Banking & Economy

1.       How can we define a bank?

A bank can be defined as a financial institution which accepts deposits from the public and gives loans.

2.       How many nationalized banks there in India? How many PSU banks are there in India?

No. of Nationalized Banks: 19

No. of PSU (Public Sector Undertaking) Banks: 27

3.       What are Nationalized Banks?

Nationalized banks are the banks which were nationalized by government of India in two phases:

1969: Total 14 banks were nationalized

1980: Total 6 banks were nationalized

That makes a total of 20 nationalized banks but later in 1993 New Bank of India was acquired by Punjab National Bank. Therefore there are 19 banks which were in private hands earlier but later nationalized. SBI and its five associate banks are not called nationalized banks. Neither is IDBI called a nationalized bank.

4.       What is nationalization?

Nationalization is the process in which the assets of private entity are transferred into government hands. This process can usually be by one of the following ways:

i.            Confiscation: without Compensation i.e. without paying anything to the previous private owners.

ii.            Expropriation: with compensation i.e. by paying something to the previous private owners.

5.       Why were the banks nationalized?

The main reason behind the nationalization of banks in India was that the private commercial banks were not able to fulfil the developmental and social goals. Agriculture and small scale loans were being ignored to a large extent. Public confidence in banking was needed to be restored. The government of India also wanted to break the monopoly of the large business houses and make sure the public deposits in these private banks were not being misused by them.

6.       Which is the oldest bank of India?

State Bank of India is considered as the oldest bank in India. It traces its history to Bank of Calcutta established in 1806. The three presidency banks namely Bank of Calcutta (afterwards called Bank of Bengal), Bank of Bombay and Bank of Madras were later merged in 1921 to form Imperial Bank of India. In 1955 Imperial Bank of India was nationalized to form State Bank of India.

7.       Which is the largest bank of India?

State Bank of India is the largest bank of India in terms of revenue, profit, assets, branches as well as employees. It ranks 298 in the Fortune Global 500 companies in 2013.

8.       What are the functions of RBI?

The functions of RBI can be summarized as follows:

·         Monetary Authority

·         Issuer of Currency

·         Banker and Debt Manager to Government

·         Banker to Banks

·         Regulator of the Banking System

·         Manager of Foreign Exchange

·         Maintaining Financial Stability

·         Regulator and Supervisor of the Payment and Settlement Systems

·         Developmental Role

9.       Who prints currency notes and coins in India?

Notes are printed by RBI and the Government of India mints coins in India.

10.   What is a currency chest?

Currency chests are the storehouses at selected commercial bank branches where currency notes and coins are kept on behalf of RBI. These branches are responsible for the further distribution of the currency to other banks and thereby to the general public for use.

11.   What are assets and liabilities of a bank?

For a bank “loans” are assets as that money actually belongs to the bank and the borrowers owe it to the bank. While “deposits” are liabilities for the bank as that money belongs to the public and the bank owes it to them.

12.   What do you mean by NPA?

NPA stands for non-performing assets. In simple words, the debts that have gone bad or the loans that have not been repaid to the bank are the non-performing assets. It is obvious that a bank wants its NPA to be low.

13.   What is the difference between SA and CA?

The basic differences between savings account and current account can be enlisted as:

i.            Savings accounts are for saving purpose by the general public while current accounts are for conducting day to day business by businessmen.

ii.            Interest is paid by the bank on a savings account while there is no interest on current account.

14.   What is a dormant or inoperative account?

The savings accounts and current accounts which have not been used for a period of 2 years are termed as dormant or inoperative accounts.

15.   What is an unclaimed deposit account?

The savings accounts and current accounts which have not been used for a period of 10 years are termed as unclaimed accounts.

16.   What are negotiable instruments?

Simply speaking, a negotiable instrument (from the Negotiable Instruments Act 1881) is a document guaranteeing the payment of a specific amount of money, either on demand, or at a set time. Examples of negotiable instruments include promissory notes, bills of exchange, bank notes and cheques.

17.   What is the difference between a cheque and a demand draft?

The main differences between a cheque and a demand draft (DD) are as follows:

i.             A cheque is given by an individual while a DD is issued by a bank.

ii.            A cheque can be dishonoured (bounced) due to insufficient balance in the account whereas a DD cannot get dishonoured making it a certain mode of payment.

iii.            Payment of a cheque can be stopped by the person who has issued whereas the payment of a DD cannot be stopped.

iv.            A cheque can be made payable to the order or the bearer whereas a DD is always payable to the order.

18.   What is the difference between a bearer cheque and an order cheque?

Bearer Cheque:

When a cheque is payable to a person named in the cheque or to the bearer thereof, it is called a bearer cheque. Any person can go in the bank and collect its payment. It is transferable merely be delivery.

Order Cheque:

An order cheque is payable to the person named in the cheque or his order. Order cheque is paid by the bank only when the bank is satisfied about the identity of the payee. These cheques are not transferrable merely by delivery. 

19.   What is a crossed cheque?

It is a cheque which has been crossed by marking two parallel lines at the top left hand side corner of the cheque. It cannot be encashed but can only be deposited in the bank account of the person it is favouring.

20.   What do you mean by Post Dated Cheques, Stale cheque, Mutilated cheque, At Par cheque?

Post dated cheque (PDC): It is a cheque which has a future date on it and can be used only after that date.

Stale cheque: A cheque has a validity of three months after the date mentioned on it. It becomes a stale cheque after that.

Mutilated cheque: It is a cheque that has been damaged due to any reason.

At par cheque: It is a cheque that is payable anywhere in India.

21.   What is cheque truncation system (CTS) or Image-based Clearing System (ICS)?

Cheque Truncation System (CTS) or Image-based Clearing System (ICS) is a project undertaken by the Reserve Bank of India for faster clearing of cheques in India. CTS is basically an online image-based cheque clearing system where cheque images and Magnetic Ink Character Recognition (MICR) data are captured at the collecting bank branch and transmitted electronically. This eliminates the physical movement of the cheque at some point thereby making the process faster.

22.   What is a clearing house in banking?

Clearing house is a place where clearing and settlement transactions relating to various types of paper based instruments like cheques, drafts, payment orders, interest / dividend warrants, etc are done between different banks.

23.   What is the difference between ATM card, Debit card and Credit card?

An ATM card can be used at ATMs (automated teller machines) only and cash more than the balance in the account cannot be withdrawn. A debit card can be used at an ATM or at POS terminals too. While cash above one’s account balance too can be withdrawn from a credit card which attracts some interest by the card issuing bank.

