A Brief about Banking

Banking structure in India

History of Indian Banking System

Modern commercial banking started in India with the setting up of the First Presidency Bank, the
Bank of Bengal, in Calcutta in 1809. Two other Presidency Banks were set up in Bombay and
Madras in 1840 and 1843 respectively. These were private shareholders banks, though the East
India company also had a share in capital of each of them. these three banks were merged into
Imperial Bank of India in 1921. The Allahabad Bank and the Punjab National Bank were
established in 1865 and 1894 respectively.
Classification of Commercial Banks

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The commercial banking institutions of the country can be divided into two groups:
(A) Scheduled Banks: Those banks are scheduled banks which have been included in the
Second Schedule of Reserve Bank Act, 1934. The banks included in this scheduled list should
fulfil two conditions:
1. The paid up capital and collected funds of bank should not be less than Rs 5 lakh.
2. Any activity of the bank will not adversely affect the interest of depositors. Every
scheduled bank enjoys following facilities:
1. Such bank becomes eligible for obtaining debts/loans on bank rate from RBI.
2. Such bank automatically acquires the membership of clearing house.
3. Such banks also get the facility of rediscount of first class exchange bills from
RBI. This facility is provided by RBI only if the scheduled bank deposits an
average daily cash fund with RBI which is decided by RBI itself and presents the
recurring statements under the provisions of RBI Act, 1934 and Banking
Regulation Act, 1949.
(B) Non-Scheduled Banks: The banks which are not included in the list of scheduled banks are
called nonscheduled banks. The number of non-scheduled banks is continuously declining. Such
non-scheduled banks also have to follow CRR conditions. But such banks can have these funds
with themselves as no compulsion has been made on non-scheduled banks to deposit CRR funds
with RBI. These non-scheduled banks are not eligible for having loans from RBI for meeting
their day-to-day general activities but under emergency conditions these banks can be granted
loans by RBI.
Co-operative Banks Co-operative banks in India also perform fundamental banking activities
but they are different from commercial banks. Commercial banks have been constituted by an
Act passed by parliament while co-operative banks have been constituted by different States
under various Acts related to co-operative societies of various states. Co-operative bank
organisation in India has three tier set up.
1. State Co-operative Bank is the apex co-operative institution in the state.
2. Central or District Co-operative Bank works as district level.
3. At the lowest level co-operative set-up is Primary Credit Agency which works at
village level.
Primary Agriculture Credit Societies These societies provide short term credit facilities to
agriculture sector. Minimum 10 persons of a village (or area) can form a primary credit society.
These societies grant short term loans (generally one year period) for productive activities but
this period can be extended upto 3 years under special circumstances.
Central (or District) Co-operative Bank The working area of these banks is limited to one
district only. Central Co-operative Bank can be divided into two parts: 1. Co-operative Banking
Union 2. Mixed Central Co-operative Bank The membership of Co-operative Banking Union is
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given to co-operative societies only, while the membership of mixed central co-operative bank
can be granted to both co-operative societies and individuals.
Central Co-operative Bank plays a bridge role between State Co-operative Banks and
Primary Credit Societies.
State Co-operative Bank (SCB) It is the apex co-operative bank of the state. It grants loans to
central Co-operative Banks and regulates their activities. State Co-operative Bank gets loans
from RBI.
State Co-operative Banks and District Central Cooperative Banks are regulated by the
Rural Planning and Credit Department as RBI and supervised by NABARD.
Regional Rural Banks
Regional Rural Banks (RRBs) were established on 2nd October 1975 under the provisions of the
RRB Act 1976 with a view to develope the rural economy. Initially, five RRBs were set up in
the distrct of Moradabad and Gorakhpur (UP), Bhiwani (Haryana), Jaipur (Rajasthan)
and Malda (West Bengal).
Capital share being 50% by the central government, 15% by the state government and
35% by the scheduled bank.
RRBs are working in all states of the country except Sikkim and Goa.
NABARD gives short term and medium term loans to the RRBs.
South Malabar Gramin Bank, (SMGB) a regional rural bank (RRB) sponsored by Canara
Bank is the largest among the RRBs in the country in term of total business.
Uttar Bihar Gramin Bank sponsored by Central Bannk of India, is one of the largest regional
rural bank in india in terms of branch network, staff strength and area.
Prathama Bank, the first Regional Rural Bank of the country was established on 2nd
Otcober, 1975 with its Head Office at Moradabad in terms of the ordinance issued by the
Government of India in 1975. It was sponsored by Syndicate Bank.
Development Banks
Development banks are specialised financial institutions which perform two functions:
1. providing medium and long term finance to private entrepreneurs; and
2. performing various promotional roles conductive to economic development.

