Banking Notes for RBI & SBI exams

Dear readers, here we are posting some notes on General Knowledge (Banking), which will be helpful in the upcoming RBI and SBI exams.

                                    Quick Notes

Ø  FII: Foreign Institutional Investment  - The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market.

Ø  FDI: Foreign Direct Investment  - It is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country.

Ø  MSF: Marginal Standing Facility - Under this scheme, banks will be able to borrow upto 1% of their respective net demand and time liabilities. The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.

Ø  FIU: Financial Intelligence Unit set by the Government of India on 18 November 2004 as the central national agency responsible for receiving, processing, analysing and disseminating information relating to suspect financial transactions.

Ø  SEBI: Securities and Exchange Board of India -  SEBI is the primary governing/regulatory body for the securities market in India. All transactions in the securities market in India are governed and regulated by SEBI. Its main functions are:

1. New issues (Initial Public Offering or IPO)

2. Listing agreement of companies with stock exchanges

3. Trading mechanisms

4. Investor protection

5. Corporate disclosure by listed companies etc.

Note:  SEBI is also known as capital regulator or mutual funds regulator or market regulator. SEBI also created investors protection fund and SEBI is the only organization which regulates the credit rating agencies in India. (CRISIL and CIBIL).

Ø  IRDA: Insurance Regulatory and Development Authority  - It is an autonomous apex statutory body which regulates and develops the insurance industry in India.

Ø  FINANCIAL REGULATORS IN INDIA - RBI, SEBI, FMCI (Forward Market Commission of India), IRDA etc.

Ø  ASBA:  Application Supported by Blocked Amount  -  It is a process developed by the SEBI for applying to IPO. In ASBA, an IPO applicant’s account doesn’t get debited until shares are allotted to him.

Ø  DEPB Scheme: Duty Entitlement Pass Book - It is a scheme which is offered by the Indian government to encourage exports from the country. DEPB means Duty Entitlement Pass Book to neutralise the incidence of basic and special customs duty on import content of export product.

Ø  LLP: Limited Liability Partnership, is a partnership in which some or all partners (depending on the jurisdiction) have limited liability.

Ø  Balance sheet:  A financial statement that summarises a company’s assets, liabilities and shareholders’ equity at a specific point in time.

Ø  TAN: Tax Account Number, is a unique 10-digit alphanumeric code allotted by the Income Tax Department to all those persons who are required to deduct tax at the source of income.

Ø  PAN: Permanent Account Number, as per section 139A of the Act obtaining PAN is a must for the following persons:-

1. Any person whose total income or the total income of any other person in respect of which he is assessable under the Act exceeds the maximum amount which is not chargeable to tax.

2. Any person who is carrying on any business or profession whose total sales, turnover or gross receipts are or are likely to exceed Rs. 5 lakh in any previous year.

3. Any person who is required to furnish a return of income under section 139(4) of the Act.

Ø  JLG: Joint Liability Group, when two or more persons are both responsible for a debt, claim or judgment.

Ø  IRR: Internal Rate of Return, is a rate of return used in capital budgeting to measure and compare the profitability of investments.

Ø  MICR: Magnetic Ink Character Recognition  - A 9-digit code which actually shows whether the cheque is real or fake.

Ø  UTR Number: Unique Transaction Reference number  - A unique number which is generated for every transaction in RTGS system. UTR is a 16-digit alphanumeric code. The first 4 digits are a bank code in alphabets, the 5th one is the message code, the 6th and 7th mention the year, the 8th to 10th mentions the date and the last 6 digits mention the day’s serial number of the message.

Ø  RRBs: Regional Rural Banks  - As its name signifies, RRBs are specially meant for rural areas, capital share being 50% by the central government, 15% by the state government and 35% by the scheduled bank.

Ø  MFI: Micro Finance Institutions  -  Micro Finance means providing credit/loan (micro credit) to the weaker sections of the society. A microfinance institution (MFI) is an organisation that provides financial services to the poor.

