General Awareness

General Terms Associated Banking and Financial Sector

 

Repo Rate-Repo rate is the rate at which our banks borrow Money from RBI on the short term basis. Whenever the banks have any shortage of funds they can borrow it from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.

 

Reverse Repo Rate-This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) accepts deposits from banks. RBI uses this tool when it feels there is too much money floating in the banking system. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates thereby decreasing the availability of the funds with the Banks or rise in the deposit rates of the Bank .

 

Bank Rate - Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply. Bank rate is charged on the long term advances of RBI to Commercial Banks.

CRR - Cash reserve Ratio (CRR) is the percentage of the deposits that a bank has to keep with RBI in terms of CASH. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks or the Market.

SLR (Statutory Liquidity Ratio) is the percentage of the deposits that a bank has to keep with itself  in terms of of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers.

SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.

BPLR – Benchmark Prime Lending Rate: The Prime Interest Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). The rate is almost always the same amongst major banks. Adjustments to the prime rate are made by banks at the same time; although, the prime rate does not adjust on any regular basis. BPLR is also sometime referred to as PLR. Now BPLR has been replaced by BASE Rate. (Decided by the Bank itself)

 

Base Rate: Base rate is the minimum rate of interest that a bank can charge from its customers. In a way it tells about the cost of funds to the Bank. It includes repo rate paid by bank to RBI, Administrative costs along with the NPAs of last year. It is decided by the bank itself and is different for different banks.

Policy Rates as on 31-12-2011(Decided by RBI)

 Bank Rate: 6.00%

 Repo Rate: 8.50%

 Reverse Repo Rate: 7.50%

Reserve Ratios as on 31-12-2011(Decided by RBI)

 CRR: 6.00%

 SLR: 24.0%

Lending/Deposit Rates as on 31-12-2011:

Base Rate 10.00-10.75% Decided by Bank

Savings Bank rate 4%.Decided by RBI

 

Inflation - Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are fewer Goods and more buyers; this will result in increase in the price of Goods, since there is more demand and less supply of the goods.

Inflation is measured in terms of WPI – Wholesale Price Index taking the base year to be 2004-05 taking 676 items into consideration.

Deflation - Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period.

Priority Sector Lending: All the banks earn from their operations in the Society. So there has to be certain responsibilities of the bank toward the society. Priority sector lending is one such initiative of to fulfill that cause. There are 6 areas defined under priority sector lending where the banks are supposed to lend money on relatively lower rates as compared to BPLR. The six sectors specified for priority sector lending are Agriculture, Education, Vehicles, Housing, MSMEs (Micro Small and Medium Enterprises) & Weaker sections of the society. As per the guidelines a Bank should provide at least 40% of its total advances in the priority sector lending with advances in agriculture sector not less than 18% of the total advances of the Bank. 

FII (Foreign Institutional Investor)  used to denote an investor, mostly in the form of an institution. An institution established outside India, which proposes to invest in Indian market, in other words buying Indian stocks. FII’s generally buy in large volumes which has an impact on the stock markets. Institutional Investors includes pension funds, mutual funds, Insurance Companies, Banks, etc.

FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or a significant amount of ownership (stock) of a company in another country in order to gain a measure of management control” (Or) A foreign company having a stake in an Indian Company.

IPO is Initial Public Offering This is the first offering of shares to the general public from a company wishing to list on the stock exchanges.

Disinvestment -The Selling of the government stake in public sector undertakings.

Fiscal Deficit -  It is the difference between the government’s total receipts (excluding borrowings) and total expenditure. Fiscal deficit in 2011-12 is proposed at 4.6% of GDP. Fiscal deficit is managed under the act FRBM (Fiscal Responsibility and Budgetary Management Bill).

GDP - The Gross Domestic Product or GDP is a measure of all of the services and goods produced in a country in a given financial year. Indian GDP can be classified into three sectors as follows.

1. Primary Sector or Agriculture sector- GDP Contribution 14.2% Employs more than 50% of population.

2. Secondary sector or Industry sector – GDP Contribution 28% Employs around 26% of population.

3. Tertiary Sector or Services Sector- GDP contribution 57.8% Employs around 20% of Population.

Per Capita: The national income of a country, or region, divided by its population. Per capita income is often used to measure a country’s standard of living .Per capita income during 2010 -11 estimated by CSO: Rs 54527 in 2010-11 from Rs 46492 in the year-ago period.

