5882new Banking Awareness Book 2013-14

BANKING AWARENESS
Banking Awareness
The Institute of Banking Training

S C O -117 -11 8,P uda P o cket II
P un jab A ir To w er,O pp . B us S ta nd
Jalan dha r
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BANKING AWARENESS
Banking System in India

BANKING SYSTEM IN INDIA
Banking System occupies an important plae in nations economy.A Banking institution is indispensable in a modern
soceity. It plays a pivotal role in the economic development of the country and forms the core of the money market in
an advanced country.
A bank is a financial institution which deals with deposits and advances and other related services. It
receives money from those who want to save in the form of deposits and it lends money to those who need it.
RESERVE BANK OF INDIA

RBI is the Centeral Bank Of India formed under the RBI Act,1934 established in 1935 and controls the
entire money issue, circulation the entire money issue, circulation and controls by its monetary policies and
lending policies by perodical updates on corrections to discipline the economy. It act as a advisor to the govt. of
india and states govt. to implement the forex policies. It works in tandom with the govt of india in promoting trade
and as the account holder of the foreign currency transactions and the Balance of payments(BOP).It is also
known as the bank of last resort.
Reserve bank of India has five apex Banking Institution which performs the function of development in
India. Given are the five apex Banking Institutions.
APEX BANKING INSTITUTIONS

INDUSTRIAL DEVELOPMENT BANK OF INDIA
IDBI is the apex banking institution in the field of long term industrial finance. Set up in 1964 as wholly
subsidiary of RBI. IDBI was delinked from the RBI on 16th feburary, 1976 when its entire share capital was
transferred to central Govt. and till then acts as a commercial bank. The main objective of this bank is to provide
assistance to the small and medium enterprises and also provide indirect assistance to small and micro enterprises
through SIDBI, SIDC( State Industrial development Corporations.
SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA
Small Industries Development Bank of India (SIDBI) was established on April 2, 1990.
The Small Industries Development Bank of India Act passed in 1989.
SIDBI was incorporated initially as a wholly owned subsidiary of Industrial Development Bank of India.
Now SIDBI is owned by several state-owned banks, insurance companies and financial institutions.
SIDBI is an independent financial institution aimed to aid the growth and development of micro, small
and medium-scale enterprises in India.
It is an apex body and nodal agency for formulating, coordination and monitoring the policies and programme
for promotion and development of small scale industries.
SIDBI is in the list of top 30 Development Banks of the World in the latest ranking of The Banker,
London.
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NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT

The National Bank for Agriculture and rural development (NABARD) is the apex development bank for
agriculture and rural development. It was setup on 12th july, 1982 by merging the agriculture credit department
and rural planning and credit cell of the RBI and the entire undertaking of Agricultural refinance and development
corporation.
NABARD has been entrusted with three types of functions, namely (i) the credit functions, (ii) the development
functions and the regulatory functions.
EXPORT IMPORT BANK OF INDIA (EXIM BANK)
Export-Import Bank of India or EXIM Bank of India is the premier export finance institution of India. EXIM
Bank was set up in 1982 under the Export-Import Bank of India Act 1981. The main objective behind the
formation of EXIM bank is to enhance countries exports from India and to integrate the countrys foreign trade
and investment with the overall economic growth.
IMPORTANT POINTS ABOUT EXIM BANK:
Export-Import Bank of India was established on 1982.

Export-Import Bank of India was set up under the Export-Import Bank of India Act 1981.
Headquarters of EXIM Bank is at Mumbai, India
Chairman and Managing Director (CMD) of EXIM bank is T.C.A Ranganathan.
NATIONAL HOUSING BANK
National Housing Bank is the latest apex bank set up in India. It is a statuary corporation established under
the National housing bank Act, 1987 as a wholly subsidiary of the RBI. The bank started functioning on 9th
July,1988 with its head office in New Delhi. The banks primary responsibility is to promote and develop specialized
housing finance institutions for mobilizing resources and extending credit for housing.
BANKING INSTITUTIONS
COMMERCIAL BANKS
The evolution of banking which lasted for centuries until two types of modern banking developed in the
industrially advanced economies in the late nineteenth century was an integral part of the expansion of capitalism
. The techniques of banking developed in the 17th century facilitated the industrial and territorial expansion that
began about the same time. The Commercial banks operating in india fall under a number of sub categories on the
basis control of ownership and control of management as is evident from the chart shown above.
Public Sectors Banks In India
Which are owned and run by the government i.e. atleast 51% of the ownership lies with the government.
Public sector in Indian banking reached its present situation in three stages- first the conversion of the imperial
bank of India into State bank of india in 1955 followed by the establishment of its seven subsidiary banks; second
the nationalization of 14 major commercial banks on july 14, 1969 and last the nationalization of 6 more commercial
banks on April 15, 1980. One of Them- New bank Of India- was later on merged with punjab national bank.
Public Sector Banks is the major player in the Indian Banking Sector with 92% of countries banking segment
is under state control. In India, the public sector banks are divided into three categories State Bank Group,
Nationalised Banks, Regional Rural Banks.
State Bank Group - This group consist of State Bank of India and Five Sate Bank of India Associate
banks. The RBI owns the majority of the shares of the SBI and some of its associates. State Bank of
India is the first public sector bank in india. Imperial bank of india acquired by the government to form the
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State Bank of India in 1955. In 1959 the State Bank of India Subsidiary act was passed and by the virtue
of this act seven princely states bank were made the subsidiary of State Bank of India. Now State Bank
of India has only five subsidiary as two of it subsidiary bank merged with the parent concern.
Nationalised Bank : In 1969 the government of India effected the nationalization of of 14 scheduled
commercial banks in order to expand the branch network followed by six more bank in 1980. Total 20
commercial banks were nationalized in two bank nationalization process but in 1993 New Bank of India
was merged with Punjab National Bank so now there are total 19 nationalised banks.Ex: Punjab National
bank & Indian Overseas Bank.
Private sector banks
Which are owned & run by private enterprises i.e atleast 51% ownership lies with the non-government
bodies. The Narsimham Committee on financial sector(1991) recommended the establishment of such banks in
India.The New banks are required to registered as public limited companies under the companies act,1956 with
initial paid up capital of Rs.100 crore.Ex.ICICI and HDFC Banks etc.
REGIONAL RURAL BANKS
In 1975, the state bank group and nationalized banks were required to sponsor and set up Regional Rural
Banks in partnership with individual states to provide low cost financing and credit facilities to the rural masses.
On the recommendation of the Banking Commission (1972), on October 2 1975 five Regional Rural Bank were
established. Their main function is to provide financial help to small and marginal farmers and rural workers to
help the rural economy to grow. Initially, the authorized share capital of each rural bank was Rs.1 crore, fifty
percent of the issued capital was subscribed to by the central government fifteen percent by the concerned state
and thirty five percent by the sponsor bank.Now in India there are total 196 Regional Rural Banks.Ex: Punjab
Gramin Bank and Himachal gramin Bank etc.
CO-OPERATIVE BANK
Which are jointly run by a group of individuals and are formed under the companies act 1956 and the cooprative societies acts of different states.
The cooperative banks have a three-tier set-up.The state co-operative bank is the apex institution in the state
while central/district co-operative banks function at the district level and primary credit societies work at the
village level.Ex: Citizen urban co-operative Banks & Punjab Co-operative Bank.
There are total six types of co-operative banks are working in India and they are Primary Agriculture Credit Societies
Central Co-Operative Bank
State Co-Operative Bank
Primary Co-Operative Agriculture and Rural Development Banks
State Co-Operative Agriculture and Rural Development Banks
Urban Co-Operative Banks
DEVELOPMENT BANKS
ALL INDIA DEVELOPMENT BANKS
Industrial finance Corporation of India ltd : In 1947, at the of Independence, there was a significant
demand for new capital but the Indian Capital Market was relatively under-developed. Merchant bankers and
underwriting firms were almost non existence and commercial banks were not quipped to provide long term
industrial finance in any significant manner.
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The Industrial Finance Corporation of India (IFCI) was established on July 1, 1948.
IFCI was the first Development Financial Institution (DFI) in India.
IFCI was established to cater to the long-term finance needs of the industrial sector.
Until the establishment of ICICI and IDBI, The IFCI remained solely responsible for implementation of
the governments industrial policy.
Some of the sector that benefited from IFCI include Textiles, paper, sugar, hotels, hospitals, iron and
steel, fertilizers, basic chemicals, cement, power generation etc.
Industrial Credit and investment Corporation of India Ltd: The ICICI was setup as a joint stock
company in 1955 with the main objective to channelise the World bank funds to industry in india and also to build
up a capital market in india. Initially its entire share capital was held by the commercial banks, insurance companies
and individuals. On march 30, 2002 a landmark event took place when ICICI ltd was merged with its subsidiary
ICICI Bank ltd. Which is a commercial private bank.
Industrial Investment Bank of India: The Industrial reconstruction Corporation of India Ltd. Was set up
in 1971 as a primary agency rehabilitation of sick industrial units. In 1997 this reconstruction bank converted into
IIBI with major functions to provide loans to industrial concerns and to underwrite the stocks shares, bonds and
debentures.
STATE LEVEL DEVELOPMENT BANKS
State financial Corporations: At present 18 state financial corporations are functioning formed under the
State financial corporations Act,1951. The SFCs are the state level agencies established for the development of
small and medium industrial units within their respective states.
LAND DEVELOPMENT BANKS

The long term credit needs of the agricultural sector are met by another type of cooperative institutions
known as land development banks. The structure of these banks is a two tier one at the state level, there are
central land development banks and district level or taluka level, there are Primary land development banks. The
land development banks meet the requirements of the farmers for development purposes, viz. provision of
equipment like pump-sets, macheinery and land development in the form of levelling, bunding etc.
STATE INDUSTRIAL DEVELOPMENT CORPORATIONS
The State Industrial Development Corporations have been set up by the State govt. as companies wholly
oned by them. At present 22 such SIDCs are functioning in india. SIDCs are not merely financing agencies but
are intending to act as instruments for accelerting the pace of industrialization in respective states.
INVESTING INSTITUTIONS
LIFE CORPORATION OF INDIA
The Life Corporation of India is the largest institutional investor in the country. The investment of LIC are
regulated by Section 7-A of the Insurance Act,1938. Consequently, a much larger portion of the investible resources
is invested in Government and other approved securities and is given as loans to socially oriented sectors.
GENERAL INSURANCE CORPORATION OF INDIA
According to the guidelines issued by the govt , till april 1, 1995, 70% of the accretions to the fund of GIC are
required to be invested in the socially oriented sectors, which include central and state govt securities and loans to
various public bodies engaged in housing.
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UNIT TRUST OF INDIA:

