FAQ ON BANKING
1. What is banking
Traditional Activities
o Accepting Deposits
o Disbursing loans
o Acting as paying agents – in the case of cheques and DD etc
Other Activities
o Money Transfer - TT
o Insurance Products Distribution
o Financial Products Distribution
o Safe Keeping
o Wealth Management
o Risk Management in Forex
o Host of other products including mobile recharge
Channels
o Branches
o ATM
o Internet
o Mobile or Phone Banking
o Call Centers
2. What is the difference between Nationalized Bank and Public Sector Bank?
Nationalization is an act of taking an industry or assets into the public ownership of a national government. Nationalization refers to private assets being transferred to the public sector to be operated by or owned by the state. So there is no difference between a nationalized bank and a public sector Bank. The opposite of nationalization is privatization. The Banks which were earlier in private sector were transferred to the public Sector by the act of nationalization.
The first nationalized bank was Imperial Bank of India (under the SBI Act of 1955) and re-christened as State Bank of India (SBI) in July 1955. In 1969, 14 banks were nationalized and in 1980, the second phase of nationalization of Indian banks took place, in which 7 more banks were nationalized. Currently total 26 public sector banks in India all were Nationalized over a period of time.
3. What are difference from Cheque and Demand Draft?
Cheque has been defined in Negotiable Instruments Act 1881 section 6. A cheque is a bill of exchange drawn on a specified bank and not expressed to be payable otherwise than on demand.
A demand draft has been defined by Negotiable Instruments Act 1881 in section 85. A demand draft is an order to pay money drawn by one office of a bank upon another office of the same bank for a sum of money payable to order on demand.
Following are some more differences:
o A cheque can be made payable to bearer but a Demand Draft cannot.
o A demand draft can be cleared in a specified branch of the issuer bank
o A cheque can get dishonored but Demand draft is always honored.
o An issuer party of the cheque is liable to the cheque and not backed by a Bank Guarantee, A demand draft is backed by a bank guarantee.
4. What differentiates Cheque truncation from electronic cheques?
Cheque truncation and electric cheques are two different things. In cheque truncation the physical movement of a paper cheque issued stops and electronic flow begins while the electronic cheque is issued electronically and no paper is involved.
In cheque truncation, at some point in the flow of the cheque, the physical cheque is replaced with an electronic image of the cheque and that image moves further. The processing is done on the basis of this truncated cheque and physical cheque is stored. MICR data is very useful in cheque truncation. The electronic cheques are issued in electronic form with digital signatures / biometric signatures/encrypted data. The negotiable Instruments (Amendment) Act of 2002 gives constitutional validity to the electronic cheques.
5. What is meant by crossing of cheques?
Crossing of cheques has been discussed in Negotiable Instruments Act 1881 Section 123-131. Crossing provides an additional security. Crossing means that sum of that cheque can only recovered from a specified banker and it will be credited to the holders account. The crossed cheques are not paid at the counter. Crossing is applicable in case of cheques only and not in case of Bill of Exchange or promissory notes.
Crossing may be General crossing or Special crossing. General crossing (NI Act Section 123) is where a cheque bears two parallel lines with words such as a/c payee etc. In Special crossing (NI Act Section 124) the cheque bears the name of the banker also. Section 126 directs that such cheques shall be paid to the banker to whom it is crossed specially or to his agent for collection.
6. Is there any difference between Crossed cheques and account payee cheques? If yes, what is it?
Before we understand the difference between the Crossed cheque and A/C Payee cheque, it is necessary to understand the concept of Endorsements. The section 15 of the Negotiable Instruments Act 1881 defines endorsing as “signing on the face or an instrument for the purpose of negotiating a negotiable instrument (such as Cheque)”.
A person who signs the cheque and transfers the instrument is an endorser and in whose favor it is transferred is endorsee. The endorsee acquires a right to negotiate the instrument to anyone he / she likes. By making an endorsement the endorser promises that in case of dishonor, he / she provide a guarantee to compensate the holder.
Crossing a cheque by making two parallel lines with or without such words as ___& company is general crossing. Section 126 of the NI Act says that this is a direction to the bank to not to pay the cheque across the counter. This crossed cheque is no more a bearer cheque where anyone can negotiate and get payment across the counter.
