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1.

BANKING RATIONALES PART: 001

In this article there are discussions about certain banking


rationales as applicable in India:
Why insurance has to be obtained in joint names of the
bank and the borrower ?
Bank has insurable interest in the securities against which
loan has been given to the borrower. Borrower is the owner
of the securities and bank has the interest in these
securities, as bank is to recover the money outstanding by
liquidating the securities. In any situation where there is
loss to the securities due to any event like fire, flood,
earthquake etc., bank can claim the compensation from the
insurance company only when the policy is in the joint
names of the bank and the borrower
Why power of attorneyholder should not be allowed to
surrender the locker key to the bank ?
It is the duty of the agent to carry out the instructions of the
principal diligently and skillfully as per the clauses of the
power of attorney. The agent has the authority to operate
the locker and this means to carry out the contract. But
under no circumstances agent can terminate the contract.
But under no circumstances agent can terminate the

contract. Termination of the contract can be done by the


principal only. The surrender of the locker key amounts to
discharge of contract by termination/cancellation and this
power is not with the agent. Agent has the rights to take the
contents of the locker but cannot close the contract
Why term deposits maturing on holidays are paid on the
succeeding day but not on the preceding business day ?
In case of term deposit receipts, the contract between the
customer and the bank indicates that payment will be made
to the depositor on the maturity date. If the bank does not
make the payment on that day bank can be exposed to legal
risk. To safeguard the interest of the bank and to save it
from avoidable litigation, RBI has instructed the banks that
if the due date of the term deposit fails on public holidays
then payment of that can be made on the following business
day along with payment of interest for the intervening
holidays. Normally bank holidays are declared as per
Section 25 of Negotiable Instruments act in advance,
however, term deposit receipts are not negotiable
instruments. In case of usance negotiable instruments,
situations are otherwise. i.e. if maturity date falls on a
holiday, payment will be due on preceding business day.

ATM FRAUDS

Frauds in ATM are taking place all over the world. Here are
some of the modus operandi

Phantom withdrawal : It is through hi-tech devices,


clandestinely attached to the ATM which collects the pin
code and the magnetic strip information on the card.
Card Capture: It is to get hold of the Card itself. They insert
a device called the Lebonese Loop(which locks the card) in
to the slot meant for the card. When a customer inserts a
card, it gets stuck. At that time, the criminal offers help and
tells him that he had the same experience but when he
typed three times, the card was released. He watches over
the customers shoulders and memorizes the pin. After the
customer leaves in frustration, he removes the device and
withdraws cash.
Social Engineering : The crook, impersonates a respectable
person and coaxes the details out of victims mouth. He
would first steal the card and then visit the victim ,
impersonating a police officer trying to return the card to
the owner. He would then ask for the pin saying that it was
necessary according to the procedure. With the information
in hand, he withdraws cash.
Phishing : The crook sends an e-mail to the victim in a
format that resembles Banks letter head giving convincing
reasons in authoritative language that their credit card
numbers and pin codes are required to be sent to the Bank
at its given website. The window in the website or the
website itself would be that of the criminal. Those who send
details fall into the trap.

Violence : It usually happens at night, when there is no one


around the ATM, the person is kidnapped and taken to the
ATM and forced to withdraw cash.

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE - PART: 012

OFFICIAL LANGUAGE
01. The Official Language Policy came in force with effect
from 26.01.1950. The act was passed in the year, 1963
02. The Parliamentary Committee on Official Language has to
be constituted with 30 members 20 from Lok sabha and 10
from Rajya Sabha
03. Official Language rules were framed in 1976
04. Official Language Rules are applicable to all states and
union territories except Tamil Nadu
05. Under Rule 5, all letters received in Hindi have to replied
to in Hindi only
06. As per Rule 10c of Official Language act, a letter received
in Hindi is to be replied in Hindi only
07. It is the responsibility of administrative head of each
branch/office/department to ensure that the p;rovisions of
Official Language act are complied with (rule 12(1)
08. Canara Bank Rajabasha Akshay Yojana award to
branches/offices for useage of Hindi
09. Canara Bank Rajabasha Puraskar Yojana award to
employees for using of Hindi in day to day official work

10. Indira Gandhi Official Language award scheme given by


Government to Ministries, Banks, Financial Institutions for
using of Hindi
11. Indira Gandhi award for original books written by
employees in Hindi First Prize Rs. 10000.00; Second Prize:
Rs.8000.00; Third Prize: Rs. 5000.00
12. All branches to have Official Language Implementation
Committee with branch head as the Exofficio Chairman. At
least one meeting every three months
13. The Official Language Committee has to be reconstituted
every year
14. As per Section 3(3) of Official Language Act, 1963, general
orders, instructions, circulars, notices etc have to be issued
invariably in Hindi and English
15. STR 18 quarterly Progress Report on Official Language
due on last day of every quarter
16. Hindi Day is celebrated on 14th September every year to
commemorate the constitutional recognition accorded to
Hindi as the Official Language on 14.09.1949
17. Region A Himachal Pradesh; Haryana, Rajasthan; Madhya
Pradesh; Bihar; Uttar Pradesh; Uttarkhand; Jharkhand,
Chattisgarh, Union Tettitory of Delhi, Andaman and Nicobar
Islands
18. Region B Maharashtra, Gujarat, Punjab, Union territory of
Chandigarh
19. Region C All other remaining states
20. In Parliament Hindi and English are used for transaction of
business
21. As per section 3(3) of the act, certain specified documents
are to be bilingual
22. Script of official language Hindi is Devanagari

23. The in house distance education programme of the bank is


CANBANK HINDI PATHRACHAR P;ATHYAKRAM
24. When 80% of the staff members attain working knowledge
in Hindi in branch/office, the name of the branch/office will
be notified in the gazette under Rule 10(4)
25. Rule 11 specifies that manuals, codes stationery items etc
should be in lingual
26. As per Rule 12, responsibility of compliance of Official
Language rules lies with the administrative head
27. The order of language in the name plates of our Bank in
Region C should be Regional Language, Hindi and English
28. Periodicity of Official Language Implementation
Committee meetings quarterly calendar quarter
29. Town Official Language Implementation Committee
TOLIC meetings once in six months
30. 50% of total library budget should be used for purchase of
Hindi Books
31. If any staff member passes Banking Praghya, it will be
treated that he possesses working knowledge in Hindi
32. IT initiatives in the field of Official Language
Implementation Shabdaratna word processor, Akruti-MS
office, Bankscript bilingual interface for pass sheet, FDR,
leave proceedings etc.
33. Under Canara Bank Rajabasha Akshay Yojana
branches/offices are awarded prizes
34. Under Canara Bank Rajabasha Puraskar Yojana staff
members are awarded prizes
35. Canara Bank has won the consolation prize for the best
implementation of Official Language Hindi for the year
2003/2004 from Government of India (Indira Gandhi
Rajabasha Shield)

36. If an employee passes matriculation or equivalent or


higher examination with Hindi as a medium of examination
he will be treated as proficiency in Hindi
37. If any typist types 300 notes/letters/drafts in Hindi in a
quarter he will be eligible for an allowance of Rs. 80/- per
month
38. Incentive to officers for giving dictations in Hindi 5
letters etc per day or 250 letters/drafts per quarter Rs.
1000.00 per month in Region:C
39. If an employee passes In Banking Pragya Examination
under correspondence course with 70% and above marks he
will be eligible for an incentive amount of Rs.900.00
40. Hindi magazine published by Canara Bank, Head Office,
Bangalore CANJYOTHI
41. Hindi divas is celebrated on 14 th September, each year
42. The articles of constitution dealing with official language
343 to 351
43. Hindi was declared as official language of the Indian Union
14.09.1949
44. Hindi Pakhwara (Hindi fortnight) celebrated from
September 1 to 14

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BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING
EXERCISE: PART: 011

CIVIL PROCEDURE CODE


01. Summons are to be issued to defendants: within 30
days from the date of filing suit
02. Written statement has to be filed by the defendants
within 30 days of service of the summons which can
be extended to 90 days by the court
03. Time fixed for any act under the code can be extended
not exceeding 30 days in total
04. The plaintiff has to produce documents and pay
requisite fee within seven days of orders of the court
05. If the summons are returned plaintiff has to apply for
a fresh summons within seven days of return failing
which suit shall be dismissed
06. Adjournments will not be granted for more than three
times during the hearing of suit
07. Summons can be served by Private Courier- approved
by High court/district court or through email, fax
registered post-ack due
08. No appeal can be filed other question of law if the
suit amount does not exceed Rs. 10000.00

09. No second appeal can be filed from the decree of


money suit if the amount does not exceed Rs.
25000.00
10. No arrest of Judgment debtor can be made if decree
amount does not exceed Rs. 2000.00
11. No arrest of judgment debtor in a civil suit can be
made - irrespective of the amount if she is a lady
12. If the decreed amount exceeds Rs. 2000.00 - but does
not exceed Rs. 5000.00 arrest can be made for a period
not exceeding six weeks
13. If the decreed amount exceeds Rs. 5000.00 arrest
can be made for a period not exceeding three months
14. Fine for non-compliance of summons - is Rs. 5000.00
15. In execution of decree by civil court - basic things
like cooking vessels. Clothers, personal ornaments as
per religious use , tools for making livelihood, family
pension, gratuity wages of labourers, dwelling house
wages of labourers etc cannot be attached
16. In execution of decree by civil court if the house is
mortgaged it can enforced
17. In execution of decree by civil court the salary to
the extent of first Rs. 1000.00 and 2/3 of remainder
cannot be attached

CONSUMER PROTECTION ACT- 1986(COPRA)


18. Deficiency means - any fault, imperfection,
shortcoming in quality/nature/manner of service
19. Complaint has to be filed - within two years from the
cause of action
20. District forum claims upto Rs. 20 lakhs
21. State commission claims of above Rs. 20 lakhs upto
Rs. 1 crore

22. National commission claims of above Rs. 1 crore


23. Bank has to file its version within 30 days of notice
24. Non compliance of orders of forum will attract a fine
of upto Rs. 10000.00 or imprisonment of three years or
both
25. Appeal to be filed against orders of District Forum in
State forum after depositing 50% of amount granted by
State Forum or Rs. 35000 whichever is less
26. Appeal against the orders of National Forum can be
filed before Supreme Court after depositing 50% of
decreed amount by the National Commission or Rs.
50000 whichever is less
27. Limitation for filing of appeals 30 days from the
orders

BANKIING OMBUDSMAN SCHEME


28. In order to proceed under the scheme the customer
has to first write to the bank
29. If the bank has not replied within one month or
rejected the complaint or if the reply of the bank is not
satisfactory to the customer then he can prefer
complaint with the banking ombudsman
30. Limitation for filing Complaint is - one year from the
date of reply from the bank
31. When no reply is received from the bank - then one
year and one month from the date of complaint
32. The award by Banking Ombudsman would be - actual
amount of loss or Rs. 10 lakhs whichever is less
33. Bank has to settle complaint within one month of
receipt of the same
34. Bank has to honour award - within one month from the
date of acceptance of award by the complainant

35. Any person aggrieved by the award may prefer an


appeal within 30 days before the appellate authority
(RBI Deputy Governor)
36. In case the bank has to file appeal they have to
obtain permission of Chairman and Managing Director
and in his absence permission of Executive Director for
preferring appeal
HRD MEASURES OF THE BANK
37. Study circle is a forum to expand the knowledge
horizon of employees and it helps employees know
various information through persons skilled in those
areas
38. Brainstorming sessions it is a forum to obtain
feedback and elicit ideas/views/suggestions on relevant
topics through discussions it instills thinking process
39. Circle Management Board To formally review all
aspects of Circle/s functioning and determine ways and
means to improve the working and to monitor the level
of implementation of various ideas, schemes,
programmes etc.
40. Employees suggestion scheme It is a scheme
through which various suggestions are obtained from all
sections of employees. Suggestions are obtained in
regard to changes/modifications in procedures/systems
of our bank
41. Branch visits/interface To review and monitor the
branchs functioning and to guide the personnel in all
matters
42. Training To induct the employees, develop skills,
impart knowledge on functional and behavioural areas
and to develop potentiality and personality of the
individual

43. Quality Circle It is a voluntary group of employees


working in the same work area coming together to solve
work related problems
44. Employees Recognition Scheme All employees are
motivated to take part in various developmental
activities like deposit mobilization, recovery, clientele
build up and they are awarded for their contributions by
enrolling them in various clubs like Chairmans Club,
EDs Club and GMs club etc
45. Staff Meeting To foster team building and to provide
a forum for individual development. Corporate objectives
can be propagated and the talents of employees can be
recognized. It promotes a two way communication and
is an useful tool for improvement in work culture
46. Entry interview To introduce the details of history
and culture of the bank to the new entrant and to make
the new entrant comfortable to the new atmosphere
47. Exit interview To get a free and frank feedback from
the person leaving the organization and to bid a warm
farewell to the outgoing employee

FOREX AT A GLANCE
48. FEMA 1999 came into effect from 01.06.1999
49. Schedule I prohibited TXN
50. Schedule II Central Government permission required
51. Schedule III deals with purpose, limits where RBI
permission is required in cases like gifts exceeding
USD 5000; donations exceeding USD 5000; Private visits
exceeding USD 10000 per financial year; private visits
exceeding USD 25000 per occasion

52. Release of forex upto USdollar 1 lakh for medical


treatment
53. Education, emigration and employment mere
documentary proof exchange can be released
54. For beyond documentary proof for release of forex
RBI permission is required
55. LRS - Liberalised Remittance Scheme for individuals
56. Individuals can remit Usdollar 2 lakhs per financial
year
57. Individuals can conduct any permissible current
account and capital transact tions
58. Who can open LRS ? a banker can allow any
customer who has completed one year of satisfactory
dealings can open(provision of PAN is a must)
59. Each individual in a family can individually enjoy the
limits indicated
60. NRIs any person residing abroad for more than 182
days during the preceeding financial year; any person
going abroad for gainful employment or circumstances
indicating indefinite period of stay abroad; wife
accompanying Non Resident Indian abroad is also
treated as NRI; Officials deputed to Embassies, UNESCO
etc; Indian students going abroad for studies abroad
whether he earns or not
61. Persons of Indian Origin Foreign Nationals whose
parentage can be traced back to India; parents or grant
parents holding Indian passport or citizen of India
62. Foreign tourists visiting India can open Non Resident
Ordinary account for six months period
63. RBI permission is required to retain the account
beyond six months period

64. Foreign Nationals visiting India with work permits for


studies, for business and their spouse accompanying
them to say in India can open domestic savings bank
accounts and KYC has to be satisfied
65. For students certificate from educational institution
is a must
66. For opening accounts of Nationals belonging to
Pakistan, Bangladesh RBI permission is required
67. Foreign nationals of Foreign Origin are eligible to
open NRO account
68. QA 22 account discontinued
69. Foreign entities can also open NRO account
70. TDS in NRO account normally 30%; educational cess:
3%
71. Interest income can be repatriated - subject to
payment of income tax
72. Repatriation upto USdollar 1 million per financial
year for all bonafide purposes subject to documentary
proof
73. NRO casual overdrawings: No limit/no ceiling as per
FEMA as per discretion of the bank
NON RESIDENT EXTERNAL ACCOUNT
74. TDS not applicable to NRE account ( no tax liability
on income earned through interest)
75. Joint accounts NRI along with NRO not permitted
76. NRE account letter of authority can be issued to NRO
77. Letter of authority holder only for local payments
78. Power of attorney holder in NRE account apart from
local payments investment is also permitted
79. Loans to power of attorney holder permitted with
specific provision and independent permission is
required

80. Power of attorney holder cannot open/close the


account
81. Transfer from NRE to NRE account permitted freely if
depositor himself gives instructions
82. NRE TOD Rs. 50000/- as per FEMA guidelines
83. NRO TOD No limit
84. NRE term deposit LIBOR SWAP rate prevailing on last
day of the month applicable to USD for the
corresponding maturity plus 175% basis points
85. FEDAI displays the rate - in their website

FCNR(B)
86. LIBOR swap rate prevailing on last day of the month
applicable to respective currency for corresponding
period plus 100 basis points
87. Banks are generally permitted to open accounts in
US dollars,GBP, Euro, AUD, CAD, YEN
88. FCNR (B) accounts not opened in Yen in Canara Bank
89. FCNR FDR minimum one year
90. FCNR KDR minimum one year + one day
91. FCNR FDR Interest payable at the time of maturity if
accepted for a minimum one year
92. If interest is to be paid before maturity date like
monthly/quarterly interest etc minimum period is one
year + one day
93. No interest is payable if closed before one year
94. Joint deposits If one party dies and the account is
closed, no penalty is levied
95. Latest guidelines party is closing FCNR account
before maturity in US dollar; but want to invest in EURO,
then penalty will be 0.5%(however normally penalty is
1%)

96. Loan against NRE deposit maximum loan


NRE/FCNR:Rs. 20 lakhs only irrespective of number of
deposits held by the depositor
97. Opening of account in third currency is permitted
98. Loan is granted in native currency (say rupee)
99. Interest on loan if it is remitted in Indian rupees
BPLR minus 3.5%
100.Loan in Indian Rupees not to be credited to NRE
account and only to NRO account and loan in foreign
currency amount can be credited to NRE account or
repatriated however, closure of loan account from NRE
account or adjustment of deposits

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE - PART: 11

01. Tangible net worth is calculated by the formula: Share


capital + General Reserves intangibles and fictitious
assets
02. Miscellaneous expenditure and preliminary expenses are
called - fictitious assets
03. Goodwill, patents, copyrights etc which have no physical
form are called intangible assets
04. Net working capital means: Total current assets less
total current liabilities
05. Net working capital is also called: Long term sources
less long term assets
06. Long term liabilities are also called - long term sources
07. Long term assets are also called long term
applications or long term uses
08. Balance sheet - is a statement showing the business
details called assets and liabilities of a firm as on a
particular date
09. Working capital gap means total currents less current
liabilities other than bank borrowings
10. The operating profit is called - gross profit

11. Net profit means operating profit plus other income


minus other expenses and provisions for taxes
12. Net sales means Gross sales minus excise duty and
sales returns
13. Contingent liabilities like guarantees, letter of credits
etc - will not appear in a balance sheet
14. Profit and loss account is - a statement showing the
income earned and expenditure incurred by a firm
during a specific period
15. The process of reducing a large amount of historical
financial data to a similar set of more useful information for
decision-making purposes is called financial analysis
16. Profits made in the normal course of a business and
retained in the business is called general reserves
17. Current assets are those which are forming part of the
operation cycle or realizable within twelve months
18. Current liabilities are those which are forming part of
the operation cycle or payable within twelve months
19. Margin money for issue of any letter of credit or a
guarantee can be considered as part of current asset
20. The ratio which indicates the ability of quick assets in
meeting the current liability or quick liability is called
quick ratio
21. Quick assets are nothing but current assets less
inventory
22. Quick liabilities are nothing but current liabilities less
bank borrowings
23. When operations of a business result in losses, it would
reduce shareholders funds
24. Bills purchased by the bank will be reflected as under in
the analysis of the balance sheet bills purchased is

shown under current liability and bills under sundry


debtors in current assets
25. Advance payment from customers will be treated as
current liabilities
26. Advance payment paid to suppliers will be treated as
current assets
27. The positive current ratio of a firm will indicate the
presence of net working capital
28. The negative current ratio of a firm will indicate the
absence of any net working capital
29. Current liabilities more than current assets denotes the
absence of net working capital
30. Similarly long term assets more than long term sources
(liabilities) denotes the absence of net working capital
31. Absence of net working capital is also called negative
current ratio
32. The ratio which could give an idea of the availability of net
working capital is called current ratio
33. Margin on working capital is brought by a unit from long
term sources
34. Current assets less inventory or stock is also called
liquid assets(quick assets)
35. Guarantees, letter of credits are called off balance
sheet items
36. Undervaluation of closing stock in the balance sheet will
result in decreasing the gross profit of the firm
37. Investments made in government securities are not part
of shareholders funds
38. Debtors velocity ratio indicates the credit period
allowed on sales
39. Temporary investments of a borrower (for the purpose of
investing short term surplus) in money market instruments

like Commercial Paper, Money Markets Mutual Funds,


Certificate of deposits etc can be classified as current
assets
40. Investments in shares/debentures of subsidiaries and
associates are to be classified as non current assets
41. The statement which shows where the money has come
from and where money has gone is called funds flow
statement
42. Sale of goods will result - in sources of funds
43. Increase in liabilities(capital, reserves, term loan, bank
overdraft, sundry creditors, provision for taxes, advance
payment received from customers etc) are sources of
funds
44. Decrease in liabilities(capital, reserves, term loan, bank
overdraft, sundry creditors, provision for taxes, advance
payment received from customers etc) are uses of funds
45. Increase in assets(land, building, machinery, non current
assets, intangible assets, fictitious assets, cash balance,
bank balance, sundry debtors, stock, advance paid to
suppliers etc) are uses of funds
46. Decrease in assets(land, building, machinery, non current
assets, intangible assets, fictitious assets, cash balance,
bank balance, sundry debtors, stock, advance paid to
suppliers etc) are sources of funds
47. Rent paid in advance is called current asset
48. Prapaid insurance is called current asset
49. Provisions kept for payment towards taxes and any other
liabilities are called current liabilities
50. A low current ratio will indicate the shortage of
working capital
51. Stock turnover ratio denotes operational efficiency
52. Current ratio denotes the liquidity position of the firm

53. Break even point means the point where the unit
meets total cost by total sales revenues
54. Contribution in break even analysis is surplus available
in sales revenue after meeting all the variable costs
55. Holding level of raw materials is related to consumption
of raw materials
56. Holding level of stock in process is calculated in relation
to cost of production
57. Level of finished goods is in relation to cost of goods
sold
58. Level of sundry debtors is in direct relation - to gross
sales
59. In funds flow analysis, any increase in sundry creditors for
goods is treated as sources of short term funds
60. Increase in gross block of fixed assets is uses of long
term funds
61. In funds flow analysis, diversion of fund means long
term deficit funded by short term surplus
62. In case of subordination of unsecured loans is available,
then such unsecured loans shall be treated as long term
funds
63. Chargeable current assets are inventories and
receivables
64. The ratio of long term loans to networth of the company is
called debt equity ratio
65. Term loans are considered as long term liabilities whereas
instalments in term loan which are payable within a period
of twelve months are called current liabilities
66. The liquidity of the bank is determined by converting its
assets to cash quickly and at good costs
67. A banks own premises, investments in subsidiaries
represent- fixed assets

68. Price of liquidity is determined by nature of convertible


assets on hand
69. Advance payment to suppliers should be treated as
current assets
70. Claims against the bank not acknowledged as debts called
the contingent liabilities are off balance sheet items
71. Authorised capital, issued capital and subscribed capital will not appear in a balance sheet
72. Preference share capital is the contribution
of - preference shareholders
73. Dividends to shareholders are payable from general
reserve and not from capital reserve
74. Shareholders of equity capital are having voting rights
whereas the shareholders of preference shareholders
are not having any voting rights
75. Reserves are classified into - general reserve and
revenue reserve
76. Capital reserves are classified into - fixed assets
revaluation reserve and share premium reserve
77. Revenue reserves are the accumulated earnings from
the profits of normal business operations
78. Funds are made available for distribution of profits
amongst the shareholders from revenue reserve
79. Borrowings made by the company by creating a specific
charge on assets of the company are called secured
loans
80. Borrowings made by the company for which no specific
security is offered are called unsecured loans
81. In the case of a company, fixed deposits(by the public),
inter corporate deposits(by other companies) and loans
availed from the promoters and directors are unsecured
loans

82. In the balance sheet of a partnership firm, original cost of


fixed asset less depreciation is called net block
83. The working capital cycle of any manufacturing
organization consists of five stages of conversion called
raw materials to work-in-progress; work-in-progress to
finished goods; finished goods to bills; bills to cash and
cash to raw materials
84. The quantum of working capital requirements depends on
two factors level of activity and delay in the working
cycle
85. The components of working capital requirements are
raw materials and consumables; work-in-progress;
finished goods; bills receivables and expenses
86. Cost of production consists of consumption of raw
materials(including stores) and spares; power and fuel;
direct labour; repair and maintenance; other
manufacturing expenses plus opening balance of stockin-process and minus closing balance of stock-inprocess
87. Cost of sales consists of cost of production plus
opening stock of finished goods minus closing stock of
finished goods
88. Net profit minus dividend paid/declared is called
retained profit
89. Break-even-point is the point in terms of rupees, at
which total costs equal total revenue, and profit equals
zero
90. Contribution margin is total revenue less total variable
costs
91. Contribution margin per unit or unit contribution is
selling price per unit minus variable cost per unit

92. Contribution margin ratio is contribution margin per


unit as a percentage of the selling price
93. Costs which are not directly associated with production
and which remain constant for a relevant range of
productive activity is called fixed cost
94. The maximum percentage by which expected sales can
decline and a profit can still be realized is called margin
of safety
95. Costs that are fixed up to a certain level of output but will
vary within certain ranges of output is called mixed cost
96. The range of output over which the amount of total fixed
costs and unit variable costs remains constant is called
relevant range
97. Costs which are directly associated with producing a
product and which vary with this level of output is called
variable cost
98. Average business per employee in a branch is calculated
by the ratio- (average deposits +average advances)
divided by number of staff in a branch
99. Number of accounts per employee in a branch is
calculated by the formula: (Total deposit accounts + total
borrowal accounts) divided by the number of staff in the
branch
100.The notional price at which inter-departmental
exchange of goods/services takes
place within the company is called transfer price

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE PART:: 09

01. Under Section 125 of the Companies Act, the filing of


particulars for getting a charge registered with Registrar of
Companies for certain transactions, is the responsibility of
borrowing company
02. Popular Bank receives a cheque with account payee
crossing and special crossing in favour of Model Bank. The
cashier of the Model Bank presents this cheque for cash
payment to the Popular Bank Cheque is being presented
by a bank and hence it can be paid in cash
03. Your bank sanctioned a loan of Rs. 2.00 lakhs against the
security of national savings certificates in favour of a person
called X, who has expired recently in a road accident
The payment of National Savings Certificates will be
obtained by the bank
04. For financing a pumpset, which of the following standards
will be taken into account ? Bureau of Indian Standards
05. Model Bank issued a fixed deposit in the name of Mr X and
his wife Mrs. Y. Mrs Y comes to the bank and requests for
premature payment to meet the expenses on treatment of
Mr X who is admitted in a hospital and cannot sign, because
of a fracture in his hands payment can be made after
verifying the facts and after obtaining the thumb
impression of Mr X presently in the hospital
duly witnessed by the attending doctor
06. Mr X and Mr Y are having a joint account in which they
have nominated Mr A. On the death of Mr. X, Mr A
approaches the bank for payment being nominee, payment
would be made to A and to Y and legal heirs of X
07. Popular Bank has issued a term deposit receipt in the
name of Mr A and Mr B to be operated as former or survivor.
A approaches the bank for addition of name of Mr Y , his son
and also nominate Mr Z, his brother in law. He claims that

the money belongs to him without the consent of Mr B,


addition or nomination cannot be accepted
08. Which of the following cannot enter into a valid contract ?
a minor (In the case of illiterate or blind, if major,
they can)
09. Preservation of bank records is mandatory under which
act ? Banking Regulation act-1949
10. Banks are required to submit to RBI a statement of
unclaimed deposits. What is the time period for considering
a deposit as unclaimed deposit ? the deposit which is not
operated for ten years
11. As per Central Vigilance Commission guidelines, CVC has
jurisdiction over which category of the following ? Senior
Management Grade V and above
12. Which of the following is true with regard to creation of
equitable mortgage ? It can be created at centres
notified by the State Government only.
13. Who had launched RIDF scheme ? Government of India
14. Tarapore Committee recommendations are associated
with which of the following ? Capital Account
Convertibility
15. What is the maximum amount up to which the award can
be given by the Banking Ombudsman ? Rs. 10.00 lakhs
16. The capacity in which the Banking Ombudsman functions
in respect of dispute among two banks is known as that of
Arbitrator
17. A person not having a PAN and not liable to pay income
tax is required to make a declaration on which of the
following Form No: 60
18. Lending for a public company is restricted as per Section
293(d) (i) Paid up capital and free reserves

19. Upto what extent no collateral security is required to be


obtained by the banks, for sanction of education loan Rs.
7.50 lakhs
20. What is the full form of the term O B U ? Off-shore
Banking Units
21. Ghosh Committee is associated with which of the
following aspects of banking ? Bank frauds, Concurrent
audit system and Photograph in deposit accounts
22. What is the minimum maturity period for which
commercial paper can be issued ? 7 days
23. Section 31 of RBI act covers which of the following aspect
of financial sector ? Restricts issue of bills of exchange
payable on demand to bearer by any person other than
RBI and Central Government
24. Negotiated Dealing System relates to which of the
following aspect of financial sectors ? Submission of bids
for participation in government securities
25. Real Time Gross Settlement is connected with which of
the following ? Centralised payment system being run
by RBI
26. What is the full form of CIBIL ? Credit Information
Bureau of India Limited.
27. By an exporter, which of the following kinds letters of
credit are given preferences ? Irrevocable without
recourse confirmed.
28. The term FEDAI stands for which of the following ?
Foreign Exchange Dealers Association of India
29. XYZ Limited, a joint stock company has been under
voluntary liquidation on the basis of resolution passed by
the shareholders of the company Its assets would be in
possession of the Official Liquidator

30. Mrs Lakshmi, running a chemist shop is maintaining a


current account as proprietor, in the name of M/s Lakshmi
Medicos for the last five years. She wants to nominate her
minor son aged six years to this account If the name of
the person who would obtain payment on behalf of the
minor is also indicated, the nomination can be accepted
31. Mr Z has been availing a housing loan of Rs. 10.00 lakhs
from your branch which has been showing some irregularity
due to irregular payment being made by the borrower. You
have come to know that he is having a current account in
the name of his proprietorship firm at another branch of the
bank in another town bank can exercise right of set off
32. A private limited company-ABC Privated Limited wants to
open a current account with your branch. Which of the
following are not required to be obtained from the
company ? Introduction as required under KYC
guidelines
33. FCNR (B) Foreign Currency Non Resident (Bank)
accounts
34. SARFAESI Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest
Act, 2002
35. A power of attorney holder of a locker holder approaches
for surrender of the locker As per the power of attorney,
he has the powers to operate the locker only and not to
terminate the contract
36. Cheque signed by the agent, who has expired, is
presented for payment Payment would be made
37. Willful loan defaulter Report to be sent to CIBIL for the
loan accounts of Rs. 25.00 lakhs and above
38. Willful loan defaulter Report to be sent to RBI for loan
accounts of Rs. 25.00 lakhs and above

39. Vehicle financed to partnership firm. How registration


would be done ? In the name of the firm with the name
of the bank as hypothecatee
40. Protection in case of material alteration available to the
bank Under section 89 of Negotiable Instruments act
41. Which act defines mortgage ? Transfer of property act1882
42. Right of set-off is available to the bank due to
Contractual binding
43. When a cheque is endorsed in blank effect is that it
becomes payable to the bearer
44. In a joint account of A and B, if B expires, payment to be
made to A and legal heirs of B, if survivorship clause
is not there
45. A cheque crossed not negotiable It can be transferred
but no one can become holder in due course for such
cheque
46. Executor of a will or administrator would sign the bank
account opening form as X, the executor/administrator
for the deceased A
47. Protection to collecting bank for a cheque is available
Under section 131 of Negotiable Instruments Act
48. Illiterate wants to give mandate to someone to operate the
account It can be permitted with properly witnessed
mandate
49. In a HUF, whether Karta can appoint agent ? Yes, he has
the absolute authority for conducting the affairs of the
HUF business
50. Stop payment instruction received from a Coparcener for a
cheque issued by the Karta Bank will not accept

51. Cheques received in clearing for payment from an account


Garnishee order will be applicable on the amount of
cheque, if returning time is still available
52. Usance bill of exchange Time available to drawee for
acceptance 48 hours after presentment
53. Overseas Banking Unit branch for the limited purpose is
treated as a foreign branch of the bank
54. RIDF is operationalised by NABARD
55. Committee associated with computerization and
mechanization Rangarajan committee
56. Maximum Limit for General Credit Card basic limit of
Rs. 25000.00
57. Credit Guarantee Fund Maximum cover amount Rs.
18.75 lakhs
58. Special Crossing Payment can be made to the bank in
whose favour the crossing is if the endorsements are in
favour of two banks, payment to the bank functioning as
agent
59. FAS stands for Free Alongside Ship (an Inco Term)
60. Crystalisation of liability of importer within 10 days
61. Sale and purchase of securities on behalf of a customer
Relationship bank agent
62. Priority of charge in case of a company, when registered
on the same date The bank whose documents have been
signed first
63. Stop payment instruction given by the latter (2nd named) in
case of former/survivor account bank would not accept
64. Power of attorney or mandate in favour of a minor for
locker operation will be permitted
65. Admission of new partner in a partnership firm consent
of all partners required

66. Guarantee has been defined in Indian Contract Act1872


67. Nomination provisions have been provided in Banking
Regulation act
68. Committee on Monetary Aggregates Y B Reddy
69. Minor aged 15 years presents a cheque for payment
Payment can be allowed by obtaining signatures on the
backside of the instrument No endorsement is needed
70. NOSTRO ACCOUNT An account of a bank branch in
India with the branch of a foreign bank outside India
71. Priority Sector advances target for foreign banks 32% of
Net bank credit
72. Range of SLR is between 25-40% as per Banking
Regulation act
73. Who fixes the agriculture produce support price ?
Recommended by Bureau of Agriculture costs and
prices
74. Poverty line is based on nutritional requirement
75. In case of nomination case, no person other than the
nominee to be entertained as per Section 45ZB of Banking
Regulation act, unless there is a court order
76. RBI rating is based on CAMELS rating system
under banking supervison
77. Fixed deposit prepared to give security for the bank
guarantee Not available as security for any other loan
78. Tier I and Tier II are parts of Capital Fund under capital
adequacy guidelines. Tier II cannot be more than Tier I
79. In case of company accounts, company is a legal
person, whose bonafides are already certified by ROC,
while issuing certificate of incorporation
80. Companys incorporation is legally complete, with issue of
Certificate of Incorporation. But public limited company

cannot commence business in the absence of


certificate of commencement of business
81. System of SDF (Sugar Development fund) is controlled by
the Ministry of Agriculture
82. Bank gets no protection for a forged cheque but for
forged endorsement, paying bank is liable
83. Where endorsements are irregular, bank does not get
any protection
84. Period allowed for opening of an account 15 to 20
minutes
85. What is a garnishee order ? an attachment order of a
competent court on judgment debtors debtor (in case of
bank deposits, the bank)
86. Cheque issued by a company/firm as yourself. Received
with an endorsement to issue a bank draft bank draft will
be issued if endorsement is signed by the authorized
person
87. Current account in the name of a minor can be opened
but precautions will have to be taken Section 85 (2) of
Negotiable Instruments Act provides protection to
paying banker in case of endorsement on a bearer
cheque
88. Amount of Fixed deposit where maturity proceeds can be
paid in cash not to exceed Rs. 20000.00
89. DICGC insurance cover for deposit Rs. 1.00 lakhs per
depositor of the bank
90. Is nomination in a HUF account is permitted ? No
91. Is nomination in Proprietorship firms account permitted ?
Yes
92. PAN quoting mandatory for preparation of draft by
deposit of cash Rs. 50000.00

93. Cheque issued in favour of company Endorsed by the


company in favour of a director Not to be collected for
the personal account of the director
94. In a trust account on the death of anyone of the trustees
new authority required
95. Sans recourse endorsement where endorser reduces
his liability by express words
96. Special Crossing favouring two banks Cheque can be
paid only if one of them is an agent and payment to be
made to the agent bank
97. MICR is called Magnetic Ink Character Recognition
98. Order Nisi 1 st stage in garnishee order- provisional
attachment of account
99. Protection to collecting bank for draft Section 131 A of
Negotiable Instruments Act
100. Bill of Exchange has been defined where ? Section 5
of Negotiable Instruments Act

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE PART:: 08

01. Substandard restructured accounts will become


standard after 12 months of regular repayment of
instalments
02. Short duration crop loan will become NPA after two crop
seasons
03. Interest on NPA account will be recognized as income
after it becomes due and received
04. A is having a savings bank account and also one overdraft
account with debit balance with the bank. The bank can
adjust the credit balance in savings bank account with
the debit balance in overdraft account using right of set
off
05. X is having a loan account duly guaranteed by Mr and Mrs
Y. They are having a fixed deposit for Rs. 40000.00 with
maturity value of Rs. 57010/- X defaulted in repayment of the
loan and bank on maturity adjusted the loan account of X
with the maturity value of fixed deposit and credited the
balance to savings bank account of Mr. Y and Mrs. Y. Mr Y
and Mrs Y objected to this adjustment since the loan is time
barred bank has the right of set off which it has

correctly used (presuming that notice had been given


for doing so)
06. XYZ and ABC are two firms having the same partners in
both the partnership firms. One firm is having a debit
balance and other firm is having a credit balance - partners
being same, right of set off can be applied
07. A solicitor is having two accounts with the bank. One in
personal name and other in clients name. One cheque is
presented in clearing in clients account. In the meantime,
garnishee order is served on the solicitors account.
Whether bank will pay this cheque presented in the
clearing ? Cheque will be paid, since it relates to client
account, which the solicitor has opened in the fiduciary
capacity.
08. Mr D is having one overdraft account with us. He is also
having three other accounts with us, (namely) his personal
savings bank account, joint account with his wife and one
guardianship account with his son. Bank can use right of set
off in which of these accounts ? right of set off is
available in personal savings bank account only
09. Mr. Seth is having current account with us. He has
appointed his son 16 years of age, as his agent. Can the
minor operate this account after this ? Since he is agent,
he can operate it
10. Mr. Sharma has given irrevocable power of attorney to Mr
Verma to operate his current account as an agent for one
year. After three months, he has decided and gives notice to
the bank that Mr. Vermas authority stands withdrawn. On
the contrary, Mr.Vermas plea is that since he has been
appointed as agent for one year, he has every right to
operate the account. What will be the position of the bank

now to deal with it ? The bank has to stop the authority


of Mr. Verma from being used.
11. A minor 16 years of age, is having a fixed deposit of Rs.
10000.00 with the bank. He requested before maturity
payment of the deposit. Can bank allow before maturity
payment ? the bank can accept the request of the
minor
12. Incase a minor is appointed as a nominee for a term
deposit and when death of the depositor takes place
payment can be obtained by the guardian of the minor
on his behalf
13. After the death of locker holder his daughter comes to the
bank with the key to operate the account. What is the
course of action that will be suggested by the bank ? get a
letter of administration
14. A company is having immovable property in Bangalore, its
registered office is in Chennai and the company is willing to
avail bank limits in Mumbai. Where the EMT can be created ?
any one of the above cities presuming that all are
notified centres
15. Where a company is failing in filing particulars of charge
on its assets, with Registrar of Companies, who has got the
right to file particulars of the charge with the registrar of
companies ? Creditors of the company
16. In case of non-registration of charge on assets, in case of
a company, the charge will become void before the
liquidator
17. A trust is maintaining account with the bank operated by
three trustees. One of them issued a cheque for credit to his
savings bank account. What precautions bank will take ?
Cheque cannot be paid unless proper enquiry is made
and the bank is satisfied

18. What is the ceiling of subsidy under SGSY scheme for self
help group ? Rs. 1.25 lakhs
19. In case of KCC, what will be the quantum of insurance in
case of death of the borrower(farmer) ? Rs. 50000.00
20. Vehicle loan financed by banks are registered with Road
Transport Authority with the sole objective of getting the
charge in favour of the bank so that borrower can not
sell the vehicle without the permission of the bank
21. Under Credit Guarantee Fund scheme, the maximum
amount of claim for non fund based limits is none
22. For group exposure purpose, the non fund based limit
sanctioned to a borrower are to be reckoned at which of the
following 100%
23. A company is having stock of Rs. 20 lakhs stored at its
godown. It is insured for Rs. 10 lakhs. The company has sent
stocks for Rs. 4 lakhs for processing at some distant place
where it gets destroyed at the place of processing by
fire. What amount of claim will be adminissible ? Nil
24. Contribution in break even point is equal to selling price
less variable cost
25. Which of the following is the objective of introduction of
KYC ? Check undesirable customers and stop money
laundering
26. XYZ Limited, a company, has paid capital and free
reserves of Rs. 100 crores and it has already borrowed a
sum of Rs. 150 crore on long term basis. It wants to raise
debentures of seven years. What statutory compliance, the
company will need to make ? The companys
shareholders will be required to pass a resolution in the
general body meeting authorizing the board of directors
for the proposed borrowing

27. Digital signature means a coded confirmation in


electronic form attached to an electronic record
28. Pari passu charge in case of a consortium advance by
banks to a big borrower means which of the following ?
Each bank will have a pro-rata charge on the security
in the ratio of their outstanding within the limits
approved by the consortium.
29. Which of the following net working systems will be used
by an organization having office in one building ? Local
Area Net Work
30. An original draft is reported as lost. Its duplicate is issued
and is presented in clearing. It is subsequently found that
the original draft is already paid in banks records
Duplicate will be returned unpaid
31. A endorsed a cheque in favour of B and B endorsed it to C
who just signs the cheque. The cheque is stolen by D, who
endorsed the cheque in favour of Ashok (an old creditor of
the D) for valid consideration. Ashok took the payment of
the cheque. In this case Ashok is liable to whom ? He is
not liable to anyone since he is a holder in due course
32. A cheque dated: 12.10.2009 is presented for payment on
October 27,2009. It is however observed that the cheque
book from which the cheque was issued had been issued to
the customer on 22.10.2009. What would the bank to do
with the cheque ? The cheque would be paid, if it is
otherwise in order
33. Your branch receives a cheque written in three different
inks and three handwritings the cheque will be paid
34. What do you mean by Swap ? simultaneous purchase of
forward and sale of spot currency

35. What is overbought position in case of Foreign Exchange ?


Foreign exchange purchased is more than foreign
exchange sold
36. In the case of cash credit account, the first credit will be
adjusted against which of the following ? It will be set-off
against the first debit
37. When a party is allowed post-shipment credit, what is the
maximum normal time period, during which it is expected to
get the foreign exchange realized ? six months
38. Which of the following meets the feature of a deferred
payment guarantee ? A guarantee where payments to be
made in instalments are guaranteed
39. A firm receives raw material from abroad for processing
thereof and subsequently to be re exported after
processing. What kind of guarantee shall be issued for this ?
Performance guarantee.
40. You are approached by an SSI unit that is engaged in an
industry, where raw material is available in a particular
season of two months only. The assessment of working
capital for this would be made by the bank as per cash
budget method
41. The risk that arises to a bank due to failure of internal
process is called operational risk
42. A partnership firm brings additional funds in the business,
but it creates fixed assets out of these funds, which of the
following ratio would be affected ? Debt Equity Ratio
43. Compared to the previous, there has been increase in the
fixed assets of a firm to the extent of Rs. 5.00 lakhs but its
long term liability and net worth increased by Rs. 4.00 lakhs.
It would effect current ratio
44. The comparison of the balance sheet of a firm reveals
that its long term uses are lower at 75% of its long term

sources. Which of the following must be true ? Change in


Current Ratio
45. A firm had a current ratio of 2:1 and its current liabilities
at Rs. 15.00 lakhs. What will be the amount of net working
capital of the firm ? Rs. 15.00 lakhs
46. Working capital term loan to SSI related committee
Tandon committee
47. Education cess is to be used towards Primary
Education
48. Limit for Lok Adalat Rs. 20 lakhs
49. Which banks have banking operations in Russia ? State
Bank of India and Canara Bank subsidiary called
Commercial Bank of India
50. Can a joint stock company become a partner in a
partnership firm ? Yes
51. How many working directors are there in a nationalized
bank ? Two
52. If a financial director of a company expires, what will be
done with the cheque signed by him ? Bank can make the
payment
53. Counter guarantee for a bank guarantee is an indemnity
54. Letter of Credit - where the packing credit can be allowed
to exporter ? Red Clause letter of credit
55. How many times a transferable letter of credit can be
transferred ? Once only
56. Where on the strength of one letter of credit another letter
of credit can be established ? it is called back to back
letter of credit
57. Where within the letter of credit already issued more than
one drawings are permitted on roll over basis ? Revolving
Letter of Credit

58. If the depositor obtains a loan against a fixed deposit,


name of another person can be added On repayment of
loan
59. Prepaid insurance is classified as Current Asset
60. Net Working Capital Current assets minus Current
liabilities or Long term sources less Long term uses
61. Working capital limit of Rs. 20 crores can be sanctioned
under which method ? Conventional method or Tandon
Committee
62. Under Nayak Committee, the level of sales is 5 times
the minimum working capital limit or 4 times the
minimum level of working capital
63. Advance allowed to a State Sponsored Corporation for on
lending to weaker sections in rural areas Indirect finance
to agriculture
64. Amount ceiling for reporting under K Y C Rs. 10 lakh
summation
65. Credit Guarantee Fund scheme benefit to bank lower
capital adequacy and lower provision in case of account
becoming NPA
66. NPA can remain for 90 days as standard assets and
beyond that it will be treated as substandard assets
67. RBI committee on procedures and audit Headed by S.S
Tarapore
68. Deduction from salary for union subscription Check off
facility
69. Statement of unclaimed deposits to Reserve Bank
of India Under section 26 of Banking Regulation act1949
70. Definition of hypothecation described in Sarfaesi act 2002

71. Cheque written in different scripts say Tamil and English


valid and it can be paid
72. Debtor turnover ratio indicates efficiency of collection
of book debts
73. In case of former and survivor deposit addition of name
or closure of account, possible with signature of all
accountholders
74. On payment of loan by the guarantors, what kind of right
is vested with him ? Right of subrogation
75. What is the objective of SGSY scheme ? To bring people
below poverty line to above poverty line
76. Non negotiable crossing a warning to endorsee
77. What kind of charge is possible on receivables ?
assignment
78. In hypothecation, with whom is the possession or
ownership ? borrower
79. Locker on either or survivor operation basis One reports
loss of key and the other comes to operate with the key
locker is allowed only by joint operation in this
situation.
80. Bailee and bailor defined in Indian Contract Act
81. Dishonour of cheques by mistake Payee claims damages
from bank bank is liable to drawer only
82. Account of foreign bank with a branch of bank
in India Vostro
83. If forged Rs. 500 currency note is received at the counter
a statement received from the tenderer and the
currency note have to be handed over to the police
authorities
84. Booting is called starting a computer
85. Input data fed into a computer

86. Selling of foreign exchange delivery of forex to the


customer in lieu of Indian rupees
87. Law charges to be debited to Profit and Loss account
88. Memorandum of association of a company a document
guiding relationship with third parties or outsiders
89. Under-insurance of security loss can occur due to
application of average clause
90. For acknowledgment of debt, the Central Government has
prescribed the payment of stamp-duty at which of the
following rates different in each State as prescribed by
the State Government
91. When a bank grants a loan to a borrower on the basis of
hypothecation of the assets, with whom does the
possession and ownership remain ? borrower
92. What is the amount of limit in respect of priority sector
advances in general, where the banks do not charge
inspection and service charges ? Rs. 25000.00
93. The term - mulberry relates to Sericulture
94. What is the maximum amount of a transaction, that can be
carried under electronic funds transfer (E F T) facility being
operated by RBI no ceiling
95. Which of the following committees, introduced the term
working capital term loan representing excess borrowing by
a borrowing unit ? Tandon Committee
96. Tax deducted at source while making payment to a
contractor should be deposited with the Government within
a period of seven days from the date of deduction
97. Which of the following is the formulae for working out
current ratio in respect of a trading concern ? Current
assets/Current liabilities

98. While sanctioning a term loan to a company, which of the


following ratios is most relevant and taken into account by
the financing bank ? Debt Service Coverage Ratio
99. Which of the following is not reflected by the study of
funds flow statement of a borrowing unit ? How the
profits have been earned ?
100.The registration of which of the transactions on
payment of stamp duty is mandatory in India ? Simple
Mortgage

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE PART:: 07

01. Foreign currency loans outside India is available against


security of funds held in the accounts of FCNR and NRE
02. RBI has introduced Comprehensive Single Return (CSR) for
collection of data on Non Resident deposits
03. Section 13 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act
2001, provides for a 60 days notice to a borrower to

discharge in full his liabilities before such action is


initiated
04. Inflow and outflow of Foreign Exchange is controlled by
the government of India under the provision of FEMA 1999
05. The validity of import licence refers to the date on or
before which the goods should be shipped by the
overseas supplier
06. A letter of credit, opened in lieu of guarantee in countries
like Japan is called as stand by letter of credit
07. The last date/expiry date of the letter of credit is the last
date for submission of documents to negotiating bank
08. Deferred Payment Guarantee is a financial guarantee
09. Which committee has recommended to provide 40% to SSI
sector upto Rs. 5 lakh; 20% to SSI units more than Rs. 5
lakhs & upto Rs. 25 lakhs and balance to SSI units above
Rs. 25 lakhs ? Kapoor Committee
10. IBAs GRACE has been replaced by IBAs banking
practices guidelines
11. Total working capital requirement of SSI units under the
turnover method of working capital assessment, would be
equivalent to requirement of minimum 3 months of the
annual output value
12. The export declaration form used for software in nonphysical form is softex
13. BSFC would take up complaints of frauds involving Rs. 5
crores and above
14. After receipt of attachment order from the Income tax
authorities the banker can exercise right of set-off in
respect of existing claim against the customers
15. The bill is drawn in London and is acceptable/payable in
Mumbai and the drawee is in Chennai. The bill is a
foreign bill

16. The committee constituted by RBI for studying the


functioning of Self Help Groups and nonGovernment organizations was headed by whom of the
following ? Shri S.K. Kalia
17. A time of 48 hours (excluding holidays) is allowed to the
drawees of which of the following ? all usance bills
18. Every banking company is required to prepare its final
accounts i.e. Profit and Loss account and Balance Sheet as
on 31st March every year in the prescribed forms as per
Banking Regulation Act, 1949
19. In the case of time barred debt the right of set off - can
be exercised by the bank provided the debts are due in
the same right
20. A sum of Rs. 20000.00 is due from X. The loan is secured
by the guarantee of Y. Ys account with the bank has a
credit balance of Rs. 30000.00. Can the bank exercise right
of set off against the balance in Ys account ? - The bank
can exercise right of set off only when the borrower
fails and a demand is made on the guarantor
21. A a farmer owning land, was granted a tractor loan
with B as co-borrower. The tractor was registered only in
the name of A. When bank filed suit for recovery against A
and B , B denied having received any consideration. What
are the rights of the bank ? bank has rights against A
and B both
22. Where the cheque bears crossing with the name of a
banker, such a crossing will be called Special crossing
23. In the case of discrepancy between the amount expressed
in words and figures, of a cheque, what will you do ? The
amount in words should be paid
24. Under pledge, the physical possession of the goods will
be with the bank

25. You have been approached by the secretary of a reputed


public trust, which has four trustees for opening a savings
bank account of the trust. While inspecting the trust deed
you observe that the deed does not contain any provision
about the operation of the bank account. In such a situation,
what will you do ? Insist on operation by all the trustees
jointly
26. When original draft and the duplicate is presented through
clearing on the same day, what will you do ? Pay the
duplicate and return the original
27. A minor is not competent to receive a cheque as drawee
28. Sans recourse endorsement is one which should not
be paid until the following business day
29. Section 131 of the Negotiable Instruments Act 1881 gives
protection to the collecting banker against the risk of
conversion. The benefits of the section will be available
to the banker when he collects- a crossed cheque for a
customer in good faith and without negligence
30. In the case of bill of exchange crossing has no meaning
31. A Negotiable Instrument cannot be enforced against a
minor when he signs it as acceptor of a bill; maker of a
promissory note; drawer of a cheque
32. A cheque is payable to A or order. A endorses it in favour
of B. B loses the cheque. C finds it and after forging the
endorsement of B delivers it to D. D for valuable
consideration further endorses it to E. The cheque is
dishonoured. What are the rights of E on the cheques ? E
can recover money only from D.
33. Protection is available to the paying banker in respect of
cheques drawn payable to order purports to be
endorsed by or on behalf of payee; payment in due

course of crossed cheques and cheques on which


alteration is not apparent
34. Even after receiving the notice of minor about his
attaining the majority, if the bank does not respond to inform
his option He will be held responsible for all the acts of
the firm not only after his attaining the majority but also
with retrospective effect
35. If the account is in debit and the partner is retiring stop
operation immediately and rule off the account, obtain
an acknowledgment of liability not only from the retiring
partners but also from the continuing partner and serve
notice on the retiring partner that bank continues to
hold him liable for the outstanding as from the date the
bank is put on notice of the retirement
36. Mr. Ignorance, an illiterate, having a savings bank
account is going abroad for a short period, requests the
bank to allow Mr. Literate to operate his account. Which
document you will propose which is the easiest to solve his
problem ? Power of attorney registered with the
magistrate
37. A company is said to be registered when it gets
Certificate of incorporation from the Registrar of
Companies
38. There is a current account in the name of M/s Kapil Dev
and Sons, a Hindu Undivided Family which consists of Mr.
Kapil Dev, his wife Suman Lata and two sons Dara Singh
aged eight years and Tinku aged ten years respectively.
Account is operated by Mr. Kapil Dev as Karta of the family.
The bank is informed of the death of Mr. Kapil Dev in this
case the account will be operated by Suman Lata as a
guardian of the eldest male member of the family

