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A Brief about Banking

Banking structure in India

History of Indian Banking System

Modern commercial banking started in India with the setting up of the First Presidency Bank, the

Bank of Bengal, in Calcutta in 1809. Two other Presidency Banks were set up in Bombay and

Madras in 1840 and 1843 respectively. These were private shareholders’ banks, though the East

India company also had a share in capital of each of them. these three banks were merged into

Imperial Bank of India in 1921. The Allahabad Bank and the Punjab National Bank were

established in 1865 and 1894 respectively.

Classification of Commercial Banks

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The commercial banking institutions of the country can be divided into two groups:

(A) Scheduled Banks: Those banks are scheduled banks which have been included in the

Second Schedule of Reserve Bank Act, 1934. The banks included in this scheduled list should

fulfil two conditions:

1. The paid up capital and collected funds of bank should not be less than Rs 5 lakh.

2. Any activity of the bank will not adversely affect the interest of depositors. Every

scheduled bank enjoys following facilities:

1. Such bank becomes eligible for obtaining debts/loans on bank rate from RBI.

2. Such bank automatically acquires the membership of clearing house.

3. Such banks also get the facility of rediscount of first class exchange bills from

RBI. This facility is provided by RBI only if the scheduled bank deposits an

average daily cash fund with RBI which is decided by RBI itself and presents the

recurring statements under the provisions of RBI Act, 1934 and Banking

Regulation Act, 1949.

(B) Non-Scheduled Banks: The banks which are not included in the list of scheduled banks are

called nonscheduled banks. The number of non-scheduled banks is continuously declining. Such

non-scheduled banks also have to follow CRR conditions. But such banks can have these funds

with themselves as no compulsion has been made on non-scheduled banks to deposit CRR funds

with RBI. These non-scheduled banks are not eligible for having loans from RBI for meeting

their day-to-day general activities but under emergency conditions these banks can be granted

loans by RBI.

Co-operative Banks Co-operative banks in India also perform fundamental banking activities

but they are different from commercial banks. Commercial banks have been constituted by an

Act passed by parliament while co-operative banks have been constituted by different States

under various Acts related to co-operative societies of various states. Co-operative bank

organisation in India has three tier set up.

1. State Co-operative Bank is the apex co-operative institution in the state.

2. Central or District Co-operative Bank works as district level.

3. At the lowest level co-operative set-up is Primary Credit Agency which works at

village level.

Primary Agriculture Credit Societies These societies provide short term credit facilities to

agriculture sector. Minimum 10 persons of a village (or area) can form a primary credit society.

These societies grant short term loans (generally one year period) for productive activities but

this period can be extended upto 3 years under special circumstances.

Central (or District) Co-operative Bank The working area of these banks is limited to one

district only. Central Co-operative Bank can be divided into two parts: 1. Co-operative Banking

Union 2. Mixed Central Co-operative Bank The membership of Co-operative Banking Union is



given to co-operative societies only, while the membership of mixed central co-operative bank

can be granted to both co-operative societies and individuals.

Central Co-operative Bank plays a bridge role between State Co-operative Banks and

Primary Credit Societies.

State Co-operative Bank (SCB) It is the apex co-operative bank of the state. It grants loans to

central Co-operative Banks and regulates their activities. State Co-operative Bank gets loans

from RBI.

State Co-operative Banks and District Central Cooperative Banks are regulated by the

Rural Planning and Credit Department as RBI and supervised by NABARD.

Regional Rural Banks

Regional Rural Banks (RRBs) were established on 2nd October 1975 under the provisions of the

RRB Act 1976 with a view to develope the rural economy. Initially, five RRBs were set up in

the distrct of Moradabad and Gorakhpur (UP), Bhiwani (Haryana), Jaipur (Rajasthan)

and Malda (West Bengal).

Capital share being 50% by the central government, 15% by the state government and

35% by the scheduled bank.

RRBs are working in all states of the country except Sikkim and Goa.

NABARD gives short term and medium term loans to the RRBs.

South Malabar Gramin Bank, (SMGB) a regional rural bank (RRB) sponsored by Canara

Bank is the largest among the RRBs in the country in term of total business.

