Banking Terminology

BANKING TERMINOLOGY
Account rate of interest at which the central banks lends

money to the commercial banks. Bank rate is a direct
Refers to a running record of transactions which quantitative method of credit control in the economy.
are taking place between two transactors, who
may be in two departments of one business and a Bankruptcy
basic element in all systems of recording business
transactions. In retail trading it refers to the credit A legal proceeding under which the property of an
facility which is automatically extended to a customer insolvent debtor is taken for the benefit of his
with whom an account is operated. creditors generally.
Annuity Bill
A regular annual payment of money purchased by an A short-term debt instrument, which is in the form of
immediate lumpsum prepayment. a document ordering the drawee (i.e., the debtor) to
pay the drawer (the creditor) a stated sum at a
Asset specified date, or ‘at sight’ which means on demand.
When the balance sheet of a business is drawn up, Once it is accepted, i.e., signed by the drawee (who
everything which it owns at the time which has a may be an accepting house or bank) and ‘endorsed’,
money value is listed as an asset. They may be i.e., signed on the back by the acceptor, a bill
classified as: becomes negotiable and may get discounted, i.e.,
(1) Current Assets – consisting of cash, stock and sold at a discount on its face value, at a rate which
book debts. reflects current short term rates of interest.
(2) Fixed Assets – consisting of buildings, plant and
machinery. Bill of Exchange
(3) Intangible Assets – being the value of goodwill,
patents. A Bill of Exchange is an instrument in writing,
containing an unconditional order, signed by the
Bail Out banker, directing a certain person to pay a certain
sum of money only to or to the order of a certain
To rescue a company which is in financial difficulties. person or to the bearer of the instrument.
Ex: The US government recently bailed out insurance
company AIG. Bridge Loan
Balance Sheet A loan made by a bank for a short period to make up

for a temporary shortage of cash.
This is an ordered statement of the economic
resources or assets of a company or other business Call Loan
organisation, each item having a value set upon it; the
financial claims of persons or organizations upon the A loan which may be terminated or called at any time
value of these assets. by the lender or borrower.
Bank Credit Call Money

Refers to the lending by the banking system, by Funds borrowed by discount houses from the clearing
whatever means: bank advances, discounting bills or houses banks in many countries, and which they
purchasing securities. employ in holding a portfolio of assets. A high
proportion of these funds are borrowed literally “at call.”
Bank Deposits
The funds deposited in bank accounts. In reality they Capital Asset

are simply records of indebtedness of a bank to the The term used for an asset, which is not bought or
depositor and they arise from the character of banks sold as part of the everyday running of a business.
as financial intermediaries. Examples include real estate, plant equipment.
Bank Note Capital Expenditure
A note issued by a bank for a sum of money which it Expenditure of a non-recurrent nature resulting in the
promises to pay the bearer on demand. acquisition of assets.
Bank Rate Cash
Bank Rate is the rate of discount at which the central
bank of the country discounts first class bills. It is the Money in the form of bank notes and coins.
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Cash cow short-term. To ‘give credit’ is to finance, directly or
indirectly, the expenditure of others against future
Units in large business enterprises which yield high repayment.
earnings but often have low growth potential.
Credit Card
Cash Discount
A card which is issued by a bank or group of bodies
A deduction from a price charged payment made
or other agency which provides the holder direct
before a certain date
access to credit e.g., from a merchant location, hotel
etc., or, in the case of some cards issued by banks, to
Cash Flow
cash from the banks operating the particular scheme.
Refers to the sum of retained earnings and
depreciation provision made by firms. As such it is the Credit Rating
source of internally generated long – term funds
available to the company. Means an evaluation of the soundness of an
individual or business firm as a credit risk. It is usually
Cash Reserve Ratio (CRR) based on
(1) company’s track – record
Refers to the liquid cash that banks have to maintain (2) company’s current and prospective business
with the Reserve Bank of India (RBI) as a certain (3) financial risk
percentage of their demand and time liabilities. (4) quality of management.
Certificate of Deposit (CD) Crossing
A document, which is issued by a bank acknowledging This means drawing two parallel lines across the face
a deposit of money with it and constituting a promise of a cheque, the effect of which is to make it
to repay that sum, to the bearer, at a specified future necessary to pay it into a banking account.
date. It is negotiable i.e., can be transferred.
Dear Money
Cheap Money
A period when rates of interest are high, so that
A term used to describe a situation where bank rate borrowing is expensive.
and other rates of interest are low. A policy of cheap
money may be adopted in a time of industrial Debt
depression to stimulate recovery.
Refers to a sum of money, or quantity of goods or
Cheque services, owned by one individual or body to another.
A cheque is a bill of exchange drawn on a specified Deed

banker and not expressed to be payable otherwise on
demand. A deed is a legal document or written agreement.
There are different types of deeds viz, deed of
Collateral Security assignment, deed of partnership etc.,
An additional security in addition to the personal Demand Draft

security offered by a borrower.
A Demand Draft is a Bill of Exchange and negotiable
instrument.
Commercial Banks
Demonetisation
A general term denoting those banks, which conduct
a general rather than a specialized type of business. To deprive a coin or note of its value
They accept deposits, make advances, etc.
Devaluation
Consumer Credit
Refers to a fall in the external value (or exchange
Refers to a loan, which is given to the consumer for rate) of one currency vis-à-vis other currency.
a short period of time, for the purchase of a specific
commodity. This can take the form of hire purchase or Discount
be in the form of a personal loan from a bank.
(1) An inducement offered by a creditor to debtors to
Credit pay promptly. (Cash Discount).
(2) A deduction from the catalogue price of an article
A wide term which has been used in connection with generally allowed by a wholesaler to a retailer,
operations or states involving lending, generally at that is, trade discount.
(3) With reference to a bill of exchange, to discount Insolvent
a bill means to acquire it by purchase for a sum
less than its face value, the amount of this Means the state of being unable to pay one’s debts.
discount depending partly on the length of the
unexpired term of the bill and partly on the Interest
amount of risk involved.
(4) When a recently issued stock falls below its issue A payment by a borrower for the use of a sum of
price it is said to stand at a discount. money for a period of time. It is the reward for the use
of capital in the process of production.
Dishonour
Lease
A Bill of Exchange is dishonoured when the drawee
has insufficient funds to discharge it when it falls due The term used for an agreement in which one agent
for payment. Similarly, a cheque is dishonoured when obtains the right of use of some property owned by
the drawee has insufficient funds to meet it. another agent for a given period of time in return for
an agreed fixed charge (which is generally paid in
Drawer periodic instalments).
One who makes out or writes the cheque. Letter of Credit
Drawee A document which is issued by a bank on behalf of a

customer which guarantees payment by the bank of
Person or bank asked to make payment by the cheques drawn by the customer, or more commonly
drawer. today of bills drawn on that customer by parties from
whom he has bought goods. Letters of Credit are
Easy Money used largely in association with bills of exchange, to
which they give added security in the financing of
Refers to a general state of ease and cheapness of foreign trade.
borrowing in the financial system. It may result from
policy action to reduce interest rates, increase Letter of Hypothecation
liquidity of the banking system, release any non-price
restrictions on lending like credit ceilings and The term used for a letter from an exporter to his
restrictive conditions on hire-purchase contracts. bank authorizing it, in the event of the importer failing
to accept or pay a bill of exchange, to sell the goods
Fiat Money exported and remit the proceeds less expenses.
Money which the State declares to be legal tender. Liabilities
Finance Refers to any claims, actual or potential, of an

individual or institution. The term usually refers to
The term is applicable to funds from almost any financial liabilities of which the commonest form has
source which is used to undertake any kind of been a debt of any kind. Thus, some deposits, which
expenditure. are bankers’ debts, are commonly termed as ‘deposit
liabilities’.
Hot Money
Lien
Money that moves across country/borders in
response to interest rate differences and that, which Means a claim against property. A bond is usually
moves away when the interest rate differential secured by a lien against specified property of the
disappears. company.
Hypothecation Liquid Assets
Refers to the pledging of securities as collateral; for Means assets either in the form of money or which
example to secure the debit balance in a margin can be quickly converted into money.
account.
Liquidity
Idle Money
The term indicates availability of cash, and of assets
An inactive money that does not contribute to readily convertible into cash (called liquid assets), to
productive assets in an economy. It results from what meet immediate obligations; a volume of reserves
Keynes called ‘Liquidity Preference’ i.e.; the desire to plus credit facilities, reflected in an ability to meet
hold money rather than risk it on interest-earning current financial liabilities in cash.
assets, or goods which may have little utility.
Mortgage Probation
Refers to the conveyance of property by a debtor Probation is a period when a new worker is being
(mortgager) to a creditor (mortgagee) as security for a tested before getting a permanent job.
debt, with a condition that the property will have to be
reconveyed on payment of the debt. Pro Forma
Micro finance An invoice sent to a buyer before the goods are sent,
so that payment can be made or business documents
A type of banking service that is provided to can be produced.
unemployed or low income individuals or groups who
would otherwise have no other means of getting Repo
those services.
Repo is a short term for repurchase agreement for
Near Money RBI selling a government security at a competitive
rate in the market to absorb what it considers is
Assets which are readily convertible into money e.g. excess liquidity. The buyers are either banks or
deposit accounts, deposit with savings banks and registered primary dealers.
building societies, and certain short-term agreement
securities. Repo Rate
Negotiable Instrument A transaction where funds are borrowed through the

sale of short term securities by the money market to
A claim, the title to which passes by delivery. the Central Bank. It is a means of relieving short term
Examples of such claims include bills of exchange, shortage of funds and used as a device for monetary
cheques, promissory notes, dividend warrants and control.
debentures payable to bearer. Transfer is by delivery
only. A bill of exchange payable to a certain person Reverse Repo Rate
‘only’ is not a negotiable instrument. Neither is a
cheque with ‘not negotiable’ written on it. Bill of The sale of securities is by the central bank to the
Lading, Dock Warrants, and Postal Orders are not money market.
negotiable.
Revolving Credit
NINJNA
A loan facility that is renewed as it is repaid and may
Sub-Prime borrowers can be categorized as be used repeatedly. Also termed as open end credit.
“NINJNA” i.e., No Income, No Job and No Asset. A credit card limit is a form of revolving credit.
Overdraft Securitisation
Refers to a system of bank lending, by which the The process of converting a bank loan into a
borrower is permitted to draw cheques beyond the marketable, negotiable security.
credit balance in his account, up to an agreed limit,
and to pay interest only on the daily amounts by Statutory Liquidity Ratio (SLR)
which the account is overdrawn.
Refers to the amount that all banks require to
Paper Note maintain in cash or in the form of Gold or approved
securities.
A general term which is used for money in the form of
bank notes. Sub Prime Crisis
Pass Book The crisis in the financial services sector starting in