39. Under execution of a Civil Decree the following can be


attached right to future maintenance; salary to the
extent of the first 1000 rupees and two-third of the
remainder; tools of artisans and government securities
40. The limitation period for filing a complaint before
Ombudsman monies One year from the date on
which the bank has rejected the presentation and sent
final reply
41. Sharma and Praveen have a joint account. Income tax
department served an attachment order on the bank in the
account of Praveen can attach 50% of the balance in the
joint account
42. X has been sanctioned a loan of Rs. 5000.00 guaranteed
by Y. After sometime, Xs request for an another loan of Rs.
5000.00 was accepted without the knowledge of Y. The
guarantee of Y is available to the extent of Rs.5000/only
43. If a usance bill is returned unpaid, a suit should be filed
within three years from the due date
44. An equitable mortgage can be created by depositing
the title deeds at notified centres with the intention to
create the security of the loan
45. A document executed for loan to a company must be
executed with the companys common seal; must be
executed on behalf of the company and must be
executed by the authorized officials
46. The effect of a document being time barred by limitation
is no legal remedy will be available
47. The rate at which RBI rediscounts bill of exchange is
called Bank rate

48. In relation to a company, the term ULTRA VIRES


means an action outside the Memorandum of
Association
49. A has savings bank account and wants to make
nomination in favour of his minor son Nomination in
favour of a minor can be allowed only when a person is
also appointed/nominated who can receive the payment
on behalf of the minor if the accountholder dies during
his minority
50. If the female employed makes a complaint to the employer
for sexual harassment at work place, how this situation can
be handled ? Bank is bound to inform the appropriate
outside investigating authority about the complaint as
the offence relates to moral turptitude.
51. What is called Working Knowledge in Hindi ? Hindi as
a subject at Matriculation
52. The new category of account i.e. Special Mention Asset
category or Special Watch Category introduced by RBI is
for internal monitoring by banks
53. The sale price of a pen is Rs. 40.00 per piece. Variable
cost is Rs. 22.00 per piece. Overhead cost of unit is Rs.
2160000.00. At what sales volume, will the unit break
even ? 120000
54. The guarantor of a customer account has the right to be
informed only about the extent of his liability
55. Loans/overdrafts to farmers against fixed deposits/Indira
Vikas Patras etc are to be classified as indirect finance
to agriculture
56. New private sector banks are required to have 25% of the
branches in rural/semi urban areas
57. Custody of bill of lading is when bill is submitted in the
custody of the bank

58. A NRI wants premature encashment of FCNR before one


year. The interest rate will be paid as follows: - no interest
is to be paid if the deposit has not run for minimum
prescribed period i.e. one year
59. Overseas Banking Units are proposed to be exempted
from CRR; SLR and Priority Sector
60. Under INCOTERMS, the term FOB indicates Free on
board
61. The statutory authority who control Trade Control is
DGFT(Director General of Foreign Trade)
62. Non- Resident Ordinary (NRO) accounts may be opened by
means of direct inward remittance from abroad in an
approved manner; by encashment of foreign currency
notes/coins and foreign travelers cheques and by
conversion of the existing resident accounts
63. For the visit to the following countries, a traveler is not
eligible for any basic travel quota Nepal and Bhutan
64. What do you understand by the word SION ?
Standard input/output norms
65. If the expiry date of a LC falls on a holiday the documents
are to be submitted to the negotiating bank on the
preceding working day
66. If the letter of credit is silent about partial shipment or
transshipment both are permitted
67. Delayed renewal or review of a borrowal account from the
due date would render the account as NPA if the delay is
180 days or more
68. Section 19(2) of Banking Regulations Act provides that
bank cannot possess shares of any company as pledge,
mortgagee or absolute owner, if both the above limits are
applicable, but whichever is less

69. Which section of the respective act covers the SLR ?


Section 24 (2A) of Banking Regulation Act 1949
70. Abhinav endorses a cheque in favour of Bhawana and
writes the words notice of dishonour waived it is a
restrictive endorsement
71. The bill is drawn in Mumbai and is acceptable/payable in
Chennai, but the drawee is at New York. The bill is an
inland bill
72. As per section 45 (ZA) of Banking Regulation Act, 1949
nomination facility has been granted for bank deposits
73. As per section 20, 21 and 21A of RBI act, Reserve Bank
of India regulates flow of credit to economy by variations
in SLR and CRR
74. SEMFEX-I pertains to setting up of SSI units
75. Rajarani a Hindu lady after death of her husband marries
Raj Kumar. Thereafter Rajrani approaches you as a natural
guardian of her son from earlier husband. Who will be the
guardian ? mother
76. Under section 26 of Negotiable Instruments Act a minor
can draw, accept endorse and negotiate bills of
exchange, promissory notes or cheques binding all
parties except himself
77. Persons who are not allotted PAN are to make
declarations on Form No: 60
78. A balance sheet shows fixed assets and non-current
assets as Rs. 30 lakhs. If there are no intangible assets and
the long-term sources are Rs. 16 lakhs. What is the net
working capital ? Rs. 2.00 lakhs
79. The perusal of a balance sheet reveals that the current
ratio is 2:1. The net working capital is Rs. 100000.00. Arrive
current liabilities:. - The current liabilities will amount
to: - Rs. 100000.00

80. In a balance sheet, amount of total assets is Rs. 10 lakhs,


current liabilities Rs. 5 lakhs and capital and reserves Rs.
2 lakhs. What is the debit equity ratio ? 1.5:1
81. Total of liability side of a balance sheet is Rs. 16 lakhs,
debt equity ratio 2:1 and long-term liabilities of Rs. 8 lakhs.
If current assets are Rs. 4.75, the net working capital will
be Rs. 75000.00
82. Profit to sales is 2% and amount of profits is Rs. 5 lakhs
Sales will be Rs. 250 lakhs
83. Contingent liabilities are those which may arise or may
not arise
84. In assessment of working capital requirements, the
operating cycle of the business/industrial activity consists of
which of the following period and processes ? acquisition
and storage of raw materials after deducting the period
of credit allowed by the creditors; storage of finished
goods before releasing them for sale and period credit
allowed to debtors
85. On perusal of a balance sheet it is revealed that the
current ratio is 3:1 and the net working capital is Rs.
80000.00. The current assets will amount to Rs.
120000.00
86. Credit limit for marketing of crops (pledge financing) for
farmers has been raised from 6 months to 12 months
87. Committee on Camels Rating was headed by S.
Padmanabhan
88. The committee on rationalization of interest rates on
small savings was headed by Y V Reddy
89. What is Right of redemption ? on the repayment of
the debt, the mortgagor has the right to get back the
mortgaged property

90. The current ratio of a company remained constant for two


consecutive years but Quick Ratio decreased from 1.6:1 to
1:1. In the next year, which one of the following conclusions
is certainly true based only on this data ? Companys
stocks on a percentage of current assets have
increased in the second year
91. Your branch has sanctioned a loan of Rs. 25000/- to Amit,
who it was noticed later, was a minor. Shri Bhaman had
guaranteed the loan. Since Amit, being a minor, he is not
liable and as such guarantor is also not liable as his
liability is co-existence with the principal debtor
92. ABC and Co have been sanctioned cash credit limit of Rs.
10 lakhs against paid stocks (margin-30%) and book debts
upto 90 days (margin 50% with a submit of Rs. 2 lakhs. The
company had stocks worth Rs. 20 lakhs. Sundry Creditors
for goods Rs. 10 lakhs and book debts upto 90 days Rs. 15
lakhs. How much amount can they draw against this
security ? Rs. 9.00 lakhs
93. In assessment of working capital requirements, the
operating cycle of the business/industrial activity consists of
which of the following periods and processing ?
Acquisition and storage of raw materials after
deducting the period of credit allowed by the creditors
and storage of finished goods before releasing them for
sale
94. While analyzing the balance sheet of M/s Amar and co, you
notice that long term uses are 120% of long term
sources. Such a position would generally indicate
deterioration in current assets
95. The charge that the bank gets in respect of supply bills is
assignment

96. Right of set off cannot be exercised by the bank in


respect of a contingent debt like guarantees and letter
of credits
97. Special crossing means any banks name with or
without two parallel lines
98. When a bill payable to Shri Yadav or order is endorsed by
him adding words, Notice of dishonour not required such
an endorsement is called facultative endorsement
99. The holder of a negotiable instrument is holder in due
course if he receives the instrument in good faith and
without negligence; he receives the instrument before
its maturity and he receives the instrument for lawful
consideration
100.The correct endorsement on a cheque by Dr. Narayan
Dutt is Narayan Dutt(Doctor)

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE - PART: 06

01. When the remission on stamp duty of a bill is available ?


When a bill represents genuine trade transaction,
when the usance period of bill is not more than three
months and when the bill is routed through banking
channel
02. Endorsement is a signature of the maker or holder for the
purpose of negotiation
03. A Government promissory note is a negotiable
instrument as per custom and usages
04. A cheque is drawn for Rs. 50000.00 and the payee
endorses Rs. 5000.00 in favour of Madhumita. Madhumita
can claim from the bank - no amount because parallel
endorsement is invalid
05. An undated cheque is not considered invalid or
considered valid
06. The function of Central Processing Unit CPU is to read,
interpret and process the information and instructions

07. On which one of the following securities, banker has a


right of general lien securities remaining in his
possession after the loan was adjusted
08. Certificate of incorporation provides conclusive proof
that all the formalities regarding the formation has been
fulfilled by the promoters
09. The following factors are to be examined while reviewing
the Cash Credit Accounts whether the borrower is
passing the entire business to the bank; whether
prescribed margins are being maintained and whether
there is an active turnover both in the account as well
as in the stock offered as security
10. The following statements are true in respect of Allied
agricultural advances Interest is to be charged on
compounded half yearly basis in September/March each
year and no penal interest should be charged for loans
upto Rs. 25000.00
11. Higher debtor turnover ratio means problems in
collection of debts
12. Cash loss means net loss before charging
depreciation
13. Nomination facility is available on deposit accounts
opened by individuals
14. Crossing of cheque denotes that it should be paid to
banker only
15. Negotiable instruments act had permitted the following
electronics cheques; truncated cheques; digital
signatures and application of Information Technology
Act
16. M/s Problem and company are maintaining a current
account with your branch. A cheque for Rs. 25000.00 drawn
by them is presented through clearing which is duly passed

and debited to their account. Subsequently, payment of the


cheque is countermanded by the drawer the same day
before the time of return of clearing cheques. What decision
will you take in this situation ? The drawer can stop
payment before the expiry of time for returning unpaid
cheques as per clearing house rules
17. If a minor is admitted in a firm for the benefits of a
partnership, the bank will open the current account
18. On retirement of a partner, if the account is in credit
balance the firm continues and the branch must ensure
that notices of retirement is obtained not only from the
continuing partners but also from the retiring partners
and then delete the retiring partners name
19. While opening the account in the name of the Public
Limited Company, the bank should obtain along with account
opening form the memorandum and articles of
association; the board resolution to open the account
with the bank and the certificate of incorporation
20. A Hindu undivided family consists of all persons lineally
descended from a common ancestor
21. When court issues garnishee order, the bank is known as
garnishee
22. Raman and Joseph go to a shop. Raman says to the shop
keeper Let Joseph have the goods, and if he does not pay,
I will pay Raman is liable only if Joseph fails to pay
23. Purchase of plant and machinery uses of funds
24. Banking Ombudsman is appointed by RBI under Banking
Regulation Act
25. The currency chest maintained by a nationalized bank is
in the capacity of principal and agent

26. A and B maintain a fixed deposit account with a locker


and want to make nomination for both the accounts
nomination can be made in both the accounts
27. Out of Sen award, Desai award, Shastri award and
bipartite settlements, Sen award is not applicable to
award staff
28. According to Rule 5 of Official Language Rules reply of
Hindi letters should be given in Hindi only
29. As per limitation act, period of limitation for repayment of
deposits by bank is three years from demand
30. Back to back letter of credit means issue of letter of
credit in domestic currency on the strength of foreign
letter of credit
31. Which document will you call for in permitting removal of
the contents of the locker in case of death of locker hirer
who has not nominated anyone letter of administration
32. A term deposit receipt was originally issued in the name
Amit and Bhawana. Subsequently, Amits name was deleted
and Cumars name was added. Now, Bhawana has requested
to delete his name and include Divyas name. What would
you do ? Not to accept as RBI directives prohibit such a
change
33. Which account is not attachable by service of garnishee
order ?- balance representing cheque sent in clearing,
not yet cleared
34. The Credit Guarantee Fund scheme of SIDBI covers all
fund based credit facilities
35. Country risk(s) is/are political, economic, social and
cultural
36. Straight bill of lading is where goods specified in the bill
of lading are consigned to a named person
37. Dunkel draft was associated with Uruguay round

38. In our country, Exchange Control is under the purview of


Ministry of Finance
39. TT buying rate is applied for an inward remittance when
our Nostro account has already been credited
40. Import licence indicates CIF value of imports
41. Under FAS terms seller delivers the goods alongside
the ship, buyer to nominate carrier, pay the freight and
provide export clearance
42. If the letter of credit is silent about the revocability, the
letter of credit is considered as irrevocable
43. In a balance sheet, the value of fixed assets Rs 1 lakhs,
value of non current assets Rs. 1 lakhs and value of total
liabilities Rs 4 lakhs. What is the value of current assets ?
Rs. 2 lakhs
44. If current ratio of an organization is very high but acid
test ratio is low, it indicates that the firm has very high
stock level
45. Contingent liabilities are shown as footnote to the
balance sheet
46. If a company issues bonus shares, the net worth of the
company will not undergo any change
47. If a company issues rights shares, the debt equity ratio
will have a change by improvement
48. Cyper law relates to law relating to electronic media
and telecommunications
49. Nayak committee refers to advances made to small
scale industry
50. The term loan instalments payable within twelve months
is shown in the balance sheet as current liabilities
51. Raman purchased a draft favouring Krishnan, but has
misplaced in his office..Krishnan approached you for issue of
a duplicate demand draft furnishing good sureties. What

would you do ? Duplicate draft will be issued only to


Raman (the purchaser) and not to Krishnan
52. What will you do in case any damaged/tampered parcel is
received ? open delivery of the parcel will be asked for
53. In the case of Hindu Undivided family, the following is not
true In the case of joint family business every member
born in the family becomes a coparcener in the family
business
54. In the case of H U F, the following are considered true
Joint Hindu family is not dissolved by the death of
coparcener; in the joint family business only the
manager of Karta has authority to incur debts; the karta
alone can operate the current account of Joint Hindu
Family and any representative appointed by the karta
may also be permitted to operate the H U F account
55. Revenue stamp of what value is to be affixed in respect of
receipt for for Rs. 500.00 ? Nil
56. Who can stop payment of a cheque ? the drawer
57. A cheque is drawn Pay Ramkumar without the words or
order or bearer. Such an instrument is transferable and
negotiable by the payee
58. The reforms process in the financial sector in India was
on the basis of Narasimhan Committee recommendations
59. Which of the following are eligible for refinance from
SIDBI ? All term loans and all working capital advances
under single window scheme
60. An attestation is required in respect of which of the
following documents ? Mortgage deed
61. Net working capital means current assets minus
current liabilities
62. Securitisation is related to recycling of funds

63. For making payment of a fixed deposit of Rs.


5000.00 customers discharge should be obtained on a
revenue stamp of Rs.1.00
64. When can claim in respect of a fixed deposit receipt
become time barred ? - the claim becomes time barred
three years after the date of presentation for payment
by that depositor
65. The following are not negotiable instruments a postal
order; life insurance policy; a share certificate; money
order
66. Restrictive endorsement is one in which
endorser restricts the negotiability in future
67. A cheque may be ante-dated; post-dated and undated
68. Protection is available to the collecting banker
under section 131 of the Negotiable Instruments Act,
1881 in respect of crossed cheques
69. When a cheque is crossed specially to more than one
banker, the drawee bank can pay the amount of the cheque
to the bank who is acting as agent for collection
70. Section 31 of RBI act 1934 specifically prohibits issue of
promissory notes, bills of exchange and demand drafts
(other than cheques on a banker) payable to bearer on
demand because these instruments are issued payable
to bearer on demand will virtually amount to currency
notes and in India since issue of currency is confined
to RBI the central banker
71. Section 85(1) of the Negotiable Instruments Act,
1881 provides protection to the paying banker in respect
of forged endorsement
72. To open an account of a partnership firm, the firm need
not be registered

73. On admission of a new partner in the firm with a credit


balance, a new partnership letter has to be obtained
and operation to be allowed in the account as per the
new mandate
74. A company is said to be registered when it gets
certificate of incorporation from the registrar of
companies
75. A Co-parcenor is a minor male in the Hindu Family
76. When a Garnishee Nisi is served, the banker should stop
operations in the judgment debtors account upto amount
mentioned in the garnishee order and allow the
operations for balance amount
77. A loan sanctioned to a minor has been guaranteed by
Zeeba. Minor fails to pay should forego the loan as minor
is not competent to contract and the contract entered
into with a minor is void
78. Registration of mortgage is compulsory- except mortgage
by deposit by title deeds if loan amount is Rs. 100.00
and more
79. A mortgage deed being executed is required to be
attested by two persons
80. For execution of a decree, the following cannot be
attached Personal ornaments, which as per religious
usage cannot be parted with by any women; books of
accounts; the wages of labourer and domestic servants
and all monies payable under the policy of insurance on
the life of judgment debtor
81. Banking Ombudsman scheme is applicable to the
business of all scheduled commercial banks including
Regional Rural Banks
82. The provisions available in the Securitisation and
Reconstruction of Financial Assets and Enforcement of

Security Interest act, 2002 to form the Securitisation Co.


No Securitisation Reconstruction Co shall commence
business without taking registration from Reserve Bank of
India; Must have the owned funds of not less than two crore
rupees; directors of Securitisation Co have adequate
professional experience in matters related to finance
Securitisation and Reconstruction and that any of its
directors has not been convicted of any offence
involving moral turpitude
83. The reason for taking a letter of continuity in a cash
credit or overdrart account is to provide continuity to
demand promissory note within the overall limitation period
of three years and to make the document valid,irrespective
of the account fluctuating between debit and credit
balances
84. A document executed for loan to a company must be
executed with the companys common seal; must be
executed on behalf of the company; must be executed
by the authorized official
85. The stamp duty payable on an instrument will be at the
rate prevailing at the place where the document is
executed
86. The bank sanctioned a loan for Rs. 30 lakhs and for that
mortgage deed was registered with the Registrar of
assurances. The stamp duty on the mortgage deed is for
fixed amount and advalorum
87. A foreign bank is one which has been incorporated
outside India
88. A bank maintains a trust account with Zutsi , a trustee
and Yuman as beneficiary. Zutsi wants to make nomination
in the account it cannot be allowed because it is not
individuals account

89. After the death of the accountholder bank is bound to


inform the nominee if for six months nominee does not
turn-up in deposit account and if for three months
nominee does not turn-up in case of locker account
90. Under which rule/act parliamentary committee on official
language has been constituted Section 4 (1) of Official
Language Act
91. A person informs you about loss of his fixed deposit
receipt and requests you to issue a duplicate fixed deposit.
How will you handle the request ? The bank will issue
duplicate fixed deposit on the customers executing the
banks standard stamped letter of indemnity. A letter
intimating lost and request for issuing duplicate is
taken. One or two acceptable sureties are also taken,
each good for the amount
92. How is a foreign spouse of NRI treated for the purpose of
opening an NRI account ? as a person of Indian origin
93. What are the strengths of a Self Help Group organization ?
promotion of thrift and savings; practitioner of mutual
help; propagation of voluntarism and purveyor of
development of credit
94. What are the weaknesses of a Self Help Organisation ?
Super Profit orientation
95. Which rate will be applied while negotiating bills under
letter of credit ? Bills buying
96. RBI has prohibited stapling of currency notes by a
directive issued under Section 35A of Banking
Regulation act
97. Short Bill of lading - which does not contain printed
memorandum on reverse of detaining the term and
conditions of the contract of carriage

98. A person resident in India means a person who resided in


India for a period of 182 days during the previous financial
year
99. Overseas Banking Units can be established in Special
Economic Zones
100.A NRI wants premature encashment of FCNR before one
year. The interest rate will be paid as follows No interest
is to be paid if the deposit has not run for minimum
prescribed period i.e. one year

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE - PART: 05

01. An NPA has been purchased by a bank from another bank.


What will be the risk weight for the purchasing bank for this
account 100%
02. For making reference under CDR II, consent of banks or
financial institutions is required. What is the rule in this

regard ? Consent of 75% of lenders by value and 60% by


number is required
03. Hypothecation which creates equitable charge has been
defined in Sarfaesi Act
04. RTGS takes care of which types of risks: Systemic and
settlement risks
05. A bank can sell its NPA account to another bank only after
keeping the same as NPA in the books of selling bank
for atleast 24 months
06. When only the image of the cheque is sent to the paying
bank while sending the cheque for collection instead of
sending the physical cheque, the process is called
Cheque truncation
07. What is the maximum amount of loan, other than Housing
loan to SC/ST that can be granted to DRI beneficiary: Rs.
15000.00
08. A cheque partly written in English and partly in Regional
language is presented for payment. What should the bank do
? If the language is regional language of the area and if
cheque is otherwise in order, it can be paid
09. Money deposited after receiving order may be attached in
the case of Attachment order
10. Original and duplicate draft presented simultaneously for
payment duplicate should be paid and original should
be returned
11. Maximum time within which reply must be given under
Right to Information Act: 30 days
12. A cheque signed by the agent is presented for payment
after his death. .What should the bank do ? The cheque
will be paid if it is otherwise in order
13. Photographs in accounts are to be taken as per
recommendations of which committee: Ghosh committee

14. What is the targert for SC/ST under DRI 40%


15. Selling rate of currency is higher than traveller cheque
because Holding cost of currency is high
16. A minor was given a loan. On attaining majority, he
acknowledges having taken loan and promises to pay.
Whether the loan can be recovered ? He cannot ratify the
contract. Hence recovery is not possible
17. RBI issues fresh notes in place of defective notes in
bundle and are called as Star Series Notes
18. Directors powers are mentioned in Articles of
association
19. A loan was sanctioned against a vacant land.
Subsequently a house was constructed at the site. What
security is available now ? Both
20. A and B jointly are liable for debt. When the limitation
period is approaching, A acknowledges the debt while B was
away from India. Limitation expires before B comes
to India and after coming, he denies acknowledging the
debt. On whom the bank can proceed for recovery of the
loan as per limitation act Both
21. On repayment of debt of a company, satisfaction of charge
should be filed with Registrar of Companies with in what
period 30 days
22. A person returned from foreign trip has to surrender the
foreign currency within 180 days
23. A loan was given on hypothecation of stock to Mr X. What
has to be done ? The dues will be adjusted
24. Club account cheque signed by the secretary and he
died. Whether it is payable ? it will be paid if it is not
dated subsequent to date of death
25. Company is in liquidation. Funds are at the hands of
Liquidator

26. Sub Prime Crisis means Problem created by lending to


borrowers not meeting the credit rating criteria
27. The bill is dated: 15.03.2005 and the date of acceptance is
20.03.2005. The bill was returned unpaid on 25.03.2005. The
limitation period will be available upto 25.03. 2008
28. Under hypothecation, the possession and ownership
remains with both with the borrower
29. A lady has taken a demand loan against FD and comes to
the branch and wants to add the name of her minor son as
joint accountholder. What has to be done ? After closure
of loan only we can add the name
30. Discontinuation of service area approach is as per
recommendations of Vyas committee
31. Revival of limitation for recovery of a time barred loan is
possible by Obtaining fresh promise to pay under
provisions of Indian Contract Act
32. Other than a bill of exchange or promissory note, the
document coming from abroad is required to be stamped
within three months
33. Administrator is appointed in the case of where the
deceased has left assets for legal heirs and there is no
will
34. A company has registered office at Mumbai, loan granted
at Bangalore, property situated at Delhi. EMT can be created
at Mumbai and Bangalore or Delhi if these are notified
by State Government
35. A having savings bank account with you deposited Rs.
25000.00 A public prosecutor sent notice to bank informing
that Mr A is involved in forgery and requested not to permit
withdrawal in the account. In between, one cheque for Rs.
20000.00 presented for payment. What will you do ? Pay

the cheque as Public Prosecutor is not authorized to


freeze the account
36. There is a savings bank account in the name of A and B.
They have given power of attorney to C for operation in the
account. The cheque signed by C is presented in the bank
after the death of B Cheque will not be paid
37. An appeal (under Sarfaesi) against an order of DRT can be
preferred by the debtor by depositing 50% of the amount
which can be reduced to 25% by DRAT
38. Through Reverse Repo RBI squeezes liquidity in the
system by sale of Government Securities
39. Factoring refers to Purchase and management of
receivables
40. A facility was granted to B on guarantee of A. At the time
of giving guarantee, account was overdrawn, which was not
known to the guarantor. Later on the account turned out to
be bad. Guarantor is liable
41. Reservation for women under SGSY 40%
42. No writings on currency notes directions issued by RBI
under Section 35A of BR act
43. Garnishee order is not applicable on Unused cash
credit or overdraft limit
44. A cheque is written in different hand writings and in
different inks. It will be paid
45. Appeal against the award of Ombudsman can be made by
the bank within 30 days of receipt of acceptance from
the customer
46. In case of dishonour of a cheque due to insufficient funds,
for enforcing rights under section 138 of the Negotiable
Instruments Act, the holder should send a notice to the
drawer within 30 days from the date of receipt of notice
regarding dishonour of the instrument

47. The police seeks information regarding conduct of an


account being maintained in your branch in connection with
some investigation. Can the bank pass on the information ?
Yes. If the information is asked by an official of the
bank in charge of Police Station or above and in writing
48. Who can not be a partner in a partnership firm ? A Hindu
undivided family
49. The limitation period will start from the last date i.e. when
the document was executed by the last partner
50. Who is the appellate authority for making appeal against
the decision of a Banking Ombudsman in India ? Deputy
Governor, Reserve Bank of India.
51. A and B have a locker with the bank which can be
operated by either or survivor. A reported loss of key. Next
day B comes to operate the locker. Whether operation will
be allowed ? No
52. What is the status of the nominee ? Trustee of legal
heirs
53. Star series notes relates to replacement of defective
notes which were wrongly printed
54. If a cheque written in different inks is presented for
payment, what should the bank do ? - The cheque can be
paid if it is otherwise in order
55. A cheque in which the word Hyderabad is written
between two parallel lines presented for payment in clearing
in Delhi. Can this cheque be paid in Delhi ? Yes. Since this
is general crossing and place mentioned in parallel lines
makes no sense
56. The complainant can make appeal against the award of
Ombudsman within 30 days of the receipt of the copy of
award

57. A crossed cheque has been presented by the collecting


banker on the counter for cash payment. Whether cash
payment is permitted ? Yes. Bank can pay the cheque as
the requirement is that the crossed cheque should be
paid through a bank
58. In case of wrongful dishonour of the cheque, the bank will
be liable to drawer of the cheque
59. A cheque for Rs. 6000/- was presented for payment. The
balance in the account was Rs. 5000/- in the account. After
enquiry from the counter clerk, the presenter deposited Rs.
1000/- in the account and the cheque was paid. The
customer claims the amount from the bank. What will be the
banks position ? The bank is liable for disclosing secrecy
of a customers account
60. RTGS has been started to minimize settlement and
systemic risks
61. CRR has been defined in Section 42(1) of the RBI act
62. In the context of collection of cheques, conversion
means crediting the amount of the cheque to the
account of the person who is not entitled to it
63. Who can stop payment of the draft ? None
64. Banks can not issue demand draft payable to bearer,
under which act ? No impact as provisions relating to
crossing not applicable to bill of exchange
65. If a borrower is not satisfied with the reply of the bank to
the representation regarding action taken by the bank under
SARFAESI act, he can make a representation to DRT without
depositing any amount. However, if he wants to appear
against the decision of DRT,he is required to deposit
minimum 50%

66. What is the relationship between the banker and judgment


debtor against whose accounts garnishee order is
received ? Debtor-creditor
67. When a LIC policy will acquire surrender value ? after
three years of running
68. When a borrower claims his mortgaged property after
repayment of loan, the right is called Right of redemption
69. A wants his account operated by B but only after his
death. The account to be operated in the form of former or
survivor
70. What percentage of profit is transferred to statutory
reserves by banks before declaring dividend and bonus-25%
71. The period for which notice is to be issued to the borrower
under SARFAESI act 60 days
72. The effect of increasing CRR by RBI is controlling
liquidity
73. On what rate, the RBI rediscounts the bills discounted by
banks ? BANK RATE
74. RBI has recently permitted Door Step Banking Services
under which act? Banking regulation act
75. Islamic banking means accepting and lending without
interest
76. Forged draft received for payment. Which bank will inform
the police ? Paying banker
77. Trustee came to the bank for loan against fixed deposit for
urgency of trust work. But the trust deed is slient about loan
against FD. Can we give loan ? No
78. Frauds of above Rs. 1 crore is to be reported to where
there is no staff involvement CBI Economic offence
wing
79. Customer is not ready to sign on the back of the cheque.
How to proceed ? Obtain stamped receipt

80. Drawer arrested Public prosecutor requests for stop


payment. Will you oblige. No. We will pay the cheque
81. Revenue stamp on receipt is to be affixed for cash
payment. More than Rs. 5000.00
82. Guarantor pays the dues of the borrower. He is entitled to
rights of creditor. This right is called Right of subrogation
83. Under section 138 of Negotiable Instruments Act, what is
the maximum punishment ?. Double the amount of cheque
or imprisonment or two years or both
84. Under Right to Information act, the information has to be
furnished within 30 days
85. The difference between interest earned by a bank and
interest expense of the bank is called Net Interest
margin
86. The consequence of Non registration of partnership is it
cannot sue others for recovery of its dues
87. An account was opened on 01.12.2007 and cheque book
was issued on 10.12.2007. Two cheques dated: 07.12.2007
and 18.11.2007 were presented for payment on 15.12.2007.
What should the bank do ? Both cheques will be paid if
otherwise in order
88. There is an account in the name of A. A post dated cheque
was paid in clearing by mistake and as a result another
cheque was dishonoured due to insufficient funds. What is
the liability of the bank ?. Bank cannot debit the post
dated cheque before the date of the cheque and would
be liable to drawer and (not payee) for wronglful
dishonour of cheque
89. A executed a power of attorney in favour of B. The bank
has received information about the death of A the
principal. A cheque signed by Mr B which is dated prior to
the death of A has been presented for payment. What should

the bank do ? The bank will not pay the cheque as the
authority comes to an end with the death of principal
90. In an account a cheque with forged signatures was passed
because the forgery was done in such a way that the same
could not detected despite best efforts. Thereafter, the bank
had sent the statement of the account to the customer who
did not object the debit. Later on he contests the debit.
Under the circumstances, what is the liability of the bank ?
The bank shall be liable as a cheque with forged
signatures is nullity in law
91. What is the responsibility of legal heirs for the
debts ? - They are liable to the extent of assets
inherited by them
92. If a depositor other than Senior citizen desires that TDS
should not be deducted from interest payable on term
deposit, he will be required to submit a declaration on
Form 15G
93. A minor can be granted loan for necessaries of life as
per his status
94. A bill of lading is treated as stale if it is not presented to
the negotiating bank within 21 days from the date of its
issue
95. Inspection of banks by RBI is done under Section 35 of
Banking Regulation act 1949
96. In the call money market, lending and borrowing is done
for overnight
97. In which type of accounts nomination facility is not
permitted ? Safe custody accounts in the name of more
than one person
98. The limitation for TOD is three years from the date of
loan

99. Hypothecation has been defined in Section 2 of


SARFAESI act 2002
100.As per KYC guidelines of RBI ration card is not
treated as proof of identify of an accountholder

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE- PART: 04

01. Prepaid expenses in the shape of insurance premium are


classified in the balance sheet as current assets
02. The borrowing powers of the board of directors of the
Public Limited Company should not exceed: Paid up capital
and free reserves
03. State sponsored corporation granted loan for on-lending to
weaker section is covered by the bank under Indirect
advance to agriculture
04. Hypothecation has been defined in Section 2(n) of
Sarfaesi Act

05. In a cheque drawn by the drawer, the name of payee is


written in English and the other parts, in vernacular
language. The cheque will be paid if it is otherwise in
order
06. Right of subrogation is guarantor stepping into the
shoes of the creditor or discharging the liability of the
principal borrower
07. The objective of Government Sponsored Swarna Jeyanthi
Gram Swarojgar Yojana SGSY is to raise
individuals/groups of rural poor above the poverty line
over a period of time
08. Account payee crossing is not defined in any act
including Negotiable Instruments Act
09. In computers, booting refers to Powering the computer
and loading in operating system
10. On receipt of a forged Rs. 500 note, the note and
the statement from the applicant would be sent to the
Police
11. In case of wrongful dishonour of cheque by the bank, the
bank is only liable to drawer as the privity of contract is
between bank and the drawer who is the accountholder
12. Under Section 148 of Indian Contract Act, bailment refers
to delivery of goods from one person to another person
for some purpose and when the purpose will be over,
goods will be returned or disposed off as per the
direction of the delivery - ie bailor
13. Global Trust Bank was merged with Oriental Bank of
Commerce
14. The objective of Know Your Customer guidelines are
Prevent banks from being used unwittingly by criminal
elements for transfer of illegal funds/money laundering
activities

15. IRDA refers to Insurance Regulatory and Development


Authority , for regulating the insurance sector
16. Preferential payment to depositors in respect of winding
up of a banking company is provided under Section 43 A of
Banking Regulation Act, 1949
17. National Housing Bank is an apex Institution dealing
with the housing finance exclusively
18. For declaration of dividend by a bank, without reference to
RBI the capital adequacy ratio should be at least 11% for
preceding two completed years and the accounting year
for which the bank proposes to declare dividend
19. Interest in cash reserve ratio is payable on Monthly basis
at 3.5% eligible balances
20. The keyboard, mouse, touch pad are input devices in a
computer
21. The cooperative bank which has changed its name to
private bank is DEVELOPMENT CREDIT BANK.
22. Exchange Control Department is now called Foreign
Exchange Department
23. World elders day is celebrated on 1 st October each year
24. Current Ratio of 0.85 implies negative net working
capital
25. Committee on legal aspects of bank fraud is headed by Dr.
N L Mitra
26. The maximum extent of FDI in public sector bank is 26%
27. A depositor who has opened his recurring deposit account
on 10th day of a month, can deposit his
monthly instalments on any day during a month
28. The risk weight for housing loan been increased to 75%
29. Repo transaction refers to: Inspection of the liquidity
by RBI under liquidity adjustment policy

30. A 65 year old depositor requests you to deduct TDS at


source. He has to submit the request in Form: 15H
31. NABCONS means NABARD Consultancy Services
32. Negative lien is a declaration given by the company that
the assets given for creating charge is owned by it and
there is no change of any bank on it
33. The formula for calculating breakeven point in terms of
units is Fixed Costs/Contribution
34. Risk arising out of mismatch in maturity payment in assets
and liquidity is known as _ Liquidity Risk
35. S.K. Tudeja Committee is associated with: Sugar Industry
36. The ceiling for referring cases for recovery of Lok
Adalat - Rs. 20 lakhs
37. Cheque Truncation refers to A process in which a
cheque is truncated during the course of a clearing
either by the clearing house or by the bank whether
paying or receiving payment immediately on generation
of electronic image for transmission substituting the
cheque for further movement in writing
38. CDR mechanism is applicable in the case of
borrowers having multiple banking exposure of Rs. 20
crore and above.
39. Matured but not paid term deposits are treated as
demand liability
40. While opening a current deposit account of a Partnership
firm, banks generally insist for declaration of
partnership in the prescribed form
41. The relationship between banker and customer in the case
of Safe Deposit Vault transaction is that of
LESSOR/LESSEE
42. One of the trustees of a trust maintaining an account with
your bank is adjudged as insolvent. A cheque signed by him

was presented through clearing after you received the


notice of insolvency of the trustee. What will you do ? The
cheque can be paid safely
43. Loss before charging depreciation is known as cash loss
44. In a foreign exchange transaction, a right but not the
obligation to buy or sell is called option
45. For technological upgradation in banking system, which of
the following committee has been set up ? -SAFAR
COMMITTEE
46. A usance bill is accepted by the attorney of the drawee.
Subsequently, the drawee revokes the power of attorney
before the bill is due. What will you do in this case ? It is
deemed to be accepted by the drawee and he is liable
47. As per the RBI guidelines, there should be how many
working directors in a public sector bank ? Two:
Chairman and Managing Director and Executive Director
48. On receiving a notice of death of Karta, the credit balance
of HUF current account will be operated by the senior
most coparcener
49. Not negotiable crossing is a caution to endorsee
50. M/s Impex Private Limited, an exporter having a
satisfactory current account approaches you and seeks your
guidance about an export order which he has received
from USA for export of garments. On scrutiny of the export
order, you observe that there is a clause that Letter of
Credit will follow in due course. He enquires from you as to
which type of LC is safest from the point of view of exporter.
. Irrevocable letter of credit.
51. Mr Taj Pratab Singh, a sole proprietor of M/s Impex Private
Limited an exporter having a satisfactory current account
approaches you and seeks your guidance about an export
order, which he is negotiating with an importer from USA. He

seeks guidance as to which type of LC he should insist


which will assure him that some preshipment advance is
made available at the instance of importer Red Clause
Letter of credit
52. Deposit accounts which have not been operated for more
than 10 years are called Unclaimed accounts
53. Return of unclaimed deposits is required to be submitted
to RBI under which act Section 26 of Banking Regulation
Act.
54. On scrutiny of a balance sheet of M/s Techno Inc, you
observe that the long term uses of funds are more than long
term sources. The position of the balance sheet indicates
Negative net working capital
55. On scrutiny of a balance sheet of M/s Thomas Inc. you
observe that the short term uses of funds are more than
short term sources. The position of the balance sheet
indicates positive net working capital
56. Committee on Procedures and Performances Audit and
Public Services CPPAPS is headed by S. B. TARAPORE
57. Mrs. Raja Rani, aged 80 years having a fixed deposit for
Rs. 2 lakhs approaches you with the request to add the
name of his son so that he does not face any problem
after her death. You observe that she has raised a loan
against the said FDR. How will you handle the request of the
lady ? The lady will be advised that the request can be
accepted on adjustment of loan
58. Your branch has disbursed a term loan
documents executed by Master Bobby to meet his
education expenses, which was guaranteed by his father.
The loan account became irregular and despite repeated
reminders, Bobby or his father did not regularize the term
loan account. The loan officer approaches you for guidance

regarding course of action, which the bank can undertake.


Loan cannot be recovered from the borrower or the
guarantor, as the contract with the minor is void.
59. Master Vinay aged 16 years has a term deposit of Rs.
10000.00 with your branch which is to mature after three
years. He approaches you with a request to either allow loan
against the deposit or make the pre-mature payment of term
deposit. How will you handle the request of Master Vinay ?
Loan will not be allowed to the Master Vinay since he
is minor, however, premature cancellation can be
permitted.
60. Mr Somnath is maintaining a satisfactory current
account with you, issues a cheque for Rs. 10000.00 in favour
of the supplier - . Mr Samsung. He endorses it in favour of
Mr. Lever and he deposits the cheque in his bank for
collection. The cheque is presented in clearing at your
branch but due to oversight, the cheque is wrongfully
dishonoured . Your branch receives a notice from Mr Lever
for wrongful dishonour and demands payment and also
claims damages. How will you handle the notice ? In case
of wrongful dishonour of a cheque, the drawee banker
is liable for damages to the drawer only. As such Mr.
Lever has no legal ground to serve the notice to the
bank and demand the payment.
61. The Narasimhan Committee Recommendations includes
Permitting Regional Rural Banks for all types of
banking business; rationalization of foreign operations
of all banks, giving authority to public sector banks for
recruitment of officers and setting up of asset
reconstruction fund to take over bad and doubtful debts
of the banks

62. Regional Rural Banks are managed by State


Government
63. Banks are required to prepare balance sheet in the
prescribed format as per Section 29 of Banking
Regulation act
64. A minor not domicile in India will attain majority on
completion of the age as per the law of the place of the
domicile
65. As per Section 105 of Negotiable Instruments Act,
reasonable time is to be determined for presentment for
acceptance or payment of Negotiable Instruments while
determining such period Public holidays and Sundays
will be excluded
66. Bill of exchange will be treated as dishonoured, when the
drawee makes defaults in acceptance; where one of the
drawee out of several drawees does not accept the bill;
where the drawee is incompetent to contract and when
the acceptance is qualified
67. Negotiable Instrument payable on demand must be
presented within a reasonable time
68. The starting point of limitation period on a bill of
exchange payable on demand is the date of the bill
69. Bank obtained the agreement of hypothecation on
1.1.2005 and upto what time, the bank file a suit ?
01.01.2008
70. Sarfaesi Act, 2002 is not applicable in the following cases
any security interest not exceeding Rs. 1.00 lakh; any
security interest in agriculture land; pledge of movable
as per Section 172 of Contract Act; and Rights of
unpaid seller under Section- 47 of Sale goods act
71. The members of debt recovery tribunals are known as
public servants

72. Validity Period of equitable mortgage is 12 years


73. Accumulated losses are to be classified as fictuary
assets
74. The repayment capacity of a borrower for a term loan is
calculated by debt service coverage ratio
75. Silviculture is known as cultivation of trees
76. The gilt edged securities are known as government
securities
77. One basis point implies 0.1%
78. Export Bill if not paid on due date will be crystalised
on 30 th day after notional due date
79. RAM stands for Random Access Memory
80. Demat stands for dematerialization and remat stands
for rematerialisation
81. The following are hedging instruments Futures; Interest
Rate futures; Currency future; Stock index futures
82. At whose request, letter of credit is opened by the bank ?
Buyer or importer
83. In which type of letter of credit, apart from provision for
allowing pre-shipment credit, issuing bank has also to
arrange for storage/farmhouse facility prior to shipment on
board Green Clause letter of credit
84. Under the concept of Offshore Banking Units, minimum
capital for starting the operation which will be provided by
the payment bank would be: US dollars 10 million
85. What is the target under priority sector for Foreign Banks
for SSI within the overall target of 32% ? - 10% of net bank
credit
86. Priority sector target for Regional Rural Banks has been
fixed at 60%
87. First annual general body meeting must be called within a
period of 18 months after the date of its incorporation

88. If annual general body meeting is not called for by the


company within the prescribed period, each officer of the
company shall be punishable with a fine of Rs.
50000.00
89. Networth of the company is the sum total of paid up
capital and free reserves. Free Reserves means all
reserves created out of profits and write back of
depreciation provisions
90. Holding Company mean the company which holds
shares of another company of value of more than half
value of equity share capital
91. If a company wants to change its name the procedure to
be followed conduct a special meeting of the general
body and arrive a resolution and get approval of Central
Government
92. Certificate for registration of charge is issued by
the Registrar of companies under Section 132 of the
companies act
93. SARFAESI act 2002 contains the provisions for filing the
appeal before DRAT by the borrower for which he will have
to deposit 50% of the claim amount
94. The drawee of the cheque always is the paying banker
95. In terms of autonomy, stronger banks mean banks that
have made profits for last three consecutive years;
having capital adequacy ratio of 9% or more; having net
NPAs of less than 4% and having a minimum owned
funds of Rs. 300 crore
96. Under autonomy package, banks would be allowed to
prescribe standards for categorization of branches;they will
have the power to lay down the educational standards
for recruitments and promotions; it aims to remove the
fears among banks officials on their being haunted by

the investigating agencies on commercial decision


taken in good faith and senior bank officials are
permitted to undertake foreign tours for business
promotion
97. A contract about Foreign Trade Policy means It is for a
period of five years; along with the main policy annual
supplement announced every year and board of trade is
headed by an eminent business person
98. Current accounts are permitted to be opened by
executors, administrators, liquidators and trustees also
99. Current account can be opened by any person or
institution
100.Ration card should not be insisted by the bank for
identification of the depositor as per KYC guidelines

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE PART:: 03

01. Appeal against the decision of Dent Recovery


Tribunal can be made before Chairperson of DRAT within
a period of 45 days
02. If a document duly stamped in Delhi travels to J and K
state, additional stamps equivalent to full stamp duty of
Jammu and Kashmir state are required to be affixed
03. In case a borrower signs in a vernacular language, a
banker must obtain a duly witnessed certificate that the
contents have been read out and explained to the
borrower in vernacular language and the borrower had
understood the same
04. One rupee notes are issued by Government of India
05. Borrowing powers of a company are mentioned in
articles of association
06. A certificate of deposit is issued by a bank at a discount
to face value
07. FIMMDAI means Fixed Income Money Market and
Derivative Association of India
08. Chairman and Managing Directors of nationalized banks
are appointed by Central Government
09. Hardware refers to any part of computer that is
physically visible
10. Special Purpose Vehicle mechanism is suggested for
divestment of Governments stake in Public Sector Unit
11. Debt Service Coverage Ratio shows the number of
times the companys surplus generation covers the
payment of interest and repayment of principal of long
debt
12. The high level committee set up by the finance ministry
to review the system of administered interest rates in the
country Y V Reddy Committee

13. Under the Corporate Debt Restructuring CDR the floor


limit of aggregate exposure is Rs. 20 crore
14. In the case of securitization, the number of loans are
put together and then distributed among small investors
15. A NRE depositor has issued a power of attorney in favour
of his wife a resident. She can withdraw cash, issue
cheques-crossed for local payments and deposit into the
account a foreign DD favouring the deposit, however, she
cannot deposit foreign currency notes/foreign traveler
cheques
16. The maximum period allowed for FCNR deposits three
years
17. Foreign citizen of Indian origin is a Non Resident Indian
NRI
18. Tier II capital should not exceed 100% of Tier I capital
19. A letter of credit in which the terms and conditions
cannot be amended without the agreement of letter of
credit - opening bank, applicant and the beneficiary is
called Irrevocable letter of credit
20. Bill of lading is a document signed by the Captain of the
ship, acknowledging of receipt of goods on boarding the
vessel for shipment
21. Trade Related Intellectual Property Rights (TRIPS)
and Trade Related Investment Measures (TRIMPS) are
associated with Dunkal Proposal
22. The import licences are issued by DGFT
23. Montreal Protocol relates to Protection of ozone layer
24. The term holder refers to the person who is in
possession of the instrument legally and entitled to
possess the instrument in his own name and recover the
amount thereunder

25. An executor of a will has expressed his inability to accept


the responsibility. On reference to the Court, a person is
appointed to look after the affairs. The person is called
Administrator
26. Recovery certificate issued by the president of Debt
Recovery Tribunal is routed through Recovery Officer
27. If the bank fails to register the hypothecation charge on
the Current assets of a company within 60 days of creation
of the charge, the matter has to be referred to Company
Law Board
28. A guarantee was issued on behalf of Rohit by exercising a
lien on the Fixed Deposit Receipt of Rohit. Bank is informed
about the death of Rohit. A garnishee order is received
attaching the deposit of Rohit. The bank will attach
subject to banks right of set off against any debts owed
by Rohit
29. A loan has been granted to Rahul against the security of
his Fixed Deposit Receipt FDR, with the branch.
Subsequently, a Court attachment order is received on the
deposit. The branch after adjusting the dues/outstanding
towards the bank has to pay the balance amount to the
court
30. Registration of charge is not necessary when the
company has been granted loan facility against the
security of Fixed deposit
31. The bank receives garnishee order. The relationship
between the banker and customer in this case is
debtor /creditor
32. The bank due to oversight pays a forged cheque and the
bank is liable to drawer
33. The bank while disbursing the loan did not stamp the
promissory note for the appropriate value. The options for

the bank is that unstamped/understamped promissory


note cannot be rectified
34. A minor aged 15 years comes to your branch for payment
of a cheque for Rs. 27000/-. The signature of the drawer
tallies with your record. As a desk officer, can you make the
payment ? Yes, the minor cannot be denied taking
payment
35. As per the amendment of the Negotiable Amendment Act
in December, 2002, the time period available to the holder
of a cheque to give notice of dishonour to the drawer is
30 days
36. As per the Negotiable Instruments Act, the notice period
by the holder to the drawer under Section 138 is 15 days
37. Kelkar Committee has suggested that tax incentives for
housing loans be withdrawn as part of the overall revamp
of tax policy
38. In case of a garnishee order, where the partner of a firm
is a judgment debtor, only his personal account can be
attached and not the firms account.
39. The following statements are true in connection with the
right of set-off with regard to bank It is the banks
discretion to exercise right to set-off and the whole
bank constitutes one entity and it is applicable when
the banker- customer relationship is that of debtorcreditor
40. When a bill is drawn in a set of three and third is
presented for payment it can be paid
41. The provision requirement for substandard assets 10%
of net book value
42. Claused bill of lading is one which narrates the
effective condition of the merchandise or one packing or
both

43. A NRI can maintain Non Resident External Account,


Non Resident Fixed deposit account, FCNR account and
Non Resident Ordinary account
44. Composite cash credit system with liquidity for
agriculture has been introduced on the recommendations R
V Gupta Committee
45. Rohit Mehta (apparent age-14) presents a cheque drawn
by his father Amit Mehta for payment it can be paid as
the minor is not made liable in this transaction
46. Certificate of noting issued by Notary Public is known as
Protest
47. Break-even-Point is a point where the total costs equal
total revenues
48. A police inspector informs you that Thomas is facing a
charge of cheating and is involved in illegal export of
persons abroad. He produces a letter signed by the stationin-charge demanding that details of the account of Thomas
facing charge of cheating be disclosed. How will you handle
the situation ? As the inspector has produced an
authorization letter we will allow him to inspect the
books
49. If debt service coverage ratio is 2, it means loan
repayment can be easily made by the borrower
50. A minor attains majority on completion of 18 years
51. Bank does not recognize trusts it means that in the
absence of any specific information, deposit accounts
will be presumed to be the property of the
accountholder
52. Financial assistance for the activity, which is not
considered indirect finance to agriculture is Agro clinics
53. Executor is a person named in the Will to manage the
properties of the deceased

54. Holder does not get protection, if endorsement is forged


55. If on any cheque bearer or order has not been written
then it will be treated as an order cheque
56. Mumtaz endorsed a cheque in favour of Dara Singh with
the condition Pay to after death of Rohan Kapur, but
received the payment without fulfilling the condition. In this
case from whom can Mumtaz recover the amount From
Dara Singh
57. Abhinav is the holder of a cheque who endorses sans
recourse to Thomas and Thomas to Raman and Raman to
Divya who endorses it to Selvi. The cheque is dishonoured
Selvi can claim the amount from Thomas, Raman and
Divya
58. Account Payee crossing is addressed to collecting
banker
59. Minor wants to overdraw in his account and you will not
grant it because the contract with a minor is void
abinitio
60. The maximum number of members in a Private Limited
Company, should not exceed 50
61. A Hindu Undivided Family is managed by the karta
62. Garnishee order attaches balances available at the
time of serving the order to bank
63. Consideration for a contract of guarantee shall be
Consideration received by the debtor
64. A company has been sanctioned overdraft limit of Rs.
150000.00 against pledge of shares and in this
case, registration of charge is not necessary
65. Simple mortgage is one which undertakes a personal
obligation to pay the mortgage debt and passing the right
of sale of said property through court

66. In an ongoing situation, the right of set-off can be


exercised by a banker by serving a reasonable notice on
the customer
67. Ombudsman scheme is framed under Section 35 A of
banking regulation act
68. In case a borrower signs the documents with the left
hand a separate note stating that the documents
signed with left hand is kept with the documents
69. Joint and several demand promissory note should not be
obtained in the case of advance to a limited company
70. In the case of bank documents the following category of
stamps are affixed non judicial
71. An export bill for US $ 10000 drawn under letter of credit
is negotiated by your bank and is submitted to the LC
issuing bank for reimbursement and you are informed that
the documents negotiated by your branch are
forged. Negotiating bank is not liable as the bank is not
liable for genuineness of the documents
72. Original demand draft is reported lost by the payee and in
the meanwhile the draft is presented in the clearing draft
will be returned with the reason Reported lost by payee
and drawers instructions awaited
73. Official Language (OL) rules 1976 is not applicable
to Tamilnadu State
74. If a person dies intestate, the court will issue the
following documents letter of administration
75. Import licences are issued for CIF value
76. Documents requiring stamping in terms of Indian Stamp
act should be stamped before execution or at the time of
execution
77. Kisan Credit card system has been introduced with effect
from August 19, 1999 to take care of credit needs of the

agriculture on the recommendations of R V Gupta


Committee
78. The domestic inquiry relating to misconduct of an
employee is governed by Industrial Disputes Act
79. Meaning of term liquid surplus in relation to the
interpretation of the balance sheet it represents excess
of current assets over current liability
80. For disposing of the balances of the deceased customer
dying without will or nomination - letter of administration
is required
81. Guarantees, confirmation of letter of credits issued by
foreign banks, performance bonds, bid bonds,
warranties are non fund exposures
82. Clean bill of lading - which bears no super imposed
clause or notation which expressly declares the
defective condition of the goods and or packaging
83. Free carrier allowance means seller fulfils his
obligation to deliver the goods when he has handed over
the goods meant for export into the charge of the
carrier named by the buyer
84. Foreign Currency, which has a tendency of quick
migration is called hot currency
85. Current Ratio denotes the liquidity of the firm
86. RBI has allowed authorized dealer the authority of
opening of temporary foreign currency accounts for
organizers of international seminars, conferences,
conventions etc, who have already obtained the prior
approval of the concerned administrative machinery of
the government
87. The exchange rate to be applied for effecting remittance
of an import bill is bill selling rate or forward sale
contract if already booked

88. The negotiating bank has negotiated the documents


under letter of credit and made payment to the beneficiary.
The issuing bank refuses reimbursement to the negotiating
bank saying the documents are forged in this case
negotiating bank is not liable, since the bank has acted
in good faith and the documents are apparently in order
89. In India, Trade Control comes under the direct control
of Ministry of Commerce
90. In INCOTERMS, the term FAS represents Free alongside
the ship
91. UCDPC is prescribed by ICC, Paris
92. The first committee on mechanization and
computerization in banking was headed by Dr. C.
Rengarajan
93. The committee on Institutional Credit to SSI Sector and
related aspects (Annual Projected Turnover Method) was
headed by P R Nayak
94. The bill is drawn in Mumbai and is acceptable/payable
in New York and the drawee is at New York. The bill is
inland bill
95. In Camels rating C stands for Credit worthiness
96. Asset Reconstruction Company has been set up by the
Government to recover the non performing assets NPAs of
weak banks
97. Under Narrow Banking the financial institutions can
invest only in Government securities and not undertake
loans and advances
98. Margin of safety means excess of total sales over
break-even point in terms of sales
99. Advance for pisciculture is granted under agriculture
segment.