Uttar Bihar Gramin Bank sponsored by Central Bannk of India, is one of the largest regional

rural bank in india in terms of branch network, staff strength and area.

Prathama Bank, the first Regional Rural Bank of the country was established on 2nd

Otcober, 1975 with its Head Office at Moradabad in terms of the ordinance issued by the

Government of India in 1975. It was sponsored by Syndicate Bank.

Development Banks

Development banks are specialised financial institutions which perform two functions:

1. providing medium and long term finance to private entrepreneurs; and

2. performing various promotional roles conductive to economic development.



Though development banks provide finance like banks do but they are different from

commercial banks in following ways:

1. they do not seek or accept deposits from the public as ordinary banks do;

2. they provide medium and long-term finance whereas commercial banks provide short

term finance; and

3. they do not merely provide long term finance like any other term lending institution but

as development banks their main role is promotion of economic development by way of

promoting investment and enterprise in their priority areas.

Reserve Bank of India (RBI) The RBI was established under the Reserve Bank of India Act,

1934 on 1st April 1935. It was nationalised on 1st January 1949. It is the Central Bank of India.

The monetary functions of the RBI include control and regulation of money and credit, control of

foreign exchange operations: acting as banker to the Government, banker’s bank and lender of

the last resort. The non-monetary functions of the RBI are related to the promotion of sound

banking system. The RBI is instrumental in supervising branch expansion, management and

methods of working and regulation and control of the banking system as a whole.

Functions of RBI

1. Issue of Currency: The Reserve Bank has the sole right of note issue. This covers currency

notes of every denomination, other than one-rupee coins and notes and subsidiary coins which

are issued by finance ministry under government of India but their distribution is the sole

responsibility of RBI.

2. Banker to Government: The Reserve Bank acts as the banker to the Central Government as

also to the governments of the constituent units of India’s federal system. The bank has the

obligation to transact the banking business of the Government of India and accordingly performs

the following functions:

1. accepts money on account of the government;

2. makes payment on its behalf; and

3. carries out exchange remittances and other banking operations, including the

management of public debt. The bank performs similar functions on behalf of the State

Governments by virtue of agreements entered into with them.

3. Banker’s Bank: The Reserve Bank acts as a banker to other banks. Banks are required to

maintain a certain percentage of their deposits with the RBI. The minimum cash requirements

can, however, be changed by the Reserve Bank to regulate credit. The Reserve Bank also

provides finance to scheduled banks. They can borrow on the basis of eligible securities.

Besides, financial accommodation is provided in times of need or stringency in the money

market.



4. Controller of Credit: The Reserve Bank functions as the controller of credit. As such it

regulates the quantity of credit and the rate at which it is made available. Thus, it does through

the use of general and selective controls.

5. Custodian of Foreign Exchange Reserves and Exchange Management: One of the

essential central banking functions of the Bank is that of maintaining the external value of the

rupee. For this purpose it holds most of the nation’s foreign exchange reserves. Primarily this

aim is achieved by appropriate monetary and fiscal policies, but for planning in India it is being

done with trade policy bearing upon export and import, as also exchange management.

6. Development and Promotional Functions: Besides performing the essential functions of a

central bank, Reserve Bank has been doing valuable work in aiding development, and promoting

saving and banking habits. These tasks are performed through a variety of means by the Bank.

7. Informational and Research Functions: In the performance of its various functions, the

Reserve Bank undertakes collection and dissemination of information, and conducts research is

this field.

The RBI has followed the policy of controlled monetary expansion. It means a balance between

economic growth and control over inflationary tendencies. Methods of credit control used by the

RBI can be divided into Quantitative Control and Qualitative or Selective Control.

Quantitative Controls: The following methods are used:

(i) Bank Rate: It is the rate at which the RBI rediscounts bill of exchange or other commercial

papers. Simply put, bank rate is the rate at which the RBI extends credit to the commercial bank.

Bank rate is also called discount rate.