the United States due to sanctioning of loans to “sub-
A book supplied to customers by a bank, in which prime borrowers” [sub-standard borrowers]
entries are made of all deposits and withdrawals.
Sweep facility
Prime Lending Rate (PLR)
An automatic service available on some bank
Interest rate charged by banks to their largest, most
accounts that shifts credit balances into a deposit
secure and credit worthy customers on short-term
account where they will earn interest.
loans.
NOTE ON BANKING
Bank – Definition 2. Presidency Banks were established by the
British: Bank of Bengal in 1806, followed by Bank
A bank is a financial institution which accepts money of Bombay in 1840, and Bank of Madras in 1843.
from the people in the form of ‘Deposits’ and gives
advances to them in the form of “Loans”. 3. The first bank with limited liability, managed by
Indians, was Oudh Commercial Bank founded in
Deposits are of two types 1881. Subsequently, Punjab National Bank was
1. Demand Deposits
Deposits established in 1894. Allahabad Bank was
Eg: Current Account / Savings Account.
established in 1865.
2. Term/Time Deposits
Eg: Fixed Deposits / Recurring Deposits.
4. In 1921, all Presidency Banks were merged and
Current Account: renamed as the Imperial Bank of India.
• Generally maintained by businesspersons / large
institutions / companies. 5. The Banking Companies Act was passed in
• No interest is paid for balances in the account. February 1949, which was subsequently
• There are no restrictions on the number amended as the Banking Regulation Act, 1949.
transactions.
• Overdraft (OD) can be extended in this account, 6. The largest bank – The Imperial Bank of India –
at the discretion of the bank. was nationalized in 1955 and rechristened as
State Bank of India (SBI) followed by formation of
Savings Account:
its 8 Associate Banks in 1959. [now seven
• Generally maintained by individuals.
associate banks].
• Nominal rate of interest will be paid on the
balances in this account.
7. The period from 1913 to 1918 witnessed a crisis
• There are restrictions on the number of withdrawals.
in the banking sector with as many as 94 banks
Fixed Deposits: collapsing.
• A lumpsum amount will be deposited in this account.
• The depositor cannot withdraw the amount before 8. The Government issued an ordinance on July 19,
the due date. [However, premature closure is 1969 acquiring ownership and control of 14 major
allowed with certain conditions] banks in the country. Six more Commercial banks
• A higher rate of interest is paid in this account, as were nationalised from 15 April, 1980. The
compared to savings account. fourteen banks nationalised on 19th July 1969
were the Central Bank of India, Bank of India,
Recurring or Cumulative Deposits: Punjab National Bank, Canara Bank, UCO Bank,
• A particular fixed amount or instalment is
Syndicate Bank, Bank of Baroda, United Bank of
deposited in this account every month.
India, Union Bank of India, Dena Bank, Allahabad
• This account is useful to build a capital sum
Bank, Indian Bank, Indian Overseas Bank and
through regular small savings.
Bank of Maharashtra.
Loans are of two types [The fourteen banks nationalized had reserves or
1. Demand Loans: deposits of more than Rs.50 crores]
Loans Eg: Gold Loans, Crop loans. Six banks were nationalized on April 15, 1980.
2. Term Loans: They had reserves or deposits of more than
Eg: Housing loan / Personal Loan. Rs.200 crore. The banks were
• Demand Loans are usually repayable in 12 to 18 (1) Andhra Bank
months. (2) Punjab & Sind Bank
• Term Loans are repayable in instalments. The (3) New Bank of India
repayment may extend to over twenty years, in (4) Vijaya Bank
some cases. (5) Corporation Bank
(6) Oriental Bank of Commerce
History of Banking Development in India
The Banking Regulation Act, 1949 defines the term 9. Regional Rural Banks [RRBs] (also known as
Banking as “accepting, deposits for the purpose of Grameena Banks) were formed in 1975, initially
lending or investment, and withdrawable by cheque, in Uttar Pradesh, Haryana, Rajasthan and West
draft, order or otherwise”. Bengal.
1. The first bank in India was called the Bank of 10. The Narsimhan Committee (year) recommended
Hindustan and was established in 1770 by granting permission for the opening of new
Alexander and Co, at Calcutta, under European private banks. Ten private banks were granted
Management. permission during 1994 and 1995. These banks
were known as “New Generation Banks”, 4. Controller of Credit: The RBI is the controller of
because of their stress on customer friendly and credit i.e., it has the regulatory power to influence
automation friendly policies Prominent among the the volume of credit created by banks in India. It
ten banks were ICICI Bank. HDFC Bank and UTI can do so by changing the Bank rate or through
Bank [now Axis Bank]. open market operations. Since, 1956, selective
controls on credit are increasingly being used by
Reserve Bank of India: the Reserve Bank. In recent times ‘repo’ and
‘reverse repo’ rates are being increasingly used,
The Reserve Bank of India is the apex bank or central rather than the conventional tool of Bank Rate.
bank of the country. Central banks have different
names in different countries. It is Reserve Bank of 5. Custodian of Foreign Reserves: For the
India in India, the Bank of England in England, the purpose of keeping the foreign exchange rates
Federal Reserve System in America, the Bank of stable the Reserve Bank buys and sells foreign
France in France etc, The central bank is defined as currencies, and also maintains and protects the
the bankers’ bank and lender of last resort. Its duty is country’s foreign exchange funds.
to control the monetary base and, through this, to
control the community’s supply of money. Structure of Commercial Banks in India
The Reserve Bank of India was setup on the basis of The commercial banking system in India now consists
the Hilton Young commission (1926). The Reserve of public sector scheduled banks and private sector
Bank of India Act, 1934 (ΙΙ of 1934) provided the scheduled as well as non-scheduled bank. In terms of
statutory basis for the functioning of the bank, which business, the public sector banks now have a
commenced operations on April 1, 1935, with a share dominant position. They account for more than 80 per
capital of 5 crore, and was nationalised in January cent of the entire banking business in the country.
1949. It got its membership of Bank of International
Settlements (BIS) in September 1996. Under the Reserve Bank of India Act, 1934, banks
were classified as scheduled and non-scheduled
The general administration and direction of the RBI is banks. The scheduled banks are those which are
managed by a Central Board of Directors consisting entered in the second schedule of RBI Act, 1934. All
of 20 members which includes the Governor, 4 commercial banks, Indian and foreign, regional rural
Deputy Governors, 1 Government official appointed banks, and state co-operative banks are scheduled
by the Union Government of India to give banks. Non – scheduled banks are those, which have
representation to important strata in the economic life not been included in the second schedule of RBI Act,
of the country. The head office of Reserve Bank of 1934. At present, there are only five non- scheduled
India is at Mumbai. At Present Duvvuri Subbarao is banks in the country. To be included in the second
the Governor of RBI. schedule, a bank (a) must have paid up capital and
reserves of not less than Rs.5 lakhs. (b) It must also
Functions of RBI: satisfy the RBI that its affairs are not conducted in a
manner detrimental to the interests of depositors.
1. Issue of Notes: The Reserve Bank of India is the Scheduled banks are required to maintain a certain
sole authority for the issue currency notes of amount of reserves with the RBI.
various denominations except one-rupee notes.
The Reserve Bank of India acts as the only i. SBI and its Associate Banks: On the
source of legal tender (money) because the one recommendations of the Rural Credit Survey
rupee notes issued by the Ministry of Finance are Committee, the Imperial Bank of India was
also circulated through it. The RBI has adopted converted into the State Bank of India on July 1,
the Minimum Reserve System for the issue of 1955. 92 per cent of its shares were acquired by
notes. Since 1957, it has been maintaining gold the RBI, and thus it had the distinction of
and foreign exchange reserves of Rs.200 crore, becoming the first state owned commercial bank
of which at least Rs.115 crore should be in gold. in the country. In 1959, the State Bank of India
(Associate Banks) Act was passed and this
2. Banker to the Government: The RBI acts as the paved the way for creating the State Bank Group.
Banker, Agent and Adviser to the Government. It Now State Bank of Hyderabad, State Bank of
performs all the banking functions of the state Bikaner and Jaipur, State Bank of Indore, State
and central Governments and it also tenders Bank of Mysore, State Bank of Patiala, State
useful advice to the Government on matters Bank of Saurashtra and State Bank of
related to economic and monetary policy. It also Travancore consists of the State Bank Group.
manages the public debt for the Government. These were the banks of the erstwhile prince by
states.
3. Bankers’ Bank: The RBI performs the same
function for the other banks as the other banks The State Bank Group comprising the State Bank
ordinarily perform for their customers. It is not of India, and its associates has increased the
only a banker to the commercial banks, but it is number of branches from 2,462 on June 30, 1969
also the lender of the last resort. to 13, 684 in June, 2009. (Now State Bank of
Saurashtra has merged with State Bank of India). v. Foreign Banks: As of June 30, 2009 the country
The State Bank of India and its Associate Banks had 29 foreign banks with 273 branches located
together account for around 20 per cent of the mainly in big cities. Apart from financing of
total branches of all commercial banks in the foreign trade, these banks had made significant
country. The share of the banking business of the contribution to the development of banking habits
State Bank Group is roughly 29 percent. In 1933, in the country as they have performed all the
the State Bank of India Act was amended to functions of a commercial bank, including
enable it to have access to the capital markets. acceptance of deposits and lending of funds for
The SBI thus raised over Rs.2,400 crore through trade and commerce.
public issue. The RBI stake in SBI is now 55 per
cent against 99 per cent earlier. (In March 2010, vi. Lead Bank Scheme: The idea of the Lead Bank
Pranab Mukherjee moved the SBI Bill in the Lok Scheme was mooted by the Gadgil Study Group
Sabha, which seeks to reduce the Union in 1969. It had the backing of Nariman Committee
Government’s shareholding in the State Bank of also. The Lead Bank had to formulate a plan for
India from 55 per cent to 51 per cent, to allow the the banking structure in the districts where such
SBI to raise more capital from the market) facilities were lacking at the time of nationalization.
The scheme now function as a way of monitoring
ii. Other Nationalised Banks: A second category credit flow for social and economic development
of public sector banks is of nineteen commercial in a district.
banks, of which fourteen were nationalised on
July 19, 1969. Each one of these fourteen banks Foreign Commercial Banks
had deposits of Rs.50 crore or more at that time.
After nationalisation of 14 banks there was a Foreign banks operating in India are banks of other
rapid expansion of branch network. On April 15, countries having their branches in India. At present,
1980 six privately owned commercial banks were there are about 30 foreign banks having a total of
nationalised. With the nationalization of these six more than 250 branches in most of the big cities of
banks, the share of the private sector in the entire the country.
banking sector declined to just 9 percent. In
1993, New Bank of India merged with Punjab Foreign banks have been operating in India for more
National Bank. As a result, the number of public than last 100 years but new economic policies
sector banks other than the State Bank of India implemented in 1990s encouraged many international
and its Associates declined to nineteen. The total banks to open their branches in India.
number of branches of the nineteen nationalized
banks was 38,046 as of 2008. Foreign banks in India have brought in the latest
technology and new banking practices. This has
iii. Other Scheduled Commercial Banks: At
helped the domestic banks to improve their
present relatively small scheduled commercial
performance and provide better customer service.
banks and ten newly established banks with a
network of 5,445 branches are the ones
Foreign banks also perform the day-to-day banking
operating in the private sector. In terms of
functions which include acceptance of deposits and
branches and also the business done by them,
giving loans. They also issue bank drafts, cheques,
most of the private sector banks are much
etc., to the customers.
smaller than both nationalized banks and foreign
banks. Their role in the financial system of the
In 2000, Standard Chartered Bank acquired Grindlays
country is just marginal. So far ten new private
Bank from ANZ Bank. Thus Standard Chartered
sector banks have been set up and three more
Bank, which is based in the United Kingdom, has
proposals for setting up banks in the private
become the largest foreign bank operating in India.
sector have been approved in principle. These
private sector banks (both old and new) account
Some of the important foreign banks operating in
for less than 15 per cent of both deposits and
India are listed below.
aggregate advances.
iv. Regional Rural Banks: Under the chairmanship Bank Country

of U. Narsimham, the Working Group on Rural
Banks recommended the setting up of these 1. Standard Chartered Bank UK
banks as part of a multi – agency approach to
rural credit. The first bank was set up on October 2. HSBC UK
2, 1975. The regional rural banks meet the credit
requirement of weaker sections, small and 3. Royal Bank of Scotland UK
marginal farmers landless labours, artisans and
small entrepreneurs. As of June 2008, there were 4. Barclays Bank UK
196 regional rural banks with a network of 14,832
branches in the country. Ninety per cent of these 5. Citibank USA
have been opened in rural areas and unbanked
centres. 6. JP Morgan Chase Bank USA
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Bank Country 2. Promoters’ contribution shall be a minimum of
40 per cent of the paid-up capital of the bank at
7. Bank of America USA any point of time. Their contribution of 40 per cent
shall be locked in for 5 years from the date of
8. ABN AMRO Bank The Netherlands licensing of the bank and excess stake above
40 per cent shall be diluted after one year of the
9. Abu Dhabi Commercial Bank UAE bank’s operations.
10. Bank of Ceylon Sri Lanka 3. Initial capital other than promoters’ contribution
could be raised through public issue or private
11. BNP Paribas Bank France placement.
4. Non-Banking Finance Companies (NBFCs) with