Ø  PRIME LENDING RATE: PLR is the rate at which commercial banks give loans to its prime customers (most creditworthy customers).

Ø  BASE RATE: A minimum rate that a bank is allowed to charge from the customer. Base rate differs from bank to bank. It is actually a minimum rate below which the bank cannot give loan to any customer. Earlier base rate was known as BPLR (Base Prime Lending Rate).

Ø  EMI: Equated Monthly Installment  - It is nothing but a repayment of the loan taken. A loan could be a home loan, car loan or personal loan. The monthly payment is in the form of post dated cheques drawn in favour of the lender. EMI is directly proportional to the loan taken and inversely proportional to time period. That is, if the loan amount increases the EMI amount also increases and if the time period increases the EMI amount decreases.

Ø  Basis points (bps): A basis point is a unit equal to 1/100th of a percentage point. i.e. 1 bps = 0.01%. Basis points are often used to measure changes in or differences between yields on fixed income securities, since these often change by very small amounts.

Ø  Liquidity: It refers to how quickly and cheaply an asset can be converted into cash. Money (in the form of cash) is the most liquid asset.

Ø  P-NOTES: “P” means participatory notes.  These are the instruments issued by registered foreign institutional investors (FII) to overseas investors, who wish to invest in the Indian stock markets without registering themselves with the market regulator, the Securities and Exchange Board of India - SEBI.

Ø  Certificate of Deposit (CD) is a negotiable money market instrument and issued in dematerialised form for funds deposited at a bank or other eligible financial institution for a specified time period.

Ø  Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note. It was introduced in India in 1990. Corporates and the All-India Financial Institutions are eligible to issue CP.

Ø  REER: Real Effective Exchange Rate.

Ø  NEER: Nominal Effective Exchange Rate.

Ø  LIBOR: London Inter Bank Offer Rate.

Ø  MIBOR: Mumbai Inter Bank Offer Rate.

Ø  EFT – Electronic Fund Transfer

Ø  NEFT  –  National Electronic Funds Transfer

Ø  RTGS  – Real Time Gross Settlement

Ø  ATM – Automated Teller Machine

Ø  CBS – Core Banking Solution

Ø  CORE in CBS stands for “Centralized Online Real-time Exchange.”

03:03 - By Unknown 0

Journey of an Engineer - To RBI Governor…!

Raghuram Govinda Rajan is an Indian economist who has been appointed as the next (23rd) Governor of the Reserve Bank of India on 6th of Aug, 2013 for a term of three years and will take over from Dr. D Subbarao, whose five year term completes on September 4, 2013.

He formerly served as the president of the American Finance Association and was the chief economist of the International Monetary Fund (IMF)

Rajan's previous work with the Indian government includes his helmsman ship of a Planning Commission-appointed committee on financial reforms, and as honorary economic adviser to Prime Minister Manmohan Singh.

After two governors from Andhra Pradesh, Y V Reddy and D Subbarao, it is the return of a Tamil Brahmin to the high profile post.

Raghuram G. Rajan was born in 1963 in Bhopal to an IFS officer from a Tamil family. He was abroad till his 7th year of school, having lived in Sri Lanka, Indonesia, and Belgium, and in 1974, he moved back to India from Belgium. Then he did the rest of his schooling in Delhi.

In 1985, he graduated from the Indian Institute of Technology, Delhi with a bachelor's degree in electrical engineering, and he completed the Post Graduate Diploma in Business Administration at the Indian Institute of Management Ahmedabad in 1987.

Rajan won the Director's Gold Medal for best all-round achievement at IIT Delhi and was also a gold medallist at IIM Ahmedabad. He received a PhD in management from the MIT in 1991 for his thesis titled "Essays on Banking"

After graduation, Rajan joined the Booth School of Business at the University of Chicago. He was then appointed as the youngest-ever Economic Counselor and Director of Research (chief economist) at the International Monetary Fund (IMF) from October 2003 to December 2006.