(ii) Cash Reserve Ratio (CRR): The RBI Act, 1934, stipulates that a commercial bank is

required to keep in cash a portion of its deposits with the RBI: this is known as Cash Reserve

Ratio.

(iii) Statutory Liquidity Ratio (SLR): The Statutory Liquidity Ratio specifies that a

commercial bank invest a designated minimum proportion of its total assets in liquid assets, such

as cash, gold and unencumbered approved securities (not government securities but having the

status of the same). This is in addition to the cash reserve ratio. The SLR cannot be raised

beyond 40%.

(iv) Open Market Operations: These involve the sale and purchase of government securities by

the RBI, the rationale behind this operation being stabilisation of the prices of government

securities and, secondly, controlling the inflationary pressure. Sales have always been greater

than the purchases.



(v) Selective Credit Control: The techniques of Selective Credit Controls include minimum

margins for lending against specific securities, ceiling on the amount of credit for specific

purposes, discriminatory rates of interest charged on certain types of advances. Through selective

credit control, the RBI tries to maintain sectoral and regional balances.

(B) Qualitative Control: These instruments direct or restrict the flow of credit to specified areas

of economic activity. Of course, some qualitative instruments may have the shade of quantitative

instruments as well. These are:

(i) Margin Requirement: The margin requirement of loan refers to the difference between the

current value of the security offered for loans and the value of loans granted. Suppose, a person

mortgages an article worth Rs 100 with the bank and the bank give him loan of Rs 80. The

margin requirement in this case would be 20 percent. .

(ii) Rationing of Credit: Rationing of credit refers to fixation of credit quota for different

business activities. Rationing credit is introduced when the flow of credit is to be checked

particularly for speculative activities in the economy.

(iii) Direct Action: The central bank may initiate direct action against the member banks in case

these do not comply with its directives. Direct action includes derecognition of a commercial

bank as a member of the country’s banking system.

(iv) Moral Suasion: Sometimes, the central bank makes the member banks agree through

persuation or pressure to follow its directives on the flow of credit. The member banks generally

do not ignore the advice of the central bank.

Important Abbreviations

ADB Asian Development Bank

ADR American Depository Receipt

AFS Annual Financial Statement

ALM Asset Liability Management

APEC Asia Pacific Economic Corporation

ASBA Application Supported by Blocked Amount

ASEAN Association of South East Asian Nation

ASHA Accredited Social Health Activist

ATM Automated Teller Machine

BCBS Basel Committee on Banking Supervision

BIS Bank for International Settlements

BOP Balance of Payments

CAD Capital Account Deficit

CASA Current and Saving Account

CBS Consolidated Banking Statistics India



CBS Core Banking Solution

CC Cash Credit

CCEA Cabinet Committee on Economic Affair

CD Certificate of Deposit

CD Ratio Credit Deposit Ratio

CORE Centralised Online Real-time Exchange

CP Commercial Paper

CPI Consumer Price Index

CR Capital Receipts

CRA Credit Risk Assessment

CRAR Capital to Risk Weighted Asset Ratio

CRISIL Credit Rating and Information Servies of India Limited

CRR Cash Reserve Ratio

DD Demand Draft

DDS Data Dissemination Standards DICGC Deposit Insurance and Credit Guarantee Corporation of India

DTAA Double Taxation Avoidance Agreement

ECB European Central Bank

ECB External Commercial Borrowing

ECGC Export Credit and Guarantee Corporation

ECS Electronic Clearing Scheme

EFT Electronic Fund Transfer

EMI Equated Monthly Installment

EPF Employees Provident Fund

EXIM Bank Export Import Bank of India

FATF Financial Action Task Force

FCA Foreign Currency Assets

FCNR Foreign Currency Non-resident

FCNRA Foreign Currency Non-resident Account

FCNRD Foreign Currency Non-Repatriable Deposit

FDI Foreign Direct Investment

FEMA Foreign Exchange Management Act

FI Financial Institution

FICCI Federation of Indian Chambers of Commerce and Industry

FII Foreign Institutional Investor

FPI Foreign Portfolio Investment

FRBM Fiscal Responsibility and Budget Management Act, 2003

FSDC Financial Stability and Develpoment Council

GDP Gross Domestic Product

GDR Global Depository Receipt

G-Sec Government Securities

GSLV Geosynchronous Satellite Launch Vehicle



GST Goods and Services Tax

IBRD International Bank for Reconstruction and Development

ICAR Indian Council of Agricultural Research

ICICI Industrial Credit and Investment Corporation of India

IDBI Industrial Development Bank of India

IFCI Industrial Finance Corporation of India.