The Unit trust of India (UTI) is a statuary pubic sector investment institution set up in 1964. It mobilises the
savings of the community through the sale of units under various unit schemes. The resources thus mobilised are
invested by the UTI mainly in the shares and debentures of the companies.
TYPES OF BANKS ON THE BASIS OF LAW

SCHEDULED BANK
Which is registered under IInd Scheduled of RBI act, 1934. Three eligibility criteria exist for scheduled banks
in India, the first of which entails carrying on the business of banking in India, which all banks ostensibly meet. All
scheduled banks must maintain a reserve capital of 5 lakhs rupees in the Reserve Bank of India.. Any commercial
bank, cooperative bank, nationalized bank, foreign bank, rural regional bank institution, State Bank of India branch
or other private sector bank meeting these criteria qualifies as a scheduled bank. Thus all commercial banks in
India qualify as scheduled banks, though not all scheduled banks qualify as commercial banks.
NON SCHEDULED BANK
The other commercial banks which do not part of the second schedule of the RBI act are known as the non
scheduled banks. They are not entitled to the privileges and facilities extended by RBI to scheduled banks.
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RBI, ITS FUNCTIONS & RATES

RBI AND ITS ROLES
As the central bank of the country, the Reserve Bank of India performs both the traditional functions of a
central bank and a vareity of development and promotional functions. The reserve bank of india Act, 1934 confers
upon it the powers to act as note-issuing authority, bankers bank and banker to the government.
DEFINITION
The central bank of India, founded in 1935, which maintains the monetary policy of its national currency, the
rupee, and the nation's currency reserves. It is a member of the Asian Clearing Union. The primary function of
this establishment is to regulate the issuing of bank notes to ensure secure monetary stability in India.
ESTABLISHMENT
The reserve bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve
Bank of India Act, 1934.
The Central Office of the Reserve Bank of India was initially established in Calcutta but was permanently
moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated.
Though originally privately owned, since nationalization in 1949, the Reserve Bank is fully owned by the
Government of India.
MAIN FUNCTIONS
MONETARY AUTHORITY
Formulates implements and monitors the monetary policy.
Objective: maintaining price stability and ensuring adequate flow of credit to productive sectors.
REGULATOR AND SUPERVISOR OF THE FINANCIAL SYSTEM:
Prescribes broad parameters of banking operations within which the countrys banking and financial system
functions.
Objective: maintain public confidence in the system, protect depositors interest and provide cost- effective
banking services to the public.
MANAGER OF FOREIGN EXCHANGE
Manages the Foreign Exchange Management Act, 1999.
Objective: to facilities external trade and payment and promote orderly development and maintenance of
foreign exchange market in India.
ISSUER OF CURRENCY
Issues and exchanges or destroys currency and coins not fit for circulations.
Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality.
DEVELOPMENT ROLE
Performs a wide range of promotional functions to support national objectives.
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RELATED FUNCTIONS
Bankers to the Government: performs merchant banking function for the central and the state governments;
also acts as their banker.
Bankers to banks: maintains banking accounts of all scheduled banks.
VARIOUS RBI RATES

Reserve Bank of India (RBI) is the central banking institution of India. RBI control the monetary policy
Rupee as a sole controller. RBI also controls the liquidity (flow of money) in Indian Market by Changing its Policy
rates and Reserve ratios. RBI have three rates: Bank Rate, CRR,SLR.
DIFFERENT RBI RATES
Bank Rate: A bank rate is a rate at which the RBI lends money to the commercial banks for the long term
and rediscount the foreign currency bills. At present the bank rate stands at 9.50% on 20 Sep 2013.
Cash Reserve Ratio: Cash reserve Ratio (CRR) is the amount of cash funds that the banks have to
maintain with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes
down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks. At
present CRR stand at 4% on 20 Sep 2013.
Statutory Liquidity Ratio : Statutory Liquidity Ratio is the amount a commercial bank needs to maintain in
the form of cash, or gold or government approved securities (Bonds) before providing credit to its customers. At
present SLR stands at 23% on 20 Sep 2013.
Repo rate : Repo rate is the rate at which the RBI lends shot-term money to the banks. When the repo rate
increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make
it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it
cheaper for banks to borrow money, it reduces the repo rate. Current Repo rate is 7.50% as on 20 Sep 2013.
Reverse Repo rate : Reverse Repo rate is the rate at which banks park their short-term excess liquidity
with the RBI. The RBI uses this tool when it feels there is too much money floating in the banking system. An
increase in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of
interest. As a result, banks would prefer to keep their money with the RBI. Current Reverse Repo rate is 6.50%
as on 20 Sep 2013.
MSF Rate:- Marginal Standing Facility (MSF) is the rate at which scheduled banks could borrow funds
overnight from the Reserve Bank of India (RBI) against approved government securities..This was introduced in
the monetary policy of RBI for the year 2011-2012. Banks can borrow funds through MSF when there is a
considerable shortfall of liquidity. This measure has been introduced by RBI to regulate short-term asset liability
mismatches more effectively To provide greater liquidity cushion the Reserve Bank of India (RBI) introduced
Marginal Standing Facility or MSF. RBI announced the introduction of MSF on May 3, 2011 and it was effected
from May 9, 2011.Current Marginal Standing Facility (MSF) rate is 9.50% on 20 Sep 2013.
Marginal Standing Facility Rate: Under this scheme, Banks will be able to borrow upto 2% (wef 17/04/2012)
of their respective Net Demand and Time Liabilities (NDTL).
Important Question on Marginal Standing Facility (MSF):
MSF is costlier than Repo Rate, then Why do banks borrow money from RBI using MSF?
Answer: Yes, MSF is 1% costlier than the Repo Rate. But usually banks borrow money from RBI during
acute cash shortage.
Base Rate:-The Base Rate is the minimum interest rate of a Bank below which it cannot lend, except for
DRI advances, loans to banks own employees and loan to banks depositors against their own deposits.Current
Base rate is 9.70% to 10.25% on 20 Sep 2013.
Term Deposit Rate:-A deposit held at a financial institution that has a fixed term. These are generally
short-term with maturities ranging anywhere from a month to a few years. When a term deposit is purchased, the
lender (the customer) understands that the money can only be withdrawn after the term has ended or by giving a
predetermined number of days notice.Current Base rate is 8.00 % to 9.00 % on 20 Sep 2013.
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BANKS, ITS FUNCTIONS &

NEGOTIABLE INSTRUMENTS
VARIOUS FUNCTIONS OF BANKS
Functions
of Banks
Secondary
Functions
Primary
Functions
Accepting
Deposits
Saving Deposits
Fixed Deposits
Current Deposits
Recurring Deposits
Granting Loans
& Advances
Agency
Functions
O verdraft
Cash Credits
Loans
Discounting of Bills
Advance Against Deposits
Transfer of Funds
Periodic Paym ents
Collection of Cheques
Portfolio M anagem ent
Periodic Collections
Utility
Functions
Drafts
Lockers
Underw riting
Project Reports
Social W elfare Program mes
O ther Utility Functions
PRIMARY FUNCTIONS OF BANKS

The primary functions of a bank are also known as banking functions. They are the main functions of a bank.
These primary functions of banks are explained below.
ACCEPTING DEPOSITS
The bank collects deposits from the public. These deposits can be of different types, such as
Saving deposits
Fixed Deposits
Current Deposits
Recurring Deposits
WHENEVER CUTOMER DEPSIT AMOUNT IN ANY OF THE GIVEN ACCOUNT IS CALLED
THEIR DEPOSITS.
Bank Account: A bank account is a financial account between a bank customer and a financial institution.A
bank account can be a deposit account, a credit card, or any other type of account offered by a financial institution.
The financial transactions which have occurred within a given period of time on a bank account are reported to
the customer on a bank statement and the balance of the account at any point in time is the financial position of the
customer with the institution. a fund that a customer has entrusted to a bankand from which the customer can
make withdrawals.
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TYPES OF BANK ACCOUNTS

Savings Bank Account : If a person has limited income and wants to save money for future needs, the
Saving Bank Account is most suited for his purpose. This type of account can be opened with a minimum
initial deposit that varies from bank to bank. Money can be deposited any time in this account. Withdrawals
can be made either by signing a withdrawal form or by issuing a cheque or by using ATM card. Normally
banks put some restriction on the number of withdrawal from this account. Interest is allowed on the
balance of deposit in the account. The rate of interest on savings bank account varies from bank to bank
and also changes from time to time. A minimum balance has to be maintained in the account as prescribed
by the bank.
Current Deposit Account: Big businessmen, companies and institutions such as schools, colleges, and
hospitals have to make payment through their bank accounts. Since there are restrictions on number of
withdrawals from savings bank account, that type of account is not suitable for them. They need to have
an account from which withdrawal can be made any number of times. Banks open current account for
them. On this deposit bank does not pay any interest on the balances. Rather the accountholder pays
certain amount each year as operational charge.
Fixed Deposit Account (also known as Term Deposit Account): Many a time people want to save
money for long period. If money is deposited in savings bank account, banks allow a lower rate of
interest. Therefore, money is deposited in a fixed deposit account to earn a interest at a higher rate.
Recurring Deposit Account: This type of account is suitable for those who can save regularly and
expect to earn a fair return on the deposits over a period of time. While opening the account a person has
to agree to deposit a fixed amount once in a month for a certain period. The total deposit along with the
interest therein is payable on maturity. However, the depositor can also be allowed to close the account
before its maturity and get back the money along with the interest till that period. The account can be
opened by a person individually, or jointly with another, or by the guardian in the name of a minor. The
rate of interest allowed on the deposits is higher than that on a savings bank deposit but lower than the
rate allowed on a fixed deposit for the same period.
Minor Account : A type of savings account that is setup by an adult to be used by a minor. This type of
banking account does not provide all of the privileges that a normal account would, but does allow the
minor to make withdrawals and deposits. Some banks require that the minor's account be linked to a
primary account, so that the adult can be held accountable for any improper uses of the account. Normal
maintenance fees are usually waived until the minor reaches the age of 18
No Frill Account : No Frills account is a basic banking account. Such account requires either nil
minimumbalance or very low minimum balance. Charges applicable to such accounts are low. Services
available to such account is limited.
NRI Accounts : As per the directives and guidelines of RBI, Indian and foreign banks operating in
India can allow non-resident Indians to open, maintain and operate various deposit accounts with them tagged as NRI accounts. These accounts are subject to Indian Banking Regulation Act and FEMA.
Deposits in these accounts can be kept in any of the currencies of the basket or INR, and carry special
rates of interests different from domestic rates on deposits.
GRANTING OF LOANS AND ADVANCES
The bank advances loans to the business community and other members of the public. The rate charged is
higher than what it pays on deposits. The difference in the interest rates (lending rate and the deposit rate) is its
profit.
The types of bank loans and advances are : Overdraft
Cash Credits
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Loans
Discounting of Bill of Exchange
Overdraft This type of advances are given to current account holders. No separate account is maintained.
All entries are made in the current account. A certain amount is sanctioned as overdraft which can be
withdrawn within a certain period of time say three months or so. Interest is charged on actual amount
withdrawn. An overdraft facility is granted against a collateral security. It is sanctioned to businessman
and firms.
Cash Credits The client is allowed cash credit upto a specific limit fixed in advance. It can be given to
current account holders as well as to others who do not have an account with bank. Separate cash credit
account is maintained. Interest is charged on the amount withdrawn in excess of limit. The cash credit is
given against the security of tangible assets and / or guarantees. The advance is given for a longer period
and a larger amount of loan is sanctioned than that of overdraft.
Loans It is normally for short term say a period of one year or medium term say a period of five years.
Now-a-days, banks do lend money for long term. Repayment of money can be in the form of installments
spread over a period of time or in a lumpsum amount. Interest is charged on the actual amount sanctioned,
whether withdrawn or not. The rate of interest may be slightly lower than what is charged on overdrafts
and cash credits. Loans are normally secured against tangible assets of the company.
Discounting of Bill of Exchange The bank can advance money by discounting or by purchasing bills of
exchange both domestic and foreign bills. The bank pays the bill amount to the drawer or the beneficiary
of the bill by deducting usual discount charges. On maturity, the bill is presented to the drawee or acceptor
of the bill and the amount is collected.
SECONDARY FUNCTIONS OF BANKS

