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Banking Knowledge

Repo Rate: Repo rate means a purchase and sale of agreement. It is a contract to buy securities
and then sell them back at an agreed future date and price. It is thus revenue for short term
investment of surplus funds. From RBI point of view it is called a short term lending and from
banks point of view it is called short term borrowing.
Reverse Repo rate : Reverse Repo Rate is an instrument of borrowing funds for a short period
and involves selling a security and simultaneously agreeing to repurchase it at a stated future
date for slightly higher price. From RBI point of view it is called a short term borrowing and
from banks point of view it is called a short term lending.
Group Company : As per RBI for the purpose of FDI, two or more enterprise which , directly
or indirectly , are in position to exercise 26% or more of voting rights in other enterprise or
appoint more than 50% of the members of the board of directors in the other enterprises.
Branch Vs Subsidiary: A subsidiary is a separate legal entity from the parent company,
although owned by parent company, has a same legal identity as its parent company , from
liability , on the other hand branch is not a separate legal entity of the parent company and
liability wise there is no limit to the parents companys liability , RBI has permitted to Foreign
Banks to change from Branch Mode to the Wholly Owned Subsidiaries.
NFS (National Financial Switch): It facilitates interconnectivity between banks switches and
interbank payment Gateway for authentication & routing the payment details of various Ecommerce & E-Govt. activities (Retail Banking). Now NFS has been overtaken by NPCI
(National Payment Corporation of India).
SLR (Statutory Liquidity Ratio): This is a minimum Reserve which every bank has to
maintain with itself in the most liquid form to meet any demand of the depositors. Normally
Government securities are purchased to maintain SLR.
Prime Lending Rate (PLR): The term originally indicates the rate of interest at which a bank
lends to favored customers, i.e. those with high credibility, though this is no longer always the
case. Some variable interest rates may be expressed as a percentage above or below prime rate.
Sub Prime Rate: In India when money is lent below the PLR is known as Sub Prime Rate
whereas in USA when money is lent at rate above the PLR is known as Sub Prime rate.
Base Rate: As per recommendation of Mr. Deepak Mohanty of RBI to bring a complete
transparency in Banks lending system, in Indian Banking system the loan were sanctioned to the
large corporate houses even below the PLR and some time it were fixed very low without any
justification. A Base rate recommends that no bank will lend any money below the base rate.
With this there shall be no extra benefits to the large corporate houses. Base rate will be
beneficial for the regulator RBI. Now all Banks will either lend at Base rate or will park money
with RBI, under LAF system. Base rate has been implemented from 1st july, 2010.

GDRs (Global Depository Receipts): It is a dollor denominated instrument, an easy way of


raising funds from foreign countries. It is a mechanism that allows foreign investor to invest in
Indian Companies. Represents a certain number of equity shares on Indian companies. GDRs are
issued by depository usually American Banks & Indian shares are held by custodian in India
(like ICICI). Traded in stock exchanges in Europe or in US or both.
IPO (Initial Public Offer): 1st sale of stock by a company to the public .IPOs offer issued by
smaller younger co. seeking the capital to extend. It can also be done by large company.
FPO (Follow on Public Offer ) : A public company already listed on an exchange, a
supplementary shares made by a company that is already publicly listed & has gone thru the IPO
process, it is also called as secondary public offering subsequent to the companys IPO.
Zero Liability Protection: It is a bank guarantee. If your card is lost or stolen you may not be
responsible for unauthorized purchases made with your card if you report the theft promptly. The
Zero liability protection facility is free & automatically available on all bank consumer Credit
Cards.
Vostro Account: When a foreign Bank is opened in the India with Indian Currency is known as
Vostro account e.g. Standard Chartered Bank in India.
SWAPS: It is a transaction where the bank purchases or sells the foreign currency
simultaneously, for different maturities, say purchases of spot and sale of forward or vice versa.
Swap contracts obligate 2 parties to swap or exchange certain specified intervals. Swaps are not
the instruments for raising funds rather they allow better management of existing funds