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Though development banks provide finance like banks do but they are different from
commercial banks in following ways:
1. they do not seek or accept deposits from the public as ordinary banks do;
2. they provide medium and long-term finance whereas commercial banks provide short
term finance; and
3. they do not merely provide long term finance like any other term lending institution but
as development banks their main role is promotion of economic development by way of
promoting investment and enterprise in their priority areas.
Reserve Bank of India (RBI) The RBI was established under the Reserve Bank of India Act,
1934 on 1st April 1935. It was nationalised on 1st January 1949. It is the Central Bank of India.
The monetary functions of the RBI include control and regulation of money and credit, control of
foreign exchange operations: acting as banker to the Government, bankers bank and lender of
the last resort. The non-monetary functions of the RBI are related to the promotion of sound
banking system. The RBI is instrumental in supervising branch expansion, management and
methods of working and regulation and control of the banking system as a whole.
Functions of RBI
1. Issue of Currency: The Reserve Bank has the sole right of note issue. This covers currency
notes of every denomination, other than one-rupee coins and notes and subsidiary coins which
are issued by finance ministry under government of India but their distribution is the sole
responsibility of RBI.
2. Banker to Government: The Reserve Bank acts as the banker to the Central Government as
also to the governments of the constituent units of Indias federal system. The bank has the
obligation to transact the banking business of the Government of India and accordingly performs
the following functions:
1. accepts money on account of the government;
2. makes payment on its behalf; and
3. carries out exchange remittances and other banking operations, including the
management of public debt. The bank performs similar functions on behalf of the State
Governments by virtue of agreements entered into with them.
3. Bankers Bank: The Reserve Bank acts as a banker to other banks. Banks are required to
maintain a certain percentage of their deposits with the RBI. The minimum cash requirements
can, however, be changed by the Reserve Bank to regulate credit. The Reserve Bank also
provides finance to scheduled banks. They can borrow on the basis of eligible securities.
Besides, financial accommodation is provided in times of need or stringency in the money
market.

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4. Controller of Credit: The Reserve Bank functions as the controller of credit. As such it
regulates the quantity of credit and the rate at which it is made available. Thus, it does through
the use of general and selective controls.
5. Custodian of Foreign Exchange Reserves and Exchange Management: One of the
essential central banking functions of the Bank is that of maintaining the external value of the
rupee. For this purpose it holds most of the nations foreign exchange reserves. Primarily this
aim is achieved by appropriate monetary and fiscal policies, but for planning in India it is being
done with trade policy bearing upon export and import, as also exchange management.
6. Development and Promotional Functions: Besides performing the essential functions of a
central bank, Reserve Bank has been doing valuable work in aiding development, and promoting
saving and banking habits. These tasks are performed through a variety of means by the Bank.
7. Informational and Research Functions: In the performance of its various functions, the
Reserve Bank undertakes collection and dissemination of information, and conducts research is
this field.
The RBI has followed the policy of controlled monetary expansion. It means a balance between
economic growth and control over inflationary tendencies. Methods of credit control used by the
RBI can be divided into Quantitative Control and Qualitative or Selective Control.
Quantitative Controls: The following methods are used:
(i) Bank Rate: It is the rate at which the RBI rediscounts bill of exchange or other commercial
papers. Simply put, bank rate is the rate at which the RBI extends credit to the commercial bank.
Bank rate is also called discount rate.
(ii) Cash Reserve Ratio (CRR): The RBI Act, 1934, stipulates that a commercial bank is
required to keep in cash a portion of its deposits with the RBI: this is known as Cash Reserve
Ratio.
(iii) Statutory Liquidity Ratio (SLR): The Statutory Liquidity Ratio specifies that a
commercial bank invest a designated minimum proportion of its total assets in liquid assets, such
as cash, gold and unencumbered approved securities (not government securities but having the
status of the same). This is in addition to the cash reserve ratio. The SLR cannot be raised
beyond 40%.
(iv) Open Market Operations: These involve the sale and purchase of government securities by
the RBI, the rationale behind this operation being stabilisation of the prices of government
securities and, secondly, controlling the inflationary pressure. Sales have always been greater
than the purchases.