In case of a crossed cheque, the payee is free to make further endorsements. For example, Ayesha receives a check from Rohan which has been crossed, Ayesha can get this payment in her account only and not across the counter. But in this case Ayesha is free to endorse the cheque in favor of Suresh and further Suresh is free to endorse the instrument in favor of Mukesh and so on…This means that crossing a cheque does not put restrictions on endorsements. In case the cheque gets dishonored, Mukesh can sue Suresh and Suresh can sue Ayesha and Ayesh can sue Rohan.
Now let’s discuss A/C Payee cheques. The NI act does not talk about the A/C payee crossing. There is no definition of A/C payee crossing in the NI act and it is a child of banking practice. Making a cheque A/C Payee is a result of custom, use and practice and is now accepted legally. But, the A/C payee cheque cannot be further endorsed. This means that if the cheque in the above example which is in favor of Ayesha bears “A/C Payee”, payment can be collected in Ayesha’s account only. The paying bank makes sure that amount is being credited to the account of the payee only.
7. What is NBFC?
NBFC or Non Banking Financial Companies is a company in India, which is registered under the Companies Act, 1956, and which provides banking services without meeting the legal definition of a bank.
The NBFCs do the business of loans and advances, acquisition of shares, stock, bonds, debentures, securities issued by Government. They also deal in other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business. They are not in agriculture activity, industrial activity, sale/purchase/construction of immovable property.
Unlike the Banks, they cannot accept demand deposits, they are not part of the payment and settlement system and they cannot issue cheques drawn on them. The facility of deposit insurance by Deposit insurance and Credit Guarantee Corporation is not available for NBFC’s.
A NBFC is incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs. 2 Crores.
All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid Certificate of Registration with authorization to accept Public Deposits can accept/hold public deposits. NBFCs authorized to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank.
What are types of NBFCs?
Previously there were 3 types of NBFC’s classified by reserve bank of India:
o Asset Finance Company (AFC)
o Investment Company (IC)
o Loan Company (LC)
Which is 4th Category?
NBFCs engaged predominantly in the infrastructure financing represented to the RBI that there should be a separate category of infrastructure financing NBFCs in view of the critical role played by them in providing credit to the infrastructure sector. Accordingly the RBI declared in its Second Quarter Review of the Monetary Policy for the year 2009-10 as follows:
To introduce a fourth category of NBFCs as ‘infrastructure NBFCs’, defined as entities which hold minimum of 75 per cent of their total assets for financing infrastructure projects.
So, apart from the three categories viz., Asset Finance Companies, Loan companies and Investment Companies, a fourth category of NBFCs as “Infrastructure Finance Companies”(IFCs) has been introduced.
8. What is the difference between NBFC and Banks?
Unlike the Banks, they cannot accept demand deposits, they are not part of the payment and settlement system and they cannot issue cheques drawn on them. The facility of deposit insurance by Deposit insurance and Credit Guarantee Corporation is not available for NBFC’s.
9. Explain the meaning of Demand Liabilities and Term Liabilities?
There are mainly two types of liabilities on any bank:
Demand Liabilities: The liabilities which bank have to pay on demand. Current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/guarantees, balances in overdue fixed deposits, cash certificates and cumulative/recurring deposits, outstanding Telegraphic Transfers (TTs), Mail Transfer (MTs), Demand Drafts (DDs), unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand come under Demand Liabilities.
Time Liabilities: The liabilities which bank have to pay after specific time period. Fixed deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits, staff security deposits, margin held against letters of credit if not payable on demand, deposits held as securities for advances which are not payable on demand and Gold Deposits come under Time Liabilities.
10. In banking terminology, what are known as Green field projects and Brown field Projects?
The Greenfield project means that a work which is not following a prior work. In infrastructure the projects on the unused lands where there is no need to remodel or demolish an existing structure are called Green Field Projects. The projects which are modified or upgraded are called brownfield projects.
11. What is known as KYC Norms?
Know Your Customer (KYC) is a bank regulation that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information pertinent to doing financial business with them.
In India Banks were advised to follow certain customer identification procedure for opening of accounts and monitoring transactions of a suspicious nature for the purpose of reporting it to appropriate authority. These ‘Know Your Customer’ guidelines have been revisited in the context of the Recommendations made by the Financial Action Task Force (FATF) on Anti Money Laundering (AML) standards and on Combating Financing of Terrorism (CFT).