Some Basic Economic Terms


Interest Rate Swaps: An interest rate swap is the transfer of contractually agreed between two
counterparties of their respective interest rate obligation. Interest rate swaps are commonly used
as a means of converting fixed rate to floating rate debt and vice versa
.
Operating Ratio: A ratio that shows the efficiency of a companys management by comparing operating
expense to net sales. Calculated as

Operation ratio = Operating expense/net sales


Wholesale Price Index (WPI): WPI is taken into consideration while calculating the inflation.
A change has recently been made in the WPI. Its present base year will be taken as 2004-05
earlier it was 1993-34. Base year mean (2004-05 = 100). Total articles taken into consideration
will be 676 earlier these were 435.676 include 102 Primary Articles, 19 fuel & power, and 555 of
Manufacturing Products. Earlier WPI was calculated on Weekly basis but now it is calculated on
Monthly Basis. First time inflation was calculated in August 2010 (on new system).
Consumer Price Index (CPI) : Most advanced nations base their policies on retail price
inflation but India uses wholesale price inflation, CPI is largely a segmental and is superior to the

WPI, CPI capture consumption price both at urban and rural centers, as in WPI 676 items are
covered and base year is taken as 2004-05 and for macroeconomic policies. Whereas in CPI
320 items are taken from (CPI-IW) CPI industrial workers and 260 items are taken from both
CPR rural laborers and CPI agricultural laborers and the base year for calculation is taken as
2010.
Coupon Rate: Specified interest rate on a fixed maturity security fixed at the time of issue. The
coupon rate of a bond is the amount of interest paid per year as a percentage of the face value or
principal.
NRO (Non Resident Ordinary a/c) : In this account , a person cannot repatriate income without
RBI approval but can remit Interest thereof.
NRNR (Non Resident Non Repatriable A/c ) : Under this account Principal amount in not
permissible to repartriate but interest can be.
NRE (Non Resident External) : In this account Funds and interest both can be remitted without
RBI permission. On NRE deposits the maximum ceiling is Libor rate + 175 basis points (Now
there is no such Ceiling).
NPA (Non Performing Assets) : Interest or Installment of Principal remains overdue for a
period of more than 90 days in respect of a Term Loan/ overdraft/ Cash credit.
Teaser Rate of Interest : This rate is typical low then the prevalent rate in the market. This is
just to allure the customer. This rate is charged only for a little time. And after that it gradually
touch the index rate or even more than that. This is a technique to attract customers.
Appropriation Bill : It is presented to parliament for its approval, so that the government can
withdraw from the Consolidated fund the amounts required for meeting the expenditure charged
on the Consolidated Fund. No amount can be withdrawn from the Consolidated Fund till the
Appropriation Bill is voted is enacted.
Call Money: Itner Bank call market is a part of the domestic money market from where banks
borrowed and lent for one day called as Money at call and for a period more than 1day & upto
14days is called Short notice or Notice money without any collateral security. Money lend for
15days or more is called Term money.Normally funds are borrowed for 1 day and upto 3 days on
weekends just to balance the Cash Reserve Ratio.
Nostro Account: When national bank is opened in foreign with currency is known as Nostro a/c.
e.g. State bank india branch in USA.
CIBIL {Credit Information Bureau (India) Limited} : An effective mechanism for exchange
of information between banks and Financial Institutions for curbing the growth of NPAs.

Currency War: This is the other form of Protectionism. In this the tendency of every nation is
that the value of their currency should not appreciate. The big example of this is CHINA that is
holding their currency since 2008. It could be a cause of future Trade war.
Capital Budget: It consists of capital receipts and payments. It also incorporates transactions in
the Public Account. It has two components Capital Receipts and Capital Expenditure.

