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Core Banking

Definition of Banking : 

Definition of Banking Definition of Banking: The business of banking has been defined under section 5(b) of the Banking RegulationAct, 1949 as “Accepting, for the purpose of lending or investment, of deposits of money From the public repayable on demand or otherwise and withdrawable by cheque, draft,order or otherwise”. Banking is the backbone of a modern economy. Health of banking industry is one of the most important pre-conditions for sustained economic progress of any country. Nationalized banks and SBI and its subsidiaries form the heart of the Indian banking system. These two entities operate 70% of the total branches spread across the length and breadth of India. The law governing Banking Activities in India is called "Negotiable Instruments Act 1881".

History of Banking : 

History of Banking Bank of Hindustan, set up in 1870, was the earliest Indian Bank . Banking in India on modern lines started with the establishment of three presidency banks under Presidency Bank's act 1876 i.e. Bank of Calcutta, Bank of Bombay and Bank of Madras. In 1921, all presidency banks were amalgamated to form the Imperial Bank of India. Imperial bank carried out limited central banking functions also prior to establishment of RBI. It engaged in all types of commercial banking business except dealing in foreign exchange.Resrve Bank of India Act was passed in 1934 & Reserve Bank of India (RBI) was constituted as an apex bank without major government ownership. Banking Regulations Act was passed in 1949. This regulation brought Reserve Bank of India under government control. Under the act, RBI got wide ranging powers for supervision & control of banks. The Act also vested licensing powers & the authority to conduct inspections in RBI.

History of Banking : 

History of Banking In 1955, RBI acquired control of the Imperial Bank of India, which was renamed as State Bank of India. In 1959, SBI took over control of eight private banks floated in the erstwhile princely states, making them as its 100% subsidiaries. RBI was empowered in 1960, to force compulsory merger of weak banks with the strong ones. The total number of banks was thus reduced from 566 in 1951 to 85 in 1969. In July 1969, government nationalised 14 banks having deposits of Rs.50 crores & above. In 1980, government acquired 6 more banks with deposits of more than Rs.200 crores. Nationalisation of banks was to make them play the role of catalytic agents for economic growth. The Narsimham Committee report suggested wide ranging reforms for the banking sector in 1992 to introduce internationally accepted banking practices. The amendment of Banking Regulation Act in 1993 saw the entry of new private sector banks.Banking Segment in India functions under the umbrella of Reserve Bank of India - the regulatory, central bank.

How banks work : 

How banks work Banks are crucial to the economy of the country. Their primary function is to put their account holders' money to use by lending it out to others through loans of various kinds, like for buying homes, starting businesses, funding education etc. When you deposit your money in the bank, it goes into a big pool of money along with everyone else's, and your account is credited with the amount of your deposit. When you write cheques or make withdrawals, that amount is deducted from your account balance. Interest you earn on your balance is also added to your account. Banks are just like other businesses. They must make profit to survive. Banks make money by charging interest on loans, which is higher than the interest they pay on depositors' accounts. Thus the difference in the rate of interest amounts to profit. Banks also charge fee for the services they provide like checking, ATM access and overdraft protection. Loans have their own set of fee that goes along with them. Another source of income for banks is investments and securities. Whatever money the bank has collected, it can invest safely in mutual funds or securities and earn money.

Reserve Bank of India : 

Reserve Bank of India The Reserve Bank of India was set up in April 1935 with a share capital of Rs. 5 crores, each fully paid up. The entire share capital was in the beginning, owned by private shareholders. Established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. Central Office at Mumbai since inception Though originally privately owned, since nationalisation in 1949 fully owned by the Government of India

Structure of RBI : 

Structure of RBI The Reserve Bank was nationalised in 1949. The general superintendence and direction of the Bank is entrusted to Central Board of Directors of 20 members, consisting of the Governor and four Deputy Governors, one Government official from the Ministry 0 Finance, ten Directors nominated by the Government of India to give representation to important elements in the economic life of the country, and four Directors nominated by the Central Government to represent the four local Boards with headquarters at Bombay, Calcutta, Madras and New Delhi. Local Boards consist of five members each appointed by the Central Government for a term of four years to represent territorial and economic interests and the interests of co-operative and indigenous banks. Has 22 regional offices, most of them in state capitals.

Objective Of RBI : 

Objective Of RBI To regulate the issue of Bank Notes and keeping of reserves witha view to securing monetary stability in India and generally to operatethe currency and credit system of the country to its advantage

Functions of RBI : 

Functions of RBI By the Reserve Bank of India Act of 1934, all the important functions of a central bank have been entrusted to the Reserve Bank of India. Bank of Issue Banker to Government Bankers' Bank and Lender of the Last Resort Controller of Credit Custodian of Foreign Reserves

Bank of Issue : 

Bank of Issue Under Section 22 of the Reserve Bank of India Act, the Bank has the sole right to issue bank notes of all denominations. The distribution of one rupee notes and coins and small coins all over the country is undertaken by the Reserve Bank as agent of the Government. The Reserve Bank has a separate Issue Department which is entrusted with the issue of currency notes. The assets and liabilities of the Issue Department are kept separate from those of the Banking Department. Originally, the assets of the Issue Department were to consist of not less than two-fifths of gold coin, gold bullion or sterling securities provided the amount of gold was not less than Rs. 40 crores in value. The remaining three-fifths of the assets might be held in rupee coins, Government of India rupee securities, eligible bills of exchange and promissory notes payable in India. Due to the exigencies of the Second World War and the post-was period, these provisions were considerably modified. Since 1957, the Reserve Bank of India is required to maintain gold and foreign exchange reserves of Ra. 200 crores, of which at least Rs. 115 crores should be in gold. The system as it exists today is known as the minimum reserve system.

Issuer of Currency : 

Issuer of Currency Issues and exchanges or destroys currency and coins not fit for circulation. Objective: to give the public adequate quantity of supplies of currency notes and coins and in good quality

Banker to Government : 

Banker to Government The second important function of the Reserve Bank of India is to act as Government banker, agent and adviser. The Reserve Bank is agent of Central Government and of all State Governments in India excepting that of Jammu and Kashmir. The Reserve Bank has the obligation to transact Government business, via. to keep the cash balances as deposits free of interest, to receive and to make payments on behalf of the Government and to carry out their exchange remittances and other banking operations. The Reserve Bank of India helps the Government - both the Union and the States to float new loans and to manage public debt. The Bank makes ways and means advances to the Governments for 90 days. It makes loans and advances to the States and local authorities. It acts as adviser to the Government on all monetary and banking matters.