12. Societe Generale France
good track record can become banks.
13. China Trust Commercial Bank Taiwan 5. A minimum capital adequacy ratio of 10 per cent
shall be maintained on a continuous basis from
14. Deutsche Bank Germany commencement of operations.
15. Scotia Bank Canada 6. Priority sector lending target is 40 per cent of net
bank credit, as in the case of other domestic
16. DBS Bank Singapore banks. These new private banks should open 25
per cent of the branches in rural/semi-urban
Latest developments: areas.
Some more foreign banks are going to start their Some of the New Generation Private Banks:
operations in India in 2010. Credit Suisse has
received an in-principle approval from RBI permitting 1. ICICI Bank
it to open bank branches in India and offer retail and
wholesale banking services. Credit Suisse is a Zurich 2. HDFC Bank
(Switzerland) based bank. Goldman Sachs has also
approached the RBI for a banking licence. The 3. Axis Bank (previously called UTI Bank)
Australia and New Zealand Banking Group (ANZ) has
4. IndusInd Bank
received an in-principle banking licence on March 3,
2010.
5. Kotak Mahindra Bank
The Industrial and Commercial Bank of China (ICBC), 6. Development Credit Bank
the largest bank in China, is also planning to open
branches in India by the year end. 7. Yes Bank
CIMB Bank Berhad (Malaysia), Commonwealth Bank Yes Bank was granted licence in 2004. Rabo Bank, a
of Australia (Australia) and FirstRand Bank Limited Dutch bank, has stake in Yes Bank.
(South Africa) are also going to start their operations
in India. Global Trust Bank, a new generation private bank,
was amalgamated with Oriental Bank of Commerce
NEW BANKS IN PRIVATE SECTOR on August 14, 2004. Oriental Bank of Commerce is a
nationalized bank.
In 1993, in recognition of the need to introduce
greater competition new private sector banks were Latest developments:
allowed to be set up in the Indian banking system.
These banks are called ‘New Generation Private The country is likely to get several more New
Banks’. Generation Private Banks with the Finance Minister
Pranab Mukherjee announcing in February 2010 that
Based on a review of experience gained on the RBI is considering new bank licences to promoters in
functioning of new private sector banks, revised the private sector and also Non Banking Financial
Companies (NBFCs) if they meet RBI eligibility
guidelines were issued in January 2001 for entry of
criteria.
new banks in the private sector.
Corporates such as the Tatas and Birlas have shown
The main requirements are:
interest in banking licences. Among finance
companies Reliance Capital and Indiabulls have
1. Initial paid-up capital shall be Rs.200 crore; this announced their interest in getting into banking.
will be raised to Rs.300 crore within three years Lenders such as Exim Bank and SIDBI are also
of commencement of business. interested in a banking licence.
Foreign Direct Investment (FDI) limit in private sector 2. Central Cooperative Banks (CCBs): The working
banks is 74 per cent. area of these banks is limited to one district only.
CCBs are of two types:
Co-operative Banks
(a) Cooperative Banking Unions whose
Co-operation means voluntary association on the membership is open only to cooperative
basis of equality and for some common purpose. The societies. This exists in Punjab, Haryana,
basic principle of co-operation is ‘each for all and all Rajasthan, Orissa and Kerala.
for each’. (b) Mixed Central Cooperative Banks whose
membership is open to both individuals and
A co-operative bank is an institution established on cooperative societies.
co-operative basis and deals in ordinary banking
business. They are different from commercial banks. CCBs get loans from the state cooperative banks
Commercial banks have been constituted by an Act and give loans to primary credit societies. The
passed by parliament while cooperative banks have duration of such loans vary from one year to
been constituted by different states under various three years. In this way CCB plays a bridge role
Acts related to cooperative societies of various states. between the state cooperative banks and primary
Cooperative banks are generally concerned with the credit societies.
rural and development credit and provide financial
assistance for agricultural and rural activities. At the end of March 2004 there were 366 CCBs
in India.
A commercial bank can establish its branches in any
district / state of the country, while cooperative bank The most distressing feature of the functions of
can operate its activities only within limited area. the central cooperative banks is the heavy and
Cooperative banks cannot open their branches in increasing burden of overdue loans. The main
foreign countries while commercial banks can operate causes of these overdues are (i) natural
in foreign countries. calamities such as floods, droughts, etc. affecting
the repaying capacity of the borrowers and (ii)
In India, the cooperative bank organization has a inadequate and inefficient supervision exercised
three tier set up. State Co-operative Bank is the apex by the banks.
co-operative bank at the state level. Central or District
Cooperative Bank functions at district level. Primary 3. State Cooperative Banks (SCBs): SCBs are the
Agricultural Co-operative Credit Society is at the apex institutions in the three-tier cooperative
village level. credit structure, operating at the state level. Every
state has a state cooperative bank.
1. Primary Agricultural Cooperative Credit Society
(PACCS): It is a village level institution which SCB grants loans to central cooperative banks
directly deals with rural people. It provides short and regulates their activities. SCB gets loans
term credit facilities to the agriculture sector. from RBI. SCB acts as a link between RBI and
Minimum 10 persons of a village can form a Central Cooperative Banks.
primary credit society. The management of the
society is under the control of an elected body. Borrowings of SCBs are mainly from the Reserve
Bank of India and the rest from state
The working capital of the primary credit governments.
societies, comes from their own funds, deposits,
borrowings and other sources. Borrowings are Advantages of co-operative credit institutions:
mainly from central cooperative banks.
Borrowings form the chief source of working 1. It provides an effective alternative to the
capital of the societies. traditional defective credit system of the village
money-lender.
Only the members of the societies are entitled to
get loans from them. Low interest rates are
2. Co-operative societies charge comparatively low
charged on the loans.
interest rates vis-a-vis the money-lenders.
The various reconstruction and revival
programmes for PACCSs adopted by Indian 3. Earlier, the cultivators used to borrow for
government and RBI have considerably reduced consumption and other unproductive purposes.
the number of primary credit societies over the But now, they mostly borrow for productive
past three decades. There were 1,61,000 purposes. Co-operative societies discourage
societies in 1970-71. But as on March 31, 2001 unproductive borrowing.
there are about 1 lakh primary agricultural credit
societies in India with approximately 10 crore 4. Co-operatives help develop the habits of thrift
members. A large number of societies face among the agriculturists by encouraging savings
severe financial problems due to low recovery and investments.
rates.
5. Co-operative credit is available for purchasing Indian Monetary Policy
improved seeds, chemical fertilizers, modern (Credit Control)
implements, etc. This has helped in the
introduction of better agricultural methods. The objective of planned economic development,
adopted by India, required an active monetary policy.
Regional Rural Banks (RRBs) The two standard aims of the policy were:
The Regional Rural Banks (RRBs) came into • Boost economic development.
existence on October 2, 1975. The first RRB in India • Control inflationary pressures.
was set up in Moradabad in Uttar Pradesh.
Monetary Policy, was known as Credit Policy till 1992,
The specific objective of RRBs is to provide credit the year which marked the initiation of financial sector
and deposit facilities to the small and marginal reforms. The Reserve Bank of India is the main
farmers, agricultural labourers and artisans. The agency for implementing the monetary policy. There
RRBs have the responsibility to develop agriculture, are some important instruments, to achieve a stable
trade, commerce and industry in the rural areas. monetary policy:
The RRBs, though basically scheduled commercial Bank Rate: It is the rate at which RBI discounts the
banks, differ from the latter in certain respects such bills of exchange. In practice it is the rate at which
as: the area of RRBs is limited to a specified region RBI lends to other commercial banks. It thus acts as
comprising one or more districts of a state. signal to the economy on the direction of the
monetary policy. Bank rate had a limited impact on
The sponsoring banks and the Reserve Bank of India the period before economic reforms (1991) when RBI
provide many subsidies and concessions to RRBs to would determine the interest rates structure. However
enable them to function effectively. with the delegation of this power to the commercial
banks (except interest rates in priority sectors) the
The sponsor banks continue to provide managerial importance of bank rate has been revived. The bank
and financial assistance to RRBs. They charge very rate is at present (as on March 4, 2010) six per cent
low rates of interest on the borrowings of the RRBs. but is subject to frequent variation, as RBI uses
The cost of staff deputed to RRBs and training changes in Bank Rate to regulate fluctuations in
expenses of RRB staff are borne by the sponsor exchange rate and domestic inflation. In the recent
banks. past Prime Lending Rate (PLR) was decided by
commercial banks with reference to the bank rate and
National Bank for Agriculture and Rural Development the deposit position of each bank. [In recent times
(NABARD) has the responsibility to lay down policies apart from bank rate, RBI is using ‘repo’ and ‘reverse
for RRBs, to oversee their operations, provide repo’ rates to mop up excess liquidity and inject
refinance facilities and attend to problems faced by liquidity into the system.]
them.
Cash Reserve Ratio (CRR): Every Commercial bank
RRBs have to act as alternative agencies to provide is required to keep a certain percentage of its
institutional credit in rural areas. They are intended to demand and time liabilities (Deposits) with the RBI
eliminate money-lenders. RRBs were not set up to (either as cash or book balance). The RBI varies this
replace co-operative credit societies but to supplement ratio as and when it perceives the need to increase or
them. decrease money supply. RBI is empowered to fix the
CRR at a rate ranging between 3% and 15% (i.e.,
The Agricultural Credit Review Committee under the minimum 3%, maximum 15%). At present CRR is
chairmanship of Dr.A.M. Khusro observed that the 5.75% (As of March 4, 2010). Like the Bank Rate,
weaknesses of RRBs were endemic and non-viability CRR is also subject to frequent changes as RBI
was built into their structure. The RRBs had intervenes from time to time to correct monetary or
accumulated huge losses. The Khusro Committee exchange rate imbalances.
recommended that RRBs should be merged with
sponsor banks. Statutory Liquidity Ratio (SLR): All the commercial
banks in the country are also required to keep
The Reserve Bank of India appointed the M.C. (in addition to CRR) a certain percentage of their net
Bhandari Committee to suggest measures for demand and time liabilities (NDTL) as liquid assets in
restructuring RRBs. the shape of cash, gold or approved securities. As
most of SLR money in kept in treasury bills,
Most of the recommendations of the Bhandari government had, in the past been using SLR as a
Committee are being implemented. The issued share means to mobilise low cost resources. This abuse of
capital of RRBs has been enhanced from Rs.75 lakh SLR leads to distortion in the interest rate and credit
to Rs.1 crore. supply. In order to overcome this Narasimham
Committee recommended that SLR should be
As on September 2007, the total number of RRBs is 95.
brought down to 25% (As of March 4, 2010, the
RBI has allowed Regional Rural Banks to market minimum percentage of SLR is 25% and maximum
mutual funds through their branches. 40%).
Repo and Reverse Repo Rates: Repo (Repurchase borrowal accounts (Many banks in the pre-
option) and reverse repo are instruments used by RBI nationalisation era were owned by big industrial
in day-to-day liquidity management under the houses). Public funds of the banks were made
Liquidity Adjustment Facility (LAF). Repo rate is the available to directors of the banks at concessional
rate at which RBI lends to commercial banks and rates. These directors were also serving on the board
reverse repo is the rate at which RBI borrows from of directors of other companies.
commercial banks. In case of inflationary tendencies.
RBI can hike reverse repo rate and absorbs the To sum up, public money was being diverted and
excess liquidity in the market. Similarly, in case there misutilised for private profit.
is a perceived need to inject liquidity into the system, The concept of priority sector lending was therefore
RBI can reduce the repo rate, which will lead to introduced to correct this imbalance and the distortion
release of money into the market. RBI occasionally in sectoral development of total banking credit. As a
resorts to the repo route to fine- tune the liquidity result RBI directed domestic banks to provide 40% of
position, without resorting to major policy instruments their net bank credit to the priority sector. The concept
such as changes in CRR and Bank Rate. As of March of priority sector lending covered neglected sectors
4, 2010 the repo rate is 4.75% and reverse repo rate like Agriculture, Small Scale Industry (SSI), Road
is 3.25% and Water Transport (RTO) Retail Trade, Professional
and Self Employed Persons, Housing and
Open market operations: This refers to the RBI Education loans and also loans given to Scheduled
buying and selling of eligible securities to regulate Castes/Tribes, Small and Marginal Farmers, Tenant
money supply. Traditionally RBI was not resorting to Farmers, Share Croppers, Artisans, beneficiaries of
this method. However, after the large inflow of foreign the IRDP and Differential Rate of Interest Schemes.
funds since 1991, RBI has had to step in to stabilise
the flow to avoid excess liquidity. For foreign banks the overall target for PS lending as
a ratio of total credit was fixed at 32% by RBI.
Objectives of Monetary Policy:
Apart from the targets for priority sector lending, sub
• Stability of external value: Fluctuation in targets were fixed for sub sectors. For example under
exchange rate of a currency affects foreign trade the Differential Rate of Interest scheme introduced in
and investment. It is, therefore, important that the 1972, public sector banks were required to fulfil the
rate of exchange is maintained without violent target of lending at least 1% of the total advances
fluctuations. under this scheme. [The DRI scheme is aimed at the
• Maintenance of domestic price level: Fluctuations “weakest of the weak”.]
in prices affect investment decisions. However,
monetary policy alone cannot ensure the Priority sector lending can be described as an
maintenance of domestic prices, several other example of “Administered Credit” or “Directed
factors such as erratic monsoons, changes in Credit”. It is the RBI which determines the direction
tastes, fluctuation in world prices etc, affects and volume of credit to ensure social objectives.
domestic prices. (Administered Credit in banking can be compared to
• Reducing the impact of business cycles (Slumps Administered Price Mechanism in pricing of
and booms) by manipulation of credit and interest petroleum products like Petrol Diesel LPG and
policy. However economists are not of the same Kerosene. In both the cases the system of
opinion on whether business cycles are primarily administered/directed credit/ prices is to ensure social
caused by monetary factors. objectives).
Priority Sector Lending To sum up, the concept of priority sector lending
acted as a much needed corrective mechanism.
One of the main reasons for the nationalisation of Nationalised banks diverted credit to areas and
banks in July 1969 was to ensure that resources sectors where it was badly needed to meet the
available with banks were made available to sectors objectives of social banking. One criticism of the
which were starved of funds. In the pre- concept of priority sector lending was that it locked up
nationalisation era about 78% of the total bank credit the resources of the banks in low yielding assets
was allocated to large and medium industries, and (A major chunk, about 40% of total credit, was
wholesale trade; while the Agriculture sector directed to the priority sector which may affect the
accounted for a shocking 2.2% of the total bank credit profitability of banks). But the Government and RBI
(Significantly the figure of 78% declined to about 33% have persisted with the concept of priority sector
in 2000, in the post – nationalisation era) lending despite this criticism, to meet social
obligations.
Another important reason for introducing the concept
of priority sector lending after the July 1969 The concept of priority sector lending is here to stay
nationalisation was the fact that funds of the banks in Indian banking. The only possible changes could
were being misutilised. For example in the pre be perhaps reducing the percentage of priority sector
nationalisation era about 70% of the total industrial lending from the current 40%, or adding or deleting
advances went to only 1% of the total number of certain sectors to the list of priority sector.
And finally the best argument for continuing the liabilities within 60 days. Failing to discharge the
system of priority sector lending is the fact that banks liabilities in the stipulated time will entitle the second
have been financing big industrial houses, at creditor to take possession of the secured assets,
concessional rates under the Below Prime Lending take over the management of the assets and to
Rate (BPLR) mechanism. If big industrial houses can appoint any person to manage the secured assets.
be financed under BPLR, what prevents banks from
financing the neglected sectors at concessional rates The SARFAESI Act 2002 puts in place a long
or diverting a substantial portion of total bank credit to overdue legal framework, without attendant delays,
traditionally neglected social groups/sectors. for the recovery of NPAs.
NPAs of Scheduled Commercial Banks The recovery of NPAs got a boost after the enactment
of SARFAESI Act. There was a decline in gross NPAs
Non Performing Assets (NPAs) are bad debts of from Rs.70,860 crores in 2001-02 to Rs.51,820
banks/financial institutions. An asset becomes non- crores in 2005-06.
performing when it ceases to generate income for the
bank. The NPAs of Scheduled Commercial Banks (SCBs)
were at 1.9 per cent of total assets at end March 2005.
NPA means an asset or borrowal account, which has
been classified by a bank or financial institution as NARASIMHAM COMMITTEE RECOMMENDATIONS
sub-standard, doubtful or loss asset, in accordance ON FINANCIAL REFORMS:
with the directions or guidelines issued by the
Reserve Bank of India. The Government of India constituted a 9-member
committee under the chairmanship of M. Narasimham,
A major cause for poor performance and low a former Governor of the Reserve Bank of India to
profitability of banks was the accumulation of non- examine all aspects relating to the structure,
performing assets consisting of loans and advances organization, functions and procedures of the
given to corporates which, for some reason, do not financial system. The committee submitted its report
repay the amounts borrowed, or pay the interest in November 1991.
accumulated thereon.
Basic approach of the committee:
NPA norms for Scheduled Commercial Banks:
The Narasimham Committee (1991) was primarily
interested in improving the financial health of public
With effect from March 31, 2001 a non performing
sector banks and development financial institutions
asset is an advance where
(DFIs), so as to make them viable and efficient and
(a) Interest and / or instalment of principal remain
meet fully the emerging needs of the real economy.
overdue for a period of more than 180 days in The Narasimham Committee (1991) acknowledged
respect of a term loan; the spectacular success of the public sector banks
(b) The account remains ‘ out of order’ for a period of since their nationalization in July 1969, especially in:
more than 180 days in respect of an overdraft /
cash credit (OD/CC); (a) Massive branch expansion, particularly in rural
(c) The bill remains overdue for a period of more areas;
than 180 days in case of the bills purchased and (b) Expansion in the volume of deposits – bank
discounted; deposits now constituted two-fifths of financial
(d) Interest and / or instalment of principal remains assets of the household sector in 1991;
overdue for two harvest seasons but for a period (c) Rural penetration of the banking system – rural
of not exceeding two half years in the case of an deposits as a proportion of total deposits had
advance granted for agricultural purposes, and ; increased from 3 per cent to 15 per cent;
(e) Any amount to be received remains overdue for a (d) Diversion of an increasing portion of the bank
period of more than 180days in respect of other credit to priority sectors, viz, agriculture, small
accounts. industry, transport, etc.
SARFAESI Act: Recommendation of the Narasimham Committee:
The Government of India enacted Securitization and 1. It proposed a substantial reduction in the number
Reconstruction of Financial Assets and Enforcement of public sector banks (PSBs) through mergers
of Security Interest Act, 2002 (SARFAESI Act) to and acquisitions. A 4 tier banking system was
enable banks to realize their dues without intervention proposed.
of courts and tribunals. The Act enables the setting
up of Asset Management Companies to acquire Ι tier 3 or 4 large banks (including SBI) which
NPAs of any bank or financial agency by issuing could become international in character.
debentures, bonds or any other security. This ΙΙ tier 8 to 10 national banks
company (which is the second creditor) is entitled to ΙΙΙ tier Local banks
serve a notice to the borrower to discharge his / her IV tier Rural banks including RRBs
2. RBI should permit the setting up of new banks in these banks should have strong correspondent
the private sector. There should be no difference relationships with the larger national and
in the treatment between public sector banks and international banks.
private sector banks.
3. The committee suggested higher capital
3. The Government should allow foreign banks to adequacy requirements for banks to improve their
open offices in India either as branches or as inherent strength and their risk absorption
subsidiaries. capacity.
4. It suggested the urgent need to review and

4. Assets Reconstruction Fund (ARF) should be set
amend the provisions of RBI Act, Banking
up, to take over from the nationalized banks and
Regulation Act, SBI Act, Bank Nationalisation
financial institutions, a portion of their bad and
Act, etc., so as to bring them in line with the
doubtful debts, at a discount.
current needs of the banking industry.
5. The appointment of the Chief Executive of a bank Other recommendations related to the need for
(Chairman and Managing Director) should not computerization process in PSBs, review of
be based on political consideration but on recruitment procedures, training and remuneration
professionalism and integrity and should be made policies, etc.
by an independent panel of experts.
Capital Adequacy Standards
6. The government should reduce the Statutory
Liquidity Ratio (SLR) from the present 38.5 per Healthy functioning of banks is essential for the
cent to 25 per cent over the next five years. proper functioning of an economy. As credit creation
A reduction in the SLR levels would leave more (i.e. loan disbursals) of banks is a highly risky
funds with banks for allocation to agriculture, business the safety of the depositors’ money depends
industry, trade, etc. on the quality of lending by banks. A bank’s failure
has the potential to create chaos in an economy. This
7. The Cash Reserve Ratio (CRR) should be is why governments of the world pay special attention
reduced from the present high level of 15 per to the regulatory aspects of the banks. Banks should
cent to 3 to 5 per cent. maximize their credit creation while minimizing the
risk and continue their functioning permanently.
8. Banks should be given more autonomy.
The central banks of the world devised tools to
9. The system of directed credit programmes should minimise the risks of banking. The Capital Adequacy
be gradually phased out. Ratio (CAR) norm regulates the banks in such a way
that they can sustain the probable risks and
10. The RBI should, on priority, simplify the structure uncertainties of lending. It was in 1988 that the
of interest rates. The Bank rate should be the central banking bodies of the developed economies
anchor rate and all other interest rates should be agreed upon provision of the CAR. The agreement
closely linked to it. was known as the Basel Accord. The accord was
agreed upon at Basel, Switzerland at a meeting of the
Despite stiff opposition from bank unions and political Bank for International Settlements (BIS). It was at this
parties in the country, the Government of India time that the Basel–Ι norms of the CAR were agreed
accepted all the major recommendations of Narasimham upon – a requirement was imposed upon the banks to
Committee (1991) and started implementing them. maintain a certain amount of free capital (i.e., ratio) to
their assets (i.e. loans and investments by the banks)
Committee on Banking Sector Reforms (1998): as a cushion against probable losses in investments
and loans.
The Finance Ministry of the Government of India
appointed Narasimham as chairman of one more The CAR is the percentage of total capital to the total
committee. The Narasimham Committee on the risk – weighted assets.
Banking Sector Reforms submitted its report to the
Government in April 1998. The RBI introduced the Capital-to-risk weighted
assets ratio (CRAR) system for banks in India in 1992
Some of the important recommendations of this in accordance with the standards of the BIS – as part
Narasimham Committee (1998): of the financial sector reforms. In the coming years,
the Basel norms were extended to NBFCs also.
1. It recommended the merger of strong banks,
which would have a ‘multiplier effect’ on industry. The CAR norm was raised to 9 per cent with effect
from March 31, 2000.
2. The committee suggested the setting up of small,
local banks which would be confined to states or Meanwhile the BIS came up with another set of the
a cluster of districts in order to serve local trade, CAR norms, popularly known as Basel-ΙΙ. The Basel-
small industry and agriculture. At the same time, ΙΙ norm for the CAR is 12 per cent.
The Basel Accords (i.e. Basel Ι and ΙΙ) are of – One of the founders of the Punjab National Bank
paramount importance to the banking world and are was Lala Lajpat Rai.
presently implemented by over 100 countries across
the world. The main objective of the accords is to – The first bank to provide internet banking service
strengthen the international banking system. in India was ICICI Bank.
Some Miscellaneous Points to Remember – The Devkaran Nanjee family established Dena Bank.
– The first bank to open a branch in Dharavi, one of – The Nobel Price in Economics was instituted by
Asia’s biggest slums, is Indian Bank. Bank of Sweden in 1968.
– The bank with the maximum number of foreign – Thomas Sutherland established HSBC Bank in
branches is Bank of India. 1965 to meet the demand for local banking
facilities in Hong Kong and China.
– The bank which has the humped bull of
Mohenjadaro as its logo and has a name – The global sub-prime crisis had its origins in the
associated with the Indus ralley civilisation is USA.
Indusind Bank.
– The Banking Codes and Standards Institute is not
– The first Indian bank to open a branch outside meant to substitute the Ombudsman, but has a
India was Bank of India. wider role than the Ombudsman.
– The bank which was honoured when Mahatma – The concept of Ombudsman is borrowed from
Gandhi inaugurated its branch was Union Bank of Sweden.
India.
– RBI estimates that despite the substantial
– The first Indian Bank to be listed on the New York progress since the July 1969 nationalisation,
Stock Exchange is ICICI Bank. about 40% of the Indian population has no
access to banking services.
– Standard Chartered Bank has the maximum
network of branches in India, among foreign – The pioneer of micro-finance is Bangladeshi
banks. banker Mohamed Yunus.
– The oldest public sector bank in India, with a – The micro-finance capital of India is Andhra
history of more than 130 years, is Allahabad Bank. Pradesh.
– India’s largest and second largest private sector – The new Base Rate concept to replace the
banks across all categories are ICICI Bank and Benchmark Prime Lending Rate [BPLR] concept
HDFC Bank respectively. will be introduced from July 1, 2010.
– The European Country which was one of the – RBI was established in April 1935 on the basis of
worst affected in the global financial crisis was recommendations of the Hilton Young Commission.
Iceland.
– RBI was nationalised in 1949.
– The total number of nationalised banks excluding
the State Bank group is now 19. – India became a member of the IMF in 1946.
– SBI and its Associate banks now number seven. – RBI makes Ways and Means advances to the
Government for 90 days.
– A loan is an asset for the bank because it
receives interest as income on an advance. – A high level Committee on Financial System
[CFS] was set up in 1991 under the
– A deposit is a liability for the bank is because it Chairmanship of M. Narsimham. A second
has to be repaid on demand to the customer, and committee under M. Narsimham was set up in
it carries the burden of interest to be paid. 1997 to review the implementation of the
recommendations of the CFS.
– Asset Liability Management [ALM] is balancing
the deposit and loan portfolios of the bank. – NABARD was set up in 1982 and the National
Housing Bank was set up as subsidiary of RBI in
– The first public sector bank to enter the credit 1988 and IRDA was constituted in 2000.
card market was Central Bank of India in 1980.
Annexure – 1
Various Committees & Commissions on related to financial sector
S.no. Committee Agenda
1. Chakravarty Committee (1985) Review the working of the monetary system.
2. Abid Hussain Committee (1987) Profit making public units should offer a part of their share capital to the
public as part of long term strategy to establish the stock exchange.
3. Ghosh Committee (1991) Bank frauds & malpractices.
4. Vagul committee (1987) Money Market.
5. Dave Study Group Mutual Funds
6. J.V. Shetty Committee (1993) Review the system of lending under consortium arrangements & to suggest
improvements therein.
7. Sundaram Committee (1993) Structure of export credit.
8. Goswami Committee (1993) Industrial sickness & corporate restructuring.
9. Narasimham Committee – Ι (1991) Examine all aspects relating to the structure, organization & functioning of
the financial system.
10. Janakiraman Committee (1993) Securities transactions of banks & financial institutions.
11. Goiporia Committee (1990) Customer Service in banks.
12. Khanna Committee (1994) Monitoring the work of NBFCS. (Non-Banking Financial Corporations)
13. Narasimham Committee ΙΙ (1998) Banking Sector Reforms: The reforms consisted of
a) A shift of banking sector supervision from intrusive micro-level intervention
over credit decisions toward prudential regulations and supervision.
b) A reduction of the CRR and SLR.
c) Interest rate and entry deregulation; and
d) application of prudential norms.
14. Verma Committee (1999) Revival of weak public sector banks.
15. Kelkar Committee (2002) Indirect tax reforms
16. Khusro Committee (1986) Agricultural Credit
17. A.V. Gupta Committee (1997) Agricultural loans
18. Mahalanobis Committee National Income
19. Jilani Committee Loan Systems
20. J.J. Irani Committee Company Law reforms.
21. W.S. Saarraf Committee Technology issues in the banking sector.
22. Malhotra Committee Insurance Sector reforms.
23. S.S Tarapore Committee This committee was set up by the Reserve Bank of India under the
Chairmanship of former RBI deputy governor S.S Tarapore to “lay the
roadmap” to capital account convertibility. The five member committee
recommended convertibility by 1999-2000
Annexure – 2 Real time Gross Settlement (RTGS): This

