Banking Awareness Current RBI Policy & Reserve Rates: Repo Rate 8% (Unchanged) Reverse Repo 7% (Unchanged) CRR 4% (Unchanged) SLR 22% (Unchanged) MSF 9% (Unchanged) Bank Rate 9% (Unchanged) Note: As on 30, Sept, 2014, RBI (Reserve Bank of India) in its fourth bimonthly monetary policy statement kept the key policy rate unchanged. Banking In India: _ Reserve Bank of India (RBI) was established in 1935 and Nationalized in 1949. _ Sir Osborne Smith was the first Governor of the Reserve Bank of India _ CD Deshmukh was the first Indian Governor of RBI. _ The Reserve Bank of India was set up on the basis of the recommendations of the Hilton-Young Commission. _ Savings account system in India was started by Presidency Bank, in 1833. _ Cheque system was first introduced by Bengal Bank which was established in 1784. _ Allahabad Bank is the oldest existing public sector bank in India. _ Hongkong and Shanghai Banking Corporation (HSBC) introduced first time ATM in India in 1987, Mumbai. _ Bank of India is the first Indian Bank to open overseas branch. It established a branch in London in 1946. _ In 1955 Imperial Bank of India became State Bank of India. _ On July 19, 1969, 14 commercial banks were nationalised in India. These included the Central Bank of India, Bank of India, Punjab National Bank, Bank of Baroda, United Commercial Bank, Canara Bank, Dena Bank, United Bank, Syndicate Bank, Allahabad Bank, Indian Bank, Bank of Maharashtra, Indian Overseas Bank and Union Bank. _ In 1980 – 6 more commercial Banks nationalized. These include - Andhra Bank , Corporation Bank, New Bank of India , Oriental Bank of Commerce , Punjab & Sindh Bank and Vijaya Bank. _ Central Bank of India was the first public bank to introduce credit card. _ Central Bank of India is the first commercial bank which was managed by Indians. _ ICICI Bank was the first Indian Bank to provide internet banking facility. _ ICICI Bank was the first Bank to provide Mobile ATM. _ Bank of Baroda has the maximum number of overseas branches. _ SBI (State Bank of India) has the total number of maximum branches and holds 2nd position in the world. _ Indias first talking Automated Teller Machine (ATM) launched by Union Bank of India (UBI) for visually impaired was launched in Ahmedabad (Gujarat). _ RBI to issue Rs 10 plastic currency notes in 5 cities: Kochi, Mysore, Jaipur, Bhubhaneswar and Shimla. Note: First plastic notes issued by Australia in 1988. _ RuPay is an Indian domestic card scheme conceived and launched by the National Payments Corporation of India (NPCI). RuPay facilitates electronic payment at all Indian banks and financial institutions, and competes with MasterCard and Visa in India. _ Indias first non-bank owned ATM (White Label ATMs) opens in Maharashtra: Tata Communications Payments Solutions Ltd, a wholly owned subsidiary of Tata Communications Ltd, opened first White Label ATM at Chandrapada in Thane district, in Maharashtra. Types of Bank Accounts in India (Deposit Accounts) Traditionally banks in India have four types of deposit accounts, namely Saving Banking Accounts, Current Accounts, Recurring Deposits and, Fixed Deposits. 1. Saving Account - Saving accounts are opened to encourage the people to save money and collect their savings. The saving account holder is allowed to withdraw money from the account as and when required. The interest on Saving Bank Accounts was fixed by RBI and it was fixed at 4.00% on daily balance basis. RBI has deregulated Saving Fund account interest rates and now banks are free to decide the same within certain conditions imposed by RBI. Features of Saving Accounts – 1. There is no restriction on the number and amount of deposits. However, in India, mandatory PAN (Permanent Account Number) details are required to be furnished for doing cash transactions exceeding _50,000. 2. Withdrawals are allowed subject to certain restrictions. 3. A minimum amount has to be kept on saving account to keep it functioning. 2. Current Account - Current Accounts are basically meant for businessmen and are never used for the purpose of investment or savings. Features of Current Accounts – (1) The main objective of Current Account holders in opening these account is to enable them (mostly businessmen) to conduct their business transactions smoothly. (2) There are no restrictions on the number of times deposit in cash / cheque can be made or the amount of such deposits; (3) Usually banks do not pay any interest on such current accounts. (4) The current accounts do not have any fixed maturity as these are on continuous basis accounts. (5) Cheque book facility is provided and the account holder can deposit all types of the cheques and drafts in their name or endorsed in their favour by third parties. 