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BANKING TERMINOLOGY

Account

Refers to a running record of transactions which
are taking place between two transactors, who
may be in two departments of one business and a
basic element in all systems of recording business
transactions. In retail trading it refers to the credit
facility which is automatically extended to a customer
with whom an account is operated.

Annuity

A regular annual payment of money purchased by an
immediate lumpsum prepayment.

Asset

When the balance sheet of a business is drawn up,
everything which it owns at the time which has a
money value is listed as an asset. They may be
classified as:
(1) Current Assets – consisting of cash, stock and
book debts.
(2) Fixed Assets – consisting of buildings, plant and
machinery.
(3) Intangible Assets – being the value of goodwill,
patents.

Bail Out

To rescue a company which is in financial difficulties.
Ex: The US government recently bailed out insurance
company AIG.

Balance Sheet

This is an ordered statement of the economic
resources or assets of a company or other business
organisation, each item having a value set upon it; the
financial claims of persons or organizations upon the
value of these assets.

Bank Credit

Refers to the lending by the banking system, by
whatever means: bank advances, discounting bills or
purchasing securities.

Bank Deposits

The funds deposited in bank accounts. In reality they
are simply records of indebtedness of a bank to the
depositor and they arise from the character of banks
as financial intermediaries.

Bank Note

A note issued by a bank for a sum of money which it
promises to pay the bearer on demand.

Bank Rate

Bank Rate is the rate of discount at which the central
bank of the country discounts first class bills. It is the
rate of interest at which the central banks lends
money to the commercial banks. Bank rate is a direct
quantitative method of credit control in the economy.

Bankruptcy

A legal proceeding under which the property of an
insolvent debtor is taken for the benefit of his
creditors generally.

Bill

A short-term debt instrument, which is in the form of
a document ordering the drawee (i.e., the debtor) to
pay the drawer (the creditor) a stated sum at a
specified date, or ‘at sight’ which means on demand.
Once it is accepted, i.e., signed by the drawee (who
may be an accepting house or bank) and ‘endorsed’,
i.e., signed on the back by the acceptor, a bill
becomes negotiable and may get discounted, i.e.,
sold at a discount on its face value, at a rate which
reflects current short term rates of interest.

Bill of Exchange

A Bill of Exchange is an instrument in writing,
containing an unconditional order, signed by the
banker, directing a certain person to pay a certain
sum of money only to or to the order of a certain
person or to the bearer of the instrument.

Bridge Loan

A loan made by a bank for a short period to make up
for a temporary shortage of cash.

Call Loan

A loan which may be terminated or called at any time
by the lender or borrower.

Call Money

Funds borrowed by discount houses from the clearing
houses banks in many countries, and which they
employ in holding a portfolio of assets. A high
proportion of these funds are borrowed literally “at call.”

Capital Asset

The term used for an asset, which is not bought or
sold as part of the everyday running of a business.
Examples include real estate, plant equipment.

Capital Expenditure

Expenditure of a non-recurrent nature resulting in the
acquisition of assets.

Cash

Money in the form of bank notes and coins.


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Cash cow

Units in large business enterprises which yield high
earnings but often have low growth potential.

Cash Discount

A deduction from a price charged payment made
before a certain date

Cash Flow

Refers to the sum of retained earnings and
depreciation provision made by firms. As such it is the
source of internally generated long – term funds
available to the company.

Cash Reserve Ratio (CRR)

Refers to the liquid cash that banks have to maintain
with the Reserve Bank of India (RBI) as a certain
percentage of their demand and time liabilities.

Certificate of Deposit (CD)

A document, which is issued by a bank acknowledging
a deposit of money with it and constituting a promise
to repay that sum, to the bearer, at a specified future
date. It is negotiable i.e., can be transferred.

Cheap Money

A term used to describe a situation where bank rate
and other rates of interest are low. A policy of cheap
money may be adopted in a time of industrial
depression to stimulate recovery.

Cheque

A cheque is a bill of exchange drawn on a specified
banker and not expressed to be payable otherwise on
demand.

Collateral Security

An additional security in addition to the personal
security offered by a borrower.

Commercial Banks

A general term denoting those banks, which conduct
a general rather than a specialized type of business.
They accept deposits, make advances, etc.

Consumer Credit

Refers to a loan, which is given to the consumer for
a short period of time, for the purchase of a specific
commodity. This can take the form of hire purchase or
be in the form of a personal loan from a bank.

Credit

A wide term which has been used in connection with
operations or states involving lending, generally at
short-term. To ‘give credit’ is to finance, directly or
indirectly, the expenditure of others against future
repayment.

Credit Card

A card which is issued by a bank or group of bodies
or other agency which provides the holder direct
access to credit e.g., from a merchant location, hotel
etc., or, in the case of some cards issued by banks, to
cash from the banks operating the particular scheme.

Credit Rating

Means an evaluation of the soundness of an
individual or business firm as a credit risk. It is usually
based on
(1) company’s track – record
(2) company’s current and prospective business
(3) financial risk
(4) quality of management.

Crossing

This means drawing two parallel lines across the face
of a cheque, the effect of which is to make it
necessary to pay it into a banking account.

Dear Money

A period when rates of interest are high, so that
borrowing is expensive.

Debt

Refers to a sum of money, or quantity of goods or
services, owned by one individual or body to another.

Deed

A deed is a legal document or written agreement.
There are different types of deeds viz, deed of
assignment, deed of partnership etc.,

Demand Draft

A Demand Draft is a Bill of Exchange and negotiable
instrument.

Demonetisation

To deprive a coin or note of its value

Devaluation

Refers to a fall in the external value (or exchange
rate) of one currency vis-à-vis other currency.

Discount

(1) An inducement offered by a creditor to debtors to
pay promptly. (Cash Discount).
(2) A deduction from the catalogue price of an article
generally allowed by a wholesaler to a retailer,
that is, trade discount.

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(3) With reference to a bill of exchange, to discount
a bill means to acquire it by purchase for a sum
less than its face value, the amount of this
discount depending partly on the length of the
unexpired term of the bill and partly on the
amount of risk involved.
(4) When a recently issued stock falls below its issue
price it is said to stand at a discount.

Dishonour

A Bill of Exchange is dishonoured when the drawee
has insufficient funds to discharge it when it falls due
for payment. Similarly, a cheque is dishonoured when
the drawee has insufficient funds to meet it.

Drawer

One who makes out or writes the cheque.

Drawee

Person or bank asked to make payment by the
drawer.

Easy Money

Refers to a general state of ease and cheapness of
borrowing in the financial system. It may result from
policy action to reduce interest rates, increase
liquidity of the banking system, release any non-price
restrictions on lending like credit ceilings and
restrictive conditions on hire-purchase contracts.

Fiat Money

Money which the State declares to be legal tender.

Finance

The term is applicable to funds from almost any
source which is used to undertake any kind of
expenditure.

Hot Money

Money that moves across country/borders in
response to interest rate differences and that, which
moves away when the interest rate differential
disappears.

Hypothecation

Refers to the pledging of securities as collateral; for
example to secure the debit balance in a margin
account.

Idle Money

An inactive money that does not contribute to
productive assets in an economy. It results from what
Keynes called ‘Liquidity Preference’ i.e.; the desire to
hold money rather than risk it on interest-earning
assets, or goods which may have little utility.
Insolvent

Means the state of being unable to pay one’s debts.

Interest

A payment by a borrower for the use of a sum of
money for a period of time. It is the reward for the use
of capital in the process of production.

Lease

The term used for an agreement in which one agent
obtains the right of use of some property owned by
another agent for a given period of time in return for
an agreed fixed charge (which is generally paid in
periodic instalments).

Letter of Credit

A document which is issued by a bank on behalf of a
customer which guarantees payment by the bank of
cheques drawn by the customer, or more commonly
today of bills drawn on that customer by parties from
whom he has bought goods. Letters of Credit are
used largely in association with bills of exchange, to
which they give added security in the financing of
foreign trade.

Letter of Hypothecation

The term used for a letter from an exporter to his
bank authorizing it, in the event of the importer failing
to accept or pay a bill of exchange, to sell the goods
exported and remit the proceeds less expenses.

Liabilities

Refers to any claims, actual or potential, of an
individual or institution. The term usually refers to
financial liabilities of which the commonest form has
been a debt of any kind. Thus, some deposits, which
are bankers’ debts, are commonly termed as ‘deposit
liabilities’.

Lien

Means a claim against property. A bond is usually
secured by a lien against specified property of the
company.

Liquid Assets

Means assets either in the form of money or which
can be quickly converted into money.

Liquidity

The term indicates availability of cash, and of assets
readily convertible into cash (called liquid assets), to
meet immediate obligations; a volume of reserves
plus credit facilities, reflected in an ability to meet
current financial liabilities in cash.


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Mortgage

Refers to the conveyance of property by a debtor
(mortgager) to a creditor (mortgagee) as security for a
debt, with a condition that the property will have to be
reconveyed on payment of the debt.

Micro finance

A type of banking service that is provided to
unemployed or low income individuals or groups who
would otherwise have no other means of getting
those services.

Near Money

Assets which are readily convertible into money e.g.
deposit accounts, deposit with savings banks and
building societies, and certain short-term agreement
securities.

Negotiable Instrument

A claim, the title to which passes by delivery.
Examples of such claims include bills of exchange,
cheques, promissory notes, dividend warrants and
debentures payable to bearer. Transfer is by delivery
only. A bill of exchange payable to a certain person
‘only’ is not a negotiable instrument. Neither is a
cheque with ‘not negotiable’ written on it. Bill of
Lading, Dock Warrants, and Postal Orders are not
negotiable.

NINJNA

Sub-Prime borrowers can be categorized as
“NINJNA” i.e., No Income, No Job and No Asset.

Overdraft

Refers to a system of bank lending, by which the
borrower is permitted to draw cheques beyond the
credit balance in his account, up to an agreed limit,
and to pay interest only on the daily amounts by
which the account is overdrawn.

Paper Note

A general term which is used for money in the form of
bank notes.

Pass Book

A book supplied to customers by a bank, in which
entries are made of all deposits and withdrawals.

Prime Lending Rate (PLR)

Interest rate charged by banks to their largest, most
secure and credit worthy customers on short-term
loans.

Probation

Probation is a period when a new worker is being
tested before getting a permanent job.

Pro Forma

An invoice sent to a buyer before the goods are sent,
so that payment can be made or business documents
can be produced.

Repo

Repo is a short term for repurchase agreement for
RBI selling a government security at a competitive
rate in the market to absorb what it considers is
excess liquidity. The buyers are either banks or
registered primary dealers.

Repo Rate

A transaction where funds are borrowed through the
sale of short term securities by the money market to
the Central Bank. It is a means of relieving short term
shortage of funds and used as a device for monetary
control.

Reverse Repo Rate

The sale of securities is by the central bank to the
money market.

Revolving Credit

A loan facility that is renewed as it is repaid and may
be used repeatedly. Also termed as open end credit.
A credit card limit is a form of revolving credit.

Securitisation

The process of converting a bank loan into a
marketable, negotiable security.

Statutory Liquidity Ratio (SLR)

Refers to the amount that all banks require to
maintain in cash or in the form of Gold or approved
securities.

Sub Prime Crisis

The crisis in the financial services sector starting in
the United States due to sanctioning of loans to “sub-
prime borrowers” [sub-standard borrowers]

Sweep facility

An automatic service available on some bank
accounts that shifts credit balances into a deposit
account where they will earn interest.




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NOTE ON BANKING

Bank – Definition

A bank is a financial institution which accepts money
from the people in the form of ‘Deposits’ and gives
advances to them in the form of “Loans”.

Deposits are of two types
1. Demand Deposits
Eg: Current Account / Savings Account.
2. Term/Time Deposits
Eg: Fixed Deposits / Recurring Deposits.

Current Account:
• Generally maintained by businesspersons / large
institutions / companies.
• No interest is paid for balances in the account.
• There are no restrictions on the number
transactions.
• Overdraft (OD) can be extended in this account,
at the discretion of the bank.

Savings Account:
• Generally maintained by individuals.
• Nominal rate of interest will be paid on the
balances in this account.
• There are restrictions on the number of withdrawals.

Fixed Deposits:
• A lumpsum amount will be deposited in this account.
• The depositor cannot withdraw the amount before
the due date. [However, premature closure is
allowed with certain conditions]
• A higher rate of interest is paid in this account, as
compared to savings account.

Recurring or Cumulative Deposits:
• A particular fixed amount or instalment is
deposited in this account every month.
• This account is useful to build a capital sum
through regular small savings.

Loans are of two types
1. Demand Loans:
Eg: Gold Loans, Crop loans.
2. Term Loans:
Eg: Housing loan / Personal Loan.
• Demand Loans are usually repayable in 12 to 18
months.
• Term Loans are repayable in instalments. The
repayment may extend to over twenty years, in
some cases.

History of Banking Development in India

The Banking Regulation Act, 1949 defines the term
Banking as “accepting, deposits for the purpose of
lending or investment, and withdrawable by cheque,
draft, order or otherwise”.

1. The first bank in India was called the Bank of
Hindustan and was established in 1770 by
Alexander and Co, at Calcutta, under European
Management.
2. Presidency Banks were established by the
British: Bank of Bengal in 1806, followed by Bank
of Bombay in 1840, and Bank of Madras in 1843.

3. The first bank with limited liability, managed by
Indians, was Oudh Commercial Bank founded in
1881. Subsequently, Punjab National Bank was
established in 1894. Allahabad Bank was
established in 1865.

4. In 1921, all Presidency Banks were merged and
renamed as the Imperial Bank of India.

5. The Banking Companies Act was passed in
February 1949, which was subsequently
amended as the Banking Regulation Act, 1949.

6. The largest bank – The Imperial Bank of India –
was nationalized in 1955 and rechristened as
State Bank of India (SBI) followed by formation of
its 8 Associate Banks in 1959. [now seven
associate banks].

7. The period from 1913 to 1918 witnessed a crisis
in the banking sector with as many as 94 banks
collapsing.

8. The Government issued an ordinance on July 19,
1969 acquiring ownership and control of 14 major
banks in the country. Six more Commercial banks
were nationalised from 15 April, 1980. The
fourteen banks nationalised on 19
th
July 1969
were the Central Bank of India, Bank of India,
Punjab National Bank, Canara Bank, UCO Bank,
Syndicate Bank, Bank of Baroda, United Bank of
India, Union Bank of India, Dena Bank, Allahabad
Bank, Indian Bank, Indian Overseas Bank and
Bank of Maharashtra.
[The fourteen banks nationalized had reserves or
deposits of more than Rs.50 crores]
Six banks were nationalized on April 15, 1980.
They had reserves or deposits of more than
Rs.200 crore. The banks were
(1) Andhra Bank
(2) Punjab & Sind Bank
(3) New Bank of India
(4) Vijaya Bank
(5) Corporation Bank
(6) Oriental Bank of Commerce

9. Regional Rural Banks [RRBs] (also known as
Grameena Banks) were formed in 1975, initially
in Uttar Pradesh, Haryana, Rajasthan and West
Bengal.

10. The Narsimhan Committee (year) recommended
granting permission for the opening of new
private banks. Ten private banks were granted
permission during 1994 and 1995. These banks
Deposits
Loans

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were known as “New Generation Banks”,
because of their stress on customer friendly and
automation friendly policies Prominent among the
ten banks were ICICI Bank. HDFC Bank and UTI
Bank [now Axis Bank].

Reserve Bank of India:

The Reserve Bank of India is the apex bank or central
bank of the country. Central banks have different
names in different countries. It is Reserve Bank of
India in India, the Bank of England in England, the
Federal Reserve System in America, the Bank of
France in France etc, The central bank is defined as
the bankers’ bank and lender of last resort. Its duty is
to control the monetary base and, through this, to
control the community’s supply of money.

The Reserve Bank of India was setup on the basis of
the Hilton Young commission (1926). The Reserve
Bank of India Act, 1934 (ΙΙ of 1934) provided the
statutory basis for the functioning of the bank, which
commenced operations on April 1, 1935, with a share
capital of 5 crore, and was nationalised in January
1949. It got its membership of Bank of International
Settlements (BIS) in September 1996.

The general administration and direction of the RBI is
managed by a Central Board of Directors consisting
of 20 members which includes the Governor, 4
Deputy Governors, 1 Government official appointed
by the Union Government of India to give
representation to important strata in the economic life
of the country. The head office of Reserve Bank of
India is at Mumbai. At Present Duvvuri Subbarao is
the Governor of RBI.

Functions of RBI:

1. Issue of Notes: The Reserve Bank of India is the
sole authority for the issue currency notes of
various denominations except one-rupee notes.
The Reserve Bank of India acts as the only
source of legal tender (money) because the one
rupee notes issued by the Ministry of Finance are
also circulated through it. The RBI has adopted
the Minimum Reserve System for the issue of
notes. Since 1957, it has been maintaining gold
and foreign exchange reserves of Rs.200 crore,
of which at least Rs.115 crore should be in gold.

2. Banker to the Government: The RBI acts as the
Banker, Agent and Adviser to the Government. It
performs all the banking functions of the state
and central Governments and it also tenders
useful advice to the Government on matters
related to economic and monetary policy. It also
manages the public debt for the Government.

3. Bankers’ Bank: The RBI performs the same
function for the other banks as the other banks
ordinarily perform for their customers. It is not
only a banker to the commercial banks, but it is
also the lender of the last resort.
4. Controller of Credit: The RBI is the controller of
credit i.e., it has the regulatory power to influence
the volume of credit created by banks in India. It
can do so by changing the Bank rate or through
open market operations. Since, 1956, selective
controls on credit are increasingly being used by
the Reserve Bank. In recent times ‘repo’ and
‘reverse repo’ rates are being increasingly used,
rather than the conventional tool of Bank Rate.

5. Custodian of Foreign Reserves: For the
purpose of keeping the foreign exchange rates
stable the Reserve Bank buys and sells foreign
currencies, and also maintains and protects the
country’s foreign exchange funds.

Structure of Commercial Banks in India

The commercial banking system in India now consists
of public sector scheduled banks and private sector
scheduled as well as non-scheduled bank. In terms of
business, the public sector banks now have a
dominant position. They account for more than 80 per
cent of the entire banking business in the country.

Under the Reserve Bank of India Act, 1934, banks
were classified as scheduled and non-scheduled
banks. The scheduled banks are those which are
entered in the second schedule of RBI Act, 1934. All
commercial banks, Indian and foreign, regional rural
banks, and state co-operative banks are scheduled
banks. Non – scheduled banks are those, which have
not been included in the second schedule of RBI Act,
1934. At present, there are only five non- scheduled
banks in the country. To be included in the second
schedule, a bank (a) must have paid up capital and
reserves of not less than Rs.5 lakhs. (b) It must also
satisfy the RBI that its affairs are not conducted in a
manner detrimental to the interests of depositors.
Scheduled banks are required to maintain a certain
amount of reserves with the RBI.

i. SBI and its Associate Banks: On the
recommendations of the Rural Credit Survey
Committee, the Imperial Bank of India was
converted into the State Bank of India on July 1,
1955. 92 per cent of its shares were acquired by
the RBI, and thus it had the distinction of
becoming the first state owned commercial bank
in the country. In 1959, the State Bank of India
(Associate Banks) Act was passed and this
paved the way for creating the State Bank Group.
Now State Bank of Hyderabad, State Bank of
Bikaner and Jaipur, State Bank of Indore, State
Bank of Mysore, State Bank of Patiala, State
Bank of Saurashtra and State Bank of
Travancore consists of the State Bank Group.
These were the banks of the erstwhile prince by
states.

The State Bank Group comprising the State Bank
of India, and its associates has increased the
number of branches from 2,462 on June 30, 1969
to 13, 684 in June, 2009. (Now State Bank of

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Saurashtra has merged with State Bank of India).
The State Bank of India and its Associate Banks
together account for around 20 per cent of the
total branches of all commercial banks in the
country. The share of the banking business of the
State Bank Group is roughly 29 percent. In 1933,
the State Bank of India Act was amended to
enable it to have access to the capital markets.
The SBI thus raised over Rs.2,400 crore through
public issue. The RBI stake in SBI is now 55 per
cent against 99 per cent earlier. (In March 2010,
Pranab Mukherjee moved the SBI Bill in the Lok
Sabha, which seeks to reduce the Union
Government’s shareholding in the State Bank of
India from 55 per cent to 51 per cent, to allow the
SBI to raise more capital from the market)

ii. Other Nationalised Banks: A second category
of public sector banks is of nineteen commercial
banks, of which fourteen were nationalised on
July 19, 1969. Each one of these fourteen banks
had deposits of Rs.50 crore or more at that time.
After nationalisation of 14 banks there was a
rapid expansion of branch network. On April 15,
1980 six privately owned commercial banks were
nationalised. With the nationalization of these six
banks, the share of the private sector in the entire
banking sector declined to just 9 percent. In
1993, New Bank of India merged with Punjab
National Bank. As a result, the number of public
sector banks other than the State Bank of India
and its Associates declined to nineteen. The total
number of branches of the nineteen nationalized
banks was 38,046 as of 2008.

iii. Other Scheduled Commercial Banks: At
present relatively small scheduled commercial
banks and ten newly established banks with a
network of 5,445 branches are the ones
operating in the private sector. In terms of
branches and also the business done by them,
most of the private sector banks are much
smaller than both nationalized banks and foreign
banks. Their role in the financial system of the
country is just marginal. So far ten new private
sector banks have been set up and three more
proposals for setting up banks in the private
sector have been approved in principle. These
private sector banks (both old and new) account
for less than 15 per cent of both deposits and
aggregate advances.

iv. Regional Rural Banks: Under the chairmanship
of U. Narsimham, the Working Group on Rural
Banks recommended the setting up of these
banks as part of a multi – agency approach to
rural credit. The first bank was set up on October
2, 1975. The regional rural banks meet the credit
requirement of weaker sections, small and
marginal farmers landless labours, artisans and
small entrepreneurs. As of June 2008, there were
196 regional rural banks with a network of 14,832
branches in the country. Ninety per cent of these
have been opened in rural areas and unbanked
centres.
v. Foreign Banks: As of June 30, 2009 the country
had 29 foreign banks with 273 branches located
mainly in big cities. Apart from financing of
foreign trade, these banks had made significant
contribution to the development of banking habits
in the country as they have performed all the
functions of a commercial bank, including
acceptance of deposits and lending of funds for
trade and commerce.

vi. Lead Bank Scheme: The idea of the Lead Bank
Scheme was mooted by the Gadgil Study Group
in 1969. It had the backing of Nariman Committee
also. The Lead Bank had to formulate a plan for
the banking structure in the districts where such
facilities were lacking at the time of nationalization.
The scheme now function as a way of monitoring
credit flow for social and economic development
in a district.

Foreign Commercial Banks

Foreign banks operating in India are banks of other
countries having their branches in India. At present,
there are about 30 foreign banks having a total of
more than 250 branches in most of the big cities of
the country.

Foreign banks have been operating in India for more
than last 100 years but new economic policies
implemented in 1990s encouraged many international
banks to open their branches in India.

Foreign banks in India have brought in the latest
technology and new banking practices. This has
helped the domestic banks to improve their
performance and provide better customer service.

Foreign banks also perform the day-to-day banking
functions which include acceptance of deposits and
giving loans. They also issue bank drafts, cheques,
etc., to the customers.

In 2000, Standard Chartered Bank acquired Grindlays
Bank from ANZ Bank. Thus Standard Chartered
Bank, which is based in the United Kingdom, has
become the largest foreign bank operating in India.

Some of the important foreign banks operating in
India are listed below.