These standards have become the international benchmark for framing Anti Money Laundering and combating financing of terrorism policies by the regulatory authorities. Compliance with these standards both by the banks/financial institutions and the country have become necessary for international financial relationships. Detailed guidelines based on the Recommendations of the Financial Action Task Force and the paper issued on Customer Due Diligence(CDD) for banks by the Basel Committee on Banking Supervision, with indicative suggestions wherever considered necessary are enforced by RBI.
12. What is the Difference between Credit Card and Debit Card?
Both Debit card and credit card and other cards like smart card are plastic money. Plastic money refers to plastic cards which play the role of medium of payment. In credit cards the customer (credit card holder) can avail the facility of buying goods and services at a Point of Sale (POS) from merchant establishments (provided such arrangements exist) without making a prior payment. This credit facility is provided by the issuer bank to the customer for a specific period. However, in the case of debit cards, the customer (debit card holder) can buy goods and services by automatically debiting the payments to card holder’s banks account.
In case of a credit card, the card holder uses credit line by making drawings within a specified or sanctioned limit and makes payment on receiving the bill along with the applicable charges and interests. In case of debit cards, the card holder uses the balance in his / her own bank account and payment is made immediately on purchases.
13. Who is Banking Ombudsman?
An independent dispute resolution authority provided by RBI to deal with disputes that bank customers have with their respective banks. The authority is to be approached after the customer fails to get his grievance resolved from the concerned bank in terms of the grievance redressal mechanism.
14. What is Financial Inclusion?
Financial inclusion is delivery of banking services at an affordable cost to the vast sections of disadvantaged and low income groups. Unrestrained access to public goods and services is the sine qua non of an open and efficient society. As banking services are in the nature of public good, it is essential that availability of banking and payment services to the entire population without discrimination is the prime objective of the public policy.
15. What is difference between Current account and Savings Bank account?
The differences of the Current Accounts and Savings Accounts have been discussed as below:
Basic Objective: The basic objective of a Savings Bank Account is to enable the customer save his / her liquid assets and also earn money on that saving. The Savings banks Accounts are preferred by individuals and provide liquidity for private and small businesses sometimes.
On the other hand the current account is basically a transactional account which is preferred by business people. The basic objective of the current accounts is to provide flexible payment methods to the business people and entities. These payment methods include special arrangements such an overdraft facility, accommodation of standing orders, direct debits, offset mortgage facility.
Transactions: Usually saving accounts have low transactions while current accounts have large transactions.
Handling: Savings accounts involve personal handling of assets, while current accounts are aimed to make the account holder free of personal handling of liquid funds. The current account facility helps the business to run without hurdles due to non availability of funds and short term deficits.
Interest Income: Usually the current accounts don’t earn interests. The saving accounts earn 4% interest at present in India. The interest is compounded half yearly. (Please note that in case of death of the current account holder his legal heirs are paid interest at the rates applicable to Savings bank deposit from the date of death till the date of settlement)
Overdrafts: As discussed above saving accounts have no overdraft facility, current accounts have. The money can be borrowed for short term and to be paid back with interest.
Minimum Balance: Usually saving accounts need a minimum balance in the banks to keep the account active (however No Frill accounts require either nil or low minimum balance to be maintained). In current accounts there are no minimum balance requirements.
16. What is Bank Guarantee?
Bank Guarantee could be a finance guarantee or a performance guarantee. Under finance guarantee, the bank guarantees the beneficiaries (The person named in the guarantee to receive the guaranteed sum under stated circumstances), certain amount on behalf of its customers who has commercial relationship with the beneficiary. Under performance guarantee, the bank guarantees performance of a contract or goods/ services supplied under a contract by its customers. However, even in the later case, if its customers fail to deliver, it settles the claim of the beneficiary in money terms only; the bank does not fulfill the contract, obligation of its customer.
17. What is Cash Credit?
A credit facility under which a customer draws up to the preset limit, subject to availability of sufficient security with the bank. The difference between an overdraft and cash credit account is that while the former is extended more to individuals, and less for business, the latter is extended only to business bodies. The cash credit facility is unique to India, as in most of the countries it is called overdraft.
Further the cash credit facility is more or less on a permanent basis so long as the business is going on. Internationally at the end of specific period the overdraft facility is withdrawn and the customer is required to pay back the amount lent by the bank. The purpose of cash credit is for working capital. The operations are similar to overdraft.