24.   What is POS?

POS stands for point of sale. It is also called “checkout”. It is the place where a retail transaction is completed. It is the point at which a customer makes a payment to the merchant in exchange for goods or service. For example, when we are buying clothes at a showroom or mall, we pay at the counter which called as a point of sale. These places nowadays have a card-swipe machine which makes this term important from banking point of view.

25.   What is overdraft?

It is a credit taken from a balance account by withdrawing more money than there is in the bank account. It is a facility usually given by the bank to businessmen through current accounts to run their day to day business. There is a limit up to which an account holder can lend and hence overdraft is sometimes loosely termed as simply “limit”. An interest is charged by the bank on this credit.

26.   What is internet banking, mobile banking?

Internet banking is the anywhere banking that can be done on the website of your bank by logging in using the id and password given by the bank. Most banking facilities can be used online such as checking account balance and statement, funds transfer, paying taxes, ordering cheque books etc.

Mobile banking is the anywhere banking that can be done through our mobile phone.

27.   What is CBS in banking?

CBS stands for Core Banking Solutions. It is when the branches of a bank are connected through networking to a central host and the customers are able to avail banking facilities at any connected branch.

28.   Meaning and difference between NEFT and RTGS?

NEFT stands for National Electronic Fund Transfer and RTGS stands for Real Time Gross Settlement. The main difference between them can be enlisted as:

·         NEFT is done in batches with some time interval any two batch transaction, whereas RTGS is done on real-time basis.

·         There is no lower or upper limit for NEFT while the lower limit for RTGS is Rs. 2 lakh.

29.   Difference between fiscal policies and monetary policies?

The main differences between fiscal and monetary policy are:

i.            Fiscal policy is made by the ministry of finance while the monetary policy is made by RBI.

ii.            Fiscal Policy deals with the taxation and expenditure decisions of the government. These include tax policy, expenditure policy, investment or disinvestment strategies and dept or surplus management. For example: tax structures determine how much revenue government gets while budgeting expenditures on different projects determines the spending.

Monetary policy refers to the use of instruments to regulate the availability, cost and use of money and credit. Monetary policy is an ongoing effort by RBI to balance the inflation and growth of economy by managing liquidity in the market. The instruments include different rates such as CRR, SLR, Repo rate etc.

30.   Difference between a Bank and NBFC?

i.            A bank is a financial institution having a banking license whereas a Non Banking Financial Company (NBFC) does not have a banking license from RBI.

ii.            A bank can take demand deposits while an NBFC cannot take demand deposits.

iii.            A bank participates in the payment and settlement system while an NBFC cannot participate in it. Which means NBFCs cannot issue cheques, demand drafts and cannot transfer funds through NEFT and RTGS.

31.   What is a microfinance institution (MFI)?

Microfinance institutions are the financial organizations giving small loans to people who would otherwise have no means of gaining finance. It is an effort to make low income people self sufficient by loaning them funds for self-employment. A few examples of such organizations in India are: SKS Microfinance, Krishna Bhima Samruddhi Local Area Bank.

32.   Difference between direct taxes and indirect taxes?

In simple words, direct taxes are the taxes which are directly levied on the person and are therefore paid by that person directly to the concerned tax authorities. For example: income tax, corporate tax, property tax.

On the other hand, indirect taxes are the taxes which are levied on a goods or service provider and are passed on to the consumer as increased price. Actually the consumer is paying the taxes and the goods or service provider is the just a medium who is depositing it to the concerned tax authorities. For example: service tax, value added tax, entertainment tax.

33.   What is money laundering?

Money laundering is the process of financial transactions that aim to conceal the identity, source, and destination of illegally obtained money. Simply speaking hiding the sources of dirty money and making it look like it has been obtained through legal channels. The money can be from criminal activities, terrorism or tax evasion.

34.   What is inflation?

It us the rate at which the general level of prices for goods and services is rising and, subsequently, purchasing power of public is falling. In India it is measured by considering a basket of whole sale goods allotting different weightages to them. Unlike most other economies, it is calculated on the basis of Wholesale Price Index (WPI) in India.

Causes of inflation can be understood by two theories:

i.            Demand-pull inflation – A classic definition of inflation summarizes this theory as: "too much money chasing too few goods". In simpler words, the prices will increase if demand is growing faster than the supply. This can be seen as a sign growing economies.

ii.            Cost-Push Inflation – It is when the cost of raw material and wages increases, the result is increase in prices of goods and services.

35.   Is inflation always bad?

A moderate rate of inflation is a sign of growing and healthy economy. It means that the consumers are spending enough and the demand is more than the supply. This signifies that sufficient money is going into the economy.

But inflation is bad especially when the rate is high and not expected (unanticipated), it can be a sign of unhealthy economy. In this case the increase in the wages often lags behind the increase in the prices.

Almost zero rate of inflation or deflation (price fall) usually denote stagnant economies.

36.   What do you mean by liquidity in the market?

Liquidity in simple words is the availability of capital or money with the consumers to spend or invest in the form of either cash, credit (loan) or equity (shares).

37.   How does RBI control inflation?

RBI increases its key rates such as Repo rate and bank rate so that the banks have to increase their lending rates. Therefore people borrow less and save more thereby decreasing liquidity in the market.

38.   What is IIP?

IIP stands for Index for Industrial Production. In India, it measures the production in the sectors of mining, electricity and manufacturing. IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period (now taken as 2004-05 in India). It is compiled and published monthly by the Central Statistics Office (CSO).

39.   What is FDI? What is FII? What is the difference? Which is better for the economy and why?

FDI stands for Foreign Direct Investment. It is a direct investment into production or business in a country by an individual or company of another country. For example, Hyundai motors India is a subsidiary of the South Korean parent company. Vodafone has 74% stakes in the India while the other 26% is owned by other Indian investors.

FII stands for Foreign Institutional Investment. It is a passive investment in the securities of another country’s company in the form of stock (shares) or bonds. These are institutions such as Asset management Companies and not individual persons. For example, Government of Singapore Investment Corporation Pvt. ltd and Japan Trustee Services Bank Ltd which invest in the shares of Indian companies in Indian share markets.

The basic difference between the two can be best understood by the term “management control”. The differences are enlisted as:

i.            In FDI the investor has a management control in the company in which investment is made whereas in FII there is no management control.

ii.            FDI is a long term investment while FII is for a short term and usually the FIIs sell their stakes as soon as they see any volatility in the economy.

iii.            IMF defines FDI to be an investment of 10% or more in the target company, while below that it is considered as an FII. But it not necessary that a company has management control even if it has more than 10% share in the target company and it is also a possibility that if a company has less than 10% share in the target company and still has some management control in it.