3. Recurring Desposit Account: Recurring Deposit is a special kind of Term Deposit offered by banks in India popularly known as RD accounts which help people with regular incomes to deposit a fixed amount every month into their Recurring Deposit account and earn interest at the rate applicable to Fixed Deposits. Features of RD Accounts – 1. Recurring Deposit accounts are normally allowed for maturities ranging from 6 months to 120 months 2. These accounts can be opened in single or joint names. Nomination facility is also available. 3. Rate of Interest offered is similar to that in Fixed Deposits. 4. Interest is compounded on quarterly basis in recurring deposits. 4. Fixed Deposit Account (FD) - The account which is opened for a particular fixed period (time) by depositing particular amount (money) is known as Fixed (Term) Deposit Account. The term fixed deposit means that the deposit is fixed and is repayable only after a specific period is over. Under fixed deposit account, money is deposited for a fixed period say six months, one year, five years or even ten years. The money deposited in this account can not be withdrawn before the expiry of period. Features of FD Accounts – 1. The main purpose of fixed deposit account is to enable the individuals to earn a higher rate of interest on their surplus funds (extra money). 2. The amount can be deposited only once. For further such deposits, separate accounts need to be opened. 3. Fixed Deposit Account may be opened for a minimum period of 15 days and maximum period of 10 years. 4. The minimum amount required to open a Fixed Deposit is Rs.1000. 5. Withdrawals are not allowed. However, in case of emergency, banks allow to close the fixed account prior to maturity date. In such cases, the bank deducts 1% (deduction percentage many vary) from the interest payable as on that date. About (BASIC SAVING BANK DEPOSIT ACCOUNT): Under the guidelines issued on August 10, 2012 by RBI: Any individual, including poor or those from weaker section of the society, can open zero balance account in any bank. BSBDA guidelines are applicable to all scheduled commercial banks in India, including foreign banks having branches in India. ii. The aim of introducing Basic Savings Bank Deposit Account is very much part of the efforts of RBI for furthering Financial Inclusion objectives. _ Main Points of BSBDA-Small Accounts: i. In BSBDA, banks are required to provide free of charge minimum 4 withdrawals, through ATMs ii. Total credits in such accounts should not exceed 1 lakh rupees in a year. iii. Maximum balance in the account should not exceed 50,000 Rs at any time iv. The total of debits by way of cash withdrawals and transfers will not exceed 10,000 rupees in a month v. Foreign remittances cannot be credited to Small Accounts without completing normal KYC formalities v. Small accounts are valid for a period of 12 months initially which may be extended by another 12 months if the person provides proof of having applied for an Officially Valid Document. _ ATMs: (Automated Teller Machine): The ATM debit cards, credit cards and prepaid cards (that permit cash withdrawal) issued by banks can be used at ATMs for various transactions. _ Use of ATMs of Other Banks: i. 5 free transactions are permitted per month (inclusive of financial and/or non-financial) at other bank ATMs for Savings Bank Account holders. ii. For transaction beyond this minimum number of transactions, banks charge maximum of Rs 20/ - per transaction. iii. Reserve Bank of India reduced free usage of other bank automated teller machines (ATMs) to 3 per month from 5 from November, in six metropolitan cities - Delhi, Mumbai, Chennai, Bangalore, Kolkata and Hyderabad. Reconciliation of failed transactions at ATMs i. The time limit for resolution of customer complaints by the issuing banks shall stand reduced from 12 working days to 7 working days from the date of receipt of customer complaint. ii. Accordingly, failure to recredit the customer’s account within 7 working days of receipt of the complaint shall entail payment of compensation to the customer @ Rs. 100/- per day by the issuing bank.. iii. Any customer is entitled to receive such compensation for delay, only if a claim is lodged with the issuing bank within 30 days of the date of the transaction. iv. All disputes regarding ATM failed transactions shall be settled by the issuing bank and the acquiring bank through the ATM system provider only. _ WHITE Label ATMs: ATMs which are owned and operated by non-banking companies are called White Label ATMs. Note: RBI authorised four entities to operate as WLAs namely Tata Communications Payment Solutions, Prizm Payment Services Pvt. Ltd, Muthoot Finance Limited and Vakrangee Ltd. Personal Identification Number (PIN) : A Personal Identification Number is a secret numeric password shared between user and a system that can be use to authenticate the user to the system. IFSC (Indian Financial System Code): Indian Financial System Code is an alpha-numeric code that uniquely identifies