Bankers' Bank and Lender of the Last Resort : 

Bankers' Bank and Lender of the Last Resort The Reserve Bank of India acts as the bankers' bank. According to the provisions of the Banking Companies Act of 1949, every scheduled bank was required to maintain with the Reserve Bank a cash balance equivalent to 5% of its demand liabilites and 2 per cent of its time liabilities in India. By an amendment of 1962, the distinction between demand and time liabilities was abolished and banks have been asked to keep cash reserves equal to 3 per cent of their aggregate deposit liabilities. The minimum cash requirements can be changed by the Reserve Bank of India. The scheduled banks can borrow from the Reserve Bank of India on the basis of eligible securities or get financial accommodation in times of need or stringency by rediscounting bills of exchange. Since commercial banks can always expect the Reserve Bank of India to come to their help in times of banking crisis the Reserve Bank becomes not only the banker's bank but also the lender of the last resort.

Controller of Credit : 

Controller of Credit The Reserve Bank of India is the controller of credit i.e. it has the power to influence the volume of credit created by banks in India. It can do so through changing the Bank rate or through open market operations. According to the Banking Regulation Act of 1949, the Reserve Bank of India can ask any particular bank or the whole banking system not to lend to particular groups or persons on the basis of certain types of securities. Since 1956, selective controls of credit are increasingly being used by the Reserve Bank. The Reserve Bank of India is armed with many more powers to control the Indian money market. Every bank has to get a licence from the Reserve Bank of India to do banking business within India, the licence can be cancelled by the Reserve Bank of certain stipulated conditions are not fulfilled. Every bank will have to get the permission of the Reserve Bank before it can open a new branch. Each scheduled bank must send a weekly return to the Reserve Bank showing, in detail, its assets and liabilities. This power of the Bank to call for information is also intended to give it effective control of the credit system. The Reserve Bank has also the power to inspect the accounts of any commercial bank

Custodian of Foreign Reserves : 

Custodian of Foreign Reserves The Reserve Bank of India has the responsibility to maintain the official rate of exchange. According to the Reserve Bank of India Act of 1934, the Bank was required to buy and sell at fixed rates any amount of sterling in lots of not less than Rs. 10,000. The rate of exchange fixed was Re. 1 = sh. 6d. Since 1935 the Bank was able to maintain the exchange rate fixed at lsh.6d. though there were periods of extreme pressure in favour of or against the rupee. After India became a member of the International Monetary Fund in 1946, the Reserve Bank has the responsibility of maintaining fixed exchange rates with all other member countries of the I.M.F. Besides maintaining the rate of exchange of the rupee, the Reserve Bank has to act as the custodian of India's reserve of international currencies. The vast sterling balances were acquired and managed by the Bank. Further, the RBI has the responsibility of administering the exchange controls of the country

Other Functions of RBI : 

Other Functions of RBI As supereme banking authority in the country, the Reserve Bank of India, therefore, has the following powers: (a) It holds the cash reserves of all the scheduled banks. (b) It controls the credit operations of banks through quantitative and qualitative controls. (c) It controls the banking system through the system of licensing, inspection and calling for information. (d) It acts as the lender of the last resort by providing rediscount facilities to scheduled banks.

SUPERVISORY FUNCTIONS : 

SUPERVISORY FUNCTIONS In addition to its traditional central banking functions, the Reserve bank has certain non-monetary functions of the nature of supervision of banks and promotion of sound banking in India. The Reserve Bank Act, 1934, and the Banking Regulation Act, 1949 have given the RBI wide powers of supervision and control over commercial and co-operative banks, relating to licensing and establishments, branch expansion, liquidity of their assets, management and methods of working, amalgamation, reconstruction, and liquidation. The RBI is authorised to carry out periodical inspections of the banks and to call for returns and necessary information from them. The nationalisation of 14 major Indian scheduled banks in July 1969 has imposed new responsibilities on the RBI for directing the growth of banking and credit policies towards more rapid development of the economy and realisation of certain desired social objectives. The supervisory functions of the RBI have helped a great deal in improving the standard of banking in India to develop on sound lines and to improve the methods of their operation

PROMOTIONAL FUNCTIONS : 

PROMOTIONAL FUNCTIONS With economic growth assuming a new urgency since Independence, the range of the Reserve Bank's functions has steadily widened. The Bank now performs a varietyof developmental and promotional functions, which, at one time, were regarded as outside the normal scope of central banking. The Reserve Bank was asked to promote banking habit, extend banking facilities to rural and semi-urban areas, and establish and promote new specialised financing agencies. Accordingly, the Reserve Bank has helped in the setting up of the IFCI and the SFC; it set up the Deposit Insurance Corporation in 1962, the Unit Trust of India in 1964, the Industrial Development Bank of India also in 1964, the Agricultural Refinance Corporation of India in 1963 and the Industrial Reconstruction Corporation of India in 1972. These institutions were set up directly or indirectly by the Reserve Bank to promote saving habit and to mobilise savings, and to provide industrial finance as well as agricultural finance. As far back as 1935, the Reserve Bank of India set up the Agricultural Credit Department to provide agricultural credit. But only since 1951 the Bank's role in this field has become extremely important. The Bank has developed the co-operative credit movement to encourage saving, to eliminate moneylenders from the villages and to route its short term credit to agriculture. The RBI has set up the Agricultural Refinance and Development Corporation to provide long-term finance to farmers

Monetary Functions : 

Monetary Functions The monetary functions also known as the central banking functions of the RBI are related to control and regulation of money and credit, i.e., issue of currency, control of bank credit, control of foreign exchange operations, banker to the Government and to the money market. Monetary functions of the RBI are significant as they control and regulate the volume of money and credit in the country. The main objective of the Monetary Policy Department is formulation, monitoring and implementation of the annual monetary and credit policy. While the policy work in the Department constantly keeps evolving in the context of developments in the economy, with a view to enhancing its functional role with focus on monetary policy and monetary management, the Department currently places greater emphasis upon market intelligence/analysis, policy evaluation and related technical studies.

Monetary Function : 

Monetary Function Monetary projections and preparation of monetary budget Monitoring of movements in key monetary and banking aggregates including interest rates Periodic review of monetary and credit developments Monitoring and review of compliance of scheduled commercial banks with CRR and SLR stipulations. Sanctioning and monitoring of refinance limits/utilisation in respect of scheduled commercial banks. Collection, compilation and analysis of data on developments in the money market. Collection, compilation and analysis of data on mobilisation of resources by select all-India financial institutions. Analysis and discussions on resource management plans of banks. Continuous monitoring and review of prices and credit floor in respect of sensitive commodities.