IIP Index of Industrial Production

IMF International Monetary Fund

NEER Nominal Effective Exchange Rate

NEFT National Electronic Fund Transfer

NHB National Housing Bank

NPA Non-Performing Assets

NR(E)RA Non-Resident (External) Rupee Account

NR(NR)RA Non-Resident (Non-Reparable) Rupee Account

NSSF National Small Savings Fund

OD Over Draft

OECD Organization for Economic Cooperation and Development

OMO Open Market Operations

PACS Primary Agriculture Credit Societies

PD Primary Deficit

PDs Primary Dealers

PLR Prime Lending Rate

RD Revenue Deficit

REC Rural Electrification Corporation

REER Real Effective Exchange Rate

RIDF Rural Infrastructure Development Fund

RTGS Real Time Gross Securties

RTP Reserve Tranche Position

SDR Special Drawing Right

SEBI Securities and Exchange Board of India

SEZ Special Economic Zone

SGSY Swarnajayanthi Gram Swarrojgar Yojana

SHGs Self-Help Groups

SIDBI Small Industries Development Bank of India

SIDC State Industrial Development Corporation

SME Small and Medium Enterprises

SSI Small-Scale Industries

STRIPS Separate Registered Interest and Payment System

SWIFT Social World Wide Interbank Financial Telecommunication

TRIPS Trade Realated Intellectual Property Rights

ULIP Unit Linked Insurance Plan

VAT Value Added Tax

WPI Wholesale Price Index

YTM Yield to Maturity



Important Banking Terms

Anytime Banking: Earlier banking was confined within the working hours only but now with

introduction of ATMs, Tele-Banking and internet banking, customers can conduct their business

anytime of the day and night as and when they have time and all that with convenience.

Anywhere Banking: This has been facilitated not only by ATMs, Tele-Banking and Internet

Banking, but also by Core Banking Solution (CBS) brought in by banks where customers can

deposit their money, cheques and also withdraw money from any branch connected with the

system. All major banks in India have brought in core banking in their operations to make

banking truly Anywhere Banking.

Asset Reconstruction Company (ARC): ARC is an entity that takes over bad loans, known as

Non Performing Assets (NPAs) from banks and financial institutions, creates a market for such

assets and enables a clean-up.

ATM: Short form of Automated Teller Machine, which does the job of a teller in a bank through

Computer Network. ATMs are installed at bank branches and all other important places. These

are useful to dispense cash, receive cash, accept cheques, give balances in the accounts and also

give mini-statements to the customers. Advance ATMs provide almost all the services offered at

branch offices.

Authorised capital: It is the amount of share capital fixed in the Memorandum of Association

and the article of association of a company as required by the Companies Acts (Company Law).

It is also known as nominal capital or registered capital.

Bancassurance: Bancassurance is an important channel of distribution of insurance policies,

wherein banks own and sell the insurance products and bear the risk. In India, however, through

this channel, policies are sold by bank staff at the bank counters, but are not owned by the banks.

This channel is jointly used by banks and the insurance companies.

Bank for International Settlements: The Bank for International Settlements (BIS) (in French,

Banque des Règlements Internationaux (BRI)) is an international organization of central banks

which “fosters international monetary and financial cooperation and serves as a bank

for central banks”. The BIS carries out its work through subcommittees, the secretariats it hosts

and through an annual general meeting of all member banks.

Bank Ombudsman: This scheme is introduced with the object of enabling resolution of

complaints relating to certain services rendered by banks and to facilitate the satisfaction or

settlement of such complaints. This Scheme was announced in 1995 and is functioning with new



guidelines from 2007. This scheme covers all scheduled banks, the RRBs and Co-operative

banks.