100. Noting and protesting is not applicable to foreign bill


noting and protesting is applicable to promissory
notes, bills of exchanges and cheques

BANK PROMOTIONS - INDIAN CONTEXT - RAPID READING


EXERCISE PART:: 02

01. The administrative heads of the department heads are


responsible for compliance of Official Language Policy of
Government of India
02. MS word is an application software
03. The locker holder is sick and as such he gives an authority
in favour of the minor son to operate the locker and in this
case, the bank can allow the minor to operate the
locker
04. A a minor endorses a cheque in favour of B. In case of
dishonour, A - cannot be held liable as when a minor
endorses a cheque all parties are liable except the
minor

05.

You come across a cheque on which neither the words


bearer nor order are written. You will make the payment of
this cheque by treating it as an order cheque
06. Debt Service Coverage Ratio denotes solvency position
of the firm
07. Shroff committee had recommended that companies
entering into merger and acquisition transactions, making
preferential allotment of shares to related parties and
proposing buyback of shares must appoint registered
valuer for independent valuation of shares and assets
08. Debt equity ratio denotes the solvency position of the
firm
09. The accountholder is the drawer of the cheque
10. Not negotiable crossing means that the holder in due
course will not get the better title
11. Account opening form is a very important document
because it forms the basis of contract between the bank
and the customer and it contains the offer of the
customer to enter into a contract with the bank
12. The following are not abound on a negotiable instrument
as drawer, acceptor or endorser a lunatic, an alien enemy
and an insolvent
13. An order cheque is transferable only by endorsement
and delivery
14. The term allonge refers to a plain sheet appended to a
negotiable instrument for the purpose of making
endorsement thereon
15. The following endorsements are invalid endorsement
after maturity of the instrument, partial endorsement,
endorsement on a discharged instrument and
endorsement in the case of negotiation

16.

Account Payee crossing is not mentioned in the


Negotiable Instruments Act 1881
17. The protest is the formal notarial certificate attesting
the dishonour of the bill, and based upon the noting.
18. Service Area Approach is a result of recommendation of
committees headed by P D Ojha
19. A person who owns unirrigated land of 3 acres will be
classified as a marginal farmer
20. A foreign traveller encashes travellers cheques for $1000
at Rs. 47.25. It is a purchase transaction
21. A restricted letter of credit is one in which the
negotiation is restricted to a specific bank
22. Red Clause letter of credit is one which authorizes
release of preshipment finance to the beneficiary
23. Limited company means limited liability clause in
memorandum
24. Garnishee Order is issued under Rule 46 of Order XXI of
the schedule to the code of Civil Procedure - 1908
25. A contract of guarantee is defined as a contract to
perform or discharge the liability of principal debtor in
case of his default
26. To be a valid acceptance, drawee shall affix his
signature with or without the words Accepted
27. A Government Company means 51% of the paid up
share capital is held by State Government and/or Central
Government
28. If the registrar of DRT refuses to file the suit due to
discrepancies in copybook, bank can file the appeal
before presiding officer of DRT within 15 days
29. Lok adalats are constituted under Legal Services
Authorities act

30. Stamp duty earned by the government on demand


promissory note goes to the state government
31. When the bill becomes due for payment it is the
starting point of limitation on a bill of exchange payable
at a fixed time after date
32. Cash Reserve Ratio is maintained by the banks by
keeping cash balance with Reserve Bank of India
33. Nomination facility can be allowed in the following cases
deposit account of individuals, articles kept in safe
custody and lockers
34. A certificate of deposit is an usance promissory note
35. Subordinated debt is an element of tier II capital
36. Accumulated loss will be deducted from tier I capital
37. Vaghul Committee had recommended the introduction
of Certificate of Deposits
38. The basic nature of a Commercial Paper is it is usance
promissory note
39. A pass through certificate - PTC can be of the
following nature in securitization transactions with
recourse and without recourse
40. Global depository receipt is listed on Stock Exchange
outside USA
41. Current Ratio denotes liquidity
42. Simultaneous Sale and Purchase of a share to take the
benefit of the variation in prices in two different markets is
called Arbitrage
43. Current Ratio denotes liquidity
44. Debt Recovery Tribunals have been created by the
Government as a result of the recommendations of
Narasimhan Committee
45. When a bill matures on a public holiday, the maturity
date of the bill falls on the next preceding business day

46. A negotiable instrument can always be negotiated until


it has been paid up or satisfied
47. In the case of dishonour of a foreign bill, protest is
compulsory when it is required by the law of the place
where it is drawn
48. An engineer is financed for the purchase of a car. The
same can be classified as Non priority sector
49. Under drip irrigation system water is used very
economically and supplied drop by drop to the roof zone
of crop
50. Yellow Revolution is in connection with growing of
fruits specially banana
51. The economic life of a tractor is - 10 years
52. The natural guardian of a married minor girl is her
husband
53. The minimum number of share holders in a Private
Limited Company two members
54. To open an Administrator account the bank requires
letter of administration
55. Karta has the absolute authority to appoint any person as
an agent and the agent need not to be a family member
56. Garnishee Order is the court order obtained by judgment
creditor attaching funds with Bank of judgment debtor
57. Indemnity means to make good the loss to the
promise/indemnityholder
58. A bearer who takes a bearer cheque bonafide and for
value will be a holder in due course
59. Mortgage is defined in Section 58 of transfer of
property act 1882
60. A banker can exercise the right of set-off only in respect
of debts due and determined

61. Banks are restricted to advance against its own shares


as per Banking Regulation Act
62. The recovery of dues after issuance of recovery
certificate by Presiding Officer of DRT can be made through
Recovery Officer of DRT
63. The roles of Lok Adalat to arrive at compromise or
settlement; issue final judgment and to give the
consented decree
64. The remedy under Section 138 of Negotiable Instruments
Act is available when the cheque is presented to paying
banker within a period of six months or within the
period of its validity whichever is earlier
65. In case a document travels from higher stamp area to
lower stamp, additional stamps are not required to be
affixed
66. The purpose of maintaining a documents execution
register is that it is a prima facie evidence of execution
of documents
67. One rupee note bears the signature of the Secretary,
Ministry of Finance
68. Nomination facility is not allowed in joint safe custody
accounts
69. Free capital is a part of tier I capital
70. Kumar Mangalam Birla is the architect of SEBIs
Corporate Governance Code
71. Malhotra Committee had suggested to establish
an Insurance Regulatory Authority
72. The minimum denomination for a Commercial Paper
is Rs.5.00 lakhs
73. The maximum period for which a Certificate of Deposit
can be issued not more than 12 months

74. Capitalisation of reserves leads to issue of bonus


shares
75. 1,2,3,4,5,6,7,8,9 numerals are called International form
of Indian numerical
76. Key-board is an input device
77. MS - DOS is a system software
78. Dear money policy is meant to control inflation
79. An illiterate borrower cannot sign acknowledgment of
debt but affixes his thumb impression on it. The limitation
period will be extended by this action
80. Section 45 Z of Banking Regulation Act relates
to handing over of original paid cheques to the
corporate customer
81. As per the Prompt Corrective Action scheme, RBI can
initiate certain structured actions in respect of the
banks which have hit the trigger points in terms of
CRAR, Non performing advances and Return on
advances
82. Under Know Your Customer guidelines, the identification
and reporting of suspicious transactions are to be done on
quarterly basis to Audit Committee of the board of
directors
83. To prevent slippage of accounts to NPA category, RBI has
designed broad framework detailing preventive and
corrective measures. One of the measures is the
introduction of new asset category between standard and
sub standard. This new category is called Special
mention accounts
84. While opening accounts of Executors and Trustees to the
estate of a deceased person, bank should scrutinize the
trust deed, order of charity commissioner and probate

85. Stamp duty on which of the following documents does not


vary from state to state Mortgage agreements,
hypothecation agreements, guarantee agreements and
bills of exchange.
86. If no time for payment is specified in a promissory note or
bill of exchange, such an instrument is considered as
instrument payable on demand
87. Acceptance is not required in the case of promissory
note and demand bill of exchange
88. To open an executor account the bank should insist on
probate
89. The following do not fall within the implied powers of a
partner under section 19(2) of the Partnership act, 1932
opening a banking account on behalf of the firm in his
own name, compromising or relinquishing any claim or
portion of a claim by the firm and withdrawing suit or
proceedings filed on behalf of the firm
90. In a balance sheet, profit is shown under liabilities side
91. The term preshipment advances is used to describe
advances granted to exporters for the purpose of
manufacturing, processing, packaging etc or simply
procuring goods meant for export
92. In an account of a minor operated by the guardian, after
the death of the guardian, the balance cannot be paid to
the minor even through he has completed the age of 10
years
93. On the death of a partner, the firm having credit balance
stands dissolved and to wind up the affairs of the firm the
surviving partners are allowed to jointly operate the account
and if it decides to continue after registering the Municipal
Death certificate recording fresh mandate for operation, the

existing account can be continued and operation


allowed
94. Opening a banking account on behalf of the firm in his
own name, compromising or relinquishing any claim or
portion of the claim by the firm, withdrawing suit or
processing filed on behalf of the firm do not fall within the
implied powers of a partner under Section 19(2) of the
Partnership act 1932.
95. Garnishee order attaches debts due or accruing due. This
means deposits payable on demand and payable at a
future date
96. Parties to a guarantee are Principal debtor, surety and
creditor
97. A cheque may be crossed by drawer or holder
98. The purpose of mortgage is to possess the ownership
of others property
99. A banker can set-off the amount held in the time deposit
account of customer against the debit balance of the same
customer in overdraft account only after maturity of the
fixed deposit
100. Civil Procedure code provides the provision exemption for
arrest in execution of a decree for money under Section
56

BANKING MATTERS (INDIAN CONTEXT) - RAPID READING


EXERCISE PART:: 01

01. In the case of a bearer cheque, the identity is not


necessary
02. When an order cheque is endorsed in blank, it becomes
payable to bearer and transferable by mere delivery
03. A cheque crossed Not Negotiable, is still transferable

04. As per section 138 of Negotiable Instruments Act, there is


a provision of penalty when the cheque issued in discharge
of a liability is dishonoured due to insufficient funds in the
account and if the cheque has been presented to the
bank within a period of six months and is not honoured
due to insufficient funds
05. A fixed deposit receipt cannot be endorsed
06. A cheque is presented in an account but there is no
sufficient balance to meet the same. The cheque will be
returned with the remarks insufficient funds
07. The cheque on behalf of a partnership firm can be
stopped for payment by any partner whether authorized
to operate the account or not
08. The marginal farmer is one who possesses agriculture
land upto 1.25 acres of irrigated or 2.5 acres of nonirrigated land
09. Registration of charge is not required in the case of
pledge, lien, set-ff and appropriation
10. Loans for construction of godown for own use of
farmers is not part of indirect finance to agriculture
11. Olericulture is cultivation of vegetables
12. Agriculture labourer is a labourer whose income from
agriculture is more than 50%
13. Nostro account is an account of Indian Bank with a
Foreign Bank in foreign currency
14. Resident Foreign Currency (RFC) account scheme is
available for Home Returned NRI
15. Under packing credit limit, the extent of finance is
computed on the basis of FOB
16. Forfaiting refers to discounting of export bill without
recourse to the seller

17. In an overdraft account, when the death notice of partner


is received the bank should stop the operations to avoid
application of Claytons case
18. A company is not dissolved by lunacy of a director or
bankruptcy of a director or death of a director
19. In case of insolvency, the bankers obligation to honour
customer cheques comes to an end when the customer
is adjudged insolvent
20. A lien is the right to retain goods or securities
belonging to a debtor until he has discharged a debt due
to the retainer thereof
21. The shareholders of a Private Limited Co cannot transfer
the shares to other public
22. The rule in Claytons case applies in the case of running
accounts having debit balances
23. The term banking has been defined by Banking
Regulation act 1949
24. Bills drawn in respect of goods delivered by parties to
various Government/Semi Government departments are
known as supply bills
25. Goiporia committee has made the recommendation
Commencement of employee working hours should be
15 minutes before commencement of business hours
26. Banking companies are registered under Banking
Regulation act
27. Bipartite settlements are registered under Industrial
Disputes Act
28. Financial products, whose prices are derived from the
price of the underlying currency, interest rate, stocks etc
are called securitization
29. Revaluation reserves is a part of subsidiary capital/tier
II capital

30. Y V Reddy committee had revised the concept of


liquidity and monetary aggregates
31. Verma Committee was appointed to examine the
restructuring of weak banks
32. The process through which any member-owned
organization becomes a shareholder-owned company is
called demutualization
33. Official Language deals with the following articles of
constitution 343 to 351
34. Hindi was declared as the official language of the union
on 14-09-1949
35. The system of electronic funds transfer was suggested by
the committee headed by B D Shah
36. INFINET is RBIs VSAT based communication system
37. The negotiable instruments act is applicable in the entire
part of the country
38. If the cheque is drawn in favour of Mother God or
order, the cheque is to be returned since drawn on
fictitious name
39. A cheque payable to Rohit is endorsed as follows Pay to
Kabil on his marriage. This endorsement is conditional
endorsement
40. The cheque crossed account payee drawn in favour of Mr
Brij Nand is presented by Ramana Nand in his account
and in this case the bank should not make the payment
41. The following are not negotiable instruments airway
bill, a currency note, a letter of credit and lorry receipt
42. Under section 25 of Negotiable Instruments Act, public
holidays are declared by the state government by
notification in the official gazette
43. Conversion means not crediting the amount in the
account of true owner

44. By General Crossing we mean two transverse parallel


lines on a cheque
45. Forward exchange contract is an agreement where the
foreign exchange is delivered at predetermined future
date at a contracted date
46. Unless otherwise specified in the letter of credit, the
insurance amount should be expressed in the currency
of the letter of credit
47. On the death of the partner, bank opens a new account
to rule-of the existing account to avoid application of
Claytons case
48. Executor in banking means a person named by the
deceased in his will and for which probate is obtained
49. The partnership firm doing the banking business cannot
have more than 10 partners, and other business not more
than 20 partners otherwise it will become illegal
association. It is provided in Companies act
50. Prospectus is an invitation to the public to subscribe
shares or debentures or deposits
51. According to the rule in Claytons case, the money paid in
by a customer are to be applied towards adjustment in
overdraft account in order of time in which the debits
were incurred
52. Banking company is prohibited for undertaking business
like trading of goods etc under Banking Regulation act
53. For availing remedy under section 138 of Negotiable
Instruments act, the holder will have to give notice to the
drawer within 30 days of return of cheque
54. When a firm has branches at different places and wishes
to avail the loan at all stations, the documents will be
executed at its Head Office and sub limits will be
allocated to branches at different places

55. In case of any doubt about stamp duty, clarification can


be sought from State Stamp Authority and Controller of
stamp duty
56. Banks were nationalized under Banking Company
(Acquisition and transfer of undertaking) act-1970
57. When an account shows debit balance, the banker is a
creditor and when the account shows credit balance,
the banker is the debtor
58. Partnership firms cannot do the business of banking and it
is provided under the banking regulation act
59. The concept of authorized deduction and illegal deduction
is mentioned in the act Payment of wages act
60. The process of replacing paper securities into electronic
holding of shares is known as dematerialization
61. Official Language policy came into force from 16.01.1950
62. The Central Processing Unit CPU- consists of control
unit and arithmetic logic unit
63. When the price of dollar is raised from Rs. 48 to Rs. 55 the
exporter will be benefited in terms of rupee
64. A cheque is the mandate of the accountholder
65. When a cheque without a date is presented for
payment, the banker should return the cheque
66. In a cheque the name of the banker had been written with
or without the words Not negotiable In this case, it is
called as a special crossing
67. For negotiating a negotiable instrument there are no
limits
68. A bearer cheque is transferable only by delivery
69. A bill drawn in Paris and drawn in favour of a trader in
Mumbai and payable in Chennai is called a foreign bill
70. The Negotiable Instruments Act provides protection to the
collecting banker in respect of Conversion

71. Crossing of a cheque denotes that it should be paid to a


banker only
72. By noting, it is meant that the fact of dishonour has
been recorded by the notary public on a dishonoured bill
or/and on a plain paper attached to the bill
73. Sericulture is classified under direct agriculture
advance
74. Mahima relates to refinance by NABARD to banks
for onlending to agencies for marketing of non farm
products of rural women
75. Foreign exchange transactions are viewed always from
the angle of the bank
76. The responsibility of managing the foreign exchange
resources lies with Reserve Bank of India
77. Exim policy is announced by the Ministry of Commerce
78. In a Free on Board contract, freight and insurance will
be borne by the importer
79. If a letter of credit is slient about the revocability, then
the letter of credit is irrevocable
80. Crystalisation of sight export bills purchased/negotiated
will be done on the expiry of transit period plus 30 days
81. A transferable letter of credit can be transferred only
once
82. Natural guardian under Hindu Minority and guardianship
act, 1956 will be his father and after him the mother
83. For banking transactions, an administrator is one who is
appointed by the court if the deceased has died intestate
84. Bankers lien is an implied pledge
85. A contract of insurance is a contract of indemnity
86. Acceptance of a usance bill will be made on the face of
the bill

87. The right of set-off can be exercised by the banker


only when the relationship between the customer and
the banker is that of debtor and creditor
88. Bank must create reserve fund and 25% of the profits
should be transferred to this fund before any dividend is
declared is contained in Banking Regulation act
89. Limitation period for availing the remedy under Section
138 of Negotiable Instruments Act is one month from the
date of cause of action
90. In case the amount of loan to a company is decreased or
increased, the memorandum of modification or charge is
submitted to the Registrar of companies
91. The rate of revenue stamp is the same throughout India
except in Jammu and Kashmir
92. When articles are kept in safe custody, the relationship
between banker and customer is that of bailee and bailor
93. In the case of minors joint account with the guardian and
when the minor attains majority, the guardian should not
be allowed to operate the account
94. Wages of employees are settled under Minimum wages
act
95. CB Bhave committee has looked into ways to reduce cost
of demat operations and the said companies should bear
a substantial part of dematerialization costs
96. Basle committee relates to Capital Adequacy
97. In Camels rating E stands for earnings
98. The revised definition of a sick SSI unit has been given
by Kohli committee
99. Greenshoe option is retaining the full/part of equity
subscribed by investing public over and above that
issued

100.Hindi is accepted as an official language of the


union under Devanagiri script

BANKING TERMINOLOGY - COMPUTER ENVIRONMENT

01. Access:

To store or retrieve data

02. Add-on: Circuits, systems, or hardware devices that


can be attached to a computer to increase its memory or
improves its performance
03. Application: A system, such as a payroll, that has been
defined to be suitable for electronic data processing
techniques
04. Archived file: A file that has been transferred to a lower
level in the memory hierarchy, usually from magnetic disc to
magnetic tape, may be as a result of operations of
appropriate resource management
05. Array: A group of two or more logically related elements
identified by a single name; generally stored in consecutive
storage locations in main memory
06. Audit trail: A permanent record of every transaction
taken by a computer system, indicating for example, when
users log in and out, what transaction they perform, when
files are accessed and the type of access. Examination of
this record provides a way of observing patterns of security
violation and/or serves as a deterrent to violations
07. Availability: The ratio of time a device is operating
correctly to the total scheduled time for operating
08. Back office operations: Operation that does not involve
direct interaction with customers

09. Back up: A resource that is, or can be used as a


substitute when a primary resource fails or when a file has
been corrupted
10. Bar code: A printed machine readable code that
consists of parallel bars of varied width and spacing. The
application most commonly observed is the coding on food
and goods that is read at the checkout and translated into a
line of print on the bill showing product and cost
11. Batch processing: A method of organizing work for a
computer system, designed to reduce overheads by grouping
together similar jobs
12. Bit: Contraction of binary digit
13. Bug: An error or mistake in a programme
14. Byte: A group of consecutive bits forming a unit of
storage in the computer and used to represent one
alphanumeric character; a byte usually consists of 8 bits but
may contain more a fewer bits depending on the model of
computer
15. Character: An alphabetic letter, a digit or a special
symbol
16. Chip: A small section of a single crystal of
semiconductor usually silicon, that forms the substrate upon
which is fabricated a single semiconductor device or all the
individual devices comprising an integrated circuit

17. Configuration: The particular hardware elements and


their interconnection in a computer system for a particular
period of operation
18. Debug: To trace and correct errors in programming code
or hardware malfunctions in a computer system
19. Downtime: The percentage of time that a computer
system is not available for use
20. Dummy: An artificial instruction, address etc used only
to fulfill specification in a programme but not actually
performing a function
21. Duplex channel: A communication channel that allows
data to be transmitted in both directions simultaneously
22, Encoder: A small table-top electronic machine which is
a combination of electronic typewriter and calculator
functions: encode numeric data in the MICR in desired font;
print a listing of amounts of all instructions with batch/grand
totals; zero-proofing place clearing endorsement, stamp on
the reverse of instruments
23. Image: A copy in memory of data that exists elsewhere
24. Interface: A common boundary between two systems,
devices or programmes
25. Lock: A key or other group of characters that allows
access to specified storage locations or software systems

26. Log-in: To enter the necessary information like personal


identification number PIN and/or password to begin a
session on a terminal
27. Menu: The list of options may be displayed with a sign
code opposite each. The selection may then be made by
keying the single code. The method provides simple way of
guiding a user through a complex situation by presenting a
sequence of simpler decisions
28. Main memory: Storage located in the computer for
programmes, along with their data, while they are being
executed
29. MICR: Abbreviation for magnetic ink character
recognition. A process in which data, printed in ink
containing ferromagnetic particles is read by magnetic read
heads
30. Modem: Acronym for modulator demodulator a device
that converts digital data output from another device into
analog data that can be transmitted over communication
lines or vice versa.
31. OCR: Abbreviation for Optical Character Recognition
32.Output device: a device that can provide for only the
output of data, such as a printer or card punch
33.Password: A group of characters by which a user is
uniquely identified, when logging on to a terminal or when
submitting a programme for execution

34. Real Time: The time that passes on an ordinary clock


35. Scan: To examine sequentially all the records in a file in
order to find those whose keys meet a specified criterion
36. Soft Copy: Output that is displayed on the screen of a
video display unit
37. SWIFT: Society for Worldwide Inter-bank Financial
Telecommunication
38. VDU: Abbreviation for VISUAL DISPLAY UNIT
39. Bandwidth: How much stuff you can send through a
connection. Usually measured in bits per second
40.Beta: Preliminary or testing stage of a software or
hardware product: a beta version,
beta software
41. BIOS: Stands for Basic Input/Output system: The BIOS is
responsible for booting the computer by providing a basic
set of instructions
42. Binary: This is a basic system of numbering using ones
and zeros
43. Blue tooth: Radio technology that connects electronic
devices without using a cable. Data and voice can be
exchanged at ranges of upto 10 meters without the need for
devices to be lined up together

44. Boot disk: A diskette from which you can boot your
computer
45. Buffer: A place, especially in RAM, for the temporary
storage of data for the purpose of speeding up an operation
such as printing or disk access
46. Browser: It is a software used for viewing pages on the
web
47. Bus: A collection of wires through which data is
transmitted from one part of a computer to another
48. Catche: A special block of fast memory used for
temporary storage of data for quick retrieval
49. CD-ROM: Compact Disc Read Only Memory an optical
storage medium that can hold about 700 MB of data and is
accessed with lasers
50. CGA: Stands for Color Graphics Adapter: CGA allowed a
maximum of four colours at a resolution of 320 x 200 or two
colours at 640 x 200.
51. Clock Speed: The clock speed is the frequency which
determines how fast devices that are connected to the
system bus operate. The speed is measured in millions of
cycles per second
52. Clustering: A technique in which two or more servers
are interconnected and can access a common storage pool

53. CMOS: Abbreviation of complementary metal oxide


semiconductor. Pronounced seemoss, CMOS is widely used
type of semiconductor
54. COBOL: Common Business Oriented Language
55. CPU: Central Processing Unit It interprets and carries
out instructions, performs numeric computations, and
controls the peripherals connected to it
56. Data bus: A group of parallel conductors found on the
motherboard that is used by the CPU to send and receive
data from all the devices in the computer.
57. Data mining: Sorting through data to identify patterns
and establish relationships
58. DDR: Stands for Double Data Rate
59. Decoder: A circuit or device that restores a coded
signal to its original form based on knowledge of the
process used to code the signal
60. Decryption: It is the process of converting encrypted
data back into its original form, so it can be understood
61. Dedicated line: It is a phone line meant specifically for
one thing, like being attached to a computer
62. Demodulation: It is the process of converting analog
information into digital information

63. DLL: Dynamic Link Library


64. DNS: Domain Name Server it is the system used on the
internet for maping names to the actual numerical
addresses of machines on the Internet
65. DOS: Disc Operating System
66. Domain name: A name that identifies one or more IP
addresses
67. Driver: A programme that controls a device. Every
device, whether it be a printer, disk drive, or keyboard, must
have driver program
68. EBCDIC: Extended Binary Coded Decimal Interchange
Code
69. Email: Stands for electronic mail. It is a system of
relaying messages across the Internet from one internet
user to another
70. Encryption: It is the process of converting data into
unreadable code so that unauthorized people cannot
understand the contents
71. Ethernet: A networking system that enables high speed
data communication over coaxial cables
72. Executable file: A file in a format that the computer can
directly execute

73. FAQ: Frequently asked questions


74. GUI: Graphical User Interface
75. FTP: File transfer protocol
76. HTML: Hyper Text Markup Language
77. HTTP: Stands for Hyper Text Transport Protocol
78. Icon: A small video display that acts as an activation
link when clicked on
79. ISP: Internet service provider
80. ISDN: Integrated Services Digital Network
81. Java: A high level programming language developed by
Sun Microsystems
82. LAN: a computer network that spans a relatively small
area
82. LCD: Abbreviation of liquid crystal display, a type of
display used in digital watches and many portable
computers
83. Linux: A version of UNIX that runs on a variety of
hardware platforms. It is open source software, which is
freely available

84. Kilobyte: This is about thousand bytes of space. It is


two to the 10th power of 1024 bytes
85. MPEG: Motion Picture Experts Group
86. Peer to Peer: A type of network in which each
workstation has equivalent capabilities and responsibilities
87. Pen drive: A small device that can be used to easily
transfer files between USB-compatible systems
88. Processor: A processor is a device that processes
programmed instructions and performs tasks
89. RAM: Random Access Memory
90. ROM: Read Only Memory
91. Serial Port: A port or interface that can be used for
serial communication, in which only 1 bit is transmitted at a
time
92. SMTP: Simple Mail Transfer Protocol
93. Spam: This is to transmit unwanted messages, usually
over email, to a great many people
94. SLIP: Serial Line Interface Protocol
95. Switch: In networks, a device that filters and forwards
packets between LAN segments. LANs that use switches to

join segments are called switched LANs or, in the case of


Ethernet networks, switched Ethernet LANs
96. WWW: World Wide Web
97. Virus: A program or piece of code that is loaded into the
computer without the knowledge of the computer user and
runs against the wishes of the user
98. WAN: Wide Area Network
99. Weblog: This is publicly accessible personal journal for
an individual. Similar to a personal diary, but shared over the
web. The activity of updating a blog is blogging and
someone who keeps a blog is a blogger
100.ZIP: Stands for Zone Information Protocol. This is an
application that allows for the compression of application
files

BANKING GLOSSARY PART: 007(IIB)

COMMITTEE ON GLOBAL FINANCIAL SYSTEM CGFS


The committee on the Global Financial System is a central
bank forum for the monitoring and examination of broad
issues relating to financial markets and systems. It helps to
elaborate appropriate policy recommendations to support
the central banks in the fulfillment of their responsibilities
for monetary and financial stability. In carrying out this task,
the Committee places particular emphasis on assisting
central bank Governors in recognizing, analyzing and
responding to threats to the stability of financial markets
and the global financial system.
Membership:
Members are deputy governors, other senior officials of
central banks, and the Economic Advisor of the BIS. Member
institutions are: Reserve Bank of Australia, National Bank of
Belgium, Central Bank of Brazil, Bank of Canada, Peoples
Bank of China, Eurupean Central Bank, Bank of France,

Deutsche Bundes bank, Hong Kong Monetary Authority,


Reserve Bank of India, Bank of Italy, Bank of Japan, Bank of
Korea, Central Bank of Luxembourg, Bank of Mexico,
Netherlands Bank, Monetary Authority of Singapore, Bank of
Spain, Sveriges Riksbank, Swiss National Bank, Bank of
England, Board of Governors of the Federal Reserve System
and Federal Reserve Bank of New York.
Chair:
Mr Mark Carney, Governor, Bank of Canada
Frequency of Meetings:
Regular Committee meetings are held on the occasion of
four of the bimonthly meetings of Governors of BIS member
central banks
Reporting arrangements:
As of January, 2010, the Chairman of the CGFS reports to
the Global Economy Meeting, which comprises a group of 31
central bank Governors as members, on the CGFSs
monitoring discussions and on other Committee initiatives.
MARK TO MARKET MTM:
Mark to market is a measure of the fair value of accounts
that can change over time, such as assets and liabilities.
Mark to market aims to provide a realistic appraisal of an
institutions or companys current financial situation. The
accounting act of recording the price or value of a security,
portfolio or account to reflect its account market value
rather than its book value
CREDIT DEFAULT SWAP (CDS)
The buyer of a credit swap receives credit protection,
whereas the seller of the swap guarantees the credit
worthiness of the product. By doing this, the risk of default

is transferred from the holder of the fixed income security to


the seller of the swap. For example, the buyer of a credit
swap will be entitled to the par value of the bond by the
seller of the swap, should the bond default in its coupon
payments.

BANKING GLOSSARY PART: 006(IIB)


COMMITTEE ON GLOBAL FINANCIAL SYSTEM CGFS

LEASED BANK GUARANTEE:


A bank guarantee that is leased to a third party for a
specific fee. The issuing bank will conduct due diligence on
the creditworthiness sof the customer looking to secure a
bank guarantee, then lease a guarantee to that customer for
a set amount of money and over a set period of time,
typically less than two years. The issuing bank will send the
guarantee to the borrowers main bank, and the issuing bank
then becomes a backer for debts incurred by the borrower,
up to the guaranteed amount
COUNTER CYCLICAL:
An economic or financial policy is called counter-cyclical if
it works against the cyclical tendencies in the economy.
That is, counter-cyclical policies are ones that cool down
the economy when it is in an upswing, and stimulate the
economy when it is in a downturn
INFLATION-LINKED CERTIFICATES OF DEPOSIT:
Federally insured debt securities that are similar to regular
certificates of deposit (CDs), but provide investors with
inflationary protection via annually variable interest rates
that increase or decrease with changes in the consumer
price index, a measure of inflation. Because they pose little
inflationary risk to the investor, this type of CD offers
slightly lower interest rates than regular CDs. This inflation
protection together with the regular low default risk of CDs
makes for very safe investments. An investor will never
realize huge gains with these securities, but they may play a
role in a diversified portfolio or serve as an ideal investment
for risk-averse investors

RISK-FENCING:
When a regulated public utility business financially
separates itself from a parent company that engages in nonregulated business. This is done mainly to protect
consumers of essential services such as power, water and
basic telecommunications from financial instability or
bankruptcy in the parent company resulting from losses in
their open market activities. Ring fencing also keeps
customer information within the public utility business
private from the for-profit efforts of the parent companys
other business.
ASSET-LIABILITY MISMATCH:
Banks primary source of funds is deposits, which typically
have short-to medium-term maturities. They need to be paid
back to the investor in 3 to 5 years. In contrast banks
usually provide loans for a longer period to borrowers. Home
loans, for instance, can have a tenure of up to 20 years.
Providing such long term loans from much shorter maturity
funds is called asset-liability mismatch.
KEY RATE DURATION:
Holding all other maturities constant, this measures the
sensitivity of a security or the value of a portfolio to a 1%
change in yield for a given maturity
The calculation is as follows:
Key duration =

Where:

P1 P2
2 x 1% x P3

P1 = Securitys price after a 1% decrease in yield


P2 = Securitys price after a 1% increase in yield
P3 = Securitys original price
There are 11 maturities along the Treasury spot rate curve,
and a key rate duration is calculated for each. The sum of
the key rate durations along a portfolio yield curve is equal
to the effective duration of the portfolio.
J. CURVE:
A theory stating that a countrys trade deficit will worsen
initially after the depreciation of its currency because
higher prices on foreign imports will be greater than the
reduced volume of imports. The effects of the change in the
price of exports compared to imports will eventually induce
an expansion of exports and a cut in imports which, in
turn, will improve the balance of payments
ADVANCED MEASUREMENT APPROACH:
The advanced measurement approach AMA is a set of
operational risk measurement techniques proposed under
Basel-II capital adequacy rules for banking institutions.
Under this approach the banks are allowed to develop their
own empirical model to quantify required capital for
operational risk. Banks can use this approach only subject
to approval from their local regulations.

BANKING TERMS M SERIES

MACMILLAN COMMITTEE:
In 1929, Lord Macmillan headed Committee of exports,
banking and finance appointed by Government for looking
into banking finance and credit and give recommendations
for development of trade, commerce and employment of
labour.
MACRO:
Very large, covering a wide area e.g. Macro economics
refers to study of the economics of a whole industry or area
or whole group of the population or of whole country to help
economic planning
MALAFIDES:

Bad faith, intending to deceive or mislead. Doing a work with


bad intention
MALAYSIAN RINGGIT:
The monetary unit of Malaysia (Capital Kuala Lampur)
MALICE:
Refers to an attitude inherent in a wrongful act done
intentionally to harm others without any cause.
MALICIOUS DAMAGE/ACT:
An improper act done purposefully without any legal
justification to injure another
MANAGED CURRENCY:
A currency where quantity is increased or decreased
according to changes in the general price level or other
objectives managed by the Government of the country, to
control the circulation of money.
MANAGEMENT AUDIT:
A system for examining, analyzing and appraising a
managements overall performance. Ten categories of audit
are economic function, corporate structure, earning on
business, service to shareholders, research and
development, directorate analysis, fiscal policies,
production efficiency, sales and evaluation and strength of
executive performances
MANIFEST:
A list of all items being transported by a carrier, usually a
ship, which gives particulars of the ship, its cargo and

destination. Before the ship leaves port, it must be left with


the customs officer
MANIFESTO:
A written public declaration of the intentions, opinions or
motives of a leader or a party for any important actions
MANIPULATION:
Changing the situation or the contents of a document for
use/turn to ones advantage. It is a criminal act. E.g.
changes in assets and liabilities, creative accounting, hiring
for ones advantage, false or misleading appearance
MARINE INSURANCE:
Insurance business undertaken for covering loss or damage
at sea relating to ships and cargos.
MARKETABLE TITLE:
Title to the property free from defects and which will be
accepted in law without objection
MARKET CAPITALISATION:
It is the total market value of all the shares listed on the
stock exchange
MARKING OF CHEQUE:
Cheque when a banker places on it a notation good for
payment its prepayment is guaranteed by the bank, on the
presentation of the cheque
MATERIAL ALTERATION:

An alteration in the contents of an instrument which will


affect the contractual powers of the instrument. E.g.
alteration in the date of the cheque, changing the order on
the cheque by bearer, alteration in crossing, alteration in
the amount payable, etc
MATES RECEIPT:
A receipt given by a carrier when goods are delivered, direct
to the ship not through a warehouse. It is exchanged
afterwards for a bill of exchange when it is complete
MECHANICS LIEN:
In United States of America, it is a claim in favour of
mechanic who has performed work till his dues are paid. He
stands as a preferential creditor over other secured
creditors except taxes
MEGABYTE (MB):
Storage capacity in a computer is equal to 1048576 bytes
MEMORANDUM:
A note recording the particulars of an event of something for
future action
MEMORANDUM OF ASSOCIATION:
It is a basic and essential document drawn up by promoters
of the company containing the fundamental rules regarding
the constitution and activities of a company
MERCANTILE BANK:

A bank which specializes not in lending but also in providing


various financial services such as accepting of bills arising
out of trade and commerce, underwriting new issues etc
MERCHANT BANK:
Organisation specialized in financing of International Trade
and servicing of all kinds of bills, foreign exchange etc
MERGER:
Combining of two or more business organizations with a
view ot becoming more efficient or creating a monopoly
MILLION:
Equivalent to ten lakhs by Indian Standards
MINOR:
With effect from 19.12.1999 under Indian Majority Act, a
minor is a person who has not completed eighteen years. A
minor has to be represented by a Guardian either natural
guardian or a guardian appointed by a competent court for
banking transactions
MINT:
The place designated for manufacturing metallic coins under
Government supervision
MISAPPROPRIATION:
Dishonest conversion of anothers property or funds
received but not accounted but used for self by an
employee. It is an illegal and criminal act
MISFEASANCE:

Negligence or otherwise improper performance of a lawful


act and breach of trust
MONOPHONY
A market condition or situation where there is only one
buyer for a particular commodity
MONOPOLY:
An exclusive right of a person or a company to manufacture,
sell certain goods without any competition at all and hence
will be only one seller
MORTGAGE:
It is the creation or transfer of a legal interest in an
immovable property by the borrower to the lender as
security for the payment of a debt
MUDDATI HUNDI:
A hundi is bill of exchange drawn on a requisite stamp paper
which has to be paid within a specified number of days after
being presented to the drawee by the payee
MUTILATION:
A cheque torn or cut by accident is said to be mutilated.
Such mutilation should be confirmed by the drawer of the
cheque
MUTUAL FUND:
It is a mechanism for pooling resources by issuing units and
investing funds in securities in accordance with the
objections of various schemes/offer in documents

BANKING TERMS L SERIES

LABOUR BANKS:
In ordinary parlance, these are bank owned by
workers/labour unions. Mainly they perform saving functions.
They were founded as early as in 1920 in United States of

America. With banking crisis in 1931-33 the whole


experiment almost came to an end
LABOUR COURT:
Refers to labour court constituted under an Act like
Industrial Disputes Act to decide cases on labour disputes
pertaining to workers/employees raised during the course of
employment
LABOUR INTENSIVE:
Describing the use of additional personnel to increase
output or earnings
LACHES:
Laziness or lethargic attitude or lack of promptness in
pursuing a legal remedy
LANDES BANK:
Regional Banks in Germany that act as mini central banks
for powerful savings banks
LAND REFORM:
A reform in law pertaining to landholding specially with a
view to benefit cultivators
LARCENY:
Theft, the unlawful taking away of the personal property of
another without the individuals consent and with intent to
convert it for ones own use
LAUNDERED MONEY:

Secretly arranging the planting of illegally obtained money


in an attempt to conceal the source of the money by
planting with or through foreign banks like Swiss Banks
LAW:
Written and unwritten body of rules of conduct imposed by
Government or law making body or accepted by the
community, in general as binding
LAWFUL INHERITANCE:
When a person dies intestate i.e. without will, his property
passes on to his heirs. In such cases Hindus, Sikhs, Jains
are covered under Hindu Succession act. Whereas Parsis,
jews, Christians are covered under Indian Succession act. In
the case of Muslims, there is no codified law except by
religious sanctions separate for Shia and Sunni
LAW OF LIMITATIONS:
Provides that courts shall not entertain proceedings to
enforce rights after the lapse of time fixed by law for the
purpose and it imposes time limit to litigation i.e. for filing
suit
LAYOFF
It means Employers failure, inability to provide work to
workers in industrial establishments for various
reasons. Normally it is a temporary phenomenon
LEADING CASE:
An important case, which establishes principles to be
guidelines in cases of similar nature that may follow

LEAP YEAR:
A year with 366 days including 29 Feb as an intercalary day.
It occurs after every four years
LEASE:
It is a contract between lessor and lessee for the use of a
specific asset for a predetermined fixed term by the lessee
on payment of a consideration called rentals. The lessor
retains the ownership of the asset and the lessee has
possession and use of the asset over a specified period
LEASE AGREEMENT:
Contains clauses about lease rentals and their payability,
repairs and maintenance of the assets, insurance and return
on expiry of the lease term etc. It is to be stamped as per
concerned State Stamp Act
LEASE HOLD:
The right given in a lease to a person called the lessee to
own and use land or buildings for a stated period of time in
return for payment of rent or premium
LEEWARD:
The side of the ship facing the quarter towards which the
wind is blowing
LEGACY(BEQUEST):
A gift of personal property made in a Will. There are four
types of legacy:
1.
Special legacy a gift of a particular piece of
property

2.

Demonstrative one payable in cash, out of a


particular designatged fund
3.
General, a gift of money in a certain sum
4.
Residual includes all the remaining property after
the payment of all obligations charges against the estate
LEGAL MORTGAGE:
A mortgage in which legal title to the property passes from
the mortgagor passes from the mortgager to the mortgagee
and it is signed by the mortgagor and two witnesses. If the
principal money secured is Rs. 100/- or more, the instrument
must be registered but it will be effective from the date of
execution and not from the date of registration
LETTER OF ADMINISTRATION:
When a person dies without leaving a will the court shall
on application appoint a person to wind up the estate and
will grant such person a letter of administration to
administer the estate
LETTER OF CREDIT:
Letter is a written instrument and Credit denotes
creditworthiness. Thus a Letter of Credit is a written
financial document issued by a banker addressed to its
beneficiary i.e. the exporter about the creditworthiness of a
party i.e. the importer
The Opening Bank i.e. the Bank which establishes the Letter
of Credit assures the exporter that he will be entitled to
draw on the importer for the value of the exports subject to

certain terms and conditions and such drawings will be


honoured by the Opening Bank
LEVERAGE:
Indebtedness of a company compared to its equity capital
i.e. the use of other peoples money in a company
LIBEL:
Defamation, in civil law objectionable article, photograph
untrue or malicious which tends to harm the image of the
person in public life, profession/business. Affected party can
file
Libel suit for protecting his honour and claim damages for
loss suffered
LIEN:
Lien is the right of one person to retain the goods or
securities belonging to another person until a debt due from
the latter is paid to the former
LIFE ANNUITY:
Annual payment which continues during the lifetime i.e.
providing an income for life
LIMITED PARTNER:
A partner who is not personally liable for the incurred debts
of the partnership and whose liability is limited to the
capital amount and who does not take part in the
management of the firm. By, law at least one partner must
be fully liable
LINE OF CREDIT:

Also called as Credit Limit and it is an agreement between a


bank and a customer, where bank agrees over a future
period to provide bank accommodation in the form of funds
upto an agreed maximum limit
LIQUIDATION:
A companys winding up proceedings i.e. dissolution and
process of converting the entire assets into cash for
payment to creditors as well as stockholders
LIQUIDITY RATIO:
A prudential ratio used to ensure that a bank can meet most
unexpected demands for cash from its depositors. Three
main ratios are Current Ratio, Acid Test Ratio and Cash
Ratio
LISTED SECURITIES:
Securities of Companies listed on a recognized stock
exchange
LITIGATION:
Taking of legal action by a party by moving a court against
another party for settlement of claims
LIVESTOCK:
Live animals such as cattle, sheep, horses and other farm
animals
LOAN CAPITAL:
That part of capital of a company which has been derived
from outside loans and so described in the Balance Sheet

LOCUS STANDI:
A right to be heard or the legal capacity to challenge some
decision
LOK ADALAT:
A statutory forum in India for conciliatory settlement of
legal disputes. The awards passed by it are enforceable like
the decrees of a civil court and the order is final
LONDON INTER BANK OFFERED RATE(LIBOR):
It is the rate at which banks offer to lend funds in the
London International Inter-Bank market by obtaining
quotations from International Banks with specific reference
to periods

BANKING TERMS K SERIES

KAFFIRS:
The shares of gold company of South Africa. The extraction
of gold in this company has a longstanding history and the
mines here are also famous for diamond and other jewels
KANGAROOS
A stock exchange learn for shares or securities in
Australias land mining and tobacco companies
KARTA
He is the head of a Joint Hindu Family and usually the eldest
male member. A Joint Hindu Family is recognized as a legal
entity and transactions with others is by Karta. In law, the
Karta has implied powers to do various acts such as to open
bank accounts, borrow money, execute documents and
pledge securities on behalf of Hindu Undivided Family and
for the family business
KAWACHA:
Currency of Zambia Capital Lusaka

KAWANGA:
Currency of Angola Capital Luanda
KENYAN SHILLING:
Currency of Kenya Capital Nairobi
KERB TRADING:
It is the malpractice of buying and selling securities, outside
the brokers office and prescribed working hours. It is an
illegal act
KEY FINANCIAL INDICATORS:
In banking the following are considered as important key
financial indicators Average deposits, average advances,
average business, average investments, Interest spread,
operating expenses, gross profit, net profit etc
KEY INDUSTRY:
Basic industry because of unique characteristic holds major
importance in the countrys economy. Eg. Steel,
automobiles, tea, cement etc. If the production is stopped
many other small industries and ancillary industries would
be affected adversely
KEYMAN INSURANCE:
Is the insurance taken by companies to provide
compensation for the loss incurred by way of death,
accident or ill health of a vital employee
KHARIFF CROPS:

Harvested in autumn September to November as a result of


sowing in May to July. Rice, maize, cotton, jute, tobacco and
sugarcane are major khariff crops
KHOKA:
In the stock exchange parlance representing the nonconvertible portion of partly convertible debentures of a
company. It is a Gujarati word which means empty coconut
shell
KICKBACK:
Illegal money paid to someone to get help in a business
deal. The act is punishable and both giver and taker are
equally responsible for the illegal act
KIP:
The standard monetary unit of Lacs. Capital Vientiance
KITE FLYING:
A worthless cheque or accommodation of bill of exchange
with fixtitious credit. A dishonest trick played/practiced on
banks for accommodating funds when the party is in
financial difficulty
KIND COMPONENT:
Crop production loans granted by Banks to farmers is
divided into kind component and cash component. Kind
component comprises the expenditure to be incurred on
purchase of tangible inputs such as seeds, fertilizers,
insecticides etc. Kind component may comprise about 70%
of the total requirements of the farmer

KITTY:
Money which has been collected by a group of people to be
used later either for an office party or a get together
KLEINWORT BENSON:
Great Britains biggest Merchant Bank founded in the 1830s
by Mr Alexander Kleinwort, a German Trader in Cuban Sugar
Trade
KNOCK-OFF:
To reduce the price by some amount i.e. certain amount of
the price for cash by virtue of some discount
KNOT:
One nautical mile per hour. This terminology is used by
mariners
KNOW-HOW:
Special skill or knowledge in planning and doing something
new expertise. In foreign collaborations this is of utmost
importance as to whether there is a clause for transfer of
knowhow to other countrys counterparts
KOBO:
A monetary unit of Nigeria worth one hundredth of a naira
KOPEK:
A monetary unit of Russia and Belarus worth one hundredth
of a rouble.
KOPIYKA:
A monetary unit of Ukraine worth one hundredth of a hyvna

KORUNA:
The standard monetary unit of the Czech Republic capital
Prague and Slovakia, capital Bratislava
KRONA:
The standard monetary unit of Sweden and Iceland
KRONE:
The standard monetary unit of Denmark, capital
Copenhagen and Norway, capital Oslo
KRUGERAND:
A South African gold coin that contains exactly one ounce of
pure gold
KUBALIAYAT:
It is a document executed by the lessee accepting the terms
of the lease and undertaking to abide by them
KUDOS
Honour, distinction, tribute, glory, prestige expressed in
terms of appreciation
KUNA:
A standard monetary unit of Croatia divided into 100 Lipas
KURUS:
A monetary unit of Turkey worth one hundredth of a Pira
KWATCHA:

The standard monetary unit of Malawi, divided into 100


tambala and of Zambia divided into 100 Nuguee
KYAT:
The standard monetary unit of Myanmar (Old Burma), capital
Rangoon
KUMRI:
Shifting cultivation on forest lands by felling trees. Soil
culture and its adaptability to cultivation of crops is done
before starting the process of Kumri
KUSHIDA:
Moneylenders engaged in the activity of money lending at
higher rate of interest for the purpose of making heavy
profits.
KORFA:
A tenant who is a sub-lessee getting the occupancy right on
his land, on entering into a lease deed with the original
lessee
KIRAZ:
Repaying, borrowing a debt in law, it is a kind of partnership
in which one party advances the capital the other the labour
or skill and the profits are divided in stipulated proportions.