The bank performs a number of secondary functions, also called as non-banking functions. These important
secondary functions of banks are explained below.
AGENCY FUNCTIONS
Bank acts as an agent of its customers. The bank performs a number of agency functions which includes : Transfer of Funds The bank transfer funds from one branch to another or from one place to another.
The popular ways of transfer of fund are as follows:
National Electronic Funds Transfer System (NEFT) RBI introduced an electronic funds transfer
system to facilitate an efficient, secure,econo-mical, reliable and expeditious system of funds transfer and clearing
in the banking sector throughout India, and to relieve the stress on the existing paper-based funds transfer and
clearing system called National Electronic Funds Transfer System (NEFT System). The Amount in NEFT can
be transferred upto 2 lac only.
RTGS: RTGS is an acronym that stands for Real Time Gross Settlement. RTGS is a funds transfer system
where money is moved from one bank to another in real-time, and on gross basis. When using the banking
method, RTGS is the fastest possible way to transfer money. Real-time means that the payment transaction isnt
subject to any waiting period. The transaction will be completed as soon as the processing is done, and gross
settlement means that the money transfer is completed on a one to one basis without clustering with another
transaction. The transaction is treated as final and irrevocable as the money transfer occurs in the books of the
RBI (Reserve Bank of India). This system is maintained by the RBI, and is available during working days for a
given number of hours. Banks using RTGS need to have Core banking to be able to initiate RTGS transactions.The
Amount more than 2 lac is transferred by RTGS.
Collection of Cheques : The bank collects the money of the cheques through clearing section of its
customers. The bank also collects money of the bills of exchange.
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NEGOTIABLE INSTRUMENTS
DEFINITION OF NEGOTIABLE INSTRUMENT
According to section 13 of the Negotiable Instruments Act, 1881, a negotiable instrument means
promissory note, bill of exchange, or cheque, payable either to order or to bearer.
TYPES OF NEGOTIABLE INSTRUMENTS
There are three types of negotiable instruments. Which are followed as
Cheques
Promissory Note
Bill of Exchange Cheque
EXPLANATION OF TYPES
PROMISSORY NOTE
A Promissory Note is a written promise by the debtor to pay a certain amount to the creditor. Section 4 of the
Negotiable Instrument Act has defined Promissory Note as an instrument in writing containing an unconditional
undertaking, signed by the maker, to pay a certain sum of money only to or to the order of a certain person.
BILL OF EXCHANGE
An instrument in writing containing an unconditional order, signed by the maker, An instrument in writing
containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money
only to, or to the order of, a certain person or to the bearer of the instrument.
CHEQUE
Cheque is an instrument in writing containing an unconditional order, addressed to a banker, sign
by the person who has deposited money with the banker, requiring him to pay on demand a certain
sum of money only to or to the order of certain person or to the bearer of instrument.
Bearer Cheque or open Cheque : When the words or bearer appearing on the face of the cheque
are not cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person
specified therein or to any other else who presents it to the bank for payment. However, such cheques
are risky, this is because if such cheques are lost, the finder of the cheque can collect payment from the
bank.
Order Cheque : When the word bearer appearing on the face of a cheque is cancelled and when in
its place the word or order is written on the face of the cheque, the cheque is called an order cheque.
Such a cheque is payable to the person specified therein as the payee, or to any one else to whom it is
endorsed (transferred).
Crossed Cheque : Crossing of cheque means drawing two parallel lines on the face of the cheque with
or without additional words like & CO. or Account Payee or Not Negotiable. A crossed cheque
cannot be encashed at the cash counter of a bank but it can only be credited to the payees account.
Anti-Dated Cheque : If a cheque bears a date earlier than the date on which it is presented to the bank,
it is called as anti-dated cheque. Such a cheque is valid upto six months from the date of the cheque.
Post-Dated Cheque : If a cheque bears a date which is yet to come (future date) then it is known as
post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.
Stale Cheque : If a cheque is presented for payment after six months from the date of the cheque it is
called stale cheque. A stale cheque is not honoured by the bank.
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7. A self cheque : A self cheque is written by the account holder as pay self to receive the money in the
physical form from the branch where he holds his account.
8. Pay yourself cheque : The account holder issues this type of crossed cheque to the bank asking the
bank deduct money from his account into banks own account for the purpose buying banking products
like drafts, pay orders, fixed deposit receipts or for depositing money into other accounts held by him like
recurring deposits and loan accounts.
VARIOUS TYPES OF CHEQUES BASED ON THEIR FUNCTIONALITY
Local Cheque: A local cheque is a type of cheque which is valid in the given city and a given branch in
which the issuer has an account and to which it is connected. The producer of the cheque in whose name it is
issued can directly go to the designated bank and receive the money in the physical form.
At par cheque: With the computerisation and networking of bank branches with its headquarters, a variation
to the local cheque has become common place in the name of at par cheque. At par cheque is a cheque which is
accepted at par at all its branches across the country. Unlike local cheque it can be present across the country
without attracting additional banking charges.
Bankers cheque: It is a kind of cheque issued by the bank itself connected to its own funds. It is a kind of
assurance given by the issuer to the client to alley your fears. The personal account connected cheques may
bounce for want of funds in his account. To avoid such hurdles, sometimes, the receiver seeks bankers cheque.
Travelers cheques: They are a kind of an open type bearer cheque issued by the bank which can be used
by the user for withdrawal of money while touring. It is equivalent to carrying cash but in a safe form without fear
of losing it.
Periodic Payments On standing instructions of the client, the bank makes periodic payments in respect of
electricity bills, rent, etc.
Portfolio Management The banks also undertakes to purchase and sell the shares and debentures on
behalf of the clients and accordingly debits or credits the account. This facility is called portfolio
management.
Periodic Collections The bank collects salary, pension, dividend and such other periodic collections on
behalf of the client.
Other Agency Functions They act as trustees, executors, advisers and administrators on behalf of its
clients. They act as representatives of clients to deal with other banks and institutions.
GENERAL UTILITY FUNCTIONS
The bank also performs general utility functions, such as : Issue of Drafts and Letter of Credits Banks issue drafts for transferring money from one place to
another. It also issues letter of credit, especially in case of, import trade. It also issues travellers cheques.
Locker Facility The bank provides a locker facility for the safe custody of valuable documents, gold
ornaments and other valuables.
Underwriting of Shares The bank underwrites shares and debentures through its merchant banking
division.
Dealing in Foreign Exchange The commercial banks are allowed by RBI to deal in foreign exchange.
Project Reports The bank may also undertake to prepare project reports on behalf of its clients.
Social Welfare Programmes It undertakes social welfare programmes, such as adult literacy
programmes, public welfare campaigns, etc.
Other Utility Functions It acts as a referee to financial standing of customers. It collects creditworthiness
information about clients of its customers. It provides market information to its customers, etc. It provides
travellers cheque facility.
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Money And Capital Markets