Bank Custodian: A bank custodian is responsible for maintaining the safety of clients’ assets

held at one of the custodian’s premises, a sub-custodian facility or an outside depository.

Bank Statement: Periodically the bank provides a statement of a customer’s deposit account. It

shows all deposits made, all checks paid, and other debits posted during the period (usually one

month), as well as the current balance.

Banknote: A negotiable promissory note issued by a bank and payable to the bearer on demand.

The amount payable is stated on the face of the note. Banknotes are considered legal tender, and,

along with coins, make up the bearer forms of all modern money. Also known as a “bill” or a

“note.” Originally, objects such as gold and silver were used to pay for goods and services.

Eventually, they were replaced by paper money and coins that were backed by precious metals.

Currently, banknotes are backed only by the government

Bankruptcy: The legal proceedings by which the affairs of a bankrupt person are turned over to

a trustee or receiver for administration under the bankruptcy laws. There are two types of

bankruptcy: (a) Involuntary bankruptcy-one or more creditors of an insolvent debtor file a

petition having the debtor declared bankrupt. (b) Voluntary bankruptcy-the debtor files a

petition claiming inability to meet financial obligations and willingness to be declared bankrupt.

Basel Norms: Basel is a city in Switzerland. It is the headquarters of Bureau of International

Settlement (BIS), which fosters co-operation among central banks with a common goal of

financial stability and common standards of banking regulations. Every two months BIS hosts a

meeting of the governor and senior officials of central banks of member countries. Currently

there are 27 member nations in the committee. Basel guidelines refer to broad supervisory

standards formulated by this group of central banks called the Basel Committee on Banking

Supervision (BCBS). On a few parameters the RBI has prescribed stringent norms as compared

to the norms prescribed by BCBS.

Basel I: In 1988, BCBS introduced a capital measurement system called Basel capital accord,

also called Basel I. It focused almost entirely on credit risk. It defined capital and structure of

risk weights for banks. The minimum capital requirement was fixed at 8% of risk weighted

assets (RWA). RWA means assets with different risk profiles. For example, an asset backed

by collateral would carry lesser risks as compared to personal loans, which have no collateral.

India adopted Basel I guidelines in 1999.

Basel II: In June 2004, Basel II guidelines were published by BCBS, which were considered to

be the refined and reformed versions of Basel I accord. The guidelines were based on three

parameters, which the committee calls pillars: Capital Adequacy Requirements: Banks should

maintain a minimum capital adequacy requirement of 8% of risk assets: Supervisory

Review: According to this, banks were needed to develop and use better risk management



techniques in monitoring and managing all the three types of risks that a bank faces, viz. credit,

market and operational risks: Market Discipline: This need increased disclosure requirements.

Banks need to mandatorily disclose their CAR, risk exposure, etc to the central bank. Basel II

norms in India and overseas are yet to be fully implemented.

Basel III: In 2010, Basel III guidelines were released. These guidelines were introduced in

response to the financial crisis of 2008. A need was felt to further strengthen the system as banks

in the developed economies were under-capitalized, over-leveraged and had a greater reliance on

short-term funding. Also the quantity and quality of capital under Basel II were deemed

insufficient to contain any further risk. Basel III norms aim at making most banking activities

such as their trading book activities more capital-intensive. The guidelines aim to promote a

more resilient banking system by focusing on four vital banking parameters viz. capital,

leverage, funding and liquidity.

Bill of Exchange: A non-interest-bearing written order used primarily in international trade that

binds one party to pay a fixed sum of money to another party at a predetermined future date.

Bills of exchange are similar to cheques and promissory notes. They can be drawn by individuals

or banks and are generally transferable by endorsements. The difference between a promissory

note and a bill of exchange is that this product is transferable and can bind one party to pay a

third party that was not involved in its creation. If these bills are issued by a bank, they can be

referred to as bank drafts. If they are issued by individuals, they can be referred to as trade drafts.