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(v) Selective Credit Control: The techniques of Selective Credit Controls include minimum
margins for lending against specific securities, ceiling on the amount of credit for specific
purposes, discriminatory rates of interest charged on certain types of advances. Through selective
credit control, the RBI tries to maintain sectoral and regional balances.
(B) Qualitative Control: These instruments direct or restrict the flow of credit to specified areas
of economic activity. Of course, some qualitative instruments may have the shade of quantitative
instruments as well. These are:
(i) Margin Requirement: The margin requirement of loan refers to the difference between the
current value of the security offered for loans and the value of loans granted. Suppose, a person
mortgages an article worth Rs 100 with the bank and the bank give him loan of Rs 80. The
margin requirement in this case would be 20 percent. .
(ii) Rationing of Credit: Rationing of credit refers to fixation of credit quota for different
business activities. Rationing credit is introduced when the flow of credit is to be checked
particularly for speculative activities in the economy.
(iii) Direct Action: The central bank may initiate direct action against the member banks in case
these do not comply with its directives. Direct action includes derecognition of a commercial
bank as a member of the countrys banking system.
(iv) Moral Suasion: Sometimes, the central bank makes the member banks agree through
persuation or pressure to follow its directives on the flow of credit. The member banks generally
do not ignore the advice of the central bank.
Important Abbreviations

ADB Asian Development Bank

ADR American Depository Receipt
AFS Annual Financial Statement
ALM Asset Liability Management
APEC Asia Pacific Economic Corporation
ASBA Application Supported by Blocked Amount
ASEAN Association of South East Asian Nation
ASHA Accredited Social Health Activist
ATM Automated Teller Machine
BCBS Basel Committee on Banking Supervision
BIS Bank for International Settlements
BOP Balance of Payments
CAD Capital Account Deficit
CASA Current and Saving Account
CBS Consolidated Banking Statistics India
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CBS Core Banking Solution

CC Cash Credit
CCEA Cabinet Committee on Economic Affair
CD Certificate of Deposit
CD Ratio Credit Deposit Ratio
CORE Centralised Online Real-time Exchange
CP Commercial Paper
CPI Consumer Price Index
CR Capital Receipts
CRA Credit Risk Assessment
CRAR Capital to Risk Weighted Asset Ratio
CRISIL Credit Rating and Information Servies of India Limited
CRR Cash Reserve Ratio
DD Demand Draft
DDS Data Dissemination Standards
DICGC Deposit Insurance and Credit Guarantee Corporation of India
DTAA Double Taxation Avoidance Agreement
ECB European Central Bank
ECB External Commercial Borrowing
ECGC Export Credit and Guarantee Corporation
ECS Electronic Clearing Scheme
EFT Electronic Fund Transfer
EMI Equated Monthly Installment
EPF Employees Provident Fund
EXIM Bank Export Import Bank of India
FATF Financial Action Task Force
FCA Foreign Currency Assets
FCNR Foreign Currency Non-resident
FCNRA Foreign Currency Non-resident Account
FCNRD Foreign Currency Non-Repatriable Deposit
FDI Foreign Direct Investment
FEMA Foreign Exchange Management Act
FI Financial Institution
FICCI Federation of Indian Chambers of Commerce and Industry
FII Foreign Institutional Investor
FPI Foreign Portfolio Investment
FRBM Fiscal Responsibility and Budget Management Act, 2003
FSDC Financial Stability and Develpoment Council
GDP Gross Domestic Product
GDR Global Depository Receipt
G-Sec Government Securities
GSLV Geosynchronous Satellite Launch Vehicle
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GST Goods and Services Tax