FDI is considered a better investment because of its long term stability as opposed to FII which can get out of the country with the first sign of economic trouble.

40.   Give examples of FDI limits of important sectors in India.

SECTOR	FDI CAP (LIMIT)
Banking	74%
NBFC	100%
Insurance	49%
Telecom	100%
Single-brand product retail	100%
Commodity exchanges	49%

41.   What do you mean by: QFI and Portfolio Investments?

QFI stands for Qualified Foreign Investor. It can be an individual or a group of individuals belonging to a country which is a member of Financial Action Task Force (FATF) or to a country having bilateral Memorandum of Understanding (MOU) with Securities and Exchange Board of India (SEBI). The limit of investment by a QFI is 5% in an Indian company.

QFI along with FII are together called Portfolio Investments.

42.   What is SEBI?

SEBI stands for Securities and Exchange Board of India. It is the regulator and development authority for securities market in India. In short, it regulates the stock markets such as Bombay Stock Exchange. It aims to protect the interest of investors in securities market, to promote and develop the markets and regulate them. It draws its powers through SEBI Act, 1992. It is headquartered at Mumbai and its chairman is Mr. U.K.Sinha.

                                                                    

43.   What is SENSEX, NIFTY?

SENSEX stands for Standard & Poor’s Bombay Stock Exchange Sensitive Index. It is a free-float market-weighted stock market index of 30 well-established and financially sound companies listed on Bombay Stock Exchange. These 30 companies are the largest and most actively traded companies. . It is therefore sometimes also called BSE-30. Its base year is taken as 1978-79 and base value of 100 given on 1 April 1979.

NIFTY stands for Standard & Poor’s CNX NIFTY or NIFTY-50. It is the benchmark index for the most actively traded 50 companies of National Stock Exchange(NSE).

44.   What is IPO, FPO?

IPO stands for Initial Public Offering. It is also called a stock market launch. It is a type of public offering where shares a company are sold to the general public, on a stock, for the first time. Through this process, a private limited company transforms into a public limited company. It is done to raise more capital for the expansion of the company.

FPO stands for follow-on Public Offering. It is a share launch in the stock exchange to the general public by a company which is already public or listed on in the stock exchange. This means the company already had freely tradable shares in the stock market for the public but it launched more shares for further need of capital.

45.   What do you mean by bull and bear in relation to stock markets?

An upward trend in the share prices in a stock exchange is called a bull while a downward trend in the share prices in a stock exchange is called bear. The terms are believed to come from the nature of attacking by these animals. A bull usually attacks by thrusting its horns up in the air while a bear swipes down upon the prey.

46.   What is market capitalization or M-cap? Which company has the highest M-cap in India currently?

M-cap stands for market capitalization. It is the total value of the all the issued shares of a public limited company (a company listed on stock exchange). It can thereof be calculated by multiplying the number of outstanding shares by the market price of each share.

TCS (Tata Consultancy Services) is the company with highest market capitalization in India.

47.   What is MCX? What is MCX-SX?

MCX is short for Multi Commodity Exchange of India. It is Mumbai based independent commodities exchange. It offers futures trading in gold, metals and a number of agricultural commodities.

While MCX-SX means MCX Stock Exchange. It is stock exchange launched by MCX.

48.   What do you mean by the term “blue chip companies”?

These are the companies which are nationally well recognized, financially sound and reputed companies. These companies are regarded very good in the stock market as well. For example TCS, Airtel and Reliance Industries can be considered blue chip in India.

49.   What is disinvestment?

Disinvestment is also called “divestiture”. As the name speaks, it is the opposite of investment. Just as investment refers to the conversion of money or cash into securities, debentures, bonds or any other claims on money; we can say that disinvestment involves the conversion of those claims on money or securities into money or cash. In the Indian context, it means the selling of government ownership of PSU companies. The government may not sell the entire share-holding but keep the majority shares with it. This was done after the economic liberalization in 1991 seeing the inefficiencies of many PSUs.

For example, Government of India has 78.92% share-holding in Indian Oil Corporation Ltd. It is considering the sale of 10% of its share thereby getting Rs. 3830 Crore.

50.   What is EXIM bank?

The term “EXIM bank” can be expanded as Export-Import Bank of India. It is a Mumbai-based premier export finance institution of the country. It was set up in 1982 under the Export-Import Bank of India Act 1981. It provides wide range of products and services offered at all stages of the business cycle, starting from import of technology and export product development to export production, export marketing, pre-shipment and post-shipment and overseas investment to the Indian exporters and importers.

51.   What is ECGC?

ECGC stands for Export Credit Guarantee Corporation. It is a Government of India Enterprise which provides export credit insurance facilities to exporters and banks in India. It aims to promote foreign trade therefore keeps the premiums to the lowest. The functions of ECGC can be enumerated as:

i.            It gives credit insurance to the Indian exporters making them competitive in the international market as most other countries give such insurance to their exporters. This means the exporters get insurance for their payment to be received from abroad. They do not have to worry about default in receiving the payment for the goods they have exported.

ii.            It also gives export credit insurance services to banks and other financial institutions so that they can give the services further to the exporters.

iii.            It provides overseas investment insurance to Indian companies investing in joint ventures abroad in the form of equity or loan. For example, Bank of Baroda setting up its foreign subsidiary in South Africa, may encounter investment risks such as nationalization by South African government. ECGC gives it the insurance for such risks.

52.   What is TRAI?

It stands for Telecom Regulatory Authority of India. It was set up in 1997 under the TRAI ACT, 1997. It is responsible with the development and regulation of the telecom industry in India. It is based in New Delhi and Mr. Rahul Khullar is its Chairman.

53.   What do mean by primary, secondary and tertiary sectors in an economy? How is Indian economy divided into these sectors?

Primary Sector is the sector of the economy which is extractive in character which means it extracts something out the nature without further processing it into something else. For example: agriculture and fishing.

Secondary Sector is the sector of the economy in which raw material is used to produce something else. For example: manufacturing industries, power generation and mining.

Tertiary Sector is the sector of the economy in which services are provided to consumers or businesses. For example: banking, insurance, transportation, retail, entertainment etc.

It is generally theorized as the life cycle of an economy, first there is most focus on primary which gradually shifts to secondary and finally to tertiary.

Indian economy has its GDP divided as:

i.            Primary : 17.4 %

ii.            Secondary : 25.7 %

iii.            Tertiary : 56.9 %

54.   What is SEZ?

SEZ stands for Special Economic Zone. It is a geographical region inside a country focussing majorly on exports with relaxation on the restrictive laws regarding taxation, labour, etc. An exceptional infrastructure is also provided in this zone, contributing to make goods produced at globally competitive price. India announced its SEZ policy in April 2000 and the SEZ Act was passed in 2005. Currently India has approximately 173 operating SEZs. Examples of Indian SEZ are: Kandla SEZ in Gujarat and Noida SEZ in U.P.

