set the value of an index in its base year equal to 100.
Basel Accords
It refer to the banking supervision Accords prescribed by Basel Committee on Banking Supervision (BCBS). By far,
BCBS has issued three accords known as Basel I, Basel II and Basel III.
Basel Committee on Banking Supervision (BCBS)
Under Bank for International Settlement, the BCBS provides a forum for regular cooperation on banking
supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality
of banking supervision worldwide.
Basel-I
It is the first international accord to develop standardised risk-based capital requirements for banks across
countries. It became operational in 1988 and was replaced with a Basel-II in June 2004.
Basel-II
It is based on three mutually reinforcing pillars that allow banks and supervisors to evaluate various risks that
banks face. These are: Piller-I Minimum Capital Requirements (MCR); Pillar-II Supervisory Review Process (SRP);
and Pillar-III Market Discipline (MD).
Basel-III
It is a global regulatory standard on bank capital adequacy, stress testing and market liquidity risk agreed upon
by the members of the Basel Committee on Banking Supervision in 2010-11. It was developed in a response to
the deficiencies in financial regulation revealed by the late-2000s financial crisis. It, therefore, attempts to reduce
risk in banking by increasing quality and quantity of capital