Popular services covered under E-banking


Automated teller machine
ATM is designed to perform the most important function of bank. it is operated plastic
card with its special features. The plastic card has replaced cheque Personal attendance of the
customer banking hours restrictions and paper based verification. These are debit cards. An
ATM is an electronic funds Transfer terminal capable of handling cash deposits Transfer
between accounts balance enquires, cash withdrawals and pay bills. It may be online or Offline.
Any customer processing ATM card issued by the shared payment network system can go to any
ATM linked to shared payment networks and perform his transactions
Credit card/ Debit card
The Credit card holder is empowered to spend wherever and whenever he wants with his
Credit card within the limits fixed by his bank. Credit card is a post paid card. Debit card
considered as a prepaid card with usage facility limited to the balance in the linked deposit
account of the cardholder. An individual has to open an account with the issuing bank which
gives debit card with a Personal identification number. When he makes purchases he enters his
pin on shops pin pad. When the card is slurped through the electronic terminal it dials the
acquiring bank system -either master card or VISA that validates the pin and finds out can never
overspend because the system rejects any transactions which exceeds the balance in his account.
The bank never faces a default because the amount spent is debited immediately from the
customers account.
Smart card
Banks are adding chips to their current magnetic stripe cards in order to enhance security
and offer new services that are called smart cards. Smart cards allow
Thousands of times of information storable on magnetic stripe cards. In addition these cards are
highly secure, more reliable and perform multiple functions. They hold a large amount of
Personal information ranging from medical and health history to Personal banking and personal
preferences.

Services of E-banking
E-banking provides a multitude of services that are as follows
1. Bill payment service
E-banking facilitates the payment of electricity bills, telephone bills, Credit card, and
insurance premium bills. And the bank does not charge customers for online payments

2. Fund Transfer
You can Transfer any amount from one account to another of the same or any another
bank. Customers can send money anywhere in India.
3. Credit card customers
With internet banking customers cannot only pay their credit card bills online but also
get a loan on their cards. In case of loss of the credit card an online reporting can be done.
4. Investing through internet banking
Now, FD can be opened on line through funds Transfer and investors with interlinked
demit account and bank account can easily trade in the stock market.
5. Recharging prepaid mobile
By just selecting the operator name entering the mobile number and the amount of
Recharge the mobile phones can be back in action within few minutes.
6. RTGS fund Transfer
RTGS is an inter Bank funds Transfer system. Where are Transferred as end when the
transactions are tiggered.
7. Shopping
Online Shopping can also be done with a range of all kind of products. Railway and air
tickets can be bought through the internet banking.
8. Online payment of taxes.
A customer can pay various taxes on line including excise and service tax direct tax etc.
Electronic funds Transfer
Electronic funds Transfer provides for electronic payments and collections. EFT is safe
secure, efficient and less expensive than paper check payments and collections . RBI EFT is a
scheme introduced by RBI to help banks offering their customers money Transfer service from
account to account to any branch to any other bank branch in places where services are offered.
Internet banking
Through internet banking you can check your transactions at any time of the day and as
many times as you want to. Where as in a traditional method you get quarterly statements from
the bank. If the fund Transfer has to be demand outstation where the bank does not have a branch
the bank would demand outstation charges. Whereas with the help of online banking.
Mobile banking transactions
Now banks have started offering mobile banking and telemarking to their customers. The
expansion in the use and geographical reach of mobile phones has created new opportunities for
banks to use this mode for banking transactions and also provide an opportunity to expand
banking facilities to the excluded sections of the society.