BANKING TERMS J SERIES

JETTISON:
The act of throwing overboard from a ship a part or all the
cargo so as to lighten and to save when in great danger of
sinking or in an emergency. An ocean carrier as usually
indicated by the bill of lading does not assume liability for

jettison. The risk therefore should be covered in the marine


insurance policy.
JIAO:
The monetary unit of China equal to one tenth of a Yuan
JOBBING:
Buying and selling shares from other traders on the stock
exchange
JOB ROTATION:
The practice of employing/moving employees from one work
desk or station to another for job enrichment and to increase
overall performance by promoting a greater understanding
of serious jobs of an organization. As part of internal control
in banking industry, this is also resorted to prevent frauds
JOINT ACCOUNT:
A bank account held in the names of two or more persons
with an option of operating the account jointly or by anyone
of the parties. In a joint account with full rights of
survivorship upon the death of one of the joint
accountholders the amount becomes the absolute property
of the survivor or survivors. In the absence of the
survivorship clause, the legal representative of the
deceased account holder also becomes entitled to the
amount along with survivors
JOINT CUSTODY:
The custody of the contents in the safe of the bank is held
jointly by two officers and while opening and closing the
safe both the key holders have to operate the keys

JOINT FAMILY PROPERTY:


Under Hindu Succession act, 1956, unless there is a local
custom to the contrary, a Hindu can bequeath his interest in
the joint family property to any person he desires by means
of a will.
JOINT HINDU FAMILY (HUF):
It is a distinct business having in heretable asset and on
death of the Karta is passed on to the next elder member by
survivorship. It consists of male members descended
lineally from a common male ancestor together with their
mothers, wives, or widows, married and unmarried
daughters bound together by distinguishing family
relationship. It is the creature of customary law and
governed under Hindu Succession act, 1956. Karta is the
manager of the family business affairs and all other
members are called co-parceners. The liability of karta is
unlimited whereas that of co-parceners is limited to their
share in the joint family estate
JOINT HEIR:
Joint heir is also called co-heir and is the one who
shares on inheritance in the property with another
JOINT INVESTMENT:
A security purchased jointly by more than one person. The
certificate shall bear the names of all parties. But only the
first named will receive notices. To dispose of the holding,
all the parties must sign the transfer deed
JOINT LIABILITY:

A liability that is owed to a third party by two or more other


parties together. In the event of legal proceedings it is not
possible to sue joint debtors but all have to be sued
individually and those not sued would be discharged from
their liability
JOINT OWNERSHIP:
When a property is owned by two or more persons, it is
called as joint ownership. The parties to the ownership are
called as co-owners each having right in the whole of the
property
JOINT STOCK COMPANY:
It is an artificial person invisible but existing only in the
eyes of law. Literally, joint stock refers to capital
contributed jointly shareholders to form the company. As per
Companies act, 1956, a banker should obtain the following
documents for opening of companys account
a) Memorandum of association
b) Articles of association
c) Certificate of incorporation
d) Certificate of commencement of business in case of
Public Limited Companies
e) Common seal
f)
Resolution passed by the Board of Directors
JOINT VENTURE:
A commercial undertaking entered into by two or more
parties usually in the short term and they are limited by time
or by activity. Separate books are not usually kept and the
joint ventures will have a profit or loss sharing ratio.
Companies co-operate with each other in international

markets in order to share costs, exploit new technologies


etc
JOINT WILL:
It is a testamentary instrument whereby two or more
persons agree to make a co-joint will. Though it is a valid
will it will not be enforceable during lifetime of either party
JOURNAL:
A book keeping term where details of transactions are
entered on a day-to-day basis. There are several types of
journals. E.g. Purchase journal, sales journal, private
journal etc.
JUDGE:
A public officer appointed by Government with powers to
hear and decide disputes relating to both civil and criminal
in a court of justice
JUDGMENT:
A formal decision made and pronounced by a court of law or
other tribunal recorded in a document or certificate made by
a court of law. The document contains speech of the judge
in which he gives his reasons for reaching his decision
JUDGMENT CREDITOR:
A creditor is the party who has proved a debt in court and
has won an action for the recovery of debt from the debtor.
The individual may enforce this by a writ petition
JUDGMENT DEBTOR:

An individual who has been ordered by a court to pay a sum


of money to judgment creditor
JUDICIAL PROCESS:
The ways in which the law works for disposal of case filled
in a court
JUMPY:
Nervous or excited. E.g. the stock market is jumpy. i.e.
nervous when the share prices are likely to fluctuate
JUNK:
Useless items or rubbish, e.g. junk bonds, junk mail etc.
JURISDICTION:
Within the control, authority etc. Within the jurisdiction of
the court. i.e. in the legal power of a court
JURISPRUDENCE:
The science of laws and also body of laws. Also, refers to
the common sense used or application of mind, made in
deciding the cases
JURY:
A body of ordinary men and women called jurors selected
according to law an sworn to give a verdict on some matters
according to the evidence on the principles of natural
justice
JUST:
Equitable, even handed, well deserved, well founded, fair etc

JUSTICE:
The quality of being fair right and just. Title given to judges
particularly to judges of Supreme Court and High Court
JUSTIFY:
Give reasons, for give grounds for e.g. justify the
expenditure
JUVENILE:
Young, teenage, underage, childish, immature behavior
JUXTAPOSED:
Papers or matters placed side by side
::::::::::::::::

IMPACT OF NON PERFORMING ASSETS ON THE BANKS


PROFITABILITY

The classical definition of banking is that acceptance of


deposits for the purpose of lending. Whereas they pay
interest at different rates for the deposits they are

accepting from the customers called depositors, they have


to collect interest for the advances they lend to the
customers called borrowers. They keep a certain margin
between the interest charged and interest paid. The margin
should be in such a way that the banks can afford to pay all
expenses in conducting the banking activities. The balance
amount after payment of all expenses and charges will be
the profit for the banks and the profit is shared between the
shareholders
In case, the banks are not able to recover the amount lent to
their borrowers, the level of profits come down.
Based on the record of recovery of interest and/or principal
and for the purpose of income recognition, all loan accounts
are classified as performing assets or non performing
assets. In classifying the non performing assets, the
availability of security or net worth of the
borrower/guarantor is not considered for such classification.
Non performing assets are a drain to the banks. Unless and
otherwise proper remedial measures are taken the quantum
of non performing assets cannot be reduced and the bank
will incur losses to a great extent.
Non performing assets impact on the banks profitability in
several ways as indicated below:
They reduce the net interest income as the interest is not
charged to these accounts
All non performing assets need to be prudentially provided
for. This will again lead to reduced profitability
Servicing NPAs becomes costly in terms of time, money and
manpower. They reduce employee productivity and overall
profitability
Non performing assets affect recycling of bank credit as
lendable resources shrink and adversely impact profitability.

Higher time value of money can be ensured only by faster


recycling of money lent
Non performing assets affect the liquidity position of the
bank, create assets and liability mismatch and force the
bank to raise resources at high cost
They affect the service to good customers, as their needs
may not be met. This leads to loss of business and reduction
in profit
Banks, which make low profits, have lower capital adequacy
ratio and lower the capital adequacy ratio limits further
asset creation. Such banks face difficulties in their growth,
expansion/diversification plans, as they do not have the
wherewithal to march boldly on these fronts. In the absence
of vibrant growth and dynamic expansion, the only
consequences are stagnation and negative growth
High non performing assets shadow the image of the banks
in both domestic and international markets. This leads to
business contraction and low profitability
NPAs leads to adverse selection because in their efforts to
increased the income from lending, such banks lend at
higher interest rates to low rated borrowers
High non performing assets, low profitability, riskier
business and high NPAs work in a vicious cirfcle against the
bank and may jeopardize the very survival of the bank
0
REASONS FOR THE GROWTH OF NON PERFORMING ASSETS
IN INDIA

There are many reasons for the growth of non performing


assets in banks which are functioning in India.The major
reasons are as follows:
The reasons for the growth of non performing assets can be
classified as external causes, internal causes and other
causes
The following are the external causes
On account of natural calamities In rural and semiurban
areas, the borrowers obtain loans for the purpose of
developing their activities like poultry, dairy, land
development and cultivation of crops. When natural
calamities such as floods, poor inflow of rains etc happen,
the farmers are not able to earn income from the
agricultural products and they find it very it difficult to repay
the principal and interest payable in respect of the loans
availed from the banks. This indirectly increase the level of
non performing assets in the banks
Global economic slow down affecting export sector:
Exporters may find it difficult to market their products on
account of certain global economic slow down and they
cease to pay their loan dues

Generally industrial recession especially in industries like


textiles, steel, sugar, cement, electronics, leather etc
Changes in Government policies like enabling cheaper
imports, changes in fiscal policies, pollution control order
etc
Changes in demand pattern
Fluctuation in price levels
Directed lending over the years particularly after bank
nationalization
Target oriented loan disbursements
Fall in real estate prices which has affected the repaying
capacity /funds flow of certain categories of borrowers
Loan waiver schemes like agricultural and rural debt relief
scheme which vitiated the repayment culture
Business failures (product, marketing etc)
Mis utilization/diversion of funds
Time and cost overrun during project implementation stage
Inefficient management
Infrastructural bottle necks
Labour/input problems
Disputes among promoters
Internal causes for increase of non performing assets can
be classified as follows:
Improper selection of borrowers
Inadequate pre sanction survey/enquiry
Defective appraisal and documentation
Non adherence to sanction norms
Under/over financing and inappropriate financing
Delay in credit sanction and disbursement
Unrealistic repayment schedule

Inadequate monitoring and follow-up; of the advance


accounts
Lack of professional approach in lending and recovery
Apart from the external and internal causes, the following
causes can also increase the level of non performance
assets in banks to a great extent
Lack of motivation for recovery among bank employees
Lack of motivation for repayment among borrowers
Wilful defaulters, frauds
Complicated and tardy legal system
Absence of strong enabling legislation for recovery

How to reduce non performing assets in banks ?

Non performing assets are a drain to the banks. The banks


in India are adopting various strategies to reduce the non
performing assets in their banks and they are also adopting
various methodologies by which further addition to NPA
portfolio is minimized
In the real sense, in case there is a recovery in principal and
instalments due in respect of the loans granted to the banks
are received 100%, the question of non performing assets do
not arise. However, there is no such ideal bank where the
NPA is nil. Except banks which were originated recently, all
banks are prone to have some portion of their loans and
advances as non performing advances
The following are some strategies by which banks are trying
to curtail non performing assets to a great extent:
RECOVERY CAMPS:
Bank personnel jointly approach the defaulting borrowers for
repayment at a place and time convenient to both the
parties. These are more suited to small loans. Normally the
borrowers who had availed small loans will be more in
number in rural and semi urban areas rather than urban and
metro centres. As such, the banks instead of conducting the

recovery camps at their branches, they usually conduct


such recovery camps in centres like panchayat board
offices, court buildings, government department buildings
etc such recovery camps so that the borrowers find it
convenient to attend the recovery camps. Under certain
circumstances, the manager in charge of the bank branches
along with some branch officials go to each visit each house
of the borrowers and recover the instalments due in respect
of loans availed by them. This type of recovery camp will be
successful in case an advance notice is served on the
borrowers mentioning the date of recovery camps
PREFERENCE OF CLAIMS:
Banks should expeditiously and properly claim indemnity
from organizations like Deposit Insurance and Credit
Guarantee Corporation called DICGC, Export Credit
Guarantee Corporation called ECGC, Credit Guarantee Fund
Trust for small scale industries, Insurance Companies etc
and invoke Government/other personal guarantees to
recover loan dues and reduce non performing assets.
COMPROMISE PROPOSALS:
Compromise routes are adopted by banks, where borrowers
experience certain genuine difficulties and where normal
recovery is not possible. It involves certain sacrifices on the
part of the banks on the principle of one bird at hand is
worth two in the bush. Such proposals can be taken up
considering the history of the borrowal account, security
available, net worth of the borrower/guarantor, time value of
offer made etc
TECHNICAL WRITE OFF:
Normally banks decide writing off small loans which have
become bad and the recovery is not at all possible in those
accounts under any circumstances on account of the facts

that the borrower might have been expired; he has no


means to repay the loan at any cost and there may be huge
losses in respect of the properties etc. This is for the sole
purpose of servicing such non performing accounts.
ONE TIME SETTLEMENT SCHEME:
To reduce the absolute amount of non performing assets,
Government of India along with Reserve Bank of India are
announcing one time settlement schemes periodically for
the past few years. When the borrowers are alive and when
the borrowers are farmers, small entrepreneurs etc and
they find it very difficult to pay their dues for various
reasons like bad health and fall in their business ventures, ,
however, they have the inclination to repay their debts to the
banks, this type of practice is very much helpful to the
borrowers and the lending institutions. Surely the banks are
in a position to lose certain portion of their loan amount
when they are conducting one time settlement schemes.
SUIT FILING:
Filing of suit is taken up as a last resort when all other
remedies to recover non performing assets fail. Banks can
initiate recovery proceedings with or without intervention of
the courts of law. To expedite the process, banks should be
alert and proactive in all stages of the proceedings. i.e.
preparation of plaint, service of summons, written
statements, trial of the suit, obtaining decree copy, praying
for interim relief, execution of decrees, attachment of the
property, arrest of the defendants, if needed etc.
DEBT RECOVERY TRIBUNALS:
The debt recovery tribunal act was passed by Indian
Parliament in 1993 with the objective of facilitating the
banks and financial institutions for speedy recovery of dues
in cases where the loan amount is Rs. 10 lakhs and above.

The time limit envisaged under the act is not being adhered
to in disposing off the suits because of inadequate
infrastructure and shortage of recovery personnel with the
DRTs. Nonetheless, the DRT act and subsequent amendment
in 2000 have provided a great improvement over the normal
legal forum
LOK ADALATS:
It is a legal forum for expeditious settlement of loan dues on
consensus arrived between the bank and the borrowers
mediated by the Lok Adalat
SECURITISATION ACT:
The securitisation and financial assets and enforcement of
security interest SARFAESI act 2002 aims to empower
banks as secured creditors to take possession, manage and
sell the securities without the intervention of court/tribunal.
It also aims at Asset Reconstruction by securitization or
reconstruction company. However, loan with balance below
Rs. 1 lakh unsecured loans and loans against collateral of
agricultural land are exempted from the purview of this act.

SUGGESTIONS FOR REDUCTION IN NON PERFORMING


ASSETS IN BANKS IN INDIA

Non performing assets are a drain to the banks. The banks


in India are adopting various strategies to reduce the non
performing assets in their banks and they are also adopting
various methodologies by which further addition to NPA
portfolio is minimized
There are various methods by which the banks are taking
concrete steps to contain non performing assets in their
banks
The following additional strategies now in force can be
strengthened so that accrual of non performance assets to a
great extent can be curtailed.
CREDIT APPRAISAL AND MONITORING:

Banks should have the well defined policies in respect


of their loan portfolio and those policies should be
communicated to the staff at the service points clearly and
any lacunae in this area will jeopardize the interests of the
bank to a great extent in the sense, that the staff servicing
the loan accounts on account of lack of knowledge will not
be in a position to adhere to the terms and conditions
stipulated for the loan portfolio

Credit appraisal has to be done branch officials without


any bias taking into consideration the well defined policies
framed for the loan portfolio

All loan accounts are to be reviewed at periodical


intervals and they should be renewed in time wherever
required

Borrowers are to be contacted at periodical intervals


and the managers should be in a position to ascertain the
financial position of the borrowers at each stage

The managers should have profound knowledge about


the market conditions and towards enriching his knowledge
in this direction, he should be capable of updating his
knowledge through various means like newspapers, media,
internet etc

Weakness in credit appraisal and credit monitoring can


be overcome by proper training, human resource
management and support to use acquired knowledge boldly
by the operating staff
INSPECTION AND CREDIT AUDIT:
Inspection and credit audit finds on credit
irregularities/deficiency should be given the weightage and
necessary compliance carried out promptly to prevent non
performing assets. By strengthening security and improving
activity level, non performing accounts can turn the corner
RISK MANAGEMENT:
Adherence to documented risk management policy, proper
risk architecture, independent credit risk evaluation,
centralized data base, credit management information
system and credit modeling can help prevent non performing
assets to a great extent. Credit modeling, in particular can
predict impending sickness. For example Reserve Bank of
India has devised a model i.e. Compatible Index of Lead

Indicator (CILI) to predict movements in the manufacturing


sector by about two quarters in advance. Similarly ICRA has
got a risk assessment software model
LEGAL REFORMS:
The delayed practices adopted in the judicial system is
putting premium on loan defaults to a great extent. The
legal reforms should be made in tune with financial sector
reforms. Legislation on bankruptcy or foreclosure should be
brought out comprehensively and implemented. Creditors
should have legal rights to change the management of the
companies in the event of default or credit weakness
signals. Such legislation will force re-orientation of the
recalcitrant management for working to turn around their
company. The Debt Recovery Tribunal mechanism should
also be strengthened with necessary manpower and
infrastructure to expedite the cases. Bankers should be
legally permitted to publish the names of defaulters
ASSET MANAGEMENT COMPANIES:
The Sarfaesi act 2002 provides for formation and operation
of Asset Resonstruction Company/Securitisation company.
There should be concerted efforts in all quarters to make
the AMC/ARC take off effectively. This concept has been
fairly working in certain Asian countries like Japan, South
Korea, Chine, Thailand, Malaysia and Indonesia.
CORPORATE GOVERNANCE:
Sincere application of principles of Corporate Governance
and disclosure will enhance trust of the banker and general
public on a company. Ethical business will lead to reduced
non performing assets to a great extent
CONCLUSION:
Bad loans are draining the banks of capital and weakening
their financial strength. The huge dimension of this problem

requires heavy private capital. It is also as much a political


and a financial issue. Everybody in the field need to have a
greater political will and demonstrate enabling practices to
contain the non performing assets. The banks and financial
institutions should be more proactive to adopt a pragmatic
and structured non performing assets management policy
where prevention of non performance assets receives
priority.

Methodologies for prevention of non performing assets

Methodologies for prevention of non performing assets


Maintaining the quality of loan assets and containing NPAs
have received focused attention. Towards this direction,

banks are taking various steps and are following up various


strategies. Even though steps are improved day by day,
taking into consideration the alarming non performing
assets portfolio in all banks, many more steps are to be
taken
In the following paragraphs, NPA management has been
discussed under two broad strategies viz NPA prevention
and NPA reduction
NPA prevention :
The adage Prevention is better than cure is apt in NPA
management. Prevention is also cheaper than cure. So
banks should concentrate more on preventive strategies,
some of which are listed below

Proper and objective selection and appraisal of


borrowal accounts help to greatly weed out the potential
defaulters. Proposals with likely cash flow problems should
not be financed

Proper documentation and ensuring end use of funds


for proposed asset creation help the bank to recover the
dues

A performing asset does not turn into the non


performing zone overnight. A dynamic monitoring
mechanism enables the bank to get early warning signals of
incipient problems in the loan accounts. This will help the
bank to devise appropriate remedial measures.

There is no better substitute to cash recoveries


through constant follow up

An efficient legal system like that of Singapore (where


say attachment of property and recovery happen in 30 days)
acts as a deterrent against willful defaulters. Effective

bankruptcy and foreclosure legislations increase creditors


confidence in legally managing NPAs

A nation-wide campaign should be launched to promote


repayment ethics. This calls for national consensus, political
will and administrative acumen. For example, electoral
reforms like insistence of no-default status for prospective
candidates for public office, disclosure under oath, of their
assets and liabilities etc. and demonstrative criminal
actions against the violators, could send a strong signal for
prompt repayment of loans from banks. Similarly, there
should be no loan waiver scheme. Because, such schemes
only make borrowers to wait for the next round of waiver
schemes, leading to an unending stream of non performing
assets

Restructuring and rehabilitation of an account is done


proactively if the bank is convinced that a borrowal unit can
be assisted to overcome the temporary problems faced by it.
It may involve pumping in of additional funds and/or
rescheduling to repayment schedule to match the revised
cash flow projections

Proper asset classification helps to identify the various


stages of migration of a borrowal account towards non
performing assets category. Then suitable strategies can be
chalked out for this in consultation with the borrower.

The bane of NPA management in banks in accretion of


fresh non performing assets every year due to slippage of
existing standard accounts. All accounts are to be classified
using Always Best Control analysis and commensurate
preventive efforts taken

CIBIL started in January, 2001 by State Bank of India,


Housing Development Finance Corporation, Dun and Broad
street and Trans Union, at the initiative of Reserve Bank of

India, will provide the much needed credit information on


prospective borrowers to check multiple financing

Corporate Debt Restructuring system was set up in May


2002 by Financial Institutions and banks as a non statutory
voluntary mechanism for facilitating transparent and timely
debt restructuring of viable corporate entities, outside the
purview of BIFR, DRT and other legal proceedings.
BANCASSURANCE

What do you mean by bancassurance ?


Bancassurance simply put means using the banks
distribution channels to sell insurance products. The
philosophy behind bancassurance is to combine the
manufacturing capabilities and selling culture of insurance
companies with the distribution network and large receptive
client base of banks.
Why bancassurance is becoming popular nowadays ?
The growth of bancassurance as a distribution channel can
be ascribed to the following:
Conducive environment:

Progressive dismantling of laws relating to undertaking of


insurance business by banks , increasing use of electronic
channels and automation, growing needs for private
retirement plans to complement public pensions, the
concern for providing total financial services to customers,
etc. have paved the way for bancassurance
Cost effectiveness:
Insurers look to bancassurance as an alternative costeffective mode of distribution as against the costly agency
services. It is estimated that 50% of the insurers cost
structure is directly or indirectly related to distribution
Fee-based income:
A bank expects to increase its fee-based income and overall
productivity by leveraging its branch network, brand image
and client base, by optimally using its assets/infrastructure
and by positioning itself as an one stop shop with value
added service for its customers, thereby increasing
customer loyalty and retention. Bancassurance enables a
bank to satisfy the risk protection needs of its clients
without assuming underwriting risk
Fund Management:
Life insurance where premium is about 55% of the insurance
premium worldwide is basically a savings market. It is one
of the methods to increase the deposits of banks. Both life
and non-life insurance business provide additional flow of
float funds besides fee-based income to banks, through the
same channel of distribution and with the same people
Innovations and efficiency:
Increased convergence of banking and insurance would lead
to melding of their corporate cultures, skill and
synergizing/innovating the marketing of financial services

What are the different models of bancassurance


business ?
Different bancassurance business models as given below
are prevalent in different countries
Distribution agreements:
In simplest form called tied agent, the banks personnel
sell the products of one insurer exclusively, either in standalone basis or bundled with bank products
Strategic alliance:
This is a higher degree of intervention in product
development, service provision and channel management by
way of bank investing sizably in insurance business without
any contingent liability
Joint venture:
Here a large bank with a well developed customer database
partners with a large insurer strong product and channel
experience, to develop a powerful new distribution model.
Alternatively, a bank and insurance company may agree to
have cross holdings between them to share the profits
Financial service group:
Under further integration between a bank and insurer, an
insurance company may build buy a bank or a bank build/buy
an insurance company
Thus banks could associate themselves with insurance
companies by becoming a distributor or by being a strategic
investor or developing a joint venture or by becoming a
promoter

BANKING GLOSSARY PART: 005(IIB)

YIELD CURVE:
It is a single curve that captures the relationship among the
various interest rates that exists in the financial market of a
country. The yield curve is arrived at by joining together
interest rates offered by similar securities of different
tenures. Similarity of the underlying securities is very
important because interest rates on dissimilar securities are
not comparable. So the return on a one year corporate bond

is not strictly comparable with the return on a Government


bond of the same tenure. It is for this reason that a yield
curve is usually drawn for Government securities/G-secs
because these would be similar; in the sense, at least their
risk profile would be similar. Yield curve is important
because it serves at least two purposes. One, it serves as a
benchmark for pricing of bonds or loans of comparable
tenures. Two, it reflects the markets expectations on
interest rates. A rising yield curve suggests that the market
expects interest rates to be higher in the future than they
are at present; while, a flat yield curve suggests that the
market expects interest rates to be stable. Further, a falling
yield curve often suggests that the market is expecting
interest rates to be benign in the future
BENCHMARK PRIME LENDING RATE (BPLR)
Prime lending rate (PLR) is the rate that is offered to a
banks best customers, its prime customers. Therefore, PLR
is regarded as the most competitive rate that a bank can
offer to its customers. Benchmark Prime Lending Rate
(BPLR) is the PLR that serves a benchmark for pricing all its
other loans and advances. In India, banks are free to fix
BPLR for credit limits over Rs. 2.00 lakhs with the approval
of their respective Boards. BPLR has to be declared and
made uniformly applicable at all the branches. The banks
may authorize their Asset-Liability Management Committee
(ALCO) to fix interest rates on Deposits and Advances,
subject to their reporting to the Board immediately
thereafter. The banks should also declare the maximum
spread over BPLR with the approval of the ALCO/Board for
all advances

MORTGAGE BACKED SECURITIES:


Mortgage backed securities (MBS) are securities that
represent an undivided interest in a pool of mortgages.
These securities are structured instruments where cash
flows from home loans are pooled together and converted
into marketable securities. Thus, these are usually debt
obligations that represent claims on the cash flows that
emanate from pools of mortgage loans. Usually, these
mortgages represent residential properties. Mortgage loans
are purchased from banks, mortgage companies, and other
originators and then assembled into pools by a
Governmental, quasi-governmental, or private entity. The
entity then issues securities (usually in the form of pass
through certificates) that represent claims on the principal
and interest payments made by borrowers on the loans in
the pool, a process known as securitization.
UNDERWRITING:
The act of taking on a risk for a fee is called underwriting.
This particularly applies in the insurance or investment.
Insurance underwriting is giving a guarantee of cash
payment in the event of a loss or casualty. The more popular
underwriting is done by merchant bankers/investment
banks/banks and this pertains to guarantee the purchase of
stocks/debt securities in the new offerings which an
underwriter sells them in the secondary market.
Underwriting can also involve guaranteeing prices on
securities to companies and then selling the securities to
the public. Underwriting can also be done on a best effort
basis in which the underwriter is not obligated to purchase
any amount in excess of what it can sell

SUBPRIME LENDING:
Subprime lending is a term applying to loans made to those
borrowers who do not have a good credit history. It may be
noted that the term subprime applies to the borrower/s and
not to the loan. It refers to the credit status of the borrower
(less than creditworthy) and has nothing to do with the
amount of loan or type of loan. It refers to the credit history
of the borrower/s which could be quite bad. This is why
subprime borrowers get loans at not the best/lowest rates of
interest but at substantially higher rates of interest.
Subprime loans can be made in any segment-mortgage, car
loans and even credit cards
CONTRARIAN:
In finance, a contrarian is a person who goes against the
general behaviour of the market when it comes to investing,
in the hope of making profit. So, if for example, the
market(or the brokers/investors) takes a pessimistic view of
a stock and sells it wholesale (thereby causing its price to
fall) a contrarian investor will buy the stock at that point.
This behaviour is contrary to the market behaviour. The
contrarian investor behaves like this deliberately because
he/she believes that the market has undervalued the
potential of the company/its stock and that the company/its
stock is likely to bring him/her profits in the future
SYSTEM RISK:
The possibility that the failure to settle by one participant in
a private network would so jeopardize the financial
condition of its net creditors on the network that they in

turn would be unable to settle, possibly initiating a series of


sequential failures.
NON CONVERTIBLE DEBENTURES:
It is a type of the debt instrument that is issued for a fixed
maturity and in which no part of the debenture is convertible
into equity. The face value of the debenture is redeemed in
one instalment (a bullet payment) or in tranches. Typical
redemption periods range from 5 years to 10 years. Interest
is normally paid quarterly or half yearly. The interest rate
that is offered varies from company to company. The
interest that is earned by investors on the debentures is
taxable
INDIAN DEPOSITORY RECEIPTS:
As per the definition given in the Companies (Issue of Indian
Depository Receipts) Rules, 2004, IDR is an instrument in
the form of a Depository Receipt created by the Indian
depository in India against the underlying equity shares of
the issuing company. In an IDR, foreign companies would
issue shares, to an Indian Depository, for example, National
Security Depository Limited (NSDL), which would in turn
issue depository receipts to investors in India. The actual
shares underlying the IDRs would be held by an Overseas
Custodian, which shall authorize the Indian Depository to
issue the IDRs.
VOSTRO ACCOUNT:
A term meaning your account with us used by a bank to
describe one of its accounts maintained by a bank located
in a foreign country

BUSINESS CORRESPONDENT:
A business correspondent (BC) is an agent who works on
behalf of the banks on an outsourcing basis for taking
banking services to the hitherto non banked centres. The
banking services provided include rural credit disbursement,
delivery of savings and insurance products, small value
payments and remittances. BC is an intermediary between
the bank and the people who are outside the banking sector.
The BC idea has its origin in Brazil where retail vendors,
lottery outlets and post offices double as bank branches
INNOVATIVE PERPETUAL DEBT INSTRUMENT:
To enhance their capital raising options, Reserve Bank of
India allows banks to raise Innovative Perpetual Debt
Instruments (IPDI) which will be eligible for inclusion as
Tier-I capital. Such debt will not have any maturity and will
be perpetual like equity shares. Claims of investors in
Perpetual Debt will be superior to that of equity share
investors and subordinated to that of all other investors.
There is always a restriction on the share of PDI to Tier-I
capital.
VALUE AT RISK (VAR):
Value at Risk (VAR) is an estimate of the maximum loss
possible given in predetermined probability or confidence
level and time horizon. It is commonly used by broking firms
or investment banks to measure the market risk of their
asset portfolios. It is one of the examples of application of
the concept of VAR. The time horizon here would refer to the
time period for which the broking house or investment bank
wishes to hold its portfolio. Typical periods are 1 day, 10
days or 1 year. The confidence level is the probability at

which VAR will not be exceeded by the maximum loss.


Commonly used confidence levels are 99% and 95%
FOREIGN INSTITUTIONAL INVESTORS:
Pure capital inflows to a country i.e. funds flowing take
several forms viz., foreign direct investment (FDIs), ECBs,
non resident deposits. A FII flow (brought into the country by
Foreign Institutional Investors) is one type of pure capital
inflow. These are also referred to as foreign portfolio flows.
FII inflows are typically MFs, hedge funds, pension funds
which pool together funds of the savers of their countries.
FIIs invest in a country by way of buying shares and bonds in
that countrys capital market
NATIONAL ELECTRONIC FUNDS TRANSFER:
National Electronic Funds Transfer (NEFT) is a system to
facilitate an efficient, secure, economical, reliable and
expeditious system to transfer funds between banks in the
banking sector in India. It is part of RBIs initiative to reduce
risks in payments system, especially systemic and
settlement risks. NEFT is an electronic system for transfer
of funds for retail customers, for transfer of wholesale
funds; the Real Time Gross Settlement (RTGs) is available.
An important feature of NEFT is that it is an end-to-end
electronic movement of funds remittances, unlike in the
Electronic Funds Transfer (EFT) where the electronic
movement of funds need not be end-to-end. Therefore, NEFT
covers only the networked branches throughout the country
and not all branches. NEFT is expected to bring down funds
transfer time from 7 days (inter-city) and 3 days (intra-city)
to one day

TIER ONE CAPITAL:


Tier one capital (also called core equity) consists of
common stockholders equity, qualifying noncumulative
perpetual preferred stock and minority interest in equity
accounts of consolidated subsidiaries, less goodwill and
other disallowed tangibles. In addition, perpetual preferred
stock can be included upto 25% of Tier One Capital.
QUALIFIED INSTITUTIONAL PLACEMENT:
Qualified Institutional Placement is a capital raising tool by
a listed company which can issue equity shares, securities
other than warrants, partly and fully convertible debentures
which can be converted into equity shares to a Qualified
Institutional Buyer (QIB). This can be seen as a method that
companies use to raise money quickly other than preferred
allotment. This method does not involve many procedures to
work out to bring it to life with the market regulator. QIP
was introduced in 2006 by SEBI which would enable the
listed companies to raise money from the domestic markets
within a short time frame. Another advantage with this
method was to prevent the Indian companies from being
over dependant on foreign capital. Before the introduction
of the QIP there were many complications that were
associated in raising the funds from the domestic markets.

CORPORATE DEBT RESTRUCTURING:


Corporate debt restructuring is a mechanism offered by
banks to corporates who are unable to repay their debts

because of genuine difficulties. This mechanism was put in


place by RBI for two purposes help the revival of the
corporates as well as the safety of the funds lent by banks
and financial institutions. The objective of the Corporate
Debt Restructuring (CDR) framework is to ensure timely and
transparent mechanism for restructuring the corporate
debts of viable entities facing problems, outside the purview
of BIFR, DRT and other legal proceedings, for the benefit of
all concerned. . Guidelines of CDR in India was evolved and
put in place by RBI in 2001. CDR in India is divided into two
categories. Category 1 is for accounts which are standard or
sub-standard. Accounts which are in the doubtful category
are restructured under Category 2. The CDR mechanism is
administered through a three tier system viz., CDR Standing
Forum and its Core Group, CDR Empowered Group and CDR
Cell.
Z-CORE:
The mathematical result from applying zeta analysis. Zeta
analysis is a model for identifying the bankruptcy risk of
corporations
TOBIN TAX:
In 1978, James Tobin, a Nobel Prize-winning economist, first
proposed the idea of a tax on foreign exchange transactions
that would be applied uniformly by all major countries. A tiny
amount (less than 0.5%) would be levied on all foreign
currency exchange transactions to deter speculation on
currency speculations. While the rate would be low enough
not to have a significant effect on longer term investment
where yield is higher, it would cut into the yields of

speculators moving massive amounts of currency around


the globe as they seek to profit from minute differentials in
currency fluctuations
COMMODITY INDEX:
A commodity index is a weighted spot price index of
agricultural commodities from various groups. For example,
in India NCDEX has launched the commodity price index
called the NCDEX commodity index which is an equalweighted spot price index of 20 agricultural commodities
converting different groups such as oils and oilseeds, fibres,
etc. It is the first such index to be launched in India. Based
on the components of the spot price index, NCDEX also
displays the national index futures essentially, the noarbitrage price if one were to buy futures on the spot index.
This price is derived by tracking the futures prices of the
index components at the same weightage as the spot index.
Currently, index futures are not allowed in India under the
FCRA (Forward Contracts Regulation Act, 1952) which
requires compulsory physical settlement of future contracts
WAREHOUSE RECEIPT:
A document issued by a bonded storage facility evidencing
the fact that specific property has been placed there. A
warehouse receipt is a document of title and may be used in
negotiable or non-negotiable form
CREDIT-DEFAULT SWAPS :
A credit default swap (CDS) is a specific kind of
counterparty agreement which allows the transfer of third

party credit risk from one party to another. It is a swap in


which one party (A) pays another (B) a periodic fee, and (B)
pays (A) a floating payment which depends on whether a
predefined credit event has occurred or not. The fee might
be quarterly, semiannual or annual
AUTOMATED CLEARING HOUSE:
Automated clearing (ACH) network is a batch oriented
electronic funds transfer system which provide for the
interbank clearing of electronic payments for participating
depository financial institutions. Often central banks act as
ACH operators through which financial institutions receive
or transmit ACH entries. ACH payments include direct
deposit of payroll, social security and other government
benefits, direct players besides the ACH etc. The originator,
the originating depository financial institution (ODFI), the
receiving depository financial institution (RDFI) and the
receiver.
TIER ONE CAPITAL:
Tier one capital (also called core equity) consists of
common stockholders equity, qualifying noncumulative
perpetual preferred stock and minority interest in equity
accounts of consolidated subsidiaries, less goodwill and
other disallowed tangibles. In addition, perpetual preferred
stock can be included upto 25% of Tier One Capital.
QUALIFIED INSTITUTIONAL PLACEMENT:

Qualified Institutional Placement is a capital raising tool by


a listed company which can issue equity shares, securities
other than warrants, partly and fully convertible debentures
which can be converted into e quity shares to a Qualified
Institutional Buyer (QIB). This can be seen as a method that
companies use to raise money quickly other than preferred
allotment. This method does not involve many procedures to
work out to bring it to life with the market regulator. QIP
was introduced in 2006 by SEBI which would enable the
listed companies to raise money from the domestic markets
within a short time frame. Another advantage with this
method was to prevent the Indian companies from being
over dependant on foreign capital. Before the introduction
of the QIP there were many complications that were
associated in raising the funds from the domestic markets.

CORPORATE DEBT RESTRUCTURING:


Corporate debt restructuring is a mechanism offered by
banks to corporates who are unable to repay their debts
because of genuine difficulties. This mechanism was put in
place by RBI for two purposes help the revival of the
corporates as well as the safety of the funds lent by banks
and financial institutions. The objective of the Corporate
Debt Restructuring (CDR) framework in to ensure timely and
transparent mechanism for restructuring the corporate
debts of viable entities facing problems, outside the purview
of BIFR, DRT and other legal proceedings, for the benefit of
all concerned. . Guidelines of CDR in India was evolved and
put in place by RBI in 2001. CDR in India is divided into two
categories. Category 1 is for accounts which are standard or

sub-standard. Accounts which are in the doubtful category


are restructured under Category 2. The CDR mechanism is
administered through a three tier system viz., CDR Standing
Forum and its Core Group, CDR Empowered Group and CDR
Cell.
Z-CORE:
The mathematical result from applying zeta analysis. Zeta
analysis is a model for identifying the bankruptcy risk of
corporations
TOBIN TAX:
In 1978, James Tobin, a Nobel Prize-winning economist, first
proposed the idea of a tax on foreign exchange transactions
that would be applied uniformly by all major countries. A tiny
amount (less than 0.5%) would be levied on all foreign
currency exchange transactions to deter speculation on
currency speculations. While the rate would be low enough
not to have a significant effect on longer term investment
where yield is higher, it would cut into the yields of
speculators moving massive amounts of currency around
the globe as they seek to profit from minute differentials in
currency fluctuations
COMMODITY INDEX:
A commodity index is a weighted spot price index of
agricultural commodities from various groups. For example,
in India NCDEX has launched the commodity price indeed
called the NCDEX commodity index which is an equalweighted spot price index of 20 agricultural commodities
converting different groups such as oils and oilseeds, fibres,

etc. It is the first such index tobe launched in India. Base on


the components of the spot price index, NCDEX also
displays the national index futures essentially, the noarbitrage price if one were to buy futures on the spot index.
This price is derived by tracking the futures prices of the
index components at the same weightage as the spot index.
Currently, index futures are not allowed in India under the
FCRA (Forward Contracts Regulation Act, 1952) which
requires compulsory physical settlement of future contracts
WAREHOUSE RECEIPT:
A document issued by a bonded storage facility evidencing
the fact that specific property has been placed there. A
warehouse receipt is a document of title and may be used in
negotiable or non-negotiable form
CREDIT-DEFAULT SWAPS :
A credit default swap (CDS) is a specific kind of
counterparty agreement which allows the transfer of third
party credit risk from one party to another. It is a swap in
which one party (A) pays another (B) a periodic fee, and (B)
pays (A) a floating payment which depends on whether a
predefined credit event has occurred or not. The fee might
be quarterly, semiannual or annual
AUTOMATED CLEARING HOUSE:
Automated clearing (ACH) network is a batch oriented
electronic funds transfer system which provide for the
interbank clearing of electronic payments for participating

depository financial institutions. Often central banks act as


ACH operators through which financial institutions receive
or transmit ACH entries. ACH payments include direct
deposit of payroll, social security and other government
benefits, direct players besides the ACH etc. The originator,
the originating depository financial institution (ODFI), the
receiving depository financial institution (RDFI) and the
receiver.

2.
BANKING GLOSSARY PART: 004(IIB)

BRIC COUNTRIES:
BRIC stands for Brazil, Russia, India and China. It is an
acronym that was coined by Goldman Sachs in 2001 to refer
to the fast growing developing countries of Brazil, Russia,
India and China. One of the major arguments put forth by
Goldman Sachs in their report is that by 2050 the output in
the BRIC economies would surpass those of the current
richest countries. These countries are known to encompass
over twentyfive percent of the worlds land coverage, forty
percent of the worlds population and hold a combined GDP
(PPP) of 15.435 trillion dollars. These factors make it very
plausible for these economies to overtake the current
developed countries by 2050
NOSTRO ACCOUNT:
Transactions in foreign exchange take place through bank
accounts. For example, if an export bill of an Indian exporter
sent on a collection basis has to be credited in a bank
account in New York of a bank of India. For this the bank in
India has to have an account in the foreign bank in New

York. Such an account is called the Nostro account. Nostro


means ours in Latin. Nostro accounts are usually in the
currency of the foreign country. This allows for easy cash
management as no currency conversion is required
HAIRCUT:
The amount retained by brokers on repurchase agreements
to pay for their services. A haircut is the difference between
the bid and the contract price for a repurchase agreement.
The difference between the market value of a security being
used as collateral for a loan and the amount of money that
lender will advance against the security.
INTEREST RATE SWAP:
An interest rate swap (IRS) is a derivative instrument used
for managing interest rate risk. This is in the form of a
transaction in which two counter-parties exchange interest
payment streams of differing tenure or type. These incomes
are based on an underlying notional principal amount. The
three main types of IRS are, coupon swaps (fixed rate is
swapped with floating rate in the same currency), basis
swaps (one floating-rate index is swapped with another
floating-rate index in the same currency), and crosscurrency interest rate swaps(fixed rate in one currency is
swapped with floating rate in another currency.)
NATIONAL FINANCIAL SWITCH:
National Financial Switch (NFS) is a national switch to
facilitate connectivity between a banks switches and their
automated teller machines (ATMs), and interbank payment

gateway for authentication and routing the payment details


of various e-commerce transactions, e-government
activities, etc. In simple words it is a shared ATM network
that allows banks to plug in their ATM networks to networks
of other banks. The NFS became functional from August 27,
2004. The use of the ATM service by customers of one bank
in another bank has been made available so far at a charge.
The RBI has proposed that this service be made free from
April, 2009
FEDERAL OPEN MARKET COMMITTEE FOMC:
It is the 12 member committee of the Federal Reserve
System of the USA responsible for implementing monetary
policy. It comprises seven members of the Federal Reserve
Board of Governors, the President of the New York Federal
Reserve Bank and four other district bank presidents who
serve on a rotation basis.
OVERNIGHT INDEX SWAPS :
An Overnight Indexed Swap (OIS) is a fixed/floating interest
rate swap with the floating leg tied to a published index of a
daily overnight rate reference. The term ranges from one
week to two years (sometimes more). The two parties agree
to exchange at maturity, on the agreed notional amount, the
difference between interest accrued at the agreed fixed rate
and interest accrued through geometric averaging of the
floating index rate. If cash can be borrowed by the swap
receiver on the same maturity as the swap and at the same
rate and lent back every day in the market at the index rate,
the cash payoff at maturity will exactly match the swap
payout: the OIS acts as a perfect hedge for a cash
instrument.

PREFERENCE SHARES:
Preference shares are more like bonds because they always
offer a fixed return known as dividend. This is in contrast
with ordinary shares which may or may not pay out a
dividend. However, preference shares rank ahead of
ordinary shares in terms of dividend payout. If a company is
liquidated, preference shareholders are paid out before
ordinary shareholders. In terms of riskness, therefore,
preference shares are less risky than ordinary shares.
FACTORING:
It is a form of financing in which an arrangement for
obtaining finance is made by selling receivables to a
specialized financing agency (the factor) generally without
recourse. This is done by selling invoice receipts to the
factor. Usually, a factor pays up to a certain amount (upto
80%) of the invoice value to the client upon receipt of the
copy of the invoice relating to goods delivered. The
remaining is paid after receiving the amount due from the
firms customer. To ensure timely collection, the factor
bears the responsibility and attendant risk of collecting the
dues from the companys customers.
CREDIT DERIVATIVES:
Credit derivatives can be defined as arrangements that
allow one party (protection buyer or originator) to transfer,
for a premium, the defined credit risk, or all credit risk,
computed with reference to a notional value, of a reference
asset or assets, which it may or may not own, to one or
more other parties (the protection sellers). Thus in a credit
derivative, only the risk is transferred and not the underlying

asset. Most of the credit derivatives take the form of the


credit default swap (CDS), which is a contractual agreement
to transfer the default risk of one or more reference entities
from one party to the other. One party, the protection buyer,
pays a periodic fee to the other party, the protection seller,
during the term of the CDS.
ENDORSEMENT:
One example of endorsement in banking is the placement of
the payees signature, placed on the back of a negotiable
instrument (for example, a cheque) that transfers the
instrument to another party and legally implies that the
endorser has the right to transfer the instrument.
SECURITIES TRANSACTION TAX:
Securities Transaction Tax (STT) is a levy on securities
transactions. Since the tax is on transactions, the burden of
the tax is to be shared equally between the buyer and the
seller. For example, if the levy on delivery based trades in
equity is 20% then for a transaction worth Rs. 100 the buyer
and the seller have to pay 10 paise each to the Government.
STT can be levied on delivery as well as non delivery based
trades (for example day trades or arbitrage trades) and this
is to be split equally between the buyer and the seller as
well. Often day traders and arbitrageurs can take credit for
STT while paying income tax on business profit.
OPERATIONAL RISK MANAGEMENT:
Operational Risk Management is a part of the Basel-II
guidelines on risk management. Operational risk

management has become important in the sound risk


management practice in modern financial markets.
Operational risk is the risk to the financial soundness of an
organization (in this case a bank) arising out of operational
failures such as breakdowns in internal controls and
corporate governance. Such breakdowns can lead financial
losses through error, fraud, or failure to perform in a timely
manner or cause the interests of the bank to be
compromised in some other way, for example, by its dealers,
lending officers or other staff exceeding their authority or
conducting business in an unethical or risky manner. Other
aspects of operational risk include major failure of
information technology systems or events such as a major
fires or other disasters.
DEFERRED PAYMENT LETTER OF CREDITS:
It is a commercial letter of credit, under which payment is
deferred for a specified period of time after goods are
shipped. These credits are often used to allow time for the
independent inspection of goods, such as food entering the
country, with a provision that payment will not be made if
goods are rejected.
SEPARATE TRADING FOR REGISTERED INTEREST AND
PRINCIPAL OF SECURITIES (STRIPES)
STRIPS is an acronym for zero coupon bonds derived from
selected long-term Government bonds. At the request of the
bond-holder the central bank(who is the agent for
Government bonds)separates the bond into its coupon and
principal components. The components may be traded
separately. In addition to providing more flexibility in

managing interest rate risk, these will also help in


addressing the asset-liability mismatch problem of banks.
SOVEREIGN WEALTH FUNDS:
Sovereign Wealth Funds (SWFs) are Government owned
investment vehicles formed out of large forex reserves for
investments in the debt and equity markets of other
countries. As an idea, SWF was conceived in the 1950s but
gained currency in the 90s, as oil-rich countries and large
exporters such as China earned more foreign exchange. It
is reported that over 20 countries have set up such funds
and the current size of SWFs is estimated at anything
between 2-3 trillion dollars.
CORRESPONDENT BANK
A bank, often a larger institution that maintains an account
relationship or engages in an exchange of services with
another, usually smaller, bank. The large institution is
sometimes called upstream correspondent. The smaller
bank is called a respondent bank. The correspondent bank
generally receives fees for some of the services it provides
to the respondent bank.
ENTRY, EXIT LOADS:
In a competitive market, pricing policy plays a crucial role in
expanding the market for the product. For an intangible
product like mutual funds (units), the cost of entry to and
exit from the fund strongly influences rates of return to
investors. Hence many innovations have taken place in
pricing. Examples of this are the sales charge (or entry load

or front-end load) and repurchase expenses (or exit load or


back-end load) of mutual funds. Front-end load or entry load
is defined as the premium paid on net asset value (NAV
while purchasing the units). Back-end load or exit load is the
discount on NAV at the time of exit.
CURRENCY SWAP:
A swap is defined as a barrier or exchange. In finance a
swap in a contract whereby parties agree to exchange
obligations that each of them have under their respective
underlying contracts. Alternatively it is an agreement
between two or more parties to exchange sequences of
cash flows over a period in the future. The parties that agree
to swap are known as counterparties. Currency swap is one
of the basic kinds of swap which involves exchange of
currencies at a specified exchange rate and to make a
series of interest payments for the currency that is received
at specified intervals.
ASSET RECONSTRUCTION COMPANY:
It is a systemic solution to the problem of NPAs (Non
performing assets) of the banking sector. A huge NPA is a
burden on the economy as it ties up precious assets making
it unavailable for any other use. One way out of this is the
setting up of an Asset Reconstruction Company (ARC) which
takes over the NPAs of the banking sector on its books and
leaves the banking sector free to conduct its daily business
of lending and investing. These NPAs are then securitized
by the ARC. Several countries have used ARC to solve bad
loan problems, including the USA and several countries in
Asia. In India, Asset Reconstruction Company India Limited
(ARCIL) is the leading ARC.

IPO:
Initial Public Offer (IPO) is the first sale of a companys
common shares to the public. Common shares are the usual
and most commonly held form of stock(or shares) held in the
corporation. It signals a companys floatation on the stock
exchange. An IPO also binds a company to stock exchange.
An IPO also binds a company to standards of financial
reporting and makes it responsible to its shareholders.
:::::::::::::::::
BANKING GLOSSARY PART:003(IIB)

CREDIT SCORE:
Credit score is a three-digit number used by lenders to
evaluate an individuals creditworthiness. A good credit
score means that a person can avail of credit at an interest
rate lower than that offered to others. The score is based on
a set of criteria that includes, among other things, past loan
history, number and amount of loans taken, number and

amount of loans defaulted, filing for bankruptcy, credit card


payment delays and balance outstanding in various loans.
NDS-OM:
The Negotiated Dealing System Order Matching (NDS-OM) is
an electronic order matching system introduced by the RBI
in February, 2002 with the objective of developing the
Government securities market. RBI hopes that the NDS-OM
will help usher in an automated electronic reporting and
settlement process, facilitate electronic auctions and
provide a platform for trading in Government securities on a
negotiated basis as well as through a quote-driven
mechanism. The NDS-OM is used voluntarily and co-exists
with telephone based trading.
BANKASSURANCE:
In simple terms, bankassurance refers to banks selling
insurance products to its customers. Previously, customers
would approach banks for banking related services viz.,
opening accounts, taking a loan, etc, and would approach an
insurance company to purchase insurance products. But
now, a customer can buy insurance products in the bank
that he/she is banking with. The synergy between banking
and insurance arises out of two reasons one, banks have a
huge customer database that insurance companies can
utilize to sell insurance products without needing to go
through the hassle of compiling the same. Secondly, for
banks, it is a source of fee-based income which helps them
augment their income which is currently under tremendous
pressure due to pressure on interest margins.
DIVIDEND YIELD:

Dividend yield refers to the dividend paid on a share and is


expressed as a percentage of its market price. So, if a
company pays 60 paise per share in respect of a financial
year and its share price on the stock exchange is Rs. 25 per
share then, the dividend yield would be 2.4%
MONEY LAUNDERING:
A process by which criminals try to hide or disguise the true
origin and ownership of the proceeds of their criminal
activities, thereby avoiding prosecution by the law. Money
laundering is the conversion of profits of illegal activities
into financial assets that appear to have legitimate origins.
The financial system often serves as a conduit for
converting the black money to white. This is often done
by setting up bogus offices to serve as fronts for the
criminal activities, mixing the income earned from the
illegitimate activities and so-called legitimate activities to
show that the income so generated is legitimate. Such
income is then placed in the banking system and used to
fund criminal activities.
SHORT SELLING:
It refers to selling assets that one does not own, such as
shares, in the hope of buying it more cheaply in the future,
to make a neat profit. Short selling is made possible by
borrowing the assets from another party and selling it to a
third party. It is a popular trading strategy used by stock
brokers in the stock markets around the world to book
profits. The strategy is also used in other markets such as
bond markets.
EARNINGS:

Earnings indicate the proportion of a companys profits


which belong to the shareholders and therefore a key figure
in many share valuation yardsticks. They are expressed on a
per share basis and are calculated by dividing a companys
weighted average number of shares outstanding for an
accounting period into its profits after deductions for
taxation, profits belonging to outside shareholders
(minorities), extraordinary items and dividends to preference
shareholders.
NRE RUPEE ACCOUNT:
Non Resident External (NRE) rupee account is a type of
deposit that can be opened by a non resident Indian (NRI) in
any bank in India funded only with foreign currency, or
transfers from a repatriable account (account from which
money can be sent abroad freely). It is a fully repatriable
account and funds in appropriate currency can be accessed
anywhere with an ATM card. This account can be held
jointly with another NRI only.
SOLVENCY MARGIN:
Solvency margin means the excess of assets an insurance
company is required to maintain over its liabilities. Like
capital adequacy ratio in banks, solvency margin is part of
the prudential norms. To satisfy the solvency margins,
insurers have to build up reserves as their business grows.
For e.g. if a company collects Rs. 20 as premium and
provides an insurance cover for Rs. 100, the risk element is
Rs. 80. The margin is an indicator of having buffer to ensure
that the obligations under the insurance contracts can be
met at any time.