55.   Give the meaning and difference between demand deposits and time deposits.

Demand deposit is a deposit held in an account from which deposited funds can be withdrawn at any time without any advance notice to the bank. Examples: Savings account and current account.

Time deposit is a deposit held in an account from which funds can be withdrawn after a certain time which is also called maturity time. Examples: Fixed deposits and recurring deposits.

56.   What is CASA/RAFA?

The demand deposits are sometimes shortened as CASA standing for:

CA : Current Account

SA : Savings Account

Similarly, the term deposits are sometimes shortened as RAFA standing for:

RA : Recurring Account

FA : Fixed Account (fixed deposit or FD)

57.   What is SIDBI?

Small Industries Development Bank of India is an independent financial institution aimed to aid the growth and development of micro, small and medium-scale enterprises (MSME) and for the co-ordination of the related organizations in India. It was established in 1990 through SIDBI Act 1989.

58.   What is NABARD?

National Bank for Agriculture and Rural Development is an apex development bank in India having headquarters based in Mumbai and branches throughout India. It was established in 1982 through NABARD Act 1981. NABARD is the apex institution in the country which looks after the development of the cottage industry, small industry and village industry, and other rural industries. It chairman is Dr. Harsh Kumar Bhanwala. It is responsible for the supervision of State Cooperative Banks (SCBs), Central Cooperative Banks (CCBs) and Regional Rural Banks (RRBs).

59.   What is NHB?

NHB stands for National Housing Bank. It is Government regulatory bank set up under the NHB Act 1987. It regulates and refinances social housing projects in the country. It is head quartered in New Delhi.

60.   What are Mutual Funds? Who manages an MF?

Mutual funds are the professionally managed collective funds that pools money from various small investors to invest in different types of securities. Which means the fund can be invested in share market, debt instruments, etc. These are usually open-ended, which means one can invest at any time and can sell and get out of it any time.

Mutual funds are the products of Asset Management Company (AMC) and are managed by “Fund Managers” working in that company.

61.   What is CRM?

CRM stands for Customer Relationship Management. It is totally customer-oriented approach in which focus is to deliver one-to-one service to the customer and maintain a long term relationship. For example, Indian banking industry is evolving in this concept. Relationship managers are allotted to a set of HNI customers who advice, sell and give personal service to these customers so that they buy wide range of services from the same bank. The services may include savings accounts, current accounts, FD, all insurance needs, loans, gold coins etc.

62.   What is cross-selling?

Selling of related or complimentary products to the customer is known as cross-selling. For example, in banking industry, a customer is offered a wide variety of products along with traditional banking products. Such as insurance, mutual funds, sharing trading demat accounts, gold coins etc.

63.   Who are HNIs?

HNI means High Net-worth Individual. It is a term used by financial services industry to denote an individual or family with high net worth or in simple words a person or family having high wealth. The limit to be called an HNI is not precise. It depends upon the financial institution to decide the rules for it.

64.   What do mean by Foreign exchange reserves?

Foreign-exchange reserves (in short called forex reserves or FX reserves) are assets held by central banks and usually in different reserve currencies, mostly in American Dollars ($).

India has Foreign Exchange Reserves of $295.708 Billion as on 3 January 2014.

65.   What is IRDA?

IRDA is an abbreviation of Insurance Regulatory and Development Authority. It is an apex regulatory body for insurance industry in India. It was started under the IRDA Act 1999. It has the responsibility of regulating and developing both general insurance as well as life insurance. It is headquartered in Hyderabad and Mr. T.S. Vijayan is the Chairman.

66.   What is Bancassurance?

The selling of insurance products though banks is known as bancassurance. The bank acts as an agent of the insurance company and works on commission basis.

67.   What is reinsurance?

Reinsurance is the insurance bought by insurance companies to mitigate large risks. For example, many insurance companies have given vey high value policies such as ships. They are under high risk in case something happens to many ships. So these companies pass on some their risks to a reinsurance company by paying some premium.

General Insurance Corporation (GIC) is the only reinsurance company in India.

68.   What is the difference between Life insurance and general insurance?

In simple words, insurance of the life of a human being is life insurance whereas everything else is general insurance also called non-life insurance.

69.   What is KYC, GYC?

KYC means Know Your Customer. It is the process of due diligence done by financial as well as few other companies to ascertain facts about their customers by doing proper documentation as decided by the regulatory bodies and the company itself.

GYC means Grow with your Customers. It means after the KYC, the company can now analyze the needs of the customer by looking at the profile. This leads to the growth of the customer as well as the company.

70.   What is financial inclusion?

Financial inclusion means making financial services available at affordable prices to the disadvantaged classes of the society such as low income groups and rural groups.

In India, RBI is responsible for taking initiatives in this respect. A few points taken by RBI by directing commercial banks are:

i.            Opening up “no-frills accounts” or BSBDAs.

ii.            Relaxation in KYC norms.

iii.            Opening new bank branches in unbanked rural areas.

iv.            Engaging business correspondents which act as intermediaries between bank and customers.

v.            Simplifying opening of new branches in smaller places.

71.   What do you mean by no-frills accounts and BSBDA?

No-frills accounts are bank accounts with no minimum balance requirements or very low minimum balance requirements launched as a part of the financial inclusion plan of India. The bank therefore cuts its cost by charging for extra facilities (value added services) such as cheque book, internet banking etc. These banks are now called BSBDA (Basic Savings Bank Deposit Accounts).

72.   What is priority sector lending?

Priority sector lending is a norm by RBI referring to those sectors of the economy which would not otherwise get a loan without this norm. These loans are given to small farmers, students for education, small and micro businesses, poor people for housing etc.

The categories covering priority sector lending are:

i.            Agriculture

ii.            Education

iii.            Micro and small Businesses

iv.            Housing

v.            Export Credit

73.   What is World Bank?

The World Bank is a Washington D.C. (in U.S.A.) based international financial institution that provides loan facility to developing countries targeted to reduce poverty world over. It was created at the 1944 Bretton Woods Conference. Jim Yong Kim is the President.

74.   What is IMF?

IMF stands for International Monetary Fund. It is a Washington D.C. (in U.S.A.) based international financial institution with a goal of reconstruction of World’s international payment system. Countries contribute money to a pool through a quota system which is like a membership fees from which countries with payment imbalances can borrow funds temporarily. It was created at the 1944 Bretton Woods Conference. Christine Lagarde is the Managing Director. The voting power of a member country is decided by its SDRs.