technological initiative was launched by RBI in 2004
New Technology/ Trends in Banking Sector for faster settlement of payments. As transfers
through RTGS can be effected instantaneously, this is
Internet Banking: Banks have started offering one of the fastest mode of transfer.
services of Internet Banking. Customers can view
their accounts, print statement of accounts, request Annexure – 3
for chequebook, transfer funds etc. sitting in the easy
comfort of their home/ office or cyber café. Differential Rate of Interest Scheme
Core Banking: Core Banking Solution provides • In April, 1972, the Government implemented this
centralized system which provide centralized scheme in 162 districts of the country.
accounting, customer information management and • Under this scheme, public sector banks were
transaction processing functions. Once full migration directed to grant at least 1% of their total
to CBS is achieved ‘Branch Banking’ will become advances of the previous year to weaker sections
irrelevant. of society at a concessional interest rate of 4%.
MICR Technology: with the phenomenal growth in
volumes of cheques to be handled by clearing houses New strategy for rural lending: Service area
in major business centres, at the instance of RBI, approach:
banks in selected centres introduced Magnetic Ink • This new approach was implemented under the
Character Recognition (MICR) technology with purview of Lead Bank Scheme since April 1,
specially printed cheques with MICR band printed at 1989.
the bottom of cheques. The data contained in the • Under this new scheme, branches of commercial
MICR band is captured with the help of encoders, banks were allotted certain specific semi-urban
which facilitates faster sorting, and settlement of and rural areas. These banks were made
payment of cheques. responsible for over-all development in these
allotted areas.
Annexure – 4 Person Institution
• T.S. Narayana Sami United Stock Exchange
Economy Indicators of India
(As a March 4, 2010) • C.B. Bhave SEBI
• J Harinarayana IRDA
• Bank Rate 6.0% • D Swaroop PFRDA
• Repo Rate 4.75% • L Man Singh PNGRB
• Reverse Repo Rate 3.25% • Y.S. Bhave AERA
• Cash Reserve Ratio 5.75% • J S Sarma TRAI
• Statutory Liquidity Ratio (SLR) 25% • Vijay Kelkar 13th Finance Commission
• Prime Lending Rate (PLR) 12.25% – 12.5% • Dominique Strauss Khan IMF
• Savings Bank Rate 3.5% • Robert Zoellick World Bank
• Deposit Rate 6 – 7.50%s • Haruhiko Kuroda ADB
• Pascal Lamy WTO
SOME PROMINENT PERSONALITIES HEADING • Amrita Patel NDDB
IMPORTANT ORGANISATIONS
• M.S. Swaminathan National Commission on
Farmers
Person Institution
• O.P. Bhatt State Bank of India
• Chanda Kochchar ICICI Bank
• Deepak Parekh HDFC Bank
• Umesh Chandra Sarangi NABARD
• Rajendra Mohan Malla SIDBI
• Yogesh Agarwal IDBI
• T.C. Venkat Subramanium Exim Bank
BANKING PRODUCTS
BANKING CHANNELS
BUDGET TERMINOLOGY
The term ‘Budget’ refers to the financial statement (or • Proportional Taxation: If the tax is the ‘same
documents) placed by the government before the percentage’ on all incomes, large or small, it
legislature every year on a specific date. is called proportional taxation.
A budget sets forth the anticipated expenditure of the • Progressive Taxation: In this system, the rate
government during the next financial year (called the of tax goes on increasing with every increase
budget year) and the receipts for the same period: in income. In other words, lower income is
(a) under existing laws in force, and taxed at a lower percentage, whereas higher
(b) as a result of taxation proposals, if any, income is taxed at a higher percentage.
contemplated by the government. • Regressive Taxation: If the rate of tax
More often than not, the budget is the manifestation decreases with an increase in income, it is
of the political philosophy of the party in power. called regressive taxation.
The primary objective of the budget is to reveal
comprehensive information in order to present a Receipts
complete picture of the financial position of the When you scan the budget document, you come
government and thereby enable the legislature to across terms like Revenue Receipts and Capital
measure adequately the impact of such financial Receipts. What do these terms mean?
programmes on the country’s economy. (a) Revenue Receipts may be classified into two
The estimates included in the budget are simply major components: Tax Revenue and Non-Tax
estimates; the actuals may not conform to the original Revenue.
estimates. The budget must, however, estimate • Tax Revenue is one of the most important
revenues and expenditures as accurately as possible. resources of public revenue. It refers to funds
Accuracy becomes essential if equilibrium raised through taxation and implicit in it is an
established in the estimates is to be maintained to the element of compulsion. It is compulsory in
end and realised in actuals. the sense that once the taxes are imposed,
the person liable to pay them has to do so.
The budget comprises data for three years: Refusal to do so is treated as a crime for
(a) actual figures for the preceding year; which the law prescribes severe punishment.
(b) budget estimates for the current year; Tax revenue is a steady source and is always
(c) revised estimates for the current year, and certain to come because taxes are paid
(d) budget estimates for the following year. periodically. Some of the important taxes are
income tax, excise duty, customs duty, sales
For example, the Union Budget for 2010-11
tax, estate duty, wealth tax, and gift tax. In
contains:
addition to these, the term tax revenue also
(a) actuals for 2008-09;
includes special assessment and fees.
(b) budget estimates for 2009-10;
• Non-Tax Revenue is raised by the
(c) revised estimates for 2009-10, and
government in the form of the prices paid for
(d) budget estimates for 2010-2011.
the use of specific services and goods
Classification of Taxes offered by it. It is purely voluntary in the
(a) Direct and Indirect Taxes: Direct taxes are sense that the individual concerned has to
defined as those taxes levied immediately on the pay the price for a particular good or service,
property and incomes of persons and which are in case he purchases it, otherwise not. The
paid directly by the consumers to the state. Thus, revenue under this head comes irregularly
income and wealth taxes, estate duties, and toll and is somewhat uncertain.
taxes paid directly to the state form the group of
direct taxes. Non-Tax revenue includes:
All other taxes would be grouped as indirect, i.e. (1) revenue from state monopolies and state
those whose burden can be shifted (like sales tax undertakings (like railways, electricity, telecom,
and excise duties). These are imposed upon and forests, and irrigation);
collected from producers and sellers. But (2) revenue from social services (like education,
producers and sellers can shift the burden of hospital receipts);
these taxes on to the consumers. However, when (3) revenue from public property (like lease / rent
these taxes are passed on to the consumers, from land);
they indirectly tax the income of the consumers. (4) charges for specific benefits or improvements i.e.
development charges, and
(b) Proportional, Progressive, and Regressive
(5) voluntary gifts (such as donations to hospitals
Taxation: A tax may be proportional, progressive
or regressive according to the relationship and charitable institutions) received by state
between its rate structure and the income, authorities
wealth, and economic power of the tax-payer.
A tax is proportional, progressive or regressive (b) Capital Receipts include loans raised by the
according to the percentage of the tax to the tax Government of India from the general public,
payer’s income. government’s borrowings from the RBI as well as
other similar bodies (through sale of treasury Deficits
bonds), external loans (like from the IMF), In a budget statement, there is a mention of four
recoveries of loans granted to states / UTs, and types of deficits: (a) revenue, (b) budget, (c) fiscal,
savings invested in PPF, etc. and (d) primary.
(a) Revenue Deficit refers to the excess of revenue
Expenditure expenditure over revenue receipts. In fact, it
Expenditure may be classified into (a) Revenue reflects one crucial fact: what is the government
Expenditure and Capital Expenditure, (b) Plan and borrowing for? As an individual if you are
Non-Plan Expenditure, and (c) Development and borrowing to pay the house rent, then you are in
a situation of revenue deficit, i.e. while you are
Non-Development Expenditure.
borrowing and spending, you are not creating any
durable asset. This implies that there will be a
(a) Revenue Expenditure and Capital repayment obligation (sometime in the future)
Expenditure: All expenditure incurred in the and at the same time there is no asset creation
normal day-to-day running of the government is via investment.
termed Revenue Expenditure. This includes (b) Budget Deficit refers to the excess of total
expenditure incurred on provision of services, expenditure over total receipts. Here, total
salaries, subsidies, interest payments made to receipts include current revenue and net internal
service debts, etc. and external capital receipts of the government.
Capital Expenditure is incurred in the creation of (c) Fiscal Deficit refers to the difference between
total expenditure (revenue, capital, and loans net
assets like land, plant & machinery, and
of repayment) on one hand, and on the other
investments in securities. Also, loans and
hand, revenue receipts plus all those capital
advances granted to state governments and receipts which are not in the form of borrowings
PSUs by the Centre are treated as Capital but which in the end accrue to the government.
Expenditure. (d) Primary Deficit refers to fiscal deficit minus
(b) Plan and Non-Plan Expenditure: Any public interest payments. In other words, it points to how
expenditure incurred on current development and much the government is borrowing to pay for
investment outlays that arise due to plan expenses other than interest payments. Also, it
proposals (five year plan proposals) is termed underscores another key fact: how much the
Plan Expenditure. government is adding to future burden (in terms
of repayment) on the basis of past and present
policy.
ECONOMIC SURVEY
The fiscal year 2009-10 began as a difficult one. The fast-paced recovery of the economy underscores
There was a significant slowdown in the growth rate the effectiveness of the policy response of the
in the second half of 2008-09, following the financial Government in the wake of the financial crisis.
crisis that began in the industrialised nations in 2007 Moreover, the broad- based nature of the recovery
and spread to the real economy across the world. creates scope for a gradual rollback, in due course, of
some of the measures undertaken over the last
The growth rate of the gross domestic product (GDP) fifteen to eighteen months, as part of the policy
in 2008-09 was 6.7 per cent, with growth in the last response to the global slowdown, so as to put the
two quarters hovering around 6 per cent. There was economy back on to the growth path of 9 per cent per
apprehension that this trend would persist for some annum.
time, as the full impact of the economic slowdown in
the developed world worked through the system. It Other Highlights
was also a year of reckoning for the policymakers, Y Economy likely to grow by up to 8.75 per cent in
who had taken a calculated risk in providing 2010-11.
substantial fiscal expansion to counter the negative Y Full recovery; return to 9 per cent growth in 2011-12.
fallout of the global slowdown. Y Broad recovery gives scope for gradual stimulus
roll back.
Inevitably, India’s fiscal deficit increased from the end Y High double-digit food inflation in 2009-10 major
of 2007-08, reaching 6.8 per cent (budget estimate, concern.
BE) of GDP in 2009-10. A delayed and severely Y Signs of food inflation spreading to other sectors.
subnormal monsoon added to the overall uncertainty. Y Farm & allied sector production falls 0.2% in
The continued recession in the developed world, for 2009-10.
the better part of 2009-10, meant a sluggish export Y Need serious policy initiatives for 4% agriculture
recovery and a slowdown in financial flows into the growth.
economy. Yet, over the span of the year, the economy Y Moots direct food subsidy via food coupons to
posted a remarkable recovery, not only in terms of households.
overall growth figures but, more importantly, in terms Y Favours making available food in open market.
of certain fundamentals, which justify optimism for the
Y Favours monthly ration coupons usable anywhere
Indian economy in the medium to long term.
for poor.
Y Gross fiscal deficit pegged at 6.5 pc of GDP in
The real turnaround came in the second quarter of
2009-10 when the economy grew by 7.9 per cent. As 2009-10.
th
Y India 10 largest gold holding nation at 557.7
per the advance estimates of GDP for 2009-10,
released by the Central Statistical Organisation tonnes.
(CSO), the economy is expected to grow at 7.2 per Y Exports in April-December 2009 down 20.3 per
cent in 2009-10, with the industrial and the service cent.
sectors growing at 8.2 and 8.7 per cent respectively. Y Imports in April-December 2009 down 23.6 per
cent.
This recovery is impressive for at least three reasons. Y Trade gap narrowed to U.S.$76.24 bn in April-
First, it has come about despite a decline of 0.2 per December.
cent in agricultural output, which was the consequence Y 32.5% savings & 34.9% investment (of GDP in
of sub-normal monsoons. 2008-09) put India in league of world’s fastest
growing nations.
Second, it foreshadows renewed momentum in the Y Govt initiates steps to boost private investment in
manufacturing sector, which had seen continuous agriculture.
decline in the growth rate for almost eight quarters Y Wants credit available at reasonable rates on
since 2007-08. Indeed, manufacturing growth has time for private sector to invest in agriculture.
more than doubled from 3.2 per cent in 2008-09 to Y Slowdown in infrastructure that began in 2007,
8.9 per cent in 2009-10. arrested.
Y Domestic oil production to rise 11 per cent in
Third, there has been a recovery in the growth rate of 2009-10.
gross fixed capital formation, which had declined
Y Gas output up 52.8 per cent to 50.2 billion cubic
significantly in 2008-09 as per the revised National
meters with RIL starting production.
Accounts Statistics (NAS). While the growth rates
Y India world’s 2nd largest wireless network with
have dipped in private consumption demand, there
525.1 million mobile users.
has been a pick-up in the growth of private
Y Virtually every second Indian has access to
investment demand. There has also been a
turnaround in merchandise export growth in phone.
November 2009, which has been sustained in Y Auction for 3G spectrum to provide existing and
December 2009, after a decline for nearly twelve foreign players to bring in new technology and
continuous months. innovations.
UNION BUDGET (2010-2011)
Challenges months and ensure that there is better
- To quickly revert to the high GDP growth path of management of food security in the country.
9 per cent and then find the means to cross the
‘double digit growth barrier’. Consolidating Growth
- To harness economic growth to consolidate the Fiscal Consolidation
recent gains in making development more - With recovery taking root, there is a need to
inclusive. review public spending, mobilise resources and
- To address the weaknesses in government gear them towards building the productivity of the
systems, structures and institutions at different economy.
levels of governance. - Fiscal policy shaped with reference to the
recommendations of the Thirteenth Finance
Overview of the Economy Commission, which has recommended a
- India among the first few countries in the world to calibrated exit strategy from the expansionary
implement a broad-based counter-cyclic policy fiscal stance of last two years.
package to respond to the negative fallout of the - It would be for the first time that the Government
global slowdown. would target an explicit reduction in its domestic
- The Advance Estimates for Gross Domestic public debt-GDP ratio.
Product (GDP) growth for 2009-10 pegged at 7.2
per cent. The final figure expected to be higher Tax reforms
when the third and fourth quarter GDP estimates - On the Direct Tax Code (DTC) the wide-ranging
for 2009-10 become available. discussions with stakeholders have been
- The growth rate in manufacturing sector in concluded – Government will be in a position to
December 2009 was 18.5 per cent – the highest implement the DTC from April 01, 2011.
in the past two decades. - Centre actively engaged with the Empowered
- A major concern during the second half of 2009- Committee of State Finance Ministers to finalise
10 has been the emergence of double digit food the structure of Goods and Services Tax (GST)
inflation. Government has set in motion steps, in as well as the modalities of its expeditious
consultation with the State Chief Ministers, which implementation. Endeavour to introduce GST by
should bring down the inflation in the next few April, 2011.
People’s ownership of PSUs and will become effective from April 01, 2010.
- Ownership has been broad based in Oil India - This will lead to an increase in agricultural
Limited, NHPC, NTPC and Rural Electrification productivity and better returns for the farmers,
Corporation while the process is on for National and overtime reduce the volatility in demand for
Mineral Development Corporation and Satluj Jal fertiliser subsidy and contain the subsidy bill.
Vidyut Nigam. This will raise about Rs.25,000
crore during the current year. Petroleum and Diesel pricing policy
- Higher amount proposed to be raised during the - Expert Group to advise the Government
year 2010-11. on a viable and sustainable system of pricing
of petroleum products has submitted its
Fertiliser subsidy recommendations.
- A Nutrient Based Subsidy policy for the fertiliser - Decision on these recommendations will be taken
sector has been approved by the Government in due course.
Improving Investment Environment Corporate Governance
Foreign Direct Investment - Government has introduced the Companies Bill,
- Number of steps taken to simplify the FDI regime. 2009 in the Parliament to replace the existing
- Methodology for calculation of indirect foreign Companies Act, 1956, which will address issues
investment in Indian companies has been clearly related to regulation in corporate sector in the
context of the changing business environment.
defined.
- Complete liberalisation of pricing and payment of Exports
technology transfer fee and trademark, brand - Extension of existing interest subvention of 2 per
name and royalty payments. cent for one more year for exports covering
handicrafts, carpets, handlooms and small and
Financial Stability and Development Council medium enterprises.
- An apex level Financial Stability and
Development Council to be set up with a view to Agriculture Growth
strengthen and institutionalise the mechanism for - Government will follow a four-pronged strategy,
maintaining financial stability. covering
- This Council would monitor macro-prudential (a) Agricultural production
- Rs.400 crore provided to extend the green
supervision of the economy, including the
revolution to the eastern region of the country
functioning of large financial conglomerates, and comprising Bihar, Chattisgarh, Jharkhand,
address interregulatory coordination issues. Eastern UP, West Bengal and Orissa.
- Rs.300 crore provided to organise 60,000 “pulses
Banking Licences and oil seed villages” in rain-fed areas during
- RBI is considering giving some additional banking 2010-11 and provide an integrated intervention
licenses to private sector players. Non Banking for water harvesting, watershed management and
Financial Companies could also be considered, if soil health, to enhance the productivity of the dry
they meet the RBI’s eligibility criteria. land farming areas.
- Rs.200 crore provided for sustaining the gains
already made in the green revolution areas
Public Sector Bank Capitalisation
through conservation farming, which involves
- Rs.16,500 crore provided to ensure that the
concurrent attention to soil health, water
Public Sector Banks are able to attain a minimum conservation and preservation of biodiversity.
8 per cent Tier-I capital by March 31, 2011. (b) Reduction in wastage of produce
- Government to address the issue of opening up
Recapitalisation of Regional Rural Banks (RRB) of retail trade. It will help in bringing down the
- Government to provide further capital to considerable difference between farm gate,
strengthen the RRBs so that they have adequate wholesale and retail prices.
capital base to support increased lending to the - Deficit in the storage capacity met through an
rural economy. ongoing scheme for private sector participation -
FCI to hire godowns from private parties for a
guaranteed period of 7 years.
(c) Credit support to farmers Environment and Climate change
- Banks have been consistently meeting the - National Clean Energy Fund for funding research
targets set for agriculture credit flow in the past and innovative projects in clean energy
few years. For the year 2010-11, the target has technologies to be established.
been set at Rs.3,75,000 crore. - Rs.200 crore provided as a Special Golden
- In view of the recent drought in some States and Jubilee package for Goa to preserve the natural
the severe floods in some other parts of the resources of the State, including sea beaches
country, the period for repayment of the loan and forest cover.
amount by farmers extended by six months from - Allocation for National Ganga River Basin
Authority (NGRBA) doubled in 2010-11 to Rs.500
December 31, 2009 to June 30, 2010 under the
crore.
Debt Waiver and Debt Relief Scheme for Farmers.
- Schemes on bank protection works along river
- Incentive of additional one per cent interest
Bhagirathi and river Ganga-Padma in parts of
subvention to farmers who repay short-term crop
Murshidabad and Nadia district of West Bengal
loans as per schedule, increased to 2% for included in the Centrally Sponsored Flood
2010-11. Management Programme.
(d) Impetus to the food processing sector Inclusive Development