FUTURES CONTRACT
Futures contract or simply futures, refers to a contract to
trade any asset (equities, commodities etc) on a future date.
While futures and forward contracts are both a contract to
trade on a future date, there are a few differences between
the two, which are as follows:
1) Futures are always traded on an exchange, whereas
forwards always trade over the counter.
2) Futures are highly stantardised, whereas each forward is
unique.
3) The price of which the contract is finally settled is
different futures are settled at the settlement price fixed
on the last trading date of the contract (i.e. at the end)
whereas forwards are settled at the forward price agreed on
the trade date (i.e. at the beginning)
4) The credit risk of futures is much lower than that of
forwards as the profit or loss on a futures position is
exchanged in cash every day. After this, the credit exposure
is again zero. However, the profit or loss on a forward
contract is only realized at the time of settlement, so the
credit exposure can keep on increasing.
MONEY CHANGERS:
Money Changers are persons/entities who are authorized to
deal in India (to a limited extent) in foreign currencies or
securities. Money Changer licenses are usually granted to
those businesses which are engaged in the activities of
travel agents, hotels, antique shops, jewellery shops, etc,
that cater to the needs of foreign tourists or visitors and
thereby help in earning foreign exchange for the country.
Money Changers are permitted to deal in foreign currencies
in the following manner:

1.

Buying foreign exchange in the form of notes, coins


and travellers cheques
2.
Selling foreign exchange in the form of notes and
coins
Money Changers usually fall in two categories:
1) Full Fledged Money Changers (FFMC) who are authorized
to undertake both buying and selling activities in foreign
exchange with the public and
2) Restricted Money Changers (RMCs) who are authorized
only to purchase foreign exchange, subject to the condition
that all collections are surrendered to an Authorised Dealer
(usually a bank) or to a FFMC. Currently, the RBI has stopped
issue/renewal of RMC licences, except in certain specific
cases
REAL TIME GROSS SETTLEMENT RTGS:
RTGS is a large value funds transfer system whereby
financial intermediaries can settle interbank transfers for
their own account as well as for their customers. The
system effects final settlement of interbank funds transfers
on a continuous, transaction-by-transaction basis
throughout the processing day. RTGS eliminates the
settlement risk in the case of interbank and high value
transactions. The words Real Time suggest that the
process is continuous and ongoing (unlike in the earlier days
when clearance used to be only at the end of the day); the
word Gross suggests that the entire amount is cleared
(rather than the net amount as was the case previously)
and finally, the word Settlement indicates settlement of
dues. The RTGS system went live on March, 26, 2004
through SBI, HDFC Bank, Standard Chartered Bank and

Saraswat Coperative Bank. The advantages of RTGS for


banks are mitigation of risks, especially in the case of high
value transactions and faster transfer of funds across
banks. It is also supposed to be costs of actually presenting
the cheques for clearing. For customers, it means lesser
waiting time to get their funds in the case of remittances.
FCNR B
The Foreign Currency Non Resident or FCNR (B) account is
meant for Non-Resident Indians (NRIs) who wish to hold the
deposit in a foreign currency of their choice. The current
options are the US dollar, Canadian Dollar, Pound Sterling,
Australian Dollar, Deutshe Mark, Yen and Euro. The
exchange rate risk is borne by the bank in which the deposit
is held. Thus, the depositor need not worry about a
depreciating rupee. The tenure of the deposit can be for a
maximum period of 5 years. The maximum interest rate
offered on FCNR (B) deposits is the LIBOR/SWAP rate of
relevant maturity and currency as prevailing on the last
working day of the week previous to the one in which the
deposit has been accepted. The interest rate on the deposit
is also freely repatriable. The FCNR deposit can be opened
jointly with residents also. Loans against these deposits are
available in India. The account can be opened by
transferring funds from abroad or from existing NRE/FCNR
(B) accounts
GLOBAL DEPOSITORY RECEIPTS:
Global Depository Receipts (GDRs) means any instrument in
the form of Depository receipt or certificate (by whatever
name it is called) created by the Overseas Depository Bank
outside India and issued to non-resident investors against

the issue of ordinary shares or Foreign Currency Convertible


Bonds (FCCBs) of issuing company
E PURSE:
Electronic purse or e-purse is a scheme whereby, any
individual who wishes to be a member of the scheme can
register himself/herself by going to the website and filling up
a simple form which contains only his/her personal details.
The registered person will thereafter own an account with
the service provider. Such accounts are funded by
transferring the money from bank accounts or credit card
accounts. The money is credited into electronic purse
account of the accountholder and the actual money is
credited into the current account of the service provider
with the clearing and settlement bank. The electronic purse
accountholder can use the funds in his/her account either to
transfer the funds to another electronic purse account or
transfer to any other account anywhere (which is done
through RTGS/DD) or transact on line purchases
CARBON CREDIT TRADING:
An emission unit or a carbon credit is equivalent to one
tonne of carbon dioxide (or its equivalent in other
greenhouse gases) that would otherwise have been emitted
into the atmosphere. So, if a country reduces emission by
one tonne of carbon dioxide it can earn one Carbon Credit
and it can trade this in the international market. Carbon
credit trading is permitted under the Kyoto Protocol signed
by 144 countries. Simply put, it is the buying and selling of
emissions credits among the countries. It gives
producers/companies the right to pollute up to a certain

limit. Carbon Credit trading helps companies meet


internationaly accepted emission control norms by
purchasing these credits from companies who have surplus
credits or have projects that generate carbon credits. Banks
often help their clients (companies) buy carbon credits,
locate buyers and sell them to a final buyer.
RIGHTS ISSUE:
An issue is a means by which a company raises new capital
in the market. A rights issue is one such means which is
generally used for raising equity capital but can be used to
raise convertible capital as well. The principle on which a
rights issue operates is that the existing shareholders in the
company be given the right to maintain their "proportionate"
share in the company's profits and assets and it also means
that they should be allowed to maintain their proportionate
voting power and that is why they are given the first right to
the new capital. Usually, shares in a rights issue are offered
to the existing shareholders at a discount, as compared to
the prevailing market price.
REINSURANCE:
To put it very lightly, reinsuring is insuring the insurer.
Reinsurance is a means, by which an insurance company
insures itself against the risk of losses. There are
reinsurance companies which specialises in this. They
usually underwrite (partly or wholly) the risks assumed by
an insurance company. The main objective of reinsurance
for the company going for reinsurance is to expand its risk
taking capacity beyond what its size would normally allow.
It also helps an insurance company in absorbing larger

losses and reducing the amount needed to provide cover for


the same.
MAGNETIC INK CHARACTER RECOGNITION(MICR):
The term MICR occurs with reference to a cheque. It refers
to the digits printed in magnetic ink at the bottom of the
cheque (in its front face) to facilitate automated processing.
These numbers usually contain information about the bank
on whom the cheque is drawn on, the account at that bank,
the amount of the cheque and other information. On
insertion of the instrument in the machine, the printed
information is read by the machine. The advantage of the
MICR system is that it minimises chances of error; enables
easy clearing of cheques and boosts the transfer of funds
thus facilitating operations. The position and content of the
MICR line are governed by industry standards in the country.
MORTGAGE:
Mortgage is the legal agreement in which one party (usually
referred to as the mortgagee) agrees to make a loan in
return for which the borrower (mortgagor) agrees to pledge
specific assets as security against the loan. Mortgages are
commonly used in housing loan agreements where the
borrower of a housing loan pledges his/her asset (the house)
with the bank or NBFC that is lending money for purchasing
such a house
KNOW YOUR CUSTOMER (KYC)
Know Your Customer (KYC) norms evolved out of the efforts
of the international community in fighting the menace of
money laundering (ML). The first mention of KYC procedures
was made in the statement adopted by Basel Committee

Reports of 1997 and 1998. It mentioned the KYC procedures


and encouraged the banks' management and exhorted their
central banks to draw guidelines for complete identification
of customers and to map their transactions. Basically KYC
procedures were evolved to prevent banks from being used
intentionally or unintentionally by criminal elements for their
money laundering activities
SPOT TRADING:
Trading in an asset (stocks, commodities, currencies) which
is done immediately, i.e. where the delivery of the asset
happens immediately is known as Spot Trading. The spot
price is the price of an asset for immediate delivery. The
word "immediate" means as soon as the delivery mechanism
used between the buyer and the seller allows. The word spot
is used to distinguish between the price of goods meant for
immediate delivery and those that are meant to be delivered
in the future.
NET WORTH
Net Worth of a firm or a company is its financial value to the
shareholders. Net worth is usually reflected in a company's
balance sheet. It is the difference between the assets of the
company and all claims (liabilities) on the business other
than those of ordinary shareholders. Net worth is also often
referred to as net assets or net block value.
SELF HELP GROUPS: SHGS:
A Self-Help Group (SHG) is a small voluntary association of
poor people, preferably from the same socio-economic
background, who do not have access to formal finance. They

come together and form an association for the purpose of


solving their common problems (usually relating to
livelihood) through self help and mutual help. The SHG
promotes small savings among its members. The savings
are kept with a bank. This common fund is in the name of
the SHG. The fund is used to average borrowings from banks
for use by members. Usually, the number of members in one
SHG should not exceed twenty.
REVERSE MORTGAGE:
Reverse Mortgage (also referred to as reverse annuity
mortgage )is a credit instrument which is of use to existing
owners of houses. Under reverse mortgage, the owner takes
out a mortgage such that the lender pays the owner a fixed
sum on a monthly basis for a stated period of time. The
house, which is mortgage-free, is used as collateral by the
lender (usually a bank). At the end of the term (say 20
years), the borrower needs to repay the lender, to avoid
having to sell the property. A reverse mortgage works best
for people in the older age groups as they would want the
equity in their home and at the same time would not like to
sell the property.
OPERATING PROFIT:
Earning from a firms normal business operations is the
operating profit of the firm. It is the residual income of a
bank after expenses have been deducted from its earning. In
terms of definition the operating profit for a bank is defined
as total earnings less total expenses, excluding provisions
and contingencies
UNDERCAPITALISED:

Any firm or business whose capital structure (debts plus


equity) is insufficient for effective business operations is
said to be under capitalised. These are often seen as likely
candidates for consolidation or merger with a bigger bank.
MICRO FINANCE INSTITUTIONS (MFIS)
Institutions which provide microfinance (small amounts of
money) to the poor without any collateral are called as
microfinance institutions. Such institutions restrict
themselves to only providing microfinance (micro credit,
micro insurance etc) to the poor. Though commercial banks
are allowed to provide microfinance and indeed they do,
they are not classified as microfinance institutions.
Currently, there is no regulatory authority for the MFIs
in India though a bill is in the offing which would make
NABARD the sole regulatory authority for MFIs in India. The
Grameen Bank of Bangladesh is the most notable
microfinance institution in the world.
OPEN INTEREST:
Within a Futures market, the open interest is the number of
outstanding contracts. For every contract, there is a buyer
and a seller. Therefore, the open interest changes only when
new "long" and "short" traders come into the market, rather
than when existing traders are simply covering their
positions. Thus, open interest can be an indicator of
sentiment; for e.g. simultaneous increase in both, the spot
price of the asset and the number of open positions in it
would imply a strong underlying demand
CORPORATE DEBT RESTRUCTURING:

Corporate Debt Restructuring (CDR) is a non-statutory


voluntary mechanism applicable only to standard and
substandard assets of banks and financial institutions with
high priority given to potentially viable cases. Thus, the
main concern of CDR is revival of units with potential. As in
the U.K., Korea and Thailand, India too has developed a
CDR mechanism which ensures timely and transparent
restructuring of corporate debts of viable entities affected
by internal and external factors. Proposals under CDR
entails mainly the following:
Extending the repayment period of loans
Converting the un-serviced portion of interest into term
loans
Reducing the rate of interest on outstanding loans
STEP DOWN SUBSIDIARIES:
Step-down subsidiaries are ventures promoted by the
holding company of a corporate group. Several companies
float Special Purpose Vehicle (SPVs) that are subsidiaries of
the acquiring firm.The step-down subsidiary acts as an arm
of the holding company, which can be used for future
acquisitions by the corporate group. In India till now the
step-down subsidiary resorted to funding largely from
overseas firms since Indian lenders do not finance
acquisitions in a big way. By allowing the step-down
subsidiary to raise funds on the strength of the Indian
Corporates balance-sheet, more Indian money is available
for buyouts.
SPREAD BETTING:

It is an off balance sheet financing as it is neither a debt nor


an equity. Factoring is when a business (the client) sells its
"accounts receivable" to a factoring agent (several banks
are into factoring) at a discount. Under this sort of
financing, the factor undertakes to buy the accounts
receivables of a business at a discount with or without
recourse to the client. It means instant cash for the client
and is a source of income for the bank, as it buys the
receivables at a discount and when it actually receives the
due amount, the difference translates as income for the
bank. Further, it is also a source of fee income for the bank
as a finance charge and service and handling charges are
collected from the client.
HELD TO MATURITY (HTM) AND AVAILABLE
FOR SALE(AFS)
Accounting standards require a company (or a bank) to
classify its debt and equity assets into three categories viz.,
Held to Maturity (HTM), Trading and Available for Sale (AFS).
Debt securities which the company (or bank) has the intent
and ability to hold to maturity are classified as HTM
securities. The impact of temporary fluctuations in the
prices of the securities is not reflected in the financials of
the company. Equities do not have a maturity date and
hence cannot be classified under HTM. Securities that are
bought and sold principally for trading in the near future are
classified as Tradings under HTM or Tradings that are
categorised under AFS are reported at fair value.

::::::::::::::::::;;

BANKING GLOSSARY PART 002(IIB)

SAMURAI BONDS:
Samurai Bonds are offered in the Japanese domestic market
by a non-Japanese entity. Lower incidence of withholding
tax is a major attraction for raising funds in the Japanese
markets. Although there is only a small quantum of savings
between the interest charges of a straight Libor-linked
borrowing and Yen-borrowing linked to a Dollar swap, the
withholding tax factor is what makes a significant
difference.
LIQUIDITY ADJUSTMENT FACILITY:
Liquidity Adjustment Facility is a monetary tool used by the
RBI to modulate the very short term liquidity (daily) in the
system. It does so through repo(repurchase agreement) and
reverse repo transactions. The RBI uses repo operations in
the LAF window to inject liquidity in the system by buying

government securities from banks. RBI uses the reverse


repo to sell out liquidity from the system by selling
government securities to banks. LAF has emerged as the
primary tool for monetary control, interest rate signalling
and sterilisation operations, among others.
DEMUTUALISATION:
Demutualisation is a process that changes a mutual or a
cooperative association in to a public company by
converting the interests of the members into shareholdings.
These holdings can then be traded like the shares of a
company. The objective of such an exercise is to change
the structure of exchanges that were originally formed as
trusts. Demutualisation allows such associations to conduct
commercial business, to make profits like any other
corporate entity. These days demutualisation is being talked
of in the context of the stock exchanges in the country.
They have been asked to demutualise. Demutualisation
would allow the exchanges to appoint a board of directors
to look after the day to day operations of the exchange and
ensure that governance and trading interests are in different
hands.
INTEREST RATE RISK:
Interest rate risk is that where changes in market interest
rates might adversely affect the bank's net interest income.
Generally the risk is more pronounced in those assets and
liabilities which are likely to mature within the current
balance sheet year. In order to evaluate the likely income
variability, the gap report should be generated by grouping

the interest rate-sensitive liabilities, assets and off-balance


sheet positions into time buckets, as per the residual
maturity or the next re-pricing period, whichever is earlier.
HOW DID FUTURES TRADING IN FINANCIAL
SECURITIES/ASSETS BEGIN ?
Futures trading, which originally emanated for commodities
like agricultural goods later got extended to natural
resources such as metals and further on to foreign
currencies. It was only in the mid-1970s that the futures
contracts were applied to other financial securities like
equity stocks.
INTERNAL RATE OF RETURN:
Internal Rate of Return (IRR) is the discount rate at which,
net present value of cash inflows and cash outflows is zero.
In case of debt instruments, it is the rate at which the
instrument's future cash flows, discounted back to today,
equals its price in a project evaluation, IRR should be equal
to the cost of capital or threshold rate of return
ASSET LIABILITY MANAGEMENT SYSTEM:
Asset Liability Management System or ALM is a system to
manage the assets and liabilities of a bank. It aims at
achieving maximum returns while maintaining adequate
liquidity at all times. ALM involves assessment of various
types of risks and altering the asset-liability mix/portfolio in
a dynamic way in order to manage risks

REAL EFFECTIVE EXCHANGE RATE:


The effective exchange rate is an indicator to grasp a
country's international competitiveness in terms of its
foreign exchange rate, as this cannot be known by
examining individual exchange rates between the domestic
and other currencies. Real Effective Exchange Rate is the
product of nominal bilateral exchange rate between
countries and their relative price differentials. It is a tradeweighted index which gives an indication of a country's
export competitiveness vis--vis the rest of the world taking
into account the effect of its exchange rate as well as price
differentials vis--vis its trading partners. In India, the RBI
calculates two REER indices, one a 36 country based and
the other till recently was a 5 country based REER. In the
current review of the Monetary Policy the RBI has replaced
its five-country indices of REER with new six-currency
indices it is also revising its thirty six-country indices. The
new six-currency indices will include USA, Euro Zone, UK,
Japan, China and Hong Kong SAR. The new indices will also
have two new currencies, both Asian - the Chinese Yuan and
the Hong Kong dollar.
BANK RATE:
Bank Rate (or refinance rate) is the rate at which RBI allows
finance to commercial banks. Bank Rate is a tool used by
RBI for short term purposes. Any revision in Bank Rate is a
signal to banks to revise deposit rates as well as Prime
Lending Rate.
CAPITAL TIER II:

Tier II capital, also known as supplementary capital, is


comprised of Property Revaluation Reserve, Undisclosed
Reserves, Hybrid Capital, Subordinated Term Debt and
General Provisions.
INTERMEDIARY AGENCIES:
The category comprises of state sponsored organisations'
lending to weaker sections. RBI also considers the
distributors of agricultural inputs and implements and
agencies involved in assisting the decentralised sector as
intermediary agencies.
INTEREST RATE AND BPLR:
Banks are free to determine the interest rate regardless of
the loan size for purchase of consumer durables, against
shares and debentures and other non-priority sector
personal loans without needing to refer to BPLR.
STATUTORY LIQUIDITY RATIO:
Under Section 24(b) of the Banking Regulation Act, 1949,
every bank is required to maintain at the close of business
every day, a minimum proportion of their Net Demand and
Time Liabilities as liquid assets in the form of cash, gold and
unencumbered approved securities. The ratio of liquid
assets to demand and time liabilities is known as Statutory
Liquidity Ratio (SLR), Present SLR is 125%. The RBI is
empowered to increase the SLR upto 40%.
IMMUNISATION:

The construction of an asset and liability that are subject of


offsetting changes in value.
INDENTURE:
A formal agreement establishing the terms of a Bond Issue.
INDEXED BOND:
Bond whose payments are linked to an index such as a
consumer price index
INDEX FUND:
Investment fund designed to match the returns on a stock
market index.
ASSET STRIPPING:
The practice of taking over a company in financial
difficulties and selling each of its assets separately at a
profit without regard for the company's future. Such an
opportunity arises when a company is trading at a loss or
making poor profits although its asset value is high. In the
process of disinvestment, there is often a fear that the party
to whom the shares are being sold might strip the company
of its assets thereby adversely affecting its shareholders. To
prevent this, often a shareholders' agreement is drawn up to
prevent asset-stripping post-divestment. For e.g. in India,
when Jessop and Company was being disinvested in 2000,

an agreement was drawn up to prevent any private sector


party from stripping Jessop and Company of its assets.
::::::::::::::::::
BANKING GLOSSARY PART 001(IIB)

CBLO:
Collateralised Borrowing and Lending Obligation CBLO is a
money market instrument developed for the benefit of the
entities who have either been phased out from inter bank
call money market or have restricted participation in terms
of ceiling on call borrowing and lending transactions. It is
also meant for those who do not have access to the call
money market but need to borrow/lend funds for short-term.
The word "obligation" in the instrument is important
because a CBLO is an obligation on the part of the borrower
to return the money at a specified future date. In India the
eligible securities for CBLO are central government

securities including treasury bills. The maturity period for


CBLO ranges from one day to ninety days (it can be made
available upto one year as per RBI guidelines)
SWAPS:
A swap is an exchange of streams of payments between two
counterparties, sometimes directly and at other times
through an intermediary bank or counterparty. The purpose
of a swap is to obtain an improvement in the quality of
security or to anticipate a change in the yield. In foreign
exchange dealing swap refers to the simultaneous purchase
of an amount for spot settlement and the sale of the same
amount of the same currency for forward settlement. The
most common swaps are the interest rate swaps and
currency swaps. An interest rate swap involves an exchange
of cash flows representing interest payments/ receipts on an
agreed upon principal amount the notional principal
amount. A currency swap is the agreement to use a certain
currency for payments under a contract in exchange for
another currency.
SECURITISATION:
It refers to the act of making a loan or mortgage into a
tradeable security by issuing a bill of exchange or other
negotiable paper in place of a loan. The most common
example of securitisation is converting receivables (for e.g.
interest receivable on principal lent, electricity bills
receivables) into securities which are then traded on the
exchange. Securitisation is typically done for the purpose of

raising cash by selling them to other investors. It is major


source of corporate finance.
BASIS POINT:
It is one hundredth of one percent, mainly used to express
differences in interest rates. A hundred basis points is equal
to 1%. So if the Bank Rate is 6% and the Central Bank of a
country raises it by 100 basis points, then the Bank Rate will
increase to 7%..
DERIVATIVES:
A derivative is a product that is defined as a security or
notional transaction that derives its value or price from the
value or price of some underlying asset such as bonds,
stocks, commodities or currency. A forward contract in the
foreign exchange market is an example of a derivative
wherein two parties agree to buy/sell foreign exchange at a
future date at a price determined today. This translation
which will take place in future derives its value from the
underlying asset .ie. currency.
HIGH NET WORTH INDIVIDUALS:
It is the classification used by the financial services
industry to denote an individual or family with substantial
amount of financial wealth. While there is no precise
definition of how rich the individual should be, high net
worth is usually quoted in terms of liquid assets over a
certain figure. Globally this figure is taken to be 1 million US
dollars. Indias HNI population is growing and as per one
estimate prepared by DSP Merrill Lynch and Cap Gemini HNI
population in India grew by about 23% in 2007 as compared

to the previous years and the combined wealth of HNIs in


India was around 440 billion USD as of December, 2007.
UNDERLYING:
The assumption of a risk for a fee, particularly in the
insurance or investment business is referred to as
underwriting. Insurance underwriting guarantees cash
payment in the event of a loss or casualty. Investment
underwriting guarantees the purchase of new offerings of
corporate stock or debt securities of a corporation or a
government entity by purchasing the entire offering and then
reselling it in the secondary market.
SUBVENTION SCHEME:
Subvention is the act or process of giving some sort of aid
usually by the government. For example, in India, there have
been subvention schemes for housing finance, farmers and
the export sector and generally takes the form of interest
rate subvention whereby the government bears a part of the
interest rate burden on behalf of the beneficiaries of the
subvention scheme. For example, under the subvention
scheme for exporters, exporters can get loans at 2% less
than the prime lending rate (PLR) of the banks and this
would be reimbursed to the banks by the government.
RECOURSE:
A general legal term meaning that the purchaser of a
financial asset from an original creditor has a claim on the
original creditor in case the debtor defaults. Specific

arrangements to provide recourse arise in a variety of


innovative transactions, including various types of
securitized assets. Such arrangements can take many forms
including an explicit guarantee that credit losses will be
reimbursed or the assets replaced by assets of similar
quality; an agreement to repurchase assets before maturity
or more indirectly indemnification by a third-party guarantee
for any losses that occur. Recourse is commonly used in
trade finance in forfaiting, for example.
SECURITIES TRANSACTION TAX:
Securities Transaction Tax (STT) was introduced by Chapter
VII of the Finance Act (No:2)Act, 2004. STT is a tax being
levied on all transactions done on the stock exchanges.
Securities Transaction Tax is applicable on purchase or sale
of equity shares, derivatives, equity oriented funds and
equity-oriented mutual funds. STT is not applicable in case
of government securities, bonds, debentures and units of
mutual fund other than equity oriented mutual funds
MACAULAYS DURATION:
It is the measure of the price sensitivity of a security or a
portfolio of securities to a change in interest rates. It was
the first formulation (formulated in 1939) of the principle of
duration. Duration is the average time needed to recover an
initial cash outlay. For simple application of duration
analysis, Macaulays duration is an adequate approximation
of the true duration
MARGIN AMOUNT:

It is the minimum amount a client or a customer (in the


stock market it would be a broker) must provide the stock
exchange to purchase securities on credit. Changes in the
value of such securities are credited (or charged) to those
deposits each day (marked-to-market)
OPEN MARKET OPERATIONS (OMO):
It is a tool for monetary action that is available with the
central banks. It involves buying and selling of government
securities from/to banks with the objective of managing the
liquidity in the system. An open market purchase (of
government securities from banks) would increase liquidity
in the system. An open market sale(of government
securities to banks) would suck the liquidity out of the
system.
OFF-BALANCE SHEET ACTIVITIES:
Banks business, often fee-based that generally does not
involve booking assets and taking deposits. For example,
trading of swaps, options, foreign exchange forwards,
standby commitments and letters of credit

FOREIGN CURRENCY CONVERTIBLE BONDS:


A type of convertible bond issued in a currency different
than the issuers domestic currency. In other words, the
money being raised by the issuing company is in the form of
a foreign currency. A convertible bond is a mix between a
debt and equity instrument. It acts like a bond by making
regular coupon and principal payments, but these bonds

also give the bondholder the option to convert the bond into
stock. These types of bonds are attractive to both investors
and issuers. The investors receive the safety of guaranteed
payments on the bond and are also able to take advantage
of any large price appreciation in the companys stock.
(Bondholders take advantage of this appreciation by means
of warrants attached to the bonds, which are activated
when the price of the stock reaches a certain point) Due to
the equity side of the bond, which adds value, the coupon
payments on the bond are lower for the company, thereby
reducing its debt financing costs.
FINANCIAL STABILITY FORUM:
The Financial Stability Forum (FSF) is a forum of senior
representatives of national financial authorities viz., central
banks, supervisory activities and treasury departments,
international financial institutions, international regulatory
and supervisory groupings, committees of central bank
experts and European Central Bank. The FSF is serviced by
a small secretariat housed at the Bank for International
Settlement in Basel, Switzerland. It was convened in April
1999 to promote international financial stability through
information exchange and international co-operation in
financial supervision and surveillance.
NET PRESENT VALUE:
A net present value (NPV) gives the time value of money.
Very simply it gives the value of tomorrows money as it
stands today. It is most commonly used in measuring the
profitability of any investment opportunity. Using a discount

rate (usually one of the prevailing interest rates)an NPV


calculation answers the question: What will be the profit or
loss measured in todays money values of an investment
opportunity for a given discount rate ? If the answer is
positive, then the present value of all the future cash inflows
will be more than all the outflows and the investment will be
profitable.
LEAD INDICATORS:
Lead or leading indicators are a series of economic data
that consistently move with overall economic activity but
turn up or down sooner than the general economy. They are
useful in predicting the phase of the business cycle in an
economy. A business cycle is an up and down movement of
the economic activity of a country and characterized by
recovery, boom, recession, and bust. In India, for example,
in the construction sector, the leading indicators are the
cement and steel production and offtake.
SUB-PLR RATES:
Sub-PLR loans are the loans extended to some of the top
corporates below the prime lending rate (PLR) with a view to
encourage more low-risk borrowings. PLR is the rate of
interest charged by banks on loans to their most
creditworthy borrowers. The prime rate serves as a
benchmark for deciding on the interest rate to be charged to
other borrowers. In India banks and financial institutions
periodically announce their prime lending rates depending
on their cost of funds and competitive lending rates.
Following the recent credit crunch, banks, including PSBs

had stopped offering sub-PLR loans because of the high


default risk. However, with liquidity having been eased in the
market, sub-PLR loans are back in the market.
KNOCK OUT OPTION:
An option contract that becomes worthless if the price of
the underlying asset or contract reaches a pre-specified
price barrier.
PROVISIONING NORMS:
Provisioning norms refer to provisions that banks have to
make for their non performing assets. Non performing assets
(NPAs) are those loans/advances of the banks which have
ceased to earn income for the bank. Usually the assets are
classified into standard assets (those that are earning
income) and those that dont viz., substandard assets,
doubtful assets and loss assets. The last three types of
assets come under the Non Performing Assets category for
which provisions have to be made from the profits. The
various types of non-performing assets are often further
classified into various sub-types depending upon the criteria
such as whether they are secured or not, the age of the
asset etc.,
VENTURE CAPITAL:
The long term financial assistance to projects being set up
to introduce new products/inventions/innovations or to
commercialise new technologies. These are funds which
are available for financing the start-up of a business. Usually

these funds are made available from commercial banks,


merchant banks, etc., It is in the nature of equity and
therefore, venture capital is often known as risk capital.
LIEN:
A legal claim or attachment filed on record against property,
as security for the payment of an obligation. A lien is the
guaranteed right of a lender or an investor to specific
property in case of default.

TIER-II BONDS:
Bonds that are issued based on the Tier-II capital of the
banks. The capital of a bank includes Tier-I capital or core
capital, Tier-II capital and Tier-III capital. Tier-II or
supplementary capital comprises subordinated debt of more
than 5 years maturity, loan loss reserves, investment
fluctuation reserves and limited life preference shares. TierII capital is restricted to 100% of Tier-I capital and long term
subordinated debt may not exceed 50% of the Tier-I capital
CAPITAL ADEQUACY RATIO:
Capital Adequacy is a measure of the banks strength,
Minimum capital ratios are set forth by the bank regulators.
Capital has to be maintained as a certain proportion of the
total assets. Currently, a risk-based capital (RBC) framework
agreed to by the Basel Committee(an international group of
central banks and supervisory agencies) applies to banks
around the world. Each country establishes its own
guidelines within the RBC framework. These are known as

the capital adequacy standards and the ratio so prescribed


is known as the capital adequacy ratio. Capital is required
based on relative risk-weightings of assets. The standards
define on a risk basis capital funds as a percentage of total
assets of banks, essentially higher the risk for an asset, the
higher the capital requirement. Under Basel-II norms 8% is
the prescribed capital adequacy ratio. In India, the
prescribed capital adequacy ratio is 9%.
JOINT VENTURE:
An association of two or more people or companies that
carries on a single business enterprise for profit. The legal
form may be a partnership or corporation formed for a
particular purpose. For example a bank and an insurance
company may come together to promote a new insurance
company in the form of a joint venture. A joint venture
differs from partnership because its existence continues
only as long as its specific purpose continues.
ELECTRONIC CONTRACT NOTE:
The electronic form of a physical contract note is called the
electronic contract note. A contract note in the stock
exchange is an enabler for the business on the stock
exchange and helps market participants in their
transactions. In 2003, Securities and Exchange Board of
India (SEBI) had allowed stock participants to issue
electronic contract notes with digital signatures obtained
from a valid Certifying Authority provided under the
Information Technology Act, 2000.
REAL EFFECTIVE EXCHANGE RATE:

Real Effective Exchange Rate or REER as it is called, is an


indicator of the countrys export competitiveness. Unlike the
bilateral exchange rates which has a number of home
currency units per unit of dollar, REER is an index and is
calculated using the bilateral exchange rates as well as the
inflation rate. It uses real exchange rates i.e. nominal
rates adjusted for relative inflation to calculate the index.
The REER gives the correct picture about a countrys export
competitiveness. So for example, if a dollar was worth Rs.
40 at a base rate and is worth Rs. 50 now, in nominal terms
dollar has appreciated by 25% (or the rupee has depreciated
by 20%). However, its costs in India have gone up

IN THE MONEY:
It is a phrase used to describe an option that has positive
intrinsic value. For a call option, this means the current
price of the underlying asset or contract covered by the
option exceeds the option strike (exercise) price. For a put
option, this means the current price of the underlying asset
or contract covered by the option is below the option strike
(exercise) price.
:::::::::::::::::::

FILING OF CHARGE UNDER COMPANYS ACT, 1956

What is a charge ?
A charge can be defined as a right to have the security made
available through an order of the court
How is charge created ?
Since a charge is nothing but a device to create a security
which is enforceable in a court of law, it is not necessary to
employ any technical or any particular form of expression,
all that is required is that there should be an agreement,
express or implied, to make a particular property as a
security for the payment of money
What is crystallization and when does a charge
crystallizes ?
Crystallisation of a charge means that the floating charge
which was hovering ovr the property has attached itself to
the property. In other words, it has become a fixed charge.
What is the interse priority among charges filed with
Registrar of Companies ?
Ordinarily, when a document is required to be registered
with Registrar of Companies, the rights and liabilities of the
parties to the document relate back to the date of execution
of the document

Does charge relate to the loan amount or the value of


the property ?
Charge relates to the amount of loan. The value of the
security is immaterial
In case, one of the partners of the firm is a limited
company, would the charge created by the firm require
registration ?
Filing of particulars is not required because the limited
company is not the owner of the assets
What if the charged property is acquired subsequently
by a company?
Where a company acquires a property which is subject to a
charge, the particulars of the charge are required to be filed
within thirty days after the date on which acquisition is
completed
What charges are required to be registered ?
The following charges are required to be registered:
A charge relating to issue of debentures; uncalled share
capital of the company; charge on any immovable property,
wherever situate, or any interest therein; charge on book
debts of the company; a charge not being a pledge on any
movable property of the company; a floating charge on the
undertaking or any property of the company including stockin-trade; a charge on calls made but not paid; a charge on a
ship or any share in a ship; a charge on goodwill, or a patent
or license under a patent, on a trade mark, copyright or a
license under a copy right; a pledge of movables, though not

required to be compulsorily registered, is permitted to be


registered
Is it necessary to obtain a certificate of registration ?
The certificate of registration given by the registrar shall be
conclusive evidence that the requirements as to registration
have been completed with. Under section 126 of the
companys act, 1956, the date of registration is the date on
which the doctrine of constructive evidence notice comes
into play. Thus anybody acquiring an interest in the property
shall be deemed to have notice as from the date of
registration.

BANKING TERMS I SERIES

IMMEDIATE PARTIES:

The parties to a Bill of Exchange, Promissory Note or


cheque are those who are in direct and immediate relation
with each other
e.g. 1: drawer and the acceptor of a bill
2: drawer and payee of a cheque
IMPERIAL BANK OF INDIA:
The Bank was established in 1921 by amalgamation of the
three Presidency Banks i.e. Bank of Bengal, Madras and
Bombay which was entrusted with treasury and commercial
banking functions. Late in 1935, RBI took over the Central
Banking functions of Imperial Bank. In 1955 the bank was
nationalized and is now known as SBI
IMPLIED AUTHORITY (PARTNER):
The powers of a partner as an agent to represent the firm
for its business purpose is called his implied authority. It
arises by virtue of law by which the acts of a partner done
to carry on the business of the firm, binds the firm
IMPORT LICENCE:
An importer is required to obtain licence for import of goods
to India. The licences are issued by the office of the Director
General of Foreign Trade stationed at Delhi functioning
under the Ministry of Commerce. Government of India
INC:
An abbreviation of incorporated - a term attached to the

names of firms in the USA to indicate limited liability being


known as Corporations
INCHMAREE CLAUSE:
A marine insurance clause covering risks from perils
resulting from negligence of matter or latent defect in
machinery or marine engineers etc. eg. Damage to cargo
while in harbour
INCHOATE INSTRUMENT:
As per section 20 of Negotiable Instruments Act, an
inchoate instrument is an incomplete instrument in which
not all the particulars are given.eg. . A cheque, without
payees name, date etc. The right of filling up an inchoate
instrument may be exercised by any holder
IMMUNITY:
That which confers the ability to escape from the legal
prosecution duties, penalties by special act or general
amnesty by act of Parliament.
INCOME RECOGNITION:
As per the recommendations of Narasimhan Committee on
Financial System-1991, no income should be recognized in
the accounts in respect of Non Performing Assets NPA
INDEMNITY:
Section 124 of Indian Contract Act states that it is a

contract by which one party promises to save the other from


loss caused to him. The person promising to compensate
loss is the indemnifier and the one whose loss is to be
compensated is the indemnity holder
INDUSTRIAL DISPUTE:
Any difference or dispute between employees and employers
or workmen with workmen relating to employment or nonemployment or with the conditions of labour is called as
Industrial Dispute
INDUSTRIAL RELATION:
Any activity, event or interaction and all phases of relations
between employers and employees. It commences with the
job interview and lasts throughout the working lifetime of an
employee
INFLATION:
An overall rapid increase in the price level as reflected by
substantial increase in the price indexes for the economy
resulting in a decrease in purchasing power of the monetary
unit
INFRINGEMENT:
Violation, transgression, breaking, non-observance of a
rule/law
INHERITANCE:

An act of acquiring or possessing by will or intestacy passed


on by heredity an estate or property, which a person has by
descent as legal heir to another person
INSANITY:
In law, denotes that degree of mental illness which negates
the individuals legal responsibility or capacity
INSOLVENCY:
The inability to pay ones debts as they mature. The
liabilities exceed the assets. In law, insolvency of a person
is adjudged and declared by a competent court. The term
insolvency used in Indian law is synonymous with
bankruptcy.
INTANGIBLE ASSETS:
Assets of value to the business but are not of physical
nature. They have a long period of usefulness in the
business. The items under this category include Goodwill,
Patents and Trademarks, Copyrights etc
INTERNET:
It is a worldwide web of interconnected computer networks
from USA which extends its wings all over the world. It is a
network of networks linked together with the help or
telephone lines and from it to satellite and fibre-optic cable
links and it is operative throughout the globe.

INTESTATE:
When a person dies without making a will he/she is said to
have died intestate. Under such situation, Court will appoint
an administrator for settlement of the estate/assets of the
person dying intestate
INVENTORY:
A detailed list of things accounted in the process of taking
stock. The various forms in which inventories exist in a
manufacturing company are: raw materials, work in process
and finished goods
INVOICE:
An itemized statement used in business giving complete
summary of a transaction involving the sale of goods with
description of quantity sent to the consignee with a request
for payment
IRREVOCABLE:
Not capable of being revoked or taking back the
commitment. A mandate for salary deduction is treated as
irrevocable which means the same cannot be withdrawn
IRREDEEMABLE:
Lacking any provision for a date for repayment in kind or to
charge for something of equal value.e.g. A debenture with
no dates given for repayment at the time of issue

INTERMEDIARY BANK (FEX):


It is the bank in the exporting country which is usually the
bank opening the letter of credit through which the credit is
advised to the exporter. If it merely forwards the letter of
credit to the exporter without any obligation on its part it is
called the Advisory Bank. If it adds an undertaking to the
credit it would be called the Confirming Bank
INCOTERMS (FEX):
It refers to standard contract terms prepared and laid down
by the International Chamber of Commerce (ICC) Paris. It
provides a set of international rules for the interpretation of
the chief terms used in foreign trade contracts in different
countries
INDENTURE:
An agreement between two or more persons involving
reciprocal rights and duties as a lease or a contract
between bond holders and the issuer
INLAND BILL:
A bill is termed as an Inland Bill if
a) it is drawn in India on a person residing in India whether
payable in or outside India or
b) it is drawn in India on a person residing outside India but
payable in India
ISLAMIC FINANCE:

A form of business that is bound by strict religious rules and


these rules normally prevent the making of a profit in
association with Non-Islamic organizations or individuals
INVISIBLE EXPORTS:
The various services, financial or personal, rendered by
citizens of one nation to persons in another for which
payment has tobe made. These may consist of insurance,
freight and passenger charges, interest of domestic bonds
etc.,
:::::::::::::::
BANKING TERMS = H SERIES
BANKING TERMS = H SERIES
HABEAS CORPUS:
A writ ordering an official having custody of a person
alleged to be unlawfully detained to bring the individual
before a court to determine whether the imprisonment was
legal or not
HALLO:
Cash inducement paid to someone to encourage him to
change job and move to another company
HAMBROSE:

An old British Merchant Bank founded in the 19th century by


the Scandinavian Mr Carl Joactim Hambro
HARD CURRENCY:
A currency which is stable and normally not subject to
dramatic variations in the exchange rate and it is an
acceptable medium for international trade
HARVEST:
The reaping of corn or grains. In India, there are mainly two
harvests: Rabi (spring season) and Kharif(Autumn season).
In North India in Hindi districts, they are called Hari and
Sawani
HEARSAY EVIDENCE:
It is hearsay if a person makes a statement on the authority
of another. It is usually inadmissible, but exception is made
in questions of pedigree, custom, dying declarations and
those made against the interest of the declarant
HEDGING (FEX):
Exporters and importers cover themselves against the risk
of fluctuation of the exchange rate by buying and selling
foreign exchange in a forward market
HEIR:
A successor by descent, a person who would succeed to an

estate either by will or by statute, in case of intestacy. The


heir ship certificate is issued by the Tahsildar or a
Government official
HERMES:
Germanys export credit insurance agency which grants
guarantees on behalf of the federal Government Over 8% of
all Germanys exports are covered by Hermes and it also
provides insurance for both export credits and domestic
credits
HERSTATT:
A German Bank that collapsed in 1974 from losses in the
foreign exchange market. It was the first significant disaster
in the then euro market and became an object lesson
thereafter in what dangers had to be avoided and how
HIDDEN ASSETS:
An asset which is valued much less in the companys
accounts than its true market value
HIDDEN RESERVE:
Hidden reserves are funds in reserve but not disclosed in
the balance sheet. They are also known as secret reserves.
They arise when an asset is deliberately either undisclosed
or under valued
HIGH SEA SALES:

High Sea Sales are sale of goods while they are in mid-seas
before they arrive at shores. Such sales take place by
transfer/endorsement of documents of title to goods. Import
policy recognizes such sales by canalizing agencies to endusers/actual users
HIRE PURCHASE:
A method of selling goods. It is an operation where the
financier plays the role of a lender. The asset is purchased
by the client and the financier merely finances the purchase
stipulating a margin to be provided by the client. The
interest payment is made along with the instalment and the
aggregate amount is paid in EMIs during the period of the
contract
HIVE OFF:
To split off part of a large company to form a small
subsidiary giving shares in the subsidiary to its existing
shareholders
HOARDING:
To collect for the sake of accumulating e.g. buying
something in bulk quantity in anticipation of a price rise
HOLDER:
The person in possession of a bill of exchange or promissory
note. This person may by the payee, endorsee or a bearer

HOLDER IN DUE COURSE:


Any person who for consideration became the possessor of
a promissory note, bill of exchange or cheque if payable to
bearer or the payee or endorsee thereof if payable to order,
before the amount mentioned in it became payable and
without having sufficient cause to believe that any defect
existed in the title of the person from whom he derived his
title
HOLDING COMPANY:(PARENT COMPANY)
A company in a group that holds majority of share capital in
other companies and has control in which is called as
subsidiary company. The Holding Company will have control
over the composition of the Board of Directors and business
affairs in the subsidiary company
HOLOGRAM:
It is a three dimensional picture used on credit cards to
prevent forgery
HOLOGRAPHIC WILL:
It is a will which is entirely in the handwriting of the
Testator
HOLDING ACT:
Any person who by words spoken or written or by conduct
misleads others into believing that he is a partner so that on

the faith of such representation they give credit to the


partnership firm is liable to them as a partner. It applies to a
retiring partner
HOLDING GAINS:
Gains arising out of changes in the value of assets whilst
they are being held. Gains arising out of value addition by
productive activity involving the assets used for sale are
operating gains
HOLD OVERS:
When the cheques lodged with clearing house cannot be
credited on the same day because of serious irregularities
because of missisng bank stamp, post dating, improper
endorsement etc
HOSTILE WITNESS:
A person who is brought to give evidence in an enquiry joins
the other party opposite to one who calls him to give
evidence
HOTCH POT:
It means the bringing of property into a common fund or
account so as to entitle the person bringing in to share in
the common fund which has been increased by his addition
HUNDI:

The word Hundi is a derivative of Sanskrit word Hundi


which means to collect. Hundis are credit instruments and
have all legal features of a Promissory Note. It serves the
purpose of (a) procurement of liquid cash (b) transfer of
cash assets (c) financing of inland business. Various kinds
of Hundis are:
a) Darshani: Payment in presentation (sight)
b) Muddati: Payable after certain period after date of sight
on acceptance
c) Shah-jog-hundi: Payable only to a Shah i.e. a respectable
person
d) Jokhms Hundi: Hundis drawn against goods shipped on a
vessel named in the Hundi
e) San-jog-Hundi: Hundi payable to a named party on his
order
f) Dhani-jog-Hundi: Hundi payable to a Dhan as owner i.e. a
person who purchased it
g) Jawab-Hundi: Hundi employed to transfer money to a
distant place
h) Firman-jog-Hundi: Hundi payable to order
i) Dekhandhar Hundi: Hundi payable to bearer
HYPOTHECATION:
It is derivative from Roman Law and a mode of creating an
equitable charge on a property to secure the payment of a
debt in which the property itself continues to be in the
possession of the debtor. The instrument which creates a
charge is known as a Letter of hypothecation and only
movable assets/book debts can be hypothecated. There is
no effective control by the creditor over the goods.

Companies are preferred for hypothecation of advances by


virtue of Registration of Charge under Section 125 of
Companies Act.
HUSH MONEY:
Money paid to a person as bribe a payment made for
maintaining secrecy
HUF:
Hindu Undivided Family consists of all persons lineally
descended from common male ancestor and includes their
wives and unmarried daughters
:::::::::::::::
BANKING TERMS G SERIES

GAIN:
Any profit, benefit or advantage as opposed to a loss,
appreciation in value of property, difference between cost
and sale price

GALA
The difference between the actual price of a transaction by
a broker and the price quoted to the client
GAMBLING
Making a bet in respect of occurrence of an event in terms
of financial consideration by one person with another
GARNISHEE ORDER
An order of the court obtained by a judgement creditor
attaching funds in the hands of the third party (Banker) who
owes the judgement debtor (customer). The banker
(garnishee) is directed not to release money attached until
further orders. The order contains two parts i.e. order
Nishee and order Absolute,. Order Nishee is a direction
to the banker not to release money until further orders and
order Absolute is for remitting money attached to the court
GDP:
Abbreviation for Gross Domestic Product and it represents
money value of all goods and services produced within a
nations borders but excluding net income from abroad
GENERAL ACCEPTANCE:
One which assents without qualification to the order of the
drawer i.e. where the drawee signs his name on the bill with

or without words Accepted


GATT
General Agreement on Tariffs and Trade is an international
trade agreement aimed at liberalizing and expanding
international trade as a means of raising world welfare
GENERAL CROSSING
Where a cheque bears across its face between two parallel
transverse lines an addition of the world (i) and company (ii)
not negotiable (iii) simply two transverse parallel lines
without any words, cheque is said to be crossed generally
which means the cheque is not payable across the counter.
GENERAL LIEN:
Entitles a person to retain possession of goods belonging to
another not only for the debits, but also for the general
balance of account owing by the owner of the goods. A
banker, therefore, can retain all securities in his possession
till all its claims against the concerned person are satisfied
GENERAL RESERVE
It represents an accumulated balance of past profits, which
may be used in any manner by the company. It also provides
a cushion for absorbing unforeseen future losses and/or
contingencies.
GENTLEMANS AGREEMENT:

An agreement which has no written proof of its existence.