IBRD International Bank for Reconstruction and Development
ICAR Indian Council of Agricultural Research
ICICI Industrial Credit and Investment Corporation of India
IDBI Industrial Development Bank of India
IFCI Industrial Finance Corporation of India.
IIP Index of Industrial Production
IMF International Monetary Fund
NEER Nominal Effective Exchange Rate
NEFT National Electronic Fund Transfer
NHB National Housing Bank
NPA Non-Performing Assets
NR(E)RA Non-Resident (External) Rupee Account
NR(NR)RA Non-Resident (Non-Reparable) Rupee Account
NSSF National Small Savings Fund
OD Over Draft
OECD Organization for Economic Cooperation and Development
OMO Open Market Operations
PACS Primary Agriculture Credit Societies
PD Primary Deficit
PDs Primary Dealers
PLR Prime Lending Rate
RD Revenue Deficit
REC Rural Electrification Corporation
REER Real Effective Exchange Rate
RIDF Rural Infrastructure Development Fund
RTGS Real Time Gross Securties
RTP Reserve Tranche Position
SDR Special Drawing Right
SEBI Securities and Exchange Board of India
SEZ Special Economic Zone
SGSY Swarnajayanthi Gram Swarrojgar Yojana
SHGs Self-Help Groups
SIDBI Small Industries Development Bank of India
SIDC State Industrial Development Corporation
SME Small and Medium Enterprises
SSI Small-Scale Industries
STRIPS Separate Registered Interest and Payment System
SWIFT Social World Wide Interbank Financial Telecommunication
TRIPS Trade Realated Intellectual Property Rights
ULIP Unit Linked Insurance Plan
VAT Value Added Tax
WPI Wholesale Price Index
YTM Yield to Maturity
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Important Banking Terms