75.   What do you mean by SDR?

SDR is expanded as Special Drawing Rights. They are like a paper currency but additional foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF). They are like a claim to currency that can be exchanged in case required. Though they might be used by a member nation in future when needed, they usually are used as a measure of voting power in IMF.

76.   What are the main differences between World Bank and IMF?

As we can see that for both the organizations the foundation was laid at the 1944 Bretton Woods Conference for financial assistance to member nations. Let us see the main differences between them:

i.            The primary aim of World Bank is to promote economic and social progress in developing countries by helping to raise productivity so that their people may live a better and fuller life. While, IMF aims to oversee and maintain an orderly monetary system that will encourage trade, create jobs, expand economic activity, and raise living standards throughout the world.

ii.            The structure of World Bank is complex with many subsidiaries such as International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). While IMF is a smaller organization comparatively with a simple structure.

iii.            The World Bank works like an investment bank, intermediating between investors and recipients, borrowing from the one and lending to the other. Its owners are the governments of its 180 member nations with equity shares in the Bank. While the resources of IMF comes from the membership fees of the 182 member nations.

iv.            World Bank lends money to credit worthy governments to developing nations only. While, all member nations, both wealthy and poor, have the right to financial assistance from the IMF.

v.            The World Bank encourages poor countries to develop by providing them with technical assistance and funding for projects and policies for long term development. IMF provides assistance to its member's balance of payments, which means the tally of its payments and receipts with other nations. When financial problems cause the price of a member's currency and the price of its goods to fall out of line, it applies to the IMF for assistance.

77.   What do you mean by the loans called ECB?

ECB means External Commercial Borrowings. These are the loans taken by Indian private and government companies from foreign lenders. There are conditions put by government of India on such loans, for example, it cannot be taken to invest in stock markets. Also, different sectors have limits of such loans.

78.   What do you mean by Basis Points?

Basis point is a term usually used to denote the change in the different rates related to the banking industry.

Mathematically, 1 Basis Point = 0.01 %

For example, if we read RBI raises CRR by 25 basis points, it simply means RBI has raised CRR by 0.25%. And if we read RBI raises SLR by 50 basis points, it means RBI has raised SLR by 0.50%.

79.   What do mean by KCC?

KCC stands for Kisan Credit Card. It is a credit card to provide affordable credit for farmers in India. It was started by the Government of India, RBI, and NABARD in 1998-99 to help farmers access timely and adequate credit. The Kisan Credit Card allows farmers to have loan facilities without going through time-consuming bank credit screening processes repeatedly. This facility is given only to the farmers having a good credit history that is regular repayment of previous loans.

Few Indian banks have products in the name of Kisan Gold Card (KGC) which serve this purpose.

80.   What is CAR/CRAR?

CAR (Capital Adequacy Ratio) or CRAR (Capital to Risk Weighted Assets Ratio) is the measure of a bank. It means that a bank has to keep a minimum capital for its loans taking in account the risk of those loans. It is used to protect the interests of depositors and promote stability and efficiency of banks around the world.

Mathematically, it is:

                                                CAR =       Tier I Capital +Tier II Capital          (In percentage)

                                                                          Risk Weighted Assets

Tier I Capital: Paid up capital + statutory reserves + disclosed free reserves

Tier II Capital: Undisclosed reserves + general loss reserves + hybrid debt capital instruments

Let us take a very simple example to understand the basics of the term:

Assume a bank having equity of Rs. 10. It has the following assets totalling Rs. 100:

Cash = Rs. 5

Government Bonds = Rs. 10

Mortgage loans = Rs. 30

Loans without mortgage = Rs. 55

Now to calculate the risk weighted assets, we multiply each asset with the associated weight which signifies the risk of that asset. For instance, cash and government bonds are the safest, thus have 0% risk, while mortgage loans have some collateral or deposit kept by the bank making them less risky. And the loans without mortgage are the most risky in this example as the bank has not kept anything as deposit or guarantee. This is how we do the calculation:

Cash = Rs. 5 x 0% = 0

Government Bonds = Rs. 10 x 0% = 0

Mortgage loans = Rs. 30 x 50% = 15

Loans without mortgage = Rs. 55 x 80% = 44

TOTAL RISK WEIGHTED ASSETS = 59

Therefore CAR =                ______Equity_________

                                                Total risk weighted assets

                                =             6/59 = 10.16%

(Please note that this is just a simple example for understanding with totally assumed values and weights. Therefore should not be taken as banking standards)

81.   What are the CAR/CRAR rules directed by RBI for Indian banks?

RBI has directed the following minimum CAR/CRAR values for different types of banks:

Existing Banks = 9 %

New Private Sector Banks = 10 %

Banks undertaking Insurance business = 10 %

Local Area Banks = 15%

Regional Rural Banks = 9%

82.   Tell us about the bank called BIS.

The Bank for International Settlements (BIS) is bank based in Basel (Switzerland). It is an international organization of central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". As an international institution, it is not accountable to any single national government. Jaime Caruana is the General Manager.

83.   What is CSR?

It stands for corporate Social Responsibility. It is a self regulation in the business model of an organization through which it engages in "actions that appear to further some social good, beyond the interests of the firm and that which is required by law.” For example, Azim Premji Foundation is an NGO started by Wipro founder Azim Premji focuses on the primary education. Under the new Companies Act, 2013, passed by Parliament in August 2013, profitable companies must spend every year at least 2 per cent of their average net profit over the preceding three years on CSR works. This mandatory CSR-spend rule will apply from fiscal 2014-15 onwards. Those companies that have a turnover of Rs. 1,000 crore or more or net worth of Rs. 500 crore or more or net profit of Rs. 5 crore or more will have to comply.

84.   What is IFSC?

It stands for Indian Financial System Code. It is an alphanumeric code that uniquely identifies a bank branch which participates in the electronic fund transfer system. The characteristics of the code are: The first 4 are letters from English alphabet which represent the bank followed by a zero. The last 6 are digits which represents the branch. This makes a total of 11 alpha numerals.

85.   What is MICR?

It stands for Magnetic Ink Character Recognition. It is nine digit unique code which identifies a bank branch participating in the ECS credit scheme. The first 3 digits represent the city, next 3 digits represent the bank and the last 3 digits represent the branch. This code in printed on the cheques issued by a particular bank branch.

86.   What is ECS credit and debit scheme?

It stands for Electronic Credit Service. It is electronic mode of payment or receipt for repetitive and periodic transactions from one bank to another. The user authorizes the bank for such transactions mentioning the time, periodicity and amount. The transactions thereafter are made automatically and the payer or the receiver does not have to do the transactions themselves. It has two variants: ECS credit and ECS debit.