Indian Currency

Name of the Indian Currency: The Indian Currency is called the Indian rupee and the coins are
called paisa. One rupee consists of 100 paisa.
Present denominations of bank notes in India: At Present notes in India are issued in the
denomination of Rs.5, 10, 20, 50, 100, 500 and 1000. These notes are called bank notes as they
are issued by the RBI. The printing of notes in the denominations of Rs.1 and Rs.2 has been
discontinued as these denominations have been coinised. However such notes issued earlier are
still in circulation. The printing of notes in the denomination of Rs.5 had also been discontinued
however it has been decided to reintroduce these notes in order to meet the gap between the
demand and supply of coins in this denomination.
Present available denomination of coins in India: Coins in India are available in
denominations of 50 paisa, one rupees , two rupees , five rupees and ten rupees up to 50 paisa
are called small coins and coins of rupee one and above are called rupee coins.
Can bank notes and coins be issued only in these denominations: Not necessarily. The RBI
can also issue notes in the denominations five thousand rupees and ten thousand rupees or any
other denomination that the central Government may specify. There cannot through be notes in
denominations higher than ten thousand rupees in terms of the current provisions of the RBI act
1934. Coins can be issued up to the denomination of Rs.1000
The role of the RBI in Currency management: The RBI manages Currency in India. The
Government on the advice of the RBI decides on the various denominations. The RBI also
coordinates with the Government in the designing of bank notes including the security features.
The RBI estimates the quantity of notes that are likely to be needed denomination wise and
places the indent with the various security presses through the Government of India. The notes
received from the security presses are issued and a reserve stock maintained. Notes received
from banks and Currency chests are examined. Notes fit for circulation are reissued and the
others are destroyed so as to maintain the quality of notes in circulation. The RBI derives its role
in Currency management on the basis of the RBI act 1934.
The role of Government of India: The responsibility for coinage vests with Government of
India on the basis of the coinage act 1906 as amended from time to time. The designing and
minting of coins in various denominations is also attended to by the Government of India.
Who decides on the volume and value of bank notes to be printed and on what basis: The
RBI decides upon the volume and value of bank notes to be printed. The quantum of bank notes
that needs to be printed broadly depends on the annual increase
In bank notes required for circulation purposes replacement of soiled notes and reserve
requirements.
Who decides on the quantity of coins to be minted: The Government of India decides upon the
quantity of coins to be minted.
How does the reserve bank reach the Currency to people: The RBI manages the Currency
operations through its offices located at Ahmedabad, Bengaluru, Bhopal, Bhubaneswar, Jaipur,
Kanpur, luck now, Mumbai, Nagpur, New Delhi, Patna, and Thiruvananthapuram? These offices
receive fresh notes from the note presses. Similarly the RBI offices located at Kolkata,

Hyderabad, Mumbai and New Delhi initially receive the coins from mints. These offices then
send them to the other offices of the reserve bank. The notes and rupee coins are stocked at the
Currency chests and small coins at the small coin depots. The bank branches receive the bank
notes and coins from the Currency chests and small coin depots for further distribution among
the public.
What is a Currency chest: To facilities the distribution of notes and rupee coins the RBI has
authorized select branches of banks to establish Currency chests . These are actually storehouses
where bank notes and rupee coins are stocked on behalf of the reserve bank. At Present there are
over 4422 Currency chests. The Currency chest branches are expected to distribute notes and
rupee coins to other bank branches in their area of operation.
What is a small coin : Some bank branches are also authorized to establish small coin depots to
stock small coins. There are 3784 small coin deposits spread throughout the country.
What happens when the notes and coins return from circulation: Notes and coins returned
from circulation are deposits at the offices if the reserve bank. The reserve bank then separates
the notes that are fit for reissue and those which are not fit for reissue. The notes which are fit for
reissue are sent back in circulation and those which are unfit for reissue are destroyed after
processing and shredding. The same is the case with coins. The coins with drawn are sent to the
mints for melting
From where can the General public obtain bank notes and coins: Banks notes and coins can
be obtained at any of the offices of the reserve bank and at all branches of banks maintaining
Currency chests and small coin deposits.
Why are Rs.1, Rs.2, and notes not being printed: volume wise the share of such small
denomination notes in the total notes in circulation was as high as 57 percent but constituted only
7 percent in terms of value. The average life of these notes was found a year. The cost of printing
and servicing these notes was thus not commensurate with their life. Printing of these notes was
therefore discontinued. These denominations were Therefore coinised However it has been
decided that notes in the denomination of Rs.5 be re-introduced so as to meet the gap between
the demand and supply of coins in this denomination.
Soiled and mutilated notes: soiled notes are notes which have become dirty and limp due to
excessive use. Mutilated notes are notes which are torn disfigured burnt, washed, eaten by white
ants etc. A double numbered note cut into two pieces but on which both the numbers are in fact
is now being treated as soiled note.
Can such notes be exchanged for value: Yes soiled notes can be tendered at all bank branches
for and exchange obtained.
How much value would one get in exchange of soiled or mutilated notes: Full value is
payable against soiled notes. Payment of exchange value of mutilated notes is governed by the
reserve bank of India rules 1975. These rules have been framed under section 28 of the RBI 134.
What if a note is found to be non-payable: Non-payable notes are retained by the receiving
banks and sent to the reserve bank where they are destroyed.