a bank-branch participating in the NEFTsystem. ii. This is an 11 digit code with the first 4 alpha characters representing the bank, The 5th character is 0 (zero).and the last 6 characters representing the bank branch. iii. IFSC is used by the NEFT system to identify the originating / destination banks / branches and also to route the messages appropriately to the concerned banks / branches. For ex: SBIN0015986 : i. First 4 character SBIN – refers to State Bank of India. ii. 0 is a control number. iii. last six characters (015986) represents the SBI branch Jail Road, Hari Nagar New Delhi. MICR (Magnetic Ink Character Recognition): MICR stands for Magnetic Ink Character Recognition. MICR Code is a 9 numeric digit code which uniquely identifies a bank branch participating in the ECS Credit scheme. MICR code consists of 9 digits e.g 400229128 i. First 3 digits represent the city (400) ii. Next 3 digits represent the bank (229) iii. Last 3 digits represent the branch (128) Note: The MICR Code allotted to a bank branch is printed on the MICR band of cheque leaves issued by bank branches. Cheque Truncation: i. Truncation is the process of stopping the flow of the physical cheque issued by a drawer at some point with the presenting bank en-route to the drawee bank branch. ii. In its place an electronic image of the cheque is transmitted to the drawee branch by the clearing house, along with relevant information like data on the MICR band, date of presentation, presenting bank, etc. iii. Cheque Truncation speeds up the process of collection of cheques resulting in better service to customers, reduces the scope for clearing-related frauds or loss of instruments in transit, lowers the cost of collection of cheques, and removes reconciliation-related and logistics-related problems, thus benefitting the system as a whole. Bancassurance: The sale of insurance and other similar products through a bank. This can help the consumer in some situations; for example, when a bank requires life insurance for those receiving a mortgage loan the consumer could purchase the insurance directly from the bank. Banking Ombudsman Scheme 2006: i. The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. ii. The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services. iii. All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme. Other Important Points: The Banking Ombudsman does not charge any fee for filing and resolving customers’ complaints. The amount, if any, to be paid by the bank to the complainant by way of compensation for any loss suffered by the complainant is limited to the amount arising directly out of the act or omission of the bank or Rs 10 lakhs, whichever is lower. The Banking Ombudsman may award compensation not exceeding Rs 1 lakh to the complainant only in the case of complaints relating to credit card operations for mental agony and harassment. If a complaint is not settled by an agreement within a period of one month, the Banking Ombudsman proceeds further to pass an award. Before passing an award, the Banking Ombudsman provides reasonable opportunity to the complainant and the bank, to present their case. If one is not satisfied with the decision passed by the Banking Ombudsman, one can approach the appellate authority against the Banking Ombudsmen’s decision. Appellate Authority is vested with a Deputy Governor of the RBI. If one is aggrieved by the decision, one may, within 30 days of the date of receipt of the award, appeal against the award before the appellate authority. Deposit insurance and credit guarantee corporation (DICGC) All commercial banks including branches of foreign banks functioning in India, local area banks and regional rural banks are insured by the DICGC. Note: Primary cooperative societies are not insured by the DICGC. DICGC insure: DICGC protects bank deposits that are payable in India. The DICGC insures all deposits such as savings, fixed, current, recurring, etc. except the following types of deposits. (i) Deposits of foreign Governments; (ii) Deposits of Central/State Governments; (iii)Inter-bank deposits; (iv) Deposits of the State Land Development Banks with the State co-operative bank; (v) Any amount due on account of any deposit received outside India (vi) Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India. Maximum deposit amount insured by the DICGC - Each depositor in a bank is insured upto a maximum of Rs.1,00,000 (Rupees One Lakh). Credit Information Bureau (India) Limited: is India’s first Credit Information Company (CIC) founded in August 2000. CIBIL collects and maintains records of an individual’s payments pertaining to loans and credit cards. Headquarter – Mumbai Coins in India Coins: The Government of India has the sole right to mint coins. The designing and minting of coins in various denominations is also the responsibility of the Government of India. Coins are minted