Bank Country

1. Standard Chartered Bank UK

2. HSBC UK

3. Royal Bank of Scotland UK

4. Barclays Bank UK

5. Citibank USA

6. JP Morgan Chase Bank USA

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Bank Country

7. Bank of America USA

8. ABN AMRO Bank The Netherlands

9. Abu Dhabi Commercial Bank UAE

10. Bank of Ceylon Sri Lanka

11. BNP Paribas Bank France

12. Societe Generale France

13. China Trust Commercial Bank Taiwan

14. Deutsche Bank Germany

15. Scotia Bank Canada

16. DBS Bank Singapore

Latest developments:

Some more foreign banks are going to start their
operations in India in 2010. Credit Suisse has
received an in-principle approval from RBI permitting
it to open bank branches in India and offer retail and
wholesale banking services. Credit Suisse is a Zurich
(Switzerland) based bank. Goldman Sachs has also
approached the RBI for a banking licence. The
Australia and New Zealand Banking Group (ANZ) has
received an in-principle banking licence on March 3,
2010.

The Industrial and Commercial Bank of China (ICBC),
the largest bank in China, is also planning to open
branches in India by the year end.

CIMB Bank Berhad (Malaysia), Commonwealth Bank
of Australia (Australia) and FirstRand Bank Limited
(South Africa) are also going to start their operations
in India.

NEW BANKS IN PRIVATE SECTOR

In 1993, in recognition of the need to introduce
greater competition new private sector banks were
allowed to be set up in the Indian banking system.
These banks are called ‘New Generation Private
Banks’.

Based on a review of experience gained on the
functioning of new private sector banks, revised
guidelines were issued in January 2001 for entry of
new banks in the private sector.

The main requirements are:

1. Initial paid-up capital shall be Rs.200 crore; this
will be raised to Rs.300 crore within three years
of commencement of business.
2. Promoters’ contribution shall be a minimum of
40 per cent of the paid-up capital of the bank at
any point of time. Their contribution of 40 per cent
shall be locked in for 5 years from the date of
licensing of the bank and excess stake above
40 per cent shall be diluted after one year of the
bank’s operations.

3. Initial capital other than promoters’ contribution
could be raised through public issue or private
placement.

4. Non-Banking Finance Companies (NBFCs) with
good track record can become banks.

5. A minimum capital adequacy ratio of 10 per cent
shall be maintained on a continuous basis from
commencement of operations.

6. Priority sector lending target is 40 per cent of net
bank credit, as in the case of other domestic
banks. These new private banks should open 25
per cent of the branches in rural/semi-urban
areas.

Some of the New Generation Private Banks:

1. ICICI Bank

2. HDFC Bank

3. Axis Bank (previously called UTI Bank)

4. IndusInd Bank

5. Kotak Mahindra Bank

6. Development Credit Bank

7. Yes Bank

Yes Bank was granted licence in 2004. Rabo Bank, a
Dutch bank, has stake in Yes Bank.

Global Trust Bank, a new generation private bank,
was amalgamated with Oriental Bank of Commerce
on August 14, 2004. Oriental Bank of Commerce is a
nationalized bank.

Latest developments:

The country is likely to get several more New
Generation Private Banks with the Finance Minister
Pranab Mukherjee announcing in February 2010 that
RBI is considering new bank licences to promoters in
the private sector and also Non Banking Financial
Companies (NBFCs) if they meet RBI eligibility
criteria.

Corporates such as the Tatas and Birlas have shown
interest in banking licences. Among finance
companies Reliance Capital and Indiabulls have
announced their interest in getting into banking.
Lenders such as Exim Bank and SIDBI are also
interested in a banking licence.

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Foreign Direct Investment (FDI) limit in private sector
banks is 74 per cent.

Co-operative Banks

Co-operation means voluntary association on the
basis of equality and for some common purpose. The
basic principle of co-operation is ‘each for all and all
for each’.

A co-operative bank is an institution established on
co-operative basis and deals in ordinary banking
business. They are different from commercial banks.
Commercial banks have been constituted by an Act
passed by parliament while cooperative banks have
been constituted by different states under various
Acts related to cooperative societies of various states.
Cooperative banks are generally concerned with the
rural and development credit and provide financial
assistance for agricultural and rural activities.

A commercial bank can establish its branches in any
district / state of the country, while cooperative bank
can operate its activities only within limited area.
Cooperative banks cannot open their branches in
foreign countries while commercial banks can operate
in foreign countries.

In India, the cooperative bank organization has a
three tier set up. State Co-operative Bank is the apex
co-operative bank at the state level. Central or District
Cooperative Bank functions at district level. Primary
Agricultural Co-operative Credit Society is at the
village level.

1. Primary Agricultural Cooperative Credit Society
(PACCS): It is a village level institution which
directly deals with rural people. It provides short
term credit facilities to the agriculture sector.
Minimum 10 persons of a village can form a
primary credit society. The management of the
society is under the control of an elected body.

The working capital of the primary credit
societies, comes from their own funds, deposits,
borrowings and other sources. Borrowings are
mainly from central cooperative banks.
Borrowings form the chief source of working
capital of the societies.

Only the members of the societies are entitled to
get loans from them. Low interest rates are
charged on the loans.

The various reconstruction and revival
programmes for PACCSs adopted by Indian
government and RBI have considerably reduced
the number of primary credit societies over the
past three decades. There were 1,61,000
societies in 1970-71. But as on March 31, 2001
there are about 1 lakh primary agricultural credit
societies in India with approximately 10 crore
members. A large number of societies face
severe financial problems due to low recovery
rates.
2. Central Cooperative Banks (CCBs): The working
area of these banks is limited to one district only.
CCBs are of two types:

(a) Cooperative Banking Unions whose
membership is open only to cooperative
societies. This exists in Punjab, Haryana,
Rajasthan, Orissa and Kerala.
(b) Mixed Central Cooperative Banks whose
membership is open to both individuals and
cooperative societies.

CCBs get loans from the state cooperative banks
and give loans to primary credit societies. The
duration of such loans vary from one year to
three years. In this way CCB plays a bridge role
between the state cooperative banks and primary
credit societies.

At the end of March 2004 there were 366 CCBs
in India.

The most distressing feature of the functions of
the central cooperative banks is the heavy and
increasing burden of overdue loans. The main
causes of these overdues are (i) natural
calamities such as floods, droughts, etc. affecting
the repaying capacity of the borrowers and (ii)
inadequate and inefficient supervision exercised
by the banks.

3. State Cooperative Banks (SCBs): SCBs are the
apex institutions in the three-tier cooperative
credit structure, operating at the state level. Every
state has a state cooperative bank.

SCB grants loans to central cooperative banks
and regulates their activities. SCB gets loans
from RBI. SCB acts as a link between RBI and
Central Cooperative Banks.

Borrowings of SCBs are mainly from the Reserve
Bank of India and the rest from state
governments.

Advantages of co-operative credit institutions:

1. It provides an effective alternative to the
traditional defective credit system of the village
money-lender.

2. Co-operative societies charge comparatively low
interest rates vis-a-vis the money-lenders.

3. Earlier, the cultivators used to borrow for
consumption and other unproductive purposes.
But now, they mostly borrow for productive
purposes. Co-operative societies discourage
unproductive borrowing.

4. Co-operatives help develop the habits of thrift
among the agriculturists by encouraging savings
and investments.


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5. Co-operative credit is available for purchasing
improved seeds, chemical fertilizers, modern
implements, etc. This has helped in the
introduction of better agricultural methods.

Regional Rural Banks (RRBs)

The Regional Rural Banks (RRBs) came into
existence on October 2, 1975. The first RRB in India
was set up in Moradabad in Uttar Pradesh.

The specific objective of RRBs is to provide credit
and deposit facilities to the small and marginal
farmers, agricultural labourers and artisans. The
RRBs have the responsibility to develop agriculture,
trade, commerce and industry in the rural areas.

The RRBs, though basically scheduled commercial
banks, differ from the latter in certain respects such
as: the area of RRBs is limited to a specified region
comprising one or more districts of a state.

The sponsoring banks and the Reserve Bank of India
provide many subsidies and concessions to RRBs to
enable them to function effectively.

The sponsor banks continue to provide managerial
and financial assistance to RRBs. They charge very
low rates of interest on the borrowings of the RRBs.
The cost of staff deputed to RRBs and training
expenses of RRB staff are borne by the sponsor
banks.

National Bank for Agriculture and Rural Development
(NABARD) has the responsibility to lay down policies
for RRBs, to oversee their operations, provide
refinance facilities and attend to problems faced by
them.

RRBs have to act as alternative agencies to provide
institutional credit in rural areas. They are intended to
eliminate money-lenders. RRBs were not set up to
replace co-operative credit societies but to supplement
them.

The Agricultural Credit Review Committee under the
chairmanship of Dr.A.M. Khusro observed that the
weaknesses of RRBs were endemic and non-viability
was built into their structure. The RRBs had
accumulated huge losses. The Khusro Committee
recommended that RRBs should be merged with
sponsor banks.

The Reserve Bank of India appointed the M.C.
Bhandari Committee to suggest measures for
restructuring RRBs.

Most of the recommendations of the Bhandari
Committee are being implemented. The issued share
capital of RRBs has been enhanced from Rs.75 lakh
to Rs.1 crore.

As on September 2007, the total number of RRBs is 95.

RBI has allowed Regional Rural Banks to market
mutual funds through their branches.
Indian Monetary Policy
(Credit Control)

The objective of planned economic development,
adopted by India, required an active monetary policy.
The two standard aims of the policy were:

• Boost economic development.
• Control inflationary pressures.

Monetary Policy, was known as Credit Policy till 1992,
the year which marked the initiation of financial sector
reforms. The Reserve Bank of India is the main
agency for implementing the monetary policy. There
are some important instruments, to achieve a stable
monetary policy:

Bank Rate: It is the rate at which RBI discounts the
bills of exchange. In practice it is the rate at which
RBI lends to other commercial banks. It thus acts as
signal to the economy on the direction of the
monetary policy. Bank rate had a limited impact on
the period before economic reforms (1991) when RBI
would determine the interest rates structure. However
with the delegation of this power to the commercial
banks (except interest rates in priority sectors) the
importance of bank rate has been revived. The bank
rate is at present (as on March 4, 2010) six per cent
but is subject to frequent variation, as RBI uses
changes in Bank Rate to regulate fluctuations in
exchange rate and domestic inflation. In the recent
past Prime Lending Rate (PLR) was decided by
commercial banks with reference to the bank rate and
the deposit position of each bank. [In recent times
apart from bank rate, RBI is using ‘repo’ and ‘reverse
repo’ rates to mop up excess liquidity and inject
liquidity into the system.]

Cash Reserve Ratio (CRR): Every Commercial bank
is required to keep a certain percentage of its
demand and time liabilities (Deposits) with the RBI
(either as cash or book balance). The RBI varies this
ratio as and when it perceives the need to increase or
decrease money supply. RBI is empowered to fix the
CRR at a rate ranging between 3% and 15% (i.e.,
minimum 3%, maximum 15%). At present CRR is
5.75% (As of March 4, 2010). Like the Bank Rate,
CRR is also subject to frequent changes as RBI
intervenes from time to time to correct monetary or
exchange rate imbalances.

Statutory Liquidity Ratio (SLR): All the commercial
banks in the country are also required to keep
(in addition to CRR) a certain percentage of their net
demand and time liabilities (NDTL) as liquid assets in
the shape of cash, gold or approved securities. As
most of SLR money in kept in treasury bills,
government had, in the past been using SLR as a
means to mobilise low cost resources. This abuse of
SLR leads to distortion in the interest rate and credit
supply. In order to overcome this Narasimham
Committee recommended that SLR should be
brought down to 25% (As of March 4, 2010, the
minimum percentage of SLR is 25% and maximum
40%).

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Repo and Reverse Repo Rates: Repo (Repurchase
option) and reverse repo are instruments used by RBI
in day-to-day liquidity management under the
Liquidity Adjustment Facility (LAF). Repo rate is the
rate at which RBI lends to commercial banks and
reverse repo is the rate at which RBI borrows from
commercial banks. In case of inflationary tendencies.
RBI can hike reverse repo rate and absorbs the
excess liquidity in the market. Similarly, in case there
is a perceived need to inject liquidity into the system,
RBI can reduce the repo rate, which will lead to
release of money into the market. RBI occasionally
resorts to the repo route to fine- tune the liquidity
position, without resorting to major policy instruments
such as changes in CRR and Bank Rate. As of March
4, 2010 the repo rate is 4.75% and reverse repo rate
is 3.25%

Open market operations: This refers to the RBI
buying and selling of eligible securities to regulate
money supply. Traditionally RBI was not resorting to
this method. However, after the large inflow of foreign
funds since 1991, RBI has had to step in to stabilise
the flow to avoid excess liquidity.

Objectives of Monetary Policy:

• Stability of external value: Fluctuation in
exchange rate of a currency affects foreign trade
and investment. It is, therefore, important that the
rate of exchange is maintained without violent
fluctuations.
• Maintenance of domestic price level: Fluctuations
in prices affect investment decisions. However,
monetary policy alone cannot ensure the
maintenance of domestic prices, several other
factors such as erratic monsoons, changes in
tastes, fluctuation in world prices etc, affects
domestic prices.
• Reducing the impact of business cycles (Slumps
and booms) by manipulation of credit and interest
policy. However economists are not of the same
opinion on whether business cycles are primarily
caused by monetary factors.

Priority Sector Lending

One of the main reasons for the nationalisation of
banks in July 1969 was to ensure that resources
available with banks were made available to sectors
which were starved of funds. In the pre-
nationalisation era about 78% of the total bank credit
was allocated to large and medium industries, and
wholesale trade; while the Agriculture sector
accounted for a shocking 2.2% of the total bank credit
(Significantly the figure of 78% declined to about 33%
in 2000, in the post – nationalisation era)

Another important reason for introducing the concept
of priority sector lending after the July 1969
nationalisation was the fact that funds of the banks
were being misutilised. For example in the pre
nationalisation era about 70% of the total industrial
advances went to only 1% of the total number of
borrowal accounts (Many banks in the pre-
nationalisation era were owned by big industrial
houses). Public funds of the banks were made
available to directors of the banks at concessional
rates. These directors were also serving on the board
of directors of other companies.

To sum up, public money was being diverted and
misutilised for private profit.

The concept of priority sector lending was therefore
introduced to correct this imbalance and the distortion
in sectoral development of total banking credit. As a
result RBI directed domestic banks to provide 40% of
their net bank credit to the priority sector. The concept
of priority sector lending covered neglected sectors
like Agriculture, Small Scale Industry (SSI), Road
and Water Transport (RTO) Retail Trade, Professional
and Self Employed Persons, Housing and
Education loans and also loans given to Scheduled
Castes/Tribes, Small and Marginal Farmers, Tenant
Farmers, Share Croppers, Artisans, beneficiaries of
the IRDP and Differential Rate of Interest Schemes.

For foreign banks the overall target for PS lending as
a ratio of total credit was fixed at 32% by RBI.

Apart from the targets for priority sector lending, sub
targets were fixed for sub sectors. For example under
the Differential Rate of Interest scheme introduced in
1972, public sector banks were required to fulfil the
target of lending at least 1% of the total advances
under this scheme. [The DRI scheme is aimed at the
“weakest of the weak”.]

Priority sector lending can be described as an
example of “Administered Credit” or “Directed
Credit”. It is the RBI which determines the direction
and volume of credit to ensure social objectives.
(Administered Credit in banking can be compared to
Administered Price Mechanism in pricing of
petroleum products like Petrol Diesel LPG and
Kerosene. In both the cases the system of
administered/directed credit/ prices is to ensure social
objectives).

To sum up, the concept of priority sector lending
acted as a much needed corrective mechanism.
Nationalised banks diverted credit to areas and
sectors where it was badly needed to meet the
objectives of social banking. One criticism of the
concept of priority sector lending was that it locked up
the resources of the banks in low yielding assets
(A major chunk, about 40% of total credit, was
directed to the priority sector which may affect the
profitability of banks). But the Government and RBI
have persisted with the concept of priority sector
lending despite this criticism, to meet social
obligations.

The concept of priority sector lending is here to stay
in Indian banking. The only possible changes could
be perhaps reducing the percentage of priority sector
lending from the current 40%, or adding or deleting
certain sectors to the list of priority sector.

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And finally the best argument for continuing the
system of priority sector lending is the fact that banks
have been financing big industrial houses, at
concessional rates under the Below Prime Lending
Rate (BPLR) mechanism. If big industrial houses can
be financed under BPLR, what prevents banks from
financing the neglected sectors at concessional rates
or diverting a substantial portion of total bank credit to
traditionally neglected social groups/sectors.

NPAs of Scheduled Commercial Banks

Non Performing Assets (NPAs) are bad debts of
banks/financial institutions. An asset becomes non-
performing when it ceases to generate income for the
bank.

NPA means an asset or borrowal account, which has
been classified by a bank or financial institution as
sub-standard, doubtful or loss asset, in accordance
with the directions or guidelines issued by the
Reserve Bank of India.

A major cause for poor performance and low
profitability of banks was the accumulation of non-
performing assets consisting of loans and advances
given to corporates which, for some reason, do not
repay the amounts borrowed, or pay the interest
accumulated thereon.

NPA norms for Scheduled Commercial Banks:

With effect from March 31, 2001 a non performing
asset is an advance where
(a) Interest and / or instalment of principal remain
overdue for a period of more than 180 days in
respect of a term loan;
(b) The account remains ‘ out of order’ for a period of
more than 180 days in respect of an overdraft /
cash credit (OD/CC);
(c) The bill remains overdue for a period of more
than 180 days in case of the bills purchased and
discounted;
(d) Interest and / or instalment of principal remains
overdue for two harvest seasons but for a period
of not exceeding two half years in the case of an
advance granted for agricultural purposes, and ;
(e) Any amount to be received remains overdue for a
period of more than 180days in respect of other
accounts.

SARFAESI Act:

The Government of India enacted Securitization and
Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (SARFAESI Act) to
enable banks to realize their dues without intervention
of courts and tribunals. The Act enables the setting
up of Asset Management Companies to acquire
NPAs of any bank or financial agency by issuing
debentures, bonds or any other security. This
company (which is the second creditor) is entitled to
serve a notice to the borrower to discharge his / her
liabilities within 60 days. Failing to discharge the
liabilities in the stipulated time will entitle the second
creditor to take possession of the secured assets,
take over the management of the assets and to
appoint any person to manage the secured assets.

The SARFAESI Act 2002 puts in place a long
overdue legal framework, without attendant delays,
for the recovery of NPAs.

The recovery of NPAs got a boost after the enactment
of SARFAESI Act. There was a decline in gross NPAs
from Rs.70,860 crores in 2001-02 to Rs.51,820
crores in 2005-06.

The NPAs of Scheduled Commercial Banks (SCBs)
were at 1.9 per cent of total assets at end March 2005.

NARASIMHAM COMMITTEE RECOMMENDATIONS
ON FINANCIAL REFORMS:

The Government of India constituted a 9-member
committee under the chairmanship of M. Narasimham,
a former Governor of the Reserve Bank of India to
examine all aspects relating to the structure,
organization, functions and procedures of the
financial system. The committee submitted its report
in November 1991.

Basic approach of the committee:

The Narasimham Committee (1991) was primarily
interested in improving the financial health of public
sector banks and development financial institutions
(DFIs), so as to make them viable and efficient and
meet fully the emerging needs of the real economy.
The Narasimham Committee (1991) acknowledged
the spectacular success of the public sector banks
since their nationalization in July 1969, especially in:

(a) Massive branch expansion, particularly in rural
areas;
(b) Expansion in the volume of deposits – bank
deposits now constituted two-fifths of financial
assets of the household sector in 1991;
(c) Rural penetration of the banking system – rural
deposits as a proportion of total deposits had
increased from 3 per cent to 15 per cent;
(d) Diversion of an increasing portion of the bank
credit to priority sectors, viz, agriculture, small
industry, transport, etc.

Recommendation of the Narasimham Committee:

1. It proposed a substantial reduction in the number
of public sector banks (PSBs) through mergers
and acquisitions. A 4 tier banking system was
proposed.

Ι tier 3 or 4 large banks (including SBI) which
could become international in character.
ΙΙ tier 8 to 10 national banks
ΙΙΙ tier Local banks
IV tier Rural banks including RRBs

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2. RBI should permit the setting up of new banks in
the private sector. There should be no difference
in the treatment between public sector banks and
private sector banks.

3. The Government should allow foreign banks to
open offices in India either as branches or as
subsidiaries.

4. Assets Reconstruction Fund (ARF) should be set
up, to take over from the nationalized banks and
financial institutions, a portion of their bad and
doubtful debts, at a discount.

5. The appointment of the Chief Executive of a bank
(Chairman and Managing Director) should not
be based on political consideration but on
professionalism and integrity and should be made
by an independent panel of experts.

6. The government should reduce the Statutory
Liquidity Ratio (SLR) from the present 38.5 per
cent to 25 per cent over the next five years.
A reduction in the SLR levels would leave more
funds with banks for allocation to agriculture,
industry, trade, etc.

7. The Cash Reserve Ratio (CRR) should be
reduced from the present high level of 15 per
cent to 3 to 5 per cent.

8. Banks should be given more autonomy.

9. The system of directed credit programmes should
be gradually phased out.

10. The RBI should, on priority, simplify the structure
of interest rates. The Bank rate should be the
anchor rate and all other interest rates should be
closely linked to it.

Despite stiff opposition from bank unions and political
parties in the country, the Government of India
accepted all the major recommendations of Narasimham
Committee (1991) and started implementing them.

Committee on Banking Sector Reforms (1998):

The Finance Ministry of the Government of India
appointed Narasimham as chairman of one more
committee. The Narasimham Committee on the
Banking Sector Reforms submitted its report to the
Government in April 1998.

Some of the important recommendations of this
Narasimham Committee (1998):

1. It recommended the merger of strong banks,
which would have a ‘multiplier effect’ on industry.

2. The committee suggested the setting up of small,
local banks which would be confined to states or
a cluster of districts in order to serve local trade,
small industry and agriculture. At the same time,
these banks should have strong correspondent
relationships with the larger national and
international banks.

3. The committee suggested higher capital
adequacy requirements for banks to improve their
inherent strength and their risk absorption
capacity.

4. It suggested the urgent need to review and
amend the provisions of RBI Act, Banking
Regulation Act, SBI Act, Bank Nationalisation
Act, etc., so as to bring them in line with the
current needs of the banking industry.

Other recommendations related to the need for
computerization process in PSBs, review of
recruitment procedures, training and remuneration
policies, etc.

Capital Adequacy Standards

Healthy functioning of banks is essential for the
proper functioning of an economy. As credit creation
(i.e. loan disbursals) of banks is a highly risky
business the safety of the depositors’ money depends
on the quality of lending by banks. A bank’s failure
has the potential to create chaos in an economy. This
is why governments of the world pay special attention
to the regulatory aspects of the banks. Banks should
maximize their credit creation while minimizing the
risk and continue their functioning permanently.

The central banks of the world devised tools to
minimise the risks of banking. The Capital Adequacy
Ratio (CAR) norm regulates the banks in such a way
that they can sustain the probable risks and
uncertainties of lending. It was in 1988 that the
central banking bodies of the developed economies
agreed upon provision of the CAR. The agreement
was known as the Basel Accord. The accord was
agreed upon at Basel, Switzerland at a meeting of the
Bank for International Settlements (BIS). It was at this
time that the Basel–Ι norms of the CAR were agreed
upon – a requirement was imposed upon the banks to
maintain a certain amount of free capital (i.e., ratio) to
their assets (i.e. loans and investments by the banks)
as a cushion against probable losses in investments
and loans.

The CAR is the percentage of total capital to the total
risk – weighted assets.

The RBI introduced the Capital-to-risk weighted
assets ratio (CRAR) system for banks in India in 1992
in accordance with the standards of the BIS – as part
of the financial sector reforms. In the coming years,
the Basel norms were extended to NBFCs also.

The CAR norm was raised to 9 per cent with effect
from March 31, 2000.

Meanwhile the BIS came up with another set of the
CAR norms, popularly known as Basel-ΙΙ. The Basel-
ΙΙ norm for the CAR is 12 per cent.

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The Basel Accords (i.e. Basel Ι and ΙΙ) are of
paramount importance to the banking world and are
presently implemented by over 100 countries across
the world. The main objective of the accords is to
strengthen the international banking system.