Bitcoin: Bitcoin is a digital currency created in 2009. It follows the ideas set out in a white paper

by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Bitcoin offers

the promise of lower transaction fees than traditional online payment mechanisms and is

operated by a decentralized authority, unlike government-issued currencies. There are no

physical Bitcoins, only balances associated with public and private keys. These balances are kept

on a public ledger, along with all Bitcoin transactions, that is verified by a massive amount of

computing power.

Bouncing of a Cheque: Where an account does not have sufficient balance to honour the cheque

issued by the customer , the cheque is returned by the bank with the reason “funds insufficient”

or “Exceeds arrangement”. This is known as ‘Bouncing of a cheque'.

Breakeven Point (BEP): 1. In general, the point at which gains equal losses. 2. In options, the

market price that a stock must reach for option buyers to avoid a loss if they exercise. For a call,

it is the strike price plus the premium paid. For a put, it is the strike price minus the premium

paid. Also referred to as a “breakeven”. For businesses, reaching the breakeven point is the first

major step towards profitability.

Brick and Mortar Banking: It refers to traditional system of banking done only in a fixed

branch premises made of brick and mortar. Now there are other banking channels like ATM,

Internet Banking, telephone-banking etc.



Bridge Loan: A short-term loan that is used until a person or company secures permanent

financing or removes an existing obligation. This type of financing allows the user to meet

current obligations by providing immediate cash flow. The loans are short-term (up to one year)

with relatively high interest rates and are backed by some form of collateral such as real estate or

inventory. Also known as “interim financing”, “gap financing” or a “swing

loan”. As the term implies, these loans “bridge the gap” between times when financing is needed.

CAMELS Rating System: An international bank-rating system where bank supervisory

authorities rate institutions according to six factors. The six factors are represented by the

acronym “CAMELS.” The six factors examined are as follows:

C - Capital adequacy A - Asset quality M - Management quality E – Earnings L – Liquidity S -

Sensitivity to Market Risk Bank supervisory authorities assign each bank a score on a scale of

one (best) to five (worst) for each factor.

Capital Account: A national account that shows the net change in asset ownership for a nation.

The capital account is the net result of public and private international investments flowing in

and out of a country. May also refer to an account showing the net worth of a business at a

specific point in time. The capital account includes foreign direct investment (FDI), portfolio and

other investments, plus changes in the reserve account.

Cancelled Cheque: A cheque that a bank has paid, charged to the account holder’s account, and

then endorsed. Once cancelled, a check is no longer negotiable.

Capital Account Convertibility (CAC): Capital account convertibility is a feature of a

nation’s financial regime that centres on the ability to conduct transactions of local financial

assets into foreign financial assets freely and at country-determined exchange rates. It is

sometimes referred to as capital asset liberation. In layman’s terms, full capital account

convertibility allows local currency to be exchanged for foreign currency without any restriction

on the amount.

Capital Adequacy: The Reserve Bank of India has instructed banks to maintain adequate

capital on a continuous basis of the capital is measured in terms of Capital to Risk-Weighted

Assets Ratio (CRAR). Under the recently revised framework, banks are required to maintain

adequate capital for credit risk, market risk, operational risk and other risks. BASEL II

standardised approach is applicable with road map drawn up for advanced approaches.

Capital Expenditure: Funds used by a company to acquire or upgrade physical assets such as

property, industrial buildings or equipment

Capital Gain: An increase in the value of a capital asset (investment or real estate) that gives it a

higher worth than the purchase price. The gain is not realized until the asset is sold. A capital

gain may be short-term (one year or less) or long-term (more than one year) and must be claimed

on income taxes.



Capital Market: A market in which individuals and institutions trade financial securities.

Organizations/ institutions in the public and private sectors also often sell securities in the capital

markets in order to raise funds. Thus, this type of market is composed of both the primary and

secondary markets. Both the stock and bond markets are parts of the capital markets.

Cashier’s Cheque: A cheque drawn on the funds of the bank, not against the funds in a

depositor’s account. However, the depositor pays for the cashier’s check with funds from their

account. The primary benefit of a cashier’s cheque is that the recipient of the cheque is assured

that the funds are available.