Role of RBI and Control : 

Role of RBI and Control Collection and Publication of Information: The Reserve bank of India collects information and statistical data relating to general economic, financial and banking developments through its research department and publish them. RBIs Control Over Commercial Banks Licensing of Banks Permission for Opening Branches Inspection of Banks Power to Issue Directions

RBI control : 

RBI control 5.Control over management 6.Control over investments and advances 7.Collection of information 8.Powers in case of amalgamation and liquidation.

Acts Governing RBI : 

Acts Governing RBI Umbrella Acts Reserve Bank of India Act, 1934: governs the Reserve Bank functions Banking Regulation Act, 1949: governs the financial sector Acts governing specific functions Public Debt Act, 1944/Government Securities Act (Proposed): Governs government debt market Securities Contract (Regulation) Act, 1956: Regulates government securities market Indian Coinage Act, 1906:Governs currency and coins Foreign Exchange Regulation Act, 1973/Foreign Exchange Management Act, 1999: Governs foreign exchange market Acts governing Banking Operations Companies Act, 1956:Governs banks as companies Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970/1980: Relates to nationalisation of banks Bankers’ Books Evidence Act Banking Secrecy Act Negotiable Instruments Act, 1881 Acts governing Individual Institutions State Bank of India Act, 1954 Industrial Development Bank of India Industrial Finance Corporation of India National Bank for Agriculture and Rural Development Act National Housing Bank Act Deposit Insurance and Credit Guarantee Corporation Act

Types of Banks : 

Types of Banks Classified by customer group Commercial bank Industrial bank Private bank Classified by business Wholesale bank Retail Bank Classified by ownership Public sector Private Multinational Classified by nationality Domestic International

Overview of Banking : 

Overview of Banking Commercial Banks Commercial Banks constitute those banks which have been included in the Second Schedule of Reserve Bank of India(RBI) Act, 1934. RBI in turn includes only those banks in this schedule which satisfy the criteria laid down vide section 42 (60 of the Act. Some co-operative banks are scheduled commercial banks albeit not all co-operative banks are. Being a part of the second schedule confers some benefits to the bank in terms of access to accomodation by RBI during the times of liquidity constraints. At the same time, however, this status also subjects the bank certain conditions and obligation towards the reserve regulations of RBI : They are not only engaged in their traditional business of accepting and lending Of money but have diversified their activities into new fields of operations like Merchant banking, leasing, housing finance, mutual funds, venture capital etc,. They have introduced a number of innovative schemes for mobilising deposits I n addition to the above, they are providing valuable services to their customers by way of collecting cheques bills, pruchasing securities on behalf of customers ,issuing drafts, traveller’s cheques, gift cheques, accepting valuables for safe Custody.

Overview of Banking : 

Overview of Banking Classification of Commercial Banks

Overview of Banking : 

Overview of Banking Public Sector Bank Public sector banks have either the Government of India or Reserve Bank of India as the majority shareholder The public sector banks are classified as follows: State Bank and its subsidiaries. Nationalised Banks Regional Rural Banks

Overview of Banking : 

Overview of Banking State Bank of India The State Bank of India was established on Ist July 1955, under the State Bank of India Act, to take over the business of the Imperial Bank of India. It was started for the purpose of extending the banking facilities to rural and other unbanked areas on a large scale.The state bank of india was the first bank to be set up in the public sector. It is the largest commercial bank in India in terms of branch network, resources and man power. It enjoys the full support o the central and State Governments. As such, it is handling a major portion of the banking transactions of the Government and public sector undertakings. As a result,it has grown as a giant among the commercial banks in IndiaToday, it finds a place among the big five hundred banks in the world.

Overview of Banking : 

Overview of Banking Functions of Nationalised Banks The functions of nationalised banks are the same as that of other commercial banks.Like State Bank of India, they have also diversified their activities in the field of merchant banking,leasing, housing finance and mutual funds etc. For which, they have also floated their subsidiaries like Can Fin AHomes Ltd., Ind., bank housing, Can Bank Mutual Fund, Indian Bank mutual fund, PNB and BOI Mutual Funds etc. Objects of Nationalisation. 1.Elimination of control over the banks by a few people. 2.Diversification of the flow of bank credit towards priority sectors such as agriculture,small scale industries, exports,weaker sections and backward areas. 3.Greater mobilisation of savings through bank deposits. 4.Extension of banking facilities to unbanked areas by widening the branch network of banks particularly in rural and semi-urban areas.

Overview of Banking : 

Overview of Banking Regional Rural Banks A Regional Rural Bank is a separate body corporate estabished by the Government of India as per the provisions of the Regional Rural Bank Act.As per the Act, the Government may start a Regional Rural Bank on request made by a commercial bank, called Sponsor Bank. Theses sponsor banks have to assist the RRBs for training the personnel and provide the managerial and financial facilities. Functions 1.Granting of Agricultural Loans. 2.Granging of Small Loans.

Overview of Banking : 

Overview of Banking Private Sector Banks The commercial banks which are not owned by the Government of India are known as private sector banks. Though they are not owned by the Government, the overall control over them lies with the Reserve Bank of India. The Private sector banks are classified in to two categories: 1.Private sector Indian banks 2.Private sector Foreign banks

Overview of Banking : 

Overview of Banking Private Sector Indian Banks These banks are incorporated as companies in India under the Companies Act, 1956. They are wholly owned and managed by a group of individuals who have contributed to the share capital of such banks. These banks are managed by a board of directors,consisting of a majority of the directors elected by the shareholders in the annual general meeting and the shareholders in the annual general meeting and a few nominated by the Reserve Bank of India. But the nominated directors have no voting rights. A chairman of the bank is appointed by the RBI of the chairman of the bank is appointed by the RBI on the basis of recommendations made by the board.

Overview of Banking : 

Overview of Banking Private Sector Foreign Banks The foreign banks operating in India are classified under this category. Now, there are twenty three foreign banks working in India. Out of which eight bank commenced their operations only during the last decade. These banks are also treated at par with the private sector Indian banks for the purposes of issuing guidelines and exercising control over them by the Reserve Bank of India. But the guidelines in respect of priority sector lending have not been made applicable to foreign banks. However, in financing advised to show increased involvement in financing small-scale industrial units professional and self-employed persons retail traders etc. The branches of foreign banks are located only at urban and metropolitan centres which have a large business potential. Therefore, they are mainly concentrating and providing financial assistance to business concerns rather than on agriculture.