ECS credit means a regular payment, for example, a company give a mandate to its bank to pay regular fixed salaries to the employees on a particular date of every month.

ECS debit means a regular receipt, for example, a company receives regular fixed EMI (equated monthly instalment) from the customer on a fixed date of every month.

87.   What is Bhartiya Mahila Bank?

Bharitya Mahila Bank (BMB) is a New Delhi  inaugurated by Prime Minister Manmohan Singh on 19 November 2013 on the occasion of the 94th birth anniversary of former Indian Prime Minister Indira Gandhi. Although the bank was initially intended for only women, but deposits are allowed from everywhere possible and the loans are planned to be given predominantly to women. Usha Ananthasubramanian is the Chairman & Managing Director.

88.   What is EMV based payment?

It stands for Europay, Mastercard & Visa and it is joint effort by these three to ensure the security and global interoperability of chip-based payment cards which can be used at ATMs and POS terminals.

89.   What is NOSTRO & VOSTRO?

A bank account held in a foreign country by a domestic bank is called a NOSTRO account. It is denominated in the currency of that country. These accounts are used to facilitate settlement of foreign exchange and trade transactions.

A VOSTRO account is an account in which the domestic bank acts as custodian or manages the account of a foreign bank. It is denominated in the domestic country’s currency.

90.   What European Central Bank?

The European Central Bank (ECB) is the central bank for the euro and administers the monetary policy of the Eurozone, which consists of 18 European Union member states. Eurozone is one of the largest currency areas in the world. The bank is head quartered in Frankfurt (Germany).

91.   What is devaluation of currency?

Devaluation means official lowering of the value of a country's currency.

Let us see the difference between the terms: ‘devaluation’ and ‘depreciation’.  Devaluation is when the government and central bank lower the value of the currency purposely. While ‘depreciation’ is when the value of currency gets lowered due to market forces.

92.   What is CRISIL?

CRISIL is Credit Rating Information Services of India Limited. CRISIL’s businesses are- Ratings, Research and Advisory. It gives credit ratings to commercial organizations only.

93.   What is CIBIL?

CIBIL stands for Credit Information Bureau (India) Limited (CIBIL). It is India’s first credit rating company. It collects and maintains records of an individual’s payments about loans and credit cards. These records are given by banks and NBFCs on monthly basis. Credit scores are then given to individuals which can be accessed by other banks and NBFCs while giving loans.

94.   Primary market and secondary market?

The primary market is where securities are created. It's in this market that firms sell new stocks and bonds to the public for the first time. For example an IPO is when a private limited company sells its shares to the public for the first time.

Secondary market is a market where securities are traded between the public afterwards. For example, all stock market such as BSE, NSE etc where people sell and buy shares of different companies. One share can be traded many times.

95.   What is SIP?

It is a facility provided by mutual fund companies in which one can invest small fixed amounts every month. It is like recurring deposit and post office schemes with the only difference that the sum is invested in mutual funds.

96.   What do you mean by ULIP?

A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that unlike a pure insurance policy gives customers the benefits of both insurance and investment under a single plan. A part of the premium paid is utilized to provide insurance cover to the policy holder while the remaining portion is invested in various equity and debt schemes by forming pools just as in mutual funds.

97.   What is EMI?

Full form of EMI is Equated Monthly Instalment and it is a fixed payment amount made by a borrower to a lender at a specified date every month. EMIs are used to pay both interest and principal each month, so that over a specified tenure the loan is completely paid off. The name says ‘equated’ which means it is equal and fixed. For example, if someone who has taken home loan at some point of time pays a large amount to reduce the loan (called pre-payment), the EMI does not reduce but the tenure reduces.

98.   What are RRBs?

RRBs or Regional Rural Banks are the banks set up under RRB Act 1976 aiming to supply sufficient credit to agriculture and rural sector. These banks are set up in various states of India mostly in rural areas but a few branches are also in the urban areas. These banks are undergoing a process of mergers with many banks already merge and a few more to be merged in the near future. At present there are 59 RRBs in India. The Government of India, the concerned State Government and the bank, which had sponsored the RRB contribute to the share capital of RRBs in the proportion of 50%, 15% and 35%, respectively. NABARD is responsible for the supervision of these banks.

99.   What is ADB?

The Asian Development Bank (ADB) is a Manila (Philippines) head quartered regional development bank established in 1966 to facilitate economic development of countries in Asia-Pacific region. Takehiko Nakao is the President of the bank.

100.  What do you mean by Bitcoin?

Bitcoin is a digital currency or virtual currency (also called crypto-currency) that is not backed by any country's central bank or government. It uses peer-to-peer technology to make instant payments. It exists only digitally and has no physical form. Bitcoins can be traded for goods or services with vendors who accept Bitcoins as payment.

The main advantage of this currency is believed to be that it cannot be interfered with or manipulated by any country’s government as it is decentralized.

The disadvantages are that it is difficult to understand by common people so its widespread acceptability is highly doubtful. Also it can be used for illegal purposes such as tax-evasion, crime, etc as it is anonymous in nature.

101.  What is a Sovereign Wealth Fund (SWF)?

         The foreign exchange reserves of a country are invested abroad through special purpose vehicles known as SWF. These funds invest in other country’s capital. The purpose of such investments is to better returns on the foreign exchange reserves. It is usually done by countries having a current-account surplus which means having more exports than imports. It is not advisable for countries having current account deficit to invest in SWF. That is why India has not done it.

102.  What do you mean by current account deficit?

         It is the measure of a country’s all transactions abroad. It includes the transactions such as exports, imports, interest and dividends, transfers, foreign aid, etc. But the exports and imports are the major components in such transactions. When the outwards transactions are more than the inward transactions, it is called current account deficit while the opposite is called current account surplus.

103.  What is Fiscal deficit, Revenue deficit, Budget deficit, trade deficit?

         Fiscal Deficit: When a government's total expenditures are more than the revenue (excluding the money it has borrowed) then the difference between them is known as fiscal deficit. A country’s fiscal deficit is usually communicated as a percentage of its gross domestic product (GDP).

         Revenue Deficit: When the actual net amount received (revenues minus expenditures) is less than the projected net amount to be received. This can be understood by a simple example:

	Revenue	Expenditure	Net amount received (Revenue – Expenditure)
Budgeted (Forecasted)	Rs. 1000	Rs. 800	Rs. 200
Actual	Rs. 900	Rs. 850	Rs. 50

         Therefore the Revenue Deficit = Rs.200 – Rs. 50 = Rs. 150

         Budgetary Deficit: Budget deficit is the difference between total receipts (including borrowings) and total expenditure.