Some Miscellaneous Points to Remember

– The first bank to open a branch in Dharavi, one of
Asia’s biggest slums, is Indian Bank.

– The bank with the maximum number of foreign
branches is Bank of India.

– The bank which has the humped bull of
Mohenjadaro as its logo and has a name
associated with the Indus ralley civilisation is
Indusind Bank.

– The first Indian bank to open a branch outside
India was Bank of India.

– The bank which was honoured when Mahatma
Gandhi inaugurated its branch was Union Bank of
India.

– The first Indian Bank to be listed on the New York
Stock Exchange is ICICI Bank.

– Standard Chartered Bank has the maximum
network of branches in India, among foreign
banks.

– The oldest public sector bank in India, with a
history of more than 130 years, is Allahabad Bank.

– India’s largest and second largest private sector
banks across all categories are ICICI Bank and
HDFC Bank respectively.

– The European Country which was one of the
worst affected in the global financial crisis was
Iceland.

– The total number of nationalised banks excluding
the State Bank group is now 19.

– SBI and its Associate banks now number seven.

– A loan is an asset for the bank because it
receives interest as income on an advance.

– A deposit is a liability for the bank is because it
has to be repaid on demand to the customer, and
it carries the burden of interest to be paid.

– Asset Liability Management [ALM] is balancing
the deposit and loan portfolios of the bank.

– The first public sector bank to enter the credit
card market was Central Bank of India in 1980.
– One of the founders of the Punjab National Bank
was Lala Lajpat Rai.

– The first bank to provide internet banking service
in India was ICICI Bank.

– The Devkaran Nanjee family established Dena Bank.

– The Nobel Price in Economics was instituted by
Bank of Sweden in 1968.

– Thomas Sutherland established HSBC Bank in
1965 to meet the demand for local banking
facilities in Hong Kong and China.

– The global sub-prime crisis had its origins in the
USA.

– The Banking Codes and Standards Institute is not
meant to substitute the Ombudsman, but has a
wider role than the Ombudsman.

– The concept of Ombudsman is borrowed from
Sweden.

– RBI estimates that despite the substantial
progress since the July 1969 nationalisation,
about 40% of the Indian population has no
access to banking services.

– The pioneer of micro-finance is Bangladeshi
banker Mohamed Yunus.

– The micro-finance capital of India is Andhra
Pradesh.

– The new Base Rate concept to replace the
Benchmark Prime Lending Rate [BPLR] concept
will be introduced from July 1, 2010.

– RBI was established in April 1935 on the basis of
recommendations of the Hilton Young Commission.

– RBI was nationalised in 1949.

– India became a member of the IMF in 1946.

– RBI makes Ways and Means advances to the
Government for 90 days.

– A high level Committee on Financial System
[CFS] was set up in 1991 under the
Chairmanship of M. Narsimham. A second
committee under M. Narsimham was set up in
1997 to review the implementation of the
recommendations of the CFS.

– NABARD was set up in 1982 and the National
Housing Bank was set up as subsidiary of RBI in
1988 and IRDA was constituted in 2000.



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Annexure – 1

Various Committees & Commissions on related to financial sector

S.no. Committee Agenda
1. Chakravarty Committee (1985) Review the working of the monetary system.
2. Abid Hussain Committee (1987) Profit making public units should offer a part of their share capital to the
public as part of long term strategy to establish the stock exchange.
3. Ghosh Committee (1991) Bank frauds & malpractices.
4. Vagul committee (1987) Money Market.
5. Dave Study Group Mutual Funds
6. J.V. Shetty Committee (1993) Review the system of lending under consortium arrangements & to suggest
improvements therein.
7. Sundaram Committee (1993) Structure of export credit.
8. Goswami Committee (1993) Industrial sickness & corporate restructuring.
9. Narasimham Committee – Ι (1991) Examine all aspects relating to the structure, organization & functioning of
the financial system.
10. Janakiraman Committee (1993) Securities transactions of banks & financial institutions.
11. Goiporia Committee (1990) Customer Service in banks.
12. Khanna Committee (1994) Monitoring the work of NBFCS. (Non-Banking Financial Corporations)
13. Narasimham Committee ΙΙ (1998) Banking Sector Reforms: The reforms consisted of
a) A shift of banking sector supervision from intrusive micro-level intervention
over credit decisions toward prudential regulations and supervision.
b) A reduction of the CRR and SLR.
c) Interest rate and entry deregulation; and
d) application of prudential norms.
14. Verma Committee (1999) Revival of weak public sector banks.
15. Kelkar Committee (2002) Indirect tax reforms
16. Khusro Committee (1986) Agricultural Credit
17. A.V. Gupta Committee (1997) Agricultural loans
18. Mahalanobis Committee National Income
19. Jilani Committee Loan Systems
20. J.J. Irani Committee Company Law reforms.
21. W.S. Saarraf Committee Technology issues in the banking sector.
22. Malhotra Committee Insurance Sector reforms.
23. S.S Tarapore Committee This committee was set up by the Reserve Bank of India under the
Chairmanship of former RBI deputy governor S.S Tarapore to “lay the
roadmap” to capital account convertibility. The five member committee
recommended convertibility by 1999-2000

Annexure – 2

New Technology/ Trends in Banking Sector

Internet Banking: Banks have started offering
services of Internet Banking. Customers can view
their accounts, print statement of accounts, request
for chequebook, transfer funds etc. sitting in the easy
comfort of their home/ office or cyber café.

Core Banking: Core Banking Solution provides
centralized system which provide centralized
accounting, customer information management and
transaction processing functions. Once full migration
to CBS is achieved ‘Branch Banking’ will become
irrelevant.

MICR Technology: with the phenomenal growth in
volumes of cheques to be handled by clearing houses
in major business centres, at the instance of RBI,
banks in selected centres introduced Magnetic Ink
Character Recognition (MICR) technology with
specially printed cheques with MICR band printed at
the bottom of cheques. The data contained in the
MICR band is captured with the help of encoders,
which facilitates faster sorting, and settlement of
payment of cheques.

Real time Gross Settlement (RTGS): This
technological initiative was launched by RBI in 2004
for faster settlement of payments. As transfers
through RTGS can be effected instantaneously, this is
one of the fastest mode of transfer.

Annexure – 3

Differential Rate of Interest Scheme

• In April, 1972, the Government implemented this
scheme in 162 districts of the country.
• Under this scheme, public sector banks were
directed to grant at least 1% of their total
advances of the previous year to weaker sections
of society at a concessional interest rate of 4%.

New strategy for rural lending: Service area
approach:
• This new approach was implemented under the
purview of Lead Bank Scheme since April 1,
1989.
• Under this new scheme, branches of commercial
banks were allotted certain specific semi-urban
and rural areas. These banks were made
responsible for over-all development in these
allotted areas.

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Annexure – 4

Economy Indicators
(As a March 4, 2010)

• Bank Rate 6.0%
• Repo Rate 4.75%
• Reverse Repo Rate 3.25%
• Cash Reserve Ratio 5.75%
• Statutory Liquidity Ratio (SLR) 25%
• Prime Lending Rate (PLR) 12.25% – 12.5%
• Savings Bank Rate 3.5%
• Deposit Rate 6 – 7.50%s

SOME PROMINENT PERSONALITIES HEADING
IMPORTANT ORGANISATIONS

Person Institution
• O.P. Bhatt State Bank of India
• Chanda Kochchar ICICI Bank
• Deepak Parekh HDFC Bank
• Umesh Chandra Sarangi NABARD
• Rajendra Mohan Malla SIDBI
• Yogesh Agarwal IDBI
• T.C. Venkat Subramanium Exim Bank

Person Institution
• T.S. Narayana Sami United Stock Exchange
of India
• C.B. Bhave SEBI
• J Harinarayana IRDA
• D Swaroop PFRDA
• L Man Singh PNGRB
• Y.S. Bhave AERA
• J S Sarma TRAI
• Vijay Kelkar 13
th
Finance Commission
• Dominique Strauss Khan IMF
• Robert Zoellick World Bank
• Haruhiko Kuroda ADB
• Pascal Lamy WTO
• Amrita Patel NDDB
• M.S. Swaminathan National Commission on
Farmers












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BANKING PRODUCTS
































BANKING CHANNELS































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BUDGET TERMINOLOGY

The term ‘Budget’ refers to the financial statement (or
documents) placed by the government before the
legislature every year on a specific date.
A budget sets forth the anticipated expenditure of the
government during the next financial year (called the
budget year) and the receipts for the same period:
(a) under existing laws in force, and
(b) as a result of taxation proposals, if any,
contemplated by the government.
More often than not, the budget is the manifestation
of the political philosophy of the party in power.
The primary objective of the budget is to reveal
comprehensive information in order to present a
complete picture of the financial position of the
government and thereby enable the legislature to
measure adequately the impact of such financial
programmes on the country’s economy.
The estimates included in the budget are simply
estimates; the actuals may not conform to the original
estimates. The budget must, however, estimate
revenues and expenditures as accurately as possible.
Accuracy becomes essential if equilibrium
established in the estimates is to be maintained to the
end and realised in actuals.

The budget comprises data for three years:
(a) actual figures for the preceding year;
(b) budget estimates for the current year;
(c) revised estimates for the current year, and
(d) budget estimates for the following year.

For example, the Union Budget for 2010-11
contains:
(a) actuals for 2008-09;
(b) budget estimates for 2009-10;
(c) revised estimates for 2009-10, and
(d) budget estimates for 2010-2011.

Classification of Taxes
(a) Direct and Indirect Taxes: Direct taxes are
defined as those taxes levied immediately on the
property and incomes of persons and which are
paid directly by the consumers to the state. Thus,
income and wealth taxes, estate duties, and toll
taxes paid directly to the state form the group of
direct taxes.
All other taxes would be grouped as indirect, i.e.
those whose burden can be shifted (like sales tax
and excise duties). These are imposed upon and
collected from producers and sellers. But
producers and sellers can shift the burden of
these taxes on to the consumers. However, when
these taxes are passed on to the consumers,
they indirectly tax the income of the consumers.

(b) Proportional, Progressive, and Regressive
Taxation: A tax may be proportional, progressive
or regressive according to the relationship
between its rate structure and the income,
wealth, and economic power of the tax-payer.
A tax is proportional, progressive or regressive
according to the percentage of the tax to the tax
payer’s income.
• Proportional Taxation: If the tax is the ‘same
percentage’ on all incomes, large or small, it
is called proportional taxation.
• Progressive Taxation: In this system, the rate
of tax goes on increasing with every increase
in income. In other words, lower income is
taxed at a lower percentage, whereas higher
income is taxed at a higher percentage.
• Regressive Taxation: If the rate of tax
decreases with an increase in income, it is
called regressive taxation.

Receipts
When you scan the budget document, you come
across terms like Revenue Receipts and Capital
Receipts. What do these terms mean?
(a) Revenue Receipts may be classified into two
major components: Tax Revenue and Non-Tax
Revenue.
• Tax Revenue is one of the most important
resources of public revenue. It refers to funds
raised through taxation and implicit in it is an
element of compulsion. It is compulsory in
the sense that once the taxes are imposed,
the person liable to pay them has to do so.
Refusal to do so is treated as a crime for
which the law prescribes severe punishment.
Tax revenue is a steady source and is always
certain to come because taxes are paid
periodically. Some of the important taxes are
income tax, excise duty, customs duty, sales
tax, estate duty, wealth tax, and gift tax. In
addition to these, the term tax revenue also
includes special assessment and fees.
• Non-Tax Revenue is raised by the
government in the form of the prices paid for
the use of specific services and goods
offered by it. It is purely voluntary in the
sense that the individual concerned has to
pay the price for a particular good or service,
in case he purchases it, otherwise not. The
revenue under this head comes irregularly
and is somewhat uncertain.

Non-Tax revenue includes:
(1) revenue from state monopolies and state
undertakings (like railways, electricity, telecom,
forests, and irrigation);
(2) revenue from social services (like education,
hospital receipts);
(3) revenue from public property (like lease / rent
from land);
(4) charges for specific benefits or improvements i.e.
development charges, and
(5) voluntary gifts (such as donations to hospitals
and charitable institutions) received by state
authorities

(b) Capital Receipts include loans raised by the
Government of India from the general public,
government’s borrowings from the RBI as well as

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other similar bodies (through sale of treasury
bonds), external loans (like from the IMF),
recoveries of loans granted to states / UTs, and
savings invested in PPF, etc.

Expenditure
Expenditure may be classified into (a) Revenue
Expenditure and Capital Expenditure, (b) Plan and
Non-Plan Expenditure, and (c) Development and
Non-Development Expenditure.

(a) Revenue Expenditure and Capital
Expenditure: All expenditure incurred in the
normal day-to-day running of the government is
termed Revenue Expenditure. This includes
expenditure incurred on provision of services,
salaries, subsidies, interest payments made to
service debts, etc.
Capital Expenditure is incurred in the creation of
assets like land, plant & machinery, and
investments in securities. Also, loans and
advances granted to state governments and
PSUs by the Centre are treated as Capital
Expenditure.
(b) Plan and Non-Plan Expenditure: Any public
expenditure incurred on current development and
investment outlays that arise due to plan
proposals (five year plan proposals) is termed
Plan Expenditure.

Deficits
In a budget statement, there is a mention of four
types of deficits: (a) revenue, (b) budget, (c) fiscal,
and (d) primary.
(a) Revenue Deficit refers to the excess of revenue
expenditure over revenue receipts. In fact, it
reflects one crucial fact: what is the government
borrowing for? As an individual if you are
borrowing to pay the house rent, then you are in
a situation of revenue deficit, i.e. while you are
borrowing and spending, you are not creating any
durable asset. This implies that there will be a
repayment obligation (sometime in the future)
and at the same time there is no asset creation
via investment.
(b) Budget Deficit refers to the excess of total
expenditure over total receipts. Here, total
receipts include current revenue and net internal
and external capital receipts of the government.
(c) Fiscal Deficit refers to the difference between
total expenditure (revenue, capital, and loans net
of repayment) on one hand, and on the other
hand, revenue receipts plus all those capital
receipts which are not in the form of borrowings
but which in the end accrue to the government.
(d) Primary Deficit refers to fiscal deficit minus
interest payments. In other words, it points to how
much the government is borrowing to pay for
expenses other than interest payments. Also, it
underscores another key fact: how much the
government is adding to future burden (in terms
of repayment) on the basis of past and present
policy.


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ECONOMIC SURVEY

The fiscal year 2009-10 began as a difficult one.
There was a significant slowdown in the growth rate
in the second half of 2008-09, following the financial
crisis that began in the industrialised nations in 2007
and spread to the real economy across the world.

The growth rate of the gross domestic product (GDP)
in 2008-09 was 6.7 per cent, with growth in the last
two quarters hovering around 6 per cent. There was
apprehension that this trend would persist for some
time, as the full impact of the economic slowdown in
the developed world worked through the system. It
was also a year of reckoning for the policymakers,
who had taken a calculated risk in providing
substantial fiscal expansion to counter the negative
fallout of the global slowdown.

Inevitably, India’s fiscal deficit increased from the end
of 2007-08, reaching 6.8 per cent (budget estimate,
BE) of GDP in 2009-10. A delayed and severely
subnormal monsoon added to the overall uncertainty.
The continued recession in the developed world, for
the better part of 2009-10, meant a sluggish export
recovery and a slowdown in financial flows into the
economy. Yet, over the span of the year, the economy
posted a remarkable recovery, not only in terms of
overall growth figures but, more importantly, in terms
of certain fundamentals, which justify optimism for the
Indian economy in the medium to long term.

The real turnaround came in the second quarter of
2009-10 when the economy grew by 7.9 per cent. As
per the advance estimates of GDP for 2009-10,
released by the Central Statistical Organisation
(CSO), the economy is expected to grow at 7.2 per
cent in 2009-10, with the industrial and the service
sectors growing at 8.2 and 8.7 per cent respectively.

This recovery is impressive for at least three reasons.
First, it has come about despite a decline of 0.2 per
cent in agricultural output, which was the consequence
of sub-normal monsoons.

Second, it foreshadows renewed momentum in the
manufacturing sector, which had seen continuous
decline in the growth rate for almost eight quarters
since 2007-08. Indeed, manufacturing growth has
more than doubled from 3.2 per cent in 2008-09 to
8.9 per cent in 2009-10.

Third, there has been a recovery in the growth rate of
gross fixed capital formation, which had declined
significantly in 2008-09 as per the revised National
Accounts Statistics (NAS). While the growth rates
have dipped in private consumption demand, there
has been a pick-up in the growth of private
investment demand. There has also been a
turnaround in merchandise export growth in
November 2009, which has been sustained in
December 2009, after a decline for nearly twelve
continuous months.
The fast-paced recovery of the economy underscores
the effectiveness of the policy response of the
Government in the wake of the financial crisis.
Moreover, the broad- based nature of the recovery
creates scope for a gradual rollback, in due course, of
some of the measures undertaken over the last
fifteen to eighteen months, as part of the policy
response to the global slowdown, so as to put the
economy back on to the growth path of 9 per cent per
annum.

Other Highlights
YEconomy likely to grow by up to 8.75 per cent in
2010-11.
YFull recovery; return to 9 per cent growth in 2011-12.
YBroad recovery gives scope for gradual stimulus
roll back.
YHigh double-digit food inflation in 2009-10 major
concern.
YSigns of food inflation spreading to other sectors.
YFarm & allied sector production falls 0.2% in
2009-10.
YNeed serious policy initiatives for 4% agriculture
growth.
YMoots direct food subsidy via food coupons to
households.
YFavours making available food in open market.
YFavours monthly ration coupons usable anywhere
for poor.
YGross fiscal deficit pegged at 6.5 pc of GDP in
2009-10.
YIndia 10
th
largest gold holding nation at 557.7
tonnes.
YExports in April-December 2009 down 20.3 per
cent.
YImports in April-December 2009 down 23.6 per
cent.
YTrade gap narrowed to U.S.$76.24 bn in April-
December.
Y32.5% savings & 34.9% investment (of GDP in
2008-09) put India in league of world’s fastest
growing nations.
YGovt initiates steps to boost private investment in
agriculture.
YWants credit available at reasonable rates on
time for private sector to invest in agriculture.
YSlowdown in infrastructure that began in 2007,
arrested.
YDomestic oil production to rise 11 per cent in
2009-10.
YGas output up 52.8 per cent to 50.2 billion cubic
meters with RIL starting production.
YIndia world’s 2nd largest wireless network with
525.1 million mobile users.
YVirtually every second Indian has access to
phone.
YAuction for 3G spectrum to provide existing and
foreign players to bring in new technology and
innovations.

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UNION BUDGET (2010-2011)

Challenges
- To quickly revert to the high GDP growth path of
9 per cent and then find the means to cross the
‘double digit growth barrier’.
- To harness economic growth to consolidate the
recent gains in making development more
inclusive.
- To address the weaknesses in government
systems, structures and institutions at different
levels of governance.

Overview of the Economy
- India among the first few countries in the world to
implement a broad-based counter-cyclic policy
package to respond to the negative fallout of the
global slowdown.
- The Advance Estimates for Gross Domestic
Product (GDP) growth for 2009-10 pegged at 7.2
per cent. The final figure expected to be higher
when the third and fourth quarter GDP estimates
for 2009-10 become available.
- The growth rate in manufacturing sector in
December 2009 was 18.5 per cent – the highest
in the past two decades.
- A major concern during the second half of 2009-
10 has been the emergence of double digit food
inflation. Government has set in motion steps, in
consultation with the State Chief Ministers, which
should bring down the inflation in the next few
months and ensure that there is better
management of food security in the country.

Consolidating Growth
Fiscal Consolidation
- With recovery taking root, there is a need to
review public spending, mobilise resources and
gear them towards building the productivity of the
economy.
- Fiscal policy shaped with reference to the
recommendations of the Thirteenth Finance
Commission, which has recommended a
calibrated exit strategy from the expansionary
fiscal stance of last two years.
- It would be for the first time that the Government
would target an explicit reduction in its domestic
public debt-GDP ratio.

Tax reforms
- On the Direct Tax Code (DTC) the wide-ranging
discussions with stakeholders have been
concluded – Government will be in a position to
implement the DTC from April 01, 2011.
- Centre actively engaged with the Empowered
Committee of State Finance Ministers to finalise
the structure of Goods and Services Tax (GST)
as well as the modalities of its expeditious
implementation. Endeavour to introduce GST by
April, 2011.




















People’s ownership of PSUs
- Ownership has been broad based in Oil India
Limited, NHPC, NTPC and Rural Electrification
Corporation while the process is on for National
Mineral Development Corporation and Satluj Jal
Vidyut Nigam. This will raise about Rs.25,000
crore during the current year.
- Higher amount proposed to be raised during the
year 2010-11.

Fertiliser subsidy
- A Nutrient Based Subsidy policy for the fertiliser
sector has been approved by the Government
and will become effective from April 01, 2010.
- This will lead to an increase in agricultural
productivity and better returns for the farmers,
and overtime reduce the volatility in demand for
fertiliser subsidy and contain the subsidy bill.

Petroleum and Diesel pricing policy
- Expert Group to advise the Government
on a viable and sustainable system of pricing
of petroleum products has submitted its
recommendations.
- Decision on these recommendations will be taken
in due course.

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Improving Investment Environment
Foreign Direct Investment
- Number of steps taken to simplify the FDI regime.
- Methodology for calculation of indirect foreign
investment in Indian companies has been clearly
defined.
- Complete liberalisation of pricing and payment of
technology transfer fee and trademark, brand
name and royalty payments.

Financial Stability and Development Council
- An apex level Financial Stability and
Development Council to be set up with a view to
strengthen and institutionalise the mechanism for
maintaining financial stability.
- This Council would monitor macro-prudential
supervision of the economy, including the
functioning of large financial conglomerates, and
address interregulatory coordination issues.

Banking Licences
- RBI is considering giving some additional banking
licenses to private sector players. Non Banking
Financial Companies could also be considered, if
they meet the RBI’s eligibility criteria.

Public Sector Bank Capitalisation
- Rs.16,500 crore provided to ensure that the
Public Sector Banks are able to attain a minimum
8 per cent Tier-I capital by March 31, 2011.

Recapitalisation of Regional Rural Banks (RRB)
- Government to provide further capital to
strengthen the RRBs so that they have adequate
capital base to support increased lending to the
rural economy.

Corporate Governance
- Government has introduced the Companies Bill,
2009 in the Parliament to replace the existing
Companies Act, 1956, which will address issues
related to regulation in corporate sector in the
context of the changing business environment.

Exports
- Extension of existing interest subvention of 2 per
cent for one more year for exports covering
handicrafts, carpets, handlooms and small and
medium enterprises.

Agriculture Growth
- Government will follow a four-pronged strategy,
covering
(a) Agricultural production
- Rs.400 crore provided to extend the green
revolution to the eastern region of the country
comprising Bihar, Chattisgarh, Jharkhand,
Eastern UP, West Bengal and Orissa.
- Rs.300 crore provided to organise 60,000 “pulses
and oil seed villages” in rain-fed areas during
2010-11 and provide an integrated intervention
for water harvesting, watershed management and
soil health, to enhance the productivity of the dry
land farming areas.
- Rs.200 crore provided for sustaining the gains
already made in the green revolution areas
through conservation farming, which involves
concurrent attention to soil health, water
conservation and preservation of biodiversity.
(b) Reduction in wastage of produce
- Government to address the issue of opening up
of retail trade. It will help in bringing down the
considerable difference between farm gate,
wholesale and retail prices.
- Deficit in the storage capacity met through an
ongoing scheme for private sector participation -
FCI to hire godowns from private parties for a
guaranteed period of 7 years.
























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(c) Credit support to farmers
- Banks have been consistently meeting the
targets set for agriculture credit flow in the past
few years. For the year 2010-11, the target has
been set at Rs.3,75,000 crore.
- In view of the recent drought in some States and
the severe floods in some other parts of the
country, the period for repayment of the loan
amount by farmers extended by six months from
December 31, 2009 to June 30, 2010 under the
Debt Waiver and Debt Relief Scheme for Farmers.
- Incentive of additional one per cent interest
subvention to farmers who repay short-term crop
loans as per schedule, increased to 2% for
2010-11.