Types of Banks based on business : 

Types of Banks based on business Whole sale banking or Corporate Banking The Bank's target market is primarily large, blue-chip manufacturing companies in the Indian corporate sector and to a lesser extent, emerging mid-sized corporates. For these corporates, the Bank provides a wide range of commercial and transactional banking services, including working capital finance, trade services, transactional services, cash management, etc. The bank is also a leading provider of structured solutions which combine cash management services with vendor and distributor finance for facilitating superior supply chain management for its corporate customers. Based on its superior product delivery / service levels and strong customer orientation, the Bank has made significant inroads into the banking consortia of a number of leading Indian corporates including multinationals, companies from the domestic business houses and prime Public Sector companies. It is recognised as a leading provider of cash management and transactional banking solutions to corporate customers, mutual funds, stock exchange members and banks.

Types of banks based on Business : 

Types of banks based on Business Retail Banking The objective of the Retail Bank is to provide its target market customers a full range of financial products and banking services, giving the customer a one-stop window for all his/her banking requirements. The products are backed by world-class service and delivered to the customers through the growing branch network, as well as through alternative delivery channels like ATMs, PhoneBanking, NetBanking and MobileBanking.

World Bank Definition : 

World Bank Definition World Bank Conceived during World War II at Bretton Woods, New Hampshire, the World Bank Group is one of the world's largest sources of development assistance, working on dozens of programmes like poverty reduction, relief during natural disasters, humanitarian emergencies, promotion of education and better health on a global scale through its plans. It works in more than 100 developing economies with the primary focus of helping the poorest people and the poorest countries.

Banking Definitions : 

Banking Definitions Banker and Customer “ A banker is defined as one who in the ordinary course of business Honours cheques drawn upon him by persons from and for whom he receives money on current account” as per this definition, the receiving of deposits of money from the public and repaying the same by honouring their cheques are the essential functions to the performed by a person to become a banker. A customer is define as a person who deals with a banker often for his business transaction Bank AccountA Bank Account is the record of financial relationship a customer has with the Bank. It contains details of all the moneys deposited with the Bank and withdrawn from it.

Activities of a Bank : 

Activities of a Bank The banking activities can be classified as :Accepting Deposits from public/others (Deposits)Lending money to public (Loans) Transferring money from one place to another (Remittances) Acting as trustees Keeping valuables in safe custody Collection Business

1)Accepting Deposits : 

1)Accepting Deposits Banks are also called custodians of public money. Basically, the money is accepted as deposit for safe keeping. But since the Banks use this money to earn interest from people who need money, Banks share a part of this interest with the depositors. The quantum of interest depends upon the tenor - length of time for which the depositor wishes to keep the money with the Bank - and the ease of withdrawal. The thumb rule is, longer the tenor, higher the rate of interest and lesser the restrictions on withdrawal, lesser the interest. Exceptions, however, exist. Deposits are accepted from both resident (domestic) or non-resident Indian customers. It is the business of the banker to accept deposits so that he can lend it to others and earn interest. Depending upon the liquidity position of the market and the size of deposit, the earnings can vary and if the size of the deposit is big enough, it is advisable to shop around and get the best rate.

Types of Deposit : 

Types of Deposit Type of deposit accounts (Domestic Customers) Fixed Deposit Accounts Demand Deposits Savings Account Current account Most of the other products offered by the Banks viz. Recurring Deposit Account, Multi Option Deposit Account, Special Term Deposit Accounts, Current Fixed Account etc. are essentially combinations of the above basic type of accounts and are packaged by different Banks to attract different groups of customers.

Fixed deposits : 

Fixed deposits The term 'fixed' here denotes tenure. Fixed Deposit, therefore, presupposes a length of time for which the depositor decides to keep the money with the Bank and the rate of interest payable to the depositor is decided by this tenure. Rate of interest differs from Bank to Bank. Generally, the rate is highest for deposits for 3-5 years. This, however, does not mean that the depositor loses all his rights over the money for the duration of the tenor decided. Deposits can be withdrawn before the period is over. However, the amount of interest payable to the depositor, in such cases goes down.

TIME/TERM Deposits : 

TIME/TERM Deposits If the Deposit is held in the Bank for a Particular Term or Tenor it is called Term Deposit or Time Deposit It is classified based on the Time Buckets as Short Term and Long Term deposits. Short Term : A Deposit held in the Bank for a Period of Less than 6 months is called Short Term Deposits. E.g. (Fixed Deposit, Reinvestment FDs, Recurring Deposits) Where the Tenor is less than 6 months.

TIME/TERM Deposits : 

TIME/TERM Deposits Long Term Deposits If the Deposit is maintained in the Bank for a period of more than 6 months it is called Long Term Deposits E.g (Fixed Deposits, Reinvestment FDs, Recurring Deposit) where the Tenor is more than 6 months.

Reinvestment Fixed Deposits : 

Reinvestment Fixed Deposits They Impose Compound Interest to the principle amount given by the customer. Here the interest will be calculated quarterly and will get added with the Principle each quarter. And thus you get the high yield on the marutity date

Savings Account : 

Savings Account As the name denotes, this account is ideal for parking your temporary savings. This account gives you a nominal rate of interest and you can withdraw money as and when the need arises. The position of account is depicted in a small book called 'Pass Book'. Such accounts should be treated as a temporary parking area because the rate of interest is much less than Fixed Deposits. As soon as your savings accumulate to an amount which you can spare for a certain length of time (even three months), shift this money to Fixed Deposit. It should be understood that your returns on the money kept in Savings Bank account are the least but the flexibility to withdraw is the highest. Rate of Interest on Savings Account is fixed by RBI

Savings Account : 

Savings Account Its Object is to promote the habit of Savings among the people. Mainly for Individuals with Joint or E(S) Accounts. Limited number of Transaction and with limited amount. Third party cheques with endorsement cannot be deposited for collection. No Over Draft Facility is Given. Interest rate of 3.5% per annum with minimum balance from 10th to last date of the month.

Current Account : 

Current Account Current account is an account with minimum amount of restrictions. Most individuals do not need this account. You need this account only if you make a number of deposits and withdrawals in a single day . Banks accept deposits in current account and allow unlimited withdrawals subject to a minimum balance. This minimum balance differs from Bank to Bank. NO interest is payable on a current account. Opening of a current account is indicated in the case of a business enterprise or high worth individuals who deal with a lot of third party cheques, drafts etc. or who may at times need to borrow money from the Bank against some security.