at the four India Government Mints at Mumbai, Alipore (Kolkata), Saifabad (Hyderabad), Cherlapally (Hyderabad) and NOIDA (UP). Denominations: Coins in India are presently being issued in denominations of one rupee, two rupees, five rupees and ten rupees. Note: Coins can be issued up to the denomination of Rs.1000 as per the Coinage Act, 1906. Currency in India Currency: Banknotes in India are currently being issued in the denomination of Rs 10, Rs 20, Rs 50, Rs 100, Rs500,and Rs1000. These notes are called banknotes as they are issued by the Reserve Bank of India (Reserve Bank). Note: The printing of notes in the denominations of Rs 1, Rs 2 and Rs 5 has been discontinued as these denominations have been coinised. Bank Notes in India Contemporary Currency notes have 15 languages on the panel which appear on the reverse of the note. Soiled Notes: Soiled notes are those which have become dirty and slightly cut. Notes which have numbers on two ends, i.e.notes in the denomination of Rs.10 and above which are in two pieces, are also treated as soiled note. The cut in such notes, should, however, not have passed through the number panels. Mutilated Notes: Notes which are in pieces and/or of which the essential portions are missing can also be exchanged. Essential portions in a currency note are name of issuing authority, guarantee, promise clause, signature, Ashoka Pillar emblem/portrait of Mahatma Gandhi, water mark. Imperfect banknotes: Imperfect banknote means any banknote, which is wholly or partially, obliterated, shrunk, washed, altered or indecipherable but does not include a mutilated banknote. Security Features of Indian Banknotes Watermark Security Thread Latent Image Microlettering Intaglio Identification Mark Fluorescence Optically Variable Ink See through Register Legal provisions against counterfeiting Important Banking Terminology: 1. Basis points: It is the increase in interest rates in percentage terms. For instance, if the interest rate increases by 50 basis points (bsp), then it means that interest rate has been increase by 0.50%. One percentage point is broken down into 100 basis points. Therefore, an increase from 2% to 3% is an increase of one percentage point or 100 basis points. 2. Bank Rate: Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Base Rate / Benchmark Prime Lending Rate. Thus any revision in the Bank rate indicates that it is likely that interest rates on your deposits are likely to either go up or go down, and it can also indicate an increase or decrease in your EMI. 3. Liquidity adjustment facility (LAF) is a monetary policy tool which allows banks to borrow money through repurchase agreements. LAF is used to aid banks in adjusting the day to day mismatches in liquidity. LAF consists of repo and reverse repo operations. 4. Repo Rate: Whenever the banks have any shortage of funds they can borrow it form RBI. Repo rate is the rate at which commercial banks borrows rupees from RBI. A reduction in the repo rate will help banks to get money at cheaper rate. When the repo rate increases borrowing form RBI becomes more expensive. 5. Reverse Repo Rate: Reverse Repo rate is the rate at which RBI borrows money from commercial banks. Banks are always happy to lend money to RBI since their money is in the safe hands with a good interest. An increase in reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates. One factor which encourages an organisation to enter into reverse repo is that it earns some extra income on its otherwise idle cash. 6. CRR (Cash Reverse Ratio): CRR is the amount of funds that the banks have to keep with RBI. If RBI increases CRR, the available amount with the banks comes down. RBI is using this method (increase of CRR), to drain out the excessive money from the banks. 7. SLR (Statutory Liquidity Ratio): SLR is the amount a commercial banks needs to maintain in the form of cash, or gold, or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by RBI in order to control the expansion of the bank credit. Need of SLR: With the SLR, the RBI can ensure the solvency of a commercial banks. It is also helpful to control the expansion of the Bank credits. By changing SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in the government securities like govt. bonds. Main use of SLR: SLR is used to control inflation and propel growth. Through SLR rate the money supply in the system can be controlled effectively. 8. Marginal Standing Facility (MSF): MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities. 9. NEFT (National Electronic Fund Transfer): NEFT enables funds transfer from one bank to another but works a bit differently than RTGS. NEFT is slower than RTGS. The transfer is not direct and RBI acts as the service provider to transfer the money from one account to another. You can transfer any amount through NEFT, even a rupee. Note: Rs 50,000 is a limit in a NEFT to NEPAL in a single day. 10. RTGS (Real time gross settlement ): RTGS system is funds transfer systems where transfer of money or securities takes place from one bank to another on a real time and on gross basis. Settlement in real time means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. Minimum & Maximum Limit of RTGS: 2 lakh and no upper limit. 