SDR: The SDR (Special Drawing Rights) is an artificial currency created by the IMF in 1969. SDRs are allocated to member countries and can be fully converted into international currencies so they serve as a supplement to the official foreign reserves of member countries. Its value is based on a basket of key international currencies (U.S. dollar, euro, yen and pound sterling).

SEZ : SEZ means Special Economic Zone is the one of the part of government’s policies in India. A special Economic zone is a geographical region that economic laws which are more liberal than the usual economic laws in the country. The basic motto behind this is to increase foreign investment, development of infrastructure, job opportunities and increase the income level of the people.

RTGS – The acronym ‘RTGS’ stands for Real Time Gross Settlement, which can be defined as the continuous (real-time) settlement of funds transfers individually on an order by order basis (without netting).’Real Time’ means the processing of instructions at the time they are received rather than at some later time.’ Gross Settlement’ means the settlement of funds transfer instructions occurs individually (on an instruction by instruction basis). Considering that the funds settlement takes place in the books of the Reserve Bank of India, the payments are final and irrevocable

NEFT

National Electronic Funds Transfer (NEFT) is a nation-wide system that facilitates individuals, firms and corporates to electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country.

IFRS - International Financial Reporting Standards (IFRS) are principles-based Standards, Interpretations and the Framework (1989) adopted by the International Accounting Standards Board (IASB).

FSLRC - Financial Sector Legislative Reforms Commission (FSLRC) was notified by the Government on March 24, 2011 pursuant to an announcement made by the Finance Minister in the 2010-11 Budget. FSLRC has been mandated to rewrite and clean up the financial sector laws, including subordinate legislations so as to bring them in harmony with the requirements of India’s fast growing financial sector.

CIBIL - CIBIL is India’s first credit information bureau. Its a repository of information, which contains the credit history of commercial and consumer borrowers. CIBIL provides this information to its members in the form of credit information reports. As on September 2009, CIBIL has an information base on over 160 million consumer trades, and 4 million commercial trades which continues to grow at a fast pace and shares credit information with its 175 member base on the principle of reciprocity. CIBIL’s members include all leading banks, financial institutions, non-banking financial companies, housing finance companies, state financial corporations and credit card companies.

CRISIL : Credit Rating and Information Services of India Ltd. (CRISIL) is India’s leading Ratings, Research, Risk and Policy Advisory Company based in Mumbai. CRISIL’s majority shareholder is Standard & Poor’s, a division of The McGraw-Hill Companies and the world’s foremost provider of financial market intelligence. CRISIL pioneered ratings in India more than 20 years ago, and is today the undisputed business leader, with the largest number of rated entities and rating products: CRISIL’s rating experience covers more than 24654 entities, including 14,500 small and medium enterprises (SMEs). CRISIL offers domestic and international customers (IREVNA, international arm and a division of CRISIL handles international customers) with independent information, opinions and solutions related to credit ratings and risk assessment; energy, infrastructure and corporate advisory; research on India’s economy, industries and companies; global equity research; fund services; and risk management.

 

CASA - Current Account, Savings Account (CASA)

KYC - Know your customer (KYC) is the due diligence and bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them. KYC is typically a policy implemented to conform to a customer identification program mandated under the Bank Secrecy Act.

CBS - Core Banking system or CBS is one of the recent developments in the field of banking, and has proved to be very useful. It is a facility provided by banks in which a person, having an account in one branch, can operate his account, in another branch. This has become possible, because each account holder is given a specialised, computerised and unique account number. In simple terms, CBS is a type of banking, in which a person, who opens a bank account in a particular branch of a bank, will be a customer of the bank, rather than being a customer of a particular branch. Therefore, he can transact anywhere, at any time.
The prime features of the CBS are that it facilitates banking operations like ATM’s, Electronic fund, Transfers, Telebanking, Internet banking etc. Moreover, introduction of new facilities and products wouldn’t be a time-consuming process, and branch clearings would become instantaneous.

CEPA – Comprehensive Economic Partnership Agreement.