(d) Impetus to the food processing sector
- In addition to the ten mega food park projects
already being set up, the Government has
decided to set up five more such parks.
- External Commercial Borrowings to be available
for cold storage or cold room facility, including for
farm level pre-cooling, for preservation or storage
of agricultural and allied produce, marine
products and meat.

Infrastructure
- Rs.1,73,552 crore provided for infrastructure
development which accounts for over 46 per cent
of the total plan allocation.
- Allocation for road transport increased by over 13
per cent from Rs.17,520 crore to Rs.19,894 crore.
- Rs.16,752 crore provided for Railways, which is
about Rs.950 crore more than last year.

Energy
- Plan allocation for power sector excluding
RGGVY doubled from Rs.2230 crore in 2009-10
to Rs.5,130 crore in 2010-11.
- Government proposes to introduce a competitive
bidding process for allocating coal blocks for
captive mining to ensure greater transparency
and increased participation in production from
these blocks.
- A “Coal Regulatory Authority” to create a level
playing field in the coal sector proposed to be set
up.
- Plan outlay for the Ministry of New and
Renewable Energy increased by 61 per cent from
Rs.620 crore in 2009-10 to Rs.1,000 crore in
2010-11.

Environment and Climate change
- National Clean Energy Fund for funding research
and innovative projects in clean energy
technologies to be established.
- Rs.200 crore provided as a Special Golden
Jubilee package for Goa to preserve the natural
resources of the State, including sea beaches
and forest cover.
- Allocation for National Ganga River Basin
Authority (NGRBA) doubled in 2010-11 to Rs.500
crore.
- Schemes on bank protection works along river
Bhagirathi and river Ganga-Padma in parts of
Murshidabad and Nadia district of West Bengal
included in the Centrally Sponsored Flood
Management Programme.

Inclusive Development
- The spending on social sector has been gradually
increased to Rs.1,37,674 crore in 2010-11, which
is 37% of the total plan outlay in 2010-11.
- Another 25 per cent of the plan allocations
are devoted to the development of rural
infrastructure.

Education
- Plan allocation for school education increased by
16 per cent from Rs.26,800 cr. in 2009-10 to
Rs.31,036 cr. in 2010-11.
- In addition, states will have access to Rs.3,675
crore for elementary education under the Thirteenth
Finance Commission grants for 2010-11.

Health
- An Annual Health Survey to prepare the District
Health Profile of all Districts shall be conducted in
2010-11.
- Plan allocation to Ministry of Health & Family
Welfare increased from Rs.19,534 cr. in 2009-10
to Rs.22,300 cr. for 2010-11.

Financial Inclusion
- Appropriate Banking facilities to be provided to
habitations having population in excess of 2000
by March, 2012.
- Insurance and other services to be provided
using the Business Correspondent model. By this
arrangement, it is proposed to cover 60,000
habitations.
- Augmentation of Rs.100 crore each for the
Financial Inclusion Fund (FIF) and the Financial
Inclusion Technology Fund, which shall be
contributed by Government of India, RBI and
NABARD.










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Rural Development
- Rs.66,100 crore provided for Rural Development.
- Allocation for Mahatma Gandhi National Rural
Employment Guarantee Scheme stepped up to
Rs.40,100 crore in 2010-11.
- An amount of Rs.48,000 crore allocated for rural
infrastructure programmes under Bharat Nirman.
- Unit cost under Indira Awas Yojana increased to
Rs.45,000 in the plain areas and to Rs.48,500 in
the hilly areas. Allocation for this scheme
increased to Rs.10,000 crore.
- Allocation to Backward Region Grant Fund
enhanced by 26 per cent from Rs.5,800 crore in
2009-10 to Rs.7,300 crore in 2010-11.
- Additional central assistance of Rs.1,200 crore
provided for drought mitigation in the
Bundelkhand region.

Urban Development and Housing
- Allocation for urban development increased by
more than 75 per cent from Rs.3,060 crore to
Rs.5,400 crore in 2010-11.
- Allocation for Housing and Urban Poverty
Alleviation raised from Rs.850 crore to Rs.1,000
crore in 2010-11.
- Scheme of one per cent interest subvention on
housing loan upto Rs.10 lakh, where the cost of
the house does not exceed Rs.20 lakh —
announced in the last Budget — extended up to
March 31, 2011. Rs.700 crore provided for this
scheme for the year 2010-11.
- Rs.1,270 crore allocated for Rajiv Awas Yojana
as compared to Rs.150 crore last year.

Micro, Small & Medium Enterprises
- High Level Council on Micro and Small
Enterprises to monitor the implementation of the
recommendations of High-Level Task Force
constituted by Prime Minister.
- Allocation for this sector to be increased from
Rs.1,794 crore to Rs.2,400 crore for the year
2010-11.
- The corpus for Micro-Finance Development and
Equity Fund doubled to Rs.400 crore in 2010-11.

Unorganised Sector
National Social Security Fund for unorganised sector
workers
- National Social Security Fund for unorganised
sector workers to be set up with an initial
allocation of Rs.1000 crore. This fund will support
schemes for weavers, toddy tappers, rickshaw
pullers, bidi workers etc.
- Rashtriya Swasthya Bima Yojana benefits
extended to all such Mahatma Gandhi NREGA
beneficiaries who have worked for more than
15 days during the preceding financial year.
- A new initiative, “Swavalamban” will be available
for persons who join New Pension Scheme
(NPS), with a minimum contribution of Rs.1,000
and a maximum contribution of Rs.12,000 per
annum during the financial year 2010-11, wherein

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Government will contribute Rs.1,000 per year to
each NPS account opened in the year 2010-11.
Allocation of Rs.100 crore made for this initiative.

Skill development
- National Skill Development Corporation has
approved three projects worth about Rs.45 crore
to create 10 lakh skilled manpower at the rate of
one lakh per annum.
- An extensive skill development programme in the
textile and garment sector to be launched by
leveraging the strength of existing institutions and
instruments of the Textile Ministry to train 30 lakh
persons over 5 years.

Social Welfare
- Plan outlay for Women and Child Development
stepped up by almost 50 per cent.
- “Saakshar Bharat” to further improve female
literacy rate launched with a target of 7 crore non-
literate adults which includes 6 crore women.






























- Mahila Kisan Sashaktikaran Pariyojana to meet
the specific needs of women farmers to be
launched with a provision of Rs.100 crore as a
sub-component of the National Rural Livelihood
Mission.
- Plan outlay of the Ministry of Social Justice and
Empowerment enhanced by 80 per cent to
Rs.4500 crore. With this enhancement, the
Ministry will be able to revise rates of scholarship
under its post-matric scholarship schemes for
SCs and OBC students.

Strengthening Transparency & Public
Accountability
- Financial Sector Legislative Reforms Commission
to be set up to rewrite and clean up the financial
sector laws to bring them in line with the
requirements of the sector.
- Rs.1,900 crore allocated to the Unique
Identification Authority of India (UIDAI) for
2010-11. UIDAI will be able to meet its
commitments of issuing the first set of UID
numbers in the coming year.
Security and Justice
- Allocation for Defence increased to Rs.1,47,344
crore including Rs.60,000 crore for capital
expenditure.
- Planning Commission to prepare an integrated
action plan for the thirty-three left wing extremism
affected districts. Adequate funds will be made
available to support the action plan.
- Government has approved the setting up of the
National Mission for Delivery of Justice and Legal
Reforms to help reduce legal backlog in courts
from an average of 15 years at present to 3 years
by 2012.

Budget Estimates 2010-11
- The Gross Tax Receipts are estimated at
Rs.7,46,651 crore.
- The Non Tax Revenue Receipts are estimated at
Rs.1,48,118 crore.
- The net tax revenue to the Centre as well as the
expenditure provisions in 2010-11 have been
estimated with reference to the recommendations
of the Thirteenth Finance Commission.

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- The total expenditure proposed in the Budget
Estimates is Rs.11,08,749 crore, which is an
increase of 8.6 per cent over last year.
- The Plan and Non Plan expenditures in BE 2010-
11 are estimated at Rs.3,73,092 crore and
Rs.7,35,657 crore respectively. While there is 15
per cent increase in Plan expenditure, the
increase in Non Plan expenditure is only 6 per
cent over the BE of previous year.
- Fiscal deficit for BE 2010-11 at 5.5 per cent of
GDP, which works out to Rs.3,81,408 crore.
- Taking into account the various other financing
items for fiscal deficit, the actual net market
borrowing of the Government in 2010-11 would
be of the order of Rs.3,45,010 crore. This would
leave enough space to meet the credit needs of
the private sector.
- The rolling targets for fiscal deficit are pegged at
4.8 per cent and 4.1 per cent for 2011-12 and
2012-13, respectively.
- Against a fiscal deficit of 7.8 per cent in 2008-09,
inclusive of oil and fertilizer bonds, the
comparable fiscal deficit is 6.9 per cent as per the
Revised Estimates for 2009-10.
- Conscious effort made to avoid issuing bonds to
oil and fertilizer companies. Government would
like to continue with this practice of extending
Government subsidy in cash, thereby bringing all
subsidy related liabilities into Government’s fiscal
accounting.

Direct Taxes
- Income tax slabs for individual taxpayers to be as
follows:

Income upto Rs.1.6 lakh Nil
Income above Rs.1.6 lakh and
upto Rs.5 lakh
10 per cent
Income above Rs.5 lakh and
upto Rs.8 lakh
20 per cent
Income above Rs.8 lakh 30 per cent















- Deduction of an additional amount of Rs.20,000
allowed, over and above the existing limit of Rs.1
lakh on tax savings, for investment in long-term
infrastructure bonds as notified by the Central
Government.
- Proposals on direct taxes estimated to result in a
revenue loss of Rs.26,000 crore for the year.

Indirect Taxes
- Rate reduction in Central Excise duties to be
partially rolled back and the standard rate on all
non-petroleum products enhanced from 8 per
cent to 10 per cent ad valorem.
- Some structural changes in the excise duty on
cigarettes, cigars and cigarillos to be made
coupled with some increase in rates. Excise duty
on all non-smoking tobacco such as scented
tobacco, snuff, chewing tobacco etc to be
enhanced. Compounded levy scheme for
chewing tobacco and branded unmanufactured
tobacco based on the capacity of pouch packing
machines to be introduced.

Agriculture & Related Sectors
- Provide project import status with a concessional
import duty of 5 per cent for the setting up of
mechanised handling systems and pallet racking
systems in ‘mandis’ or warehouses for food
grains and sugar as well as full exemption from
service tax for the installation and commissioning
of such equipment.
- Provide project import status at a concessional
customs duty of 5 per cent with full exemption
from service tax to the initial setting up and
expansion of
Y Cold storage, cold room including farm pre-
coolers for preservation or storage of
agriculture and related sectors produce; and
Y Processing units for such produce.
- To exempt the testing and certification of
agricultural seeds from service tax.
- The transportation by road of cereals, and pulses
to be exempted from service tax. Transportation
by rail to remain exempt.

Environment
- To build the corpus of the National Clean Energy
Fund, clean energy cess on coal produced in
India at a nominal rate of Rs.50 per tonne to be
levied. This cess will also apply on imported coal.
- Central Excise duty on LED lights reduced from 8
per cent to 4 per cent at par with Compact
Fluorescent Lamps.
- To remedy the difficulty faced by manufacturers
of electric cars and vehicles in neutralising the
duty paid on their inputs and components, a
nominal duty of 4 per cent on such vehicles
imposed. Some critical parts or sub-assemblies
of such vehicles exempted from basic customs
duty and special additional duty subject to actual
user condition. These parts would also enjoy a
concessional CVD of 4 per cent.

Infrastructure
- Project import status to ‘Monorail projects for
urban transport’ at a concessional basic duty of 5
per cent granted.

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- To encourage the domestic manufacture of
mobile phones accessories, exemptions from
basic, CVD and special additional duties are now
being extended to parts of battery chargers and
hands-free headphones. The validity of the
exemption from special additional duty is being
extended till March 31, 2011.

Service Tax
- Rate of tax on services retained at 10 per cent to
pave the way forward for GST.
- Proposals relating to service tax are estimated to
result in a net revenue gain of Rs.3,000 crore for
the year.
- Proposals on direct taxes estimated to result in a
revenue loss of Rs.26,000 crore for the year.
Proposals relating to Indirect Taxes estimated to
result in a net revenue gain of Rs.46,500 crore for
the year. Taking into account the concessions
being given in the tax proposals and measures
taken to mobilise additional resources, the net
revenue gain is estimated to be Rs.20,500 crore
for the year.




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RAIL BUDGET (2010-2011)

Introduction
- Economic viability and social responsibility –
main consideration for taking up of the projects.
- ‘Inclusive growth and expansion of rail network’
for development of the country.
- Special Task Force to clear proposals for
investments within 100 days.
- A separate structure will be created within the
Railways for implementation of the business
models.

Commitments Fulfilled
- Of the 120 new trains, extensions and increase in
frequencies announced, 117 would be flagged off
by the end of March 2010.
- Recruitment policy of the Railway Recruitment
Boards (RRBs) has been reviewed.
- RRB examination fee for woman candidates and
those belonging to minority and economically
backward classes waived.
- All question papers to be set in Hindi, Urdu,
English and in local State languages and
examination for a particular post will be held on
the same date simultaneously by all RRBs.
- Izzat Scheme, implemented within three months
of announcement.
- Work initiated in all the 67 Multi-functional
Complexes (MFCs). Development of Adarsh
Stations started in phases.

Passenger Amenities / Facilities
- 94 stations to be upgraded as Adarsh Stations.
- 10 more stations identified to be converted as
World Class Stations.
- Construction of additional 93 Multi Functional
Complexes.
- Multi-level parking through PPP route.
- Six clean drinking water bottling plants to be set
up through PPP for providing cheap bottled
drinking water.
- SMS updates of reservation status and
punctuality of trains to passengers,
- SMS updates on the movement of wagons to
freight customers.
- RFID technology for tracking of wagons to
provide modern trolleys at all important stations
to be handled by uniformed attendants for senior
citizens and ladies.
- Allotment of iron ore rakes to be rationalised
scientifically and would be accessible through the
web.
- Introduction of e-ticket based mobile vans for
issuing tickets.

Safety and Security
- Automatic fire and smoke detection system to be
introduced in 20 long distance trains.
- All the unmanned LCs to be manned within five
years.
- 12 companies of women RPF personnel named
‘Mahila Vahini’ to be raised.

Sports
- Railways first recipient of Rashtriya Khel
Protsahan Puraskar
- Five Sports Academies at Delhi, Secunderabad,
Chennai, Kolkata & Mumbai to be setup.
- Astro-turfs to be provided at more places for
hockey.
- Railways will be lead partners of Common Wealth
Games.
- Railways to run a Commonwealth exhibition train.

Culture and Heritage
- To set up a Railway Cultural & Heritage
Promotion Board for coordinating and supervising
all related activities on the railways.
- To set up Rabindra Museum at Howrah and
Gitanjali Museum at Bolpur to commemorate
150
th
birth anniversary of Rabindranath Tagore.
- To set up Shambhu Mitra Cultural Complex with
performing arts and a music academy at Howrah.

Staff Welfare and Health
- A new scheme “House for All” to be launched, to
provide residences to all railway employees in the
next ten years with the help of Ministry of Urban
Development.
- MOU entered with Ministry of Health and Ministry
of Human Resource Development for setting up
of hospitals and educational institutions on
surplus railway land.
- To set up about 522 hospitals and diagnostic
centres, 50 Kendriya Vidyalayas, 10 residential
schools on the pattern of Navodaya Vidyalaya,
model degree colleges and technical and
management institutions of national importance
to benefit railway employees and their children.
- To set up 50 crèches for children of women
employees and 20 hostels. Railways will also
provide more numbers of community centres and
stadia.
- Contribution to Staff Benefit Fund to be enhanced
to Rs.500 per employee.
- Scope of safety-related retirement scheme to be
expanded to cover all safety category staff with a
grade pay of Rs.1800.
- To extend Rashtriya Swasthya Bima Yojana to all
licensed porters, vendors and hawkers, from
unorganised sector and socially challenged.
- To set up a state-of-the-art advanced loco pilot
training centre at Kharagpur, an advanced railway
track training centre at Beleghata and four multi-
disciplinary training centres.

Railway Research
- A Centre for Railway Research to be set up at IIT,
Kharagpur. To establish strong research
partnerships with premier institutes like IITs, NITs,
CSIR and DRDO.

Infrastructure
- To modernise and augment the capacity of CLW
to 275 locomotives.

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- A Diesel Multiple Unit (DMU) factory to be set up
at Sankrail.
- Second unit to be installed at ICF.
- Wagon repair shop to be set up at Badnera.
- Centres of Excellence in Wagon Prototyping to be
set up at Kharagpur Workshop.
- A new Rail Axle Factory to be set up in New
Jalpaiguri under PPP/JV mode.
- A Design Development and Testing Centre for
Wheels to be set up at RWF, Bangalore.
- A new MLR workshop of 250 coach capacity to
be set up at Anara (Adra).
- Five state-of-the-art wagon factories to set up at
Secunderabad, Barddhaman, Bhubaneshwar/
Kalahandi, Guwahati and Haldia under PPP/JV
mode.
- Two workshops for POH of high axle load
wagons to be set up in Maharashtra and
Dankuni.
- Kisan Vision Project initiated at six locations,
namely Dankuni, Mechheda, Nasik, New
Jalpaiguri, New Azadpur and Singur as pilot
projects.
- To set up a refrigerated container factory on PPP
mode at Budge Budge.

Freight Business
- A modified wagon investment scheme for high
capacity general purpose and special purpose
wagons to be introduced.
- Private operators to be permitted to invest in
infrastructure and run special freight train.
- To set up automobile and ancillary hubs at 10
locations.

Carbon Footprint
- Railways to distribute 2.6 million CFLs to railway
employees.
- To introduce ten rakes with green toilets and
install on diesel locomotives a GPS-based
optimised driver guidance system.
- To set up 10 Rail Eco-parks to conserve, protect
and promote Railways’ wetlands and forest areas.

Other Projects
- Preliminary Engineering-cum-Traffic Survey
(PETS) to be taken up for north-south, east-west,
east-south and south-south DFCs.
- Six high speed passenger corridors identified, to
be executed through PPP mode. To set up a
National High Speed Rail Authority for planning,
standard setting, implementing and monitoring
these projects.
- To provide rail link between Akhaura on
Bangladesh side and Agartala on Indian side.
- To new Railway projects viz., Jogbani (India) –
Biratnagar (Nepal) new line and Jaynagar (India)
– Bijalpur (Nepal) gauge conversion with extension
upto Bardibas (Nepal) have been taken up to
improve transport infrastructure between the two
countries.

Financial Performance in 2009-10
- Loading target of 882 MT likely to surpassed by 8
MT in 2009-10.
- Gross Traffic Receipts kept at Rs.88,356 crore,
i.e., an increase of 10.7%.
- The full impact of VI CPC fully absorbed within
the Railway resources.
- The current dividend liability to be fully discharged.
- Annual Plan kept at Rs.40,284 cr.

Budget Estimates 2010-11
- Freight loading targeted at 944 MT – an increment
of 54 MT; number of passengers likely to grow by
5.3 %.
- Gross Traffic Receipts estimated at Rs.94,765
crore, i.e., Rs.6490 cr more than 2009-10.
- The dividend payable to general revenues kept at
Rs.6608 crore.
- Budgeted operating ratio 92.3%.

Annual Plan 2010-11
- Highest ever Plan Outlay at Rs.41,426 cr., an
increase of Rs.1142 cr over 2009-10.
Y New Lines – Rs.4411cr.
Y Passenger Amenities – Rs.1302 cr.
Y Metro Projects – Rs.1001cr.
- Aquisition of 18000 wagons.
- Additional budgetary support of Rs.3701 cr
sought for 11 National Projects.
- Surveys for 114 socially desirable projects
connecting backward areas to be taken up.
- 54 Surveys for new lines, 2 for gauge conversion,
7 for doubling and 5 others to be taken up.
- Master Plan for the development of rail
infrastructure in the Northeast region to be drawn
up in consultation with the Northeast Development
Council and the state authorities concerned.
- 1021 km of New Lines to be completed. 9 new
new line projects announced.
- 800 km of gauge conversion and 700km of
doubling targeted.
- Several projects being taken up on cost sharing
basis with State Governments and on PPP mode.

Concessions
- Technicians of regional film industry when
travelling for film production related work to be
eligible for 75% concession in Second Sleeper
and 50% concession in higher classes in all trains.
- Cancer patients going for treatment to get 100%
concession in 3 AC and Sleeper Class
- 50% concession to spouse of the correspondents
extended to the companion of those
correspondents who do not have a spouse, and
dependent children up to 18 years.
- Service charge on e-tickets to be reduced to
Rs.10 for Sleeper Class and Rs.20 for AC Class.
- Reduction of Rs.100 per wagon in freight charges
for food-grains for domestic use and kerosene.

New Suburban services
- 101 new suburban services to be introduced in
Mumbai area.
- More services to start in Chennai and Kolkata
areas.

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Special Trains
- Sanskriti Express to run across the country to
mark the 150
th
birth anniversary of Kabiguru
Rabindranath Tagore. It is also proposed to take
this train to Bangladesh.
- Ladies special trains to be renamed as
‘Matrabhoomi specials’.
- 3 unreserved trains named as ‘Karambhoomi
trains’ to be introduced.
- A new weekly express train service
‘Janmabhoomi express’ to start between
Ahmedabad and Udhampur.
- Special tourist trains called “Bharat Tirth” to start
on 16 routes.
- 6 long route Duronto trains and 4 short distance
Duronto day trains to be introduced.

Other New Train Services
- 54 new train services to be introduced.
- 28 new passenger train services, 9 MEMU and 8
DEMU services to start.
- Extension of 21 trains and increase in frequency
of 12 trains announced.



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61%
19%
20%
Agriculture Manufacturing Services
OVERVIEW OF INDIAN ECONOMY

The Indian Economy

Salient Features of Indian Economy in the Pre-
Independence Era.

1. Agrarian economy (70% GDP from Agri. in 1947)
2. Food-deficient
3. Colonial exploitation
4. Zamindari system
5. Traditional industries (Cotton Textiles – low value-
addition)

Part 1:
Historical Overview

Characteristics of Indian Economy from 1947 to 1991
→ Pre-Liberalisation, Privatisation & Globalisation
(LPG) Era.