- In addition to the ten mega food park projects - The spending on social sector has been gradually
already being set up, the Government has increased to Rs.1,37,674 crore in 2010-11, which
decided to set up five more such parks. is 37% of the total plan outlay in 2010-11.
- External Commercial Borrowings to be available - Another 25 per cent of the plan allocations
for cold storage or cold room facility, including for are devoted to the development of rural
farm level pre-cooling, for preservation or storage infrastructure.
of agricultural and allied produce, marine
products and meat. Education
- Plan allocation for school education increased by
Infrastructure 16 per cent from Rs.26,800 cr. in 2009-10 to
- Rs.1,73,552 crore provided for infrastructure Rs.31,036 cr. in 2010-11.
development which accounts for over 46 per cent - In addition, states will have access to Rs.3,675
of the total plan allocation. crore for elementary education under the Thirteenth
- Allocation for road transport increased by over 13 Finance Commission grants for 2010-11.
per cent from Rs.17,520 crore to Rs.19,894 crore.
Health
- Rs.16,752 crore provided for Railways, which is
- An Annual Health Survey to prepare the District
about Rs.950 crore more than last year.
Health Profile of all Districts shall be conducted in
2010-11.
Energy - Plan allocation to Ministry of Health & Family
- Plan allocation for power sector excluding Welfare increased from Rs.19,534 cr. in 2009-10
RGGVY doubled from Rs.2230 crore in 2009-10 to Rs.22,300 cr. for 2010-11.
to Rs.5,130 crore in 2010-11.
- Government proposes to introduce a competitive Financial Inclusion
bidding process for allocating coal blocks for - Appropriate Banking facilities to be provided to
captive mining to ensure greater transparency habitations having population in excess of 2000
and increased participation in production from by March, 2012.
these blocks. - Insurance and other services to be provided
- A “Coal Regulatory Authority” to create a level using the Business Correspondent model. By this
playing field in the coal sector proposed to be set arrangement, it is proposed to cover 60,000
up. habitations.
- Plan outlay for the Ministry of New and - Augmentation of Rs.100 crore each for the
Renewable Energy increased by 61 per cent from Financial Inclusion Fund (FIF) and the Financial
Rs.620 crore in 2009-10 to Rs.1,000 crore in Inclusion Technology Fund, which shall be
2010-11. contributed by Government of India, RBI and
NABARD.
Rural Development - Rs.1,270 crore allocated for Rajiv Awas Yojana
- Rs.66,100 crore provided for Rural Development. as compared to Rs.150 crore last year.
- Allocation for Mahatma Gandhi National Rural
Employment Guarantee Scheme stepped up to Micro, Small & Medium Enterprises
Rs.40,100 crore in 2010-11. - High Level Council on Micro and Small
- An amount of Rs.48,000 crore allocated for rural Enterprises to monitor the implementation of the
infrastructure programmes under Bharat Nirman. recommendations of High-Level Task Force
- Unit cost under Indira Awas Yojana increased to constituted by Prime Minister.
Rs.45,000 in the plain areas and to Rs.48,500 in - Allocation for this sector to be increased from
the hilly areas. Allocation for this scheme Rs.1,794 crore to Rs.2,400 crore for the year
increased to Rs.10,000 crore. 2010-11.
- Allocation to Backward Region Grant Fund - The corpus for Micro-Finance Development and
enhanced by 26 per cent from Rs.5,800 crore in Equity Fund doubled to Rs.400 crore in 2010-11.
2009-10 to Rs.7,300 crore in 2010-11.
- Additional central assistance of Rs.1,200 crore Unorganised Sector
provided for drought mitigation in the National Social Security Fund for unorganised sector
Bundelkhand region. workers
- National Social Security Fund for unorganised
Urban Development and Housing sector workers to be set up with an initial
- Allocation for urban development increased by allocation of Rs.1000 crore. This fund will support
more than 75 per cent from Rs.3,060 crore to schemes for weavers, toddy tappers, rickshaw
Rs.5,400 crore in 2010-11. pullers, bidi workers etc.
- Allocation for Housing and Urban Poverty - Rashtriya Swasthya Bima Yojana benefits
Alleviation raised from Rs.850 crore to Rs.1,000 extended to all such Mahatma Gandhi NREGA
crore in 2010-11. beneficiaries who have worked for more than
- Scheme of one per cent interest subvention on 15 days during the preceding financial year.
housing loan upto Rs.10 lakh, where the cost of - A new initiative, “Swavalamban” will be available
the house does not exceed Rs.20 lakh — for persons who join New Pension Scheme
announced in the last Budget — extended up to (NPS), with a minimum contribution of Rs.1,000
March 31, 2011. Rs.700 crore provided for this and a maximum contribution of Rs.12,000 per
scheme for the year 2010-11. annum during the financial year 2010-11, wherein
Government will contribute Rs.1,000 per year to leveraging the strength of existing institutions and
each NPS account opened in the year 2010-11. instruments of the Textile Ministry to train 30 lakh
Allocation of Rs.100 crore made for this initiative. persons over 5 years.
Skill development Social Welfare

- National Skill Development Corporation has - Plan outlay for Women and Child Development
approved three projects worth about Rs.45 crore stepped up by almost 50 per cent.
to create 10 lakh skilled manpower at the rate of - “Saakshar Bharat” to further improve female
one lakh per annum. literacy rate launched with a target of 7 crore non-
- An extensive skill development programme in the literate adults which includes 6 crore women.
textile and garment sector to be launched by
- Mahila Kisan Sashaktikaran Pariyojana to meet Security and Justice