11. Fiscal Deficit: A deficit in the government budget of a country and represents the excess of expenditure over income. So this is the amount of borrowed funds require by the government to meet its expenditures completely. 12. Direct Tax: A direct tax is that which is paid directly by someone to taxing authority. Income tax and property tax are an examples of direct tax. They are not shifted to somebody else. 13. Indirect Tax: This type of tax is not paid by someone to the authorities and it is actually passed on to the other in the form of increased cost. They are levied on goods and services produced or purchased. Excise Tax, Sales Tax, Vat, Entertainment tax are indirect taxes. 14. NOSTRO Account: A Nostro account is maintained by an Indian Bank in the foreign countries. 15. VOSTRO Account: A Vostro account is maintained by a foreign bank in India with their corresponding bank. 16. SDR (Special Drawing Rights): SDR are new form of International reserve assets, created by the International Monetary Fund in 1967. The value of SDR is based on the portfolio of widely used countries and they are maintained as accounting entries and not as hard currency or physical assets like Gold. 17. BOND: Publicly traded ling term debt securities issued by corporations and governments, whereby the issuer agrees to pay a fixed amount of interest over a specified period of time and to repay a fixed amount of principal maturity. 18. CRAR(Capital to Risk Weighted Assets Ratio): Capital to risk weighted assets ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market risk and operational risk. 19. Non Performing Assets (NPA): An asset (loan), including a leased asset, becomes non performing when it stops generatig income for the bank. Note: Once the borrower has failed to make interest or principle payments for 90 days the loan is considered to be a non-performing asset. 20. Inflation: inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects a reduction in the purchasing power per unit of money – a loss of real value in the medium of exchange and unit of account within the economy. 21. GDP - An estimated value of the total worth of a country’s production and services, within its boundary, by its nationals and foreigners, calculated over the course on one year. Note: GDP = consumption + investment + (government spending) + (exports M imports). Total value of products & Services produced within the territorial boundary of a country. 22. GNP - An estimated value of the total worth of production and services, by citizens of a country, on its land or on foreign land, calculated over the course on one year. Note: GNP = GDP + NR (Net income inflow from assets abroad or Net Income Receipts) - NP (Net payment outflow to foreign assets). Total value of Goods and Services produced by all nationals of a country (whether within or outside the country). Credit Rating Agency in India & World Indian credit rating industry mainly comprises of CRISIL, ICRA, CARE, ONICRA, FITCH (India Ratings & Research) & SMERA. _ CRISIL - Credit Rating Information Services of India Limited, Headquarter – Mumbai _ ICRA - Investment information and credit rating agency Headquarter - Gurgaon, India _ CARE - Credit Analysis and Research Headquarters – Mumbai _ ONICRA - Headquarter - Gurgaon, India _ SMERA - Headquarters – Mumbai _ Fitch (India Ratings & Research) - Headquarters – Mumbai _ Note: CRISIL is the largest credit rating agency in India, with a market share of greater than 60%. Leading Credit Rating Agency in World – 1. Standard & Poors (S&P) – Headquarter – New York, US 2. Moodys – Headquarter - New York, US 3. Fitch - Headquarter - New York, US 4. DBRS (Dominion Bond Rating Service) - Headquarter - Toronto, Ontario, Canada 5. Egan – Jones - - Headquarter – Pennsylvania, US Regulators in India: Regulator Sectors Chairman Headquarter Reserve Bank of India (RBI) Financial system and monetary policy, Money Market Raghuram Rajan Mumbai Securities and Exchange Board of India (SEBI) Security & Capital Market, stock broking &Merchant Banking, Nidhis, Chit Fund Companies U.K. Sinha Mumbai Insurance Regulatory and Development Authority (IRDA) Insurance industry T. S. Vijayan Hyderabad Telecom Regulatory Authority of India (TRAI) Telecommunication Industry Rahul Khullar New Delhi Forward Markets Commission Commodity Market Ramesh Abhishek Mumbai Pension Fund Regulatory and Development Authority(PFRDA) Pension sector R.V.Verma New Delhi
Posted on: Fri, 12 Dec 2014 12:28:33 +0000
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