• Resource poor economy
• Role of investment for the Government
• Socialistic thinking
• 5 yr plans – License Raj
• Sellers market
• No pressure on manufacturer to improve quality
• Ready market – no price for innovation

Pre-LPG

• Sellers market created corruption, inefficiency
and obsolescence
• Lack of customer service
• Monopoly
• Inward looking economy
• Few luxuries
• Feeling of shortage in the economy
• Huge trade deficit
• Forex reserves - $1 bn

Economic reforms from 1991 in a Nut Shell

1
st
Generation Reforms

• De – License
• Import liberalization
• Reform Taxation – Direct & Indirect
• Forex norms – Allowed FII & FDI
• Stock Exchange reforms – SEBI
• Banking sector reforms
• RBI relaxes controls

2
nd
Generation Reforms

• Infrastructure
• Telecom reforms
• Insurance – GIC & LIC
• Labour law reforms
• Disinvestment
• Power sector reforms

Part 2:
INDIAN ECONOMY AT AGLANCE

• Illiteracy
(Literacy – 64.8% - 75.3% male and 53.7%
female literates)
• Low HDI – 134
(Calculated using Life expectancy at birth,
primary education, Per capita income)
• Low level of technology and productivity
• Poverty
• 46% of children suffer from malnutrition.
• High savings and low capital formation

INDIAN ECONOMY AT AGLANCE

• Low per capita income
• Over sized population (1.38% growth)
• Dependence on primary production
• 72.25% live in villages
• High density of population – 324/sq.km
• High rate of un employment
• Improper distribution of wealth

Part 3:
Sector-wise Analysis

The 3 sectors of Economy

• Primary – agriculture, forestry, fishery, animal
husbandry
• Secondary - mineral, power, mining,
manufacturing industries.
• Services - transport, trade, communication, banking,
other services

Distribution of GDP













Distribution of Workforce











12%
28%
60%
Agriculture Manufacturing Services

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Agriculture Sector Overview

• Growth rate of 2% approximately
• Green Revolution helped to achieve self
sufficiency in food.
• Blue, White, Yellow Revolutions increased the
production of marine products, milk and oil seeds.
• 43% land arable
• 60% of arable land - monsoon dependent
• Minimum Support Price, (MSP) on pulses,
oilseeds, sugarcane to help farmers

Main Crops

• Rice
• Wheat
• Coarse cereals – Jowar, Bajra etc.
• Oilseeds
• Sugarcane

Main Exports

• Rice
• Cashewnuts
• Tea
• Coffee
• Horticulture products

Main Imports

• Vegetable oil
• Pulses

Strengths

• Huge arable land area
• Diverse soil types, climate
• Huge labour force
• Government focus, subsidies

Weaknesses

• Fragmented land holdings
• 59% of holdings are marginal (<1 hectare)
• 21% of holdings are small (1–2 hectare)

• Low productivity
• Average yield is 2890 kg per hectare which
is much lower than China, Japan
• NPK abuse

• Monsoon dependence
• 60% arable land without irrigation

Weaknesses

• Sharecropping, landless labour
• Seasonal and disguised unemployment
• Poor infrastructure
• Electricity
• Roads and transport
• Farm Mechanisation

• Illiteracy
• Low awareness about improved methods /
products
Weaknesses

• State disparity
• Distortion of production by subsidies
• Financing at usurious rates by local moneylenders
• Low remuneration to farmer – middleman

Opportunities

• Horticulture
• Organic Farming
• Fisheries
• Packaged / processed farm products
• Productivity improvements
• Use of IT / Communications

Industrial Sector Overview

• Growth rate of 8% approximately
• Size: <20% of Chinese industry.
• Huge unorganised sector: 100 + times size of
organized sector

Main Industries

• Textile
• Synthetic Fibres
• Mineral products
• Chemicals
• Automobiles + Components
• Cement
• Machinery and equipment

Main Exports

• Gems and Jewellery
• Petroleum Products
• Textiles
• Engineering goods
• Chemicals
• Leather goods

Main Imports

• Crude oil
• Machinery
• Uncut gems
• Fertilizers
• Chemicals

Strengths

• Huge, low-cost labour force
• Educated, skilled workforce
• English Language Skills
• Good Managerial Skills
• Variety of raw materials available
• Strong Economy
• Stable Polity



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Weaknesses

• Lack of infrastructure
• High cost of utilities
• Red tape
• Cascading effect of indirect taxes
• High cost of finance
• Tardy Judicial System

Opportunities

• Drugs & Pharmaceuticals
• Transport
• Biotechnology
• Automobiles + Components

Services Sector Overview

• High growth rate
• Growth largely fuelled by IT and BPO industries
• Concentration in urban areas
• STPs in Gurgaon, Bangalore, Hyderabad, Mumbai

Key Sectors

• Hotels + Tourism
• Transport
• Communication
• Financial services
• ITES
• BPO
Important Areas

• Second largest scientific and technical manpower
• Among 10 largest retail markets
• One of the biggest exporter of commercial services

Strengths

• Huge educated labour force:
• Low labour cost:
• Outsourcing to India can result in 50-60% savings
for foreign companies
• Less capital – intensive than manufacturing
• Inherent advantages in tourism, health industries

Weaknesses

• High attrition rates in IT and BPO industry
• Lack of world – class infrastructure
• Low investment in R&D + Education

Opportunities

• Health – Medical Tourism / Wellness
• Hospitality
• Off – shore Consultancy
• Retail
• KPOs


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ECONOMIC & BUSINESS GLOSSARY

Absolute Monopoly

Means the control of the entire output of a commodity
or service, for which there exists no substitute, by a
single producer or supplier. This kind of situation
rarely arises in real life. It is also known as pure
monopoly or perfect monopoly.

Administered Prices

A price set not by the force of demand and supply but
by some authority like the government or a regulatory
authority.

Ad Valorem Tax

A duty, which is imposed on commodities in
proportion to their value i.e., a duty, which is
expressed as a percentage and not a flat amount.

Appreciation

An increase in the value:
(1) of stocks and shares when their prices rise on the
stock exchange;
(2) of a currency when its value increases in terms of
other currencies;
(3) of stocks held by manufacturers and merchants
during a period of rising prices.

Arbritrage

It is a speculative activity. It seeks to make profit out
of differences in prices of a security in two markets. If
the price of a certain share is higher in one market
than in another, the speculator will purchase them in
the cheaper market and sell in the dearer market.

Backward Integration

The expansion of a business which takes the form of
acquiring control over firms supplying it with its raw
materials.

Backward Linkage

Refers to the relationship between an industry or firm
and the suppliers of its inputs. A change in the output
of the industry will get transmitted backwards to the
suppliers of its inputs by changing the demand for
inputs.

Balanced Budget

A budget is said to be a balanced budget when
current income equals to current expenditure.

Balance of Payments

Refers to the relation between the payments of all
kinds made from one country to the rest of the world
and its receipts from all other countries.
Balance of Trade

Refers to the relationship between the values of
a country’s imports and exports, i.e., the ‘visible’
balance. These items only form a part of the balance
of payments, which also get influenced by
(1) ‘invisible’ items and
(2) movement of capital.

Barter

Refers to the method of exchanging goods and
services directly for other goods and services without
employing a separate unit of account or medium of
exchange.

Bear

A bear is a speculator who sells securities in
anticipation of a fall in prices of securities.

Black Market

Any illegal market which has been established in a
context where prices have been fixed at minimum or
maximum level, usually by government. Thus, when
maximum prices have been fixed, trading may occur
at prices above the maximum.

Blue Chip

A consistently growing company both in terms of
profit as well as market share is called a blue-chip
company.

Blue Collar Jobs

Persons who are unskilled and depend upon manual
labour are said to be engaged in blue collar jobs.

Blue Chip Rate

Refers to the lowest interest rate payable by
borrowers having the highest credit rating.

Book Value

In its balance sheet a company may value assets in
the form of asset investments at the prices shown in
its books, namely the prices at which they were
purchased, even though their current price on the
stock exchange may be higher or lower.

Boom

Refers to a period of expansion of business activity. It
is opposite of slump or recession. A boom reaches a
peak when the economy has been working at full
capacity.

Brain Drain

Means the migration of educated and skilled labour
from poorer to richer countries.

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Brand

A brand is a name, term, sign, symbol, or design, or
a combination of them, intended to identify the goods
or services of one seller or group of sellers and to
differentiate them from those of competitors.

Break-Even

Carrying on business in which neither profit nor loss
is made.

Broker

One who buys and sells bonds and other financial
assets. He is employed by other people on account of
his knowledge of market conditions and procedures
and because of his expert knowledge of the
commodity dealt in. A Broker is usually paid
commission for his services, known as ‘brokerage’.

Brokerage

A fixed cost which is charged by the broker for
arranging investments, encashment of bonds and
other financial assets.

Budget

A budget is a financial statement showing the
estimates of receipts and expenditure. The budget is
divided into two parts : (a) revenue budget and (b)
capital budget.

Budget Deficit

Budget deficit is the difference between total
revenues and total expenditure.

Bull

A bull is a speculator who purchases securities in
anticipation of a rise in prices of securities.

Bullion

Precious metals like gold or silver which have been
held in bulk in the form of ingots or bars.

Business cycle

Fluctuations in business conditions/economy like
prosperity recession depression and recovery.

Buyers market

A situation favouring buyers where supply exceeds
demand and there is an abundance of goods and
services.

Call – Option

Refers to a contract giving the option for buying
shares at a future date within a prearranged time
limit.
Capital

Capital is one of the factors of production and has
been defined as wealth used in the production of
further wealth. For business purposes, capital
generally has to be considered in terms of money.

Capital Employed, Return On

The relation of profit to the estimate of average
capital employed to yield a ratio, commonly called the
primary ratio, as follows:
Primary ratio =
Capital
ofit Pr


Capital Gain

Refers to the difference between the purchase price
of an asset and its resale price at some later date,
where that difference has been positive.

Capital Goods

Goods which are made for the purpose of producing
consumer goods and other capital goods, e.g.
machinery of all kinds. This term is synonymous with
‘producers’ goods’.

Capital Market

A market comprising institutions which are involved in
the purchase and sale of securities, e.g., the new
issue market and the stock exchange.

Cash Market

The term used for a market for the immediate delivery
of, and payment for, commodity.

Central Excise Duties

These duties are levied by the Central Government
on commodities, which are produced within the
country. But commodities on which State
Governments impose excise duties (as for instance,
on liquor and drugs) are exempted from Central
Excise Duties.

C.I.F (Cost, Insurance and Freight)

Term used of goods shipped where the price includes
shipping and insurance charges. A C.I.F. quotation
implies that the seller must ship the goods, meeting
all charges upto ‘on board’ and paying insurance and
freight.

Closed Economy

A concept which is used mainly in theoretical models
to describe an economy having no external trade,
which is completely self-sufficient and insulated from
external processes.



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Company

A joint stock company is a legal entity set up for the
purpose of conducting commercial or industrial
operations, and with a capital divided into shares,
held by members.

Conglomerate

A group of companies making different types of
products. Ex: Tata Group

Consumer Durable

A commodity of relatively long life, like a refrigerator
or a washing machine, as distinct from, say
foodstuffs.

Consumer Goods

Products in the actual form in which they reach
domestic consumers.

Consumer’s Surplus

Means the excess of the price which a person would
be willing to pay rather than go without an article over
that which he/one actually pays; it may be termed as
consumer’s rent.

Consumption

Means the act of using goods and services to satisfy
current wants.

Contango

A stock exchange term meaning carry-over. A broker
who wishes to postpone settlement of a transaction to
the following account may do so on payment of
interest on the sum due. The term ‘Contango’ is also
used to mean the extra payment itself.

Contraband

Goods brought into a country illegally without paying
customs duty.

Contract

An agreement, oral or written whereby one party
undertakes to do or not to do something for the other
party to the contract.

Convertibility

Refers to the freedom to exchange any currency for
another currency at the current exchange rate.

Corporation Tax

It is a tax on the company’s profit. It is a direct tax
which is calculated on profits after interest payments
and allowance (i.e., capital allowance) have been
deducted but before dividends are allowed for.
Corporate Paper

Notes which are sold by large corporations in the
money market as a means of getting funds.

Corporation

The term used for a contemporary form of business
having two distinct characteristics: it is a legal entity
separated from its owners, the stockholders; and it is
usually on a scale much larger for the sole proprietor
or partnership to manage or fund.

Cooperation

Cooperation refers to the collective efforts of people
who associate voluntarily to achieve specified
objective.

Countervailing Duty

A duty imposed on imported goods where there is
evidence of an export subsidy in the country of origin
which may adversely affect the domestic producers in
the importing country.

Cumulative Preference Share

A preference share which entitles the holder to
receive not only the current dividend but also any
unpaid arrears, before any dividend has been paid to
ordinary shareholders.

Current Assets

Items such as cash, accounts receivable, marketable
securities, and inventories – assets that could be
turned into cash at a reasonable predictable value
within a relatively short time period (typically, one
year).

Current Liabilities

Debts, such as accounts payable, short-term loans,
and unpaid taxes, that will have to be paid off during
the current fiscal period.

Customs Duties

These are taxes on imports.

Debenture

It is a long term loan taken by a company

Deficit

Refers to a situation where outgoings exceed income
on an ongoing basis, or where liabilities exceed
assets at a specific point in time.

Deflation

Deflation is the reverse case of inflation. Deflation is
that state of falling prices which occurs at that time
when the output of goods and services increases

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more rapidly than the volume of money in the
economy. In the deflation the general price level falls
and the value of money rises.

Demand

By demand is meant the quantity of a commodity that
will be bought at a particular price and not merely the
desire for a thing. Generally at a high price, less will
be bought than at a low price.

Demurrage

A penalty imposed for delay in taking delivery of
goods.

Depository

An organization which holds securities and settles
trade by recording change of ownership.

Depression

A severe and prolonged recession leads to a
depression.
Ex: The 1929 Great Depression in the USA.

Depreciation

Reduction in the value of good by wear and tear.

Derivatives

Any form of security such as option contracts which
are derived from ordinary bonds and shares.
Derivative instruments can be bought or sold on stock
exchanges or future exchanges.

It is a generic term for options, futures and swaps.
Most of the business is over the counter and involving
a lot of risk.

Direct selling

Selling directly from the producer/manufacturer to the
end user eliminating middlemen.

Disinflation

A mild form of deflation. A policy adopted to check
inflation by restricting demand.

Disposable Income

Earnings which remain after paying income and other
taxes and other mandatory payments. It can be
regarded as similar to “Take home pay”.

Dividend

In the case of limited companies, the rate of dividend
is the amount of distributed profit as a percentage of
the nominal value of the share capital to which it
relates. Dividends are usually declared annually but
many companies pay something on account as an
interim dividend.
Dividend Warrant

A draft issued by a limited company and made
payable to a shareholder for the amount of dividend
due to him for a stated period.

Dock Warrant

A receipt for goods stored in a warehouse; it entitles
the holder to take possession of the goods.

Downsizing

Reducing the number of employees to increase
profits or for survival.

Dumping

Means the sale of a good in a foreign market at
a price below its marginal cost. Selling below cost
price to capture a market.

Duopoly

A form of imperfect competition where there are only
two producers of a commodity. Such a situation can
be given to cut-throat competition of a particularly
irrelevant type, and to prevent both parties being
ruined by it, they may agree to share the market,
perhaps on a territorial basis, each agreeing not to
compete against the other in its share of the market.

Duopsony

Refers to a market situation in which there are only
two buyers of a particular goods/service.

Economic Growth

The rate of expansion of the national income or total
value of production of goods and services of a
country.

Economies of Scale

Refers to the reduction in the average cost of a
product in the long run, resulting from an expanded
level of output. They are also known as ‘long run
increasing returns’.

Elasticity

The degree of responsiveness of demand or supply
to a change of price. Elasticity may be defined as a
measure of the percentage change in one variable in
respect of a percentage change in another variable.

Elasticity of Demand

Means the response of demand to a change in the
price of commodity. If the price rises, the amount
demanded normally decreases.

Elasticity of Supply

Means the response of supply to a change in the
price of commodity. If the price rises, the quantity
demanded normally increases.

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Entrepreneur

The term used for the organizing factor in production.
Entrepreneurs are responsible for such economic
decisions as what to produce, how much to produce
and what method of production to adopt.

Entrepot

Importing goods for the purpose of exporting
Ex: Singapore

Equity

Another name for ownership; often used to describe
a share in a company.

Exchange

Exchange is the act of obtaining a desired product
from someone by offering something in return.

Excise Duties

Taxes on home produced goods to raise revenue, as
distinct from customs duties which are taxes on
imports not primarily imposed to raise revenue.
Excise duties may be imposed either to raise revenue
or to check the consumption of the commodities on
which they are imposed.

Export

The term used for a goods/service which is produced
in one country and sold to a consumer in another.

Face Value

Means the nominal value, as distinct from the market
value, of a security (bond/share). The value written on
a coin or a bank note is also termed as face value.

Factors of Production

The resources required for production. The four
factors of production are Land, Labour, Capital and
Entrepreneur (Organization). Factors of production
are resources required for production.

Fiduciary

A person or a legal body acting on behalf of others
who have a beneficial interest in investment or other
property Ex: the executor of a will.

Finished Goods

Refers to the goods, which are used for the purpose
of consumption and not utilized as inputs by the firms
in the process of production.

Fiscal Deficit

This is the gap between the Government’s total
spending and the sum of its revenue receipts and
non-debt capital receipts. It represents the total
amount of borrowed funds required by the
Government to completely meet its expenditure.

Fiscal Policy

Generally refers to the use of taxation and
government expenditure for regulating the aggregate
level of economic activity.

Fixed Assets

Includes the monetary value of the company’s plant,
equipment, property, patents, and other items used
on a continuing basis to produce its goods and
services.

Fixed Cost

Refers to the production costs which tend to be
unaffected by variations in the volume of output.

Floor Price

The minimum price level below which a firm can no
longer realise a profit.

F.O.B. (Free on Board)

Term used of goods shipped where the price does not
include shipping and insurance charges; opposite to
C.I.F. An F.O.B. quotation implies that the exporter
will deliver the goods free on board a ship in
accordance with the contract at the port named; he
pays all expenses up to that point. From there on, the
buyer must take responsibility, paying for freight,
insurance, and all subsequent expenses

Forward Market

A Forward market transaction involves a contract to
buy or sell commodities, or securities at a fixed future
date at a price agreed in a contract.

Foreign direct investment (FDI)

The investment made to acquire lasting interest in
enterprises operating outside of the economy of the
investor. The FDI relationship consists of a parent
enterprise and a foreign affiliate which together form
a transnational corporation.

Foreign Institutional Investor (FII)

FII means an entity established or incorporated
outside India which proposes to make investment in
the financial markets in India.

Franchise

A type of licensing arrangement in which an
organization sells a package containing a trademark,
equipment, materials, services owned by another
organization.

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Franchising

In general, franchising may be regarded as a vertical
marketing system in which a manufacturer or service
organization confers upon an individual or firm the
privilege of a marketing a product or service.

Free Market

Refers to a market in which there is an absence of
intervention by government and where the process of
demand and supply are permitted to operate freely.

Futures

Trading in shares or commodity for delivery at a later
date. A futures contract is for a purchase of
commodities for delivery at a date in the future.
A fixed and binding contract for a standard amount to
be bought at a fixed price at a fixed future date.

GDP

(Gross Domestic Product) measures the total final
outputs of goods and services produced by the
country’s economy, i.e., within the country’s territory
by residents and non residents.

Good

This term is used of any commodity or service for
which there is a demand, irrespective of whether it is
in any sense ‘good’ or ‘bad’.

Grey market

A market in shares which are yet to be issued.

HDI - HUMAN DEVELOPMENT INDEX

TWas developed by UNDP in 1996 and
Tmeasures physical quality of life in a country
along 3 key parameters
O Life expectancy at birth
O No. of years in school
O Per capita income
India ranks 134 out of 182 countries in 2009.

Hierarchy

The line of authority in an organization that runs in
order of rank from top management to the lowest
level of the enterprise.

Horizontal Integration

With reference to the structure of an industry it is the
tendency to specialize in single processes instead of
undertaking the entire production of the commodity
from start to finish.

Hypermarket

A hypermarket is a multi-brand, multi-department
store under one roof meant to offer cost-effective
shopping for household requirements.
Income Tax

Personal income tax is levied on individuals by the
Central Government and the proceeds are shared
between the Centre and the States. The income tax is
progressive; that is, the tax rate is not uniform but
rises progressively with the rise in money income.

Inflation

A situation of a steady and sustained rise in general
prices is usually known as inflation. Inflation is a state
in which the value of money is falling i.e., prices are
rising.

Infrastructure

Services which are regarded as essential for the
creation of a modern economy; e.g.; power, transport,
housing, education, health services.

Intermediate Goods

The goods which find use at some point in the
production process of other goods, rather than final
consumption.

Inventory

The raw materials, work in progress and finished
goods in organization maintained to meet its
operational needs. A term used for the quantity of
stock held by a business.

Invoice

A document used in business giving a complete
summary of a transaction involving the sale of goods.

Issued Capital

The actual amount of capital issued by a company
and allotted in shares to investors. It may be the
same or less than the authorised capital.

Jobber

A jobber is an independent dealer in securities. He
purchases and sells securities in his own name. He is
not allowed to deal with non-members directly.

Labour

All human resources which are available to society for
use in the process of production.

Laissez – Faire

Refers to a policy of non-interference by the State in
economic affairs.

Lateral Integration

This occurs when a firm branches or absorbs other
businesses engaged in producing commodities
related in same way to its own main products.

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LIFO (Last In, First Out)

This is a method of costing adopted by firms which
carry many items of stock of the same kind bought at
different times and at different prices as shown in the
books. Under the more common FIFO system, it is
assumed that whenever an item is sold it was the first
to be purchased, whereas under the LIFO system it is
assumed to have been purchased last.

Limited Liability

Means the restriction of an owner’s loss in a business
to the extent of the capital that he has invested in it.

Line Organisation

Line organisation refers to a direct chain of command
from top to bottom. Here, the lines of direction are
straight and vertical. Every superior has complete
command over his subordinates and every
subordinate is directly accountable to only one
superior immediately above him.

Liquidation (Winding – Up)

Refers to the process where-by the existence of a
company gets terminated, its property having been
realized and distributed among its creditors and in the
event of a surplus, among its members.

Liquidation

It refers to the termination (or winding up) of a
registered company. Liquidation takes place because
of company’s insolvency. In liquidation, assets are
turned into cash for settling outstanding debts and for
apportioning the balance, if any, amongst the owners.

Management

The process of planning, organizing, leading, and
controlling the work of members of an organization
and of using all available organizational resources to
reach stated organizational goals.

Manpower

In ordinary language, manpower means the working
population of a country. In economics, manpower
means the organisation of work force for its utilization
in different sectors of the economy.

Market

A market consists of all the potential customers
sharing a particular need or want who might be willing
and able to engage in exchange to satisfy that need
or want. In non-marketing terms the function of a
market is to enable an exchange of goods or services
to take place, a means by which buyers and sellers
are brought into contact with one another.
Market Leader

A company which has a major market share of a
product/service.
Ex: LIC is the market leader in life insurance.

Marketing

Marketing is a social and managerial process by
which individuals and groups obtain what they need
and want through creating, offering and exchanging
products of value with others.

Market Economy

Means an economy in which crucial economic
decisions and choices are made in a decentralized
manner by private individuals and firms operating
through a free price-and-market mechanism.
Equilibrium of prices and quantities are determined in
a market economy through the laws of supply and
demand. An economy based on free enterprise in
which forces of demand and supply are allowed to
operate freely, without any restriction.

Market Forces

Refers to pressures by the free play of market supply
and demand, which induce adjustment in prices and /
or quantities traded.

Market Price

Means the price determined by the equilibrium
between demand and supply in a market period (or
very short period).

Marketing Mix

The blending of variables like product pricing
promotion and distribution to form a marketing
strategy.

Matrix Structure

An organizational structure in which each employee
reports to both a functional or division manager and
to a project group manager.

Maturity

Means the date on which a loan or bond or debenture
becomes due and is to be paid off i.e., the capital
refunded.

Merger

Means a union of two or more firms in a transaction
by which one absorbs the other(s), or a new firm gets
created utilising the assets of the absorbed firms.

Mixed Economy

It refers to that economic system in which both private
and public sector co-exist. Indian economy is an
example of a mixed economy.

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Most Favoured Nation

An agreement between two countries that each will
offer the best possible trade terms in commercial
contracts.

MNC (Multi National Corporation)

A large corporation with operations and decisions
spread over several countries but controlled by a
central headquarters.

National Income

In the simplest way it can be defined as ‘factor
income accruing to the national residents of a
country. It is the sum of domestic factor income and
net factor income earned from abroad. Net national
product at factor cost is called National Income.

NAV (Net Asset Value)

The value of a fund’s investment. For a mutual fund,
the net asset value per share usually represents the
fund’s market price.

Net Book Value

A statement of the value of fixed assets which is used
in accounting. The appropriate amount of
depreciation is deducted from the original cost of
purchase of the asset to give its net book value.

Net Profit

Means gross profit minus deduction of tax payments
and depreciation provisions.

Net National Product (NNP)

When depreciation is deducted from GNP i.e., Gross
National Product, we get Net National Product (NNP).

Niche

A narrow specialized market.

Option

An option to sell or purchase within a period.