Certificate of Deposit: It is a savings certificate entitling the bearer to receive interest and bears

a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are

generally issued by commercial banks and are insured by the FDIC.

Cheque: Cheque is a bill of exchange drawn on a specified banker ordering the banker to pay a

certain sum of money to the drawer of cheque or another person. Cheques may be current or

postdated.

Cheque Truncation: It truncates or stops the flow of cheques through the banking system.

Generally truncation takes place at the collecting branch, which sends the electronic image of the

cheques to the paying branch through the clearing house and stores the paper cheques with it.

Credit Information Bureau (India) Limited (CIBIL): It 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.

Clearing House: Clearing house is a place where local bankers assemble and exchange cheques

drawn on each other. This saves time. Normally, it is conducted at RBI or SBI or Lead Bank of

the area.

Corporate Social Responsibility: Corporate initiative to assess and take responsibility for the

company’s effects on the environment and impact on social welfare. The term generally applies

to company efforts that go beyond what may be required by regulators or environmental

protection groups. Corporate social responsibility may also be referred to as “corporate

citizenship” and can involve incurring short-term costs that do not provide an immediate

financial benefit to the company, but instead promote positive social and environmental change.

Currency appreciation: It is the increase in the exchange rate of one currency in terms of other

currencies. The term is usually applied to a currency with a floating rate of exchange; upward

changes in fixed rate of exchange are called revaluations.

Currency depreciation: It is the fall in the exchange rate of one currency in terms of other

currencies.The term is usually applied to floating exchange rates. Downward changes in fixed

rates of exchange are called devaluations.



Current Account: Current account with a bank can be opened generally for business purposes.

There are no restrictions on withdrawals in this type of account. No interest is paid on this type

of account.

Dear Money: A situation in which money or loans are very difficult to obtain in a given country.

If you do have the opportunity to secure a loan, then interest rates are usually extremely high.

Also known as “tight money”. This situation can be a result of a restricted money supply,

causing interest rates to be pushed up due to the forces of supply and demand. Businesses may

have a tough time raising capital during a period of dear money.

Debenture: A debenture is an instrument in which the issuer (company) undertakes the

obligation to repay the face value of the debenture to its holder at the end of a pre-determined

period. Besides a fixed life span, debentures carry a specified coupon rate at which the holder

earns interest on it.

Debit Card: A plastic card issued by banks to customers to withdraw money electronically from

their accounts. When you purchase things on the basis of Debit Card the amount due is debited

immediately to the account. Many banks issue Debit-Cum-ATM Cards.

Debts Recovery Tribunal: The Debts Recovery Tribunal have been constituted under Section 3

of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The original aim of

the Debts Recovery Tribunal was to receive claim applications from Banks and Financial

Institutions against their defaulting borrowers.

Demat Account: Demat Account concept has revolutionized the capital market of India. When a

depository company takes paper shares from an investor and converts them in electronic form

through the concerned company, it is called Dematerialization of Shares. These converted Share

Certificates in Electronic form are kept in a Demat Account by the Depository Company, like a

bank keeps money in a deposit account. Investor can withdraw the shares or purchase more

shares through this demat Account.

Dishonour of Cheque: Non-payment of a cheque by the paying banker with a return memo

giving reasons for the non-payment.

Drawee: Drawer: The person who writes a cheque or draft instructing the drawee to pay

someone else.The person (or bank) who is expected to pay a cheque or draft when it is

presented for payment.

Electronic Funds Transfer (EFT): The transfer of money between accounts by consumer

electronic systems— such as automated teller machines (ATMs) and electronic payment of

bills—rather than by check or cash. (Wire transfers, cheque, drafts, and paper instruments do not

fall into this category.)



Hot money: It refers to the money that flows regularly between financial markets, as investors

attempt to ensure they get the highest short-term interest rates possible. Hot money will flow

from low-interest-rate-yielding countries into higher-interest-rates countries by investors looking

to make the highest return.

Hyperinflation: It refers to extremely rapid or out-ofcontrol inflation. There is no precise

numerical definition to hyperinflation. Hyperinflation is a situation where the price increases are

so out of control that the concept of inflation is meaningless.