MONEY AND ITS IMPORTANCE
Money is a thing that is usually accepted as payment for goods and services as well as for the repayment of
debts. Money originated as commodity money, but almost all contemporary money systems are based on concept
of fiat money. Fiat money is of no value as a physical commodity, and derives its value by being declared by the
government to be a legal tender; that is, it must be accepted as a form of payment within the boundaries of the
country. This applies for all debts, public as well as privategenerally accepted as a form of payment.
Types of Money
Commodity Money - Commodity money value is derived from the commodity out of which it is made.
The commodity itself represents money, and the money is the commodity. For instance, commodities that
have been used a
mediums of exchange include gold, silver, copper, salt, peppercorns, rice, large stones, etc.
Representative Money - is money that includes token coins, or any other physical tokens like certificates,
that can be reliably exchanged for a fixed amount/quantity of a commodity like gold or silver.
iat Money - Fiat money, also known as fiat currency is the money whose value is not derived from any
intrinsic value or any guarantee that it can be converted into valuable commodity (like gold). Instead, it
derives value only based On government order (fiat)
Commercial Bank Money - Commercial bank money or the demand deposits are claims against financial
institutions which can be used for purchasing goods and services
MONEY MARKETS
Money Market - The money market is a wholesale debt market for low-risk, highly-liquid, short-term
instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is
dominated mostly by government, banks and financial institutions.
MONEY MARKET INSTRUMENTS
Money Market Instruments The money market can be defined as a market for short-term money and
financial assets that are near substitutes for money. The term short-term means generally a period upto one year
and near substitutes to money is used to denote any financial asset which can be quickly converted into money
with minimum transaction cost.
Some of the important money market instruments are briefly discussed below;
Call/Notice Money
Treasury Bills
Term Money
Certificate of Deposit
Commercial Papers
Call /Notice-Money Market:-1.Call/Notice money is the money borrowed or lent on demand for a
very short period. When money is borrowed or lent for a day, it is known as Call (Overnight) Money.
Intervening holidays and/or Sunday are excluded for this purpose. Thus money, borrowed on a day and
repaid on the next working day, (irrespective of the number of intervening holidays) is Call Money.
Notice Money:-When money is borrowed or lent for more than a day and up to 14 days, it is Notice
Money.No collateral security is required to cover these transactions.
Inter-Bank Term Money:-Inter-bank market for deposits of maturity beyond 14 days is referred to as
the term money market. The entry restrictions are the same as those for Call/Notice Money except that,
as per existing regulations, the specified entities are not allowed to lend beyond 14 days.
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Treasury Bills.:-Treasury Bills are short term (up to one year) borrowing instruments of the union
government. It is a promise by the Government to pay a stated sum after expiry of the stated period from
the date of issue (14/91/182/364 days i.e. less than one year). They are issued at a discount to the face
value, and on maturity the face value is paid to the holder. The rate of discount and the corresponding
issue price are determined at each auction.
Certificate of Deposits:- Receipt issued by a depository institution (such as a bank, credit union, or a
finance or insurance company) to a depositor who opens a certificate account or time deposit account.
Issued in a negotiable or non-negotiable form, it states the (1) amount deposited, (2) rate of interest, and
(3) minimum period for which the deposit should be maintained without incurring early withdrawal penalties.
Commercial Paper:- An unsecured obligation issued by a corporation or bank to finance its short-term
credit needs, such as accounts receivable and inventory. Maturities typically range from 2 to 270 days.
Commercial paper is available in a wide range of denominations, can be either discounted or interestbearing, and usually have a limited or nonexistent secondary market. Commercial paper is usually issued
by companies with high credit ratings, meaning that the investment is almost always relatively low risk.
CAPITAL MARKETS
The economy needs the availability of primary resource which is money and productive purposes for gainful
investment. The growth for a vibrant economy is pushed by matching the funds availability with productive use.
HOW IS THIS OBJECTIVE PURSUED?
Capital market is the mechanism by which the owners of capital or money supply their funds to users for
values creation. The industry and entrepreneurs seek to satisfy the suppliers of money with opportunities for
increasing their savings. Those who make the right choices gain from wealth generation. The capital market,
through different institutions and players mobilizes the funds and transfers them to the chosen entrepreneurs
through a variety of financial instruments.
HOW IS THIS PROCESS OF RAISING CAPITAL CARRIED OUT?
There are two ways in which it is done
Through Primary Markets Where the user of capital issues new securities to raise capital either for fresh
ventures or expansion. The financial instrument or the security is directly issued to the investor at face value or at
a discount/ premium depending on the strength of the company and proposed offer.
Through Secondary Markets That enables buyers and sellers of securities to trade in these securities. Stock
Exchange is an org. where buyers and sellers of securities come together for trading in these securities. The companies
which raise money from the public are, therefore, required to list their securities on the stock exchange.
INITIAL PUBLIC OFFERINGS (IPOS)
When a company opens to investments from the public by offering shares for the first time it is known as
initial public offer. The retail investors who participate in the offer are considered to have subscribed to the
companys equity and thus qualify to become shareholders of the company along with the existing.
STOCK MARKETS IN INDIA
Stock Market refers to a market place where investors cab buy and sell stocks. The price at which each
buying and selling transaction takes i determined by the market forces. Here market forces are demand and
supply for a particular stock.
In earlier times, stock brokers assembles at a stock exchange to purchase and sale stock or in one word to
make transactions. But now stock market became paperless. Almost all transaction are done electronically.
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BANKING & FINANCIAL(TERMS-I)