Where soiled mutilated notes accepted are: All banks are authorized to accept soiled notes
across their counters and pay the exchange value. They are expected to offer these services even
to non-customers. All public sector bank branches and Currency chest branches of private sector
banks are authorized to adjudicated and pay value in respect of mutilated notes. The RBI has also
authorized all commercial bank branches to treat certain notes in two pieces as soiled notes and
pay exchange value.
Special features Introduced in the notes of Mahatma Gandhi series: The new mahatma
Gandhi series of notes contain several special features the notes issued earlier these are:
Latent Image : A vertical band behind on the right side of the mahatma Gandhi portrait which
contains which contains latent image showing the denominational value 20, 50, 100, 500, 1000
as the case may be.

Automated Teller Machine (ATM)


Automated Teller Machine (ATM) is a computerized machine that provides the customers the facility of
checking balance, withdrawing and transferring the funds without visiting the branch of the bank

Important Points to Remember:


Technology Used: Broadband Integrated Service Digital network (BISDN)
Operating systems used in ATMs Primarily: Windows XP Professional and Windows XP Embedded
Communication Mode: Both Data and Voice
Operates on: layer 2 in OSI Model (Data Link Layer)
Connection Mode: Point-to-Point
Size of ATM Cells: 53 Bytes (48 bytes of data and 5 bytes of header information)

Facilities available at ATMs


Account Information
Cash Deposit
Regular bills payment
Purchase of Re-load Vouchers for Mobiles
Mini/Short Statement
Loan account enquiry
There are two types of cards supported by ATM
ATM Debit Card

Credit Card

ATM Debit Card:


ATM Debit Card is card given by bank to access your account easily using a machine called Automated
Teller Machine (ATM). Debit cards can be used for shopping purposes, without carrying the money. You
can use Debit cards while purchasing, but you must have money in your account. Purchased amount will
be deducted immediately from your account.

Advantages:
No need to carry money with you
You can use it for shopping purpose
No need of filling withdrawal and deposit slips
Money Security: No one can access it without knowing PIN Number
You can access your account from any corner of the world, no need to visit bank branch
Availability (24*7 Services
Disadvantages:
Sometimes you may face Server-Down Problem
Forgetting of Pin Number
Fees charged for using card in different bank may be expensive
Limitation of cash withdrawal

Credit Card:
Credit card is different from debit card, in debit card you must have money for using it. But for using
credit cards, its not necessary. If you use credit card for purchasing purposes it does not deduct your
money immediately.
Bank will pay the vendors and sends the bill to the customer every month.