18. What is Overdraft?
An extension of current account in which the customer is allowed to withdraw more than the credit balance lying in the account. This may be a temporary accommodation to tide over temporary cash crunch or on a regular basis. If permitted on a regular basis, withdrawals are allowed up to a ceiling (called a limit), subject to availability of sufficient security with the bank. In case the overdraft is given to the business enterprises and it is for day-to-day operations, it is known as working capital.
19. What is Repayment Holiday?
Whenever a loan is taken especially for acquiring fixed assets, the repayment does not start immediately. It starts after the fixed assets starts giving a return especially in the case of business enterprises. This is not so in the case of personal loans. The period during which there is no repayment is known as repayment holiday period. This is also known as moratorium period. The period is longer in the case of industrial loans and minimum or absent in case of personal loans. It should be noted that during this period, Interest is charged and there is no period on non-levy of interest. Although there may be a period of non-recovery of Interest. That is interest although levied, not recovered for a specific period. Again if this is the case interest on interest is recovered.
20. What is known as Syndication?
Making arrangement for loans for borrowers. Should not be confused for granting of loans. The bank may or may not participate in the loan process, but would assume responsibility for getting in principle sanction from all participating banks and financial institutions. Syndication fees are part of non-interest income as no funds are involved in the activity. For example. An Indian company wants a foreign currency loan of 100 mn Rs. Making arrangement for this is known as syndication. Even if the arranging bank participates in the loan, by granting a portion of it, syndication is different from it. It gets paid separately for this activity.
21. What is RTGS?
Refers to the settlement system where, settlement of payments on an individual order basis are done on continuous basis, without netting debits with credits across the books of a central bank. RTGS system is also defined as a gross settlement system, in which both processing and final settlement of funds transfer instructions take place continuously (i.e. on real time basis). Thus we can say that RTGS system reduces settlement risk because inter-bank settlements are done throughout the day, rather than just at the end of the day. One of the main attractions of the RTGS systems is that payee banks and their customers receive funds with certainty, or so-called finality, during the day, enabling them to use the funds immediately without exposing themselves to risk. RTGS is a system where both the processing and final settlement take place on real time basis. RTGS is regarded as the centerpiece of an integrated payments system.
Settlement risk refers to the risk when a settlement (in a transfer system) does not take place as expected. This can happen due to various reasons, e.g. one party may default on its clearing obligations to one or more counter parties. Thus, settlement risk consists of two components namely credit and liquidity risks. Credit risk arises when a counter party fails to meet an obligation for full value on due date and thereafter.
22. What is NEFT?
National Electronic Funds Transfer (NEFT) is a nation-wide system that facilitates individuals, firms and corporates to electronically transfer funds from any bank branch to any individual, firm or corporate having an account with any other bank branch in the country.
23. Retail Banking Vs Wholesale Banking
Whole sale banking typically involves a small number of very large customers such as big corporations and governments, whereas retail banking consists of a large number of small customers who consume personal banking and small business services. Wholesale banking is largely inter-bank; banks use the inter-bank markets to borrow from or lend to other banks/ large customers, to participate in large bond issues and to engage in syndicated lending. Retail banking is largely intra-bank; the bank itself makes many small loans.
Most of the Indian public sector banks practice retail banking; they are slowly practising the concept of wholesale banking. On the other hand, most of the well established foreign banks in India and the recent private sector banks practice wholesale banking alongside retail banking.
As a result of this difference, the composition of income for a public sector bank is different. While a major portion of the income for large public sector banks is from lending operations, in the case of any private sector bank in India, the amount of non-operating income (other than interest income) is substantially higher. The composition of other income is commission on bills/ guarantees/ letters of credit, counselling fees, syndication fees, credit report fees, loan processing fees, correspondent bank charges etc.
24. What is Gross NPA and Net NPA?
Gross NPA is the amount outstanding in the borrowal account, in books of the bank other than the interest which has been recorded and not debited to the borrowal account. Net NPAs is the amount of gross NPAs less (1) interest debited to borrowal and not recovered and not recognized as income and kept in interest suspense (2) amount of provisions held in respect of NPAs and (3) amount of claim received and not appropriated.
The Reserve Bank of India defines Net NPA as Net NPA = Gross NPA – (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held).
25. What is Bank rate?
Bank Rate is the rate at which central bank of the country (in India it is RBI) allows finance to commercial banks. Bank Rate is a tool, which central bank uses for short-term purposes. Any upward revision in Bank Rate by central bank is an indication that banks should also increase deposit rates as well as Base Rates (erstwhile Prime Lending Rate). This any revision in the Bank rate indicates could mean more or less interest on your deposits and also an increase or decrease in your EMI.