BANKING AND FINANCIAL TERMS
Inflation: Inflation is as an increase in the price of goods and services that projects the Indian economy. An
increase in inflation figures occurs when there is an increase in the average level of prices in goods and services.
Inflation happens when there are fewer goods and more buyers;or we can say when demand is more than
supply.This will result in increase in the price of goods, since there is more demand and less supply of the goods.
Deflation: Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the
inflation rate becomes negative (below zero) and stays there for a longer period.
FII:FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of an institution. An
institution established outside India, which proposes to invest in Indian market, in other words buying Indian
stocks. FIIs generally buy in large volumes which has an impact on the stock markets. Institutional Investors
includes pension funds, mutual funds, Insurance Companies, Banks etc.
FDI:-FDI (Foreign Direct Investment) occurs with the purchase of the physical assets or a significant
amount of ownership (stock) of a company in another country in order to gain a measure of management control
(or) A foreign company having a stake in an Indian company.
SEZ:-SEZ means Special Economic Zone is a special geographic part of country which possess special
economic regulations that are different from other areas in the same country. Moreover, these regulations tend to
contain measures that are favourable to foreign direct investment. Conducting business in a SEZ usually means
that a company will receive tax incentives and the opportunity to pay lower tariffs.
The basic motto behind this is to increase foreign investment, development of infrastructure, job opportunities
and increase the income level of the people.
Balance of Payment:-A record of all transactions made between one particular country and all other
countries during a specified period of time.
Balance of payment of a country is a systematic record of all economic transactions completed between its
residents and the residents remaining world during a year. In other words, the balance of payment shows the
relationship between the one countrys total payment to all other countries and its total receipts from them.
Balance of Trade:-Balance of trade refers to the total value of a countrys 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 settlement.
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.
Direct and Indirect Taxes:-Direct taxes are levied on the income of individuals and corporates. For
example, income tax, corporate tax etc. Indirect taxes are paid by consumer when they buy goods and services.
These include excise duty, custom duty, VAT, service tax etc.
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 example, a business organization wants to install a new company
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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.
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.
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.
Greshams Law:-Bad money (if not limited in quantity) drives good money out of circulation This
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.
HDI:-A tool developed by the United Nations to measure and rank countries levels of social and economic
development based on four criteria: Life expectancy at birth, mean years of schooling, expected years of schooling
and gross national income per capita. The HDI makes it possible to track changes in development levels over time
and to compare development levels in different countries.
Monetary Policy:- Monetary policy is the process by which monetary authority of a country, generally a
central bank controls the supply of money in the economy by exercising its control over interest rates in order to
maintain price stability and achieve high economic growth. In India, the central monetary authority is the Reserve
Bank of India (RBI). is so designed as to maintain the price stability in the economy. Other objectives of the
monetary policy of India, as stated by RBI, are:Regressive Tax
It is the 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.
Credit Authorization Scheme:-Credit Authorization Scheme was introduced in November, 1965 when P
C Bhattacharya was the chairman of RBI. Under this instrument of credit regulation RBI as per the guideline
authorizes the banks to advance loans to desired sectors
Open Market Operations:- An open market operation is an instrument of monetary policy which involves
buying or selling of government securities from or to the public and banks.
Moral Suasion:-Moral Suasion is just as a request by the RBI to the commercial banks to take so and so
action and measures in so and so trend of the economy. RBI may request commercial banks not to give loans for
unproductive purpose which does not add to economic growth but increases inflation.
Shadow Price:It 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.
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 nowforming a part of
countries official forex reserves along with gold, reserve positions in the IMF and convertible foreign currencies.
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 blend of the words stagnation and inflation.
Transfer payment:-It is a payment made by public authority other than one made in exchange for goods or
services produced. Transfer payments are not the part of National Income. Examples includes unemployment
benefit and child benefits.
In other words, the transfer is made without any exchange of goods or services.[1] Examples of certain
transfer payments include welfare (financial aid), social security, and government making subsidies for certain
businesses
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Devaluation:- 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. In a fixed exchange rate regime,
only a decision by a countrys government (i.e central bank) can alter the official value of the currency.There are
two implications for a currency devaluation. First, devaluation makes a countrys exports relatively less expensive
for foreigners and second, it makes foreign products relatively more expensive for domestic consumers, discouraging
imports. As a result, this may help to reduce a countrys trade deficit.
Fiscal Policy:-Fiscal policy is the use of government revenue collection (taxation) and expenditure (spending)
to influence the economy
Fiscal policy is that part of government 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. it exerts a very powerful influence of the working of economy as a whole.
Scheduled Banks:-They are banks which are included in the second schedule of the Reserve Bank of
India Act, 1934. These banks enjoy certain privileges such as free concessional remittance facilities and financial
accommodation from the RBI. they also have certain obligations like minimum cash reserve ratio (CRR) to be
kept with RBI.
ATM :ATMs are Automatic Teller Machines, which do the job of a teller in a bank through Computer
Network. ATMs are located on the branch premises or off branch premises. ATMs are useful to dispense cash,
receive cash, accept cheques, give balances in the accounts and also give mini-statements to the customers.
Bouncing of a cheque : Where an account does not have sufficient balance to honour the cheque issued by
the customer , the cheque is returned by the bank with the reason funds insufficient or Exceeds arrangement.This
is known as Bouncing of a cheque .
Collecting Banker : Also called receiving banker, who collects on instruments like a cheque, draft or bill of
exchange, lodged with himself for the credit of his customers account.
Debit Card : A plastic card issued by banks to customers to withdraw money electronically from their
accounts. When you purchase things on the basis of Debit Card the amount due is debited immediately to the
account . Many banks issue Debit-Cum-ATM Cards.
Demand Deposits : Deposits which are withdrawn on demand by customers.E.g. savings bank and current
account deposits.
Demat Account : The term "demat", in India, refers to a dematerialised account for individual Indian
citizens to trade in listed stocks or deb entures in electronic form rather than paper, as required for investors
by the Securities and Exchange Board of India (SEBI). In a demat account, shares and securities are held
electronically instead of the investor taking physical possession of certificates. A demat account is opened by the
investor while registering with an investment broker
Electronic Commerce (E-Commerce): E-Commerce is the paperless commerce where the exchange of
business takes place by Electronic means.
Endorsement : When a Negotiable Instrument contains, on the back of the instrument an endorsement,
signed by the holder or payee of an order instrument, transferring the title to the other person, it is called endorsement.
Merchant Banking : When a bank provides to a customer various types of financial services like accepting
bills arising out of trade, arranging and providing underwriting, new issues, providing advice, information or assistance
on starting new business, acquisitions, mergers and foreign exchange.
Virtual Banking : Virtual banking is also called internet banking, through which financial and banking services
are accessed via internets world wide web. It is called virtual banking because an internet bank has no boundaries
of brick and mortar and it exists only on the internet.
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Wholesale Banking : Wholesale banking is different from Retail Banking as its focus is on providing for
financial needs of industry and institutional clients.
Universal Banking:- Universal Banking refers to those services offered by banks beyond traditional banking
service such as saving accounts and loans and includes Pension Funds Manage-ment, undertaking equipment
leas-ing, hire purchase business and factoring services, Primary Dealer-ship (PD) business, insurance busi-ness
and mutual fund business.
Minor Accounts : A minor is a person who has not attained legal age of 18 years. As per Contract Act a
minor cannot enter into a contract but as per Negotiable Instrument Act, a minor can draw,negotiate, endorse,
receive payment on a Negotiable Instrument so as to bind all the persons, except himself. In order to boost their
deposits many banks open minor accounts with some restrictions.
Mobile Banking : With the help of M-Banking or mobile banking customer can check his bank balance,
order a demand draft, stop payment of a cheque, request for a cheque book and have information about latest
interest rates.
Online Banking:-Transaction at the convenience of customers, saving times and cost through computers is
popularly known as Online Banking. It is also known as E-Banking or Net Banking or Internet Banking. It is done
through a computer with internet facilities. Customers can monitor and control their through Internet Banking.
They can check account balance view their account, get summary statement, make bill payments and utility
payments, request for cheque book, drafts, Bankers cheques, stop cheque payments, transfer funds, request for
third party transfers, invest and renew deposits, issue standing instruction, register mobile number for SMS alerts
and many more attractive features user-id and password are given by the banks to the customer for operation of
account after they successfully register with the bank.
NRI Banking :-Banks allow NRIs to open an NRI account when they complete the account opening
formalities. A customer for this purchase a form has to be filled up in which the information soughtly the bank is
provided. They can have a NRI Saving Bank Account, Current Account, Fixed Deposits in Indian Rupees, Fixed
Deposits in foreign currency, NRO account (Rupee account for crediting income in India)
Money Laundering The process of creating the appearance that large amounts of money obtained from
serious crimes, such as drug trafficking or terrorist activity, originated from a legitimate source. Some estimate the
size of the problem is over $500 billion annually. Often thought of as a victimless crime, money laundering is a very
serious issue. Without it, international organized crime would not be able to function.
Mortgage : Transfer of an interest in specific immovable property for the purpose of offering a security for
taking a loan or advance from another. It may be existing or future debt or performance of an agreement which
may create monetary obligation for the transferor (mortgagor).
NABARD : National Bank for Agriculture & Rural Development was setup in 1982 under the Act of 1981.
NABARD finances and regulates rural financing and also is responsible for development agriculture and rural
industries. NABARD is an apex Development Bank that facilitates credit flow for promotion and development of
agriculture, small-scale industries, cottage and village industries, handicrafts and other rural crafts. It also has the
mandate to support all other allied economic activities in rural areas, promote integrated and sustainable rural
development and secure prosperity of rural areas..
Negotiation : In the context of banking, negotiation means an act of transferring or assigning a money
instrument from one person to another person in the course of business.
NPA Account : If interest and instalments and other bank dues are not paid in any loan account within a
specified time limit, it is being treated as non-performing assets of a bank.
GAAR: The full form of GAAR is : General Anti-Avoidance Rules. Tax Avoidance is an area of concern
across the world. The rules are framed in different countries to minimize such avoidance of tax. Such rules in
simple terms are known as General Anti Avoidance Rules or GAAR. Thus GAAR is a set of general rules
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enacted so as to check the tax avoidance. News for GAAR has been in prominence in last few years as Indian
Government has taken initiative to introduce GAAR or General Anti Avoidance Rules with a view to increase tax
collections. GAAR is a concept which generally empowers the Revenue Authorities in a country to deny the tax
benefits of transactions or arrangments which do not have any commercial substance or consideration other than
achieving the tax benefit. Whenever revenue authorities question such transactions, there is a conflict with the
tax payers. Thus, different countries started making rules so that tax can not be avoided by such transactions.
Australia introduced such rules way back in 1981. Later on countries like Germany, France, Canada, New Zealand,
South Africa etc too opted for GAAR. However, countries like USA and UK have adopted a cautious approach
and have not been aggressive in this regard.
Plastic Money : Credit Cards, Debit Cards, ATM Cards and International Cards are considered plastic
money as like money they can enable us to get goods and services
BPLR: In banking parlance, the BPLR means the Benchmark Prime Lending Rate. However, with the
introduction of Base Rate (explained below), BPLR has now lost its importance and is made applicable normally
only on the loans which have been sanctioned before the introduction of Base Rate (i.e. July 2010).The BPLR
system, introduced in 2003, fell short of its original objective of bringing transparency to lending rates. This was
mainly because under the BPLR system, banks could lend below BPLR. For the same reason, it was also difficult
to assess the transmission of policy rates of the Reserve Bank to lending rates of banks.
Thus, BPLR was / is the interest rate that commercial banks normally charge (or we can say they were
expected to charge) their most credit-worthy customers. Although as per Reserve Bank of India rules, Banks
were free to fix Benchmark Prime Lending Rate (BPLR) for credit limits over Rs.2 lakh with the approval of
their respective Boards yet BPLR was to be declared and made uniformly applicable at all the branches. The
Asset-Liability Management Committee (ALCO) of respective bank fixed interest rates on Deposits and Advances,
subject to their reporting to the Board immediately thereafter. The banks were also to declare the maximum
spread over BPLR with the approval of the ALCO/Board for all advances ]
Financial Markets:-A Financial Market can be defined as the market in which financial assets are created
or transferred. As against a real transaction that involves exchange of money for real goods or services, a
financial transaction involves creation or transfer of a financial asset. Financial Assets or Financial Instruments
represents a claim to the payment of a sum of money sometime in the future and /or periodic payment in the form
of interest or dividend.
Money Market - The money market is a wholesale debt market for low-risk, highly-liquid, short-term
instrument. Funds are available in this market for periods ranging from a single day up to a year. This market is
dominated mostly by government, banks and financial institutions.
Capital Market - The capital market is designed to finance the long-term investments. The transactions
taking place in this market will be for periods over a year.
Forex Market - The Forex market deals with the multicurrency requirements, which are met by the exchange
of currencies. Depending on the exchange rate that is applicable, the transfer of funds takes place in this market.
This is one of the most developed and integrated market across the globe.
Credit Market - Credit market is a place where banks, FIs and NBFCs give short, medium and long-term
loans to corporate and individuals.
Financial Inclusion : Financial inclusion or inclusive financing is the delivery of financial services, at affordable
costs, to sections of disadvantaged and low income segments of society.The Reserve Bank of India (RBI), which
became an official member institution of the Alliance for Financial Inclusion in 2012, set up the Khan Commission
in 2004 to look into financial inclusion and the recommendations of the commission were incorporated into the
mid-term review of the policy (200506). In the report RBI exhorted the banks with a view of achieving greater
financial inclusion to make available a basic no- frills banking account
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Bounced Cheque:-A cheque that a bank has refused to cash or pay because the account holder does not
have sufficient funds to cover it in this account.
Cashiers Cheque:-A cheque issued by a bank drawn on its own funds rather than on the funds its depositors.
Clear:-A cheque is cleared when its account is debited or deducted from the payers account and credited
or added to the payees account.
Compound Interest:-Interest calculated on the original principal and on the interest already accrued.
Stop Payment:-A request made to a bank to not pay a specific cheque. If requested soon enough, the
cheque will not be debited from the payers account.
Bank Draft:-A cheque drawn by one bank against funds deposited into its account at another bank, authorizing
individual named in the draft.
Inactive Account:-Transactions house not occurred on a bank account for an extended period of time..
Personal Identification Number (PIN):-An account holder has a secret number or code to authorize a
transaction or obtain information regarding his or her account often used in conjunction with a plastic card (ATM
or Debit Card), online account access or with a telephone voice response system.
Bank Statements:-This is a statement from the bank giving details of transaction in the relevant account. It
can be requested at any intervals required, usually monthly.
Cheque Clearing:-This is the process of getting the money from the cheque-writers account into the
cheque receivers account.
Standing Order:-A regular payment made out of a current account which is of a set account and is originated
by the account holder.
Fringe Benefit:-A benefit in addition to salary offered to employees such as use of companys car, house,
lunch coupons, heath care subscriptions etc.
Foreign Exchange Reserves:-Foreign-exchange reserves (also called forex reserves or FX
reserves) in a strict sense are 'only' the foreign currency deposits and bonds held by central banks and monetary
authorities. However, the term in popular usage commonly includes foreign exchange and gold, special drawing
rights (SDRs), and International Monetary Fund (IMF) reserve positions.
Central Bank:-Major Financial institution responsible for issuing currency, managing foreign reserves,
implementing monetary policy, and providing banking services to the government and commercial banks RBI is
the central bank of India.
Account payee:-Also account payee only. Words written on the face of a cheque between two parallel
lines. The purpose is to ensure that the cheque may only be paid into an account in the name of the payee- the
person to whom the cheque is made payable. This means that the payee cannot sign it in names of another person.
Multi Option Deposit scheme:-Multi Option Deposit scheme is a term deposit which is not fixed at all and
comes with a unique break-up facility which provides full liquidity as well as benefit of higher rate of interest,
through the savings bank account. One can also keep that deposit intact by availing on overdraft facility, to meet
occasional temporary funds requirements.
Cards:-Banks provide free ATM cum Debit card to its customers who have deposit account with them. This
card provides online access to savings or current account. They can have the access to the widest network of
ATMs across the country to withdraw cash, enquire about the account balance etc. Banks are also having
bilateral sharing arrangement with other banks under this scheme.
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Demat Services:_Banks have come forward to offer Demat Services to its customer. Demat account, the
abbreviation for dematerialized account is used to avoid holding physical shares: The shares are bought and sold
through a stock broker.
Capital Adequacy Ratio(CAR):-Capital adequacy ratio measures the amount of a banks capital expressed
as a percentage of its credit exposure. Globally, the capital adequacy ratio has been developed to ensure banks
can absorb a reasonable level of losses before becoming insolvent. Indian banks are expected to maintain a
minimum capital adequacy ratio of 9 per cent (Rs 9 as capital for every Rs 100 in loan or asset) Applying minimum
capital adequancy ratios serves to protect depositors and promote the stability and efficiency of the financial
system by reducing the likelihood of banks be coming insolvent.
Collateral Loan Market:Collateral loan market forms, by and large, the largest and the best developed
section of the money market. In this market, loans are given against the security of government bonds, shares of
first class companies, agriculture and manufactured commodities and bullion and jewellery.
Mutual Funds:-Mutual Funds collect the savings from small investors to invest them in government and
other corporate securities and cash income through interest and dividends desides capital gains. It works on the
principle of small drops of water make a big ocean to get funds from investors, the fund adopts a simple
technique. Each fund is divided into a small fraction Called units of equal value. Each investor is allotted units in
proportion to the size of his investment.
Regular Savings Account:-A Form of deposit account with no legal limits or requirements as to amount
duration or times of addition or withdrawals.
Wire Transfer:-An electronic transfer of funds from one financial institution to another.
Economic Miracle:-The terms "economic miracle", "economic boom", "tiger economy" or simply "miracle"
have come to refer to great periods of change, particularly periods of dramatic economic growth, in the recent
histories of a number of countries.
Asset - Liability Mismatch:-In finance, an asset-liability mismatch occurs when the financial terms of an
institution's assets and liabilities do not correspond
Fixed income : It refers to any type of investment under which the borrower/issuer is obliged to make
payments of a fixed amount on a fixed schedule: for example, if the borrower has to pay inter est at a fixed rate
once a year, and to repay the principal amount on maturity.
Premium Financing :- Premium Financing involves the lending of funds to a person or company to cover
the cost of an insurance premium. Premium finance loans are often provided by third party finance entity known
as a "Premium Financing Company"; however insurance companies and brokerages occasionally provide premium
financing services
Net present value:- In finance, the net present value (NPV) or net present worth (NPW)[1] of a time
series of cash flows, both incoming and outgoing, is defined as the sum of the present values (PVs) of the
individual cash flows of the same entity.
Share Capital:-Funds raised by issuing shares in return for cash or other considerations. The amount of share
capital a company has can change over time because each time a business sells new shares to the public in
exchange for cash, the amount of share capital will increase. Share capital can be composed of both common and
preferred shares.
171
BANKING AWARENESS
1. N am e the sixth com m odity platform thet went live with 100 m em bers on board.
U niversal C om m odity E xchange
2. W hich index has been launched by the B obay Stock Exchange (B S E) for islam ic
investors
Islam ic E quity index based on