In 2003, he was also the inaugural recipient of the Fischer Black Prize awarded by the American Finance Association for contributions to the theory and practice of finance by an economist under age 4

Replacing Kaushik Basu Rajan was appointed as Chief Economic Advisor to the Ministry of Finance, Government of India on 10 August 2012. He also prepared his very first Economic Survey for India for the year 2012-13, on the 27 February. 

Raghuram Rajan’s younger brother, Mukund Rajan is the Group Spokesperson and Chief Ethics Officer of the Tata group.

Wealth of experience…!

In fact, Dr. Rajan is one among very few Indian economists who risked criticizing the U.S. financial system at the prime of his career and warned against the potential catastrophes. Having gained a wealth of experience and broad and analytic perspective on how systems work, he came up with controversial papers chaffing the finance sector. After an initial few brickbats, his views and implications on the flaws of the financial sector were later noticed when he managed to prove himself as right.

Appreciate this. On why stimulus has failed, Dr. Rajan, in one of his columns said: “Advanced countries will spend decades working off high public debt loads while their central banks will have to unwind bloated balance sheets and back off from promises of support that markets have come to rely on.’’

On the role of central banks, he said, in another write-up: “Quantitative easing has truly been a step in the dark. Given all the uncertainty, why have central bankers, for whom ‘innovative’ is actually an epithet, departed from their usual conservatism in adopting it?’

Back home, on why India slowed down, Dr. Rajan said: “To revive growth in the short run, India must improve supply, which means shifting from consumption to investment. It must do so by creating new, transparent institutions and processes, which would limit adverse political reaction.”

  

Key challenges for Raghuram Rajan…!

The immediate priority for the new governor will be to draft the mid-quarter review of Reserve Bank of India's monetary policy on September 18 - within a fortnight of taking charge. But the long-term challenges that Rajan has to address are:

1. North Block – Mint Road relationship...  

The relationship between the finance ministry and the Reserve Bank of India governor’s office has hit rock bottom.It will be a challenge for Rajan to improve the relationship at a time when the economic scenario is deteriorating.

2. Recovery of rupee...

Perhaps the biggest challenge for the new governor will be to strengthen the rupee which has depreciated more than 12 per cent in the current financial year, and the drivers of the weakness are not entirely in control of Indian policy makers.

3. Reversal of liquidity tightening measures…

If Subbarao decides to continue with the liquidity tightening measures till September 4, or perhaps introduces new measures, then Rajan has to face the challenge of withdrawing those measures.

That's because the timing of such a step will be critical for exchange rate stability.

4. New bank licences... 

Rajan takes charge at a time when the banking regulator is in the process of giving fresh licences for banks after more than a decade and for the first time decided to allow industrial houses. Rajan faces the challenge of selecting the ‘fit and proper’ candidates from the 26-odd applicants.

5. Recouping FX reserves... 
 The foreign exchange reserves is at a three- year low and could cover imports for about six and half months, lower than what is seen as providing stability to the currency.

Replenishing the forex kitty will be a key task.

6. Keeping inflation under check... 
After fighting price rises for close to three years, outgoing governor D Subbarao finally brought WPI inflation below 5 per cent – seen as the tolerance threshold of the central bank, though consumer price inflation is still high.

The best person…!

Welcoming his appointment, Dr. Rangarajan, a former RBI Governor himself, said: “Rajan will make an excellent Governor at the moment” as he has been dealing with the problems in the last one year. Planning Commission Deputy Chairman Montek Singh Ahluwalia also noted that Dr. Rajan is coming in at a tough time but he has a terrific academic and professional background.

“It’s a very tough time, we need someone who can give direction...the important thing is giving leadership for the next five years on how should the Indian financial system move. I think Rajan will be the best person to do that,” he said.

He is known throughout the world for his forthright and frank views.

07:19 - By Unknown 0