Anytime Banking: Earlier banking was confined within the working hours only but now with
introduction of ATMs, Tele-Banking and internet banking, customers can conduct their business
anytime of the day and night as and when they have time and all that with convenience.
Anywhere Banking: This has been facilitated not only by ATMs, Tele-Banking and Internet
Banking, but also by Core Banking Solution (CBS) brought in by banks where customers can
deposit their money, cheques and also withdraw money from any branch connected with the
system. All major banks in India have brought in core banking in their operations to make
banking truly Anywhere Banking.
Asset Reconstruction Company (ARC): ARC is an entity that takes over bad loans, known as
Non Performing Assets (NPAs) from banks and financial institutions, creates a market for such
assets and enables a clean-up.
ATM: Short form of Automated Teller Machine, which does the job of a teller in a bank through
Computer Network. ATMs are installed at bank branches and all other important places. These
are useful to dispense cash, receive cash, accept cheques, give balances in the accounts and also
give mini-statements to the customers. Advance ATMs provide almost all the services offered at
branch offices.
Authorised capital: It is the amount of share capital fixed in the Memorandum of Association
and the article of association of a company as required by the Companies Acts (Company Law).
It is also known as nominal capital or registered capital.
Bancassurance: Bancassurance is an important channel of distribution of insurance policies,
wherein banks own and sell the insurance products and bear the risk. In India, however, through
this channel, policies are sold by bank staff at the bank counters, but are not owned by the banks.
This channel is jointly used by banks and the insurance companies.
Bank for International Settlements: The Bank for International Settlements (BIS) (in French,
Banque des Rglements Internationaux (BRI)) is an international organization of central banks
which fosters international monetary and financial cooperation and serves as a bank
for central banks. The BIS carries out its work through subcommittees, the secretariats it hosts
and through an annual general meeting of all member banks.
Bank Ombudsman: This scheme is introduced with the object of enabling resolution of
complaints relating to certain services rendered by banks and to facilitate the satisfaction or
settlement of such complaints. This Scheme was announced in 1995 and is functioning with new
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guidelines from 2007. This scheme covers all scheduled banks, the RRBs and Co-operative
banks.
Bank Custodian: A bank custodian is responsible for maintaining the safety of clients assets
held at one of the custodians premises, a sub-custodian facility or an outside depository.
Bank Statement: Periodically the bank provides a statement of a customers deposit account. It
shows all deposits made, all checks paid, and other debits posted during the period (usually one
month), as well as the current balance.
Banknote: A negotiable promissory note issued by a bank and payable to the bearer on demand.
The amount payable is stated on the face of the note. Banknotes are considered legal tender, and,
along with coins, make up the bearer forms of all modern money. Also known as a bill or a
note. Originally, objects such as gold and silver were used to pay for goods and services.
Eventually, they were replaced by paper money and coins that were backed by precious metals.
Currently, banknotes are backed only by the government
Bankruptcy: The legal proceedings by which the affairs of a bankrupt person are turned over to
a trustee or receiver for administration under the bankruptcy laws. There are two types of
bankruptcy: (a) Involuntary bankruptcy-one or more creditors of an insolvent debtor file a
petition having the debtor declared bankrupt. (b) Voluntary bankruptcy-the debtor files a
petition claiming inability to meet financial obligations and willingness to be declared bankrupt.
Basel Norms: Basel is a city in Switzerland. It is the headquarters of Bureau of International
Settlement (BIS), which fosters co-operation among central banks with a common goal of
financial stability and common standards of banking regulations. Every two months BIS hosts a
meeting of the governor and senior officials of central banks of member countries. Currently
there are 27 member nations in the committee. Basel guidelines refer to broad supervisory
standards formulated by this group of central banks called the Basel Committee on Banking
Supervision (BCBS). On a few parameters the RBI has prescribed stringent norms as compared
to the norms prescribed by BCBS.
Basel I: In 1988, BCBS introduced a capital measurement system called Basel capital accord,
also called Basel I. It focused almost entirely on credit risk. It defined capital and structure of
risk weights for banks. The minimum capital requirement was fixed at 8% of risk weighted
assets (RWA). RWA means assets with different risk profiles. For example, an asset backed
by collateral would carry lesser risks as compared to personal loans, which have no collateral.
India adopted Basel I guidelines in 1999.
Basel II: In June 2004, Basel II guidelines were published by BCBS, which were considered to
be the refined and reformed versions of Basel I accord. The guidelines were based on three
parameters, which the committee calls pillars: Capital Adequacy Requirements: Banks should
maintain a minimum capital adequacy requirement of 8% of risk assets: Supervisory
Review: According to this, banks were needed to develop and use better risk management
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techniques in monitoring and managing all the three types of risks that a bank faces, viz. credit,
market and operational risks: Market Discipline: This need increased disclosure requirements.
Banks need to mandatorily disclose their CAR, risk exposure, etc to the central bank. Basel II
norms in India and overseas are yet to be fully implemented.
Basel III: In 2010, Basel III guidelines were released. These guidelines were introduced in
response to the financial crisis of 2008. A need was felt to further strengthen the system as banks
in the developed economies were under-capitalized, over-leveraged and had a greater reliance on
short-term funding. Also the quantity and quality of capital under Basel II were deemed
insufficient to contain any further risk. Basel III norms aim at making most banking activities
such as their trading book activities more capital-intensive. The guidelines aim to promote a
more resilient banking system by focusing on four vital banking parameters viz. capital,
leverage, funding and liquidity.
Bill of Exchange: A non-interest-bearing written order used primarily in international trade that
binds one party to pay a fixed sum of money to another party at a predetermined future date.
Bills of exchange are similar to cheques and promissory notes. They can be drawn by individuals
or banks and are generally transferable by endorsements. The difference between a promissory
note and a bill of exchange is that this product is transferable and can bind one party to pay a
third party that was not involved in its creation. If these bills are issued by a bank, they can be
referred to as bank drafts. If they are issued by individuals, they can be referred to as trade drafts.
Bitcoin: Bitcoin is a digital currency created in 2009. It follows the ideas set out in a white paper
by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Bitcoin offers
the promise of lower transaction fees than traditional online payment mechanisms and is
operated by a decentralized authority, unlike government-issued currencies. There are no
physical Bitcoins, only balances associated with public and private keys. These balances are kept
on a public ledger, along with all Bitcoin transactions, that is verified by a massive amount of
computing power.
Bouncing of a Cheque: Where an account does not have sufficient balance to honour the cheque
issued by the customer , the cheque is returned by the bank with the reason funds insufficient
or Exceeds arrangement. This is known as Bouncing of a cheque'.
Breakeven Point (BEP): 1. In general, the point at which gains equal losses. 2. In options, the
market price that a stock must reach for option buyers to avoid a loss if they exercise. For a call,
it is the strike price plus the premium paid. For a put, it is the strike price minus the premium
paid. Also referred to as a breakeven. For businesses, reaching the breakeven point is the first
major step towards profitability.
Brick and Mortar Banking: It refers to traditional system of banking done only in a fixed
branch premises made of brick and mortar. Now there are other banking channels like ATM,
Internet Banking, telephone-banking etc.