S& P BS E 500 index
3. W hich com pany announced launching 100 crore Rupees non-convertible debenture
(N CB ) issue in ord er to fund the expansion of m icrofinance as well as sm all and m edium
enterprrise (S M E) b usiness
M uthoot F incorp
4. Abu D habi based w hich airlines confirm ed taking over of 24 per cent m inority stake in jet
Airw ays F or 379 m illion dollars
Etihad A irways
5. N ational P aym ents C orporation of india has decided to launch the international version of
its RuP ay card by July thi year W hat type of card it is
D ebit card
6. W hich bank has started its farm er s C lub Schem e in kargil region of J & K for uplifting the
sheep and goat rearing sector and P ashm ina R earing
N ABA RD
7. D BT schem e w ill beextended to how m any districts from July 2013?.
78
8. C enter has increased D A to 80% from existing 72% H ow M any w ill benefit fro m this decision
50 Lakh em ployees & 30 lakh pensioners

of the central govt
9. W hich governm ent com pany sig ned a deal of 2.3 m illion-tonne (m t) capacity in the cove point
LN G liquefaction term inal project at lusby in m aryland, US ?
G AIL (india) Ltd.
10. W hich bank w ill discontinue a free accident insurance cover given to its hom e and car loan
custom ers from July 2013?
11. W h ich departm ent has decided to nam e and sham e chronic tax defaulters by publicizing
their nam es and addresses?
SB I
12. W hich bank has im posed a penaly of R s. 5 la kh on U S banking m ajor JP m organ C hase
for virious norm s in cluding risk m anagem ent guidelines
R eserve B ank of india
13. N am e the bank which had w on the prestig ious FE india s best banks awa rd 2012-2013
in recognition of its strong fundam entals and dynam ic
J & K Bank
14. For w hat purpose w orld bank has assured a m u lti-billion $ 12-20 bn four year plan for india?
Poverty Alleviation
15. N TPC sign ed 3 loan agreem ents worth R s. 1870 crore w ith 3 banks to part
C anara bank, Punjb & sind bank.
16. Finance the capital expenditureof N TP C. nam e the 3 banks.
Andhra bank
17. W hat is the bare m inim um rate at w hich a bank can lend?
Base rate
18. N am e the new virus that has been found to be spreading w idely in the indian cyberspace
w hich cleverly steals bank accou nt details and passwords of the user onec it is clicked?
R am nit w orm
19. W hich com pany has bagged Rs. 14 bn project of india post for com puterizing counter operations?
TC S
20. W hich bank has sanctioned a loan of $ 300 m illion to Uttara khand for developing pow er generation
& transm ission project ?
Asian D eve lopm ent B ank
21. AD B has sanctioned a loan of $ 252 m illion for construction of rural roads in which state
s
Assam , C hattisghar, M adhya,

Pradesh Odisha, W est B engal
22. R BI has cut the repo rate by 25 basis points. what is the repo rate?
7.25%
23. According to w orld bank report on poverty wh ich country accounts for roughly one third of the
total poor populatio of the w orld?
india
24. According to the letest edition of the w orld bank s m igration and developm ent brief which country
has em arged as the largest recipient of overseas rem ittances in the world with inward rem ittances
of $ 69billion in 2012?
india
25. According to a report by associated cham bers of com m erce and industry (assocham ) w hich state
has topped in attracting investm ents across the country?
G ujarat
26. Finance m inister launched m ediclaim facility for the farm ers holding kisan credit cards (K CC ) issued
by which bank?
D ena Bank
27 W hich O rganization started Doha round negotiations in 2001 for international trade
M edi claim facility
28. N am e the online m aga zine w hich accused IC ICI, H DF C & A xis B ank of running a vast nation
w ide m on ey laundering act.
C obrapost
29. T he kerala hum an rights com m ission registered a case against w hich bank for publishing photos
and addresses of borrow ers in newspapers w ho defaulted loan repaym ent?
State ba nk of india
Incom e Tax dept.
172
BANKING AWARENESS
BANKING & FINANCIAL(TERMS-II)
Basel Norms: What are Basel banking norms? (Basel-III, Basel-II, Basel- I)
Basel Norms: What are Basel banking norms? (Basel-III, Basel-II, Basel- I). Short Notes on Basel
Banking Norms.
The Basel Committee on Banking Supervision (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.
Currently there are 27 member nations in the committee. Basel guidelines refer to broad supervisory standards
formulated by this group of central banks- called the Basel Committee on Banking Supervision (BCBS).
BASEL NORMS
Basel is a set of standards and practices developed for global banks to ensure that they maintain adequate
capital to withstand periods of economic strain. It is a comprehensive set of reform measures designed to improve
the regulation, disclosures and risk management within the banking sector.
BASEL I
In 1988, BCBS introduced capital measurement system called Basel capital accord, also called as Basel 1. It
focused almost entirely on credit risk. It defined capital and structure of risk weights for banks. The minimum
capital requirement was fixed at 8% of risk weighted assets (RWA). RWA means assets with different risk
profiles. For example, an asset backed by collateral would carry lesser risks as compared to personal loans, which
have no collateral. India adopted Basel 1 guidelines in 1999.
BASEL II
In 2004, Basel II guidelines were published by BCBS, which were considered to be the refined and reformed
versions of Basel I accord. The guidelines were based on three parameters. Banks should maintain a minimum
capital adequacy requirement of 8% of risk assets, banks were needed to develop and use better risk management
techniques in monitoring and managing all the three types of risks that is credit and increased disclosure
requirements. Banks need to mandatorily disclose their risk exposure, etc to the central bank
BASEL III
In 2010, Basel III guidelines were released. These guidelines were introduced in response to the financial
crisis of 2008. A need was felt to further strengthen the system as banks in the developed economies were undercapitalized, over-leveraged and had a greater reliance on short-term funding. Also the quantity and quality of
capital under Basel II were deemed insufficient to contain any further risk. Basel III norms aim at making most
banking activities such as their trading book activities more capital-intensive. The guidelines aim to promote a
more resilient banking system by focusing on four vital banking parameters viz. capital, leverage, funding and
liquidity.
NEW BANK: RBI ISSUED FINAL GUIDELINES FOR NEW BANK LICENSES
Reserve Bank of India (RBI) Issued Final Guidelines for New Bank Licenses in Private Sector.
The Reserve Bank of India (RBI), the central banking authority of India, on February 22, 2013 issued the
final guidelines for new bank licenses, allowing any type of company to apply for a permit, paving the way for new
banks after nine years.
173
BANKING AWARENESS
Reserve Bank of India (RBI) said it would allow applications till July 1, 2013. No specific industry was
barred from applying, although draft rules issued in August 2011 had barred real estate companies and brokerages.
The players which are expected throw their hat in the ring to get banking licenses are: L&T Finance Holdings,
Tata Capital, Aditya Birla Financial Services, Reliance Capital, LIC Housing Finance, Mahindra & Mahindra
Financial Services, Religare Enterprises, and Indiabulls.
The guidelines come three years after the then Finance Minister Shri Pranab Mukherjee announced that the
RBI is considering giving some additional banking licenses to private sector players.
The last time that the central bank gave banking licenses was a decade ago when Kotak Mahindra Finance
Ltd got converted into a commercial bank and YES Bank was floated.
ASBA: WHAT IS ASBA? | ASBA FACILITY | ASBA PROCEDURE