NRI Accounts : 

NRI Accounts Any Indian living abroad for a period of more than 180 days is generally termed as a non-resident indian. The NRI accounts are classified as follows 1.NRE(Non resident external) 2.NRO(Non resident ordinary) 3.FCNR(Foreign Currency non resident)

NRI Accounts : 

NRI Accounts NRE (Non-resident external Rupee account) It can be in the form of savings or fixed deposits. No local inflow allowed. Can be Repatriable. (Taken outside india) It can be opened only by foreign remittance. NRO (Non- Resident ordinary Rupee Account) When a Resident indian becomes a non-resident,his domestic resident account becomes NRO account. a) It can be in the form of savings or fixed deposits. b) It is non-repatriable.(canot be sent to outside india) c) Legitimate dues such as house rent can be credited. d) By Foreign remittance .

NRI Accounts : 

NRI Accounts FCNR (Foreign currency non-resident) It is maintained in any one of the foreign currency. (eg:GBP,Euro,Yen,USD) It can be repatriable. It can be closed and converted to indian rupee when needed. It can be maintained only as term deposit.

2)Lending Money to Public : 

2)Lending Money to Public Lending money is one of the major activities of any Bank. Banks accept deposit from public for safe-keeping and pay interest to them. They then lend this money to earn interest on this money. In a way, the Banks act as intermediaries between the people who have the money to lend and those who have the need for money to carry out business transactions. The difference between the rate at which the interest is paid on deposits and is charged on loans, is called the "spread". Banks lend money in various forms and they lend for practically every activity. Let us first look at the lending activity from the point of view of security. Loans are given against or in exchange of the ownership (physical or constructive) of various type of tangible items.

Lending of Money : 

Lending of Money Some of the securities against which the Banks lend are : Commodities Debts Financial Instruments Real Estate Automobiles Consumer durable goods Documents of title

Lending of Money : 

Lending of Money Apart from the above categories, the Banks also lend to people on the basis of their perceived personal worth. Such loans are called clean Cash credit AccountThis account is the primary method in which Banks lend money against the security of commodities and debt. It runs like a current account except that the money that can be withdrawn from this account is not restricted to the amount deposited in the account. Instead, the account holder is permitted to withdraw a certain sum called "limit" or "credit facility" in excess of the amount deposited in the account.Cash Credits are, in theory, payable on demand. These are, therefore, counter part of demand deposits of the Bank. OverdraftThe word overdraft means the act of overdrawing from a Bank account. In other words, the account holder withdraws more money from a Bank Account than has been deposited in it.

Cash Credit vs Overdraft : 

Cash Credit vs Overdraft How does this account then differ from a Cash Credit Account?The difference is very subtle and relates to the operation of the account. In the case of Cash Credit, a proper limit is sanctioned which normally is a certain percentage of the value of the commodities/debts pledged by the account holder with the Bank. Overdraft, on the other hand, is allowed against a host of other securities including financial instruments like shares, units of mutual funds, surrender value of LIC policy and debentures etc. Some overdrafts are even granted against the perceived "worth" of an individual. Such overdrafts are called clean overdrafts.

Types of lending : 

Types of lending Bill DiscountingBill discounting is a major activity with some of the smaller Banks. Under this type of lending, Bank takes the bill drawn by borrower on his(borrower's) customer and pay him immediately deducting some amount as discount/commission. The Bank then presents the Bill to the borrower's customer on the due date of the Bill and collect the total amount. If the bill is delayed, the borrower or his customer pay the Bank a pre-determined interest depending upon the terms of transaction. Term LoanTerm Loans are the counter parts of Fixed Deposits in the Bank. Banks lend money in this mode when the repayment is sought to be made in fixed, pre-determined installments. This type of loan is normally given to the borrowers for acquiring long term assets i.e. assets which will benefit the borrower over a long period (exceeding at least one year). Purchases of plant and machinery, constructing building for factory, setting up new projects fall in this category. Financing for purchase of automobiles, consumer durables, real estate and creation of infra structure also falls in this category.

Loans : 

Loans Classification of loansAnother way to classify the loans is through the activity being financed. Viewed from this angle, bank loans are bifurcated into : Priority sector lending Commercial lending

Priority Sector Lending : 

Priority Sector Lending The Government of India through the instrument of Reserve Bank of India (RBI) mandates certain type of lending on the Banks operating in India irrespective of their origin. RBI sets targets in terms of percentage (of total money lent by the Banks) to be lent to certain sectors, which in RBI's perception would not have had access to organised lending market or could not afford to pay the interest at the commercial rate. This type of lending is called Priority Sector Lending. Financing of Small Scale Industry, Small business, Agricultural Activities and Export activities fall under this category. This is also called directed credit in Indian Banking system. Financing Priority Sector in the economy is not strictly on commercial basis as not only the general approach is liberal but also the rate of interest charged on such loans is less. Export finance is, in fact, available at a discount of 20% or more on the normal rate of interest to Indian corporates. Part of the cost of this concession is borne by RBI by means of refinancing such loans at concessional rate. Indian Banks, therefore, contribute towards economic development of the country by subsidizing the business activities undertaken by entrepreneurs in the areas which are consider "priority sector" by RBI.

Commercial Lending : 

Commercial Lending This is the mainstay of Indian Banking - its bread and butter activity. Although historically, this activity had been relegated to a secondary position as banks were driven by the desire to excel themselves in what is known as "priority sector banking" yet it is this part of their loan portfolio which has kept them afloat and help meet the costs. This activity survived despite a number of restrictions imposed on it in the past. With financial sector reforms, the focus has shifted from "priority sector banking" and commercial lending has been reinstated to its rightful place. Today many banks focus on this activity for improving their bottom lines. Fresh and innovative products are being launched to facilitate the corporate customer who forms the core of this business. There is big competition among banks to secure bigger share of this business At present, commercial loans are available for practically any kind of activity and also for both long and short tenures. Based on customer profile, these loans are of two types : Corporate Loans Retail Loans

Corporate loans : 

Corporate loans These loans are meant for corporate bodies (and bigger ones among other entities like proprietorships, partnerships and HUFs) engaged in any legal activity with the object of making profit. Banks lend to such entities on the strength of their balance sheet, the length of cash cycle and depending upon the products available with individual banks. Lending on the strength of balance sheetBanks analyse the audited balance sheets of the prospective borrowers to appraise their needs as also the capacity to absorb credit. Prospective borrowers are required to furnish their financial details in the form of CMA data to the bankers and file an application for the loan. This application is processed and a line of credit (limit) allowed to the borrower. The overall limit (line of credit) is structured into various type of facilities or accounts - each with its own limit within the overall line of credit - depending upon the needs of the customer. The borrower is then asked to execute Bank's standard documents, surrender the security or title to the security to the Bank and open suitable accounts (mostly Cash Credit accounts with different underlying securities) with the Bank. Thereafter the borrower can operate these accounts within the limit (line of credit). There are many type of loan products available for corporate clients in India. The loans are structured depending upon the need of the client and the product available with the lending Bank