Inflation: Infrastructure: The roads, ports, railways, airports, power lines, pipes and wires that

enable people, goods, commodities, water, energy and information to move about efficiently are

referred to as infrastructure. Increasingly, infrastructure is regarded as a crucial source of

economic competitiveness.Inflation means less goods for your buck, as it erodes the purchasing

power of a unit of currency. Inflation usually refers to consumer prices, but it can also be applied

to other prices (wholesale goods, wages, assets, and so on). For much of human history, inflation

has not been an important part of economic life.

Libor: An abbreviation for London Inter Bank Offered Rate, which is an average of the interest

rates at which leading international banks are prepared to offer term deposits to each other.

MIBOR and MIBID: On 15th June 1998, the National Stock Exchange (NSE) launched two

new Reference Rates for the loans of Inter-Bank Call Money Market. These rates are Mumbai

Inter-Bank Offered Rate (MIBOR) and Mumbai Inter-Bank Bid Rate (MIBID). MIBOR will be

the indicator of lending rate for loans while MIBID will be the lending rate for receipts.

Non-Resident Accounts: Indian citizens who have gone abroad for gainful employment and

persons of Indian origin residing abroad can open bank account in India out of funds received

from abroad or out of funds due to them in India. Non-resident (ordinary) and non-resident

(external) rupee accounts are the types of non-resident deposit accounts.

Non-Resident (External Rupee) Account: Non-resident Indians can open NRE account by

remittance in the form of foreign exchange from abroad or with foreign travellers cheques,

foreign currency, etc. Local credits are not allowed. In respect of term deposits, NRE balance

holders are entitled to higher rate of interest as per RBI directives. The balance in the account is

eligible for repatriation abroad without permission from RBI. These a/c holders are also eligible

for certain exemptions from IT/WT etc.

Non-Resident (Ordinary) Account: When Indian residents go abroad for gainful employment

their bank accounts will be converted into non-resident ordinary accounts.. Other non-residents

can also open such bank accounts. The debits and credits are allowed as per rules. The balance in

this account is not eligible for automatic repatriation abroad.



Refinancing: A way of obtaining a better interest rate, lower monthly payments, or borrow cash

on the equity in a property that has built up on a loan. A second loan is taken out to pay off the

first, higher-rate loan.

Securities: It refers to income-yielding and other papers traded on the Stock Exchange or in

Secondary Markets. It is usually a synonym for stocks and shares. An essential characteristic of a

security is that it is saleable. The main types of security are: (a) Fixed interest: Debentures,

Preferential Shares, Stocks and Bonds (including all government securities and local authority

securities); (b) Variable interest: Ordinary Shares; (c) Others: Bills or Exchange, Assurance

policies, Warrants. Securities may be Redeemable or Irredeemable, quoted or unquoted.

Sensex: An abbreviation of the Bombay Exchange Sensitive Index (Sensex) - the benchmark

index of the Bombay Stock Exchange (BSE). It is composed of 30 of the largest and most

actively-traded stocks on the BSE. Initially compiled in 1986, the Sensex is the oldest stock

index in India.

Soft Money: The “one-time” funding from governments and organizations for a project or

special purpose. Paper currency, as opposed to gold, silver, or some other coined metal. A good

example of soft money is the campaign funding that politicians get during election years. The

money received is not recurring and it is to be used explicitly for election related expenses.

Special Drawing Rights (SDRs): The Special Drawing Right (SDR) is a form of international

reserve assets, created by the IMF (in 1967), whose value is based on a portfolio of widely used

currencies.

Terms: The period of time and the interest rate arranged between creditor and debtor to repay a

loan.

Time Deposit: A time deposit (also known as a term deposit) is a money deposit at a bank that

cannot be withdrawn for a certain “term” or period of time. When the term is over it can be

withdrawn, or it can be held for another term. The longer the term, the better the yield on the

money. Generally, there are significant penalties for early withdrawal.


A Brief about Banking - bsc4success | bsc4success Brief about Banking Banking structure in India...

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