Open Economy

An economy, which is engaged in international trade.
The degree of openness of an economy is
appreciated by the rise of its foreign trade sector
relative to its gross domestic product.

Over Draft

A loan limit in a current account.

Overheads

Costs which are not directly chargeable to any unit
produced. They include rent of premises, salaries of
salesmen, research, etc.,
Paid – Up Capital

That part of the issued capital, which is paid up by the
shareholders. The actual amount of capital that
shareholders have subscribed. It may be less than
the authorised capital.

Paid – Up Shares

Shares are fully paid – up when the full amount has
been paid. Sometimes shares are only partly paid –
up, the company being able to call for the balance to
be paid whenever it requires this additional capital.

Paradox of Value

Means paradox on which an essential to life item,
such as water is normally valued little, but a luxury
item, such as diamonds, carry a high price.

Par Value

Means the nominal or face value of a share or
security.


Planned Economy

An economy where crucial economic processes are
determined to a large extent not by market prices, but
by an economic planning body.

Planning

Planning, a primary function of management, implies
looking ahead and deciding in advance what to do,
when to do it, how to do it and who is to do it.

Planned obsolescence

A marketing strategy to encourage replacement of old
models or styles by introducing new models or styles.

Point of purchase display

A display at a place closely associated with purchase
decisions like check out counter. The display
stimulates impulse buying.

Predatory Pricing

Means the practice of diminishing prices down to
unprofitable levels for a period, so as to weaken or
eliminate existing competitors.

Premium

Securities are said to be ‘at a premium’ when they
stand above par on the stock exchange.

Price

Refers to the value of a commodity or service in
terms of money. Also it is the amount of money that
has to be paid for a commodity or service.

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Price Discrimination

Refers to the charging of different prices to different
groups of individuals for the same goods or services
for reasons not associated with difference in costs.

Primary Deficit

The primary deficit is the fiscal deficit minus interest
payments. It tells how much of the Governments
borrowings are going towards meeting expenses
other than interest payments.

Primary Industry

Refers to the production of goods from agriculture,
forestry and fishing, mines that constitute the natural
wealth of a nation.

Producers’ Goods

Refers to goods made for the purpose of producing
consumer goods and other capital goods e.g.
machinery of all kinds. This is synonymous with
capital goods.

Product

A product can be defined as anything that can be
offered to satisfy a need or want. The term ‘Product’
can be used to cover both ‘goods and services’.

Productivity

Means output per unit of input employed.

Profit Margin

Refers to profit per unit of output which is expressed
as a percentage of price.

P – Notes

A system by which certain overseas entities can
invest in India’s capital markets. Also termed as
overseas derivative instruments [ODI’S].

Profit

Total Revenue less all costs and expenses.

Promotion mix

Using advertising, publicity, sales promotion and
personal selling to communicate, inform and sell
goods and services to the consumer.

Purchasing Power Parity (PPP)

An exchange rate between two currencies such that
the same basket of goods and services could be
bought in each country if the cost were converted at
that exchange rate.

It is often used to compare the standards of living
between countries.
Pyramid/Ponzi

An illegal system of paying off old investors with new
investments. A constant stream of new investments is
needed for the success of this “model”.

Rate of Return

Refers to the basis of earnings from the investment of
capital, where earnings are expressed as a proportion
of the outlay.

Rate of Turnover

The number of times the value of the average stock
of a business is sold during a period.

Recession

Slowing down of the economy over a period of two
to three quarters. [Many countries are currently in
Recession]

Reinsurance

Insurers passing on parts of the risk to other parties in
return for a proportional share of premium

Sandwich Boards

Boards carried in front of and behind a person to
carry advertisements

Sandwich Man

A man who carries sandwich boards to carry
advertisements.

Scab (also called blackleg)

A scab is a worker who goes on working when there
is a strike.

Schedule

A schedule specifies time limits within which activities
are to be completed. It is the process of establishing
a time sequence for the work to be done.

Scientific Management

“It is the art of knowing exactly what you want men to
do and then seeing that they do it in the best and
cheapest way”. (F.W. Taylor)

Sellers market

Demand exceeds supply. The situation favours a
seller.

Shell Company

A company listed in the stock exchange but which
does not trade.

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Span of Control

The number of subordinates reporting directly to a given

Spin Off

A secondary product developed from the main product.
superior. Also called span of management control.

Spot

One common meaning is immediate or now. Buying
something for immediate delivery. Ex: a spot market
for oil Other variations of the use of spot are spot
cash, spot price and spot rate.

Spot Price or rate

Price or rate for something which is delivered
immediately.

Staffing

Staffing is the process of filling all positions in the
organisation with adequate and qualified personnel. It
consists of manpower planning, recruitment,
selection, training, compensation, integration and
maintenance of employees.

Stag

A speculator who buys a large amount of a new issue
of shares or stock if he thinks the price is likely to rise
above the offer price when dealings in it begin on the
stock exchange, so that he hopes to sell soon at
profit.
A person who buys new shares and sells them
immediately to make a profit.

Start-Up

Business founded by individuals intending to change
the environment of a given industry by the
introduction of either a new product or a new
production process.

Stock Exchange

A highly organised market for dealings in stocks and
shares. Only members are admitted and business is
transacted according to a prescribed set of rules. An
investor who wishes to sell or buy securities must act
through a broker.

Strategy

A strategy may be defined as an administrative
course of action designed to achieve success in the
face of difficulties.

Strategic Planning

Strategic planning is long term in nature. Strategic
planning is formulated mainly at the top level of
management. It has mainly an external focus as it is
designed to achieve the organisational objectives in
the face of challenges and opportunities.
Synergy

The situation in which the whole is greater than its
units. In organizational terms, synergy means the
departments that interact cooperatively are more
productive than they would be if they operated in
isolation.

Tax havens

A financial off shore centre that offers a more
favourable tax environment to non-residents. One of
the attractive features is the maintenance of strict
secrecy regarding the name of the account holder.

Taxes
• Direct Taxes
Direct incidence of tax on the person who pays
the tax. liability to pay tax is NOT passed on to
someone else. e.g. INCOME TAX, CORPORATION
TAX, WEALTH TAX, LAND REVENUE, GIFT TAX
etc….

• Indirect Taxes
Levied on goods and services. traders / producers
pay it. Liability passed on to end customer. e.g.
VAT, EXCISE TAX, CUSTOMS DUTY, SERVICE
TAX…

Traded Options

Options to buy or sell shares at a certain price at a
certain date in the future which themselves can be
bought or sold.

Turnover

Total sales of a business during a particular period.

Universal Service Obligation

A fund created by imposing a cess on telecom
companies to recover part of the costs incurred by the
Government for extending telecom network in rural
areas.

V.A.T (Value – Added Tax)

A tax levied on the value of each of the processes
carried out by a business.

Variable Costs

Expenses that vary directly with the amount of work
being performed.

Vendor

Commonly known as supplier. An individual or
business who sells goods to other business.

Wash Sales

It is a transaction in which a speculator sells a
security and then buys it at a higher price through
another broker. This will create an impression that

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there is great demand for that security. As a result,
people may be induced to purchase them at a very
high price.

Wear and Tear

The depreciation of the value of a thing as a result of
ordinary usage as distinct from damage resulting from
negligence or accidental causes.

Wind Up

To bring a limited company to an end either
voluntarily or by order of the court.
Yield

The return on a security, based on its current
earnings in relation to its current price on the stock
exchange. Money produced as a return on an
investment.

80–20 Principle

A rule of thumb stating that 80% of a firms business is
generated by approximately 20% of its customers.

Cash cow Units in large business enterprises which yield high earnings but often have low growth potential. Cash Discount A deduction from a price charged payment made before a certain date Cash Flow Refers to the sum of retained earnings and depreciation provision made by firms. As such it is the source of internally generated long – term funds available to the company. Cash Reserve Ratio (CRR) Refers to the liquid cash that banks have to maintain with the Reserve Bank of India (RBI) as a certain percentage of their demand and time liabilities. Certificate of Deposit (CD) A document, which is issued by a bank acknowledging a deposit of money with it and constituting a promise to repay that sum, to the bearer, at a specified future date. It is negotiable i.e., can be transferred. Cheap Money A term used to describe a situation where bank rate and other rates of interest are low. A policy of cheap money may be adopted in a time of industrial depression to stimulate recovery. Cheque A cheque is a bill of exchange drawn on a specified banker and not expressed to be payable otherwise on demand. Collateral Security An additional security in addition to the personal security offered by a borrower. Commercial Banks A general term denoting those banks, which conduct a general rather than a specialized type of business. They accept deposits, make advances, etc. Consumer Credit Refers to a loan, which is given to the consumer for a short period of time, for the purchase of a specific commodity. This can take the form of hire purchase or be in the form of a personal loan from a bank. Credit A wide term which has been used in connection with operations or states involving lending, generally at

short-term. To ‘give credit’ is to finance, directly or indirectly, the expenditure of others against future repayment. Credit Card A card which is issued by a bank or group of bodies or other agency which provides the holder direct access to credit e.g., from a merchant location, hotel etc., or, in the case of some cards issued by banks, to cash from the banks operating the particular scheme. Credit Rating Means an evaluation of the soundness of an individual or business firm as a credit risk. It is usually based on (1) company’s track – record (2) company’s current and prospective business (3) financial risk (4) quality of management. Crossing This means drawing two parallel lines across the face of a cheque, the effect of which is to make it necessary to pay it into a banking account. Dear Money A period when rates of interest are high, so that borrowing is expensive. Debt Refers to a sum of money, or quantity of goods or services, owned by one individual or body to another. Deed A deed is a legal document or written agreement. There are different types of deeds viz, deed of assignment, deed of partnership etc., Demand Draft A Demand Draft is a Bill of Exchange and negotiable instrument. Demonetisation To deprive a coin or note of its value Devaluation Refers to a fall in the external value (or exchange rate) of one currency vis-à-vis other currency. Discount (1) An inducement offered by a creditor to debtors to pay promptly. (Cash Discount). (2) A deduction from the catalogue price of an article generally allowed by a wholesaler to a retailer, that is, trade discount.
SM501003/2

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(3) With reference to a bill of exchange, to discount a bill means to acquire it by purchase for a sum less than its face value, the amount of this discount depending partly on the length of the unexpired term of the bill and partly on the amount of risk involved. (4) When a recently issued stock falls below its issue price it is said to stand at a discount. Dishonour

Insolvent Means the state of being unable to pay one’s debts. Interest A payment by a borrower for the use of a sum of money for a period of time. It is the reward for the use of capital in the process of production. Lease

A Bill of Exchange is dishonoured when the drawee has insufficient funds to discharge it when it falls due for payment. Similarly, a cheque is dishonoured when the drawee has insufficient funds to meet it. Drawer One who makes out or writes the cheque. Drawee Person or bank asked to make payment by the drawer. Easy Money Refers to a general state of ease and cheapness of borrowing in the financial system. It may result from policy action to reduce interest rates, increase liquidity of the banking system, release any non-price restrictions on lending like credit ceilings and restrictive conditions on hire-purchase contracts. Fiat Money Money which the State declares to be legal tender. Finance The term is applicable to funds from almost any source which is used to undertake any kind of expenditure. Hot Money

The term used for an agreement in which one agent obtains the right of use of some property owned by another agent for a given period of time in return for an agreed fixed charge (which is generally paid in periodic instalments). Letter of Credit A document which is issued by a bank on behalf of a customer which guarantees payment by the bank of cheques drawn by the customer, or more commonly today of bills drawn on that customer by parties from whom he has bought goods. Letters of Credit are used largely in association with bills of exchange, to which they give added security in the financing of foreign trade. Letter of Hypothecation The term used for a letter from an exporter to his bank authorizing it, in the event of the importer failing to accept or pay a bill of exchange, to sell the goods exported and remit the proceeds less expenses. Liabilities Refers to any claims, actual or potential, of an individual or institution. The term usually refers to financial liabilities of which the commonest form has been a debt of any kind. Thus, some deposits, which are bankers’ debts, are commonly termed as ‘deposit liabilities’. Lien

Money that moves across country/borders in response to interest rate differences and that, which moves away when the interest rate differential disappears. Hypothecation Refers to the pledging of securities as collateral; for example to secure the debit balance in a margin account. Idle Money An inactive money that does not contribute to productive assets in an economy. It results from what Keynes called ‘Liquidity Preference’ i.e.; the desire to hold money rather than risk it on interest-earning assets, or goods which may have little utility.

Means a claim against property. A bond is usually secured by a lien against specified property of the company. Liquid Assets Means assets either in the form of money or which can be quickly converted into money. Liquidity The term indicates availability of cash, and of assets readily convertible into cash (called liquid assets), to meet immediate obligations; a volume of reserves plus credit facilities, reflected in an ability to meet current financial liabilities in cash.

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Mortgage Refers to the conveyance of property by a debtor (mortgager) to a creditor (mortgagee) as security for a debt, with a condition that the property will have to be reconveyed on payment of the debt. Micro finance A type of banking service that is provided to unemployed or low income individuals or groups who would otherwise have no other means of getting those services. Near Money Assets which are readily convertible into money e.g. deposit accounts, deposit with savings banks and building societies, and certain short-term agreement securities. Negotiable Instrument A claim, the title to which passes by delivery. Examples of such claims include bills of exchange, cheques, promissory notes, dividend warrants and debentures payable to bearer. Transfer is by delivery only. A bill of exchange payable to a certain person ‘only’ is not a negotiable instrument. Neither is a cheque with ‘not negotiable’ written on it. Bill of Lading, Dock Warrants, and Postal Orders are not negotiable. NINJNA Sub-Prime borrowers can be categorized “NINJNA” i.e., No Income, No Job and No Asset. Overdraft Refers to a system of bank lending, by which the borrower is permitted to draw cheques beyond the credit balance in his account, up to an agreed limit, and to pay interest only on the daily amounts by which the account is overdrawn. Paper Note A general term which is used for money in the form of bank notes. Pass Book A book supplied to customers by a bank, in which entries are made of all deposits and withdrawals. Prime Lending Rate (PLR) Interest rate charged by banks to their largest, most secure and credit worthy customers on short-term loans. as

Probation Probation is a period when a new worker is being tested before getting a permanent job. Pro Forma An invoice sent to a buyer before the goods are sent, so that payment can be made or business documents can be produced. Repo Repo is a short term for repurchase agreement for RBI selling a government security at a competitive rate in the market to absorb what it considers is excess liquidity. The buyers are either banks or registered primary dealers. Repo Rate A transaction where funds are borrowed through the sale of short term securities by the money market to the Central Bank. It is a means of relieving short term shortage of funds and used as a device for monetary control. Reverse Repo Rate The sale of securities is by the central bank to the money market. Revolving Credit A loan facility that is renewed as it is repaid and may be used repeatedly. Also termed as open end credit. A credit card limit is a form of revolving credit. Securitisation The process of converting a bank loan into a marketable, negotiable security. Statutory Liquidity Ratio (SLR) Refers to the amount that all banks require to maintain in cash or in the form of Gold or approved securities. Sub Prime Crisis The crisis in the financial services sector starting in the United States due to sanctioning of loans to “subprime borrowers” [sub-standard borrowers] Sweep facility An automatic service available on some bank accounts that shifts credit balances into a deposit account where they will earn interest.

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They had reserves or deposits of more than Rs. under European Management.com website : www. Demand Deposits Deposits Eg: Current Account / Savings Account. Loans are of two types 1. Siddamsetty Complex. Six more Commercial banks were nationalised from 15 April. 1. Allahabad Bank. 1969 acquiring ownership and control of 14 major banks in the country. The fourteen banks nationalised on 19th July 1969 were the Central Bank of India. at Calcutta. Dena Bank. Punjab National Bank was established in 1894. 2. • No interest is paid for balances in the account. [However. Current Account: • Generally maintained by businesspersons / large institutions / companies. UCO Bank. all Presidency Banks were merged and renamed as the Imperial Bank of India. which was subsequently amended as the Banking Regulation Act. The Government issued an ordinance on July 19.com . managed by Indians. • The depositor cannot withdraw the amount before the due date. was Oudh Commercial Bank founded in 1881. • Demand Loans are usually repayable in 12 to 18 months. [now seven associate banks]. Allahabad Bank was established in 1865. The Banking Companies Act was passed in February 1949. Fixed Deposits: • A lumpsum amount will be deposited in this account. and Bank of Madras in 1843. Punjab National Bank. Crop loans. Demand Loans: Loans Eg: Gold Loans. • Overdraft (OD) can be extended in this account. Bank of Baroda. In 1921. at the discretion of the bank. 2nd Floor. 1949 defines the term Banking as “accepting. 3. 5. Term Loans: Eg: Housing loan / Personal Loan. deposits for the purpose of lending or investment. Subsequently. Indian Overseas Bank and Bank of Maharashtra. The first bank with limited liability. Regional Rural Banks [RRBs] (also known as Grameena Banks) were formed in 1975. 6. Ten private banks were granted permission during 1994 and 1995. Rajasthan and West Bengal. Syndicate Bank. United Bank of India. The banks were (1) Andhra Bank (2) Punjab & Sind Bank (3) New Bank of India (4) Vijaya Bank (5) Corporation Bank (6) Oriental Bank of Commerce 9. Union Bank of India. Ltd. Term/Time Deposits Eg: Fixed Deposits / Recurring Deposits. Presidency Banks were established by the British: Bank of Bengal in 1806. 1980. History of Banking Development in India The Banking Regulation Act. • There are restrictions on the number of withdrawals.200 crore. [The fourteen banks nationalized had reserves or deposits of more than Rs. Deposits are of two types 1. Savings Account: • Generally maintained by individuals. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. 7. initially in Uttar Pradesh. 2. premature closure is allowed with certain conditions] • A higher rate of interest is paid in this account. Canara Bank. Secunderabad – 500 003. Haryana. 8. 4. order or otherwise”. • There are no restrictions on the number transactions. in some cases. • This account is useful to build a capital sum through regular small savings. Bank of India. and withdrawable by cheque.time4education. The Narsimhan Committee (year) recommended granting permission for the opening of new private banks. The first bank in India was called the Bank of Hindustan and was established in 1770 by Alexander and Co. as compared to savings account. 2.0() HO: 95B. These banks SM501003/5 Triumphant Institute of Management Education Pvt. Indian Bank. The period from 1913 to 1918 witnessed a crisis in the banking sector with as many as 94 banks collapsing. (7. 1949. • Nominal rate of interest will be paid on the balances in this account.NOTE ON BANKING Bank – Definition A bank is a financial institution which accepts money from the people in the form of ‘Deposits’ and gives advances to them in the form of “Loans”. The repayment may extend to over twenty years.50 crores] Six banks were nationalized on April 15. 1980. 10. Recurring or Cumulative Deposits: • A particular fixed amount or instalment is deposited in this account every month. • Term Loans are repayable in instalments. The largest bank – The Imperial Bank of India – was nationalized in 1955 and rechristened as State Bank of India (SBI) followed by formation of its 8 Associate Banks in 1959. followed by Bank of Bombay in 1840. draft.

It can do so by changing the Bank rate or through open market operations. 684 in June. The Reserve Bank of India was setup on the basis of the Hilton Young commission (1926). Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. i. All commercial banks. there are only five non. The State Bank Group comprising the State Bank of India. It performs all the banking functions of the state and central Governments and it also tenders useful advice to the Government on matters related to economic and monetary policy. HDFC Bank and UTI Bank [now Axis Bank]. 2009.time4education. rather than the conventional tool of Bank Rate. In terms of business. The Reserve Bank of India Act.0() HO: 95B. (b) It must also satisfy the RBI that its affairs are not conducted in a manner detrimental to the interests of depositors. which have not been included in the second schedule of RBI Act. 1934. The general administration and direction of the RBI is managed by a Central Board of Directors consisting of 20 members which includes the Governor.scheduled banks in the country. Controller of Credit: The RBI is the controller of credit i. In 1959. State Bank of Saurashtra and State Bank of Travancore consists of the State Bank Group.were known as “New Generation Banks”. Under the Reserve Bank of India Act. 1969 to 13. State Bank of Patiala. Siddamsetty Complex. The head office of Reserve Bank of India is at Mumbai.5 lakhs. 2nd Floor. 1934. the Bank of France in France etc. It is not only a banker to the commercial banks. Banker to the Government: The RBI acts as the Banker. selective controls on credit are increasingly being used by the Reserve Bank. (Now State Bank of Triumphant Institute of Management Education Pvt. with a share capital of 5 crore. Scheduled banks are required to maintain a certain amount of reserves with the RBI. Since 1957. At Present Duvvuri Subbarao is the Governor of RBI. The RBI has adopted the Minimum Reserve System for the issue of notes. Indian and foreign. 1 Government official appointed by the Union Government of India to give representation to important strata in the economic life of the country. 1956. which commenced operations on April 1. Ltd.com SM501003/6 . To be included in the second schedule. and its associates has increased the number of branches from 2. 5. 4. a bank (a) must have paid up capital and reserves of not less than Rs. (7. the Bank of England in England. and was nationalised in January 1949. Issue of Notes: The Reserve Bank of India is the sole authority for the issue currency notes of various denominations except one-rupee notes.200 crore. it has been maintaining gold and foreign exchange reserves of Rs. SBI and its Associate Banks: On the recommendations of the Rural Credit Survey Committee.462 on June 30. These were the banks of the erstwhile prince by states. banks were classified as scheduled and non-scheduled banks.115 crore should be in gold. 3. State Bank of Mysore. and also maintains and protects the country’s foreign exchange funds. Bankers’ Bank: The RBI performs the same function for the other banks as the other banks ordinarily perform for their customers. The Reserve Bank of India acts as the only source of legal tender (money) because the one rupee notes issued by the Ministry of Finance are also circulated through it. It is Reserve Bank of India in India. Since. the Federal Reserve System in America. In recent times ‘repo’ and ‘reverse repo’ rates are being increasingly used. The scheduled banks are those which are entered in the second schedule of RBI Act. to control the community’s supply of money.e. 2. 1955. Reserve Bank of India: The Reserve Bank of India is the apex bank or central bank of the country. Functions of RBI: 1. They account for more than 80 per cent of the entire banking business in the country. but it is also the lender of the last resort. 4 Deputy Governors. It got its membership of Bank of International Settlements (BIS) in September 1996. and thus it had the distinction of becoming the first state owned commercial bank in the country. the Imperial Bank of India was converted into the State Bank of India on July 1. the State Bank of India (Associate Banks) Act was passed and this paved the way for creating the State Bank Group. because of their stress on customer friendly and automation friendly policies Prominent among the ten banks were ICICI Bank. Its duty is to control the monetary base and.com website : www. 1934. Structure of Commercial Banks in India The commercial banking system in India now consists of public sector scheduled banks and private sector scheduled as well as non-scheduled bank. through this. 92 per cent of its shares were acquired by the RBI. State Bank of Indore. Agent and Adviser to the Government. 1935. Central banks have different names in different countries. Secunderabad – 500 003. Now State Bank of Hyderabad. State Bank of Bikaner and Jaipur. Non – scheduled banks are those. regional rural banks. 1934 (ΙΙ of 1934) provided the statutory basis for the functioning of the bank. At present. of which at least Rs. Custodian of Foreign Reserves: For the purpose of keeping the foreign exchange rates stable the Reserve Bank buys and sells foreign currencies. The central bank is defined as the bankers’ bank and lender of last resort.. the public sector banks now have a dominant position. It also manages the public debt for the Government. and state co-operative banks are scheduled banks. it has the regulatory power to influence the volume of credit created by banks in India.