Retail Loans : 

Retail Loans This type of lending is meant for very small entrepreneurs as well as individuals who are engaged in gainful commercial activity and have the capacity to repay the loan. Loans are given on the strength of the means of the borrower with an eye on the repaying capacity. The latter is judged through the cash streams (income) available with the borrower for repayment of the loan. Loans for purchase of automobiles/consumer durable itemsMost banks nowadays have a product for financing the purchase of automobiles and other consumer durable items. The quantum of loan is generally determined by the repayment capacity of the prospective borrower. This in turn, depends upon the monthly income. Most Banks have their own method to calculate the maximum monthly repayment capacity of a person. Thereafter, a loan for which Equated Monthly Instalment (EMI) is within this capacity is considered the outer limit for a person. The bank will be glad to finance to this extent for the purchase of an automobile or any other consumer durable item. Most Banks judge the monthly income with reference to either the latest salary certificate from the employer ( in case of employees) or the last year's income tax return (in case of self employed persons). Other methods are also employed to appraise the maximum limit considered desirable for a person.

3)Remittances : 

3)Remittances Apart from accepting deposits and lending money, Banks also carry out, on behalf of their customers the act of transfer of money - both domestic and foreign.- from one place to another. This activity is known as "remittance business" . Banks issue Demand Drafts, Banker's Cheques, Money Orders etc. for transferring the money. Banks also have the facility of quick transfer of money also know as Telegraphic Transfer or Tele Cash Orders. In Remittance business, Bank 'A' at a place 'a' accepts money from customer 'C' and makes arrangement for payment of the same amount of money to either the customer 'C' or his "order" i.e. a person or entity, designated by 'C' as the recipient, through either a Branch of Bank 'A' or any other entity at place 'b'. In return for having rendered this service, the Banks charge a pre-decided sum known as exchange or commission or service charge. This sum can differ from bank to bank. This also differs depending upon the mode of transfer and the time available for effecting the transfer of money. Faster the mode of transfer, higher the charges.

Products of Remittances : 

Products of Remittances Cheque Demand draft Payorder Mail transfer

Cheque : 

Cheque Cheque : According to Negotiable Instruments Act ,1881 A "cheque" is a bill exchange drawn on a specified banker and not expressed to be payable otherwise than on demand. A cheque is a negotiable instrument and it is freely transferable from one person to another. It performs all the functions of a currency note though it is not a legal tender money. It is an instrument in writing containing an unconditional order, signed by the maker, directing a certain person to pay a certain sum of money only to the order of a certain person or to the bearer of the instrument.

DD or Demand Draft : 

DD or Demand Draft Demand Draft: It is an instrument issued by one Branch of the Bank favoring the Party Payable at a different Branch of the Bank. For Example: Issuing Branch is Trichy Br. And Paying Branch Chennai and the Party say XYZ .. It is surely honourable instrument and will never be returned unless any discrepencies

Pay order : 

Pay order Pay Order: It is an instrument issued and paid by the same branch itself. It is also called Manager’s Cheque or Banker’s Cheque Any Payments by the bank such as issuance of loans or expenses of Bank premises is made by issuing Pay orders

Mail Transfer : 

Mail Transfer Mail Transfer: It is Form of Money Transfer through mail From the issuing branch to the favouring Branch of the Bank. Telegraphic Transfer: It is also equivalent to mail transfer but here the credit advice is encoded and sent as telex message and amount gets credited on the same day itself.

Cheque Vs Draft : 

Cheque Vs Draft Difference between cheque and draft: Cheque It is drawn by a customer of the bank This facility is available to the customers (A/C Holders) It can be countermanded It can be made payable to bearer or order It may be dishonoured Draft It is drawn by one branch on another branch of a bank This facility is available to all It cannot be countermanded It can be made payable to the order but not the bearer. It must always be honoured.

Types of Cheque : 

Types of Cheque Ante- Dated cheque: A cheque which bears a date prior to the date of its issue is known as an ante- dated cheque. The banker may honour it when it is presented for payment before the expiry of six months from its date. Post Dated Cheque: A cheque which bears a date subsequent to the date of its issue is called post dated cheque. The banker should honour it only on or after the date mentioned in it. Stale cheque: the cheque becomes invalid for payment when it crosses or after 6 months from the date of issue. Order-cheque: A cheque is an order cheque it it is expressed to be payable (1) to the order of a certain person (e.g pay to Narayanan or order). (2) to a certain person without restricting its further transfer (e.g Pay to Narayan)

Types of Cheque : 

Types of Cheque 5. Bearer Cheque: A Cheque is a Bearer Cheque if (1) it is expressed to be payable to the bearer (2) the only or last endorsement on it is blank. A bearer cheque is transferable by mere delivery without endorsement. Therefore a bearer aheque is always a bearer cheque, but an order cheque will become a bearer one when it is endorsed in blank. Marking of a Cheque: When a cheque is marked (or) certified as “good for Payment” by the drawee bank it is known as marking of a cheque. Crossing: General Crossing Special Crossing

Types of Crossing : 

Types of Crossing General Crossing: There must be two parallel lines on the face of the cheque Such lines must be in cross wise direction (i.e Transverse). Between the lines the word ‘and company’ or its abbreviation may be written.similarly the word ‘not negotiable’ may also be included in a crossing.

Types of Crossing : 

Types of Crossing Special Crossing: The name of a banker must be written across the face of a cheque in addition to the name of a specified banker on whom the cheque has been drawn. The Parallel transeverse lines or words like ‘not negotiable’, ‘account payee only’ may also be added with such name. However these lines and words are not necessary for constituting a special crossing. Therefore it is clear that the name of the banker alone is sufficient to constitute a special crossing.

4)Acting as Trustee : 

4)Acting as Trustee Under section 3 of Indian Trusts Act, 1882 a trust is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. Banks also act as trustees for various requirements of the corporates, Government and General Public. For example, whenever a company wishes to issue secured debentures, it has to appoint a financial intermediary as trustee who takes charge of the security for the debenture and looks after the interests of the debenture holders. Such entity necessarily have to have expertise in financial matters and also be of sufficient standing in the market/society to generate confidence in the minds of potential subscribers to the debenture. Banks are the natural choice. For general public also the Banks normally have a facility called "safe custody" where Banks act as trustees.