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Bridge Loan: A short-term loan that is used until a person or company secures permanent
financing or removes an existing obligation. This type of financing allows the user to meet
current obligations by providing immediate cash flow. The loans are short-term (up to one year)
with relatively high interest rates and are backed by some form of collateral such as real estate or
inventory. Also known as interim financing, gap financing or a swing
loan. As the term implies, these loans bridge the gap between times when financing is needed.
CAMELS Rating System: An international bank-rating system where bank supervisory
authorities rate institutions according to six factors. The six factors are represented by the
acronym CAMELS. The six factors examined are as follows:
C - Capital adequacy A - Asset quality M - Management quality E Earnings L Liquidity S Sensitivity to Market Risk Bank supervisory authorities assign each bank a score on a scale of
one (best) to five (worst) for each factor.
Capital Account: A national account that shows the net change in asset ownership for a nation.
The capital account is the net result of public and private international investments flowing in
and out of a country. May also refer to an account showing the net worth of a business at a
specific point in time. The capital account includes foreign direct investment (FDI), portfolio and
other investments, plus changes in the reserve account.
Cancelled Cheque: A cheque that a bank has paid, charged to the account holders account, and
then endorsed. Once cancelled, a check is no longer negotiable.
Capital Account Convertibility (CAC): Capital account convertibility is a feature of a
nations financial regime that centres on the ability to conduct transactions of local financial
assets into foreign financial assets freely and at country-determined exchange rates. It is
sometimes referred to as capital asset liberation. In laymans terms, full capital account
convertibility allows local currency to be exchanged for foreign currency without any restriction
on the amount.
Capital Adequacy: The Reserve Bank of India has instructed banks to maintain adequate
capital on a continuous basis of the capital is measured in terms of Capital to Risk-Weighted
Assets Ratio (CRAR). Under the recently revised framework, banks are required to maintain
adequate capital for credit risk, market risk, operational risk and other risks. BASEL II
standardised approach is applicable with road map drawn up for advanced approaches.
Capital Expenditure: Funds used by a company to acquire or upgrade physical assets such as
property, industrial buildings or equipment
Capital Gain: An increase in the value of a capital asset (investment or real estate) that gives it a
higher worth than the purchase price. The gain is not realized until the asset is sold. A capital
gain may be short-term (one year or less) or long-term (more than one year) and must be claimed
on income taxes.
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Capital Market: A market in which individuals and institutions trade financial securities.
Organizations/ institutions in the public and private sectors also often sell securities in the capital
markets in order to raise funds. Thus, this type of market is composed of both the primary and
secondary markets. Both the stock and bond markets are parts of the capital markets.
Cashiers Cheque: A cheque drawn on the funds of the bank, not against the funds in a
depositors account. However, the depositor pays for the cashiers check with funds from their
account. The primary benefit of a cashiers cheque is that the recipient of the cheque is assured
that the funds are available.
Certificate of Deposit: It is a savings certificate entitling the bearer to receive interest and bears
a maturity date, a specified fixed interest rate and can be issued in any denomination. CDs are
generally issued by commercial banks and are insured by the FDIC.
Cheque: Cheque is a bill of exchange drawn on a specified banker ordering the banker to pay a
certain sum of money to the drawer of cheque or another person. Cheques may be current or
postdated.
Cheque Truncation: It truncates or stops the flow of cheques through the banking system.
Generally truncation takes place at the collecting branch, which sends the electronic image of the
cheques to the paying branch through the clearing house and stores the paper cheques with it.
Credit Information Bureau (India) Limited (CIBIL): It is Indias first Credit Information
Company (CIC) founded in August 2000. CIBIL collects and maintains records of an
individuals payments pertaining to loans and credit cards.
Clearing House: Clearing house is a place where local bankers assemble and exchange cheques
drawn on each other. This saves time. Normally, it is conducted at RBI or SBI or Lead Bank of
the area.
Corporate Social Responsibility: Corporate initiative to assess and take responsibility for the
companys effects on the environment and impact on social welfare. The term generally applies
to company efforts that go beyond what may be required by regulators or environmental
protection groups. Corporate social responsibility may also be referred to as corporate
citizenship and can involve incurring short-term costs that do not provide an immediate
financial benefit to the company, but instead promote positive social and environmental change.
Currency appreciation: It is the increase in the exchange rate of one currency in terms of other
currencies. The term is usually applied to a currency with a floating rate of exchange; upward
changes in fixed rate of exchange are called revaluations.
Currency depreciation: It is the fall in the exchange rate of one currency in terms of other
currencies.The term is usually applied to floating exchange rates. Downward changes in fixed
rates of exchange are called devaluations.
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Current Account: Current account with a bank can be opened generally for business purposes.
There are no restrictions on withdrawals in this type of account. No interest is paid on this type
of account.
Dear Money: A situation in which money or loans are very difficult to obtain in a given country.
If you do have the opportunity to secure a loan, then interest rates are usually extremely high.
Also known as tight money. This situation can be a result of a restricted money supply,
causing interest rates to be pushed up due to the forces of supply and demand. Businesses may
have a tough time raising capital during a period of dear money.
Debenture: A debenture is an instrument in which the issuer (company) undertakes the
obligation to repay the face value of the debenture to its holder at the end of a pre-determined
period. Besides a fixed life span, debentures carry a specified coupon rate at which the holder
earns interest on it.
Debit Card: A plastic card issued by banks to customers to withdraw money electronically from
their accounts. When you purchase things on the basis of Debit Card the amount due is debited
immediately to the account. Many banks issue Debit-Cum-ATM Cards.
Debts Recovery Tribunal: The Debts Recovery Tribunal have been constituted under Section 3
of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The original aim of
the Debts Recovery Tribunal was to receive claim applications from Banks and Financial
Institutions against their defaulting borrowers.
Demat Account: Demat Account concept has revolutionized the capital market of India. When a
depository company takes paper shares from an investor and converts them in electronic form
through the concerned company, it is called Dematerialization of Shares. These converted Share
Certificates in Electronic form are kept in a Demat Account by the Depository Company, like a
bank keeps money in a deposit account. Investor can withdraw the shares or purchase more
shares through this demat Account.
Dishonour of Cheque: Non-payment of a cheque by the paying banker with a return memo
giving reasons for the non-payment.
Drawee: Drawer: The person who writes a cheque or draft instructing the drawee to pay
someone else.The person (or bank) who is expected to pay a cheque or draft when it is
presented for payment.
Electronic Funds Transfer (EFT): The transfer of money between accounts by consumer
electronic systems such as automated teller machines (ATMs) and electronic payment of
billsrather than by check or cash. (Wire transfers, cheque, drafts, and paper instruments do not
fall into this category.)