Ninety per cent of these have been opened in rural areas and unbanked centres. This has helped the domestic banks to improve their performance and provide better customer service. Other Scheduled Commercial Banks: At present relatively small scheduled commercial banks and ten newly established banks with a network of 5.046 as of 2008. With the nationalization of these six banks. Narsimham. which is based in the United Kingdom. Regional Rural Banks: Under the chairmanship of U. Standard Chartered Bank acquired Grindlays Bank from ANZ Bank. The RBI stake in SBI is now 55 per cent against 99 per cent earlier. 1969. to the customers.com SM501003/7 . there were 196 regional rural banks with a network of 14. 5. Standard Chartered Bank HSBC Royal Bank of Scotland Barclays Bank Citibank JP Morgan Chase Bank nd Country UK UK UK UK USA USA Triumphant Institute of Management Education Pvt. In 1993. The scheme now function as a way of monitoring credit flow for social and economic development in a district. The total number of branches of the nineteen nationalized banks was 38. 2. Each one of these fourteen banks had deposits of Rs. Pranab Mukherjee moved the SBI Bill in the Lok Sabha. Secunderabad – 500 003. The regional rural banks meet the credit requirement of weaker sections.. 1975. (In March 2010. Thus Standard Chartered Bank. the share of the private sector in the entire banking sector declined to just 9 percent. these banks had made significant contribution to the development of banking habits in the country as they have performed all the functions of a commercial bank. Apart from financing of foreign trade. The SBI thus raised over Rs. 4. In 1933. iv. (7. 1980 six privately owned commercial banks were nationalised. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. iii.50 crore or more at that time.0() HO: 95B. artisans and small entrepreneurs. Foreign Commercial Banks Foreign banks operating in India are banks of other countries having their branches in India. The first bank was set up on October 2.Saurashtra has merged with State Bank of India).time4education.com website : www. Siddamsetty Complex. small and marginal farmers landless labours. As a result. The Lead Bank had to formulate a plan for the banking structure in the districts where such facilities were lacking at the time of nationalization. They also issue bank drafts. 6. After nationalisation of 14 banks there was a rapid expansion of branch network. As of June 2008. 2009 the country had 29 foreign banks with 273 branches located mainly in big cities. vi. 3. It had the backing of Nariman Committee also. New Bank of India merged with Punjab National Bank. The State Bank of India and its Associate Banks together account for around 20 per cent of the total branches of all commercial banks in the country. most of the private sector banks are much smaller than both nationalized banks and foreign banks. Bank 1. Some of the important foreign banks operating in India are listed below. In terms of branches and also the business done by them. Ltd. the Working Group on Rural Banks recommended the setting up of these banks as part of a multi – agency approach to rural credit. So far ten new private sector banks have been set up and three more proposals for setting up banks in the private sector have been approved in principle. Their role in the financial system of the country is just marginal.832 branches in the country. In 2000. the number of public sector banks other than the State Bank of India and its Associates declined to nineteen. Other Nationalised Banks: A second category of public sector banks is of nineteen commercial banks. etc.445 branches are the ones operating in the private sector. cheques. there are about 30 foreign banks having a total of more than 250 branches in most of the big cities of the country. Foreign banks also perform the day-to-day banking functions which include acceptance of deposits and giving loans. of which fourteen were nationalised on July 19.2. which seeks to reduce the Union Government’s shareholding in the State Bank of India from 55 per cent to 51 per cent. has become the largest foreign bank operating in India. These private sector banks (both old and new) account for less than 15 per cent of both deposits and aggregate advances. At present. The share of the banking business of the State Bank Group is roughly 29 percent. v. including acceptance of deposits and lending of funds for trade and commerce. Lead Bank Scheme: The idea of the Lead Bank Scheme was mooted by the Gadgil Study Group in 1969. Foreign Banks: As of June 30. Foreign banks have been operating in India for more than last 100 years but new economic policies implemented in 1990s encouraged many international banks to open their branches in India. Foreign banks in India have brought in the latest technology and new banking practices.400 crore through public issue. to allow the SBI to raise more capital from the market) ii. 2 Floor. On April 15. the State Bank of India Act was amended to enable it to have access to the capital markets.

the largest bank in China. 3. NEW BANKS IN PRIVATE SECTOR In 1993. Secunderabad – 500 003. A minimum capital adequacy ratio of 10 per cent shall be maintained on a continuous basis from commencement of operations. BNP Paribas Bank 12. Bank of America ABN AMRO Bank Abu Dhabi Commercial Bank Country USA The Netherlands UAE Sri Lanka France France Taiwan Germany Canada Singapore 2. Latest developments: The country is likely to get several more New Generation Private Banks with the Finance Minister Pranab Mukherjee announcing in February 2010 that RBI is considering new bank licences to promoters in the private sector and also Non Banking Financial Companies (NBFCs) if they meet RBI eligibility criteria. Promoters’ contribution shall be a minimum of 40 per cent of the paid-up capital of the bank at any point of time. revised guidelines were issued in January 2001 for entry of new banks in the private sector. a new generation private bank. Societe Generale 13.com . has stake in Yes Bank. 2nd Floor. 4. Deutsche Bank 15. ICICI Bank HDFC Bank Axis Bank (previously called UTI Bank) IndusInd Bank Kotak Mahindra Bank Development Credit Bank Yes Bank 10. 8. in recognition of the need to introduce greater competition new private sector banks were allowed to be set up in the Indian banking system. Bank of Ceylon 11. 7. a Dutch bank. Initial paid-up capital shall be Rs. is also planning to open branches in India by the year end. Lenders such as Exim Bank and SIDBI are also interested in a banking licence. was amalgamated with Oriental Bank of Commerce on August 14.300 crore within three years of commencement of business.time4education. 2010. China Trust Commercial Bank 14. Non-Banking Finance Companies (NBFCs) with good track record can become banks. 9. Oriental Bank of Commerce is a nationalized bank. Global Trust Bank. Rabo Bank. These new private banks should open 25 per cent of the branches in rural/semi-urban areas. Goldman Sachs has also approached the RBI for a banking licence. Yes Bank was granted licence in 2004. Scotia Bank 16. Corporates such as the Tatas and Birlas have shown interest in banking licences. Initial capital other than promoters’ contribution could be raised through public issue or private placement. CIMB Bank Berhad (Malaysia). 5. Credit Suisse is a Zurich (Switzerland) based bank. Their contribution of 40 per cent shall be locked in for 5 years from the date of licensing of the bank and excess stake above 40 per cent shall be diluted after one year of the bank’s operations. These banks are called ‘New Generation Private Banks’. Some of the New Generation Private Banks: 1. (7. Credit Suisse has received an in-principle approval from RBI permitting it to open bank branches in India and offer retail and wholesale banking services. Among finance companies Reliance Capital and Indiabulls have announced their interest in getting into banking. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. The Industrial and Commercial Bank of China (ICBC). 5. 6. Siddamsetty Complex. 2. DBS Bank Latest developments: Some more foreign banks are going to start their operations in India in 2010. Ltd. The main requirements are: 1. 3. this will be raised to Rs. Priority sector lending target is 40 per cent of net bank credit. The Australia and New Zealand Banking Group (ANZ) has received an in-principle banking licence on March 3. 2004. 6.com website : www. as in the case of other domestic banks.0() HO: 95B.200 crore. 4. Based on a review of experience gained on the functioning of new private sector banks. SM501003/8 Triumphant Institute of Management Education Pvt. Commonwealth Bank of Australia (Australia) and FirstRand Bank Limited (South Africa) are also going to start their operations in India.Bank 7.

They are different from commercial banks. A large number of societies face severe financial problems due to low recovery rates. The basic principle of co-operation is ‘each for all and all for each’. The various reconstruction and revival programmes for PACCSs adopted by Indian government and RBI have considerably reduced the number of primary credit societies over the past three decades. they mostly borrow for productive purposes. Low interest rates are charged on the loans. Borrowings of SCBs are mainly from the Reserve Bank of India and the rest from state governments. Rajasthan.com website : www.Foreign Direct Investment (FDI) limit in private sector banks is 74 per cent. Co-operative societies charge comparatively low interest rates vis-a-vis the money-lenders.61. State Co-operative Bank is the apex co-operative bank at the state level. Orissa and Kerala. Secunderabad – 500 003. 2. Triumphant Institute of Management Education Pvt. Cooperative banks cannot open their branches in foreign countries while commercial banks can operate in foreign countries. The main causes of these overdues are (i) natural calamities such as floods. Advantages of co-operative credit institutions: 1. It provides short term credit facilities to the agriculture sector.000 societies in 1970-71. operating at the state level. comes from their own funds. CCBs are of two types: (a) Cooperative Banking Unions whose membership is open only to cooperative societies. Every state has a state cooperative bank. Co-operatives help develop the habits of thrift among the agriculturists by encouraging savings and investments. borrowings and other sources. the cultivators used to borrow for consumption and other unproductive purposes. But as on March 31. The duration of such loans vary from one year to three years. At the end of March 2004 there were 366 CCBs in India.com SM501003/9 . There were 1. State Cooperative Banks (SCBs): SCBs are the apex institutions in the three-tier cooperative credit structure. deposits. 2. 1. The most distressing feature of the functions of the central cooperative banks is the heavy and increasing burden of overdue loans. Borrowings are mainly from central cooperative banks. But now. Primary Agricultural Cooperative Credit Society (PACCS): It is a village level institution which directly deals with rural people. Primary Agricultural Co-operative Credit Society is at the village level. A commercial bank can establish its branches in any district / state of the country. Central Cooperative Banks (CCBs): The working area of these banks is limited to one district only. (7. 3. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. It provides an effective alternative to the traditional defective credit system of the village money-lender. Only the members of the societies are entitled to get loans from them. In India. while cooperative bank can operate its activities only within limited area. etc. This exists in Punjab. SCB acts as a link between RBI and Central Cooperative Banks. affecting the repaying capacity of the borrowers and (ii) inadequate and inefficient supervision exercised by the banks. droughts. The working capital of the primary credit societies. 3. Haryana. Co-operative societies discourage unproductive borrowing. In this way CCB plays a bridge role between the state cooperative banks and primary credit societies.0() HO: 95B. Commercial banks have been constituted by an Act passed by parliament while cooperative banks have been constituted by different states under various Acts related to cooperative societies of various states. Central or District Cooperative Bank functions at district level. Ltd. 2nd Floor. Co-operative Banks Co-operation means voluntary association on the basis of equality and for some common purpose. Earlier. 2001 there are about 1 lakh primary agricultural credit societies in India with approximately 10 crore members. the cooperative bank organization has a three tier set up. (b) Mixed Central Cooperative Banks whose membership is open to both individuals and cooperative societies. SCB gets loans from RBI. Cooperative banks are generally concerned with the rural and development credit and provide financial assistance for agricultural and rural activities. CCBs get loans from the state cooperative banks and give loans to primary credit societies. A co-operative bank is an institution established on co-operative basis and deals in ordinary banking business. Borrowings form the chief source of working capital of the societies. Minimum 10 persons of a village can form a primary credit society. The management of the society is under the control of an elected body. SCB grants loans to central cooperative banks and regulates their activities.time4education. 4. Siddamsetty Complex.

The sponsoring banks and the Reserve Bank of India provide many subsidies and concessions to RRBs to enable them to function effectively. Co-operative credit is available for purchasing improved seeds. CRR is also subject to frequent changes as RBI intervenes from time to time to correct monetary or exchange rate imbalances. The Reserve Bank of India appointed the M. 2010). [In recent times apart from bank rate. RRBs have to act as alternative agencies to provide institutional credit in rural areas.time4education. The bank rate is at present (as on March 4.5. the minimum percentage of SLR is 25% and maximum 40%). commerce and industry in the rural areas. SM501003/10 Triumphant Institute of Management Education Pvt. differ from the latter in certain respects such as: the area of RRBs is limited to a specified region comprising one or more districts of a state. adopted by India. National Bank for Agriculture and Rural Development (NABARD) has the responsibility to lay down policies for RRBs. Statutory Liquidity Ratio (SLR): All the commercial banks in the country are also required to keep (in addition to CRR) a certain percentage of their net demand and time liabilities (NDTL) as liquid assets in the shape of cash. Indian Monetary Policy (Credit Control) The objective of planned economic development. RRBs were not set up to replace co-operative credit societies but to supplement them.75 lakh to Rs. gold or approved securities. In practice it is the rate at which RBI lends to other commercial banks. In order to overcome this Narasimham Committee recommended that SLR should be brought down to 25% (As of March 4. It thus acts as signal to the economy on the direction of the monetary policy. in the past been using SLR as a means to mobilise low cost resources. 1975. Khusro observed that the weaknesses of RRBs were endemic and non-viability was built into their structure. though basically scheduled commercial banks. However with the delegation of this power to the commercial banks (except interest rates in priority sectors) the importance of bank rate has been revived. As most of SLR money in kept in treasury bills.. the year which marked the initiation of financial sector reforms. At present CRR is 5. This abuse of SLR leads to distortion in the interest rate and credit supply. as RBI uses changes in Bank Rate to regulate fluctuations in exchange rate and domestic inflation. Bhandari Committee to suggest measures for restructuring RRBs. The Agricultural Credit Review Committee under the chairmanship of Dr.1 crore. The RRBs had accumulated huge losses. They are intended to eliminate money-lenders. Siddamsetty Complex. The first RRB in India was set up in Moradabad in Uttar Pradesh. Monetary Policy. Bank rate had a limited impact on the period before economic reforms (1991) when RBI would determine the interest rates structure. The RRBs have the responsibility to develop agriculture. chemical fertilizers. This has helped in the introduction of better agricultural methods. They charge very low rates of interest on the borrowings of the RRBs. government had.M.C. The RRBs.A. was known as Credit Policy till 1992. Regional Rural Banks (RRBs) The Regional Rural Banks (RRBs) came into existence on October 2. 2010) six per cent but is subject to frequent variation. The Reserve Bank of India is the main agency for implementing the monetary policy.com . RBI is empowered to fix the CRR at a rate ranging between 3% and 15% (i. Secunderabad – 500 003. (7. to achieve a stable monetary policy: Bank Rate: It is the rate at which RBI discounts the bills of exchange. required an active monetary policy. maximum 15%). to oversee their operations. Like the Bank Rate. the total number of RRBs is 95. trade. 2010. The specific objective of RRBs is to provide credit and deposit facilities to the small and marginal farmers. 2nd Floor. etc. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. provide refinance facilities and attend to problems faced by them. modern implements. The RBI varies this ratio as and when it perceives the need to increase or decrease money supply.75% (As of March 4. Most of the recommendations of the Bhandari Committee are being implemented.0() HO: 95B.] Cash Reserve Ratio (CRR): Every Commercial bank is required to keep a certain percentage of its demand and time liabilities (Deposits) with the RBI (either as cash or book balance). The two standard aims of the policy were: • • Boost economic development. minimum 3%. The issued share capital of RRBs has been enhanced from Rs. In the recent past Prime Lending Rate (PLR) was decided by commercial banks with reference to the bank rate and the deposit position of each bank. Control inflationary pressures. There are some important instruments. RBI is using ‘repo’ and ‘reverse repo’ rates to mop up excess liquidity and inject liquidity into the system. The sponsor banks continue to provide managerial and financial assistance to RRBs. Ltd. agricultural labourers and artisans. RBI has allowed Regional Rural Banks to market mutual funds through their branches. The Khusro Committee recommended that RRBs should be merged with sponsor banks.com website : www. The cost of staff deputed to RRBs and training expenses of RRB staff are borne by the sponsor banks. As on September 2007.e.

Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Traditionally RBI was not resorting to this method. Repo rate is the rate at which RBI lends to commercial banks and reverse repo is the rate at which RBI borrows from commercial banks.tune the liquidity position. beneficiaries of the IRDP and Differential Rate of Interest Schemes. RBI can hike reverse repo rate and absorbs the excess liquidity in the market. Siddamsetty Complex. in the post – nationalisation era) Another important reason for introducing the concept of priority sector lending after the July 1969 nationalisation was the fact that funds of the banks were being misutilised. without resorting to major policy instruments such as changes in CRR and Bank Rate.75% and reverse repo rate is 3. Share Croppers. about 40% of total credit. Similarly. In the prenationalisation era about 78% of the total bank credit was allocated to large and medium industries. Small and Marginal Farmers. Public funds of the banks were made available to directors of the banks at concessional rates. sub targets were fixed for sub sectors. Ltd.Repo and Reverse Repo Rates: Repo (Repurchase option) and reverse repo are instruments used by RBI in day-to-day liquidity management under the Liquidity Adjustment Facility (LAF).] Priority sector lending can be described as an example of “Administered Credit” or “Directed Credit”. and wholesale trade. Professional and Self Employed Persons. Housing and Education loans and also loans given to Scheduled Castes/Tribes. The concept of priority sector lending was therefore introduced to correct this imbalance and the distortion in sectoral development of total banking credit. Nationalised banks diverted credit to areas and sectors where it was badly needed to meet the objectives of social banking. therefore. was directed to the priority sector which may affect the profitability of banks). to meet social obligations. monetary policy alone cannot ensure the maintenance of domestic prices. important that the rate of exchange is maintained without violent fluctuations. RBI has had to step in to stabilise the flow to avoid excess liquidity. The concept of priority sector lending is here to stay in Indian banking. For foreign banks the overall target for PS lending as a ratio of total credit was fixed at 32% by RBI. The concept of priority sector lending covered neglected sectors like Agriculture. [The DRI scheme is aimed at the “weakest of the weak”. To sum up. For example in the pre nationalisation era about 70% of the total industrial advances went to only 1% of the total number of borrowal accounts (Many banks in the prenationalisation era were owned by big industrial houses). Apart from the targets for priority sector lending. Objectives of Monetary Policy: • Stability of external value: Fluctuation in exchange rate of a currency affects foreign trade and investment. public sector banks were required to fulfil the target of lending at least 1% of the total advances under this scheme. 2nd Floor. the concept of priority sector lending acted as a much needed corrective mechanism. It is. while the Agriculture sector accounted for a shocking 2.com SM501003/11 . affects domestic prices. Artisans. But the Government and RBI have persisted with the concept of priority sector lending despite this criticism. Road and Water Transport (RTO) Retail Trade. RBI occasionally resorts to the repo route to fine. Small Scale Industry (SSI). Tenant Farmers.0() HO: 95B. However economists are not of the same opinion on whether business cycles are primarily caused by monetary factors. The only possible changes could be perhaps reducing the percentage of priority sector lending from the current 40%. One criticism of the concept of priority sector lending was that it locked up the resources of the banks in low yielding assets (A major chunk. In case of inflationary tendencies. In both the cases the system of administered/directed credit/ prices is to ensure social objectives). However. As a result RBI directed domestic banks to provide 40% of their net bank credit to the priority sector.com website : www. (7.25% Open market operations: This refers to the RBI buying and selling of eligible securities to regulate money supply. changes in tastes. It is the RBI which determines the direction and volume of credit to ensure social objectives. after the large inflow of foreign funds since 1991. To sum up. (Administered Credit in banking can be compared to Administered Price Mechanism in pricing of petroleum products like Petrol Diesel LPG and Kerosene. Secunderabad – 500 003. Priority Sector Lending One of the main reasons for the nationalisation of banks in July 1969 was to ensure that resources available with banks were made available to sectors which were starved of funds. 2010 the repo rate is 4. Reducing the impact of business cycles (Slumps and booms) by manipulation of credit and interest policy. As of March 4. For example under the Differential Rate of Interest scheme introduced in 1972. Maintenance of domestic price level: Fluctuations in prices affect investment decisions.2% of the total bank credit (Significantly the figure of 78% declined to about 33% in 2000. fluctuation in world prices etc. or adding or deleting certain sectors to the list of priority sector. several other factors such as erratic monsoons. • • Triumphant Institute of Management Education Pvt. which will lead to release of money into the market. public money was being diverted and misutilised for private profit. These directors were also serving on the board of directors of other companies. However. in case there is a perceived need to inject liquidity into the system. RBI can reduce the repo rate.time4education.

9 per cent of total assets at end March 2005. and .com website : www. which has been classified by a bank or financial institution as sub-standard. Siddamsetty Complex. This company (which is the second creditor) is entitled to serve a notice to the borrower to discharge his / her liabilities within 60 days. small industry. The NPAs of Scheduled Commercial Banks (SCBs) were at 1. (e) Any amount to be received remains overdue for a period of more than 180days in respect of other accounts. 2002 (SARFAESI Act) to enable banks to realize their dues without intervention of courts and tribunals. An asset becomes nonperforming when it ceases to generate income for the bank. Failing to discharge the liabilities in the stipulated time will entitle the second creditor to take possession of the secured assets. The SARFAESI Act 2002 puts in place a long overdue legal framework. (7. 3 or 4 large banks (including SBI) which could become international in character.com . ΙΙ tier 8 to 10 national banks ΙΙΙ tier Local banks IV tier Rural banks including RRBs SM501003/12 Ι tier Triumphant Institute of Management Education Pvt. A 4 tier banking system was proposed. (b) Expansion in the volume of deposits – bank deposits now constituted two-fifths of financial assets of the household sector in 1991. 2001 a non performing asset is an advance where (a) Interest and / or instalment of principal remain overdue for a period of more than 180 days in respect of a term loan. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. viz. If big industrial houses can be financed under BPLR. NARASIMHAM COMMITTEE RECOMMENDATIONS ON FINANCIAL REFORMS: The Government of India constituted a 9-member committee under the chairmanship of M. Ltd. 2nd Floor. without attendant delays. NPA norms for Scheduled Commercial Banks: With effect from March 31. agriculture. The Narasimham Committee (1991) acknowledged the spectacular success of the public sector banks since their nationalization in July 1969.860 crores in 2001-02 to Rs.820 crores in 2005-06. what prevents banks from financing the neglected sectors at concessional rates or diverting a substantial portion of total bank credit to traditionally neglected social groups/sectors. particularly in rural areas. (d) Diversion of an increasing portion of the bank credit to priority sectors. The Act enables the setting up of Asset Management Companies to acquire NPAs of any bank or financial agency by issuing debentures. The recovery of NPAs got a boost after the enactment of SARFAESI Act. (b) The account remains ‘ out of order’ for a period of more than 180 days in respect of an overdraft / cash credit (OD/CC). take over the management of the assets and to appoint any person to manage the secured assets. It proposed a substantial reduction in the number of public sector banks (PSBs) through mergers and acquisitions. Recommendation of the Narasimham Committee: 1. Basic approach of the committee: The Narasimham Committee (1991) was primarily interested in improving the financial health of public sector banks and development financial institutions (DFIs). so as to make them viable and efficient and meet fully the emerging needs of the real economy. a former Governor of the Reserve Bank of India to examine all aspects relating to the structure. doubtful or loss asset. transport. The committee submitted its report in November 1991. A major cause for poor performance and low profitability of banks was the accumulation of nonperforming assets consisting of loans and advances given to corporates which.And finally the best argument for continuing the system of priority sector lending is the fact that banks have been financing big industrial houses. NPAs of Scheduled Commercial Banks Non Performing Assets (NPAs) are bad debts of banks/financial institutions. for some reason. especially in: (a) Massive branch expansion. (d) Interest and / or instalment of principal remains overdue for two harvest seasons but for a period of not exceeding two half years in the case of an advance granted for agricultural purposes. or pay the interest accumulated thereon. (c) The bill remains overdue for a period of more than 180 days in case of the bills purchased and discounted.70.51. in accordance with the directions or guidelines issued by the Reserve Bank of India.time4education. for the recovery of NPAs. Secunderabad – 500 003. Narasimham. bonds or any other security.0() HO: 95B. at concessional rates under the Below Prime Lending Rate (BPLR) mechanism. (c) Rural penetration of the banking system – rural deposits as a proportion of total deposits had increased from 3 per cent to 15 per cent. organization. etc. NPA means an asset or borrowal account. SARFAESI Act: The Government of India enacted Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act. There was a decline in gross NPAs from Rs. functions and procedures of the financial system. do not repay the amounts borrowed.