ASBA: What is ASBA? ASBA Facility, ASBA Procedure, Who can apply for ASBA?
ASBA (Applications Supported by Blocked Amount) is a process developed by the Indias Stock Market
Regulator Securities and Exchange Board of India (SEBI) for applying to IPO. In ASBA, an IPO applicants
account doesnt get debited until shares are allotted to them.
ASBA is a supplementary process for applying in public issues floated by the Companies. ASBA can be
used for Initial and Follow-on Public Offers (IPO & FPO), Rights Issues, Debt Issues and Mutual Funds. Under
ASBA, funds will continue to earn interest during the application processing period. Bank will mark a lien on the
deposit account of the investor to the extent of the application money. Lien will be removed immediately after
finalization of the basis of allotment. If bid is successful, the shares allotted will be transferred to the applicants
Demat account.
An Investor can apply through ASBA, provided he/she:
is from any of the approved category eligible to apply in IPO as per SEBI guidelines.
is maintaining a Savings Bank or Current Account with any bank.
is having Demat account with any of the DP along with Permanent Account Number (PAN).
has sufficient clear credit balance in his/her Savings Bank or Current account for application money.
Important Points
A Retail Individual Investor (Individual or HUF Applicant up to Rs 200000/-) can also modify, revise or
delete the bid within bidding period.
All other categories cannot withdraw the application and can modify only upwardly.
An Investor can make 5 applications from a single deposit account.
CONNECTED LENDING
If a Bank owned by private person or entities, start to lend to its different verticals. To safeguard the interest
of customers and stake holders, the Reserve Bank of India (RBI) has set few norms for that.
Example- Mr X is a owner/director of a Bank and he is also involved in different business like aviation,
telecom, retail, insurance, infrastructure etc. If he utilities banks fund to finance his other vertical it will be termed
as Connected Lending.
What happens in connected lending is that the bank of Mr X might be in profit but Mr Xs verticals might be
in losses, to sustain that losses he might not increase interest rates and also will not pay dividend to stake holders
which has to be given as the bank was in profit.
174
BANKING AWARENESS
CHEQUE TRUNCATION SYSTEM (CTS)

What is Cheque Truncation?
Cheque Truncation is settlement of clearing transactions on the basis of images and electronic data without
the physical movement of the instruments. The Clearing Cheque is truncated at the Presenting bank itself.
A cheque truncation system allows a Financial Institution to truncate cheques at the Point of Capture by
providing the capabilities of presenting chques to the paying bank electronically and process return cheques
electronically.
CTS 2010 is the standard prescribed by the RBI for cheques issued by all banks in the country.
Why Cheque Truncation System in India?
Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers,
reduces the scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of
cheques, and removes reconciliation-related and logistics-related problems, thus benefiting the system as a whole.
In addition to operational efficiency, CTS offers several benefits to banks and customers, including human
resource rationalization, cost effectiveness, business process re-engineering, better service, adoption of latest
technology, etc. CTS, thus, has emerged as an important efficiency enhancement initiative undertaken by RBI in
the Payments Systems area.
SALIENT FEATURES OF BANKING LAWS (AMENDMENT) BILL 2012

Salient Features of Banking Laws (Amendment) Bill 2012. Important Points of Banking Laws
(Amendment) Bill 2012.
The Banking Laws (Amendment) Bill 2011 was introduced in order to amend the Banking Regulation Act,
1949, the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980. The Banking Laws
(Amendment) Bill 2012 has been passed by both the Houses of Parliament during Winter Session, 2012.
This Bill would strengthen the regulatory powers of Reserve Bank of India (RBI), the central banking
institution and to further develop the banking sector in India. This bill will also enable the public sector banks to
raise capital by issue of preference shares or rights issue or issue of bonus shares. It would also enable them to
increase or decrease the authorized capital with approval from the Government and RBI without being limited by
the ceiling of a maximum of Rs. 3000 crore.
Beside above, the Bill would pave the way for new bank licenses by RBI resulting in opening of new banks
and branches. This would not only help in achieving the goal of financial inclusion by providing more banking
facilities but would also provide extra employment opportunities to the people at large in the banking sector..
NAIR COMMITTEE REPORT ON PRIORITY SECTOR LENDING

The Reserve Bank of India, the central bank of India, on February 21, 2012 has released the report of the
Committee (Chairman: M V Nair, Former Chairman, Union Bank of India) constituted to re-examine the existing
classification and suggest revised guidelines with regard to priority sector lending and related issues.
The Reserve Bank India had constituted the Committee under the chairmanship of M. V. Nair on August 25,
2011 pursuant to the announcement made in the Monetary Policy Statement 2011-12.
175
BANKING AWARENESS
THE MAJOR RECOMMENDATIONS OF THE NAIR COMMITTEE ARE:
The sector agriculture and allied activities maybe a composite sector within priority sector, by doing
away with distinction between direct and indirect agriculture. The targets for agriculture and allied activities
may be 18 per cent of Adjusted Net Bank Credit (ANBC) or credit equivalent of off-balance sheet
exposure (CEOBE), whichever is higher.
A sub target for small and marginal farmers within agriculture and allied activities is recommended,
equivalent to 9 percent of ANBC or CEOBE, whichever is higher to be achieved in stages by 2015-16.
The MSE sector may continue to be under priority sector. Within MSE sector, a sub target for micro
enterprises is recommended equivalent to 7 percent of ANBC or CEOE, whichever is higher to be
achieved in stages by 2013-14.
The priority sector targets for foreign banks may be increased to 40 percent of ANBC or CEOBE,
whichever is higher with sub-target of 15 percent for exports and 15 percent for MSE sector, within
which 7 percent may be earmarked for micro enterprises.
Bank loans to non-bank financial intermediaries for on lending to specified segments may be allowed to
be reckoned for classification under priority sector, up to a minimum of 5 percent of ANBC or CEOBE,
whichever is higher, subject to certain due diligence and documentation standards.
INDIAN BANKS ASSOCIATION (IBA)

The Indian Banks Association (IBA) was formed on the 26th September, 1946 with 22 members. Today IBA
has more than 156 members comprising of , Private Sector Banks, Foreign Banks having offices in India, Urban
Co-operative Banks, Developmental Financial Institutions, Federations, Merchant Banks, Mutual Funds, Housing
Finance Corporations, etc.
Organizational Structure of IBA: The Managing Committee manages the affairs, business and funds of
IBA. The managing Committee is elected by the Ordinary members of the Association, and is the highest
management and policy making body of the Association.
The Chairman of the Association heads upon the working of the Association. He provides guidelines to the
Association. The administrative head of IBA is the Chief Executive of IBA.
FOREIGN DIRECT INVESTMENT (FDI) LIMIT IN INDIA ALL SECTOR

Present Foreign Direct Investment (FDI) Limits in India. Sector-wise FDI ceiling/ limits in India. FDI or
Foreign Direct Investment means net inflows of investment to acquire a lasting management interest in an enterprise
operating in an economy other than that of the investor.
Here is the list of FDI limit of All Sectors: Hotels and Tourism, Roads and Highway, Education,
Advertisement, Farm sector, Petro Chemical, Pharmaceuticals, Coal and Lignite 100%
FDI in Multi Brand retail: Allowed FDI in Multi brand retail - 51%
FDI in Civil Aviation sector: Allowed FDI in Civil Aviation 49%
The Civil Aviation sector includes Airports, Scheduled and Non-Scheduled domestic passenger airlines,
Helicopter services / Seaplane services, Ground Handling Services, Maintenance and Repair organizations; Flying
training institutes; and Technical training institutions.
FDI In Insurance Sector: Allowed FDI in Insurance Sector 49%
FDI in the Insurance sector, as prescribed in the Insurance Act, 1999, is allowed under the automatic route.
FDI in Defense Sector: Allowed FDI in Defense Sector 26%
FDI in defense industry subject to Industrial license under the Industries (Development and Regulation) Act
1951 would be allowed up to 26% through government approval route.
FDI in Print Media: Allowed FDI in Print Media 26%
176
BANKING AWARENESS
Publishing of Newspaper and periodicals dealing with news and current affairs
- 26%. Publication of Indian editions of foreign magazines dealing with news and current affairs- 26% .
FDI in Broadcasting Sector:
FM Radio Stations 20%
Cable Network 49%
Direct to-Home (d2h) Services 49%
FDI limit in Headend-In-The-Sky (HITS) Broadcasting Service 74% (total direct and indirect foreign
investment including portfolio and FDI) Automatic upto 49% Government route beyond 49% and up to
74%.
Setting up hardware facilities such as up-linking, HUB etc. 49%
FDI In Credit Information Companies:
Allowed FDI in Credit Information Companies 49%
FDI In Banking Sector in India:
New Bank (After August, 2011) 49%
Allowed FDI in Private Sector Banks- 74%.
FDI in private banking sector of India is allowed up to 74% where FDI up to 49% is allowed through
automatic route and FDI beyond 49% but up to 74% is allowed through government approval route.
Allowed FDI in Public Sector Banks- 49%.
Limit for FDI in public sector banks In the case of nationalized banks as well as SBI and its associate banks,
the overall statutory limit of 20 per cent as FDI and portfolio investment will continue.
ICRA LIMITED IMPORTANT POINTS

ICRA Limited (ICRA) is one of Indias premier financial information services company.
ICRA Limited is one of the Credit Rating Agency in India.
ICRA also provide professional financial services in the Asia-Pacific region through its subsidiaries.
ICRA Limited, was established in 1991, and was originally named Investment Information and Credit
Rating Agency of India Limited (IICRA India).
Headquarters of ICRA is at New Delhi, India.
IICRA India changed its name to ICRA Limited, and went public on 13 April 1997.
ICRA Limited listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE).
ICRA Limited is a Public Company.
ICRA offers Industry Financial services and Credit ratings services.
CEO of ICRA Limited is Naresh Takkar.
CRISIL- IMPORTANT POINTS

CRISIL or Credit Rating and Information Services of India Ltd. is a global analytical company which
provides services like ratings, research, and risk & policy advisory.
CRISIL is the largest credit rating agency in India.
CRISIL was established on 1987.
CRISIL pioneered ratings in India more than 20 years ago
Today, CRISIL is the undisputed business leader in Ratings.
177
BANKING AWARENESS
CRISILs Global Analytical Centre (GAC) supports the Global Resource Management initiative of Standard
& Poors (S&P).
The main service product of CRISIL are Industry Financial Services.Credit Rating Agencies in India
The Credit Rating Agencies in India were mainly formed to assess the condition of the financial sector
and to find out avenues for more improvement. The credit rating agencies offer various services as Operation upgradation
Training to employee
Scrutinize new projects
rate different sectors
The Two most important credit rating agencies in India are ICRA and CRISIL.
NON-BANKING FINANCIAL COMPANIES (NBFCS)

Non-Banking Financial Companies (NBFCs) are fast emerging as an important segment of Indian Financial
System. It is an heterogeneous group of institutions other than commercial and co-operative banks performing
financial intermediation in a variety of ways,like accepting deposits, making loans and advances,leasing, hire
purchases etc.
NBFCs raise funds from the public directly or indirectly and lend them to the ultimate spenders.They advances
loans to the various wholesale and retail traders, small-scale industries and self employed persons.Thus they have
broadened and diversified the range of products and services offered by a Financial sector.
DIFFERENCE BETWEEN NBFCS AND BANKS