Introduction
There are certain documents used for payment in business transactions and are Transferred freely
from one person to another. Such documents are called negotiable Instruments like cheque, bank draft,
bill of exchange, promissory notes etc. Thus we can say negotiable Instruments are a transferable
document where negotiable means transferable and Instrument means document. According to section 13
of the negotiable Instruments act 1881. A negotiable Instrument means promissory note bill of exchange
or cheque payable either to order or to bearer.
Features of a Negotiable Instrument
1. It is a written document
2. A negotiable Instrument payable to bearer is transferable merely by delivery whereas a Negotiable
Instrument payable to order is transferable by endorsement and delivery.
3. The holder of a Negotiable Instrument can sue upon it in his own name.
4. Its works in the same manner as money and like money it may also be transferred from one person to
another.
5. The Transferor does not need to give notice to any person at the time of transferring the Instrument.
6. It is the simplest and most convenient mode of assignment of a debt.
7. The tittle to the Instrument received by a bonafide transferee is not affected by defect in the title of the
transferor.
A. Negotiable Instruments
1. Promissory note
2. Bill of exchange

3. Cheque
4. Exchequer bill
5. Circular note
6. Dividend warrant
7. Share warrant
8. Bearer debenture
9. Bank note
10. Bank draft
B. Non Negotiable Instruments
1. Money order
2. Postal order
3. Deposit receipt
4. Share certificate
C. Quasi Negotiable Instruments
1. Bill of lading
2. Dock warrant
3. Carriers receipt
4. Letters of credit
5. Railway receipt
Types of Negotiable Instruments
According to the negotiable Instruments act 1881 there are just three types of Negotiable Instruments
example promissory note, bill of exchange and cheque. However many other documents have also been
recognized as negotiable instruments on the basis of custom and usage like treasury bills, share warrant
etc. They posses the features of Negotiability
Promissory note
A promissory note is an Instrument in writing containing an unconditional undertaking signed by
the maker to pay a certain sum of money to or to the other of a certain person. This type of a document is
called a promissory note.
Features of promissory note
1. A promissory note is unconditional
2. It is always in writing a verbal promise to pay a specified sum of money is not a promissory note.
3. It is made and signed by the debtor.
4. A promissory note is made as payable in the Currency of the country
5. A promissory note drawn for a specified duration should be adequately stamped According to its value.
6. A promissory note should be drawn for the payment of a specified sum.
Bill of exchange
A bill of exchange is an Instrument in writing, unconditional order signed by the maker directing a
certain person to pay a certain sum of money only to or to the other of a certain person or to the bearer of
the Instrument.
Features of bill of exchange
1. A bill must be in writing, duly signed by its drawer accepted by its drawee and properly stamped as per
Indian stamp act.
2. It must contain an order to pay words like please pay rs.5000 on demand and oblige are not used.
3. The order must be unconditional.
4. The order must be to pay money and money alone.
5. The sum payable mentioned must be certain or capable of being made certain.
6. The parties to bill must be certain.

Cheque
A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand. It is an unconditional order in writing be drawn by a customer on his bank.
Requesting the specifying bank to pay on demand a certain sum of money to a person named in the
cheque or to the bearer or to the order of a stated person.
A cheque being a bill of exchange must possess the following requirements.
1. A cheque must be drawn upon a specified banker
2. A cheque must be payable on demand.
3. A cheque must be signed by the drawer.
4. A cheque must be an unconditional order to pay a certain amount of money.
5. A cheque be dated.
Types of cheque
1. Open cheque:- A cheque is called open when it is possible to get cash over the counter at the bank.
2. Crossed cheque:- Since open cheque is subject to risk of theft it is dangerous to issue such cheques.
This risk can be avoided by issuing other types of cheque called crossed cheque.
3. Bearer cheque:- A cheque which is Payable to any person who presents it for payment at the bank
counter is called bearer cheque.
4. Order cheque:- An order cheque is one which is payable to a particular person. In such a cheque the
word bearer may be cut out or cancelled and the word order may be written. The payee can transfer an
order cheque to someone else by singing his or her name on the back of it..
Quasi Negotiable Instruments
Quasi Negotiable Instruments are those Instruments which can be transferred by endorsement and
delivery but the transferee does not get a better tittle that of the transferor. Therefore they cannot be
classified as negotiable Instruments and hence the negotiable Instruments act is not applicable to them.