the specific needs of women farmers to be - Allocation for Defence increased to Rs.1,47,344
launched with a provision of Rs.100 crore as a crore including Rs.60,000 crore for capital
sub-component of the National Rural Livelihood expenditure.
Mission. - Planning Commission to prepare an integrated
- Plan outlay of the Ministry of Social Justice and action plan for the thirty-three left wing extremism
Empowerment enhanced by 80 per cent to affected districts. Adequate funds will be made
Rs.4500 crore. With this enhancement, the available to support the action plan.
Ministry will be able to revise rates of scholarship - Government has approved the setting up of the
under its post-matric scholarship schemes for National Mission for Delivery of Justice and Legal
SCs and OBC students. Reforms to help reduce legal backlog in courts
from an average of 15 years at present to 3 years
Strengthening Transparency & Public by 2012.
Accountability
- Financial Sector Legislative Reforms Commission Budget Estimates 2010-11
to be set up to rewrite and clean up the financial - The Gross Tax Receipts are estimated at
sector laws to bring them in line with the Rs.7,46,651 crore.
requirements of the sector. - The Non Tax Revenue Receipts are estimated at
- Rs.1,900 crore allocated to the Unique Rs.1,48,118 crore.
Identification Authority of India (UIDAI) for - The net tax revenue to the Centre as well as the
2010-11. UIDAI will be able to meet its expenditure provisions in 2010-11 have been
commitments of issuing the first set of UID estimated with reference to the recommendations
numbers in the coming year. of the Thirteenth Finance Commission.
- The total expenditure proposed in the Budget Indirect Taxes
Estimates is Rs.11,08,749 crore, which is an - Rate reduction in Central Excise duties to be
increase of 8.6 per cent over last year. partially rolled back and the standard rate on all
- The Plan and Non Plan expenditures in BE 2010- non-petroleum products enhanced from 8 per
11 are estimated at Rs.3,73,092 crore and cent to 10 per cent ad valorem.
Rs.7,35,657 crore respectively. While there is 15
- Some structural changes in the excise duty on
per cent increase in Plan expenditure, the
increase in Non Plan expenditure is only 6 per cigarettes, cigars and cigarillos to be made
cent over the BE of previous year. coupled with some increase in rates. Excise duty
- Fiscal deficit for BE 2010-11 at 5.5 per cent of on all non-smoking tobacco such as scented
GDP, which works out to Rs.3,81,408 crore. tobacco, snuff, chewing tobacco etc to be
- Taking into account the various other financing enhanced. Compounded levy scheme for
items for fiscal deficit, the actual net market chewing tobacco and branded unmanufactured
borrowing of the Government in 2010-11 would tobacco based on the capacity of pouch packing
be of the order of Rs.3,45,010 crore. This would machines to be introduced.
leave enough space to meet the credit needs of
the private sector.
Agriculture & Related Sectors
- The rolling targets for fiscal deficit are pegged at
- Provide project import status with a concessional
4.8 per cent and 4.1 per cent for 2011-12 and
2012-13, respectively. import duty of 5 per cent for the setting up of
- Against a fiscal deficit of 7.8 per cent in 2008-09, mechanised handling systems and pallet racking
inclusive of oil and fertilizer bonds, the systems in ‘mandis’ or warehouses for food
comparable fiscal deficit is 6.9 per cent as per the grains and sugar as well as full exemption from
Revised Estimates for 2009-10. service tax for the installation and commissioning
- Conscious effort made to avoid issuing bonds to of such equipment.
oil and fertilizer companies. Government would - Provide project import status at a concessional
like to continue with this practice of extending customs duty of 5 per cent with full exemption
Government subsidy in cash, thereby bringing all from service tax to the initial setting up and
subsidy related liabilities into Government’s fiscal
expansion of
accounting.
Y Cold storage, cold room including farm pre-
Direct Taxes coolers for preservation or storage of
- Income tax slabs for individual taxpayers to be as agriculture and related sectors produce; and
follows: Y Processing units for such produce.
- To exempt the testing and certification of
Income upto Rs.1.6 lakh Nil agricultural seeds from service tax.
Income above Rs.1.6 lakh and 10 per cent - The transportation by road of cereals, and pulses
upto Rs.5 lakh to be exempted from service tax. Transportation
Income above Rs.5 lakh and 20 per cent by rail to remain exempt.
upto Rs.8 lakh
Income above Rs.8 lakh 30 per cent Environment
- To build the corpus of the National Clean Energy
Fund, clean energy cess on coal produced in
India at a nominal rate of Rs.50 per tonne to be
levied. This cess will also apply on imported coal.
- Central Excise duty on LED lights reduced from 8
per cent to 4 per cent at par with Compact
Fluorescent Lamps.
- To remedy the difficulty faced by manufacturers
of electric cars and vehicles in neutralising the
duty paid on their inputs and components, a
nominal duty of 4 per cent on such vehicles
imposed. Some critical parts or sub-assemblies
of such vehicles exempted from basic customs
duty and special additional duty subject to actual
- Deduction of an additional amount of Rs.20,000
allowed, over and above the existing limit of Rs.1 user condition. These parts would also enjoy a
lakh on tax savings, for investment in long-term concessional CVD of 4 per cent.
infrastructure bonds as notified by the Central
Government. Infrastructure
- Proposals on direct taxes estimated to result in a - Project import status to ‘Monorail projects for
revenue loss of Rs.26,000 crore for the year. urban transport’ at a concessional basic duty of 5
per cent granted.
- To encourage the domestic manufacture of result in a net revenue gain of Rs.3,000 crore for
mobile phones accessories, exemptions from the year.
basic, CVD and special additional duties are now - Proposals on direct taxes estimated to result in a
being extended to parts of battery chargers and revenue loss of Rs.26,000 crore for the year.
hands-free headphones. The validity of the Proposals relating to Indirect Taxes estimated to
exemption from special additional duty is being result in a net revenue gain of Rs.46,500 crore for
extended till March 31, 2011. the year. Taking into account the concessions
being given in the tax proposals and measures
Service Tax taken to mobilise additional resources, the net
- Rate of tax on services retained at 10 per cent to revenue gain is estimated to be Rs.20,500 crore
pave the way forward for GST. for the year.
- Proposals relating to service tax are estimated to
RAIL BUDGET (2010-2011)
Introduction Sports
- Economic viability and social responsibility – - Railways first recipient of Rashtriya Khel
main consideration for taking up of the projects. Protsahan Puraskar
- ‘Inclusive growth and expansion of rail network’ - Five Sports Academies at Delhi, Secunderabad,
for development of the country. Chennai, Kolkata & Mumbai to be setup.
- Special Task Force to clear proposals for - Astro-turfs to be provided at more places for
investments within 100 days. hockey.
- A separate structure will be created within the - Railways will be lead partners of Common Wealth
Railways for implementation of the business Games.
models. - Railways to run a Commonwealth exhibition train.
Commitments Fulfilled Culture and Heritage

- Of the 120 new trains, extensions and increase in - To set up a Railway Cultural & Heritage
frequencies announced, 117 would be flagged off Promotion Board for coordinating and supervising
by the end of March 2010. all related activities on the railways.
- Recruitment policy of the Railway Recruitment - To set up Rabindra Museum at Howrah and
Boards (RRBs) has been reviewed. Gitanjali Museum at Bolpur to commemorate
- RRB examination fee for woman candidates and 150th birth anniversary of Rabindranath Tagore.
those belonging to minority and economically - To set up Shambhu Mitra Cultural Complex with
backward classes waived. performing arts and a music academy at Howrah.
- All question papers to be set in Hindi, Urdu,
English and in local State languages and Staff Welfare and Health
examination for a particular post will be held on - A new scheme “House for All” to be launched, to
the same date simultaneously by all RRBs. provide residences to all railway employees in the
- Izzat Scheme, implemented within three months next ten years with the help of Ministry of Urban
of announcement. Development.
- Work initiated in all the 67 Multi-functional - MOU entered with Ministry of Health and Ministry
Complexes (MFCs). Development of Adarsh of Human Resource Development for setting up
Stations started in phases. of hospitals and educational institutions on
surplus railway land.
Passenger Amenities / Facilities - To set up about 522 hospitals and diagnostic
- 94 stations to be upgraded as Adarsh Stations. centres, 50 Kendriya Vidyalayas, 10 residential
- 10 more stations identified to be converted as schools on the pattern of Navodaya Vidyalaya,
World Class Stations. model degree colleges and technical and
- Construction of additional 93 Multi Functional management institutions of national importance
Complexes. to benefit railway employees and their children.
- Multi-level parking through PPP route. - To set up 50 crèches for children of women
- Six clean drinking water bottling plants to be set employees and 20 hostels. Railways will also
up through PPP for providing cheap bottled provide more numbers of community centres and
drinking water. stadia.
- SMS updates of reservation status and - Contribution to Staff Benefit Fund to be enhanced
punctuality of trains to passengers, to Rs.500 per employee.
- SMS updates on the movement of wagons to - Scope of safety-related retirement scheme to be
freight customers. expanded to cover all safety category staff with a
- RFID technology for tracking of wagons to grade pay of Rs.1800.
provide modern trolleys at all important stations - To extend Rashtriya Swasthya Bima Yojana to all
to be handled by uniformed attendants for senior licensed porters, vendors and hawkers, from
citizens and ladies. unorganised sector and socially challenged.
- Allotment of iron ore rakes to be rationalised - To set up a state-of-the-art advanced loco pilot
scientifically and would be accessible through the training centre at Kharagpur, an advanced railway
web. track training centre at Beleghata and four multi-
- Introduction of e-ticket based mobile vans for disciplinary training centres.
issuing tickets.
Railway Research
Safety and Security - A Centre for Railway Research to be set up at IIT,
- Automatic fire and smoke detection system to be Kharagpur. To establish strong research
introduced in 20 long distance trains. partnerships with premier institutes like IITs, NITs,
- All the unmanned LCs to be manned within five CSIR and DRDO.
years.
- 12 companies of women RPF personnel named Infrastructure
‘Mahila Vahini’ to be raised. - To modernise and augment the capacity of CLW
to 275 locomotives.
- A Diesel Multiple Unit (DMU) factory to be set up Financial Performance in 2009-10
at Sankrail. - Loading target of 882 MT likely to surpassed by 8
- Second unit to be installed at ICF. MT in 2009-10.
- Wagon repair shop to be set up at Badnera. - Gross Traffic Receipts kept at Rs.88,356 crore,
- Centres of Excellence in Wagon Prototyping to be i.e., an increase of 10.7%.
set up at Kharagpur Workshop. - The full impact of VI CPC fully absorbed within
- A new Rail Axle Factory to be set up in New the Railway resources.
Jalpaiguri under PPP/JV mode. - The current dividend liability to be fully discharged.
- A Design Development and Testing Centre for - Annual Plan kept at Rs.40,284 cr.
Wheels to be set up at RWF, Bangalore. Budget Estimates 2010-11
- A new MLR workshop of 250 coach capacity to - Freight loading targeted at 944 MT – an increment
be set up at Anara (Adra). of 54 MT; number of passengers likely to grow by
- Five state-of-the-art wagon factories to set up at 5.3 %.
Secunderabad, Barddhaman, Bhubaneshwar/ - Gross Traffic Receipts estimated at Rs.94,765
Kalahandi, Guwahati and Haldia under PPP/JV crore, i.e., Rs.6490 cr more than 2009-10.
mode. - The dividend payable to general revenues kept at
- Two workshops for POH of high axle load Rs.6608 crore.
wagons to be set up in Maharashtra and - Budgeted operating ratio 92.3%.
Dankuni.
- Kisan Vision Project initiated at six locations, Annual Plan 2010-11
namely Dankuni, Mechheda, Nasik, New - Highest ever Plan Outlay at Rs.41,426 cr., an
Jalpaiguri, New Azadpur and Singur as pilot increase of Rs.1142 cr over 2009-10.
Y New Lines – Rs.4411cr.
projects.
Y Passenger Amenities – Rs.1302 cr.
- To set up a refrigerated container factory on PPP
Y Metro Projects – Rs.1001cr.
mode at Budge Budge.
- Aquisition of 18000 wagons.
- Additional budgetary support of Rs.3701 cr
Freight Business sought for 11 National Projects.
- A modified wagon investment scheme for high - Surveys for 114 socially desirable projects
capacity general purpose and special purpose connecting backward areas to be taken up.
wagons to be introduced. - 54 Surveys for new lines, 2 for gauge conversion,
- Private operators to be permitted to invest in 7 for doubling and 5 others to be taken up.
infrastructure and run special freight train. - Master Plan for the development of rail
- To set up automobile and ancillary hubs at 10 infrastructure in the Northeast region to be drawn
locations. up in consultation with the Northeast Development
Council and the state authorities concerned.
Carbon Footprint - 1021 km of New Lines to be completed. 9 new
- Railways to distribute 2.6 million CFLs to railway new line projects announced.
employees. - 800 km of gauge conversion and 700km of
- To introduce ten rakes with green toilets and doubling targeted.
install on diesel locomotives a GPS-based - Several projects being taken up on cost sharing
optimised driver guidance system. basis with State Governments and on PPP mode.
- To set up 10 Rail Eco-parks to conserve, protect
Concessions
and promote Railways’ wetlands and forest areas.
- Technicians of regional film industry when
travelling for film production related work to be
Other Projects eligible for 75% concession in Second Sleeper
- Preliminary Engineering-cum-Traffic Survey and 50% concession in higher classes in all trains.
(PETS) to be taken up for north-south, east-west, - Cancer patients going for treatment to get 100%
east-south and south-south DFCs. concession in 3 AC and Sleeper Class
- Six high speed passenger corridors identified, to - 50% concession to spouse of the correspondents
be executed through PPP mode. To set up a extended to the companion of those
National High Speed Rail Authority for planning, correspondents who do not have a spouse, and
standard setting, implementing and monitoring dependent children up to 18 years.
these projects. - Service charge on e-tickets to be reduced to
- To provide rail link between Akhaura on Rs.10 for Sleeper Class and Rs.20 for AC Class.
Bangladesh side and Agartala on Indian side. - Reduction of Rs.100 per wagon in freight charges
- To new Railway projects viz., Jogbani (India) – for food-grains for domestic use and kerosene.
Biratnagar (Nepal) new line and Jaynagar (India)
– Bijalpur (Nepal) gauge conversion with extension New Suburban services
- 101 new suburban services to be introduced in
upto Bardibas (Nepal) have been taken up to
Mumbai area.
improve transport infrastructure between the two
- More services to start in Chennai and Kolkata
countries.
areas.
Special Trains - Special tourist trains called “Bharat Tirth” to start
- Sanskriti Express to run across the country to on 16 routes.
mark the 150th birth anniversary of Kabiguru - 6 long route Duronto trains and 4 short distance
Rabindranath Tagore. It is also proposed to take Duronto day trains to be introduced.
this train to Bangladesh.
- Ladies special trains to be renamed as Other New Train Services
‘Matrabhoomi specials’. - 54 new train services to be introduced.
- 3 unreserved trains named as ‘Karambhoomi - 28 new passenger train services, 9 MEMU and 8
trains’ to be introduced. DEMU services to start.
- A new weekly express train service - Extension of 21 trains and increase in frequency
‘Janmabhoomi express’ to start between of 12 trains announced.
Ahmedabad and Udhampur.
OVERVIEW OF INDIAN ECONOMY
The Indian Economy Part 2:
INDIAN ECONOMY AT AGLANCE
Salient Features of Indian Economy in the Pre-
Independence Era. • Illiteracy
(Literacy – 64.8% - 75.3% male and 53.7%
1. Agrarian economy (70% GDP from Agri. in 1947) female literates)
2. Food-deficient • Low HDI – 134
3. Colonial exploitation (Calculated using Life expectancy at birth,
4. Zamindari system primary education, Per capita income)
5. Traditional industries (Cotton Textiles – low value- • Low level of technology and productivity
addition) • Poverty
• 46% of children suffer from malnutrition.
Part 1: • High savings and low capital formation
Historical Overview
INDIAN ECONOMY AT AGLANCE
Characteristics of Indian Economy from 1947 to 1991
→ Pre-Liberalisation, Privatisation & Globalisation • Low per capita income
(LPG) Era. • Over sized population (1.38% growth)
• Dependence on primary production
• Resource poor economy • 72.25% live in villages
• Role of investment for the Government • High density of population – 324/sq.km
• Socialistic thinking • High rate of un employment
• 5 yr plans – License Raj • Improper distribution of wealth
• Sellers market
• No pressure on manufacturer to improve quality Part 3:
• Ready market – no price for innovation Sector-wise Analysis
Pre-LPG The 3 sectors of Economy

• Primary – agriculture, forestry, fishery, animal
• Sellers market created corruption, inefficiency husbandry
and obsolescence
• Secondary - mineral, power, mining,
• Lack of customer service manufacturing industries.
• Monopoly • Services - transport, trade, communication, banking,
• Inward looking economy other services
• Few luxuries
• Feeling of shortage in the economy Distribution of GDP
• Huge trade deficit 20%
• Forex reserves - $1 bn
Economic reforms from 1991 in a Nut Shell

st
1 Generation Reforms 19%
61%
• De – License
• Import liberalization Agriculture Manufacturing Services
• Reform Taxation – Direct & Indirect
• Forex norms – Allowed FII & FDI
• Stock Exchange reforms – SEBI
• Banking sector reforms
Distribution of Workforce
• RBI relaxes controls
28%
nd
2 Generation Reforms
• Infrastructure
• Telecom reforms
• Insurance – GIC & LIC 60%
12%
• Labour law reforms
• Disinvestment
• Power sector reforms Agriculture Manufacturing Services
Agriculture Sector Overview Weaknesses
• Growth rate of 2% approximately • State disparity
• Green Revolution helped to achieve self
• Distortion of production by subsidies
sufficiency in food.
• Financing at usurious rates by local moneylenders
• Blue, White, Yellow Revolutions increased the
production of marine products, milk and oil seeds. • Low remuneration to farmer – middleman
• 43% land arable
• 60% of arable land - monsoon dependent Opportunities
• Minimum Support Price, (MSP) on pulses,
oilseeds, sugarcane to help farmers • Horticulture
• Organic Farming
Main Crops • Fisheries
• Packaged / processed farm products
• Rice • Productivity improvements
• Wheat • Use of IT / Communications
• Coarse cereals – Jowar, Bajra etc.
• Oilseeds Industrial Sector Overview
• Sugarcane
• Growth rate of 8% approximately
Main Exports • Size: <20% of Chinese industry.
• Rice • Huge unorganised sector: 100 + times size of
• Cashewnuts organized sector
• Tea
• Coffee Main Industries
• Horticulture products
• Textile
Main Imports • Synthetic Fibres
• Mineral products
• Vegetable oil • Chemicals
• Pulses • Automobiles + Components
• Cement
Strengths
• Machinery and equipment
• Huge arable land area
• Diverse soil types, climate Main Exports
• Huge labour force
• Government focus, subsidies • Gems and Jewellery
• Petroleum Products
Weaknesses • Textiles
• Engineering goods
• Fragmented land holdings
• Chemicals
• 59% of holdings are marginal (<1 hectare)
• 21% of holdings are small (1–2 hectare) • Leather goods
• Low productivity Main Imports