An NBFCs cant accept demand deposits.
An NBFCs is not a part of the payment and settlement system and as such an NBFCs cannot issue
cheques drawn on itself.
Deposit insurance facility of deposit insurance and credit, guarantee corporation is not available for
NBFC depositors unlike in case of Banks.
BANK FOR INTERNATIONAL SETTLEMENTS (BIS)

Bank for International Settlements is an International organization.
BIS was established by the Hague agreements.
BIS was established in 1930.
First General Manager of BIS was Pierre Quesnay of France.
The purpose of is to increase the cooperation between the Central banks.
Number of member 58 central banks
Location of Bank for International Settlements (BIS) Basel, Switzerland
The present General manager of Jaime Caruana of Spain.
Bank for International Settlements (BIS) also provides banking services, but only to central banks, or to
international organizations like itself.
BIS has representative offices in Hong Kong and Mexico City.
In 2004 Bank for International Settlements (BIS) has published its accounts in terms of Special Drawing
Rights, or SDRs, replacing the Gold Franc as the banks unit of account.
178
BANKING AWARENESS
NATIONALISED BANKS IN INDIA BANK NATIONALISATION IN INDIA

In India, the Banking Sector has been dominated by Government or Public Sector Banks for last 64 years. In
1954 the All India Rural Credit Survey Committee submitted its report recommending creation of a strong, integrated,
state-sponsored, state-partnered commercial banking institution with an effective machinery of branches spread
all over the country. The recommendation of this committee led to establishment of first Public Sector Bank in the
name of State bank of India on July 01, 1955 by acquiring the substantial part of share capital by Reserve Bank
of India, of then Imperial Bank of India. Similarly during 1956-59, as a result of reorganization of princely states,
the State Bank of India associate Bank came into fold of Public sector banking.
On July 19, 1969, the Govt. promulgated Banking Companies (Acquisition and Transfer of Undertakings)
ordinance 1969 to acquire 14 bigger commercial banks with with deposits over 50 crores. The main objective
behind this bank nationalisation was to spread banking infrastructure in rural india and make cheap finance
available to Indian farmers.
The second phase of bank nationalisation took place in 1980 during the prime ministerial tenure of Indira
Gandhi, in which 7 more banks were nationalised with deposits over 200 crores.
PRESENT GOVERNOR OF RBI AND DEPUTY GOVERNOR OF RBI
The executive head of Reserve Bank of India is known as the Governor, the governor is assist by four deputy
Governor.
Governor:
Name: Duvvuri Subbarao (D. Subbarao)
Appointed on: On 5 September 2008
Will Retire on: September 4, 2013
New Governor; Raghuram Govind Rajan
List of Deputy Governor:
Name: Dr.K.C.Chakrabarty
Name: Urijit Patel (New Appointment, Replaced Subir Gokarn.)
Name: Shri Anand Sinha
Name: Shri H.R.Khan
**********************
179
BANKING AWARENESS
BANKING ABBREVIATIONS
BANKING ABBREVIATIONS
PSBs
PUBLIC SECTOR BANKS
SNBCs
SCHEDULE NON COMMERCIAL BANKS
PBs
PRIVATE BANKS
KCC
KISAN CREDIT CARD
KGC
KISAN GOLD CARD
MFs
MUTUAL FUND
SENSEX
SENSITIVE INDEX OF STOCK EXCHANGE
GNIs
GROSS NATIONAL INCOME
GNP
GROSS NATIONAL PRODUCT
ICOR
INCREMENTAL CAPITAL OUTPUT RATIOS
KYC
KNOW YOUR CUSTOMER
RTGs
REAL TIME GROSS SETTLEMENT
NEFT
NATIONAL ELECTRONIC MONEY TRANSFER
EFT
ELECTRONIC FUND TRANSFER
CBS
CORE BANKING SOLUTIONS
LIBOR
LONDON INTERBANK OFFERED RATE
MIBOR
MUMBAI INTERBANK OFFERED RATE
MIBID
MUMBAI INTERBANK BID RATE
SARFAESI
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND

ENFORCEMENT OF SECURITY INTEREST
CAMELS
CAPITAL ADEQUECY RATIO, ASSET QUALITY, MANAGEMENT OF

EFFECTIVENESS, EARNING OF PROFITABILITY, LIQUIDITY, SYSTEM AND
CONTROLS
REER
REAL EFFECTIVE EXCHANGE RATE
CAR
CAPITAL ADEQUECY RATIO
FIIs
FOREIGN INSTITUTIONAL INVESTMENTS
FDI
FOREIGN DIRECT INVESTMENT
IPO
INITIAL PUBLIC OFFERING
NII
NET INTEREST INCOME
PNs
PROMISSOY NOTES/ PARTICIPATARY NOTES
MICR
MAGNETIC INK CHARACTER READER
NAB CONS
NABARD CONSULTANCY
180
BANKING AWARENESS
BIRD
BANKERS INSTITUTE OF RURAL DEVELOPMENT
SBBJ
STATE BANK OF BIKANER AND JAIPUR
ABB
ANY BRANCH BANK
BOB
BANK OF BARODA
BOM
BANK OF MAHARASTRA
CBI
CENTRAL BANK OF INDIA
IBA
INDIAN BANK ASSOCIATION
IOB
INDIAN OVERSEASE BANK
BPLR
BENCHMARK PRIME LENDING RATE
SLBCs
STATE LEVEL BANKERS COMMITTIEES
ICICI
INDUSTRIAL CREDIT AND INVESTMENT CORPORATION OF INDIA
HDFC
HOUSING DEVELOPMENT FINANCE CORPORATION
IRDA
INSURANCE REGULATORY AND DEVELOPMENT AUTHORITY
SWOT
STRENGETH, WEEKNESSES, OPPORTUNITIES AND THREATS
SWIFT
SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATION
FERA
FOREIGN EXCHANGE REGULATORY ACT
FEMA
FOREIGN EXCHANGE MANAGEMENT ACT
CASA
CURRENT AND SAVING ACCOUNT
NDTL
NET TIME AND DEMAND LIABILITIES
NCDEX
NATIONAL COMMODITIES AND DERIATIVES EXCHANGE
NASDAQ
NATIONAL ASSOCIATION FOR SECURITIES DEALERS AUTOMATED

QUOTATIONS
CRISIL
CREDIT RATING AND INVESTMENT SERVICES INDIA LIMITED
CIBIL
CREDIT INFORMATION BUREAU OF INDIA LIMITED
CMIE
CENTRE FOR MONITORING INDIAN ECONOMY
NCEAR
NATIONAL COUNCIL FOR INDIAN APPLIED ECONOMIC RESEARCHERS
PHDCCI
PROGRESS HARMONY AND DEVELOPMENT CHAMBER OF COMMERCE

AND INDUSTRY
NAV
NET ASSET VALUE
ICRA
INDIAN CREDIT RATING AGENCY
CARE
CREDIT ANALYSIS AND RESEARCH LIMITED
STCI
SECURITIES TRADING CORPORATION OF INDIA
WMAs
WAYS AND MEANS ADVANCES
MMMF
MONEY MARKET MUTUAL FUNDS
ALM
ASSET LIABILITY MANAGEMENT
TQM
TOTAL QUALITY MANAGEMENT
INFINET
INDIAN FINANCIAL NETWORK

**************
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BANKING AWARENESS

The Institute of Banking Training

Banking System in India

RESERVE BANK OF INDIA

APEX BANKING INSTITUTIONS

The Institute of Banking Training

NATIONAL BANK FOR AGRICULTURE AND RURAL DEVELOPMENT

Export-Import Bank of India was established on 1982.

LAND DEVELOPMENT BANKS

UNIT TRUST OF INDIA:

TYPES OF BANKS ON THE BASIS OF LAW

The Institute of Banking Training

RBI, ITS FUNCTIONS & RATES

VARIOUS RBI RATES

BANKS, ITS FUNCTIONS &

PRIMARY FUNCTIONS OF BANKS

TYPES OF BANK ACCOUNTS

SECONDARY FUNCTIONS OF BANKS

Bill of Exchange Cheque

Money And Capital Markets

BANKING & FINANCIAL(TERMS-I)

The Institute of Banking Training

U niversal C om m odity E xchange

Islam ic E quity index based on

7. D BT schem e w ill beextended to how m any districts from July 2013?.

50 Lakh em ployees & 30 lakh pensioners

G AIL (india) Ltd.

R eserve B ank of india

C anara bank, Punjb & sind bank.

16. Finance the capital expenditureof N TP C. nam e the 3 banks.

Asian D eve lopm ent B ank

Assam , C hattisghar, M adhya,

M edi claim facility

The Institute of Banking Training

Incom e Tax dept.

BANKING & FINANCIAL(TERMS-II)

ASBA: WHAT IS ASBA? | ASBA FACILITY | ASBA PROCEDURE

The Institute of Banking Training

CHEQUE TRUNCATION SYSTEM (CTS)

SALIENT FEATURES OF BANKING LAWS (AMENDMENT) BILL 2012

NAIR COMMITTEE REPORT ON PRIORITY SECTOR LENDING

THE MAJOR RECOMMENDATIONS OF THE NAIR COMMITTEE ARE:

INDIAN BANKS ASSOCIATION (IBA)

FOREIGN DIRECT INVESTMENT (FDI) LIMIT IN INDIA ALL SECTOR

ICRA LIMITED IMPORTANT POINTS

CRISIL- IMPORTANT POINTS

NON-BANKING FINANCIAL COMPANIES (NBFCS)

DIFFERENCE BETWEEN NBFCS AND BANKS

BANK FOR INTERNATIONAL SETTLEMENTS (BIS)

NATIONALISED BANKS IN INDIA BANK NATIONALISATION IN INDIA

The Institute of Banking Training

PUBLIC SECTOR BANKS

SCHEDULE NON COMMERCIAL BANKS

KISAN CREDIT CARD

KISAN GOLD CARD

SENSITIVE INDEX OF STOCK EXCHANGE

GROSS NATIONAL INCOME

GROSS NATIONAL PRODUCT

INCREMENTAL CAPITAL OUTPUT RATIOS

KNOW YOUR CUSTOMER

REAL TIME GROSS SETTLEMENT

NATIONAL ELECTRONIC MONEY TRANSFER

ELECTRONIC FUND TRANSFER