F
riends, here are some Important Basics you should know about Banking Awareness for upcoming IBPS Clerks Online Exam. In this, we tried to cover almost all the basic terminology of banking awareness in simple language so that you can pick the synopsis in a single glance. It hardly will take 15 to 20 minutes to complete reading this post. But we assure you that it helps you a lot. If you have time, you can refer to our complete short notes on Banking Awareness Here.
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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.
Present Bank Rate – 9%
Repo
Rate
Repo rate is the rate
at which our banks borrow rupees from RBI. 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.
Present Repo Rate - 8%
Reverse
Repo Rate
This is exact opposite
of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India
(RBI) borrows money from banks. RBI uses this tool when it feels there is too
much money floating in the banking system. Banks are always happy to lend money
to RBI since their money is in 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.
Present Reverse Repo
Rate – 7%
CRR
Rate
Cash reserve Ratio
(CRR) is the amount of funds that the banks have to keep with RBI. 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.
Present CRR – 4.25%
SLR
Rate
SLR (Statutory
Liquidity Ratio) is the amount a commercial bank 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 the RBI (Reserve
Bank of India) in order to control the expansion of bank credit. SLR is
determined as the percentage of total demand and percentage of time
liabilities. Time Liabilities are the liabilities a commercial bank liable to
pay to the customers on their anytime demand. SLR is used to control inflation
and propel growth. Through SLR rate tuning the money supply in the system can
be controlled efficiently.
Present SLR – 23%
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.
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.
PLR
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. The Prime Rate is usually adjusted at the same time and in correlation
to the adjustments of the Fed Funds Rate.
Some banks use the name "Reference Rate" or "Base Lending
Rate" to refer to their Prime Lending Rate.
Deposit
Rate
Interest Rates paid by
a depository institution on the cash on deposit.
FII
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
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 a
Indian Company.
IPO
IPO is Initial Public
Offering. This is the first offering of shares to the general public from a
company wishes 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. Present Fiscal Deficit is 5.3%
Revenue
deficit
It defines that, where
the net amount received (by taxes & other forms) fails to meet the
predicted net amount to be received by the government
GDP
The Gross Domestic
Product or GDP is a measure of all of the services and goods produced in a
country over a specific period; classically a year.
GNP
Gross National Product
is measured as GDP plus income of residents from investments made abroad minus
income earned by foreigners in domestic market.
National
Income
National Income is the
money value of all goods and services produced in a country during the year.
Per
Capita Income
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.
Vote
on Account
A vote-on account is
basically a statement ,where the government presents an estimate of a sum
required to meet the expenditure that it incurs during the first three to four
months of an election financial year until a new government is in place, to
keep the machinery running.
Difference
between Vote on Account and Interim Budget
Vote-on-account deals
only with the expenditure side of the government's budget, an interim Budget is
a complete set of accounts, including both expenditure and receipts.
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.
Corporate
governance
The way in which a
company is governed and how it deals with the various interests of its customers,
shareholders, employees and society at large. Corporate governance is the set
of processes, customs, policies, laws, and institutions affecting the way a
corporation (or company) is directed, administered or controlled.Is defined as
the general set of customs, regulations, habits, and laws that determine to what
end a firm should be run.
RBI
Functions
The Reserve Bank of
India is the central bank of India, was established on April 1, 1935 in
accordance with the provisions of the Reserve Bank of India Act, 1934. The
Reserve Bank of India was set up on the recommendations of the Hilton Young
Commission. The commission submitted its report in the year 1926, though the
bank was not set up for nine years.To regulate the issue of Bank Notes and
keeping of reserves with a view to securing monetary stability in India and
generally to operate the currency and credit system of the country to its
advantage." Banker to the Government: performs merchant banking function
for the central and the state governments; also acts as their banker.Banker to
banks: maintains banking accounts of all scheduled banks.
Monetary
policy
A Monetary policy is
the process by which the government, central bank, of a country controls
(i)
the supply of money,
(ii)
(ii) availability of money, and
(iii)
(iii) cost of money or rate of interest,
In
order to attain a set of objectives oriented towards the growth and stability
of the economy.
Fiscal
Policy
Fiscal policy is the
use of government spending and revenue collection to influence the economy.
These policies affect tax rates, interest rates and government spending, in an
effort to control the economy. Fiscal policy is an additional method to
determine public revenue and public expenditure.