• Average yield is 2890 kg per hectare which
is much lower than China, Japan • Crude oil
• NPK abuse • Machinery
• Uncut gems
• Monsoon dependence
• Fertilizers
• 60% arable land without irrigation
• Chemicals
Weaknesses
Strengths
• Sharecropping, landless labour
• Seasonal and disguised unemployment • Huge, low-cost labour force
• Poor infrastructure • Educated, skilled workforce
• Electricity • English Language Skills
• Roads and transport • Good Managerial Skills
• Farm Mechanisation • Variety of raw materials available
• Strong Economy
• Illiteracy
• Stable Polity
• Low awareness about improved methods /
products
Weaknesses Important Areas
• Lack of infrastructure • Second largest scientific and technical manpower

• High cost of utilities • Among 10 largest retail markets
• Red tape • One of the biggest exporter of commercial services
• Cascading effect of indirect taxes
Strengths
• High cost of finance
• Tardy Judicial System
• Huge educated labour force:
Opportunities • Low labour cost:
• Outsourcing to India can result in 50-60% savings
• Drugs & Pharmaceuticals for foreign companies
• Transport • Less capital – intensive than manufacturing
• Biotechnology • Inherent advantages in tourism, health industries
• Automobiles + Components
Weaknesses
Services Sector Overview
• High attrition rates in IT and BPO industry
• High growth rate • Lack of world – class infrastructure
• Growth largely fuelled by IT and BPO industries • Low investment in R&D + Education
• Concentration in urban areas
• STPs in Gurgaon, Bangalore, Hyderabad, Mumbai Opportunities
Key Sectors • Health – Medical Tourism / Wellness

• Hospitality
• Hotels + Tourism
• Off – shore Consultancy
• Transport
• Retail
• Communication
• KPOs
• Financial services
• ITES
• BPO
ECONOMIC & BUSINESS GLOSSARY
Absolute Monopoly Balance of Trade
Means the control of the entire output of a commodity Refers to the relationship between the values of
or service, for which there exists no substitute, by a a country’s imports and exports, i.e., the ‘visible’
single producer or supplier. This kind of situation balance. These items only form a part of the balance
rarely arises in real life. It is also known as pure of payments, which also get influenced by
monopoly or perfect monopoly. (1) ‘invisible’ items and
(2) movement of capital.
Administered Prices
Barter
A price set not by the force of demand and supply but
Refers to the method of exchanging goods and
by some authority like the government or a regulatory
services directly for other goods and services without
authority.
employing a separate unit of account or medium of
exchange.
Ad Valorem Tax
Bear
A duty, which is imposed on commodities in
proportion to their value i.e., a duty, which is A bear is a speculator who sells securities in
expressed as a percentage and not a flat amount. anticipation of a fall in prices of securities.
Appreciation Black Market
An increase in the value: Any illegal market which has been established in a
(1) of stocks and shares when their prices rise on the context where prices have been fixed at minimum or
stock exchange; maximum level, usually by government. Thus, when
(2) of a currency when its value increases in terms of maximum prices have been fixed, trading may occur
other currencies; at prices above the maximum.
(3) of stocks held by manufacturers and merchants
during a period of rising prices. Blue Chip
Arbritrage A consistently growing company both in terms of
profit as well as market share is called a blue-chip
It is a speculative activity. It seeks to make profit out company.
of differences in prices of a security in two markets. If
the price of a certain share is higher in one market Blue Collar Jobs
than in another, the speculator will purchase them in
the cheaper market and sell in the dearer market. Persons who are unskilled and depend upon manual
labour are said to be engaged in blue collar jobs.
Backward Integration
Blue Chip Rate
The expansion of a business which takes the form of
acquiring control over firms supplying it with its raw Refers to the lowest interest rate payable by
materials. borrowers having the highest credit rating.
Backward Linkage Book Value
Refers to the relationship between an industry or firm In its balance sheet a company may value assets in
and the suppliers of its inputs. A change in the output the form of asset investments at the prices shown in
of the industry will get transmitted backwards to the its books, namely the prices at which they were
suppliers of its inputs by changing the demand for purchased, even though their current price on the
inputs. stock exchange may be higher or lower.
Balanced Budget Boom
Refers to a period of expansion of business activity. It

A budget is said to be a balanced budget when
is opposite of slump or recession. A boom reaches a
current income equals to current expenditure.
peak when the economy has been working at full
capacity.
Balance of Payments
Brain Drain
Refers to the relation between the payments of all
kinds made from one country to the rest of the world Means the migration of educated and skilled labour
and its receipts from all other countries. from poorer to richer countries.
Brand Capital
A brand is a name, term, sign, symbol, or design, or Capital is one of the factors of production and has
a combination of them, intended to identify the goods been defined as wealth used in the production of
or services of one seller or group of sellers and to further wealth. For business purposes, capital
differentiate them from those of competitors. generally has to be considered in terms of money.
Break-Even Capital Employed, Return On
Carrying on business in which neither profit nor loss The relation of profit to the estimate of average
is made. capital employed to yield a ratio, commonly called the
primary ratio, as follows:
Broker Pr ofit
Primary ratio =
Capital
One who buys and sells bonds and other financial
assets. He is employed by other people on account of
Capital Gain
his knowledge of market conditions and procedures
and because of his expert knowledge of the
Refers to the difference between the purchase price
commodity dealt in. A Broker is usually paid
of an asset and its resale price at some later date,
commission for his services, known as ‘brokerage’.
where that difference has been positive.
Brokerage
Capital Goods
A fixed cost which is charged by the broker for
Goods which are made for the purpose of producing
arranging investments, encashment of bonds and
consumer goods and other capital goods, e.g.
other financial assets.
machinery of all kinds. This term is synonymous with
‘producers’ goods’.
Budget
A budget is a financial statement showing the Capital Market

estimates of receipts and expenditure. The budget is
divided into two parts : (a) revenue budget and (b) A market comprising institutions which are involved in
capital budget. the purchase and sale of securities, e.g., the new
issue market and the stock exchange.
Budget Deficit
Cash Market
Budget deficit is the difference between total
revenues and total expenditure. The term used for a market for the immediate delivery
of, and payment for, commodity.
Bull
Central Excise Duties
A bull is a speculator who purchases securities in
anticipation of a rise in prices of securities. These duties are levied by the Central Government
on commodities, which are produced within the
Bullion country. But commodities on which State
Governments impose excise duties (as for instance,
Precious metals like gold or silver which have been on liquor and drugs) are exempted from Central
held in bulk in the form of ingots or bars. Excise Duties.
Business cycle C.I.F (Cost, Insurance and Freight)

Fluctuations in business conditions/economy like Term used of goods shipped where the price includes
prosperity recession depression and recovery. shipping and insurance charges. A C.I.F. quotation
implies that the seller must ship the goods, meeting
Buyers market all charges upto ‘on board’ and paying insurance and
freight.
A situation favouring buyers where supply exceeds
demand and there is an abundance of goods and Closed Economy
services.
A concept which is used mainly in theoretical models
Call – Option to describe an economy having no external trade,
Refers to a contract giving the option for buying which is completely self-sufficient and insulated from
shares at a future date within a prearranged time external processes.
limit.
Company Corporate Paper
A joint stock company is a legal entity set up for the Notes which are sold by large corporations in the
purpose of conducting commercial or industrial money market as a means of getting funds.
operations, and with a capital divided into shares,
held by members. Corporation
Conglomerate The term used for a contemporary form of business

having two distinct characteristics: it is a legal entity
A group of companies making different types of
separated from its owners, the stockholders; and it is
products. Ex: Tata Group
usually on a scale much larger for the sole proprietor
or partnership to manage or fund.
Consumer Durable
A commodity of relatively long life, like a refrigerator Cooperation

or a washing machine, as distinct from, say
Cooperation refers to the collective efforts of people
foodstuffs.
who associate voluntarily to achieve specified
objective.
Consumer Goods
Products in the actual form in which they reach Countervailing Duty

domestic consumers.
A duty imposed on imported goods where there is
evidence of an export subsidy in the country of origin
Consumer’s Surplus
which may adversely affect the domestic producers in
Means the excess of the price which a person would the importing country.
be willing to pay rather than go without an article over
that which he/one actually pays; it may be termed as Cumulative Preference Share
consumer’s rent.
A preference share which entitles the holder to
receive not only the current dividend but also any
Consumption
unpaid arrears, before any dividend has been paid to
Means the act of using goods and services to satisfy ordinary shareholders.
current wants.
Current Assets
Contango
Items such as cash, accounts receivable, marketable
securities, and inventories – assets that could be
A stock exchange term meaning carry-over. A broker
turned into cash at a reasonable predictable value
who wishes to postpone settlement of a transaction to
within a relatively short time period (typically, one
the following account may do so on payment of
year).
interest on the sum due. The term ‘Contango’ is also
used to mean the extra payment itself.
Current Liabilities
Contraband Debts, such as accounts payable, short-term loans,
and unpaid taxes, that will have to be paid off during
Goods brought into a country illegally without paying the current fiscal period.
customs duty.
Customs Duties
Contract
These are taxes on imports.
An agreement, oral or written whereby one party
undertakes to do or not to do something for the other Debenture
party to the contract.
It is a long term loan taken by a company
Convertibility
Deficit
Refers to the freedom to exchange any currency for
Refers to a situation where outgoings exceed income
another currency at the current exchange rate.
on an ongoing basis, or where liabilities exceed
assets at a specific point in time.
Corporation Tax
Deflation
It is a tax on the company’s profit. It is a direct tax
which is calculated on profits after interest payments Deflation is the reverse case of inflation. Deflation is
and allowance (i.e., capital allowance) have been that state of falling prices which occurs at that time
deducted but before dividends are allowed for. when the output of goods and services increases
more rapidly than the volume of money in the Dividend Warrant
economy. In the deflation the general price level falls
and the value of money rises. A draft issued by a limited company and made
payable to a shareholder for the amount of dividend
Demand due to him for a stated period.
By demand is meant the quantity of a commodity that Dock Warrant

will be bought at a particular price and not merely the
desire for a thing. Generally at a high price, less will A receipt for goods stored in a warehouse; it entitles
be bought than at a low price. the holder to take possession of the goods.
Demurrage Downsizing
A penalty imposed for delay in taking delivery of Reducing the number of employees to increase
goods. profits or for survival.
Depository Dumping
An organization which holds securities and settles Means the sale of a good in a foreign market at
trade by recording change of ownership. a price below its marginal cost. Selling below cost
price to capture a market.
Depression
Duopoly
A severe and prolonged recession leads to a
depression. A form of imperfect competition where there are only
Ex: The 1929 Great Depression in the USA. two producers of a commodity. Such a situation can
be given to cut-throat competition of a particularly
Depreciation irrelevant type, and to prevent both parties being
ruined by it, they may agree to share the market,
Reduction in the value of good by wear and tear. perhaps on a territorial basis, each agreeing not to
compete against the other in its share of the market.
Derivatives
Duopsony
Any form of security such as option contracts which
are derived from ordinary bonds and shares. Refers to a market situation in which there are only
Derivative instruments can be bought or sold on stock two buyers of a particular goods/service.
exchanges or future exchanges.
Economic Growth
It is a generic term for options, futures and swaps.
The rate of expansion of the national income or total
Most of the business is over the counter and involving
value of production of goods and services of a
a lot of risk.
country.
Direct selling Economies of Scale
Selling directly from the producer/manufacturer to the Refers to the reduction in the average cost of a
end user eliminating middlemen. product in the long run, resulting from an expanded
level of output. They are also known as ‘long run
Disinflation increasing returns’.
A mild form of deflation. A policy adopted to check Elasticity
inflation by restricting demand.
The degree of responsiveness of demand or supply
Disposable Income to a change of price. Elasticity may be defined as a
measure of the percentage change in one variable in
Earnings which remain after paying income and other respect of a percentage change in another variable.
taxes and other mandatory payments. It can be
regarded as similar to “Take home pay”. Elasticity of Demand
Dividend Means the response of demand to a change in the

price of commodity. If the price rises, the amount
In the case of limited companies, the rate of dividend demanded normally decreases.
is the amount of distributed profit as a percentage of
the nominal value of the share capital to which it Elasticity of Supply
relates. Dividends are usually declared annually but Means the response of supply to a change in the
many companies pay something on account as an price of commodity. If the price rises, the quantity
interim dividend. demanded normally increases.
Entrepreneur non-debt capital receipts. It represents the total
amount of borrowed funds required by the
The term used for the organizing factor in production. Government to completely meet its expenditure.
Entrepreneurs are responsible for such economic
decisions as what to produce, how much to produce Fiscal Policy
and what method of production to adopt.
Generally refers to the use of taxation and
Entrepot government expenditure for regulating the aggregate
level of economic activity.
Importing goods for the purpose of exporting
Ex: Singapore Fixed Assets
Equity Includes the monetary value of the company’s plant,

equipment, property, patents, and other items used
Another name for ownership; often used to describe on a continuing basis to produce its goods and
a share in a company. services.
Exchange Fixed Cost
Exchange is the act of obtaining a desired product Refers to the production costs which tend to be
from someone by offering something in return. unaffected by variations in the volume of output.
Excise Duties Floor Price
Taxes on home produced goods to raise revenue, as The minimum price level below which a firm can no
distinct from customs duties which are taxes on longer realise a profit.
imports not primarily imposed to raise revenue.
Excise duties may be imposed either to raise revenue F.O.B. (Free on Board)
or to check the consumption of the commodities on
which they are imposed. Term used of goods shipped where the price does not
include shipping and insurance charges; opposite to
Export C.I.F. An F.O.B. quotation implies that the exporter
will deliver the goods free on board a ship in
The term used for a goods/service which is produced accordance with the contract at the port named; he
in one country and sold to a consumer in another. pays all expenses up to that point. From there on, the
buyer must take responsibility, paying for freight,
Face Value insurance, and all subsequent expenses
Means the nominal value, as distinct from the market Forward Market
value, of a security (bond/share). The value written on
a coin or a bank note is also termed as face value. A Forward market transaction involves a contract to
buy or sell commodities, or securities at a fixed future
Factors of Production date at a price agreed in a contract.
The resources required for production. The four
Foreign direct investment (FDI)
factors of production are Land, Labour, Capital and
Entrepreneur (Organization). Factors of production
The investment made to acquire lasting interest in
are resources required for production.
enterprises operating outside of the economy of the
investor. The FDI relationship consists of a parent
Fiduciary
enterprise and a foreign affiliate which together form
A person or a legal body acting on behalf of others a transnational corporation.
who have a beneficial interest in investment or other
property Ex: the executor of a will. Foreign Institutional Investor (FII)
Finished Goods FII means an entity established or incorporated

outside India which proposes to make investment in
Refers to the goods, which are used for the purpose the financial markets in India.
of consumption and not utilized as inputs by the firms
in the process of production. Franchise
Fiscal Deficit A type of licensing arrangement in which an

organization sells a package containing a trademark,
This is the gap between the Government’s total equipment, materials, services owned by another
spending and the sum of its revenue receipts and organization.
Franchising Income Tax
In general, franchising may be regarded as a vertical Personal income tax is levied on individuals by the
marketing system in which a manufacturer or service Central Government and the proceeds are shared
organization confers upon an individual or firm the between the Centre and the States. The income tax is
privilege of a marketing a product or service. progressive; that is, the tax rate is not uniform but
rises progressively with the rise in money income.
Free Market
Inflation
Refers to a market in which there is an absence of
intervention by government and where the process of A situation of a steady and sustained rise in general
demand and supply are permitted to operate freely. prices is usually known as inflation. Inflation is a state
in which the value of money is falling i.e., prices are
Futures rising.
Trading in shares or commodity for delivery at a later Infrastructure