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Hot money: It refers to the money that flows regularly between financial markets, as investors
attempt to ensure they get the highest short-term interest rates possible. Hot money will flow
from low-interest-rate-yielding countries into higher-interest-rates countries by investors looking
to make the highest return.
Hyperinflation: It refers to extremely rapid or out-ofcontrol inflation. There is no precise
numerical definition to hyperinflation. Hyperinflation is a situation where the price increases are
so out of control that the concept of inflation is meaningless.
Inflation: Infrastructure: The roads, ports, railways, airports, power lines, pipes and wires that
enable people, goods, commodities, water, energy and information to move about efficiently are
referred to as infrastructure. Increasingly, infrastructure is regarded as a crucial source of
economic competitiveness.Inflation means less goods for your buck, as it erodes the purchasing
power of a unit of currency. Inflation usually refers to consumer prices, but it can also be applied
to other prices (wholesale goods, wages, assets, and so on). For much of human history, inflation
has not been an important part of economic life.
Libor: An abbreviation for London Inter Bank Offered Rate, which is an average of the interest
rates at which leading international banks are prepared to offer term deposits to each other.
MIBOR and MIBID: On 15th June 1998, the National Stock Exchange (NSE) launched two
new Reference Rates for the loans of Inter-Bank Call Money Market. These rates are Mumbai
Inter-Bank Offered Rate (MIBOR) and Mumbai Inter-Bank Bid Rate (MIBID). MIBOR will be
the indicator of lending rate for loans while MIBID will be the lending rate for receipts.
Non-Resident Accounts: Indian citizens who have gone abroad for gainful employment and
persons of Indian origin residing abroad can open bank account in India out of funds received
from abroad or out of funds due to them in India. Non-resident (ordinary) and non-resident
(external) rupee accounts are the types of non-resident deposit accounts.
Non-Resident (External Rupee) Account: Non-resident Indians can open NRE account by
remittance in the form of foreign exchange from abroad or with foreign travellers cheques,
foreign currency, etc. Local credits are not allowed. In respect of term deposits, NRE balance
holders are entitled to higher rate of interest as per RBI directives. The balance in the account is
eligible for repatriation abroad without permission from RBI. These a/c holders are also eligible
for certain exemptions from IT/WT etc.
Non-Resident (Ordinary) Account: When Indian residents go abroad for gainful employment
their bank accounts will be converted into non-resident ordinary accounts.. Other non-residents
can also open such bank accounts. The debits and credits are allowed as per rules. The balance in
this account is not eligible for automatic repatriation abroad.