5)Keeping Valuables in safe custody : 

5)Keeping Valuables in safe custody Lockers: Bankers are in the business of providing security to the money and valuables of the general public. While security of money is taken care of through offering various type of deposit schemes, security of valuables is provided through making secured space available to general public for keeping these valuables. These spaces are available in the shape of LOCKERS. The latter are small compartments with dual locking facility built into strong, fire and burglar resistant cupboards. These are stored in the Bank's Strong Room and are fully secure. Lockers can neither be opened by the hirer or the Bank individually. Both must come together and use their respective keys to open the locker.

6)Collections : 

6)Collections Apart from transferring money from one place to another, Banks are also in the business of "collecting" your money from other places. For instance, if you have received a payment by way of a cheque or DD drawn or payable at any station other than your own, you can deposit it in your account with your local banker and request for collection of the amount. The Bank will send the cheque to its branch at that centre and get the amount collected for a small fee. The amount of cheque/ draft will be deposited in your account and the fee deducted separately from your account. Banks also undertake collection of bills of exchange - both usance and demand - for their business clientele.

Clearing and collection : 

Clearing and collection Inward Clearing (MICR) Outward Clearing (MICR) High Value Clearing (Non-MICR) Outstation Cheques for Collection (OCC) Inward Cheques for Collection (ICC) Inward/outward Bills for Collection (IBC & OBC) Local Cheque Purchase/Discount (LCP) & Cheque Purchase (CP)

Clearing and collection : 

Clearing and collection Inward Clearing Process The Clearing process which involves debiting customers account and releasing funds to the bank from whom the cheque is presented Also called MICR I/W Clearing. Accounting Procedure: Debit all cheques in Party’s Account Credit to the presenting bank

Clearing and collection : 

Clearing and collection Outward Clearing The Clearing process which involves crediting customer account and realising funds from banks on whom the cheque is drawn Also called MICR O/W Clearing. Accounting Procedure (3 Days Concept) Book all the Clearing cheques (Day 1) Mark the Booked Statues to Credit Status (Day2) Mark it to Realised Status (Day3)

Clearing and collection : 

Clearing and collection High value Clearing The cheques with minimum fifty thousand value in some cities or Onelakh in some places are sent for clearing and gets realised on the Same day itself. Accounting Procedure: Book all cheques in Separate Zone (say Zone 5) The Fate of Cheque received in Evening. Now Credit and Realise the Cheques on the same day itself.

Clearing and collection : 

Clearing and collection Outstation Cheques for Collection The Cheques which do not come under a regional clearing houses and which pertains to other city clearing houses are called outstation cheques. Accounting Procedure: Book the cheques in OCC Batch entry. Send the instrument to that City where Branch is available or to different Bank. Generally charges are collected (Commission) Get the cheques realised after a week when that Bank sends the Advice or a Demand Draft (Other Bank)

Clearing and collection : 

Clearing and collection Inward Cheques for Collection The Cheques which comes for collection from a different Branch/Bank in a different city is termed as ICC. (Inward Cheques for Collection). Accounting Procedure: Book the cheques in ICC and send it for Local Clearing. After the cheque is passed, then realise the ICC Zone Issue a DD Favouting Karur Vysya Bank and send it to the OCC Branch/Bank.

Clearing and collection : 

Clearing and collection Inward and Outward Bills for collection The Documents which involve a Domestic Trade Settlement such as Invoices are sent along with a LR number (Lorry Receipt) are Sent to the Banks for Collection and hence termed as Bills. They are of 2 categories Inward Collection Bills Outward Collection Bills.

Clearing and collection : 

Clearing and collection Cheque Purchase (CP) and Local Cheque Purchase (LCP) Cheque purchase also called Cheque Discount Local Cheque Purchase done for (Local MICR Clearing Cheques). Cheque Purchase done for (Outstation Cheques for Collection)

Clearing and collection : 

Clearing and collection Cheque Bouncing Also called Cheque Return When there is no balance in a Party’s A/C. The cheques are generally refused. Criteria for a Cheque Return- Return MEMO Any Stop Payment informed by written statement by the issuer. (Payement Stopped by Drawer) When there is no balance in Account (Insuffucient Funds) When a Granishee order issued by court where we mark debit stopped (in case of Liquidation) Effects Not Cleared (Refuse to pass it in Against Clearing amount). Not a valid instrument Account details wrong

Banker’s Instruction : 

Banker’s Instruction Stop Payment: It is an under taking given by the Banker to Stop the Payment of the Cheque as per the customer’s instruciton Criteria needed for stop payment: Cheque number Cheque issued date Cheque amount and payee’s Name.

Banker’s Instruction : 

Banker’s Instruction Standing Instruction It is an instruction given by the Customer to the Banker to debit or credit the customer’s account on a specified date without the presence of the customer at the bank. For example: payment of utility Bills Payment of LIC insurance Premium or a recurring deposit. Criteria needed: Customer’s Account Number Number of Installments and amount. Specified date of action.

Electronic Transfer : 

Electronic Transfer ELECTRONIC FUND TRANSFER SYSTEM (EFT SYSTEM) OBJECTIVES: TO PROMOTE AND DEVELOP AN ELECTRONIC FUNDS TRANSFER MECHANISM WHEREBY BANKS WOULD BE ABLE TO PROVIDE REMITTANCE TO THEIR CUSTOMERS FROM ANY OF THEIR BRANCHES, AT "DESIGNATED CENTRES" TO ANY OTHER BRANCH OF THE SAME OR OTHER BANKS AT THE SAME OR ANY OTHER "DESIGNATED CENTRE". SALIENT FEATURES: Acceptable for TRANSFER transactions only - No transactions in cash. The maximum limit per transaction is Rs.2 crores. Commission & exchange rates - Rs.25.00 per transaction ELECTRONIC CLEARING SERVICES( ECS) It is similar to EFT process.Funds transfer between accounts happen based on the standing instructions issued by customers

Banking Terms : 

Banking Terms SWIFT SWIFT is an international computer network specially dedicated to handle the international inter-bank payments and message traffic. A group of 239 banks came together and formed a co-operative society named as SOCIETY FOR WORLDWIDE INTERBANK FINANCIAL TELECOMMUNICATION (SWIFT) in 1974. Presently, SWIFT is in operation in more than 4000 institutions, representing nearly 120 countries. OBJECTIVES OF SWIFT: To standardise the Fund Transfer instructions among the member participants. Immediate delivery of payment instructions and related messages. To enhance the security levels of such transfers. To reduce the cost of message transmission. To provide service that is worldwide, round the clock and available on all days of the week.