The term is used to describe an agreement resting on the
honour of the parties because of good faith. It is not
enforceable in law.
GILT EDGED SECURITIES:
GILT are securities or investments where the risk is
marginal. Generally applied to government securities
GDR: GLOBAL DEPOSITORY RECEIPTS
General term for worldwide transactions in Foreign
Exchange, money market paper, precious metals and bank
notes and also refers to international cash flow
management.
GLOBALISATION
Means investment in financial markets on an international
basis. The improved technology has made it possible. For
example investors in London can buy shares or bonds
directly from Japanese brokers in Tokyo without
intermediaries
GOOD FAITH
Bonafide, something done honestly and without intent of
deceit and fraud
GOODS ON CONSIGNMENT

Goods sent to an agent for sale and remittance of sale


proceeds
GOODWILL
The assessment of value of a business usually when the
business is to be sold. It depends on the past record of the
business, profits and prosperity. It is intangible asset
GREEN REVOLUTION
Adoption of new methods of agriculture with high yield
hybrid seeds, fertilizers, pesticides and intensive cultivation
to increase agricultural production
GROSS NEGLIGENCE
Refers to negligence characterized by total indifference to
the rights of others and reckless disregard of the
consequences of ones act
GROSS PROFIT:
It is the total profit before deduction of tax and selling and
general administrative expenses
GUARANTEE
A contract to perform the promise or discharge the liability
of a third person in case of his default. It is an undertaking
by the bank tobe liable to a third party for a customers
fulfillment of a contractual obligation. There are three
parties

i) Guarantor Banker
ii) Principal Debtor Customer
iii) Beneficiary third party
GUARDIAN
One who takes care the charge or custody of any person
(minor) not legally capable of managing his own affairs.
Father and mother are considered as natural guardians and
in their absence a person appointed by a competent court is
the guardian of the minor.
GUILT
Confession by the defendant that he has committed the
offence with which he is charged
GOVERNMENT COMPANY
Means any company in which not less than fifty one percent
of the paid up share capital is held by the Central
Government or by any State Government or partly by central
and partly by state government
GAP (FEX)
The period in foreign exchange transactions, between the
maturities for purchase and the maturities for sale of each
foreign currency
GREEN CLAUSE LETTER OF CREDIT
A refinement of the red clause credit which not only permits

preshipment advance to the exporter but also provides for


the grant of storage facilities at the port of shipment in the
name of the Bank
GREEN CARDS
Cards issued by the Government to approved 100% export
oriented units which entitle them for priority treatment in
matters relating to the implementation of the projects
GIRO SYSTEM (FEX)
The word GIRO is a Greek word in origin and means Circuit
or Circulation. This system is in use in Europe for cheap
and simple transfer of money either through a bank or a
postal agency without the use of cash or cheques
GLAMOUR STOCK:
A stock very popular with the investors because it has risen
in value and has provided to the investor higher than
average earnings over a period of time
G-20
A group formally created in 1999 brings together Finance
Ministers and Bank Governors from industrialized countries
as well as emerging market countries including India.
::::::::::::::::
BANKING TERMS = F SERIES

FACTOR:
A factor is a mercantile agent employed to buy, sell or deal
with goods. He has an authority to buy and sell goods in his
own name on the usual terms of credit, and to receive
payment so as to bind his principal. He has a general lien
upon the goods and he has an insurable interest in them.
The general lien, however, is available only for debts due to
him as a factor.
FACSIMILE:
An exact copy of printing picture, handwriting, signature
etc., prescribing the marks of the original.
FICTITIOUS ASSETS:
A fictituous asset is an asset which cannot be brought
within the two other categories of assets viz., Fixed Assets
and Current Assets. Certain expenses are incurred in a new
project such as preliminary expenses (or formation

expenses), public issue expenses, etc., which cannot be


charged to the profit and loss account immediately and are
called fictitious assets. They are also referred to as
Intangible Assets These are strictly speaking, not assets
(as they have no real value) but are shown as miscellaneous
expenses to be written off in the subsequent years.
FIDELITY INSURANCE
It is insurance against losses arising from dishonest acts of
employees and involving specified money, merchandise or
other property; persons or positions may be covered by
fidelity insurance
FIDUCIARY/FIDUCIATY CAPACITY:
A fiduciary is any person responsible for the custody or
administration, or both, of property belonging to another, as
a trustee.
A person who holds anything in trust for another is said to
hold in a fiduciary capacity. For example when a Bank keeps
with it an article in safe custody/safe deposit, it acts in
fiduciary capacity.
FINAL DECREE:
The lending banker who is the mortgagor of the immovable
property, cannot sell the mortgaged property without the
intervention of the court and therefore, when it becomes
necessary to recover the advance from the borrower
through sale of the mortgaged property, he files a suit in the

court for a decree for the sale of property. The court first
passes a preliminary decree which is a decree against the
mortgager giving him time to redeem the property. On his
failure to redeem the property within the stipulated time
given by the court, a final decree is passed. It is a decree
ordering the sale of the mortgaged property. A final decree
completely disposes off the suit.
FINANCIAL GUARANTEE:
As the name itself suggests, this is a type of guarantee,
whereby a financial liability is undertaken by the banker.
Normally, all types of guarantees executed by the banker
involve the banker in financial liability. However, where
under the contract entered into by the customer of the
banker, cash deposits or earnest moneys are required to be
deposited by the customer for due performance of his part
of the contract, it is stipulated that the customer may, in
lieu of cash deposit or earnest money, give his bankers
guarantee. The guarantee, so executed by the banker is
usually known as a financial guarantee.
FIRM:
A firm is a business house or partnership. A firm can be a
sole proprietory concern or a partnership concern. Persons
who have entered into partnership with one another are
individually called partners and collectively a firm.
The term firm is merely a commercial notion. Law does
not invest the firm with a legal personality apart from its
partners, except for the purposes of assessment of income

tax.
FISHBOWL:
A technique to improve communication and collaboration
between two interfacing groups. The groups meet and are
arranged in two concentric circles, one group in the inner
circle and one in the outer. The inner group discusses its
own problems and its problems with the other group, while
the group in the outer circle listens and observes. Then the
groups reverse positions and the process is repeated with
the new inner group doing the talking.
FISCAL DEFICIT
It is the difference between revenue receipt plus non-debt
capital receipts on one side and total expenditure including
loans, net of repayment on the other side.
FIXED ASSETS:
Fixed assets are what a concern owns for the purpose of
production and are not normally available for sale. They are
essentially of a permanent nature and are in constant use to
carry on the business. These are the land buildings, plant
and machinery, tools and equipment, furniture and fixtures,
motor cars and delivery vans and so on. Fixed assets are
employed continuously and remain their particular form or
shape until depreciated, sold off, thrown away or pulled
down.
FIXED CAPITAL:

Fixed capital is that which is invested in assets intended to


be retained by the company more or less permanently and
used in producing an income. Ordinary examples are
buildings and mills, ships and land.
FIXED CHARGE:
A charge is said to be fixed if it is made specifically to cover
definite and ascertained assets of a permanent nature or
assets capable of being ascertained and defined, e.g.
charge on land and building or heavy machinery.
FLABBY INVENTORY
Refers to excess inventory which is either worthless or
obsolete. While calculating drawing power, this is excluded
FLEECE:
A term used in stock market for those investors who indulge
in reckiless speculation blindly and advantage is taken of
such ignorance
FLIPSIDE
Refers to the negative factors in a proposal or offer
FLOATING ASSETS:
Assets such as cash, stock, bills of exchange, which are
continually changing as opposed to fixed assets such as

premises, plant and machinery etc.,


FORECLOSURE:
Foreclosure is the process by which a mortgager failing
after due notice, to repay the mortgage debt, forefeits his
right or redeem the mortgaged property, upon the
mortgagee applying to the court for an order for foreclosure.
FOREFEITURE:
Automatic loss of cash, property, securities or rights, on
failure to comply with legal provisions and as compensation
for the resulting loss or damage
FORGERY:
An act of falsely making or materially altering any document
or illegally using a persons signature with the intention of
deceiving and defrauding another person, for personal gains.
FORMER OR SURVIVOR:
Where two persons jointly open an account with a bank,
they may opt for the style Former or Survivor for the
purpose of operating the account. In such a case, the
account is operated only by the former person named in the
joint account during his lifetime, and if he is alive on
maturity of the account the maturity amount becomes
payable to him only
FORWARD EXCHANGE CONTRACT (FEX)

A forward exchange contract is a firm and binding bargain


between a bank and its customer, or between two banks,
under which one party undertakes to deliver and the other to
receive a fixed sum in foreign currency against payment in
Indian rupees, on a fixed future date or between two fixed
dates, at a predetermined rate fixed at the time the contract
is made
FRANCHISE
Franchise is a privilege granted by governmental authority,
sanctioning a monopoly or permitting the use of public
property, usually subject to regulation. The word franchise
also means the privilege, often exclusive, conferred on a
dealer by a manufacturer, to sell the manufacturers
products within a specified territory.
FRAUD
An act of omission and commission which involves a breach
of trust e.g. manipulation, misappropriation, impersonation
etc.,
FREE ON BOARD
A bill of lading may be represented under the contract term,
Free on Board (FOB). The term Free on Board means that the
price quoted to the buyer is the price of the goods plus the
cost of putting them on board the vessel which is to carry
them. In other words, the seller (exporter) delivers the goods
on board the vessel as per contract and bears all expenses

and risks till the goods are loaded on board the ship
FREE PORT
A port where ships of all countries can load or unload free of
customs duty on either imports or exports
FRINGE BENEFIT
Benefits granted by an employer to an employee in addition
to the basic wage or salary
FREIGHT
A charge paid to a carrier for the carriage of goods in a ship
or by rail, air, road or water
FREE ZONE
An area within a country regarded as being outside its
customers territory. Importers may bring goods of foreign
origin into such zones without paying customs duties and
taxes pending processing procedure.
FUNDS FLOW STAEMENT:
Funds flow statement is a useful tool in the financial
managers analytical kit. It is a report of the financial
operations of the company. The basic purpose of the
statement is to indicate on a historical basis where cash
came from and where it was used. It is often regarded as a
counterpart to the cash budget. The cash budget is a

projection into the future whereas the funds flow statement


is historical.
::::::::::::::::
BANKING TERMS E SERIES

EARNEST MONEY:
Earnest Money is a security deposit which a person is
required to make at the time of his fliing a tender with the
Government Department, public bodies, etc., Earnest Money
is liable to be forfeited for non-fulfilment of terms of
contract by the person if his tender is accepted.
Bank term deposit receipts are also acceptable to the
government departments etc., in lieu of cash as earnest
money.
ECONOMIC FEASIBILITY:
Term lending institutions have to critically analyse the data
obtained from the borrower to ensure that the project meets

the minimum criteria, before granting any term loan for the
project.
The economic feasibility of a project has reference to the
earning capacity of the project. It is essentially an analysis
of the market for the product to be manufactured. Since
earnings depend on the volume of sales, it is necessary to
determine by an economic feasibility study, how much
output of the new unit or the additional production from an
established unit is likely to be absorbed at a given price in
the market.
EFFECTS NOT CLEARED:
This phrase is used while returning a cheque in those cases
where the drawer has given certain cheques, drafts, etc., for
collection and the same have not yet been collected and
therefore the banker is not in position to meet the cheque
drawn on account of insufficiency of funds in the drawers
account at the moment.
EITHER OR SURVIVOR:
Where two persons jointly open an account with a bank,
they may opt for the style Either or Survivor for the
purpose of operating the account. (The other three options
available to the joint account holders are Former or
Survivor, Latter or Survivor and jointly) In joint deposit
accounts the mandate of either or survivor is being
accepted by commercial banks to provide operational
flexibilities to the joint accountholders so that they can
operate the account singly (individually) i.e. either of the

joint accountholders
ENCUMBRANCE:
A claim or lien or other liability attaching to real property
which diminishes the owners equity in the property. For
considering advance against property accepted as security,
it should be free from any encumbrance
ENDORSEE:
Endorsee is the person in whose favour an endorsement is
made in a negotiable instrument, by its maker or holder. If
the endorser signs his name only, the endorsement is said to
be in blank and if he adds a direction to pay the amount
mentioned in the instrument to, or to the order of a specified
person the endorsement is said tobe infull and the person
so specified is called the endorsee of the instrument.
ENDORSEMENT:
The word endorsement in its literal sense, imports a
writing of ones name on the back thereof, with the intent of
transferring the rights therein. Endorsements may be of any
of the following kinds:
i) General or blank ii) Special or in full iii)partial iv)
restrictive v) conditional
a) Sans Recourse b) Faculatative c) Sans Frais d) Liability
dependent upon a contingency
ENDOWMENT POLICY:
The two commonest forms of life insurance are 1) whole life

and 2) endowment. In the case of an Endowment Policy, the


contract assures the person insured of a certain capital sum
at a stated age, or to his dependents should he not survive
to that age
On an endowment policy premiums are paid for a definite
number of years. At the end of the period the face value of
the policy with accumulated profits, if any, is paid to the
insured or to his dependents should he die earlier
END USE OF FUNDS:
Banks lending is for certain approved purposes. After the
loan is disbursed, the banker has to ensure by verification
that the funds are utilized for the purpose for which it was
sanctioned i.e. whether the end use of funds is proper and
not diverted for other purposes
ENTREPRENEUR:
An entrepreneur is an undertaker of an enterprise. He is a
conceptual person who assumes on his own initiative,
because of his desire for private gain, the responsibility for
bringing together the various factors of production or
distribution or both, necessary for the establishment and
operation of a business enterprise. The term having the
same roots was borrowed from the French because of the
connotations of the word undertaker
EQUITABLE MORTGAGE:
Where the borrower (mortgagor) or his agent deposits with
the lender (mortgagee) or his agent, the title deeds of his

property, in the towns of Kolkata, Chennai, Mumbai or those


notified by the Central and/or State Govts, with intent to
create a security thereon, it is an equitable mortgage or
mortgage by deposit of title deeds
The essential requisites of a mortgage by deposit of title
deeds are
1) There must be a debt, existing or future
2) There must be deposit of title deeds
3) The deposit must be in the notified towns
4) The deposit must be with intention that the deeds shall be
security for the debt
5) The deposit must be by the mortgager or his agent with
the mortgagee or his agent
EQUITY:
Equity is the own investment of the proprietor, partners or
promoters of an enterprise. It is also referred to as equity
capital. Equity is distinguished from borrower capital
EQUITY OR REDEMPTION:
Where a person mortgages his property, he does not cease
to have an interest in it. Only a part of the interest is
transferred by him to the mortgagee while the remainder
remains with him. This remainder of the interest is called
Equity of Redemption. Equity of redemption is a legal right
of a mortgager to redeem his property on the payment of
the principal, interest and costs
EQUITY SHARES/EQUITY SHAREHOLDERS:

Equity shares are also called ordinary shares. The total


capital required to be raised by a public company is split
into a number of equal parts called shares, each share
having a certain face or par value, which is generally Rs. 10/or Rs. 100/-. These shares are normally issued either as
equity shares/preference shares/cumulative preference
shares. Equity share and Equity share capital are
synonymous terms
The rights of equity shareholders vary according to terms of
the Articles of the Company; they have no special rights or
privileges either in regard to capital or profits, but these are
entitled to participate in the profits earned by the company
after the payment of a fixed dividend on the preference
share
ESCROW:
There may be cases when documents are executed in
escrow. A document is executed in escrow when its
operation is made conditional and is handed over to a party
other than the party to the contract to hold it till the
happening of a contingency or until certain conditions have
been fulfilled by the party in whose favour the document is
drawn. When the conditions have been complied with, the
document takes effect and is then delivered to that party,
the grantee. Such an arrangement is known as an escrow
When the parties are at a distance and the execution takes
place at a different place and mutual obligations exist, the
procedure of executing the document in escrow is adopted

ESTATE DUTY:
Death taxes may be levied in two forms viz., estate duty and
inheritance tax. The term estate duty or estate tax is used
to describe a levy payable on the value of all property, real
or personal passing on to an heir following the death of a
person
These taxes are an important source of revenue in most
countries of the world today. Estate duty is to be imposed on
the entire estate of a deceased person. The term estate
includes cash, bullion, jewellery, household effects,
securities, business assets, debts due, house property,
agricultural land, etc. To determine the value of property,
bonafide debts incurred by the deceased are to be deducted
from the assets
ESTOPPEL:
A rule of evidence whereby a man is not allowed to
disapprove facts in the truth of which he has by words or
conduct inducted others to believe, knowing that they might
or would act on such belief. A man is not permitted to resist
an inference which a reasonable person would necessarily
draw from his words or conduct. Where one by his words or
conduct willfully causes another to believe the existence of
a certain state of things and induces him to act in that belief
so as to alter his own previous position, the former is
prevented from averting against the latter a different stage
of things as existing at the same time.

EURO DOLLARS:
The term Euro-dollar began to be used in the late 1950s.
Euro-dollars are basically US dollar balances held with
banks located outside the USA. The prefix Euro is used
because the main markets for these dollars were in Europe.
The principal sources of Euro dollars and other Euro
currencies are central banks who hold large amounts of
foreign currencies as reserves, multinational companies,
investment institutions and more recently the oil exporting
countries wishing to invest their large foreign currency
earnings. The Euro-dollars is the most important currency
dealt in on the Euro-currency markets. The Euro-currency
market is commonly referred to as the Euro-dollar market
because the United States Dollar is the central currency
EURO MARKET:
The Euro- market is an international money and capital
market that trades currencies which are outside their
country of origin. This means that Euro-dollars are dollars
required by banks outside the borders of the United States.
All movements on the Euro-market that are dominated in any
currency will ultimately lead to transfer of assets and
liabilities in the countries where the respective currency
originated.
EXCEEDS ARRANGEMENT:
When a cheque drawn by a customer is returned for want of
funds, the bank gives one of the two reasons i.e. exceeds
arrangement or refer to draweron the cheque returning

memo. The answer exceeds arrangement indicates that


the accountholder is availing borrowing facilities from the
bank and now his account is overdrawn in excess of the
limits set up in his favour by the Bank. Thus, this answer
divulges more information than is necessary for returning of
a cheque for want of funds In legal terms, refer to
drawer is preferred to exceeds arrangement or not
arranged for. Exceeds arrangement is euphemism for
insufficient funds.
EXCESS (OR IRRGULAR) DRAWINGS:
Excess drawings are drawings in excess of drawing power
in a borrowal account. Excess drawings render the account
irregular and banks do not encourage the borrower to resort
to excess drawings
Such excess drawings to cover up specific temporary
difficulties soon get adjusted and need not cause concern to
the banker. However, when excess drawings persist they
give an indication that all is not well with the unit
EXCHANGE BROKERS (FEX):
They are recognized brokers in Mumbai, Kolkata and Chenni
through whom all inter-bank dealings in foreign exchange
are conducted
As the exchange control regulations in India do not permit
anyone except an authorized dealer to hold stocks of foreign
currency, exchange brokers are not permitted to buy or sell
foreign exchange on their own account. They operate in the

foreign exchange market purely as agents between two


principals
EXCHANGE CONTROL:
The term exchange control applies to the regulation of
transactions involving foreign exchange with a view to
relieve pressure on the exchange value of a particular
currency. Broadly speaking, the term would apply to any
departure from a system of free and multilateral
international payments and would include, therefore, all
restrictions on the types of transactions in the foreign
exchange markets
EXECUTOR:
An executor is a person named in a Will by the testator as
the fiduciary who is to take charge of the deceaseds estate
and administer or dispose it off as directed in the Will. The
probate is the official evidence of an executors title, but not
the origin of his title, which is the will itself. In other words,
no executor or legatee can claim any right under the will in
any court of law unless a court of competent jurisdiction
has granted him a probate or letters of administration
EX PARTE DECREE:
Ex Parte Decree is a decree passed by the Court when the
defendant does not appear, and it is proved that the
summons was duly served upon him. The Court however, has
no jurisdiction to pass on ex parte decree without any
evidence being given by or on behalf of the plaintiff. In any

case in which a decree is passed exparte against a


defendant, he may apply to the Court by which the decree
was passed for an order to set it aside and if he satisfies the
court that the summons was not duly served or that he was
prevented by any sufficient cause from appearing when the
suit was called on for hearing.
::::::::::::::::::::::::
BANKING TERMS D SERIES
BANKING TERMS D SERIES
DA TERMS:
Documentary bills which may be drawn payable on the
expiry of a certain period after sight or date (usance bills)
may include time drafts drawn on D/A (Delivery against
acceptance) terms. If the terms are D/A, the documents are
deliverable to the drawee against his acceptance thereof. In
the case of D/A bill, upon acceptance of the bill by the
drawee, the relative documents covering the goods are
delivered by the bank to the drawee.
DAYABHAGA LAW:
The Joint Hindu Family is governed by Hindu Law. The
Dayabhaga law prevails in Bengal. The Dayabhaga school
denies the doctrine that right over property is by birth. The
sons do not acquire any interest in the property by birth. It
treats the father as the absolute owner of the property and
gives him practically unrestricted powers over it.
DAYS OF GRACE:

According to Section 22 of the Negotiable Instruments Act,


an usance bill i.e. a bill not expressed to be payable on
demand, at sight or on presentment, is at maturity on the
3rd day after the day on which it is expressed to be payable.
These three days are called days of grace. Days of grace
are so called because they were originally allowed to the
drawee by way of favour to enable him to provide himself
with funds for payment without inconvenience.
DEBENTURE:
Companies have frequently to borrow large sums of money.
The loan requirement of a company may not, therefore, be
met by a single lender. The loan may have to be split into
several units. One very convenient method of doing so is to
borrow by issuing debentures. A debenture is, therefore, a
written acknowledgment of a debt/a certificate of loan
issued by a company. It is a security issued by a company
for money borrowed on the companys property.
DEBT EQUITY RATIO:
The ratio of the total liabilities of an enterprise to its equity
for shareholders funds or tangible networth is in common
parlance, referred to as debt/equity ratio. The main purpose
of this ratio is to ascertain the relative financial stake of the
creditors vis-a-vis the owners of an enterprise. It indicates
the soundness or otherwise of the long term financial
policies of the unit.
The debt-equity ratio is calculated as follows:

DEBT-EQUITY RATIO = TOTAL OUTSIDE


LIABILITIES/SHAREHOLDERS FUNDS OR THE TANGIBLE
NETWORTH.
DEBT-SERVICE COVERAGE RATIO:
The debt service coverage ratio serves as a useful guide in
determining the repayment schedule of a term loan. The
ratio is arrived at by dividing the cash accruals in each year
by the total of interest on long term debt and repayment of
instalments falling due in that year. The cash accruals for
this purpose are represented by net profit after taxes with
interest on long term debt and depreciation provision added
back.
Debt service coverage ratio Net profit after taxes + Annual
interest on long term debt + depreciationj/annual interest on
long term debt + annual repayment of principal.
DECREE:
The order of finding of a civil court is called decree. It is the
formal expression of an adjudication which, so far as
regards the court expressing it, conclusively determines the
rights of the parties with regard to all or any of the matters
in controversy in the suit and may be either preliminary or
final.
DEED:
A deed is a particular kind of document and must (a) effect a
transference of interest, right or property, (b) or create an

obligation binding on some person or persons(c) or confirm


some act whereby interest, right or property has been
transferred or passed. All deeds are documents but not all
documents are deeds.
DEEMED EXPORTS:
Certain supplies made indigeneously in the nature of import
substitution and meeting with the conditions stipulated in
the Export Import Policy are termed as deemed exports.
Primarily, such supplies are from domestic units to
exporters who would have otherwise imported their
requirements. Grant of deemed export status entitles the
eligible suppliers for benefits such as duty drawback, refund
of terminal excise duty, special import licence and duty
exemption scheme.
DEFECTIVE TITLE:
The title of a person who negotiates a negotiable
instrument is said to be defective when he obtains the
instrument or the acceptance thereof by fraud, duress,
force, fear or other unlawful means or for an illegal
consideration, or when it is negotiated to him in breach of
faith, or under such circumstances as amount to fraud, as
where the payee is prohibited by an order of court from
receiving payment.
DEFERRED EXPORTS:
If the export proceeds are to be received after six months
from the date of shipment, these are referred to as

DEFERRED exports (i.e. exports on deferred payment


terms). Besides, to compete in the international market, in
some cases, the exporters are compelled to offer deferred
payment terms.
DEFERRED PAYMENT GUARANTEE:
A deferred payment guarantee is one whereby the banker
guarantees payment by his customer of the amount to be
paid by the customer, which has been spread over or
deferred over a period of time. Normally, this type of
guarantee is required by the customer when he desires to
purchase machinery or goods on credit. The DPG which the
banker issues contains an undertaking on the part of the
banker to guarantee due payment of the deferred
instalments by the customer on the due dates and declares
that in the event of default in payment, the banker will make
payment of all or such of the drafts as may have remained
unpaid on their respective due dates.
DEFLATION:
Deflation is a word used to describe that part of the
downward phase in a trade cycle where there is a downturn
in economic activity, purchasing power and national income
to an extent which introduces dangers of mass
unemployment and slump conditions.
Deflation is a phenomenon which causes a decrease in the
general price level due to a decrease in total spending
relative to the supply of goods and services on the market.

DEL CREDERE:
A Del Credere commission is an extra commission paid by
the principal to an agent when the agent guarantees the
solvency of a customer to whom he has sold goods on
credit.
DEPONENT:
A person who makes an affidavit to any statement of fact, or
who gives evidence upon oath, is known as Deponent.
DEPRECIATION:
It is the diminution in value due to various reasons such as
wear and tear, passage of time, obsolescence, etc. through
constant use of such assets as building, plant, machinery,
tools, motor vehicles, etc. It thus, becomes necessary for
every company to set aside each year sums for the eventual
replacement of ageing and inefficient assets. Depreciation
is a loss. If it is not taken into account, the profit and loss
account will not show the correct net profit or net loss.
Further, if the depreciation is not taken into consideration
the asset will be overvalued and so, the balance sheet will
not reveal the true financial position of the concern.
DISSOLUTION OF A PARTNERSHIP:
A partnership is deemed to be terminated when (a) the
purpose of business becomes unlawful, (b) all but one of the
partners lose their capacity to contract (death, insanity,
insolvency or retirement of the other partners) (c) the

purpose for which the partnership was formed is achieved,


(d) by mutual consent.
DOCK WARRANT:
A dock warrant is a document issued by a dock company
stating that the goods as described therein are entered in its
books and are deliverable to the person mentioned or his
assignee by endorsement.
DOCUMENTARY BILL:
A documentary bill is a bill of exchange which is
accompanied by various documents such as bill of lading,
dock warrant, delivery order, policy of insurance, invoice,
etc. evidencing dispatch of goods. The documents
accompanying the bill purported to be documents of title to
goods, which authorize or purport either by endorsement or
by delivery, the possessor of the document to transfer or
receive goods thereby represented.
The banker treats documentary bills as secured and relies
for their realization on the creditworthiness of the
concerned parties as well as the genuineness of the
accompanying documents.
DOCUMENTS OF TITLE TO GOODS:
In case goods are in transit from one place to another, the
transit documents covering them, such as a bill of lading,
railway receipt or a truck receipt are called documents of
title to goods.

DOMICILED BILL:
When a bill of exchange is accepted payable at some place
other than the acceptors private or business address,
usually the acceptors bank, it is known as a domiciled bill.
A drawer may, if he wish, name the domicile or place of
payment in the body of the bill or below the drawees name.
The acceptance in a domiciled bill will be made in writing on
the bill itself in the following form:
Accepted payable at State Bank of India__________branch
Sd/- date
DONATIO MORTIS CAUSA:
A gift made in anticipation of and conditional on the death of
the donor and intended to take effect only in that event is
known as donation mortis causa. The gift is revocable if
the death of the donor does not take place contemplated
and, also, if the donee dies before the donor.
DOUBLE CROSSING:
When a cheque bears two separate special crossings-it is
said to have been doubly crossed. According to Section 127
of the Negotiable Instruments Act, where a cheque is
crossed specially to more than one banker, except when
crossed to an agent for the purpose of collection, the banker
on whom it is drawn shall refuse payment thereon. Thus a
paying banker shall pay a cheque doubly crossed only when
the second banker is acting only as the agent of the first

collecting banker and this has been made clear on the


instrument. This may be in the following form:
UNION BANK OF INDIA TO CANARA BANK AS AGENT FOR
COLLECTION.
DRAWEE IN CASE OF NEED:
Sometimes the name of a person is mentioned in a bill,
either by the drawer or an endorser, to whom the holder may
resort in the event of dishonour of the bill by nonacceptance or non-payment by the named drawee.Such a
person is known as a drawee in case of need or simply
case-in-need. Usually his name is noted in the left hand
bottom corner of the bill.
DUMPING:
Dumping is the practice by a vendor, particularly in
international trade, of selling goods at generally below
recognized market price while maintaining higher prices in
areas where government protection or other preferred
treatment can be secured. Such vendors often allocate their
fixed and overhead expenses to goods sold in protected
areas and because of the risks involved, regard returns on
dumped goods, loss direct costs as net profit.
;:::::::::::::::::::::
BANKING TERMS C -SERIES

CALL DEPOSITS:
Deposits accepted from fellow bankers that are repayable
on demand. Interest on call deposit depends upon the
demand for money and its supply
CAPITAL ADEQUACY:
As part of the deregulation process, the necessity for a
uniform prescription for minimum capital requirements has
resulted in the adoption of Basle Committee guidelines on
the basis of a weighted risk assets formula, to ensure that
the advances (assets) made by the Banks bear relation to
capital base.
CAPITAL GAIN:
A financial gain resulting from the sale of a capital asset at
a higher price than what was paid and in case of increase in
value of property, it attracts payment of tax.

CAPITAL RESERVE:
Reserves created out of retained profits derived from nontrading operations of the company is called capital reserves.
CASH ACCRUALS:
Adding back of depreciation and other provisions made in
the Profit and Loss account to net profit, which helps in
finding the actual cash generation in the unit.
CASH FLOW STATEMENT:
It is a statement depicting change in cash position from one
period to another. It indicates efficient cash management by
the borrower.
CASH RESERVE RATIO (CRR)
Banks are required to adhere to statutory requirements
regarding maintenance of liquid assets. Every scheduled
bank is required to maintain with RBI an average daily
balance equal to its demand and time liabilities. This is to
ensure safeguarding the interest of depositors and
soundness of the Banking system.
CERTIFICATE OF INCORPORATION:
Each Public or Private Limited company is required to be
registered under Companies Act. The Registrar of
Companies issues a certificate of incorporation which is a
conclusive evidence having legal existence

CERTIFICATE OF COMMENCEMENT OF BUSINESS:


A Public Limited Company can commence business or
exercise borrowing powers only after it has obtained the
certificate of commencement of the business from Registrar
of Companies.
CERTIFICATE OF ORIGIN (FEX)
It is a signed statement providing evidence of the origin of
goods which specifies country of manufacture or growth of
goods, Such certificate is issued by the Chamber of
Commerce/Export Promotion Council.
CIRCUMSTANTIAL EVIDENCE:
Evidence that does not directly establish the evidence or
non existence of the fact in question but may be used as a
basis for an inference as to its existence or not.
CLAYTONS CASE:
Where no specific appropriation is made by the debtor or
creditor of payments made in a running account, the first
item on the debit side is discharged or reduced by the first
item on the credit side.
CLEAN BILL:
A bill which is not accompanied by any other allied
documents like LR/RR/Way bill etc., are clean bills. Cheques,
interest warrants, dividend warrants, bank drafts are also

called as clean bills.


CLEAN BILL OF LADING (FEX)
It is a bill which does not bear any superimposed clause
expressly declaring a defective condition of the goods
and/or their package. Letter of credit prescribes that Bill of
Lading should be clean without any adverse remarks
CODICIL:
An instrument made in relation to a will extending, altering
or adding to form part of the will and it is a supplement to a
will. It must be signed, dated and witnessed by two persons.
COMPROMISE:
Whereby a debtors in order to avoid legal proceedings offers
to pay off the bank;s dues by obtaining some relief from the
bank. However, the book liability is recovered and any
sacrifice will be in terms of interest portion only
CONDITIONAL ENDORSEMENT:
An endorsement which limits or negatives the liability of the
endorser
CONSORTIUM ADVANCE:
The credit facilities both Working Capital and term loans
extended to a borrower jointly by more than one financial
institution operating under some mutual agreement and

acting under a leader chosen among the participants


CONTINGENT LIABILITY
It is a likely or possible future liability which may arise as a
result of past circumstances or actions i.e. Bills discounted
with banks/liability under LC. Here the legal obligations and
amount of liabilities are both uncertain.
CONTINUING GUARANTEE
A guarantee which extends to a series of transactions is
called a continuing guarantee.
CONVERSION:
It is a legal term signifying wrongful interference with
another persons property inconsistent with the owners
right of possession
CORPORATE SECURITIES:
Securities issued by Public Limited Companies. They are
further classified as
i) Ownership securities i.e. equity and preference shares
ii) Creditorship securities i.e. debentures
COVENANT:
A document setting forth the terms of a contract or
agreement between two or more persons.
COUNTER GUARANTEE:
A document executed by the party on whose behalf the bank
has issued a guarantee conferring unrestricted power on the

bank to ratify any claim that may be made on it by the


beneficiary.
COMMON LAW:
The unwritten law of the land as distinguished from the
written or statute law
COMMUNITY BANKING:
It means providing financial and other types of support to
the weaker sections of the community and thereby forging
stronger bonds with the common man and involvement in
the community development
CONSIGNMENT EXPORTS(FEX)
The exports which are made on the basis where the
exporter continues to be the owner of the goods until they
are sold in the overseas market. The foreign consignee in
such a case acts as the agent of the exporter for selling the
goods on his behalf>
CONSTRUCTIVE NOTICE:
The Memorandum and Articles of Association of every
company are treated as public documents and every person
dealing with the company is duty bound to know the
contents of these documents. Whether a person actually
reads them or not he will be presumed to have notice of the
documents. Such presumed notice is called as constructive
notice.
CONVENTIONAL INDUSTRIES:

Industries based on agricultural produce i.e. which use


agricultural products as raw materials are called
conventional industries. E.g. Decortication of nuts, cotton
ginning, tobacco curing, rice milling, etc., Most of these
industries are labour intensive providing large scale
employment on low capital investment.
COVER NOTE:
It is a document issued by an insurance company when the
first premium has been paid declaring that the proposer is
covered and gives the benefit of the insurance during the
period between the agreement to issue the policy and the
actual issue of the policy.
:::::::::::
BANKING TERMS B SERIES

BAILMENT:
Section 148 of the Indian Contract Act defines Bailment as

the delivery of goods by one person to another for some


purpose, upon a contract that they shall, when the purpose
is accomplished, be returned or otherwise disposed of
according to the directions of the person delivering them.
The person delivering the goods is called the bailor. The
person to whom they are delivered is called the bailee. The
delivery of the goods by the bailer to the bailee is on a
condition or for a purpose, to which the law usually attaches
an obligation, on the bailee to take reasonable care and to
redeliver the goods or to deal with them otherwise as
directed when the condition or purpose is fulfilled. In a
bailment the general property in the goods bailed is not
transferred to the bailee but a special property is created by
possession.
BALANCE OF PAYMENTS:
Apart from receipts for goods exported and payments for
goods imported, a country also exports and imports other
services for which it has to receive or pay money. A record
of such receipts and payments constitutes the balance of
payments of that country. Balance of payments is a wider
term than balance of trade and embraces not only visible
but also invisible imports and exports. For our imports we
must pay and inturn for our exports we must receive
payments. The balance of payments is thus the difference
between our payments (outgo) and our receipts (income) for
visible as well as invisible imports and exports respectively.
BALANCE SHEET:

A balance sheet is a statement of the assets and liabilities


of a business as at a particular date. Assets are the
property, cash and amounts due from others; liabilities
represent the amounts due to others. If all the transactions
are correctly recorded, the total of assets must always
equal the total of assets must always equal the total of
liabilities. In other words, liabilities must balance with
assets and it is this fact which gives the balance sheet its
name.
The usual definition namely a statement of liabilities and
assets is strictly speaking, incomplete, because items are
often included on each side of the statement which cannot
be regarded as assets or liabilities. A more complete
definition is that a balance sheet is a classified summary of
the ledger balances outstanding in a set of books after all
the receipts and expenses applicable to the period date
have been transferred to trading or profit and loss account.
BALLOON PAYMENT:
Repayment of the major or a large part of a loan in a single
payment, following smaller instalments is referred to as a
balloon payment. The balloon payment is the last instalment
remaining to be paid, the amount of which is odd and larger
than each of the previous monthly/quarterly repayment
instalments.
BANKABLE PROPOSITION:
All bankers aim at making bankable loans. A bankable
proposition is one where the bank is virtually certain that

the loan will be repaid with normal attention to the account


by the banker. The risk of credit loss depends on (1) the type
of business (2) the quality of management, (3) the degree of
financial leverage, and (4) the availaibility of secondary
source for repaying the loan.
BANK CLAUSE:
Where bank advances against goods, etc., which are
requested to be insured, they usually insist that the
insurance policy should contain a bank clause. The Bank
Clause will provide for (a) payment to the bank of all monies
becoming payable under the policy. If other parties are also
interested in the policy, the Bank will receive such monies
as agents for such other parties. (b) Full authority to the
bank to enter into any adjustment, settlement, compromise
or reference to arbitration in connection with any dispute
between the Insurance Company and the insured. (c)
Payment to the bank to the extent of the banks interest in
the subject matter of the goods insured, irrespective of any
act or omission on the part or any other party, which would
invalidate the policy or increase the risk.

BANKERS CHEQUE:
In accordance with the recommendations of the Working
Group on Customer Service, Bankers cheque was
introduced in State Bank of India in 1976. A bankers cheque
is issued for local payments of and by customers, like
examination fees, electricity bills, municipal bills, etc., in
the place of payment orders or local drafts, which do not

conform to the pattern of a cheque.


A Bankers cheque is not transferable. The Bankers cheque
by virtue of its being drawn on the same branch of the bank,
will have to be treated either as a Bill of Exchange or a
Promissory Note at the option of the holder, for the reason
that the drawer as well as the drawee turn out to be the
same person.
BANKERS LIEN:
It is the right of a banker to retain such of his customers
property as comes into his hands in the ordinary course of
business as a banker, it is an implied pledge. A Bankers lien
is a special form of general lien, for it includes a right of
sale after a reasonable notice. A bankers lien is more
appropriately called right of set off. In order to create a
bankers lien on several accounts, there should be mutuality
of claim between the bank and the depositor.
BANKERS SPREAD:
Even though banks profitability depends on their earnings
from services also, the main sources of income come from
deployment of funds viz., deposits. Banks obtain these funds
at a cost, mainly interest cost. Viability of the banks can be
mainly judged on the basis of the net earnings i.e. difference
between return and cost available to them on these
deposits. In Banking parlance, this is referred to as SPREAD.
BANKER GUARANTEE:

A guarantee is a contract to perform the promise or


discharge the liability of a third person in case of his
default. A contract of guarantee flows from a main contract
entered into between the customer and the beneficiary, the
Banker being the Guarantor. Thus, if a firm applies for an
order from a Government department for execution of a job,
the Banker may execute a guarantee on its behalf in favour
of the department guaranteeing the Department, return of a
sum of money which the department may have paid the firm
as an advance, if the firm fails to fulfill its obligation.
BANK RATE:
In terms of Section 49 of the RBI Act, the bank is required to
make public from time to time the standard rate at which it
is prepared to buy or rediscount bills of exchange or other
commercial paper eligible for purchase under the Act. This
rate is known as the Bank rate. By altering this rate, the
Reserve Bank can influence the cost of credit. The main
significance of the change in the Bank rate lies in the fact
that other rates including those charged by banks for their
advances, deposit rates and other market rates very often
move in sympathy with the bank rate. An increase in the
Bank rate also affects the business psychology because it is
viewed as a harbinger of contractionary economic policy
designed to bring about a fall in the price level. This
psychological effect is very important since it induces the
traders and producers to reduce stock and curtail credit
generally.
BANKRUPT/BANKRUPTCY:

When a person is unable to pay his debts, his property is in


certain circumstances, taken possession of by the Official
Receiver or Trustee on Bankruptcy, who realizes it and
distributes the proceeds amongst the creditors. Such a
person is known as bankrupt.
The chief aim of bankruptcy proceedings is to combine and
regulate two great objects: first, the distribution of the
effects, of the debtor in the most expeditious, the most
equal and the most economical mode; and secondly, the
liberation of his person from the demands of his creditors
when he has made a full surrender of his property.
BASE CURRENCY (FEX)
Base Rate is the rate of exchange individual banks have to
work out on a daily basis for selling and buying of different
currencies as per the guidelines formulated by FEDAI. It is
the exchange rate from which buying and selling rates for
customer transactions are to be calculated by the banks.
Base rate is to be derived on the basis of the ongoing spot
market rates of the concerned currency. Base rate sale and
purchase transactions are different and depend upon the
ongoing interbank or international market rates of the
concerned currency.
BASKET OF CURRENCIES: (FEX)
The system of linking the rate of exchange of the native
currency to the market rates of two or more currencies is in
vogue in several countries. Relative weightage is given to
each of the currency and the total is usually referred to as

the Basket of Currency. The system of linking to more than


one currencies has the advantage of insulating the native
currencies from the effects of wide fluctuations in one
currency. A similar system is proposed for fixing the
exchange rate of European Monetary Unit EMU
BEARER (CHEQUE OR BILL)
Bearer means the person in possession of a bill (including
cheque) or note which is payable to bearer. A bill is payable
to bearer which is expressed to be so payable, or on which
the only or last endorsement is an endorsement in blank. A
bill or cheque payable to bearer does not require to be
endorsed.
BEHAVIOURAL SCIENCE:
Psychological and sociological theories concerned analyzie
and explain the behaviour of the individual and the group in
the working environment. Its applications cover such areas
as communication, innovation, change, management styles,
training and appraisal. The emphasis is on trying to
establish on optimum working environment to which all can
contribute effectively to realize both corporate and
individual goals and aims.
BILL OF ENTRY:
To clear any imported goods from the customs a document
known as Bill of Entry has to be filled in quadruplicate. The
Bill of Entry has columns in which the importer has to
declare the details such as quantity, description, value etc.,

of goods. Along with the Bill of Entry, the importer also has
to produce documents, such as Purchase Order/ Contract,
Suppliers Invoice, Packing List, Import Licence and Bill of
Lading. There is a system of pinpointing the duty amount in
the Bills of Entry and after completion of this action the
importer will have to pay the duty in the customs treasury
either by cash or by bank draft or by Bankers Cheque. After
collecting the duty, the original copy of the bill of entry is
detached and the duplicate, triplicate and quadruplicate
along with the other documents are returned to the
importer. Thereafter, the importer will have to take all the
documents to the Docks and the Appraising Officers posted
there examine the goods and issue Passed Out of Charge
Order. The importer then presents the duplicate copy to the
Port Authorities who will deliver the goods after collecting
the port dues.
BILL OF EXCHANGE:
Section 5 of the Negotiable Instruments Act defines a Bill of
Exchange as, an instrument in writing containing an
unconditional order, signed by the maker, directing a certain
person to pay a certain sum of money only to, or to other of
a certain person or to the bearer of the instrument
A bill of exchange therefore, is a written acknowledgment of
the debt, written by the creditor and accepted by the debtor.
There are usually three parties to a bill of exchange, drawer,
acceptor or drawee and payee. The drawer himself may be
the payee.
BILL OF LADING:

As the exporter is in one country and the importer in


another, they agree on a common agency which will carry
the goods from the formers to the latters country. These
transporting agencies, which are normally the shipping
companies, issue a receipt to the seller for having received
the goods, and undertake to carry them, on certain terms
and conditions, to a named port of destination and to deliver
them to the consignee or his order or assignee. Such a
document is known as Bill of lading. A bill of lading issued
by the character of a ship is usually called Charter Party Bill
of Lading.
The Bill of Lading contains particulars like (i) name of the
shipper (ii) name of the consignee (iii) name of the carrying
vessel and voyage number (iv) port of shipment (v) port of
destination, (vi) general descriptions of goods number of
packages identification (shipping) marks on the packages
gross/net weight declared by the shipper (vii) terms and
conditions of the contract of carriage (viii) freight amount
(ix) whether the freight is paid or is payable.
In many countries including India, it attracts stamp duty.
BILLS RECEIVABLE:
Credit Sales re effected in two ways firstly, by the seller
drawing bills of exchange on the buyer and secondly by
debiting the buyers account maintained in the books of
account of the seller. The aggregate of such outstanding
bills is called Bills Receivable.

::::::::::::::::::::::::::::
BANKING TERMS A SERIES

ACCEPTANCE:
A Bill is presented for acceptance which has two parties.i.e.
drawer and drawee.Acceptance is writing the name of the
drawee across the face of the bill by which drawee agrees
to the order of the drawer.
Bills payable after sight require presentation for acceptance
in order to fix the date of the maturity of the bill.
Acceptance should be given by the drawee on the bill itself
across the face of the bill, by putting signature, as a token
of acceptance. The concept of acceptance is completed
only when the drawee after accepting the bill delivers it
back to the holder.

ACCEPTOR:
When the drawee in a bill agrees to the order of the drawer
he shows his ascent by signing his name across the bill for
acceptance, and when it is done he is called the acceptor.
The acceptor is the person who is expected to retire the bill
on mautiry.
ACCEPTOR FOR HONOUR:
Generally no person other than the drawee or drawee in
case of need specified in the bill can accept it. However, in
case the original drawee refuses to accept the bill to furnish
better security when demanded by the notary any person
not liable on the bill who wishes that the bill should not be
dishonoured without acceptance by the drawee, may accept
it with the consent of the holder to honour the bill. Such an
acceptor is called as Acceptor for honour
ACCEPTANCE FOR HONOUR:
When the bill is noted or protested for non-acceptance by
the named drawee the acceptor shall declare in writing on
the bill for having honoured the bill. The usual form of such
acceptance is Accepted for the honour of XY-AB
ACCOMMODATION BILL:
A bill which is drawn to accommodate another person
without receiving any consideration is called as
accommodation bill. The main objective of such bill is to
facilitate the drawer to raise funds. Such bills are also

called as Kite Flying Windmills. The party who draws


such a bill is called as Accommodated party whereas the
acceptor is called as Accommodation party. The
transaction takes place only by mutual consent without any
consideration. The bills are mostly drawn for round sums
and drawees do not exist. The bills are drawn with sister
concerns without movement of goods. Normally around the
due date the drawer presents next bill for discount and
remits the proceeds to the drawee to retire the earlier Bill.
The bill is normally inflated and is not linked to turnover of
the party. The banker should be cautious while handling the
bills.
ACCOUNT PAYEE:
Account payee are the words used in the crossing of
cheques indicating the purpose that the proceeds of the
cheque should be credited to the payees account named
therein.
The practice of so crossing a cheque has all along been
recognized by courts. The transferability of a cheque is
restricted when it has been crossed account payee, as the
payee therefore becomes the true owner of the cheque. The
collecting banker has the responsibility, in the wake of a
series of frauds in encashment of the instruments. IBA has
decided that the Account Payee crossing should be treated
in the true sense and necessarily proceeds should invariably
flow into the account of the payee named in the instrument.
ACTUAL DELIVERY:
It is a process of actual handling over the

instrument/security by one person to another or to an agent


on his behalf, which constitutes a change of actual
possession. For example, in KCC advance the borrower
delivers the goods to the Bank to be kept under lock and key
indicating banks charge over the goods.
ACTIONABLE CLAIMS:
Actionalable claim represents a claim to any debt, other
than a debt secured by mortgage of immovable property by
hypothecation or pldge of movable property. Civil courts
recognize as affording grounds for relief whether such debt
be existent, accruing conditional or contingent. Book debts
are actionable claim under law.
ACTUAL POSSESSION:
In order to create a valid pledge the owner of the goods i.e.
pledger/borrower must deliver the goods to the pledge
(lender/banker). The delivery is complete, when the pledger
actually hands over the goods to the pledge and the pledge
i.e. the banker is said to have actual possession of the
goods as security. i.e. gold loan, OD against securities etc.,
ACID TEST RATIO:
The acid test is meant for ascertaining the soundness/health
of a company and it indicates the companys preparedness
to meet the immediate demands on its liquidity besides the
current ratio. It is the relation between all current liabilities
other than bank finance and immediately realizable current
assets such as cash receivables and investment. Th Acid

test ratio indicates the solvency or ability to meet


immediate current obligation.
ADHESIVE STAMP:
As per the Indian Stamp act all duties with which any
instruments are chargeable should be paid and such
payments should be indicated by means of stamps. The
determination of valid document is known by the fact of
proper stamping. There are three kinds of stamps namely,
adhesive, impressed and non judicial. Adhesive stamps are
affixed by gum on the documents as quoted in the official
gazette published by the Government.
Some examples are
-Bills of Exchange and promissory notes drawn or made in
sets.
- Entry as an advocate, vakil, or attorney on the roll of a high
court.
- Notary acts
- Transfer of shares etc.
Adhesive stamps require to be cancelled in terms of Sec 12
of Indian Stamp Act so that it cannot be used again.
ADJUDICATION:
The process of determining the duty to be charged on an
instrument document for execution by the competent
authority is called adjudication. Hence concept refers to
proper stamping of a document.

ADMINISTRATION:
Administrator is a person appointed by the court to manage
the property of the deceased. There are two
circumstances/situations:
Where the person dies intestate, i.e. without leaving a will.
In this situation the court appoints a person usually the next
of kin to manage the property of the deceased, called as an
administrator.
Where the person does leaving a will.
i) but does name any one to act as executor
ii) The executor named therein died before the testator.
iii) The executor named therein refuses to act
The court appoints an administrator granting Letter of
Administration with will annexed, to it
AD VALOREM:
It is a Latin word meaning According to the value, and
used in connection with duties and customs on some goods
by stamp duties, relating to the value of the subject matter
to which the document pertains to.
AFFIDAVIT:
It is a written declaration given on oath before an authority
who administers the oath as a solicitor, a magistrate consul
or notary public. Such authority is conferred by the state or
central government. The affidavit should be on a stamp

paper of requisite value and contain, deponent name,


address and signature properly attested by the authority
before whom it is sworn.
AFTER SIGHT:
These words are sometimes written on Bills of Exchange or
Promissory notes it is brought to the sight of the holder on
presentation.
- In case of Promissory Notes it is brought to the sight of the
holder on presentation.
- In case of Bills of Exchange, after acceptance by the
drawee, or noting for an acceptance or protest for non
acceptance as per Sec 21 of Negotiable Instruments Act.
AGENT:
Section 182 of Indian Contract Act defines an agent as a
person who represents another i.e. principal in his dealings
or brings him into legal relationship with third persons. A
minor and a person having unsound mind cannot become an
agent. Principal kinds of agents are auctioning brokers,
commission agents, del credere agents, factors and coagents.
Agents are classified into three groups:
i) General Agent: Acts within limits
ii) Special agent: Entrusted with a particular
commission/assignment
iii) Universal agent: Unlimited authority to do any act on

behalf of his principal


ALLONGE:
It is a slip of paper annexed to a bill for making
endorsements when there is no space left on the bill. There
is no legal limit for number of endorsements and this does
not require fresh stamps. There is a practice to make the
first endorsement on the allonge over the junction to prevent
the allonge being removed from one bill and attached to
other bill.
AMALGAMATION:
It is the process of merger of two or more companies to
form a new company which comes into existence having all
the property, rights and powers and subject to all the duties
and obligation of the constituent companies by virtue of
powers contained in the memorandum. The process may
take place by, sale by shares, by sale of undertaking, by sale
and distribution or by virtue of arrangement.
AMBIGUOUS ENDORSEMENT:
The word ambiguous means uncertain or doubtful. When in
an endorsement the name of the endorsee is not clearly
ascertainable the endorsement becomes ambiguous. Eg. If
an endorsement reads Pay to x or y and z then the
endorsee can be either (i) x or (ii) y and z or (III) x and y
jointly, Such ambiguous endorsement should be got
amended by the payee/endorsee under full authentications.