In simple terms, This is the rate at which central bank (RBI) lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and vice-versa. Thus, it can said that in case bank rate is hiked, in all likelihood banks will hikes their own lending rates to ensure and they continue to make a profit.
26. What are Repo rate and Reverse Repo rate?
Repo (Repurchase) rate is the rate at which the RBI lends shot-term money to the banks. When the repo rate increases borrowing from RBI becomes more expensive. Therefore, we can say that in case, RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate
Reverse Repo rate is the rate at which banks park their short-term excess liquidity with the RBI. The RBI uses this tool when it feels there is too much money floating in the banking system. An increase in the reverse repo rate means that the RBI will borrow money from the banks at a higher rate of interest. As a result, banks would prefer to keep their money with the RBI
Thus, we can conclude that Repo Rate signifies the rate at which liquidity is injected in the banking system by RBI, whereas Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks.
27. What is CRR? (6% at present)
The Reserve Bank of India (Amendment) Bill, 2006 has been enacted and has come into force with its gazette notification. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. [Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 3 per cent and 20 per cent of total of their demand and time liabilities].
RBI uses CRR either to drain excess liquidity or to release funds needed for the economy from time to time. Increase in CRR means that banks have less funds available and money is sucked out of circulation. Thus we can say that this serves duel purposes i.e. it not only ensures that a portion of bank deposits is totally risk-free, but also enables RBI to control liquidity in the system, and thereby, inflation by tying the hands of the banks in lending money.
In Simple terms, CRR means Cash Reserve Ratio. Banks in India are required to hold a certain proportion of their deposits in the form of cash. However, actually Banks don’t hold these as cash with themselves, but deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivalent to holding cash with themselves.. This minimum ratio (that is the part of the total deposits to be held as cash) is stipulated by the RBI and is known as the CRR or Cash Reserve Ratio. Thus, When a bank’s deposits increase by Rs100, and if the cash reserve ratio is 9%, the banks will have to hold additional Rs 9 with RBI and Bank will be able to use only Rs 91 for investments and lending / credit purpose. Therefore, higher the ratio (i.e. CRR), the lower is the amount that banks will be able to use for lending and investment. This power of RBI to reduce the lendable amount by increasing the CRR, makes it an instrument in the hands of a central bank through which it can control the amount that banks lend. Thus, it is a tool used by RBI to control liquidity in the banking system.
28. What is SLR? (24% at present)
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 24%. (reduced w.e.f. 8/11/208, from earlier 25%) RBI is empowered to increase this ratio up to 40%. An increase in SLR also restrict the bank’s leverage position to pump more money into the economy.
In simple terms, SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits) It regulates the credit growth in India.
29. CRAR – Capital to Risk-Weighted Assets Ratio
Minimum requirements of capital fund in India:
o Existing Banks 09 %
o New Private Sector Banks 10 %
o Banks undertaking Insurance business 10 %
o Local Area Banks 15%
o NBFC 15%
Capital Fund = Tier I Capital + Tier II Capital
30. Tier I Capital
o Paid-up capital
o Statutory reserves
o Other disclosed free reserves
o Capital reserves representing surplus arising out of sale proceeds of assets.
Minus
o Equity investments in subsidiaries,
o Intangible assets, and
o Losses in the current period and those brought forward from previous periods to work out the tier i capital.
31. Tier II Capital
o Cumulative perpetual prefeence shares
o Revaluation Reserves (at a discount of 55 percent while determining their value for inclusion in Tier II capital)
o General Provisions and Loss Reserves upto a maximum of 1.25% of weighted risk assets:
o Investment fluctuation reserve not subject to 1.25% restriction
o Hybrid debt capital Instruments (say bonds)
o Subordinated debt (long term unsecured loans)
32. What is Marginal Standing Facility ?
RBI in its Monetary Policy announced on 03rd May, 2011 that it will soon be introducing Marginal Standing Facility (MSF). Later on RBI announced that MSF scheme has become effective from 09th May, 2011.
Marginal Standing Facility Rate : Under this scheme, Banks will be able to borrow upto 1% of their respective Net Demand and Time Liabilities". The rate of interest on the amount accessed from this facility will be 100 basis points (i.e. 1%) above the repo rate. This scheme is likely to reduce volatility in the overnight rates and improve monetary transmission.