         Trade Deficit: When a country's imports are more than its exports, the difference is called trade deficit. A trade deficit also represents an outflow of domestic currency to foreign markets.

104.  What is deficit financing?

         It is a practice in which a government spends more money than it receives as revenue, the difference being made up usually by borrowing. While some experts believe that fiscal deficit is a positive that helps the country grow, conservatives think otherwise, favouring a balanced budget policy.

105.  What is GDP, GNP, per capita income?

         Gross domestic product (GDP) is the market value of all the final goods and services produced within a country in a year (usually financially year). Final goods and services means the value of raw materials and semi-finished goods is not considered while calculating the GDP as that would result in adding the value of something more than once.

         Gross National Product (GNP) is the GDP plus income of residents from investments made abroad minus income earned by foreigners in India.

         Per capita income is the GDP divided by the number of people living in the country.  GDP per capita is often considered an indicator of a country's standard of living  with higher per capita GDP being interpreted as having a higher standard of living.

106.  What do you mean by nominal GDP, real GDP and PPP GDP?

         Nominal GDP is the total market value of all the final goods and services produced within a country in rupees for India.

         Real GDP means when the nominal GDP is adjusted for inflation to compare it with a base year. A simple example for this is: if GDP is Rs. 1,00,000 in 2013-14. We want to calculate real GDP for the year 2000. Suppose Rs. 100 in year 2000 is equal to Rs. 130 now then real GDP for base year 2000 can be calculated as:

         Rs. 1,00,000 X 100/130

         PPP stands for Purchasing Power Parity. GDP on the basis of PPP is a comparative and theoretical value that is used to measure the GDP on the basis of how much goods can be bought for a sum of money in different countries. For example, let us assume US $1 = Rs. 60 and you can eat a meal in India for Rs. 60 but cannot in USA for $1. This means that converting the GDP using current exchange rate may not give the correct idea for comparing India’s GDP and the GDP of USA. So the PPP is used considering purchasing power of different currencies.

         India’s GDP values for the last year are:

         $1.824 trillion nominal (10th in the world)

         $5.684 trillion PPP: (3rd in the world)

107.  Explain Retail banking, private banking, corporate banking, merchant banking, investment banking.

         Retail Banking: Retail banking is the banking for the common customers for saving purposes, home and vehicle loans etc.

         Private Banking: Also called preferred banking is the banking for the HNI by cross selling the various products such as deposit accounts, loans, insurance policies, mutual funds etc to them.

         Corporate Banking: It is the banking targeting the businesses usually big.

         Merchant Banking:  A bank providing corporate advisory services along with investing its own money in the client company.

         Investment Banking: A bank providing advisory services and helping the client get funds from the other sources.

108.  What is NDTL?

         NDTL stands for Net Demand and Time Liabilities of banks. As we know that the deposits are the liabilities of a bank, and there are basically two types of deposits: demand and time. Demand deposits include current accounts, demand liability portion of savings accounts, demand drafts etc. Time deposits include fixed deposits, staff security deposits, recurring deposits, time liability portion of savings account etc. NDTL is used for the computation of CRR, LAF etc.

109.  What is CRR?

         Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI increases this value, the banks have to keep more funds with RBI and therefore the available funds with the banks comes down and vice-versa. RBI uses this to control liquidity in the market.

110.  What is SLR?

       SLR stands for Statutory Liquidity Ratio is the amount a bank needs to keep with itself in the form of cash, or gold or government securities before providing credit to its customers. SLR rate is determined and maintained by RBI.

111.  What is LAF?

         LAF is the Liquidity Adjustment Facility given by the RBI to the banks. LAF is used to aid banks in adjusting the day to day mismatches in liquidity through repo and reverse repo operations. When banks need liquidity, they borrow from RBI at repo rate and when they have excess cash, they park it with RBI at reverse repo rate.

112.  What is Repo rate?

         Repo is short of for Repurchase Agreement or Repurchase Order. It is the rate at which RBI lends money to the banks for maintaining their liquidity. Actually, when the banks need money they sell their government securities to RBI with an agreement that the banks will buy it back from RBI at a future date but at a higher price. The difference between these prices is repo rate. The government securities in this case should not be under the SLR i.e. the bank should still have maintained its SLR in spite of selling it government securities. The fact is that the actual repo borrowing is not at the repo rate exactly, but there is an auction starting at the repo rate and the bidder with the highest rate gets the loan from RBI. The government securities act as collateral in these transactions.

113.  What is Reverse-Repo rate?

         Reverse repo rate is the rate at which RBI borrows from the banks. When the banks have excess liquidity, they want to deposit it at a safe place where their money is safe. So they park it with the RBI in the same way as in repo. RBI sells government securities to the banks with an agreement to buy them back at a future date but at a higher price. This difference is called the reverse repo rate.

114.  What is MSF?

         MSF is the marginal standing facility of borrowing and the rate is called MSF rate. It is the rate at which RBI lends to the banks by taking government securities from the banks. These government securities can be below the SLR also. This means that the banks have to maintain a minimum SLR in the form of cash, gold and government securities, which is currently 23% of their NDTL, and the banks can use government securities out this to borrow cash from RBI at MSF rate. There is a limit of borrowing under MSF which is 2% of NDTL.

         The three rates of reverse repo, repo and MSF are now calibrated to have the following relation:

                         +1%                                           +1%

         REVERSE REPO RATE                                      REPO RATE          MSF RATE

115.  What is G-Sec? What are treasury bills? What are government bonds?

      G-Sec is short for Government Security. A Government security is a tradable financial instrument issued by the Central Government or the State Governments. It acknowledges the Government’s debt obligation. These instruments can be short term i.e. less than one year, which are called ‘treasury bills’. Or they can be long term i.e. one year or more called ‘government bonds’ or ‘dated securities’. Government securities carry practically no risk of default and, therefore, are called “risk-free gilt-edged instruments”. Government securities are available in a wide range of maturities from 91 days to as long as 30 years to suit the duration of a bank's liabilities. Though there is a new type of G-Sec for even shorter than 91 days period called Cash Management Bills (CMBs).

116.  What is OMO?

         OMO stands for Open Market Operations. OMOs are the market operations conducted by the RBI by way of sale or purchase of Government securities to or from the market with the aim of maintaining required liquidity in the market on a long term basis. When the RBI feels there is excess liquidity in the market, it sells securities thereby sucking out the liquidity. Similarly, when the liquidity conditions are tight i.e. low liquidity, the RBI will buy securities from the market, thereby releasing liquidity into the market.