AMORTISATION:
The gradual reduction of any amount such as the retirement
of a debt by serial payments to the creditor is called
amortization.
ANAMALOUS INSTRUMENT:
Instrument which does not fall within the purview of the
Negotiable Instruments Act but possesses characteristics
akin to negotiable instruments are called anomalous
instruments e.g. dividend warrants, interest warrants,
coupons, pension payment order etc.,
APPARENT TENOR:
It means what appears on the face of the instrument to be
the intention of the parties such as date, amount in words
and figures, signature, cheque serial number, branch name,
crossing etc. Payment in accordance with apparent tenor is
treated as payment in due course and paying banker gets
protection accordingly.
APPROVED SECURITIES:
Securities such as Government of India loans, state
government loans and other trustee securities as defined
under section 20 of the Indian Trust Act, 1882 are called
approved securities, for the purpose of computing the SLR
to be maintained.
ARBITRATION:

It is a procedure adopted to settle a dispute between two


parties by referring it to an agreed third party, who is called
as an Arbitrator. The parties agree to abide by the decision
given by the arbitrator who acts as a judge. The process is
carried out without the intervention of the court.
ARTICLE OF ASSOCIATION:
It is one of the important documents containing the internal
regulations or bye laws of a joint stock company by which
the affairs are governed and distinctly defines the powers of
the directors. The printed articles of association should bear
the prescribed stamp duty.
ARTISANS:
Artisans are those who are engaged either in traditional or
cottage industries or handicrafts like shoe making, weaving,
tanning, blacksmiths, carpet making etc.,
ASSIGNMENT:
It means the transfer or making over of an existing or future
right, property or a debt by one person to another. It is a
form of offering security to the creditor. The one who
transfers is called assignor and the one in whose favour it is
transferred is called Assignee
ASSOCIATE:
Where the interest of one company in another is exactly

50% unless the second company is said to be an associate


or an affiliate of the first. The balance of the share capital
may be held by another company or by shareholders
ATTACHMENT:
Attachment refers to seizure of property so that it can be
put under the control of a court. Where a person has
obtained a judgement for the recovery of money, an
application to the court may be made to obtain attachment
relating to assets in satisfaction of a judgment. It may be in
the form of prohibition order which prohibits the bank from
releasing an asset without the permission of the court, or in
the form of attachment order with reference to specified
amount of an account of asset attached by the court,
making it incumbent on the bank to pay the amounts/deposit
the assets in the court
ATTESTATION:
Attestation is formal witnessing of a signature. In law, three
documents require compulsory attestation:
i) Mortgage deed
ii) Deed of Gift
iii) A will
Attestation to an instrument must be made by two or more
witnesses each of whom has seen the person executing the
instrument.
Essential of a valid attestation:

i) The document must be signed by the executant first and


then by the attesting witnesses
ii) The executants must sign in the presence of the attesting
witness.
iii) The attesting witness should also sign in the presence of
the executant.
iv) An attesting witness need not know the contents of the
document as he is attesting only the signature of the
executant
v) A party to the document cannot be an attesting witness
AFFREIGNMENT
It is a contract by ship owner to transport goods by sea in
consideration of a certain payment called: freight
AUTHORISED CAPITAL:
A company whether private limited or public limited before
raising capital through issue of shares, should mention in its
articles of association for authorizing such an issue. The
quantum of the capital to be raised depends on the
promoters estimate of the funds required for the business.
The capital mentioned in the articles may be suitably
amended in case of any need for increase in the capital
AIR CONSIGNMENT NOTE:
Also called as airway bill, it is a document which
acknowledges receipt by the airliner of the goods for
dispatch by air. It contains three copies i.e. consignor copy,
consignee copy and one for the carrier. It is not a document

of title to goods as it is non-negotiable


ARBITRAGE:
Relating to Foreign Exchange business arbitrage means
simultaneously buying and selling of foreign currencies with
the expectation of profits from temporary disparities in
exchange rates prevailing at the same time in different
centres or in different currencies.
::::::::::::::::::::::
BANKING TERMS VALUATION OF PROPERTIES

APARTMENT:
A separate and self contained premises (being part of a
building) useful for residence, office, show room, shop or
godown. A part of the building which can be occupied
independent of the rest of the parts. However, it may be
accessed through a common area
BETTERMENT CHARGES:

When the property comes under any town planning scheme


of the area, its value increases and consequently, the owner
of the property is required to pay additional tax, known as
betterment charges
BELTING METHOD:
It is the method by using which the value of strip of
land(depth is much more than the width) is estimated
BOOK VALUE:
It is defined as an amount shown in the account book of a
particular year after making due depreciations of the
previous years
CAPITALISATION:
Discounting of expected future income to obtain the
equivalent present lumpsum amount
COST:
It is the actual expenses incurred
COST OF CONSTRUCTION:
It is the actual amount invested by the assessee in the
construction
COST INDEX:
An index is a number which measures the relative increase
or decrease of something. A cost index of a particular item
or commodity indicates changes in cost due to changed
conditions or circumstances
COMPOSITE RATE:

This term indicates the rate per unit area for the land
together with the structure standing thereon
COMPARATIVE SALES METHOD:
In this method, a comparison is made between the property
under valuation with other similar properties that have been
sold
DEPRECIATION:
It represents a loss caused by factors like decay, wear and
tear, obsolescence etc.,
DISTRESS:
In difficulty, needing help
DISTRESS VALUE;
A property is said to have distress value when it can fetch
lower value than the prevailing market value
EASEMENT:
It is a right which the owner or occupier of certain land,
possesses, as such, for the beneficial enjoyment of that
land, to do and continue to do something or to prevent and
continue to prevent something being done, in or upon or in
respect of certain other land not his own
ECONOMIC LIFE:
Beneficial life period ( of a building or its component) The
period during which the economic return from a property is
more than the expenditure on its maintenance and upkeep.
The period upto which it is more beneficial to keep the
building (or the component, as the case may be) than to

dismantle and redevelop it


ENCROACHMENT:
The extent to which a building or any other part of an
immovable property intrudes into a public place or property
of some other owner
ENCUMBRANCE:
Any burden on the title to a property adversely affecting its
market value
EXTERNAL SERVICES:
In the case of a building, services outside the plinth area of
the main building. In the case of a flat(apartment)services
outside the flat
ESTATE:
The word is derived from the Latin word, meaning status and
it was meant to indicate the status of the person in the
society. Subsequently, the person who owned the land was
referred to as estate holder
FAIR MARKET VALUE:
It denotes the price it can fetch if sold in the open market on
a given date in normal conditions

FAIR RENT:
It is the rent payable by a tenant under existing rules of the
Rent control act
FREE HOLD PROPERTY

It implies that the owner of such property is either in


absolute and perpetual possession of such property
FSI (FLOOR SPACE INDEX):
It is the ratio between the total plinth area of the building
and the extent of land.
GOING CONCERN:
They are the concerns like Hotel, Cinema, or any business
which continues in operation
GROUND RENT:
When land only is given on lease, the rent collected for the
vacant site is called the ground rent
GILT-EDGED SECURITIES:
In olden days, the share certificates which were issued for
good securities were provided with a border of golden wire
and hence they came to be known as securities with golden
touch or gilt-edged securities
GUIDELINE RATE:
It is the rate of land, fixed and mentioned by Registrar of
documents for the purpose of fixing stamp duty
LAND AND BUILDING METHOD:
In this method, value is estimated by adding the present
value of land with the depreciated value of the building
LAND LOCKED LAND:
It is the land which is not having any direct access from the
road

LEASE:
A lease is the outcome of the rightful separation of
ownership and possession
MARKET APPROACH TO VALUE:
Procedure to determine the fair market value of a property
from the sale prices of similar properties
MARKET VALUE:
It is the amount in terms of money which a willing purchaser
is ready to pay for a particular asset and for which a willing
seller is ready to sell his asset under normal circumstances
in an open market
OBSOLESCENCE:
Being no longer beneficial, It is outdated or outmodelled
PARTITION:
Surrender of the joint ownership right in favour of a right of
individual ownership of a part of the property
PLOT COVERAGE:
It is the ratio between the plinth area of the ground floor of
the building and the extent of the land. It is often expressed
in percentage
PROPERTY:
A physical entity bestowing a bundle of rights
PROFIT METHOD:
The procedure consists of determining the annual profit,

apportioning it into tangible and intangible components and


capitalizing each by an appropriate years purchase.
PRICE:
It is the cost of commodity plus the profit expected by the
manufacturer
REPLACEMENT VALUE:
It is the cost to be incurred to replace the property, either
fully or in part, at the prevailing market rates for labour and
materials
RETURN FRONTAGE:
A corner plot having two roads perpendicular to each other
is said to enjoy return frontage
RECESS LAND:
It is a portion of the land which has zero frontage on the
road
SALVAGE VALUE:
It is the value of the property realized on sales when its
useful span is over but still it has not become useless
SHARE (UNDIVIDED)
Proportionate interest of a coowner in a property. When an
immovable property is sold to two or more persons jointly,
they are entitled to interests in the property in proportion to
the shares of the consideration
STAMP DUTY:
It is the amount to be paid to the government whenever any

property transaction takes place


STRAIGHTLINE METHOD:
It is the method used to calculate the depreciation. The
present value minus the salvage value is distributed
uniformly for its service life
SUPERSTRUCTURE:
Structure of a building above the plinth level
TANDEM:
One placed behind the other
UNDIVIDED SHARE OF LAND:
It is the ratIo between the super plinth area and the floor
space index
UNBUILTUP AREA:
The area of land on which no building has been erected
VALUATION:
Is the process by which value of a particular asset is
estimated
VYAGHRAMUKHI PLOT
It is the plot with large road frontage and narrow ends
WARRANTED MARKET VALUE
It is the value obtained after deducting technical
depreciation from the replacement value.
::::::::::::::::::::

BANKING TERMS - MUTUAL FUNDS

SPONSOR:
Sponsor is the promoter of mutual fund. To be a sponsor, the
following eligibility norms are to be complied with:
a) Must carry on business in financial services for a period
of not less than 5 years.
b) Having a positive net worth in all intermediately
preceding five years
c) Has to contribute at least 40% to the networth of AMC
d) Should be a fit and proper person
TRUST:
Indian Trust act of 1882 is applicable and managed by Board
of Trustees having a trust deed. Two third of the trustees
will be independent persons
AMC:
Asset Management Company approved by SEBI manages the
funds by making investments in various types of securities.
Minimum networth Rs. 10 crores and shall have 50%

independent directors on the Board


CUSTODIAN:
Who is registered with SEBI and holds the securities of
various schemes of the fund in its custody
DISTRIBUTORS:
Who sell mutual fund products for commission which varies
from mutual fund to mutual fund
REGISTRARS:
They maintain accounts of investors for investments and
disinvestments
INVESTOR:
He is the one who invests in Mutual Fund as he lacks time to
study capital market
OPEN ENDED SCHEME:
Here the corpus maturity period is not fixed. Any investor
can join and quit at any time
CLOSE ENDED SCHEME:
Here the corpus and maturity period is fixed
GROWTH/EQUITY SCHEME:
Investments primarily in equities; aimed at capital
appreciation over the medium to long term
INCOME/DEBT SCHEME:
Investments in money market/debt instruments; aimed at
regular income

BALANCED SCHEME:
Investments both in equity and debt instruments in the
proportion indicated in the offer document
MONEY MARKET OR LIQUID SCHEME:
Investments in short term Government securities; aimed to
provide easy liquidity, preservation of capital and moderate
income
GILT SCHEME:
Investments in Government securities
INDEX SCHEMES:
Investments in the securities in the same weightage
comprising a particular index such as BSE sensitive index,
NIFTY etc.,
MONEY MARKET:
Mutual funds invest for a very short period in instruments
like Treasury Certificate, Commercial Paper, Certificate of
period of call money market etc. Here the risk is lowest and
so also the returns
DEBT MARKET:
Mutual funds invest in instruments like Government
securities, PSU bonds, Corporate debentures, floating rate
bond etc. Here the risk is slightly more than in case of
money market and so also the return
EQUITY MARKET:

Mutual funds invest in instruments like ordinary and


preference shares, equity warrants, convertible debentures
and derivatives. Here the risk is highest and so also the
returns
SHARPE RATIO:
The measure evaluates returns with respect to total risk and
is better for smaller investors
TREYNOR RATIO:
It uses beta as a risk measure
:::::::::::::
BANKING TERMS - LEGAL

LAW OF LIMITATION:
The object of law of limitation is to prescribe the period
within which existing rights can be enforced in a Court of
Law. The limitation act however does not of itself create an
obligation or a right to sue where there is no case to do so,

but imposes a limit to litigation.


CONTRACT OF INDEMNITY:
It is a contract by which one party (indemnifier) promises to
save the other (indemnified) from loss caused to him the
conduct of the promisor himself, or any other person.
CONTRACT OF GUARANTEE:
It is contract to perform the promise or discharge the
liability of a third person in case of default by him.
PARTIES TO THE CONTRACT OF GUARANTEE:
There are three persons:
a) Surety person giving guarantee (guarantor)
b) Principal debtor on whose behalf the guarantee is given
c) Creditor to whom the guarantee is given
RIGHT OF SURETY:
Surety on discharging his liability under guarantee, gets
subrogated and would be entitled to all those securities that
are deposited with the creditor by the principal debtor
relating to the guarantee
CONTINUING GUARANTEE:
Any guarantee which is not for a single, specific transaction
but extends to a series of transactions is known as a
continuing guarantee
PLEDGE:
Pledge is bailment of goods as a security for payment of a
debt of performance of a promise. The bailor is called

Pledgor and the bailee is called pledgee.


CONTRACT OF BAILMENT:
It is an act of delivery of goods by bailor to the bailee for
some purpose upon a contract that the goods will be either
returned or otherwise disposed of according to the
directions of the bailor
BAILEE:
If goods bailed have any defect that is likely to expose the
bailee to any extraordinary risk or interface with their
(goods) use, bailor must disclose such defect. Or else, the
bailor will be responsible for damage to the bailee
BAILOR:
If goods bailed have any defect that is likely to expose the
bailee to any extraordinary risk or interfere with their
(goods) use, bailor must disclose such defect. Or else, the
bailor will be responsible for damage to the bailee
SET OFF:
Total or partial merging of a claim of one person against
another in a counter claim by the latter against the former. It
is combining of accounts between a debtor and a creditor so
as to arrive at the net balance payable to one or the other,
very important right to banker to adjust cross claims/mutual
debts. More than two accounts can be combined unless
there is an agreement express or implied to the contrary

AGREED BANK CLAUSE:


In addition to the policy conditions all fire policies are
subject to warranties, which state interalia that
a) some particular thing shall be or shall not be done
b) some conditions shall be fulfilled
c) a particular state of fact exist or does not exist
Observance of these warranties is a precondition to
payment of claim. However, insurers takes a practical view
and condone breaches, if they are of a technical nature and
do not materially effect the loss
The interest of the bank is however, protected by attaching
to the policy an agreed bank clause which states that
irrespective of the breach of warranty by the insured, the
interest of the bank, upto the amount of its advance, would
be protected
PROTECTIVE CLAUSE:
Any guarantee should be issued for a specific period and
amount. Protective clause is a clause incorporated in the
guarantee which limits the liability of the bank upto a
specified period and amount
CONVEYANCE:
Conveyance is an instrument by which property whether
moveable or immovable are transferred on sale
DULY STAMPED:

Duly stamped as applied to an instrument means that the


instrument bears an adhesive or impressed stamp of not
less than the proper amount and that the stamp has been
affixed or used in accordance with the law for the time
being in force in India
INSTRUMENT:
Instrument includes every document by which any right or
liability is, or purports to be created, transferred, limited,
extended, extinguished or recorded
IMPRESSED STAMP:
Impressed stamp includes
a) labels affixed and impressed by the proper officer and
b) stamp embossed or engraved on stamp paper
LEASE:
Leasemeans a lease of immovable property and includes a
patta, kabuliayats, an undertaking to cultivate, any
instrument by which toils of any description are let and
writing on an application for a lease intended to signify that
the application is granted
MORTGAGE DEED:
Mortgage deed includes every instrument whereby, for the
purpose of securing money advanced or to be advanced by
way of loan, or an existing or future dept, or the
performance of an engagement, one person transfers, or
creates, in favour of another, a right of over or in respect of
specified property.
POLICY OF INSURANCE:

Policy of insurance includes


a) any instrument by which one person in consideration of a
premium, engages to indemnify another against loss,
damage or liability arising from an unknown or contingent
event
b) a life of policy and any policy insuring any person against
accident or sickness and any other personal insurance
POWER OF ATTORNEY:
Power of Attorney includes any instrument (not chargeable
with a fee under the law relating to court fees for the time
being in force) empowering a specified person to act for and
in the name of the person executing it
PROMISSORY NOTE:
Promissory Note means a promissory note as defined by
the Negotiable Instrument act 1881 and also includes a note
promising the payment of any sum of money out of any
particular fund which may or may not be available, or upon
any condition or contingency which may or may not be
performed or happen
RECEIPT:
Receipt includes any note, memorandum or writing:
a) whereby any money or any bill of exchange, cheque or
promissory note is acknowledged to have been received or
b) whereby any other movable property is acknowledged to
have been received in satisfaction of a debt
c) whereby any debt or demand, or any part of a debt or
demand, is acknowledged to have been satisfied or
discharged or
d) which signifies or imports any such acknowledgment, and

whether the same is or is not signed with the name of any


person.
SPECIAL POWER OF ATTORNEY:
A power of attorney which confers on the agent the
authority to act in a single transaction is known as Special
Power of Attorney
GENERAL POWER OF ATTORNEY:
If the power of attorney authorizes the agent to act
generally or in more than one transaction in the name of
principal, it is known as general power of attorney
PARTNER:
A person who has entered into partnership with one or more
such persons, he is individually called partner
PARTNERSHIP FIRM:
Partnership firm is an association of two or more persons
with an intention to carry on the business by all or anyone of
them acting for all and agreeing to share the profits thereof
PARTICULAR PARTNERSHIP:
A person who become a partner with another person in
particular adventure or undertakings is called a particular
partnership
PARTNERSHIP PROPERTY:
All property thrown into the common stock at the beginning
of the partnership and added thereto during the continuance
of the partnership or obtained by means of the partnership
whether directly by purchase or otherwise and also includes

the goodwill of the business, subject to contract between


the partners
GOODWILL:
It is the benefit arising from connection and reputation and
its value is what can be got for the chance of being able to
keep that connection and improve it
WINDING UP OF A COMPANY:
Winding up is a means by which the dissolution of a
company is brought about and its assets realized and
applied in payment of its debts, the balance, if any,
remaining is paid back to the members in proportion to the
contribution made by them to the capital of the company
CONTRIBUTORY:
The term contributory means every person liable to
contribute to the assets of a company in the event of its
being wound up, and includes the holder of any shares which
are fully paid up and for the purposes of all proceedings for
determining and all proceedings before the final
determination of the persons who are to be deemed
contributories, includes any person alleged to be
contributory
DISSOLUTION OF COMPANY:
When the affairs of a company have been completely wound
up (or when the court is of the opinion that the liquidator
cannot proceed with the winding up of a company for want
of funds and assets or for any other reason whatsoever and
it is just and reasonable in the circumstances of the case
that an order of dissolution of the company should be

made)The court shall make an order that the company be


dissolved from the date of the order, and the company shall
be dissolved accordingly
PERIODIC LEASE:
A lease from month to month or from year to year is an
example of a periodic lease. Such a lease is not to be
regarded as expiring at the end of the first month or at the
end of the each succeeding month nor is there a reletting at
the commencement of each month of the tenancy
SALE:
It is the transfer of ownership in exchange for a price paid or
promised or part paid and part promised
CONTRACT FOR SALE:
A contract for the sale of immovable property is a contract
that a sale of such property shall take place on terms
settled between the parties. It does not, of itself, create any
interest in or charge on such property
MARKETABLE TITLE:
Marketable title is one which can be forced on an unwilling
purchaser under a contract of sale made without any special
conditions. For instance, if a proper title by adverse
possession is made out, it would fulfill the vendors
obligation to make out a marketable title
RECOVERY:
Recovery in the banking term means recovery of the amount
lent, as per the contract. It is nothing but ensuring timely

repayment. It is as important as grant/disbursal of credit as


they are two sides of the same coin. Good recovery calls for
skills and knowledge of various areas of credit
management. With recent changes in the pattern of lending,
the recovery is a complex problem, needing handling of
advances with dexterity. Hence recovery is an art. It
provides learning and rich experience
RECALL NOTICE:
It is a notice sent to the borrower and coobligant/guarantor
recalling the entire balance amount due under the account.
It may be ordinary notice or legal notice. Notice demanding
payment of only one or two instalments due cannot be
considered as recall notice
LEGAL NOTICE:
If the borrower commits a default, and if the bank decides to
recall the advance, legal notice can be issued with prior
permission from appropriate authorities. Legal notice is a
notice issued by the advocate of the bank recalling the
advance by mentioning all the details of the account and
specifying the reasons for recall of advance
Legal notice carries a threat of legal action and hence found
to be more effective. However, issuing of legal notice is not
a prerequisite for filling suit as per CPC
MINOR:
As per section 3 of the Indian Majority Act, a person is a
major when he completes the age of 18 years. But, if a
guardian is appointed to him or to his property or both,

under the guardians and wards act, or if the Court of Wards


is appointed, then such minor attains majority on completing
the age of 21 years
CAPACITY OF CONTRACT:
Capacity means power to contract so as to bind oneself.
Capacity to contract is a creation of law and want of
capacity is incurable. Capacity or no capacity is a question
of law
L P D:
Loan past due is a separate head of account in the
advances. These advances are marked for recovery and
where full realization of the dues are felt doubtful. When
recovery of an advance in the normal course is found
difficult, steps should be taken to transfer the account to
LPD and other steps of recovery are to be initiated
TREASURY BILLS:
Treasury Bills are promissory notes issued by the
Government at a discount for a fixed period as a device for
raising short term funds by Central Government through RBI
to bridge temporary mismatches between receipts and
expenditure. They are an ideal form of short term
investment for banks and financial institutions because of
the high liquidity and little or no risk of capital loss in case
of sale before maturity

:::::::::::::
BANKING TERMS - LEASING

PASS-THROUGH CONTRACTS:
The public investors have direct ownership of the underlying
portfolio of assets through equitable assignment. The bank
collects the interest and principal payments on the original
loans and passes on the amounts to the public investors
through the SPV
TRADABLE ASSETS:
They are investments in government securities that can be
liquidated before maturity by selling off in the market and
hence they are liquid
NON TRADABLE ASSETS:
They are loans and advances that cannot be liquidated until
the loans are fully repaid by the borrowers and hence they
are illiquid

SECURITISATION:
It can be described as a process by which the illiquid assets
like the loans and advances are pooled together and the
pool is sold to the investors in the market
ASSET BACKED BONDS (ABB)
In asset backed bonds, the Bank sells the assets to its own
subsidiary created for the purpose. The ownership is
retained with the corporate group.The subsidiary creates
bonds and sells to the public investors. Thus the assets get
transferred to the balance sheet of the subsidiary from the
Banks balance sheet. The bonds are secured by the assets
of the subsidiary. The ownership of the underlying securities
is not transferred to the public investors. The subsidiary
collects revenues from the assets and transfers to a Trustee
for disbursement to the public investors
PAY-THROUGH:
It is similar to asset backed bonds. The only difference is
that in ABB the revenues are not dedicated to payment to
the public investors. In pay-through the revenues are
dedicated for payment to the public investors
CREATIVE ACCOUNTING:
As per the Companies Act, it is a legal requirement for
companys accounts to give a true and fare view. However,
there is some scope for managerial judgement in the
preparation of accounts, so that balance sheet figures and
reported income can to some extent be manipulated up or
down by adopting accounting policies what is known as
CREATIVE ACCOUNTING.

HIRE PURCHASE:
It is a type of instalment credit under which the hire
purchaser, called the hirer, agrees to take the goods on hire
at a stated rental, which is inclusive of the repayment of
principal as well as interest, with an option to purchase. The
Hire Purchase Act-1972 defines a hire purchase agreement
as an an agreement under which goods are let on hire and
under which the hirer has an option to purchase them in
accordance with the terms of the agreement
DIFFERENCES BETWEEN LEASING AND HIRE PURCHASE
LEASING
HIRE PURCHASE
Depreciation and investment allowance cannot be claimed
by the lessee
Depreciation and investment allowance can be claimed by
the hirer
The entire lease rental is a tax deductible expense
Only the interest component of the hire purchase instalment
is tax deductible
The lessee, not being the owner of the asset, does not enjoy
the salvage value of the asset
The hirer, being the owner of the asset, enjoys the salvage
value of the asset

LEASING:
It is defined as a contract between the owner of the asset
(lessor) and its actual user (lessee) wherein the user of the
asset (lessee) agrees to pay to the owner of the asset
(lessor) a specified agreed sum at periodical intervals (lease
rentals)

OPERATING LEASE:
The lease period of operating lease or service lease is short
term in nature, which is significantly shorter that the usual
life of the leased asset.In view of this the lease rentals
payable during the lease period are not sufficient to cover
fully the cost of the equipment along with a
reasonable/acceptable rate of return. The operating lease is
usually cancelable at short notice by both the parties viz.,
the lessor and the lessee. It will be the responsibility of the
lessor to maintain the asset, obtain insurance and pay the
taxes and also to absorb obsolescence risk
FINANCIAL LEASE:
It is called as a capital lease and is essentially a form of
borrowing. The period of lease is for an intermediate term to
long term and the lease arrangement is non-cancellable in
nature. During the primary lease period (initial lease period)
of say 3 to 5 years or exceptionally 3 to 8 years, lease
cannot be cancelled. The lessee is responsible for
maintenance of the leased asset, its insurance and payment
of taxes thereon.
LEVERAGED LEASE:
In this arrangement, the asset is financed by a third
party(lender) say to the extent of 70% to 80% of the value of
the asset and the balance 20% to 30% is financed by the
lessor. The lender has full recourse against the lessee
whereas against the lessor, the lender has no recourse at
all. The lessor being the owner of the leased asset is
entitled to the capital allowances on the entire asset even
though his contribution is only the extent of 20% to 30% as
cited above

SALES AID LEASING:


This type of leasing is also known as Vendor Program or
Sale Aid Program which augments the sales process of the
manufacturer/vendor of the equipment.
WORKING CAPIAL:
Working capital represents the money that is required for
purchase/stocking of raw materials, payment of salary,
wages, power charges etc., i.e. cost of production and also
for financing the interval between the supply of goods and
the receipt of payment thereafter i.e. post sale requirement.
Thus the working capital is the finance required during the
operating cycle or working capital cycle.
WORKING CAPITAL CYCLE:
The process involved in the utilization of working capital is
called the working capital cycle. The raw material gets
converted into goods-in-process in the next stage and then
into finished goods, then into book debts and/or cash and
again back to the state of raw materials. In case of an
industry it is the time involved from purchasing of raw
materials to realization of finished goods.
WORKING CAPITAL GAP:
It is the difference between current assets and current
liabilities other than bank borrowings
NET WORKING CAPITAL:
Net working capital represents the margin required to be

brought in by the promoter towards working capital gap.


VENTURE CAPITAL FUND:
It is normally defined as an equity investment in a high risk
project related to some innovations of new technological
developments contemplated by a company or entrepreneur.
Venture Capital also means a combination of capital and
management expertise provided for the initial risks of a new
and emerging company. Such company shall have a good
growth prospect in terms of products, technologies,
business concepts or services with the objective of
retrieving the investment with a handsome reward at a
future date.
MARGIN TRADING:
Margin trading is an arrangement whereby an investor
purchases securities by borrowing a portion of the purchase
value from the authorized brokers by using securities in this
portfolio as collateral.
OPTIONS:
Option contracts are also essentially contracts to buy or sell
a specified quantum of foreign currency at a predetermined
date at a determined exchange rate. The basic features of
option contracts is that the contract confer rights to buy or
sell but no obligation
CALL OPTION:
The right to buy a specified amount of one currency against
another currency is known as a call option

PUT OPTION:
The right to sell specified amount of one currency against
another currency is known as put option
BUYER:
The person gets the right to buy or a sell specified amount
of one currency against another currency
SELLER(WRITER):
The person who sells the right to buy or sell specified
amount of one currency against another currency
PREMIUM:
The amount paid by the buyer of an option to the seller of an
option. It is non-refundable
STRIKE PRICE:
This represents the pre determined price at which the
option can be exercised
EXERCISE DATE:
A date for delivery of foreign exchange notified by the buyer
to the seller
EXPIRATION DATE:
The last date upto which the option can be exercised
AMERICAN OPTION:
An option which can be exercised at any time between the
initial deal date and the expiry date

EURUPEAN OPTION:
An option which can be exercised only on the expiry date.
IN THE MONEY:
If by exercising option, the buyer has an advantage the
option is called In the Money
AT THE MONEY:
If by exercising option, the buyer has neither advantage nor
disadvantage the option is called At the money
OUT OF MONEY:
If by exercising the option, the buyer has a disadvantage, it
is called out of the money
INTRINSIC VALUE:
The difference between current exchange rate and the
strike price is called Intrinsic value
EXTRINSIC VALUE:.
The total premium paid less intrinsic value is called
extrinsic value.
DIFFERENCES BETWEEN FORWARDS AND OPTIONS
FORWARD
OPTIONS
Forward contracts once entered into shall be binding on the
parties concerned
Options confer rights for the buyer to buy or sell but without

any obligation
Forward contracts are available at premium/discount which
is basically dependent on the interest rate differentials
between the two currencies involved
Premium charged by the writer of the option is for the
services, risks involved and it is non-refundable
By cancelling forward contract normally a no loss no profit
situation is reached
By exercising option to buy or sell, the loss is limited but the
buyer stands to get profits unlimited
FUTURES:
A future contract is a firm obligation to give or take delivery
of a commodity of specific quantity and quality at a specific
date at an agreed price
FORFAITING:
The forfaiter discounts on without recourse basis, the
deferred receivables evidenced by Bills of
Exchange/promissory notes duly co accepted/guaranteed by
the buyers bankers
The exporter thus gets the proceeds on cash sale basis from
the forfaiting agency for their exports on deferred credit
terms at the cost to be borne by the buyer
EXTERNAL COMMERCIAL BORROWINGS:
External commercial borrowings are defined to include
commercial bank loans, buyers credit, suppliers credit,
securitized instruments such as Floating Rate Notes and
Fixed Rate Bonds etc. credit from official export credit

agencies and commercial borrowings from the private


sector window of Multilateral Financial Institutions such as
International Finance Corporation (Washington), ADB etc.,
BANCASSURANCE:
Bancassurance in French or All Finanz (Universal Banking) in
German, simply put, means using the banks distribution
channels to sell insurance products. The philosophy behind
Bancassurance is to combine the manufacturing capabilities
and selling culture of insurance companies with the
distribution network and large receptive client base of
banks
ARBITRATION:
An arbitration is the reference of disputes or differences
between not less than 2 parties to a third party, other than a
court, for determination. Such reference is made with the
consent of all the parties to the disputes. It is an alternative
to litigation through courts
LOK ADALAT:
It is a legal authority constituted under Legal Services
Authorities Act to encourage settlement of disputes in a
conciliatory manner without going to courts and arriving at
a workable settlement amicably
MONEY LAUNDERING:
Money laundering poses a serious threat to the financial
position of the country apart from affecting the nations
integrity and sovereignty. The process of money laundering

involves cleansing of money earned through illegal activities


like extortion, drug trafficking and gun running etc. The urge
to launder the money is inherent as the enjoyment of the
tainted money is a risky business and its gray existence also
facilitates detection of the crime committed to earn the
money.
CREDIT RISK:
It is normally perceived as the potential loss that a bank
may suffer on account of a counter party falling to meet its
obligations. It is defined as the inability or unwillingness of
the customer or counterpart to meet commitments in
relation to lending, trading, hedging settlement and other
financial transactions. Credit risk or default is risk arising
out of above activities (functions) on external and internal
factors relating to both the borrower and the bank
MARKET RISK:
It arises on account of adverse changes in market valuables
such as interest rate, foreign exchange rate, equity price
and commodity price
OPERATIONAL RISK:
Arises on account of human factors (frauds), technical
failure, non-adherence to laid down system and external
factors such as food, earth quake, fire, riot, etc.,
REAL TIME GROSS SETTLEMENT:
RTGS is the acronym for Real Time Gross Settlement. It is
robust, secure and integrated payment and settlement

system that RBI has introduced for settlement of payment


transactions in the Indian financial market between banks
and other financial institutions, using the state of art
technology. This will ensure real time final settlement of
funds.
CENTRAL FUNDS MANAGEMENT SYSTEM:
Through this system banks will be in a position to know
through online basis the aggregate funds position at
different centres of RBI. Banks can also initiate transfer of
funds between their own accounts in different locations, to
optimize funds deployment. Hence RTGS serves as effective
tool for liquidity management
NEGOTIATED DEALING SETTLEMENT SYSTEM (NDS):
This provides for an electronic platform for facilitating
dealing in Government Securities and Money Market
Instruments. Banks can do screen based trading of
securities using this system. The Clearing Corporation of
India Limited established at the behest of RBI is acting as a
central counter party and presently extending guaranteed
settlement for trades done in the Government Securities
Market and the Forex Market.
SECURITIES SETTLEMENT SYSTEM (SSS):
This provides depository services for the Government
Securities including online real time payment settlement for
securities transactions. This also facilitates allowing IDL
(Intra-Day Liquidity) against the securities and helps in

maintaining intra-day liquidity.


MULTILATERAL NET SETTLEMENT BATCHES:
Now many clearing houses operate across the country and
the net payable or receivable on account of clearing is
settled in the accounts maintained by banks with RBI/State
Bank/any other bank at that particular centre only. RBI
proposes to settle the net payable or receivable on account
of clearing in one account only though the actual clearing
takes place at different centres. This would be introduced in
a phased manner. In the first phase the settlements will
relate to the clearing houses in the four major metros, while
all other RBI centres will be covered in the second phase.
The settlement in respect of all the MICR centres,
settlement on account of clearing houses operated by State
Bank and other non-MICR centres will be included in the
subsequent phases. This will facilitate the banks to have
better funds and liquidity management.
INTER BANK FUNDS TRANSFER PROCESSOR:
The processor (a software) will receive funds transfer
messages from different components of RTGS system and
will take care of the housekeeping tasks of actually
effecting the debit/credit transactions and transfer of funds
between banks on account of the settlement. This system
will also send messages to both the originating and
beneficiary participants on completion of the actual
accounting entries
CUSTOMER RELATIONSHIP MANAGEMENT:

CRM is a comprehensive strategy and process of acquiring,


retaining and partnering with selective customers to create
superior value to the Bank. The purpose of CRM is to
improve
Marketing productivity by improving marketing efficiency
Customer satisfaction
Employee productivity
Profitability
The important processes in a successful CRM system are:
Proactive Customer Business Development
Building/partnering relationship with important customers
for mutual value creation
FORWARD RATE AGREEMENT:
Forward rate agreement is a financial contract between two
parties to exchange interest payments for a notional
Principal amount on a future settlement date, for specified
period from start date to matutiry date. On settlement date
cash payments based on contract rate (fixed rate) and the
settlement rate (floating rate) are made by the parties to
one another.
The settlement rate is the agreed benchmark rate prevailing
on the settlement date. FRA thus makes it possible to fix the
interest rate well in advance for a future
borrowing/investment at floating rates
INTEREST RATE SWAP:
An interest rate swap is a financial contract between two

parties exchanging a stream of interest payments for a


notional principal amount on multiple occasions during a
specified period. Such contracts generally involve exchange
of floating versus fixed or fixed versus floating rates of
interest
CURRENCY SWAP:
A currency swap is an agreement between two parties to
exchange payments in one currency for payments in another
currency. It is a contract through which the two parties
agree to exchange, over an agreed period, two streams of
payments in two different currencies, each calculated using
a different interest rate and exchange rate. Currency swap
may be done in three different patterns.
INTEREST RATE OPTIONS:
An interest rate option confers rights but without any
obligation for the buyer to receive (call option) or to pay (put
option) at an agreed interest rate on a designated future
date. This product works similar to Currency Options
CAP:
CAPs are interest rate options traded in Inter bank market
which place an upper cost on a debt instrument by
designating a maximum interest rate for specified future
period. If the market rate goes up on the actual
commencement date, the seller of the CAP will pay the
difference to the buyer(borrower). Instead if the market
interest rate goes below the CAP fixed rate, then the buyer

will not exercise the option. The borrower (buyer of CAP)


will service his debt at the market rate which is in his
advantage and allow the option to expire.
FLOOR:
The seller of a FLOOR agreement guarantees a minimum
return to an investor/lender for a specified period. In the
event of the market rates going below the FLOOR fixed rate,
the buyer will receive compensation at the differential rate
for the period/cycle. Instead if the market rate (floating rate)
is more than the FLOOR fixed rate, then the buyer
(Investor/lender) will take the benefit of the interest rate in
his advantage and hence will not receive any settlement
from the seller
COLLAR:
The COLLAR is a combination of CAP and FLOOR. The buyer
of the COLLAR buys a CAP for a specified fixed rate and also
sells (the seller of CAP becomes the buyer here) a FLOOR
with a lower strike rate. The cost of premium for the buyer
thus becomes either minimum or nil as he is entitled for
receiving the premium when he sells the FLOOR. The
customer receiving premium on account of COLLAR option
is not permitted.
::::::::::::::::::::
BANKING TERMS FINANCE MANAGEMENT

RIGHT AGAINST ULTRA WIRES ACTS OF THE COMPANY:


The management or Board of Directors is empowered to
carry on only such acts or operations specified in the
Memorandum of Association of a Company. If they perform
any act or operation beyond this memorandum is considered
as ultra wires acts. These ultra wires acts are a breach of
the agreement between the company and the shareholders.
Therefore, a shareholder may properly bring legal action to
prevent the companies from engaging in them
PRE EMPTIVE RIGHT:
The right gives first option to existing shareholders to buy
additional issues of shares in proportion to their existing
holdings. The purpose behind this right is to preserve and
protect the interest of shareholders in the assets and
control of a company. In its absence, a group of persons
having vested interests could sell additional shares to
themselves in order to swing the balance of control in their
favour.

PREFERENCE SHARES:
Preference shares are a kind of hybrid security, containing
features of debt and equity shares. In the event of
liquidation, a preferred share holders claim on assets
comes after that of creditors but before that of ordinary
shareholders. Usually, this claim restricted to the face value
of the share. For example, if the face of a preference share
is Rs. 100/- the investor will entitled to a maximum of
liability of Rs. 100/- in settlement of the principal amount.
Although preference shares carries a stipulated dividend,
the actual payment of dividend is a discretionary, rather
than a fixed obligation of the company. The omission of a
dividend will not result in a default of the obligation of
insolvency of the company. The board of directors has full
power to omit dividend on preference shares if it so
chooses.
CREDITORSHIP SECURITIES:
Creditorship securities, represented in the form of
debentures and bonds, have got a definite and significant
place in the financial plan of a company. A company has to
tap this source of finance for its initial financial
requirements and also for its expansion and development
schemes. It invites the investors to lend money as a loan
instead of contributing it as a part of capital
DEBENTURES:
A debenture is a creditorship security. It may be defined as a
written acknowledgment of debt under the seal of a
company. Debenture carries a fixed rate of interest and
usually secured by a change on the companys assets. The
debentures may be either repayable within a specified

period or on or after a specific date or irredeemable during


the existence of the company.
NAKED DEBENTURES:
These are also called :Simple debentures and these
debentures are not secured. The company does not offer any
security to the holders of such debentures for the payment
of interest and the repayment of the loan
MORTGAGE DEBENTURES:
Mortgage debentures are those debentures which are
secured either on a particular asset of the company called
fixed charge or on all the assets of the company in general
called a floating charge. A fixed charge debenture is having
priority over a debenture having floating charge
REDEEMABLE DEBENTURES:
These debentures are repayable by the company at the end
of a specified period or by instalments during the existence
of the company. Redemption would involve repayment of
money received on issue of the debentures either in a
lumpsum or spread over in instalments.
IRREDEEMABLE DEBENTURES:
These debentures are those which are not repayable during
the life time of the company. The holders of such debentures
cannot demand payment from the company so long as it is a
going concern. Usually such debentures are repayable on
the liquidation of the company.
REGISTERED DEBENTURES:
Registered Debentures are those which are payable only to

the registered holders i.e. holders whose names, addresses,


particulars of their holdings etc., are recorded in the
companys Register of Debentures holders. Such debentures
are not freely negotiable. The transfer of such debentures
requires the execution of a proper transfer deed. Interest is
paid to the person whose name appears in the Register
BEARER DEBENTURES:
These debentures are those which are payable to their
bearer or holder. The company does not keep any record of
the bearer debentureholders. Such debentures are freely
negotiable. No notice of the transfer is required to be given
to the company. Payment of interest is made on the
production of interest coupons attached to the debentures.
A bearer debenture may be converted into a registered
debenture at the option of the holder.
CONVERTIBLE DEBENTURES:
A convertible debenture is one that may be converted at the
option of the debenture holder into a certain number of
ordinary shares of the company. The number of shares
which the debenture is convertible is specified in the
debenture bond and these shares remain unissued until
actual conversion. Once converted into ordinary shares, the
shares cannot be exchanged again for debentures. The
convertible debenture provides the investor with a fixed
return like a preference shareholder having specific
dividend. In addition, he receives an option to convert the
security into ordinary share and he there by participates in
the possibility of capital appreciation associated with the
equity shares. Because of this option, the company is
usually is able to sell the convertible debentures at a lower

yield than it would have to pay on ordinary debenture or


preference shares. At the time of insurance, the convertible
debentures will be priced higher than its conversion value.
The differential is known as the conversion premium.
SECURED DEBENTURES:
These are also called mortgage debentures. If the
debentures are secured by a mortgage on some or all of the
properties of the company, they are called secured
debentures
UNSECURED DEBENTURES:
These are so called because they are not secured by any
charge on the assets of the company
EQUITABLE DEBENTURES:
These debentures are secured by the deposit of the title
deeds of the properties of the company
LEGAL DEBENTURES:
These are debentures in which legal ownership of the
property of the company is transferred by a deed to the
debentureholders as security for the loans
PREFERRED DEBENTURES:
These are called first debentures. When the company winds
up these debentureholders will be given first preference in
getting back their amount
SECOND DEBENTURES OR DEBENTURES:
These debentureholders are paid after the first debentures

have been paid.


PRIVILEGED DEBENTURES:
Privileged subscription results from the right issue of
securities. A right issue is an issue of securities for cash,
applications for which are invited only from the existing
equity shareholders of a company. It is thus only appropriate
for a company whose shares are widely held. It is known as
a Privileged Subscription.
a) Only those who are already shareholders are permitted to
buy shares of the new issue and b) special inducements are
offered by the corporations to ensure the sale of new issues.

LEASE FINANCING:
This means of financing has developed rapidly in the
decades of sixties and seventies. At present this means of
financing gained considerable importance due to its wide
variety of applications and has gained a substantial increase
in the sheer volume of transactions. Although this type of
financing can be long-term, most lease financing is for
periods of less than ten years. Under the subject of finance
our concern is with financial leases rather than with
operating leases.
LEASE:
A lease is a means by which a firm can acquire the
economic use of an asset for a specific period of time. A
financial lease is a noncanceleable contractual commitment
on the part of a lessee to make a series of payments to a
lesser for the use of an asset. With the help of financial
lease, the lessee requires most of the economic values

accruing to the outright ownership of the asset, even though


lessor retains title to it. The financial lease period generally
corresponds to the economic life of the asset. Further, the
total payments the lessee agrees to make will exceed the
purchase price of the set.
DIRECT LEASING:
Under direct leasing, a company acquires the use of an
asset it did not own previously. For example, a firm simply
may lease an asset from the manufacturer. The major types
of lessors falling under this category are manufacturers,
finance companies, banks, independent leasing companies
and partnerships
LEVERAGED LEASING:
In this type of leasing three parties are involved instead of
two parties in other forms. Under this form of leasing the
role of lessee remains the same as that of other two forms.
The role of the lessor, however, is changed. The lessor
acquires the asset with the finances put by him to a certain
extent say, 20 percent. The remaining 80 percent finance is
provided by a long term lender. Usually, such a loan is
secured by a mortgage of the asset, as well as by the
assignment of the lease and lease payments. The lessor,
however, is the borrower. As owner of the asset, the lessor
is entitled to deduct all depreciation charges associated
with the asset, as well as to utilize the entire investment tax
credit. If there is any residual value at the end of the lease
period, this of course goes to the lessor.
RESERVE:
The reserves refer to amounts set aside out of profits or

surplus of the company which are neither meant to meet


any loss in respect of depreciation, renewals or reduction in
the value of assets nor meant to meet any unknown
liability.A reserve, therefore, by implication represents
undistributed profits. The reserves are appropriation of
profits and not charge against profits.
REVENUE RESERVES: Reserves created out of revenue
profits by transferring from Profit and Loss account are
called Revenue Reserves. Revenue Reserves are created to
strengthen the financial position of the company by
conserving working capital of the company.
CAPITAL RESERVES:
Reserves created out of capital profits (i.e. profits earned
not in the usual course of business) are called capital
reserves. These reserves are created out of following
capital profits.
Profits prior to incorporation
Premium on issue of debentures
Profits on redemption of debentures
Profits on forefeiture of shares
Profit on sale of fixed assets
Profits on revaluation of fixed assets or liabilities
GENERAL RESERVES:
If the purpose of creating the reserve by setting aside a
portion of the profits every year is to met any unforeseen
contingency in future. Sometimes, it may be created to
utilize the same for expansion of the business. Such reserve
is called General Reserves.

SPECIFIC RESERVES:
If the purpose of creating the reserves by setting aside a
portion of the profits every year is specific or definite. Such
reserve is called Specific Reserve. E.g. Reserve for
equalization of dividend. Reserve Redemption of Debentures
etc.
GOING CONCERN VALUE:
This value is the price which a firm could realize if it is sold
as an operating business. This value depends upon the
soundness of the business, presently and in future. The
reputation enjoyed by the firm from the people and from its
customers is considered as goodwill of the firm. The going
concern value is the difference between the firms
liquidation value and its goodwill . The value of the goodwill
of a firm will be positive when it is sold as a going concern.
The going concern value will be always higher than the
liquidation value.
BOOK OR BREAK-UP VALUE:
Book value is determined by the asset values shown the
firms balance sheet. The book value of the firm will be
realistic only when the balance sheet is prepared in
accordance with the generally accepted accounting
principles and conventions. This book value will be different
from the cost value concept of an asset and its presence
true value concept. This is so as the assets are shown in
balance sheet, generally, at original cost minus
depreciation. For various reasons the real value of an asset
will change from time to time but the book value of an asset
does not reveal its real value or its current market value.

REPLACEMENT VALUE:
The book value of assets based on historical costs may not
be relevant in present and future periods. This so due to
changes in price level and value of an assets as on date will
be different to its value of a future date. To avoid the
problem of changing price levels it is often suggested that
assets should be valued on the basis of replacement cost
rather than historical cost. The replacement value of an
asset refers to that amount which the firm would has to
spend if it were to replace its assets.in the current
condition. Replacement cost is estimated by competent
engineering authorities by breaking down property into
various component units for purposes of detailed
examination. This concept of value is significant in case of
public utility concerns where it sometimes becomes a factor
in the determination of tariff rates by government.
PREFERENCE SHARES:
Preference shares are those which carry preferential rights
in the receipts of dividends. It has also got a preferential
right for the replacement of capital, when the company
winds up the rate of dividend is fixed for these shares. But
this dividend on Preference Shares must be paid before any
dividend is paid on other shares. If a company fails to earn
profit in a particular year, the preference shareholders will
not be paid dividend in that year
PLOUGHING BACK OF PROFITS:
The creation of reserves by the company out of is profits
and their utilization for meeting the financial requirements
of the company from time to time is known as Ploughing

back of profits.
When the profits earned by a company, instead of being
distributed to shareholders in the form of dividends are
retained in the business as additional capital, it is called
ploughing back of profits. This process is also known as the
internal financing of self-financing.
SELF FINANCING:
Self financing is a policy pursued by any company having a
sound financial plan, since it creates no problems or
complications as does borrowing either from banks or from
the public. The creation of reserves out of profits and their
utilsation for meeting the financial requirements of the
company from time to time will, no doubt, affect the
payment of dividend to some extent.

::::::::::::
BANKING TERMS - FINANCIAL STATEMENTS

LONG TERM FUNDS:

Long term funds are composed of owned funds and


borrowed funds. Owned funds include equity and preference
capital and reserves. Borrowed funds include term loans and
debentures
NET WORTH:
Net worth indicates the owners stake in the business. It is
obtained by adding share capital, reserves and surplus in
Profit and Loss account in the case of Company and
partners capital and reserves less drawings for a
partnership firm. Accumulated losses and expenditure, if
any, shown on the assets side of the balance sheet should
be deducted from above to arrive at Net Worth.
CURRENT ASSETS:
These are assets that are ultimately converted into cash or
consumed in the course of normal operating cycle of the
business or within one year and includes inventories,
receivables, marketable investments and cash. Bills
purchased and discounted with banks should be included in
receivables and like amount included in Current Liabilities
Investments of deferred, receivables due within one year,
and monies receivable from contracted sale of fixed assets
during next 12 months also fall under current assets
CURRENT LIABILTIES:
These are liabilities, to be liquidated in the normal course of

the operating cycle or within a year. This includes trade


creditors, bank borrowings, short term loans, dividend
payable and provisions
Provision for income tax may be netted against advance tax
paid, if any, advance payment/progress payment received
may be set off against work-in-progress in respect of
construction companies/turnkey projects. Public deposits
maturing within one year and instalments of Term Loans,
deferred payment credits, debentures, redeemable
preference shares and long term deposits payable within
one year should come under current liabilities. In case
where no specific provision has been made for taxes and
dividends, estimated amounts should be shown as current
liability
CURRENT RATIO:
It indicates the solvency of the business in the short run. It
shows; firms ability to discharge its obligations in the
normal course of business. However, it is not a measure of
the quality of current assets nor does it indicate the firms
ability to raise funds at short notice.
AUDITED STATEMENTS:
Audit of accounts lends credibility to the financial
statements. It ensures that the income and expenditure of
the firm are properly accounted for and the statements
show a true and fair view of the financial position of the
firm.

GROSS PROFIT:
Gross Profit is obtained by deducting from turnover, the cost
of raw materials, stores and spares consumed, salaries and
wages and other manufacturing expenses including
depreciation. It shows the income earned by the firm at the
point of production of goods
GP RATIO:
GP Ratio indicates the competitiveness of a firms products
and the efficiency in use of production facilities. A declining
GP ratio may be the result of
a) fall in prices of products
b) increase in input costs not compensated by matching
price increase
c) decline in efficiency in production
d) idle capacity
OPERATING PROFIT:
Operating profit, which is obtained by deducting interest,
administration and selling expenses from Gross Profit,
shows the profits that are entirely due to the working result
of the firm. A firm which has incurred an operating loss can
still produce a net profit through other income, such as
profit on sale of fixed assets
NET PROFIT:
It is obtained by adjusting operating profit for other
income/expenses and thus shows the net results. Provisions
such as for taxes and investment allowance reserve need
not be deducted and net profit may be uniformly arrived at
Profit before tax

SICK INDUSTRIAL COMPANY:


An industrial company which at the end of any financial
year, has accumulated losses equal to or exceeding the net
worth and has also suffered cash loss in such financial year
and immediately preceding such financial year
OPERATING AGENCY:
An operating agency is an agency appointed by BIFR to
prepare and draw rehabilitation scheme in consultation with
all concerned agencies including banks within the stipulated
time
WEAK UNIT:
A weak unit is one which has
a) accumulated loss equal to or exceeding 50% of its peak
net worth in the immediate preceding five years and b)
current ratio less than 1 and c) suffered cash loss
immediately preceding accounting year
WHOLETURNOVER GUARANTEE SCHEME:
Under the whole turnover guarantee, the bank is required to
cover all its eligible advances under this guarantee
irrespective of the necessity of covering a particular
account or otherwise

::::::::::::::::
BANKING TERMS COST ACCOUNTING

MANAGEMENT ACCOUNTING:
A system of accounting and other data for the purpose of
decision making by management and for planning and
controlling activities
FINANCIAL ACCOUNTING:
A system of recording monetary transactions on double
entry basis for the purpose of knowing the assets and
liabilities as of a given data and the profit/loss made during
the period
COST ACCOUNTING:
A branch of accounts classifying and reclassifying
accounting data for the purpose of cost funding, cost control
and cost studies
CONTROLLER:
A person overall in-charge of accounts department
BUDGET:
A detailed plan of action for future one year containing
quantitative data. Budget is an instrument of planning,

control and coordination


CORPORAE PLANNING:
Long term plan for three to five years indicating the
intentions of the management, of the goals tobe achieved
CUSTODIAL OR STEWARDSHIP ACCOUNTING:
Another name for financial accounting indicating the score
keeping function
STANDARDS:
Scientifically determined per unit quantity and value, which
remains unchanged till new innovation takes place
EXCEPTION REPORTING:
Only the deviations from the plan are reported
FIXED COST:
Cost that does not change in total for a given level of
activity or period irrespective of the volume changes. Per
unit fixed cost varies inversely with volume. Also known the
operational leverage.
INCREMENTAL COST:
Changes in cost due to change in the volume of activity
DIRECTCOST:
Cost that can be economically identified with the object of
costing
INDIRECT COST:
All costs that cannot be identified with the object of costing

but are necessary adjuncts


SUNK COST:
Historial cost that has already been incurred, irrelevant for
decision making
STATISTICS:
Study, which deals with the preparation, collection,
arrangement, presentation, analysis and interpretation of
quantitative data
CONTROL:
Action to watch planning and performance activities to
conform and steps taken for achievement
DECISION:
Art of making a choice when there are many competing
choices
LINEAR PROGRAMMING:
Decision model concerned with how best to allocate scarce
resources to attain a chosen objective
LEARNING CURVE:
Function that shows how labour hour per unit declines as
output increases. Usually as output doubles, labour cost
decreases to 80% of previous standard till flattening takes
place
DUMPING:
Pricing technique in skimming foreign markets. Export price
will only cover variable expenses plus profit

REGRESSION ANALYSIS:
Statistical methods to measure the average amount of
change in the dependent variable that is associated with
unit change in the amounts of one or more dependent
variables
RESPONSIBILITY ACCOUNTING:
Assembly of his expenses according to person in charge of
division/territory/function
ECONOMIC ORDER QUANTITY:
Purchase order determined by minimizing ordering and
carrying costs
CASH FLOW ACCOUNTING:
Evaluation of cash flows both inflow and outflow to a base
point to enable comparision of projects
BETA:
An index of systematic risk. It measures the sensitivity of a
shares returns to the changes in returns on the market
portfolio
BUSINESS RISK:
The relationship between firms sales and its earnings
before interest and taxes (EBIT). In case of operating
leverage increases the firms business risk
CAPITAL:
Long term funds of the firm

CAPITAL ASSET PRICING MODEL (CAPM)


A model that links together the risk and return for all assets.
It provides a mechanism whereby the required return on
asset can be estimated as a function of risk free rate, its
BETA coefficient and required return on market portfolio
CAPITAL RATIONING:
A situation where a constraint is placed on the total size of
capital expenditure and allocation has to be on a group of
competing projects
COMMERCIAL PAPER CAPITALS:
Short term unsecured promissory note issued by corporate
bodies of high standing. These instruments are issued at a
discount for the period of 30-360 days
COST OF CAPITAL::
The rate of return the firm must earn on its investment. The
overall cost of capital is the weighted average cost
associated with each of the components. Projects yielding
return above cost of capital increase the value of firm
EARNINGS PER SHARE(EPS)
Earnings after tax divided by number of shares
EQUITY CAPITAL:
Long term funds provided by the owners that remain with
the company till liquidation
EUROBONDS:
An international bond sold primarily in countries other than
the country of issue

FACE VALUE CAPITALS:


The stated value of an asset. Also called par value
FINANCIAL LEASE CAPITALS:
A long term non-cancelable lease requiring lessee to pay all
maintenance cost
FINANCIAL LEVERAGE;
The abilty of fixed financial charges to magnify the effect of
changes in earnings. Also called gearing
FINANCIAL PLANNING:
Process of providing roadmaps for checking a firms long
and short term objectives through various plans
INTERNAL RATE OF RETURN (IRR)
The discount rates that equate the present value of future
cash flows from an investment with initial cash outflow
LEVERAGE BY OUTS:
A debt financed buy-out of all shares of a company
NET PRESENT VALUE:
The present value of investments net cash flows minus
projects initial outflows
OPERATING LEASE:
A short term cancellable is where lessor to maintain the
leased assets
PROFITABILITY INDEX;

The ratio of the present value of a projects value of a


projects net cash flows to the projects initial outflow
OPTIMAL CAPITAL STRUCTURE
The structure at which the overall cost of capital is
minimized and the firms value is maximized
BREAK EVEN POINT
The point, in terms of units or Rupees, at which total costs
equal total revenue, and profit equals zero
CONTRIBUTION MARGIN:
Total revenue less total variable costs
CONTRIBUTION MARGIN PER UNIT OR UNIT
CONTRIBUTION:
Selling price per unit minus variable cost per unit
CONTRIBUTION MARGIN RATIO:
Contribution margin per unit as a percentage of the selling
price
FIXED COSTS:
Costs which are not directly associated with production and
which remain constant for a relevant range of productive
activity
MARGIN OF SAFETY:
The maximum percentage by which expected sales can
decline and profit can still be realized
MIXED COST:

Costs that are fixed up to a certain level of output but will


vary within certain ranges of output
RELEVANT RANGE:
The range of output over which the amount of total fixed
costs and unit variable costs remain constant
VARIABLE COSTS:
Costs which are directly associated with producing a
product and which vary with the level of output
RESPONSIBILITY ACCOUNTING:
It is a system of accounting the costs and revenues of profit
centres
IMPUTED COSTS:
These are hypothetical costs which do not involve cash
outlay but are important for management control. For
example, interest on owners capital is ignored in cost
accounting, though it is considered in financial accounting
TRANSFER PRICE:
It is the notional price at which inter-departmental exchange
of goods/services takes place within the company
INCREMENTAL COST:
It refers to increase in total cost as a result of choice of an
alternative
OPPORTUNITY COST:
The value of the benefit sacrificed in favour of choosing a
particular alternative or action

DECENTRALISATION:
An organizational structure in which authority
responsibility is delegated to lower levels. It is the opposite
of centralization
GOAL CONGRUENCE:
Harmony of goals at different levels of an organization
SUB-OPTIMISATION:
Less than best result due to goal incongruence
EFFICIENCY:
Right way of doing things. It results in optimal utilization of
available resources
EFFECTIVENESS:
Doing right things
GROSS BURDEN:
All non interest expenses of a branch
NET BURDEN:
Difference between non interest expenses and non interest
income
CONTRIBUTION:
It is the excess of selling price over variable cost
BREAK EVEN ANALYSIS:
It refers to the system of determining that level of activity
where income of a concern exactly equals its expenses

COMMAND AREA:
The geographical area beyond which it may not be
economical for a business concern to extend its operational
activity
INTEREST SPREAD:
Total interest revenue minus total interest cost
NET PROFIT:
Gross profit plus total contribution or total contribution
minus gross loss
NON PERFORMING ASSETS;
Assets which do not generate any income
BUDGET:
A quantitative expression of managements goals and
objectives and a means of monitoring progress towards their
achievement
BUDGET FORMULA:
The required information for a particular budget, stated as a
formula, or equation, such as required production equals
estimated sales plus desired ending finished goods
inventory less beginning finished goods inventory
BUDGETED BALANCE SHEET:
A statement that begins with the current balance sheet
adjusted by information from the pertinent budgets. The
statement can spotlight potentially serious future financial
problems

BUDGETED INCOME STATEMENT:


A statement that summarises the data developed in the
supporting operating budgets such as sales, production and
operating expense budgets
CASH BUDGET:
Expected cash receipts and disbursements during the
budget period adjusted for opening and closing cash
balances. It can indicate when cash flows will be deficient
and outside financing required, or when there is an excess
cash flow which needs to be invested on a short-term basis
instead of remaining idle
COST OF GOODS SOLD BUDGET:
A budget which summarises various individual budgets, such
as direct materials usage, direct labour and factory
overhead, adjusted by the beginning and ending finished
goods inventories
EXPENSE BUDGET:
Generally a list of the individual expenses for selling and
administration, which may consist of only fixed expenses or
both fixed and variable expenses
LONG RANGE BUDGET:
A long term plan, usually 2 to 10 years, of sales trends, new
products, research and development costs, long term
capital expenditures, financial needs, profit goals etc
MASTER BUDGET:
A summary of the objectives of all functions of an

organization, including sales, production, distribution and


finance
OPERATING BUDGET:
A short term plan of operations, usually 1year, by quarters
or months, or the first quarter by months only of expected
revenues, costs and profits
PRODUCTION BUDGET:
Generally an estimate of the production quantity required,
based on the sales forecast and the desired finished goods
inventory levels
SALES BUDGET:
The starting point, based on product, territory and customer,
in developing the master budget, on which all other
operating and financial budgets depend
ZERO BASED BUDGET:
Each planned activity and its total estimated cost must be
justified as if it were being initiated for the first time
ACTIVITY RATIOS:
Ratios that measure sales generated per Rupee Investment
in assets. They are important in analyzing the components
of profitability. Also known as turnover ratios
DUPONT SYSTEM:
A method of separating the rate of return on net worth into
its component parts to identify specific sources of abnormal
performance, Development by the Du Pont De Nemours
company.