date. A futures contract is for a purchase of
commodities for delivery at a date in the future. Services which are regarded as essential for the
A fixed and binding contract for a standard amount to creation of a modern economy; e.g.; power, transport,
be bought at a fixed price at a fixed future date. housing, education, health services.
GDP Intermediate Goods
(Gross Domestic Product) measures the total final The goods which find use at some point in the
outputs of goods and services produced by the production process of other goods, rather than final
country’s economy, i.e., within the country’s territory consumption.
by residents and non residents.
Inventory
Good
The raw materials, work in progress and finished
This term is used of any commodity or service for goods in organization maintained to meet its
which there is a demand, irrespective of whether it is operational needs. A term used for the quantity of
in any sense ‘good’ or ‘bad’. stock held by a business.
Grey market Invoice
A market in shares which are yet to be issued. A document used in business giving a complete
summary of a transaction involving the sale of goods.
HDI - HUMAN DEVELOPMENT INDEX
Issued Capital
TWas developed by UNDP in 1996 and
Tmeasures physical quality of life in a country The actual amount of capital issued by a company
along 3 key parameters and allotted in shares to investors. It may be the
O/LIHH[SHFWDQF\DWELUWK same or less than the authorised capital.
O1RRI\HDUVLQVFKRRO
O3HUFDSLWDLQFRPH Jobber
India ranks 134 out of 182 countries in 2009.
A jobber is an independent dealer in securities. He
Hierarchy purchases and sells securities in his own name. He is
not allowed to deal with non-members directly.
The line of authority in an organization that runs in
order of rank from top management to the lowest Labour
level of the enterprise.
All human resources which are available to society for
Horizontal Integration use in the process of production.
With reference to the structure of an industry it is the Laissez – Faire

tendency to specialize in single processes instead of
undertaking the entire production of the commodity Refers to a policy of non-interference by the State in
from start to finish. economic affairs.
Hypermarket Lateral Integration
A hypermarket is a multi-brand, multi-department This occurs when a firm branches or absorbs other
store under one roof meant to offer cost-effective businesses engaged in producing commodities
shopping for household requirements. related in same way to its own main products.
LIFO (Last In, First Out) Market Leader
This is a method of costing adopted by firms which A company which has a major market share of a
carry many items of stock of the same kind bought at product/service.
different times and at different prices as shown in the Ex: LIC is the market leader in life insurance.
books. Under the more common FIFO system, it is
Marketing
assumed that whenever an item is sold it was the first
to be purchased, whereas under the LIFO system it is Marketing is a social and managerial process by
assumed to have been purchased last. which individuals and groups obtain what they need
and want through creating, offering and exchanging
Limited Liability products of value with others.
Means the restriction of an owner’s loss in a business Market Economy

to the extent of the capital that he has invested in it.
Means an economy in which crucial economic
Line Organisation decisions and choices are made in a decentralized
manner by private individuals and firms operating
Line organisation refers to a direct chain of command through a free price-and-market mechanism.
from top to bottom. Here, the lines of direction are Equilibrium of prices and quantities are determined in
straight and vertical. Every superior has complete a market economy through the laws of supply and
demand. An economy based on free enterprise in
command over his subordinates and every
which forces of demand and supply are allowed to
subordinate is directly accountable to only one
operate freely, without any restriction.
superior immediately above him.
Market Forces
Liquidation (Winding – Up)
Refers to pressures by the free play of market supply
Refers to the process where-by the existence of a and demand, which induce adjustment in prices and /
company gets terminated, its property having been or quantities traded.
realized and distributed among its creditors and in the
event of a surplus, among its members. Market Price
Liquidation Means the price determined by the equilibrium

between demand and supply in a market period (or
It refers to the termination (or winding up) of a very short period).
registered company. Liquidation takes place because
Marketing Mix
of company’s insolvency. In liquidation, assets are
turned into cash for settling outstanding debts and for The blending of variables like product pricing
apportioning the balance, if any, amongst the owners. promotion and distribution to form a marketing
strategy.
Management
Matrix Structure
The process of planning, organizing, leading, and
controlling the work of members of an organization An organizational structure in which each employee
and of using all available organizational resources to reports to both a functional or division manager and
reach stated organizational goals. to a project group manager.
Manpower Maturity
Means the date on which a loan or bond or debenture

In ordinary language, manpower means the working becomes due and is to be paid off i.e., the capital
population of a country. In economics, manpower refunded.
means the organisation of work force for its utilization
in different sectors of the economy. Merger
Market Means a union of two or more firms in a transaction
by which one absorbs the other(s), or a new firm gets
A market consists of all the potential customers created utilising the assets of the absorbed firms.
sharing a particular need or want who might be willing
and able to engage in exchange to satisfy that need Mixed Economy
or want. In non-marketing terms the function of a
market is to enable an exchange of goods or services It refers to that economic system in which both private
to take place, a means by which buyers and sellers and public sector co-exist. Indian economy is an
are brought into contact with one another. example of a mixed economy.
Most Favoured Nation Paid – Up Capital
An agreement between two countries that each will That part of the issued capital, which is paid up by the
offer the best possible trade terms in commercial shareholders. The actual amount of capital that
contracts. shareholders have subscribed. It may be less than
the authorised capital.
MNC (Multi National Corporation)
Paid – Up Shares
A large corporation with operations and decisions
spread over several countries but controlled by a
Shares are fully paid – up when the full amount has
central headquarters.
been paid. Sometimes shares are only partly paid –
up, the company being able to call for the balance to
National Income
be paid whenever it requires this additional capital.
In the simplest way it can be defined as ‘factor
income accruing to the national residents of a Paradox of Value
country. It is the sum of domestic factor income and
net factor income earned from abroad. Net national Means paradox on which an essential to life item,
product at factor cost is called National Income. such as water is normally valued little, but a luxury
item, such as diamonds, carry a high price.
NAV (Net Asset Value)
Par Value
The value of a fund’s investment. For a mutual fund,
the net asset value per share usually represents the Means the nominal or face value of a share or
fund’s market price. security.
Net Book Value

Planned Economy
A statement of the value of fixed assets which is used
in accounting. The appropriate amount of An economy where crucial economic processes are
depreciation is deducted from the original cost of determined to a large extent not by market prices, but
purchase of the asset to give its net book value. by an economic planning body.
Net Profit Planning

Means gross profit minus deduction of tax payments Planning, a primary function of management, implies
and depreciation provisions. looking ahead and deciding in advance what to do,
when to do it, how to do it and who is to do it.
Net National Product (NNP)
When depreciation is deducted from GNP i.e., Gross Planned obsolescence

National Product, we get Net National Product (NNP).
A marketing strategy to encourage replacement of old
Niche models or styles by introducing new models or styles.
A narrow specialized market. Point of purchase display
Option A display at a place closely associated with purchase

decisions like check out counter. The display
An option to sell or purchase within a period. stimulates impulse buying.
Open Economy Predatory Pricing

An economy, which is engaged in international trade. Means the practice of diminishing prices down to
The degree of openness of an economy is unprofitable levels for a period, so as to weaken or
appreciated by the rise of its foreign trade sector eliminate existing competitors.
relative to its gross domestic product.
Premium
Over Draft
Securities are said to be ‘at a premium’ when they
A loan limit in a current account. stand above par on the stock exchange.
Overheads Price
Costs which are not directly chargeable to any unit Refers to the value of a commodity or service in
produced. They include rent of premises, salaries of terms of money. Also it is the amount of money that
salesmen, research, etc., has to be paid for a commodity or service.
Price Discrimination Pyramid/Ponzi
Refers to the charging of different prices to different An illegal system of paying off old investors with new
groups of individuals for the same goods or services investments. A constant stream of new investments is
for reasons not associated with difference in costs. needed for the success of this “model”.
Primary Deficit Rate of Return
The primary deficit is the fiscal deficit minus interest Refers to the basis of earnings from the investment of
payments. It tells how much of the Governments capital, where earnings are expressed as a proportion
borrowings are going towards meeting expenses of the outlay.
other than interest payments.
Rate of Turnover
Primary Industry
The number of times the value of the average stock
Refers to the production of goods from agriculture, of a business is sold during a period.
forestry and fishing, mines that constitute the natural
wealth of a nation. Recession
Producers’ Goods Slowing down of the economy over a period of two

to three quarters. [Many countries are currently in
Refers to goods made for the purpose of producing
Recession]
consumer goods and other capital goods e.g.
machinery of all kinds. This is synonymous with
Reinsurance
capital goods.
Insurers passing on parts of the risk to other parties in
Product
return for a proportional share of premium
A product can be defined as anything that can be
offered to satisfy a need or want. The term ‘Product’ Sandwich Boards
can be used to cover both ‘goods and services’.
Boards carried in front of and behind a person to
Productivity carry advertisements
Means output per unit of input employed. Sandwich Man
Profit Margin A man who carries sandwich boards to carry

advertisements.
Refers to profit per unit of output which is expressed
as a percentage of price. Scab (also called blackleg)
P – Notes A scab is a worker who goes on working when there

is a strike.
A system by which certain overseas entities can
invest in India’s capital markets. Also termed as Schedule
overseas derivative instruments [ODI’S].
A schedule specifies time limits within which activities
Profit are to be completed. It is the process of establishing
a time sequence for the work to be done.
Total Revenue less all costs and expenses.
Scientific Management
Promotion mix
Using advertising, publicity, sales promotion and “It is the art of knowing exactly what you want men to
personal selling to communicate, inform and sell do and then seeing that they do it in the best and
goods and services to the consumer. cheapest way”. (F.W. Taylor)
Purchasing Power Parity (PPP) Sellers market
An exchange rate between two currencies such that Demand exceeds supply. The situation favours a
the same basket of goods and services could be seller.
bought in each country if the cost were converted at
that exchange rate. Shell Company
It is often used to compare the standards of living A company listed in the stock exchange but which
between countries. does not trade.
Span of Control Synergy
The number of subordinates reporting directly to a given The situation in which the whole is greater than its
units. In organizational terms, synergy means the
Spin Off
departments that interact cooperatively are more
A secondary product developed from the main product. productive than they would be if they operated in
superior. Also called span of management control. isolation.
Spot Tax havens
One common meaning is immediate or now. Buying A financial off shore centre that offers a more
something for immediate delivery. Ex: a spot market favourable tax environment to non-residents. One of
for oil Other variations of the use of spot are spot the attractive features is the maintenance of strict
cash, spot price and spot rate. secrecy regarding the name of the account holder.
Spot Price or rate Taxes

• Direct Taxes
Price or rate for something which is delivered Direct incidence of tax on the person who pays
immediately. the tax. liability to pay tax is NOT passed on to
someone else. e.g. INCOME TAX, CORPORATION
Staffing TAX, WEALTH TAX, LAND REVENUE, GIFT TAX
etc….
Staffing is the process of filling all positions in the
organisation with adequate and qualified personnel. It • Indirect Taxes
consists of manpower planning, recruitment, Levied on goods and services. traders / producers
selection, training, compensation, integration and pay it. Liability passed on to end customer. e.g.
maintenance of employees. VAT, EXCISE TAX, CUSTOMS DUTY, SERVICE
TAX…
Stag
Traded Options
A speculator who buys a large amount of a new issue
of shares or stock if he thinks the price is likely to rise Options to buy or sell shares at a certain price at a
above the offer price when dealings in it begin on the certain date in the future which themselves can be
stock exchange, so that he hopes to sell soon at bought or sold.
profit.
A person who buys new shares and sells them Turnover
immediately to make a profit.
Total sales of a business during a particular period.
Start-Up
Universal Service Obligation
Business founded by individuals intending to change
the environment of a given industry by the A fund created by imposing a cess on telecom
introduction of either a new product or a new companies to recover part of the costs incurred by the
production process. Government for extending telecom network in rural
areas.
Stock Exchange
V.A.T (Value – Added Tax)
A highly organised market for dealings in stocks and
shares. Only members are admitted and business is A tax levied on the value of each of the processes
transacted according to a prescribed set of rules. An carried out by a business.
investor who wishes to sell or buy securities must act
through a broker. Variable Costs
Strategy Expenses that vary directly with the amount of work

being performed.
A strategy may be defined as an administrative
course of action designed to achieve success in the
Vendor
face of difficulties.
Commonly known as supplier. An individual or
Strategic Planning business who sells goods to other business.
Strategic planning is long term in nature. Strategic
Wash Sales
planning is formulated mainly at the top level of
management. It has mainly an external focus as it is It is a transaction in which a speculator sells a
designed to achieve the organisational objectives in security and then buys it at a higher price through
the face of challenges and opportunities. another broker. This will create an impression that
there is great demand for that security. As a result, Yield
people may be induced to purchase them at a very
high price. The return on a security, based on its current
earnings in relation to its current price on the stock
Wear and Tear exchange. Money produced as a return on an
investment.
The depreciation of the value of a thing as a result of
ordinary usage as distinct from damage resulting from 80–20 Principle
negligence or accidental causes.
A rule of thumb stating that 80% of a firms business is
Wind Up generated by approximately 20% of its customers.
To bring a limited company to an end either

voluntarily or by order of the court.

Banking Terminology

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Banking Terminology

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BANKING TERMINOLOGY

Account rate of interest at which the central banks lends

Balance Sheet A loan made by a bank for a short period to make up

Bank Credit Call Money

The funds deposited in bank accounts. In reality they Capital Asset

Certificate of Deposit (CD) Crossing

A cheque is a bill of exchange drawn on a specified Deed

An additional security in addition to the personal Demand Draft

One who makes out or writes the cheque. Letter of Credit

Drawee A document which is issued by a bank on behalf of a

Money which the State declares to be legal tender. Liabilities

Finance Refers to any claims, actual or potential, of an

Hypothecation Liquid Assets

Negotiable Instrument A transaction where funds are borrowed through the

Pass Book The crisis in the financial services sector starting in

iv. Regional Rural Banks: Under the chairmanship Bank Country

Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.com website : www.time4education.com SM501003/7

4. Non-Banking Finance Companies (NBFCs) with

SARFAESI Act: Recommendation of the Narasimham Committee:

4. It suggested the urgent need to review and

Annexure – 2 Real time Gross Settlement (RTGS): This

(d) Impetus to the food processing sector Inclusive Development

Skill development Social Welfare

- Mahila Kisan Sashaktikaran Pariyojana to meet Security and Justice

Commitments Fulfilled Culture and Heritage

Pre-LPG The 3 sectors of Economy

Economic reforms from 1991 in a Nut Shell

• Low productivity Main Imports

• Lack of infrastructure • Second largest scientific and technical manpower

Key Sectors • Health – Medical Tourism / Wellness

Backward Linkage Book Value

Balanced Budget Boom

Refers to a period of expansion of business activity. It

Break-Even Capital Employed, Return On

A budget is a financial statement showing the Capital Market

Business cycle C.I.F (Cost, Insurance and Freight)

Conglomerate The term used for a contemporary form of business

A commodity of relatively long life, like a refrigerator Cooperation

Products in the actual form in which they reach Countervailing Duty

By demand is meant the quantity of a commodity that Dock Warrant

Dividend Means the response of demand to a change in the

Equity Includes the monetary value of the company’s plant,

Exchange Fixed Cost

Excise Duties Floor Price

Finished Goods FII means an entity established or incorporated

Fiscal Deficit A type of licensing arrangement in which an

Trading in shares or commodity for delivery at a later Infrastructure

GDP Intermediate Goods

Grey market Invoice

With reference to the structure of an industry it is the Laissez – Faire

Hypermarket Lateral Integration

Means the restriction of an owner’s loss in a business Market Economy

Liquidation Means the price determined by the equilibrium

Means the date on which a loan or bond or debenture

Net Book Value

Net Profit Planning

When depreciation is deducted from GNP i.e., Gross Planned obsolescence

A narrow specialized market. Point of purchase display

Option A display at a place closely associated with purchase

Open Economy Predatory Pricing

Primary Deficit Rate of Return

Producers’ Goods Slowing down of the economy over a period of two

Means output per unit of input employed. Sandwich Man