117.  What is bank rate?

         Bank rate is the rate at which RBI lends to the commercial banks for a longer period of time. There is no sale or collateral of government security in this borrowing. It is similar to borrowing money from someone and paying interest on that amount. As it is a long term loan therefore any change by RBI in this rate affects the banks the most, hence makes them change their lending rates too.

         Let us see the various current rates and ratios:

Repo Rate	7.75%
Reverse Repo Rate	6.75%
Marginal Standing Facility	8.75%
Bank Rate	8.75%
CRR	4%
SLR	23%

118.  What do you mean by PLR, BPLR and base rate?

         PLR stands for Prime Lending Rate. It was a system used before 2003. It was the rate at which a bank lent to its most credit worthy customer (best customer i.e. the customer who would most certainly repay on time). All other customers would be offered lending rates above PLR. This system had a shortcoming that the big industrialists and businesses were getting loan at low rate while the needy customers were getting it at higher rate. The banks were free to fix the PLR and therefore the big businesses were getting an unfair advantage.

         BPLR stands for Base Prime Lending Rate introduced in 2003 replacing PLR. In this system, the banks had a base rate for lending to their most credit-worthy customers but could lend at sub-BPLR rates also.

         Base rate came into effect on 1 July, 2010 replacing BPLR. The aim was to bring complete transparency. It is the minimum rate at which loan of a particular category can be given. A loan cannot be given below the base rate. The actual lending therefore can be calculated as:

Actual lending rate = Base Rate + borrower-specific charges (which will include product-specific operating costs, credit risk premium and tenor/duration premium)

119.  What is LIBOR, MIBOR?

         LIBOR stands for London Interbank Offered Rate. It is the interest rate at which banks can borrow funds from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers' Association. The LIBOR is derived from an average of the world's most creditworthy banks' interbank deposit rates.

         MIBOR stands for Mumbai Interbank Offered Rate. It is the interest rate at which banks can borrow funds from other banks in the Indian interbank market.  MIBOR is calculated everyday by the National Stock Exchange (NSE). The interest rates offered are usually different by different banks so MIBOR is the weighted average of lending rates of a group of banks.

120.  What are Basel Norms?

         The word ‘Basel’ comes from the city in Switzerland where the headquarters of Bank for International Settlements (BIS) are located. BIS appointed a committee called the ‘Basel Committee on Bank Supervision (BCBS)’ which issued these norms or accords to set banking standards internationally. The aim of these norms is to ensure the banks have enough capital to meet obligations absorb unexpected losses.  There are three Basel Norms:

         BASEL I: Issued in 1988, focussing mainly on credit risk and therefore on CAR of banks. It recommended a capital to risk (weighted) average ratio of 8% worldwide. Different countries adopted these norms at different times. In India it was implemented in 1999.

         BASEL II: It was issued in 2004 but the target year for complete implementation is 2015. The guidelines were based on three major parameters called its ‘pillars’ –

         Capital Adequacy Requirements: Banks should maintain a minimum CAR of 8%.

         Supervisory Review: Banks should develop and use better risk management techniques in monitoring and managing the three risks: credit, market and operational risks.

         Market Discipline: This pillar directs banks to keep transparency regarding their CAR, risk exposure etc.

         BASEL III: These were released in 2010 focussing on the risk management and transparency of the banks all over the world. These guidelines were written in response to the financial crisis of 2008. It was seen that the developed economies were under-capitalized, over-leveraged and had a greater dependence on short-term funding. The aim BASEL III is to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, irrespective of the source, thus reducing the risk of spill-over from financial sector to the general economy.

121.  What do you mean by SWIFT?

         SWIFT is Society for Worldwide Interbank Financial Telecommunication. It provides a network that enables financial institutions worldwide to send and receive information about financial transactions in a secure, standardized and reliable environment.

122.  What is ‘Swabhiman Yojana’?

         Swabhimaan yojana  is a campaign launched in 2011 by Government of India which aims to bring banking services to large rural areas where banking facilities are not available. It is a step towards achieving financial inclusion in India. Many basic banking services will be provided to the rural people with the help of Business Correspondents (BCs) also known as Bank Saathi.

123.  What is a Demat Account?

         Demat is short for dematerialized which means to have shares and securities in electronic form instead of physical certificate form. These shares and securities are held electronically in demat accounts. A Dematerialized account is opened by the investor while registering with a broker. Most banks provide this service to their customers these days.

124.  What is RuPay?

         RuPay is an Indian domestic card scheme launched by National Payments Corporation of India (NPCI). The aim is to have a domestic, open loop and multilateral system of payments in India. RuPay works to enable electronic payment at all Indian banks and financial institutions.

125.  What is Right to Information Act?

         The Right to Information Act (RTI) was passed in 2005 replacing Freedom of Information Act 2002. The Act applies to all States and Union Territories of India except the State of Jammu and Kashmir. Under this act, any citizen may request information from any government body which is required to reply within thirty days.

126.  What is derivative?

         In finance, a derivative is a security whose price is dependent upon from one or more underlying assets. The derivative itself is merely a contract between two or more parties. Its value is determined by fluctuations in the underlying asset.

127.  What is recession?

         Recession is a slowdown in the economic activity of a country measured by GDP, per capita income, investment spending etc. A general definition mostly used is a negative GDP growth for two consecutive financial years but many times an economic slowdown for months resulting in negative production growth, negative GDP growth, unemployment etc.

128.  What is the Banking Ombudsman Scheme?

         The Banking Ombudsman Scheme started in 1995 enables an expeditious and inexpensive forum to bank customers for resolution of complaints against deficiency in services rendered by banks.  A senior official is appointed by the Reserve Bank of India as the Banking Ombudsman.

129.  What is Balance of Payments?

Balance of Payments is the net of all the transactions made by an economy with the rest of the world for a specified time period. It consists of the transactions between a country’s residents and its non-residents including goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts. There are two accounts in Balance of Payments – the current account and the capital account. The current account includes transactions in goods, services, investment income and current transfers, while the capital account mainly includes transactions in financial instruments.

130.            What is a certificate of deposit?

                It is document issued by a bank or an NBFC in return of a short term deposit on which an interest is payable. Tenure in banks is 7days to 1 year and in NBFCs is 1 year to 3 years. The deposit can be in multiples of 1 lakh.

131.            What is a commercial paper?

                It is document issued by a corporate in return of a short term loan on which an interest is payable. Tenure is 7days to 1 year. The loan can be in multiples of 5 lakhs.

132.       What is Financial Stability and Development Council?

It is the apex body constituted as an initiative to prevent any economic meltdown in future. It aims to strengthen the financial sector of India. Finance Minister is the head of the council.