Banking Terms : 

Banking Terms SERVICES OFFERED: SWIFT offers services and transactions essential for efficient international banking operations such as:- Customer and bank payments. Credit/debit advices. Statements. Foreign exchange and money market confirmation. Collections. Documentary credits ( L/C). Interbank securities trading. Balance reporting. Payment systems. Travellers cheques. Guarantees. Cash Letters. BENEFITS OF SWIFT: The combined advantages of reduced cost, higher speed and rigid control with greater security for the increasingly voluminous data are of special interest to all banks as well as to the customers. Standard procedures throughout the world using standard message formats. Retrival of any message.

Banking Terms : 

Banking Terms Savings account -- A bank account on which you can earn a small interest on the amount deposited with the bank.Joint account -- A bank account established in the names of more than one person (e.g., parent/child, wife/husband). It can be operated by both individuals separately. Assets are items of monetary value (e.g., house, land, car), owned by an individual or a company.

Banking Terms : 

Banking Terms DEMATIt is the process by which physical certificates of an investor are converted in electronic form and credited in the investor's account with his Depository Participant (DP). The investor can dematerialise only those certificates that are registered in his name and these certificates belong to the list of securities admitted for dematerialisation at NSDL. REMAT The investor is allowed to get back the securities in the physical form, by requesting NSDL through his DP. NSDL intimates the registrar who prints the certificates. This process is knows as 'REMATERIALISATION'

Banking terms : 

Banking terms CERTIFICATE OF DEPOSITThis is a negotiable interest-bearing debt instrument of specific maturity issued by banks. A CD represents the title to a TIME DEPOSIT with a bank, but is a liquid instrument since it can be traded in the Secondary Market. It is a Money Market instrument with a maturity of less than one year and is issued at a discount from the face value. Interest is the difference between the issue price and the face value, which the holder receives at maturity. Principal -- The original amount of money borrowed, deposited, or invested before interest is added to it.Interest -- The fee paid for the use of money. Interest may be paid, for example, by an individual to a bank for credit card use, or by a bank to an individual for holding a savings account. Usually banks have different ways of calculating interest.Compound interest -- Interest calculated not only on the original principal, but also on the interest already accrued.

Banking Terms : 

Banking Terms Credit - Credit, in context of banks means borrowing money on the promise to repay at a later date. In any credit arrangement there is a creditor (a person, bank, store, or company to whom money is owed) and a debtor (the person who owes money). Charge card-- A plastic card that gives access to a line of credit. The line of credit is theoretically limitless, but users are expected to repay their balance in full every month.Credit card -- A plastic card that gives access to a line of credit. Users are limited in how much they can charge, but they are not required to repay the full amount each month. Instead the balance (or "revolve") accrues interest with only a minimum payment due. Credit rating -- A financial institution's evaluation of whether a person or company is suitable to receive credit. Credit ratings are based on an individual's character, capacity to repay, and capital

Banking Terms : 

Banking Terms Debit -- A bookkeeping term for a sum of money owed by an individual or institution; a charge deducted from an account. Debit card -- A banking card that can be used at ATM's (automated teller machine) and has POS (point-of-sale) features, meaning that it can be used at shops or stores to purchase goods and services electronically. The card replaces cash or cheques. The transaction amount is deducted from the cardholder's account. ATM (Automated Teller Machine) A fully automated machine from where you can make money transactions like drawing money, depositing money, checking your account etc. All you need is an ATM card to carry out the transaction.Line of credit -- An authorized amount of credit given to an individual, business, or institution. Mortgage -- A long-term loan obtained by individuals to buy a home that legally transfers ownership from the debtor to the creditor until the debt is paid.

Banking Terms : 

Banking Terms CRR Among the tools available to the Central Bank of a country to influence and control the monetary aggregates of the country, the most powerful is that relating to cash reserve requirements imposed on banks. Under section 42 (1) of RBI act, 1934, every scheduled commercial bank was required to maintain with the RBI every fortnight a minimum average daily cash reserve equivalent to 3% of its Net Demand and Time Liabilities (NDTL) outstanding as on the Friday of the previous week. The RBI is empowered to vary the CRR between 3% and 15%. RBI is using the CRR either to impound the excess liquidity or to release funds needed for the economy from time to time. At present CRR rate is 4.75% from 16/11/02SLR Under section 24 (b) of the Banking Regulation Act, 1949, every bank is required to maintain at the close of business every day, a minimum proportion of their Net Demand and Time Liabilities as liquid assets in the form of cash, gold and un-encumbered approved securities. The ratio of liquid assets to demand and time liabilities is known as Statutory Liquidity Ratio (SLR). Present SLR is 25%. The RBI is empowered to increase the SLR upto 40%.

Banking Terms : 

Banking Terms BANK RATEBank Rate is the rate at which RBI allows finance to commercial banks. Normally, different types of refinance facilities by RBI to banks are linked to a Bank Rate. Bank Rate is a tool which RBI uses for short-term purposes. Any revision in Bank Rate by RBI is a signal to banks to revise deposit rates as well as Prime Lending Rate. For greater effectiveness, this tool is used together with other measures like Cash Reserve Ratio and Repo Rate. At present, the bank rate is 6.5% p.a.

Banking Terms : 

Banking Terms NRO ACCOUNT: When a Resident becomes a Non-Resident , the domestic resident account of the resident becomes Non-Resident Ordinary (NRO)Account . (a) Can be in the form of savings, Term Deposit. (b) Non- Repatriable.(c) Credit comes by foreign remittance only. NRE ACCOUNT: It is Non-Resident external rupee account . (a) It can be in the form savings , Term deposit (b) No local in-flow allowed. (c) It can be Repatriable(amount can be taken & spent abroad ). (d) Only by foreign remittance. FCNR ACCOUNT: It is a foreign currency non-resident account. (a) It is maintained in foreign currency . (b) Can be Repatriable .(C) Mainted only as a term deposits. (d) Can be closed and converted to Indian rupee when needed.

EXCERCISE : 

EXCERCISE Read up on bankers conference 2004 List out 5 terms from bankers conference and identify their meaning Find out the various loan products offered by one private bank and one foreign bank What is the role of RBI as a banker to the banks

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