In the policy statement RBI has also declared "The stance of monetary policy is, among other things, to manage liquidity to ensure that it remains broadly in balance, with neither a large surplus diluting monetary transmission nor a large deficit choking off fund flows."
33. Latest Important Banking Sector Data
| Bank Rate | 6.00% (w.e.f. 29/04/2003) |
|
| Cash Reserve Ratio (CRR) | 6.00% (w.e.f. 24/04/2010) | Increased from 5.00% to 5.50% wef 13/02/2010; and then again to 5.75% wef 27/02/2010; and now to 6.00% wef 24/04/2010 |
| Statutory Liquidity Ratio (SLR) | 24%(w.e.f. 18/12/2010) | Decreased from 25% which was continuing since 07/11/2009 |
| Repo Rate under LAF (Liquidity Adjustment Facility) | 7.50% (w.e.f. 16/06/2011) | Increased from 7.25% which was continuing since 03/05/2011 |
| Reverse Repo Rate under LAF * | 6.50% (w.e.f. 16/06/2011) | Increased from 6.25% which was continuing since 03/05/2011. |
*Reverse Repo rate was an independent rate till 03/05/2011. However, in the monetary policy announced on 03/05/2011, RBI has decided that now onwards the Reverse Repo Rate will not be announced separately, but will be linked to Repo rate and it will always be 100 bps below the Repo rate (till RBI decides to delink the same)
| Marginal Standing Facility (MSF) ** | 8.50% (w.e.f. 16/06/2011) | Increased from 8.25% which was continuing since 09/05/2011 |
** The concept of Marginal Standing Facility has been announced by RBI wef 03/05/2011 (However implemented wef 09/05/2011). It was decided that Marginal Standing Facility i.e. MSF rate will be linked to Repo rate and it will always be 100 bps above the Repo Rate (till RBI decides to delink the same).
| Saving Deposits - Interest Rate (including Saving Deposit A/cs under NRO and NRE categories) - RBI has amended the rate of interest on SF accounts in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949 | 4.00% (w.e.f. 03/05/2011) | Increased from 3.50%, which was continuing since 1st March, 2003 |
34. Micro Finance
Micro Finance refers to provision of financial services to low-income, under privileged and weaker sections of the society who does not have access to normal banking system.
The term does not mean loans only. It includes savings, insurance, fund transfers etc.
Micro Credit is one of the functions in the broad category of Micro Finance which is lending money.
The person called as the Founder of Micro Credit is Mohammed Yunus of Grameen Bank in Bangladesh
Lending is given mainly for – life cycle needs, Personal Needs, Disaster Needs and Investment Needs
Advantages – Financial inclusion, poverty alleviation, rescue from money lenders
Criticism – high operating cost, high interest rate, concentration only on micro credit and not on micro finance
Failures – reasons – improper usage of funds, weak regulations, poor supervision, thrust on credit instead of finance, limited management capacity of NGO’s, high operating cost, institutional inefficiencies.
35. Bank Assurance
Bancassurance is the distribution of insurance products through bank. It is like using established network for marketing one product is used for marketing another product – cross selling.
Mainly 3 models of Bancassurance is prevelant:
o integrated model – bank branches directly sell insurance products
o Specialist model – specialist officers of the bank or insurance companies sell products
o Strategic Alliance Model – marketing tie up
36. Treasury Bills or Government Securities (T-Bills or G-Secs or Gilts or Gilt Edged Securities)
Treasury Bills are money market instruments to finance the short term requirements of the Government of India. These are discounted securities and thus are issued at a discount to face value. The return to the investor is the difference between the maturity value and issue price.
In India, at present, the Treasury Bills are issued for the following tenors 91-days, 182-days and 364-days Treasury bills.
Benefits Of Investment In Treasury Bills
o 
No tax deducted at source
o Zero default risk being sovereign paper
o Highly liquid money market instrument
o Better returns especially in the short term
o Transparency
o Simplified settlement
o High degree of tradeability and active secondary market facilitates meeting unplanned fund requirements.
Issue is by Negotiated Dealing System (NDS)
There is an active secondary market for T-Bills
37. Hedge Funds
Unregistered investment companies who pools investments from HNI and do the investing. It is mainly not regulated elsewhere. But in India, it should be registered with SEBI as a mutual fund or FII
(Source: Internet)