Core
Banking Solutions
Core banking is a
general term used to describe the services provided by a group of networked bank
branches. Bank customers may access their funds and other simple transactions
from any of the member branch offices. It will cut down time, working
simultaneously on different issues and increasing efficiency. The platform
where communication technology and information technology are merged to suit
core needs of banking is known as Core Banking Solutions.
Bank,
its Features and Types
A bank is a financial
organization where people deposit their money to keep it safe.Banks play an
important role in the financial system and the economy. As a key component of
the financial system, banks allocate funds from savers to borrowers in an
efficient manner. Regional Rural Banks were established with an objective to
ensure sufficient institutional credit for agriculture and other rural sectors.
The RRBs mobilize financial resources from rural / semi-urban areas and grant
loans and advances mostly to small and marginal farmers, agricultural labourers
and rural artisans.
(i)
The area of operation of RRBs is limited
to the area as notified by GoI covering one or more districts in the State.
(ii)
ii. Banking services for individual
customers is known as retail banking.
(iii)
iii. A bank that deals mostly in but
international finance, long-term loans for companies and underwriting. Merchant
banks do not provide regular banking services to the general public
(iv)
iv. Online banking (or Internet banking)
allows customers to conduct financial transactions on a secure website operated
by their retail or virtual bank.
(v)
v. Mobile Banking is a service that
allows you to do banking transactions on your mobile phone without making a
call , using the SMS facility. Is a term used for performing balance checks,
account transactions, payments etc. via a mobile device such as a mobile phone.
(vi)
vi. Traditional banking is the normal
bank accounts we have. Like, put your money in the bank and they act as a
security and you will get only the normal interests (decided by RBI in our case,
FED bank in US).
(vii)
vii. Investment banking is entirely
different. Here, people who are having so much money (money in excess which
will yield only less interest if in Banks) will invest their money and get
higher returns. For example, If i have more money instead of taking the pain of
investing in share market, buying properties etc. I will give to investment
banks and they will do the money management and give me higher returns when
compared to traditional banks.
E-Governance
E-Governance is the
public sector’s use of information and communication technologies with the aim
of improving information and service delivery, encouraging citizen
participation in the decision-making process and making government more
accountable,transparent and effective.
Right
to information Act
The Right to
Information act is a law enacted by the Parliament of India giving citizens of
India access to records of the Central Government and State overnments.The Act
applies to all States and Union Territories of India, except the State of Jammu
and Kashmir - which is covered under a State-level law. This law was passed by
Parliament on 15 June 2005 and came fully into force on 13 October 2005.
Credit
Rating Agencies in India
The credit rating
agencies in India mainly include ICRA and CRISIL. ICRA wasformerly referred to
the Investment Information and Credit Rating Agency of India Limited. Their
main function is to grade the different sector and companies in terms of
performance and offer solutions for up gradation. The credit rating agencies in
India mainly include ICRA and CRISIL(Credit Rating Information Services of
India Limited)
Cheque
Cheque is a negotiable
instrument instructing a Bank to pay a specific amount from a specified account
held in the maker/depositor's name with that Bank.A bill of exchange drawn on a
specified banker and payable on demand.“Written order directing a bank to pay
money”.
Demand
Draft
A demand draft is an
instrument used for effecting transfer of money. It is a Negotiable Instrument.
Cheque and Demand-Draft both are used for Transfer of money. You can 100% trust
a DD. It is a banker's check. A check may be dishonored for lack of funds a DD
can not. Cheque is written by an individual and Demand draft is issued by a
bank. People believe banks more than individuals.
NBFC
A non-banking financial
company (NBFC) is a company registered under the Companies Act, 1956 and is
engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities
issued by government, but does not include any institution whose principal
business is that of agriculture activity, industrial activity, sale/purchase/construction
of immovable property.
NBFCs are doing
functions akin to that of banks; however there are a few differences:
(i)
(i)A NBFC cannot accept demand deposits
(demand deposits are funds deposited at a depository institution that are
payable on demand -- immediately or within a very short period -- like your
current or savings accounts.)
(ii)
it is not a part of the payment and
settlement system and as such cannot issue cheques to its customers; and
(iii)
Deposit insurance facility of DICGC is
not available for NBFC depositors unlike in case of banks.
Diff
between banking & Finance
Finance is generally
related to all types of financial, this could be accounting, insurances and policies.