FINANCIAL ANALYSIS:
The process of reducing a large amount of historical
financial data to a similar set of more useful information for
decision-making purposes
FINANCIAL LEVERAGE:
The use of fixed-promise financing (debt) rather than equity
to finance some portion of firms assets
FINANCIAL LEVERAGE RATIOS:
A set of ratios used to measure the degree of financial
leverage. These ratios are divided into two groups-those
that measure relative amounts of debt and equity and those
that measure promised financial charges relative to
operating income
LIQUIDITY:
Reflects the ability of the firm to meet short term liabilities
as they come due. An asset is said to be liquid if it can
quickly be converted into cash at a relatively certain price
LIQUIDITY RATIOS:
A set of ratios used to measure the ability of the firm to
meet short term liabilities as they become due
PROFITABILITY:
A profitability investment is one that has an expected rate of
return greater than the rate of return required by the
market. In the context of ratio analysis, profitability is
reflected by the Rupees return per unit of investment. The
typical measure of profitability are return onj net worth and

return on total asets


SOURCES AND USES STATEMENT
Identifies the major increases and decreases in assets and
liabilities between two points in time and provides important
information to explain a firms liquidity position. A source of
funds is an incrase in a liability or an increase in an asset
ACCOUNTING RATE OF RETURN METHOD:
A selection method using average net income and
investment outlay to compute a rate of return for a project.
The method ignores the time value of money and cash flows
CAPITAL BUDGET:
The schedule of investment project selected to be
undertaken over some interval of time
CAPITAL RATIONING:
The practice of allocating capital within specific rupees
constraint
CASH-DIFFERENTIAL:
Difference in cash flow between two investment proposals
(as distinguished from incremental cash flow)
DIFFERENT RATE OF RETURN:
The internal rate of return computed on the differential cash
flows between two proposals
INCREMENTAL AFTER TAX CASHFLOW::
All changes in the firms after tax cash flows caused by
undertaking of projects composed of initial outlays,

operating cash flows, and terminal cash flows


INCREMENTAL AFTER TAX OPERATING CASHFLOW:
Cash flow generated by operating a project either through
cost saving or expanded revenue, excluding initial and
terminal flows
INITIAL INVESTMENT:
The incremental after tax cash flow required to acquire,
construct and prepare project assets for operations
INTERNAL RATE OF RETURN METHOD:
A selection method using the compound rate of return on
the cash flows of a project. This method is insensitive to the
differential cashflows between proposals
NET PRESENT VALUE:
A selection method using the difference between the
present value of the cash inflows of the project and the
investment outlay. This method evaluates differential
cashflows between proposals
PAYBACK METHOD:
A selection method in which a firm sets a maximum payback
period during which cash inflow must be sufficient to
recover the initial outlay. This method ignores the time value
of money and cash flows beyond the payback period
PRINCIPAL DEBTOR:
The person who has to perform or discharge the liability and
for whose default the guarantees is given

PRINCIPAL CREDITOR:
The person to whom the guarantee is given for due
fulfillment of contract by principal debtor. Principal creditors
is also sometimes referred to as beneficiary
GUARANTOR OR SURETY:
The person who gives the guarantee
FINANCIAL GUARANTEE:
Guarantees to discharge financial obligations to the
customers
PERFORMANCE GUARANTEE:
Guarantees for due performance of a contract by customers
CASH CYCLE:
The time path between the points at which cash is invested
in raw materials until cash is received from customer
payments on credit sales by the firm
CASH FLOW EFFECT:
The change in operating cash flow accompanying a change
in working capital management policy
EQUITY SHARE:
A security which represents ownership interest in a
company
PREFERENCE SHARE:
A share which bears a stated dividend and has priority of
claim over equity shares in the matter of dividend and
assets in the event of liquidation of the company

DEBENTURE:
A long term debt-security issued by a company, having a
fixed maturity and bearing a stated coupon rate (i.e. annual
interest rate on the par value of debenture)
VENTURE CAPITAL:
Long tem funds in equity or quasi-equity forms to finance
high-tech projects involving high risks but having potential
of high profitability
EURO-ISSUE:
A issue of bearer securities issued in a currency other than
that of the country of issue and sold internationally to raise
funds
GLOBAL DEPOSITORY RECEIPTS:
A Global Depository Receipt (GDR) is a negotiable
certificate, denominated in foreign currency, representing a
companys one or more ordinary shares, which is created by
Overseas Depository Bank, authorized by the issue company
OFFSHORE:
Outside the jurisdiction of a particular country
WITHHOLDING TAX:
A tax, deducted in certain countries, on interest payable to
non residents
FINANCIAL INSTITUTION:
A non-banking financial intermediary (a
company/corporation/cooperative society)carrying on

lending, investment, hire-purchase, insurance etc


ZERO-COUPON BOND:
A bond that bears zero coupon rate and hence is issued at a
substantial discount to its face value. It is also called zerointerest bond.. Deep discount bond is a form of zero-interest
bond
ECB:
External Commercial Borrowing (ECB) is borrowing by
corporates/financial institutions from international markets
at commercial rate
SECURITISATION:
It is a process by which loan assets or mortgages of a
homogenous nature from a lending institution is transferred
to investors through an intermediary, by packaging them in
the form of securities which are called pass through or pay
through securities. The cash flow towards principal and
interest on the underlying loans is passed or paid through to
the investors
COMMERCIAL PAPER:
A short term, unsecured, negotiable, usance, money market
debt instrument issued, at a discount by well rated
corporates promising to pay the holder the face value on a
certain future date at a specified place
COVENANTS:
The terms and conditions enumerated in a loan agreement
or in an indenture (trust deed)

BRIDGE LOAN:
A short term loan given by commercial bank to a borrower
to tide over temporary funds shortage due to delay in
receipt of a sanctioned term loan or proceeds of a public
issue
ESCROW ACCOUNT:
Accounts for which a bank acts as an uninterested third
party(custodian/depository) to ensure compliance with the
terms of the deed between two parties only upon the
fulfillment of some stated conditions. A bank holds such an
account in which funds accumulate to pay taxes, insurance,
instalments, other dues etc.,
LEASE:
It is a method of financing where contractually the
owner(lessor) of an asset grants to a party(lessee) the use
of the asset for a specified period of time (lease period) for
an agreed sum of periodical rent(lease rentals). But
ownership rests with lessor, unless otherwise provided in
the contract
HIRE PURCHASE:
Like leasing it is also method of financing in which the
ownership of assets automatically passes on to the hirer on
payment of all the instalments
FINANCIAL LEASE:
Whenever the lease contract has the objective of
transferring ownership and the risk,reward and
responsibility associated with it to the lessee, it is called a
financial lease or capital lease

OPERATING LEASE:
If under the lease contract, the lessor grants the temporary
possession and use of an asset to the lessee, usually for a
specified period significantly less than assets economic life
for periodic rentals, it is an operating lease
LEVERAGED LEASE:
It is a type of financial lease in which lessor (equity
participant) obtains finance from outside. Financier (debtparticipant) by way of non-recourse debt(where the lender
cannot look to the lessor in the vent of non payment by the
lessee) Most leases are leveraged
NET PRESENT VALUE:
When we discount the future cash inflows at pre-determined
rate and sum then we obtain the Present Value of those
cash inflows. If we deduct the sum of the discounted cash
outflow (which generates the future cash inflow) from this
Present Value, we obtain Net Present Value.
INTERNAL RATE OF RETURN:
It is rate of return in which the sum of the discounted cash
inflows equals the sum of discounted cash outflow. It is the
rate at which Net Present Value is zero.
NET OWNED FUNDS:
It is owners equity and free reserves net of accumulated
loss/intangible assets/deferred revenue expenditure
computed on the basis of last audited Balance Sheet of a
concern

PREMIRY LEASE PERIOD:


It is that past of the lease period during which the cost of
the asset and a reasonable profit are realized by the lessor
by way of lease rentals. This period may generally be about
five years
AMORTISATION:
It means the gradual and systematic writing off an asset or
an account over an appropriate period. This amount on
which amortization is provided is referred to as amortizable
amount. Depreciation accounting is a form of amortization
applied to depreciate asset
NBFC:
A Non-Banking Finance Company means any hire purchase
finance, housing finance, investment, loan, equipment
leasing or mutual benefit financial company but does not
include an insurance company or a stock exchange or a
stock broking company
FACTOR:
A financial institution which offers factoring services
CUSTOMER:
A person of business organization to whom the goods and
services are supplied by the client(seller) and credit and
against whose debts the client avails finance from the
Factor
OPEN ACCOUNT SALES:
An arrangement where goods/services are supplied without
bills of exchange or promissory note

RECEIVABLES:
Any trade debt arising from the sale of goods/services by
client to customer on credit
CREDIT PERIOD:
Funding period accepted by Factor in favour of client
ELIGIBLE DEBT:
Debt approved by Factor for making prepayment
ACTIONABLE CLAIM:
It is a claim to an unsecured debt as defined in Section 3 of
Transfer of Property Act.
LETTER OF DISCLAIMER:
Letter in which the financing bank agrees to waive its
change in respect of the receivables purchased by the
Factor
DEBT TURN AROUND: (DTA)
It indicates the period within which the customers are
making payment of invoices of the clients. Lower DTA may
ensure higher turnover which increase the income of the
Factor
FUNDS-IN-USE (FIU):
It denotes the actual amount lent by a factor or outstanding
amount in the account at any given point of time and
normally within the sanctioned prepayment limit
PREPAYMENT LIMIT

Advance payment made by the Factor to the client upto a


certain percentage of eligible debts
ASSIGNMENT:
It is a mode of creation of charge over receivables
OVERDUE DEBT:
Debt of customer unpaid and outstanding in the books of a
Factor beyond 120 days from the date of invoice
STICKY DEBT:
Debt outstanding in the Factors books beyond 150 days of
invoice date
TANGIBLE NET WORTH:
Paid up capital (Equity and Preference) plus free reserves
and surplus minus accumulated loss and all intangible
assets
FORFAITER:
An international agency who offers quotes for forfaiting
AVAL:
This is an endorsement made on a Bill of Exchange or
Promissory Note by the guaranteeing bank by writing PER
AVAL on such document under proper authentication
INTERMEDIARY:
A bank which acts as a link between exporter and forfaiter
HEDGING:
A risk-reducing action

LIBOR:
London Interbank Offered Rate. It is an average of the
interest rates at which leading international banks are
prepared to offer term Euro Dollar deposits to each other. It
is also used as a reference rate in quoting interest rates on
various loans in interbank market.
CAPITAL CHARGE:
Capital Charge denotes the capital funds required to meet
certain regulatory requirements. Capital fund is the
networth of any organizations. It includes owners
contribution and free reserves. For meeting Capital
Adequacy Ratio, subordinated debts are also included under
Tier-II capital
BASLE COMMITTEE:
This committee on banking regulations and supervisory
practices, set up by BIS at Basle, under the Chiarmanship of
Peter Cooks, released in July, 1988, a framework for
achieving international convergence in the measurement of
banks capital and in capital standards. It recommended a
minimum capital to Risk Weighted Assets Ratio of 8% by end
1992
TIER-I CAPITAL:
It represents the core capital. It consists of the banks paid
up capital, statutory reserves and other disclosed free
reserves after deducting equity investments in subsidiaries,
intangible assets and losses
TIER II CAPITAL:

It is the supplementary capital. It consists of undisclosed


reserves, cumulative perpetual preference shares, the
discounted value of revaluation reserves, general provision
and loss reserves (upto maximum of 1.25% of weighted risk
assets), hybrid debt capital instruments and subordinated
debt instruments (upto a maximum of 50% of Tier I capital
TIER III CAPITAL:
It is intended to be comprised of short term subordinated
debt with maturity between two and five years. It is
recommended by the amendment to Basle Accord in 1995
that Tier III Capital, eligible to cover only market risk, should
be limited to 250% of banks Tier I capital that is allocated
to support market risk. And a minimum of 28.5% of market
risk should be supported by Tier-I capital. It is intended to
form part of supplementary capital
CAPITAL ADEQUACY RATIO:
This is the ratio of unimpaired capital funds to risk weighted
assets and exposures
RISK WEIGHTED ASSET:
This is the sum total of all assets multiplied by the risk
factors assigned on the basis of perceived credit risk
stipulated by the Regulatory Authorities
CREDIT CONVERSION FACTOR:
This is the factor which is multiplied to off-balance sheet
exposures to convert them to on balance sheet items
ON BALANCE SHEET ITEMS:
Items appearing in the balance sheet

OFF BALANCE SHEET ITEMS:


Items such as contingent liabilities etc., which are material
and relevant but do not appear in the balance sheet. Events
occurring after the balance sheet date but before the
finalization of the balance sheet having material effect on
the balance sheet (e.g. loss of security, policy decisions
binding on banks retrospectively etc.,) are also included as
off-balance sheet items
UNIMPAIRED CAPITAL:
Capital which is not subrogated or earmarked for any other
purpose. There is no charge on such capital
INCOME RECOGNITION:
This deals with the question whether an income is to be
taken to Profit and Loss account or not
NON PERFORMING ASSET:
An asset which ceases to yield realized income
PAST DUE:
Dues uncollected beyond 30 days of the due date
OUT OF ORDER:
If the balance outstanding in a cash credit/overdraft account
continuously for six months exceeds the sanctioned/drawing
limit or if there is no credit operation during this period or if
there is credit, the credit is insufficient to cover the interest
charged during this period, such an account is an out of
order account

DRAWING LIMIT:
Limit upto which the borrower is permitted to draw,
calculated based on the available security less margin
subject to a maximum of sanctioned limit
STANDARD ASSET:
It is a performing asset and carries not more than normal
credit risk inherent in lending
SUBSTANDARD ASSET:
An NPA of less than two years of age. A term loan with
instalments in arrears for 1 years
LOSS ASSET:
Where the asset is unrealizable because of non-availability
of credit cover or significant level of security
APPROVED SECURITIES:
Securities which are eligible for fulfilling Statutory Liquidity
obligations. For example Dated Central/State Government
securities, Treasury Bills, PSU bonds etc.,
MARKET TO MARKET:
It means comparing the value of a security against the
market value or else against the safe list of RBI or YTM
prescribed by RBI and making depreciation thereon if the
security value is low.
YIELD TO MATURITY:
YTM of an investment is the rate at which the sum of the
present values of future receivables is equal to the price (or
the investment)

AUTHORISED CAPITAL:
The maximum limit of share capital which a company is
authorized to have under its memorandum
PAID UP CAPITAL:
The amount of share capital of a company which is
subscribed and paid up. Place of business any office, suboffice, pay office, sub-pay office and any place at which
deposits are received, cheques cashed or moneys lent.
SUBSTANTIAL INTEREST:
Beneficial interest in a company or firm exceeding the limit
specified in Section 2 of the Banking Regulation Act.
SUBSCRIBED CAPITAL:
The amount of share capital of a company which is issued
and subscribed
SUBSIDIARY:
A company is the subsidiary of another company if the
composition of its Board of Directors is controlled by the
other company of more than half of equity shares is held by
the other company or it is the subsidiary of any company
which is the others subsidiary as provided in Section 4 of
the Companies Act.
AMALGAMATION:
The process of merging one or more companies with
another or two or more existing companies into a new
company

MORATORIUM:
Authorisation under the law for a debtor to postpone
payment of dues for a specified time
SCRUTINY:
An examination of the affairs of any banking company and
its books and accounts by the officers of Reserve Bank
under Section 35(1A) of the Banking Regulation Act.
WINDING UP:
Closing up a companys concerns and settling accounts and
liquidating assets for the purpose of making distribution and
dissolving the company
APPARENT TENOR OF THE INSTRUMENT:
According to what appears on the face of the instrument to
be the intention of the parties
MATERIAL ALTERATION:
Any alteration of an instrument which varies the rights,
liabilities or legal position of the parties
AGREEMENT:
Every promise and every set of promises forming the
consideration of each other
COERCION:
Committing or threatening to commit any act forbidden by
the Indian Postal Code of the unlawful detaining or
threatening to detain any property with an intention of
causing any person to enter into agreement

AGENT:
A person employed to act as an intermediary for another
BAILEE:
The person to whom the goods are delivered
BAILOR:
The person who delivers the goods for bailment
CONTRACT OF AGENCY:
A contract whereby a person acts as an intermediary for
another
CONTRACT OF BAILMENT:
A contract wherein certain goods are delivered by one
person to another for a specific purpose and to be returned
after such purpose or disposed of as directed
CONTINGENT CONTRACT:
A contract the performance of which is dependent on the
happening or non-happening of an event
EXECUTED CONTRACT:
A contract where an offer has become a promise, on being
accepted by the person to whom it is made
EXECUTORY CONTRACT:
A contract where the offer made by one person is yet to be
accepted by the other party to whom it is made
GUARANTEE:
To perform the promise or discharge the liability of a third

person on his default


INDEMNITY:
To save another person from loss or damage
PRINCIPAL:
The person on whose behalf the agent is to act or represent
QUASI CONTRACT:
A contract that arises out of certain circumstances and not
made by a regular offer and acceptance
ATTACHMENT ORDER:
An order issued by a court or from statutory authority
attaching the property of a person who owes money of
another or the Government
GARNISHEE ORDER:
An order by a Court or Statutory authority directing a debtor
to pay the money he owes to the creditor to the Court or the
authority
APPROPRIATION:
The method of adjusting monies belonging to the customer
after the right of set-off has been exercised
INDEMNITY HOLDER:
The party who is entitled to be compensated by the
indemnifier for any loss caused to the indemnity holder due
to any act on the part of the indemnifier or a third party, also
called the indemnified

BANK GUARANTEE:
A guarantee given by a Bank to a person, to pay him a
certain sum on behalf of the customer, on the customer
failing to fuifill any contractual or legal obligation towards
the said person
BENEFICIARY:
The person to whom the bank gives the guarantee, also
called the creditor
COUNTER GUARANTEE:
A guarantee given by the customer favouring the bank in
turn for the bank giving a guarantee on behalf of the
customer to a third party. This is more or less a guarantee
cum indemnity
DEBTOR:
In a bank guarantee the banks customer on whose behalf
the guarantee is given is the debtor
ACCEPTANCE CREDIT:
A letter of credit where payment is made after a certain
period on the acceptance by the buyer
ADVISING BANK
The bank that advises the credit to the beneficiary
AIRWAY BILL
The document which evidences that the goods have been
received by an airline company or its agent
APPLICANT:

The opener of the Letter of Credit otherwise called the


Buyer or Importer
BACK TO BACK CREDIT:
A further credit issued in favour of the beneficiary supplier
on the basis of LC in favour of the beneficiary
BANKERS COMMERCIAL CREDIT:
The device used by the bankers to effect payment for goods
supplied or services provided also called a Letter of Credit
or LC or credit
BENEFICIARY:
The person in whose favour the LC is issued
BILL OF EXCHANGE:
The document on which payment is made, for brevity sake
also called Bill or Draft
BILL OF LADING:
A document on which payment is made, for brevity sake also
called Bill or Draft
CONFIRMED CREDIT:
A credit in which the advising bank adds its confirmation
CONFIRMING BANK
The advising bank when it also confirms the credit
GREEN CLAUSE CREDIT
Credits where in addition to advance payment, the
beneficiary is entitled to payment of storage/warehousing

charges.
INVOICE:
The document under a LC that gives details of the sale
ISSUING BANK
The bank that issues the LC
NEGOTIATING BANK
The bank that makes payment on the bills drawn by the
seller, also called the paying bank
RED CLAUSE CREDIT:
Where the beneficiary is entitled to advance payment before
production of documents
REIMBURSING BANK
Bank which reimburses the negotiating/paying/confirming
bank
REVOCABLE CREDIT:
Where the credit terms can be unilaterally altered or
cancelled by the issuing bank
REVOLVING CREDIT:
Where the amount is fixed but can beutilised again and
again as and when the earlier bills drawn are paid
TRANSFERABLE CREDIT:
Where rights under a LC can be transferred to third parties

UCP 500
A document published by the International Chamber of
Commerce which lays down the rights and liabilities of all
parties to an LC transaction
WITH RECOURSE CREDIT:
Where the beneficiary is liable on a bill drawn by him under
a LC
WITHOUT RECOURSE CREDIT:
Where the beneficiary is not liable on a bill drawn by him
under a LC
DEFERRED PAYMENT:
Payment by instalments of the price of goods or services
with interest
DEFERRED PAYMENT GUARANTEE:
A guarantee issued by a bank assuring payment of
instalments and interest on due dates
ARTICLES OF ASSOCIATION:
Rules and regulations governing the internal management of
a company
COMPANY
A juristic person created by law, having a perpetual
succession and Common Seal distinct from its members
HINDU UNDIVIDED FAMILY
A group of persons consisting of male members descended
linealty from a common male ancestor, together with their

mothers, wives or widows and unmarried daughters bound


together by fundamental principle of family relationship
MEMORANDUM OF ASSOCIATION:
The constitution of the company
PARTNERSHIP
The relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting
for all
TRUST
An obligation imposed on a person to deal with property
entrusted to him for the benefit of persons including himself,
the obligation being enforceable
MULTIPLE BANKING ARRANGEMENTS
Where the credit requirements of a borrower are met by
more than one bank and each bank lends independently on
its own terms and conditions namely security, rate of
interest, margin, etc, the system of financing may be called
Multiple Banking Arrangements
SYNDICATION OF CREDIT:
A syndicated credit is an arrangement between two or more
lending institutions to provide a borrower credit facility,
utilizing common loan document. A prospective borrower
intending to raise resources through this method awards a
mandate to a bank commonly referred to as Lead Manager
to arrange credit on his behalf
LAPPING:

Restituting the misappropriate balance of one


accountholder by withdrawing it from anothers account
:::::::::::::::
ONE LINERS - BANKING TOPICS
ONE LINERS - BANKING TOPICS - USEFUL FOR
PROMOTION AND KNOWLEDGE UPDATION
01. An exporter has received a letter of credit that provides
that preshipment credit will be available to the exporter on
the authority of the leter of credit. It is a red clause letter
of credit.
02. The quarterly financial results of companies/banks are
published under the provisions of/or under directions issued
by SEBI
03. RBI injects liquidity in the Indian economy, whenever
warranted, through which of the following
operations/instrument Repo
04. Collateral security in case of PMRY advances is exempt
in case of loan account upto Rs. 5 lakh in case of industry
and loan upto Rs. 2 lack per borrower in other cases
05. What is the full form of FRBM act ? Fiscal responsibility
and budget management act
06. Relationship between the banker and customer in case
of goods left by a customer by mistake in custody of the
bank trustee and beneficiary

07. Priority sector target for foreign banks 32% of ANBC


08. A bank has given loan against security of NSCs with post
office. The NSCs have nomination in favour of XYZ. What is
the status of bank's claim against these NSCs in the light of
nomination bank will have priority, as the NSCs are
security for the bank loan
09. Legal status of nominee is that of a trustee for legal
heirs as he has to obtain the money from the bank and
handover to legal heirs
10. M, a minor admitted for benefits in a firm wants to
withdraw from the frim on attaining majority. How much time
is available to him to do so ? 6 months from date of
majority or six months from date of information to him that
he was admitted for benefits, whichever is later
11. Loan to minor can be given in the following case where
the guardian is co borrower
12. To be a partner, a person should be competent to
contract. Who cannot be a partner H U F
13. A comes to deposit some money in the account of B. A
also has informed that B has become insane the money
can be deposited with consent of the guardian
14. The mortgagee in case of this mortgage enjoys the
income of the mortgaged property. Which of the following, is
the mortgage Usufructuary mortgage.

15. A transaction of hypothecation becomes pledge, in case


of which of the following cases when goods are given for
possession to the bank, by the borrower
16. Which scheme has been abolished with introduction of
senior citizen deposit scheme ? Varishat Bima Pension
Yojna ( Bank of India scheme)
17. An NPA account is restructured on June 30, 2003, with
the provision that first instalment after restructure shall be
due on Dec 31, 2003. This amount was deposited by the
borrower on Dec 30, 2003, This account will become
standard on--------------., if instalments are regularly deposited,
subsequently Dec 31, 2004
18. Which type of fraud case is not required to be reported
to RBI under RBI's fruad reporting guidelines Theft and
burglary
19. There is excess cash found with the cashier while
closing cash balance. What is the course of action to be
done ? to be deposited in sundries account
20. Out of the following, which document is required to be
attested (witnessed):mortgage deed, pledge agreement,
hypothecation deed mortgage deed to be witnessed
21. A B and C want to open a joint account with the
provision that after death of any of them, the money should
not be paid to the legal heirs of any of them. What mode of
operations, the account should be opened with either or

any of them
22. External commercial borrowings can be raised under
automatic approval by companies
23. Borrowing power of board of directors, in case of a joint
stock company, is described in articles of association
24. A company has borrowed certain monies from the bank
for an activity which it is not authorised to undertake, as per
its memorandum of association it is ultra vires borrowing
and cannot be recovered from the company
25. Loan of Rs. 25000/- has been obtained by the depositor
against a fixed deposit. Minor is to be appointed in the
account Can be done after repayment of the loan. Terms of
deposit account will not be allowed to be changed during
currency of the loan
26. The number of members in SHG in SGSY, in normal cases
can be between a range of 10 to 20
27. Authorised capital of a company is Rs. 10 lakhs and the
paid up capital Rs 6 lakhs. The loss of previous year is Rs. 1
lakhs and loss in current year is Rs. 2 lakhs. The tangible
networth is Rs. 3 lakhs
28. Net working capital of a firm is Rs. 80000.00 Its current
ratio is 3:1. The current assets will be 120000.000
29. CDR in case of SME account is allowed in for corporate
account from many banks for amount above Rs. 10 lakhs

30. Right to retain goods is called lien


31. For obtaining loan against shares, the charge on shares
lien
32. A director of the bank wants to raise loan from your
bank. Against which of the following this can be done: FDR
of another bank, shares of the same bank; surrender value
of LIC policy surrender value of LIC policy only
33. Bill of lading and railway receipt are negotiable
instruments - under section 137 of transfer of property act
34. Keeping the goods in safe custody by the banks, is as
per provisions of- Indian Contract Act
35. No dues certificate in case of agricultural advances is
exempted upto a loan of Rs. 50000.00
36. Liability of a coparcener in case of loan raised by HUF
Karta is restricted to his share in HUF property assets
37. In KYC guidelines, the small account where simple KYC
is applicable are those accounts where maximum balance of
deposit in the account is restricted to Rs. 50000.00
38. In case of SMEs, the registration is mandatory in case of
medium enterprises in manufacturing
39. International credit card cash been issued to an NRI. To
the debit of which account, the payment can be made NRE

account or FCNR account or NRO account


40. What is the maximum amount of loan for obtaining
guarantee under CGTMSE of SIDBI Rs. 50 lakh for term
loan and working capital and non fund based limit
41. A company has been sanctioned cash credit pledge
limit. Internal auditor finds that charge has not been
registered with Registrar of Companies in time. What
remedy is available ? There is no necessity for any action
as pledge does not require registration.
42. Loan system for credit delivery is not applicable in case
of loan accounts having MPBF of less than Rs. 10 crores,
loan accounts having only export credit limits and software
industry, where the cash budged method is applicable
43. To sell an NPA, the account must remain in the books of
seller bank for 24 months as NPA
44. One of these is an indirect rate: One $-Rs.40; One
pound=Rs. 90; One yen=Rs. 0.30; Rs. 100 = $2.60- Ans: Rs.
100 = $2.60
45. Which crossing is not recognised by NI act Account
Payee crossing
46. Resident Foreign Currency account can be opened by
erstwhile NRI now a resident
47. A loan document is signed by one partner on June 15,
2007, by second partner on June 21 and by third partner on

June 29. The limitation period starts from june 30, 2007
48. In CAMELS, the word C stands for CAPITAL ADEQUACY
RATIO
49. A partner wants to retire from the firm XYZ. He has to
get consent of other partners
50. Service Area Approach guidelines withdrawn by RBI
except of Government Sponsored Schemes as per
recommendations of VS Vyas Committee
51. Government shareholding in public sector banks cannot
be below 51%
52. Registration of partnership firm is not compulsory but
banks prefer registered firms because- they can file suit
against their debtors
53. The limitation period under section 138 NI act begins
from date of cause of action
54. Company increases its networth by revaluation of assets
by Rs. 50000.00. Existing debt equity ratio was 2:1. If long
term liabilities are Rs. 80000.00, the new debt equity ratio
would be 0.9:1
55. If BCTT is not deposited on time, the penalty for nondeposit is Rs. 1000 per day for period of default plus 1p.m.
interest
56. BCTT is chargeable in the account of a private limited

company if the amount of cash withdrawal is more than Rs 1


lakhs
57. A cheque is issued by a company as "pay yourselves". A
clerk from the company comes and signs on behalf of the
company and requests for preparation of a demand draft
DD cannot be prepared as the instruction is incomplete
58. Internal rate of return is a discount rate, at which the
net present value of a project is zero
::::::::::::::::::::::::::
BANK PERFORMANCE TERMINOLOGY- BANKING

BANK PERFORMANCE TERMINOLOGY


Burden efficiency ratio: i.e. Non-Intt. cost less non-intt.
revenue divided by total business X 100. An increasing trend
would show lack of burden bearing capacity.
Cash cover-age ratio i.e. cash divided by total business
liabilities X 100. An increasing trend signifies presence of
more of idle investments.
Non-perform-ing advances ratio i.e. non-performing
advances divided by total or net advances X 100. An
increasing trend implies gradual increase in bad credit

portfolio.
Total business growth ratio i.e. current period?s business
divided by last period?s business. An increasing trend shows
improvement.
Priority sector ratio i.e. PS advances divided by total
advances X 100. The ratio shows the advances mix.
Aggregate deposits are the total deposits of a bank at the
close of the accounting year. These include deposits from
public and deposits from banks. From a different angle, the
aggregate deposits equal the total of all demand and time
deposits. A high deposit figure signifies a bank?s brand
equity, branch network and deposit mobilisation strength.
Average working funds (awf) The AWF at the beginning and
at the close of an accounting year or at times worked out as
fortnight or monthly average.
Working funds These are total resources (total liabilities or
total assets) of a bank as on a particular date. Total
resources include capital, reserves and surplus, deposits,
borrowings, other liabilities and provision. A high AWF
shows a bank?s total resources strength. There is a school
of theory which maintains that working funds are equal to
aggregate deposits plus borrowing. However, more
pragmatic view in consonance with capital adequacy
calculations is, to include all resources and not just deposits
and borrowings.
Net profits are the profits net of provisions, amortization and
taxes.
Operating profits Net profits before provisions and
contingencies are called operating profits. This is an
indicator of a bank?s profitability at the operating level.
Total debt Total debt equals total borrowings plus aggregate
deposits. Total borrowings include borrowings in India and

outside India. In turn, borrowings in India include


borrowings from RBI, borrowings from other banks and
borrowings from other institutions and agencies. It indicates
a bank?s propensity to leverage its net worth.
Net worth This is aggregate of core equity capital and
reserves and surplus. The net worth is tangible which is net
of accumulated losses and unamortized preliminary
expenses. It stands for the core strength of a bank and
denotes a bank?s margin of safety, its cushion for all
creditors and its base foundation.
Total debt to net worth The ratio is expressed as a number.
The corresponding ratio in a manufacturing company is
termed the debt-equity ratio. This ratio denotes a bank?s
degree of leveraging, relative to its net worth. A higher ratio
is proof of bank?s ability to leverage its net worth
effectively.
Gross advances These include overdraft, bills purchased,
cash credit, loans and term loans including food credit. From
a different angle, aggregate advances include advances
inside India and advances outside India. When the food
credit is reduced from the gross advances, it amounts to
non-food credit.
Invest-ments Investments include investments in
government securities, shares, bonds, commercial papers
and debentures and other approved securities.
Interest income The sum total of discount, interest from
loans, advances and investment and from balance with RBI
and other interest flows.
Interest income to average working funds Expressed as a
percentage, this ratio shows a bank?s ability to leverage its
average total resources in enhancing its main stream of
operational interest income.

Non-interest income This is other income of a bank. It


includes items such as exchange commission, brokerage,
gains on sale and revaluation of investments and fixed
assets and profits from exchange transactions.
Non-interest income to average working funds This ratio
denotes a bank?s ability to earn from non-conventional
sources. In a liberalized environment, this ratio assumes
significance. For, it mirrors a bank?s ability to take full
advantage of its operational freedom.
Operating expenses Equals the non-interest expenses. The
operating expenses to AWF ratio explains the overall
operational efficiency of a bank. In fact, this ratio is one of
the indictors of profitability of a bank.
Interest spread This is the excess of total interest earned
over total interest expended. The ratio of interest spread to
AWF shows the efficiency of bank in managing and matching
interest expenditure and interest income effectively.
Interest spread is critical to a bank?s success as it exerts a
strong influence on its bottom line.
Net spread is an alternative term for operating profit in the
banking industry. The net spread to AWF ratio reveals a lot
about the overall operational efficiency of a bank.
Risk weighted assets The cumulative risk weighted value of
assets plus risk weighted credit converted contingent
liabilities, which is used as the denominator for computing
the capital adequacy ratio of bank.
Adjusted capital to risk weighted assets ratio It reckons the
unimpaired capital (net of net NPAs) available with the bank
to mitigate potential adverse impact of credit, market and
operational risk.
Net profit to awf The ratio is a foolproof indicator of
excellent utilization of resources and optimum leveraging of

funds.
Net profit to net worth The ratio is equivalent of the return
on net worth ratio used in other industries. It is indicator of
profitability and return on shareholders? funds.
Operating profits to net worth This is a corollary to NP/NW
ratio and is another indicator of shareholders? return.
Capital adequacy ratio This ratio relates a bank?s core net
worth to its risk-weighted assets. The ratio is internationally
accepted risk-driven measure of a bank?s degree of
capitalization. A higher ratio indicates that a bank is well
capitalized vis-a-vis its perceived risks. It is an excellent
indicator of a bank?s long term solvency.
Risk adjusted net interest margin is refinement of net intt.
margin which factors into provisions made against loan
losses. RANIM represents NII, net of provisions for probable
loan losses as a percentage to total earning assets.
Business is equal to aggregate deposits plus aggregate
advances.
Equity multiplier measures financial leverage and represents
both a profit and risk measurement. It compares assets with
equity and large values indicate a large amount of debt
financing in comparison to equity. It has impact on return on
assets. A critical scrutiny of EM helps to evaluate whether
capital support is proportionate to the risks assumed in the
balance sheet.
BANKING TERMINOLOGY A GLOSSARY
COMPUTER ENVIRONMENT
01. Access: To store or retrieve data
02. Add-on: Circuits, systems, or hardware devices that can
be attached to a computer
to increase its memory or improves its performance
03. Application: A system, such as a payroll, that has been

defined to be suitable for electronic data processing


techniques
04. Archieved file: A file that has ben transferred to a lower
level in the memory hierarchy, usually from magnetic disc to
magnetic tape, may be as a result of operations of
appropriate resource management
05. Array: A group of two or more logically related elements
identified by a single name; generally stored in consecutive
storage locations in main memory
06. Audit trail: A permanent record of every transaction
taken by a computer system, indicating for example, when
users log in and out, what transaction they perform, when
files are accessed and the type of access. Examination of
this record provides a way of observing patterns of security
violation and/or serves as a deterrant to violations
07. Availability: The ratio of time a device is operating
correctly to the total scheduled time for operating
08. Back office operations: Operation that does not involve
direct interaction with customers
09. Back up: A resource that is, or can be used as a
substitute when a primary resource fails or when a file has
been corrupted
10. Bar code: A printed machine readable code that consists
of parallel bars of varied width and spacing. The application
most commonly observed is the coding on food and goods
that is read at the checkout and translated into a line of
print on the bill showing product and cost
11. Batch processing: A method of organizing work for a
computer system, designed to reduce overheads by grouping
together similar jobs
12. Bit: Contraction of binary digit
13. Bug: An error or mistake in a programme

14. Byte: A group of consecutive bits forming a unit of


storage in the computer and used to represent one
alphanumeric character; a byte usually consists of 8 bits but
may contain more a fewer bits depending on the model of
computer
15. Character: An alphabetic letter, a digit or a special
symbol
16. Chip: A small section of a single crystal of
semiconductor usually silicon, that forms the substrate upon
which is fabricated a single semiconductor device or all the
individual devices comprising an integrated circuit
17. Configuration: The particular hardware elements and
their interconnection in a computer system for a particular
period of operation
18. Debug: To trace and correct errors in programming code
or hardware malfunctions in a computer system
19. Downtime: The percentage of time that a computer
system is not available for use
20. Dummy: An artificial instruction, address etc used only
to fulfill specification in a programme but not actually
performing a function
21. Duplex channel: A communication channel that allows
data to be transmitted in both directions simultaneously
22, Encoder: A small table-top electronic machine which is a
combination of electronic typewriter and calculator
functions: encode numeric data in the MICR in desired font;
print a listing of amounts of all instructions with batch/grand
totals; zero-proofing place clearing endorsement, stamp on
the reverse of instruments
23. Image: A copy in memory of data that exists elsewhere
24. Interface: A common boundary between two systems,
devices or programmes

25. Lock: A key or other group of characters that allows


access to specified storage locations or software systems
26. Log-in: To enter the necessary information like personal
identification number PIN and/or password to begin a
session on a terminal
27. Menu: The list of options may be displayed with a sign
code opposite each. The selection may then be made by
keying the single code. The method provides simple way of
guiding a user through a complex situation by presenting a
sequence of simpler decisions
28. Main memory: Storage located in the computer for
programmes, along with their data, while they are being
executed
29. MICR:Abbreviation for magnetic ink character
recognition. A process in which data, printed in ink
containing ferromagnetic particles is read by magnetic read
heads
30. Modem: Acronym for modulator demodulator a device
that converts digital data output from another device into
analog data that can be transmitted over communication
lines or vice versa.
31. OCR: Abbreviation for Optical Character Recognition
32. Output device: a device that can provide for only the
output of data, such as a printer or card punch
33. Password: A group of characters by which a user is
uniquely identified, when logging on to a terminal or when
submitting a programme for execution
34. Real Time: The time that passes on an ordinary clock
35. Scan: To examine sequentially all the records in a file in
order to find those whose keys meet a specified criterion
36. Soft Copy: Output that is displayed on the screen of a
video display unit

37. SWIFT: Society for Worldwide Inter-bank Financial


Telecommunication
38. VDU: Abbreviation for VISUAL DISPLAY UNIT
39. Bandwidth: How much stuff you can send through a
connection. Usually measured in bits per second
40.Beta: Preliminary or testing stage of a software or
hardware product: "a beta version",
"beta software"
41. BIOS: Stands for Basic Input/Output system: The BIOS is
responsible for booting the computer by providing a basic
set of instructions
42. Binary: This is a basic system of numbering using ones
and zeros
43. Blue tooth: Radio technology that connects electronic
devices without using a cable. Data and voice can be
exchanged at ranges of upto 10 meters without the need for
devices to be lined up together
44. Boot disk: A diskette from which you can boot your
computer
45. Buffer: A place, especially in RAM, for the temporary
storage of data for the purpose of speeding up an operation
such as printing or disk access
46. Browser: It is a software used for viewing pages on the
web
47. Bus: A collection of wires through which data is
transmitted from one part of a computer to another
48. Catche: A special block of fast memory used for
temporary storage of data for quick retrieval
49. CD-ROM: Compact Disc Read Only Memory an optical
storage medium that can hold about 700 MB of data and is
accessed with lasers
50. CGA: Stands for Color Graphics Adapter: CGA allowed a

maximum of four colours at a resolution of 320 x 200 or two


colours at 640 x 200.
51. Clock Speed: The clock speed is the frequency which
determines how fast devices that are connected to the
system bus operate. The speed is measured in millions of
cycles per second
52. Clustering: A technique in which two or more servers are
interconnected and can access a common storage pool
53. CMOS: Abbreviation of complementary metal oxide
semiconductor. Pronounced seemoss, CMOS is widely used
type of semiconductor
54. COBOL: Common Business Oriented Language
55. CPU: Central Processing Unit It interprets and carries
out instructions, performs numeric computations, and
controls the peripherals connected to it
56. Data bus: A group of parallel conductors found on the
motherboard that is used by the CPU to send and receive
data from all the devices in the computer.
57. Data mining: Sorting through data to identify patterns
and establish relationships
58. DDR: Stands for "Double Data Rate"
59. Decoder: A circuit or device that restores a coded signal
to its original form based on knowledge of the process used
to code the signal
60. Decryption: It is the process of converting encrypted
data back into its original form, so it can be understood
61. Dedicated line: It is a phone line meant specifically for
one thing, like being attached to a computer
62. Demodulation: It is the process of converting analog
information into digital information
63. DLL: Dynamic Link Library
64. DNS: Domain Name Server it is the system used on the

internet for maping names to the actual numerical


addresses of machines on the Internet
65. DOS: Disc Operating System
66. Domain name: A name that identifies one or more IP
addresses
67. Driver: A programme that controls a device. Every
device, whether it be a printer, disk drive, or keyboard, must
have driver program
68. EBCDIC: Extended Binary Coded Decimal Interchange
Code
69. Email: Stands for electronic mail. It is a system of
relaying messages across the Internet from one internet
user to another
70. Encryption: It is the process of converting data into
"unreadable code" so that unauthorized people cannot
understand the contents
71. Ethernet: A networking system that enables high speed
data communication over coaxial cables
72. Executable file: A file in a format that the computer can
directly execute
73. FAQ: Frequently asked questions
74. GUI: Graphical User Interface
75. FTP: File transfer protocol
76. HTML: Hyper Text Markup Language
77. HTTP: Stands for Hyper Text Transport Protocol
78. Icon: A small video display that acts as an activation link
when clicked on
79. ISP: Internet service provider
80. ISDN: Integrated Services Digital Network
81. Java: A high level programming language developed by
Sun Microsystems
82. LAN: a computer network that spans a relatively small

area
82. LCD: Abbreviation of liquid crystal display, a type of
display used in digital watches and many portable
computers
83. Linux: A version of UNIX that runs on a variety of
hardware platforms. It is open source software, which is
freely available
84. Kilobyte: This is about thousand bytes of space. It is two
to the 10th power of 1024 bytes
85. MPEG: Motion Picture Experts Group
86. Peer to Peer: A type of network in which each
workstation has equivalent capabilities and responsibilities
87. Pen drive: A small device that can be used to easily
transfer files between USB-compatible systems
88. Processor: A processor is a device that processes
programmed instructions and performs tasks
89. RAM: Random Access Memory
90. ROM: Read Only Memory
91. Serial Port: A port or interface that can be used for serial
communication, in which only 1 bit is transmitted at a time
92. SMTP: Simple Mail Transfer Protocol
93. Spam: This is to transmit unwanted messages, usually
over email, to a great many people
94. SLIP: Serial Line Interface Protocol
95. Switch: In networks, a device that filters and forwards
packets between LAN segments. LANs that use switches to
join segments are called switched LANs or, in the case of
Ethernet networks, switched Ethernet LANs
96. WWW: World Wide Web
97. Virus: A program or piece of code that is loaded into the
computer without the knowledge of the computer user and
runs against the wishes of the user

98. WAN: Wide Area Network


99. Weblog: This is publicly accessible personal journal for
an individual. Similar to a personal diary, but shared over the
web. The activity of updating a blog is "blogging" and
someone who keeps a blog is a "blogger"
100.ZIP: Stands for Zone Information Protocol. This is an
application that allows for the compression of application
files
:::::::::::::::::::
KNOWLEDGE BANK(KNOWN AND UNKNOWN)

KNOWLEDGE BANK(KNOWN AND UNKNOWN)


NETWORK: It is simply a group of two or more personal
computers linked together for communicating the data or
any other mode of communication.
NETWORKING is the practice of linking two or more
computing devices together for the purpose of sharing data.
They are built with a mix of computer hardware and
computer software.
WINDING UP: It means the life of the company is put to an
end. It is a mode by which the dissolution of the company is
brought about and its assets realized and applied in

payment of its debts and after satisfaction of the debts, the


balance, if any, is paid back to the members in proportion to
the contribution made by them to the capital of the
company.
SECURED CREDITOR: means the creditor in whose favour
the company has created charge on the properties/assets of
the company for due repayment of the loans/advances
availed from him.
CONTRIBUTORY: Every person, such as shareholders,
directors, debtors etc. of the company, who are liable to
contribute to the assets of the company at the time of its
winding up is called contributory.
COURT RECEIVER: Receivers appointed by the court for
keeping the property involved in the suit in safe custody or
for management of the same is called court receiver.
Usually advocates are being appointed as receivers,
however, in some cases depending on the gravity of the
issue may appoint the High Court judges, Civil Court Judges,
District Collector etc also as Receivers to take over the
control of and manage the property in issue.
CREDIT SCORING: It is a technique which is being
increasingly utilized by banks for assessing informationally
opaque borrowers. In developing economies, banks have
started using the credit scoring technique in a big way,
especially for retail lending including housing loans and
credit cards. It is essentially a statistical number that
indicates the level of risk associated with the borrowers.
Higher/lower credit score reflects lower/higher level of risks
of borrowers.
OUTSOURCING: It can be defined as use of a third party to
perform activities on a continuing basis that would normally
be undertaken by the bank itself. Third party or service

provider refers to the entity that is undertaking the


outsourced activity on behalf of the bank.
SIX SIGMA: It is a rigorous methodology that uses data and
statistical analysis to measure and improve a company's
operational performance by identifying and eliminating
"defects" thereby eliminating the cost of defects. Six Sigma
practitioners focus on systematically eliminating the defects
so that they can get as close to "zero defect" as possible.
BANK RATE: It is the rate at which RBI allows finance to
commercial banks. Bank Rate is a tool used by RBI for short
term purposes. Any revision in Bank Rate is a signal to
banks to revise deposit rates as well as Prime Lending rate.
CAPITAL-TIER II: It is also known as supplementary capital
and it comprises of property revaluation reserve,
undisclosed reserves, hybrid capital, subordinated term debt
and general provisions.
INTERMEDIARY AGENCIES: The category comprises of state
sponsored organisations' lending to weaker sections. RBI
also considers the distributors of agricultural inputs and
implements and agencies involved in assisting the
decentralized sector as intermediary agencies.
STATUTORY LIQUIDITY RATIO: (SLR): Under section 24(b) of
the Banking Regulation Act, 1949, every bank is required to
maintain at the close of the business every day, a minimum
proportion of their net demand and time liabilities as liquid
assets in the form of cash, gold and unencumbered
approved securities. The ratio of liquid assets to demand
and time liabilities is known as SLR. Present SLR is 25% and
RBI is empowered to increase SLR upto 40%.
IMMUNIZATION: The construction of an asset and a liability
that are subject to offsetting changes in value.
INDENTURE: It is a formal agreement establishing the terms

of a bond issue
INDEXED BOND: Bonds whose payments are linked to an
index such as a consumer price index.
INDEX FUND: Investment fund designed to match the returns
on a stock market index.
BOUNCE PROTECTION: California has introduced "bounce
protection" a kind of short term, high-interest credit, for its
local banks. Banks can attach it to current accounts without
authorization. The customer may be charged a fee of as
much as $5 each day, if the account is overdrawn or may
have to pay interest on the amount of insufficient funds
REAL EFFECTIVE EXCHANGE RATE: It is an indicator to
grasp a country's international competitiveness in terms of
its foreign exchange rate, as this cannot be known by
examining individual exchange rates between the domestic
and other currencies. It is the product of nominal bilateral
exchange rate between countries and their relative price
differentials. It is a trade-weighted index which gives an
indication of a country's export competitiveness vis--vis
the rest of the world taking into account the effect of its
exchange rate as well as price differentials vis--vis its
trading partners.
INTERNAL RATE OF RETURN: It is the discount rate at which
net present value of cash inflows and cash outflows is zero.
In case of debt instruments, it is the rate at which
instrument's future cash flows, discounted back to today,
equals its price. In a project evaluation IRR should be equal
to the cost of capital or threshold rate of return.
ASSET LIABILITY MANAGEMENT SYSTEM: it is a system to
manage the assets and liabilities of a bank. It aims at
achieving maximum returns while maintaining adequate
liquidity at all times. ALM involves assessment of various

types of risks and altering the asset liability mix-portfolio in


a dynamic way in order to manage risks.
SAMURAI BONDS: They are offered in the Japanese
domestic market by a non-Japanese entity. Lower incidence
of withholding tax is a major attraction for raising funds in
the Japanese markets. Although there is only a small
quantum of saving between the interest charges of a
straight Libor-linked borrowing and Yen-borrowing linked to
a Dollar swap, the withholding tax factor is what makes a
significant difference.
LIQUIDITY ADJUSTMENT FACILITY: It is a monetary tool
used by RBI to modulate the very short term liquidity(daily)
in the system. It does so through repo(repurchase
agreement) and reverse repo transactions. RBI uses repo
operations in the LAF window to inject liquidity into the
system by buying government securities from banks. RBI
uses the reverse repo to suck out liquidity from the system
by selling government securities to banks. LAF has emerged
as the primary tool for monetary control, interest rate
signaling and sterilization operations, among others.
DEMUTUALISATION: It is a process that changes a mutual or
a cooperative association into a public company by
converting the interests of the members into shareholdings.
These holdings can then be traded like the shares of a
company. The objective of such an exercise to change the
structure of exchanges that were originally formed as
trusts. Demutualisation allows such associations to conduct
commercial business, to make profits like any other
corporate entity.