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Refinancing: A way of obtaining a better interest rate, lower monthly payments, or borrow cash
on the equity in a property that has built up on a loan. A second loan is taken out to pay off the
first, higher-rate loan.
Securities: It refers to income-yielding and other papers traded on the Stock Exchange or in
Secondary Markets. It is usually a synonym for stocks and shares. An essential characteristic of a
security is that it is saleable. The main types of security are: (a) Fixed interest: Debentures,
Preferential Shares, Stocks and Bonds (including all government securities and local authority
securities); (b) Variable interest: Ordinary Shares; (c) Others: Bills or Exchange, Assurance
policies, Warrants. Securities may be Redeemable or Irredeemable, quoted or unquoted.
Sensex: An abbreviation of the Bombay Exchange Sensitive Index (Sensex) - the benchmark
index of the Bombay Stock Exchange (BSE). It is composed of 30 of the largest and most
actively-traded stocks on the BSE. Initially compiled in 1986, the Sensex is the oldest stock
index in India.
Soft Money: The one-time funding from governments and organizations for a project or
special purpose. Paper currency, as opposed to gold, silver, or some other coined metal. A good
example of soft money is the campaign funding that politicians get during election years. The
money received is not recurring and it is to be used explicitly for election related expenses.
Special Drawing Rights (SDRs): The Special Drawing Right (SDR) is a form of international
reserve assets, created by the IMF (in 1967), whose value is based on a portfolio of widely used
currencies.
Terms: The period of time and the interest rate arranged between creditor and debtor to repay a
loan.
Time Deposit: A time deposit (also known as a term deposit) is a money deposit at a bank that
cannot be withdrawn for a certain term or period of time. When the term is over it can be
withdrawn, or it can be held for another term. The longer the term, the better the yield on the
money. Generally, there are significant penalties for early withdrawal.

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