Whereas banking is everything that happens in a bank only.The term Banking and Finance
are two very different terms but are often associated together. These two terms
are often used to denote services that a bank and other financial institutions
provide to its customers.
NASSCOM
The National
Association of Software and Services Companies (NASSCOM), the Indian chamber of
commerce is a consortium that serves as an interface to the Indian software industry
and Indian BPO industry. Maintaining close interaction with the Government of
India in formulating National IT policies with specific focus on IT software
and services maintaining a state of the art information database of IT software
and services related activities for use of both the software developers as well
as interested companies overseas.
Mr. Som Mittal – President
Chairman - Natarajan Chandrasekaran
ASSOCHAM
The Associated Chambers
of Commerce and Industry of India (ASSOCHAM), India's premier apex chamber
covers a membership of over 2 lakh companies and professionals across the country.
It was established in 1920 by promoter chambers, representing all regions of
India. As an apex industry body, ASSOCHAM represents the interests of industry
and trade, interfaces with Government on policy issues and interacts with
counterpart international organizations to promote bilateral economic issues. President-Rajkumar Dhoot
NABARD
NABARD was established
by an act of Parliament on 12 July 1982 to implement the National Bank for
Agriculture and Rural Development Act 1981. It replaced the Agricultural Credit
Department (ACD) and Rural Planning and Credit Cell (RPCC) of Reserve Bank of
India, and Agricultural Refinance and Development Corporation (ARDC). It is one
of the premiere agency to provide credit in rural areas. NABARD is set up as an
apex Development Bank with a mandate for facilitating credit flow for promotion
and development of agriculture, small-scale industries, cottage and village
industries, handicrafts and other rural crafts.
SIDBI
The Small Industries
Development Bank of India is a state-run bank aimed to aid the growth and
development of micro, small and medium scale industries in India. Set up in
1990 through an act of parliament, it was incorporated initially as a wholly
owned subsidiary of Industrial Development Bank of India.
SENSEX
and NIFTY
SENSEX is the short
term for the words "Sensitive Index" and is associated with the
Bombay (Mumbai) Stock Exchange (BSE). The SENSEX was first formed on 1-1-1986
and used the market capitalization of the 30 most traded stocks of BSE. Where
as NSE has 50 most traded stocks of NSE. SENSEX IS THE INDEX OF BSE. AND NIFTY
IS THE INDEX OF NSE. BOTH WILL SHOW DAILY TRADING MARKS. Sensex and Nifty both
are an "index”. An index is basically an indicator it indicates whether
most of the stocks have gone up or most of the stocks have gone down.
SEBI
SEBI is the regulator
for the Securities Market in India. Originally set up by the Government of
India in 1988, it acquired statutory form in 1992 with SEBI Act 1992 being passed
by the Indian Parliament. Chaired by U.K. Sinha.
Mutual
funds
Mutual funds are
investment companies that pool money from investors at large and offer to sell
and buy back its shares on a continuous basis and use the capital thus raised
to invest in securities of different companies. The mutual fund will have a
fund manager that trades the pooled money on a regular basis. The net proceeds
or losses are then typically distributed to the investors annually.
Asset
Management Companies
A company that invests
its clients' pooled fund into securities that match its declared financial objectives.
Asset management companies provide investors with more diversification and investing
options than they would have by themselves. Mutual funds, hedge funds and
pension plans are all run by asset management companies. These companies earn
income by charging service fees to their clients.
Non-perfoming
assets
Non-performing assets,
also called non-performing loans, are loans,made by a bank or finance company,
on which repayments or interest payments are not being made on time. A debt obligation
where the borrower has not paid any previously agreed upon interest and
principal repayments to the designated lender for an extended period of time.
The nonperforming asset is therefore not yielding any income to the lender in
the form of principal and interest payments.
Recession
A true economic
recession can only be confirmed if GDP (Gross Domestic Product)growth is negative
for a period of two or more consecutive quarters.
Foreign
exchange reservers
Foreign exchange
reserves (also called Forex reserves) in a strict sense are only the foreign currency
deposits and bonds held by central banks and monetary authorities.However, the term
in popular usage commonly includes foreign exchange and gold,SDRs and IMF
reserve positions.
IMF
The International Monetary Fund (IMF) is an international
organization that oversees the global financial system by following the
macroeconomic policies of its member countries, in particular those with an
impact on exchange rates and the balance of payments. It is an organization
formed to stabilize international exchange rates and facilitate development.
Managing Director. Christine Lagarde
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