There should be no difference in the treatment between public sector banks and private sector banks. The system of directed credit programmes should be gradually phased out. The Capital Adequacy Ratio (CAR) norm regulates the banks in such a way that they can sustain the probable risks and uncertainties of lending. The central banks of the world devised tools to minimise the risks of banking. Committee on Banking Sector Reforms (1998): The Finance Ministry of the Government of India appointed Narasimham as chairman of one more committee. The RBI should.e. As credit creation (i. Banks should maximize their credit creation while minimizing the risk and continue their functioning permanently. It was in 1988 that the central banking bodies of the developed economies agreed upon provision of the CAR.com . The Cash Reserve Ratio (CRR) should be reduced from the present high level of 15 per cent to 3 to 5 per cent. Siddamsetty Complex. It suggested the urgent need to review and amend the provisions of RBI Act. Capital Adequacy Standards Healthy functioning of banks is essential for the proper functioning of an economy. simplify the structure of interest rates. The Bank rate should be the anchor rate and all other interest rates should be closely linked to it. A reduction in the SLR levels would leave more funds with banks for allocation to agriculture. Switzerland at a meeting of the Bank for International Settlements (BIS). popularly known as Basel-ΙΙ. the Basel norms were extended to NBFCs also. etc. The BaselΙΙ norm for the CAR is 12 per cent.com website : www.0() HO: 95B. It was at this time that the Basel–Ι norms of the CAR were agreed upon – a requirement was imposed upon the banks to maintain a certain amount of free capital (i. 3.e. at a discount. The Narasimham Committee on the Banking Sector Reforms submitted its report to the Government in April 1998.time4education. 4. loans and investments by the banks) as a cushion against probable losses in investments and loans.5 per cent to 25 per cent over the next five years. small industry and agriculture. The government should reduce the Statutory Liquidity Ratio (SLR) from the present 38. 6. The accord was agreed upon at Basel. (7. Secunderabad – 500 003.2. Meanwhile the BIS came up with another set of the CAR norms. A bank’s failure has the potential to create chaos in an economy. local banks which would be confined to states or a cluster of districts in order to serve local trade. RBI should permit the setting up of new banks in the private sector. The RBI introduced the Capital-to-risk weighted assets ratio (CRAR) system for banks in India in 1992 in accordance with the standards of the BIS – as part of the financial sector reforms. training and remuneration policies. Banking Regulation Act. This is why governments of the world pay special attention to the regulatory aspects of the banks.. The appointment of the Chief Executive of a bank (Chairman and Managing Director) should not be based on political consideration but on professionalism and integrity and should be made by an independent panel of experts. 3. on priority. 2nd Floor. industry. the Government of India accepted all the major recommendations of Narasimham Committee (1991) and started implementing them. At the same time. The CAR is the percentage of total capital to the total risk – weighted assets. Ltd. to take over from the nationalized banks and financial institutions. 2000. 8. Despite stiff opposition from bank unions and political parties in the country. etc. which would have a ‘multiplier effect’ on industry.. It recommended the merger of strong banks. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. The committee suggested the setting up of small. SM501003/13 9. 5. 2. The committee suggested higher capital adequacy requirements for banks to improve their inherent strength and their risk absorption capacity. these banks should have strong correspondent relationships with the larger national and international banks. Some of the important recommendations of this Narasimham Committee (1998): 1. etc. Assets Reconstruction Fund (ARF) should be set up. The Government should allow foreign banks to open offices in India either as branches or as subsidiaries. Triumphant Institute of Management Education Pvt.e. 7. SBI Act. a portion of their bad and doubtful debts. Other recommendations related to the need for computerization process in PSBs. so as to bring them in line with the current needs of the banking industry. ratio) to their assets (i. The CAR norm was raised to 9 per cent with effect from March 31. In the coming years. The agreement was known as the Basel Accord. 10. loan disbursals) of banks is a highly risky business the safety of the depositors’ money depends on the quality of lending by banks. trade. Banks should be given more autonomy. review of recruitment procedures. Bank Nationalisation Act. 4.

The bank which was honoured when Mahatma Gandhi inaugurated its branch was Union Bank of India. Asset Liability Management [ALM] is balancing the deposit and loan portfolios of the bank. The global sub-prime crisis had its origins in the USA. The European Country which was one of the worst affected in the global financial crisis was Iceland. Secunderabad – 500 003. India’s largest and second largest private sector banks across all categories are ICICI Bank and HDFC Bank respectively. The total number of nationalised banks excluding the State Bank group is now 19. RBI was nationalised in 1949. The Banking Codes and Standards Institute is not meant to substitute the Ombudsman. The oldest public sector bank in India. 2nd Floor. SBI and its Associate banks now number seven. A loan is an asset for the bank because it receives interest as income on an advance. The bank which has the humped bull of Mohenjadaro as its logo and has a name associated with the Indus ralley civilisation is Indusind Bank. A high level Committee on Financial System [CFS] was set up in 1991 under the Chairmanship of M. The Nobel Price in Economics was instituted by Bank of Sweden in 1968. Narsimham was set up in 1997 to review the implementation of the recommendations of the CFS. 2010. The first Indian Bank to be listed on the New York Stock Exchange is ICICI Bank. The new Base Rate concept to replace the Benchmark Prime Lending Rate [BPLR] concept will be introduced from July 1. The concept of Ombudsman is borrowed from Sweden. The micro-finance capital of India is Andhra Pradesh. The Devkaran Nanjee family established Dena Bank. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Triumphant Institute of Management Education Pvt. (7. is Indian Bank. A deposit is a liability for the bank is because it has to be repaid on demand to the customer.0() HO: 95B. Siddamsetty Complex. The main objective of the accords is to strengthen the international banking system. Ltd. NABARD was set up in 1982 and the National Housing Bank was set up as subsidiary of RBI in 1988 and IRDA was constituted in 2000. The first bank to provide internet banking service in India was ICICI Bank. RBI estimates that despite the substantial progress since the July 1969 nationalisation. Narsimham. India became a member of the IMF in 1946.e. RBI makes Ways and Means advances to the Government for 90 days. is Allahabad Bank. Some Miscellaneous Points to Remember – The first bank to open a branch in Dharavi. – One of the founders of the Punjab National Bank was Lala Lajpat Rai. The pioneer of micro-finance is Bangladeshi banker Mohamed Yunus.time4education. The bank with the maximum number of foreign branches is Bank of India. among foreign banks. A second committee under M. and it carries the burden of interest to be paid. with a history of more than 130 years. The first Indian bank to open a branch outside India was Bank of India.com website : www. about 40% of the Indian population has no access to banking services. one of Asia’s biggest slums.com SM501003/14 . RBI was established in April 1935 on the basis of recommendations of the Hilton Young Commission.The Basel Accords (i. Thomas Sutherland established HSBC Bank in 1965 to meet the demand for local banking facilities in Hong Kong and China. Basel Ι and ΙΙ) are of paramount importance to the banking world and are presently implemented by over 100 countries across the world. but has a wider role than the Ombudsman. The first public sector bank to enter the credit card market was Central Bank of India in 1980. Standard Chartered Bank has the maximum network of branches in India.

MICR Technology: with the phenomenal growth in volumes of cheques to be handled by clearing houses in major business centres. Shetty Committee (1993) Sundaram Committee (1993) Goswami Committee (1993) Narasimham Committee – Ι (1991) Janakiraman Committee (1993) Goiporia Committee (1990) Khanna Committee (1994) Narasimham Committee ΙΙ (1998) Agenda Review the working of the monetary system. Ghosh Committee (1991) Vagul committee (1987) Dave Study Group J. The five member committee recommended convertibility by 1999-2000 14. transfer funds etc. Securities transactions of banks & financial institutions. organization & functioning of the financial system. New strategy for rural lending: Service area approach: • This new approach was implemented under the purview of Lead Bank Scheme since April 1. Annexure – 3 Differential Rate of Interest Scheme • • In April. Abid Hussain Committee (1987) 3.com website : www. Monitoring the work of NBFCS.time4education. Irani Committee W. (7. 21. Secunderabad – 500 003. 20. • Under this new scheme. Indirect tax reforms Agricultural Credit Agricultural loans National Income Loan Systems Company Law reforms. public sector banks were directed to grant at least 1% of their total advances of the previous year to weaker sections of society at a concessional interest rate of 4%. Mutual Funds Review the system of lending under consortium arrangements & to suggest improvements therein. 5.0() HO: 95B. 22. 10. this is one of the fastest mode of transfer. Structure of export credit. (Non-Banking Financial Corporations) Banking Sector Reforms: The reforms consisted of a) A shift of banking sector supervision from intrusive micro-level intervention over credit decisions toward prudential regulations and supervision. Customer Service in banks. Insurance Sector reforms. 13. Examine all aspects relating to the structure. Committee 1. 1972. 2nd Floor. Saarraf Committee Malhotra Committee S. which facilitates faster sorting. Core Banking: Core Banking Solution provides centralized system which provide centralized accounting.J. branches of commercial banks were allotted certain specific semi-urban and rural areas. 7. 8. 18. 11. and d) application of prudential norms. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.S. b) A reduction of the CRR and SLR. Chakravarty Committee (1985) 2. and settlement of payment of cheques.V. c) Interest rate and entry deregulation.S Tarapore Committee Annexure – 2 New Technology/ Trends in Banking Sector Internet Banking: Banks have started offering services of Internet Banking. Money Market. Revival of weak public sector banks. These banks were made responsible for over-all development in these allotted areas. 6. SM501003/15 Triumphant Institute of Management Education Pvt. sitting in the easy comfort of their home/ office or cyber café.V. 1989. Ltd. Under this scheme. This committee was set up by the Reserve Bank of India under the Chairmanship of former RBI deputy governor S. Profit making public units should offer a part of their share capital to the public as part of long term strategy to establish the stock exchange. 12.no. 19. 9. As transfers through RTGS can be effected instantaneously. Once full migration to CBS is achieved ‘Branch Banking’ will become irrelevant.com . banks in selected centres introduced Magnetic Ink Character Recognition (MICR) technology with specially printed cheques with MICR band printed at the bottom of cheques. Verma Committee (1999) Kelkar Committee (2002) Khusro Committee (1986) A. Real time Gross Settlement (RTGS): This technological initiative was launched by RBI in 2004 for faster settlement of payments. the Government implemented this scheme in 162 districts of the country.S Tarapore to “lay the roadmap” to capital account convertibility. Siddamsetty Complex. Gupta Committee (1997) Mahalanobis Committee Jilani Committee J. 15. The data contained in the MICR band is captured with the help of encoders. request for chequebook. 16. 17. at the instance of RBI. Bank frauds & malpractices. Industrial sickness & corporate restructuring.Annexure – 1 Various Committees & Commissions on related to financial sector S. Customers can view their accounts. Technology issues in the banking sector. print statement of accounts. 23. customer information management and transaction processing functions. 4.

25% – 12.5% 3. Swaminathan SOME PROMINENT PERSONALITIES HEADING IMPORTANT ORGANISATIONS Person • O. Bhave • J Harinarayana • D Swaroop • L Man Singh • Y. Ltd. Secunderabad – 500 003.75% 25% 12.B.com website : www.S.25% 5.Annexure – 4 Economy Indicators (As a March 4. 2nd Floor.75% 3. (7. Bhatt • Chanda Kochchar • Deepak Parekh • Umesh Chandra Sarangi • Rajendra Mohan Malla • Yogesh Agarwal • T.0% 4. Narayana Sami • C.50%s Person • T. Bhave • J S Sarma • Vijay Kelkar • Dominique Strauss Khan • Robert Zoellick • Haruhiko Kuroda • Pascal Lamy • Amrita Patel • M. 2010) • • • • • • • • Bank Rate Repo Rate Reverse Repo Rate Cash Reserve Ratio Statutory Liquidity Ratio (SLR) Prime Lending Rate (PLR) Savings Bank Rate Deposit Rate 6.P.0() HO: 95B. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Venkat Subramanium Institution State Bank of India ICICI Bank HDFC Bank NABARD SIDBI IDBI Exim Bank Institution United Stock Exchange of India SEBI IRDA PFRDA PNGRB AERA TRAI 13th Finance Commission IMF World Bank ADB WTO NDDB National Commission on Farmers Triumphant Institute of Management Education Pvt.5% 6 – 7.S.S.time4education.C. Siddamsetty Complex.com SM501003/16 .

0() HO: 95B.com website : www. 2nd Floor.time4education. Siddamsetty Complex. Secunderabad – 500 003.com SM501003/17 . Ltd. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. (7.BANKING PRODUCTS BANKING CHANNELS Triumphant Institute of Management Education Pvt.

BUDGET TERMINOLOGY The term ‘Budget’ refers to the financial statement (or documents) placed by the government before the legislature every year on a specific date. Progressive Taxation: In this system. Classification of Taxes (a) Direct and Indirect Taxes: Direct taxes are defined as those taxes levied immediately on the property and incomes of persons and which are paid directly by the consumers to the state. progressive or regressive according to the relationship between its rate structure and the income. The estimates included in the budget are simply estimates. when these taxes are passed on to the consumers. (4) charges for specific benefits or improvements i. large or small. estate duty. the Union Budget for 2010-11 contains: (a) actuals for 2008-09. and (d) budget estimates for the following year. however. and toll taxes paid directly to the state form the group of direct taxes. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. estimate revenues and expenditures as accurately as possible. whereas higher income is taxed at a higher percentage. In addition to these. the person liable to pay them has to do so. The budget must. A tax is proportional. (c) revised estimates for the current year. (b) budget estimates for 2009-10. and economic power of the tax-payer. wealth. forests. A budget sets forth the anticipated expenditure of the government during the next financial year (called the budget year) and the receipts for the same period: (a) under existing laws in force. i. Regressive Taxation: If the rate of tax decreases with an increase in income. The primary objective of the budget is to reveal comprehensive information in order to present a complete picture of the financial position of the government and thereby enable the legislature to measure adequately the impact of such financial programmes on the country’s economy. lower income is taxed at a lower percentage. It is purely voluntary in the sense that the individual concerned has to pay the price for a particular good or service. • Proportional Taxation: If the tax is the ‘same percentage’ on all incomes. and (5) voluntary gifts (such as donations to hospitals and charitable institutions) received by state authorities (b) Capital Receipts include loans raised by the Government of India from the general public. Accuracy becomes essential if equilibrium established in the estimates is to be maintained to the end and realised in actuals. government’s borrowings from the RBI as well as SM501003/18 Triumphant Institute of Management Education Pvt. Refusal to do so is treated as a crime for which the law prescribes severe punishment. otherwise not. It refers to funds raised through taxation and implicit in it is an element of compulsion. you come across terms like Revenue Receipts and Capital Receipts. the budget is the manifestation of the political philosophy of the party in power. • Non-Tax Revenue is raised by the government in the form of the prices paid for the use of specific services and goods offered by it. the term tax revenue also includes special assessment and fees. the rate of tax goes on increasing with every increase in income. What do these terms mean? (a) Revenue Receipts may be classified into two major components: Tax Revenue and Non-Tax Revenue. (b) budget estimates for the current year. and (b) as a result of taxation proposals.com website : www. It is compulsory in the sense that once the taxes are imposed. (7. In other words. progressive or regressive according to the percentage of the tax to the tax payer’s income.e. Progressive. wealth tax.com . and (d) budget estimates for 2010-2011. The revenue under this head comes irregularly and is somewhat uncertain.0() HO: 95B. they indirectly tax the income of the consumers. income and wealth taxes. and gift tax. (b) Proportional. For example. excise duty. customs duty. sales tax. More often than not. Tax revenue is a steady source and is always certain to come because taxes are paid periodically. Thus. (3) revenue from public property (like lease / rent from land). Some of the important taxes are income tax. and Regressive Taxation: A tax may be proportional.e. in case he purchases it. those whose burden can be shifted (like sales tax and excise duties). These are imposed upon and collected from producers and sellers. it is called proportional taxation. hospital receipts). electricity. All other taxes would be grouped as indirect. But producers and sellers can shift the burden of these taxes on to the consumers. • • Receipts When you scan the budget document. • Tax Revenue is one of the most important resources of public revenue. The budget comprises data for three years: (a) actual figures for the preceding year. development charges. contemplated by the government. estate duties.time4education. the actuals may not conform to the original estimates. if any. Non-Tax revenue includes: (1) revenue from state monopolies and state undertakings (like railways. Secunderabad – 500 003. However. (c) revised estimates for 2009-10. and irrigation). telecom. Siddamsetty Complex. (2) revenue from social services (like education. Ltd. 2nd Floor. it is called regressive taxation.

i. This includes expenditure incurred on provision of services. external loans (like from the IMF). Ltd. Triumphant Institute of Management Education Pvt. (c) fiscal.com website : www.0() HO: 95B. In fact. capital. (c) Fiscal Deficit refers to the difference between total expenditure (revenue.com SM501003/19 . then you are in a situation of revenue deficit.other similar bodies (through sale of treasury bonds). This implies that there will be a repayment obligation (sometime in the future) and at the same time there is no asset creation via investment. Capital Expenditure is incurred in the creation of assets like land. and savings invested in PPF. (b) budget. revenue receipts plus all those capital receipts which are not in the form of borrowings but which in the end accrue to the government. and investments in securities. 2nd Floor. there is a mention of four types of deficits: (a) revenue. loans and advances granted to state governments and PSUs by the Centre are treated as Capital Expenditure. it underscores another key fact: how much the government is adding to future burden (in terms of repayment) on the basis of past and present policy. (b) Plan and Non-Plan Expenditure: Any public expenditure incurred on current development and investment outlays that arise due to plan proposals (five year plan proposals) is termed Plan Expenditure. recoveries of loans granted to states / UTs. (d) Primary Deficit refers to fiscal deficit minus interest payments. it reflects one crucial fact: what is the government borrowing for? As an individual if you are borrowing to pay the house rent. Here. (7. Also. total receipts include current revenue and net internal and external capital receipts of the government. Expenditure Expenditure may be classified into (a) Revenue Expenditure and Capital Expenditure. while you are borrowing and spending. (a) Revenue Expenditure and Capital Expenditure: All expenditure incurred in the normal day-to-day running of the government is termed Revenue Expenditure. Also. etc.time4education. and on the other hand.e. In other words. (b) Budget Deficit refers to the excess of total expenditure over total receipts. Secunderabad – 500 003. (b) Plan and Non-Plan Expenditure. salaries. interest payments made to service debts. and loans net of repayment) on one hand. etc. and (d) primary. (a) Revenue Deficit refers to the excess of revenue expenditure over revenue receipts. Deficits In a budget statement. plant & machinery. it points to how much the government is borrowing to pay for expenses other than interest payments. you are not creating any durable asset. Siddamsetty Complex. subsidies. and (c) Development and Non-Development Expenditure. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.

Y Virtually every second Indian has access to phone. Y Favours monthly ration coupons usable anywhere for poor.S. in due course.7 tonnes. reaching 6. which has been sustained in December 2009. Other Highlights Y Economy likely to grow by up to 8.9% investment (of GDP in 2008-09) put India in league of world’s fastest growing nations.2% in 2009-10. following the financial crisis that began in the industrialised nations in 2007 and spread to the real economy across the world. While the growth rates have dipped in private consumption demand.com . in terms of certain fundamentals.$76. SM501003/20 Triumphant Institute of Management Education Pvt.1 million mobile users. it foreshadows renewed momentum in the manufacturing sector. more importantly. Y Full recovery.time4education. with the industrial and the service sectors growing at 8.2 and 8. for the better part of 2009-10. 2nd Floor.75 per cent in 2010-11. Y 32. meant a sluggish export recovery and a slowdown in financial flows into the economy. not only in terms of overall growth figures but.24 bn in AprilDecember.6 per cent.7 per cent respectively.8 per cent to 50.2 per cent in 2008-09 to 8. It was also a year of reckoning for the policymakers. India’s fiscal deficit increased from the end of 2007-08. Secunderabad – 500 003. as the full impact of the economic slowdown in the developed world worked through the system.0() HO: 95B. Y Signs of food inflation spreading to other sectors. Y Auction for 3G spectrum to provide existing and foreign players to bring in new technology and innovations.com website : www. The real turnaround came in the second quarter of 2009-10 when the economy grew by 7. This recovery is impressive for at least three reasons. th Y India 10 largest gold holding nation at 557. Ltd. over the span of the year. there has been a recovery in the growth rate of gross fixed capital formation.5% savings & 34.2 billion cubic meters with RIL starting production. As per the advance estimates of GDP for 2009-10. released by the Central Statistical Organisation (CSO). manufacturing growth has more than doubled from 3. Moreover. Y Gross fiscal deficit pegged at 6. Y Moots direct food subsidy via food coupons to households. Y Govt initiates steps to boost private investment in agriculture. who had taken a calculated risk in providing substantial fiscal expansion to counter the negative fallout of the global slowdown. The growth rate of the gross domestic product (GDP) in 2008-09 was 6. First.8 per cent (budget estimate. Third. Y Imports in April-December 2009 down 23.based nature of the recovery creates scope for a gradual rollback. after a decline for nearly twelve continuous months. Y Gas output up 52. the economy posted a remarkable recovery. Y India world’s 2nd largest wireless network with 525. Y Favours making available food in open market. which was the consequence of sub-normal monsoons.5 pc of GDP in 2009-10. with growth in the last two quarters hovering around 6 per cent. which had seen continuous decline in the growth rate for almost eight quarters since 2007-08.3 per cent. Yet. Indeed.9 per cent. There has also been a turnaround in merchandise export growth in November 2009. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. A delayed and severely subnormal monsoon added to the overall uncertainty. there has been a pick-up in the growth of private investment demand. Y Exports in April-December 2009 down 20. Y Slowdown in infrastructure that began in 2007. The continued recession in the developed world. as part of the policy response to the global slowdown. Second. Y Wants credit available at reasonable rates on time for private sector to invest in agriculture. which justify optimism for the Indian economy in the medium to long term. the broad.7 per cent.ECONOMIC SURVEY The fiscal year 2009-10 began as a difficult one. so as to put the economy back on to the growth path of 9 per cent per annum. BE) of GDP in 2009-10. the economy is expected to grow at 7. Y Trade gap narrowed to U. Inevitably. Y Broad recovery gives scope for gradual stimulus roll back.2 per cent in 2009-10. of some of the measures undertaken over the last fifteen to eighteen months. Y Domestic oil production to rise 11 per cent in 2009-10. Siddamsetty Complex. arrested. it has come about despite a decline of 0. Y Farm & allied sector production falls 0. which had declined significantly in 2008-09 as per the revised National Accounts Statistics (NAS). There was a significant slowdown in the growth rate in the second half of 2008-09. (7. Y Need serious policy initiatives for 4% agriculture growth.9 per cent in 2009-10. There was apprehension that this trend would persist for some time. return to 9 per cent growth in 2011-12. Y High double-digit food inflation in 2009-10 major concern.2 per cent in agricultural output. The fast-paced recovery of the economy underscores the effectiveness of the policy response of the Government in the wake of the financial crisis.

Siddamsetty Complex.Triumphant Institute of Management Education Pvt. (7. Ltd. Secunderabad – 500 003.0() HO: 95B.com SM501003/21 . 2nd Floor.time4education. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.com website : www.

2nd Floor. Secunderabad – 500 003. Siddamsetty Complex.0() HO: 95B.com SM501003/22 .Triumphant Institute of Management Education Pvt. Ltd. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.time4education. (7.com website : www.

With recovery taking root. People’s ownership of PSUs . . Government has set in motion steps. which has recommended a calibrated exit strategy from the expansionary fiscal stance of last two years.It would be for the first time that the Government would target an explicit reduction in its domestic public debt-GDP ratio.com website : www.The growth rate in manufacturing sector in December 2009 was 18.5 per cent – the highest in the past two decades. 2nd Floor. 2010. NTPC and Rural Electrification Corporation while the process is on for National Mineral Development Corporation and Satluj Jal Vidyut Nigam. .25.Ownership has been broad based in Oil India Limited. 2011. Secunderabad – 500 003. Consolidating Growth Fiscal Consolidation .UNION BUDGET (2010-2011) Challenges . .The Advance Estimates for Gross Domestic Product (GDP) growth for 2009-10 pegged at 7.Centre actively engaged with the Empowered Committee of State Finance Ministers to finalise the structure of Goods and Services Tax (GST) as well as the modalities of its expeditious implementation. (7. in consultation with the State Chief Ministers. Ltd. structures and institutions at different levels of governance.Higher amount proposed to be raised during the year 2010-11.On the Direct Tax Code (DTC) the wide-ranging discussions with stakeholders have been concluded – Government will be in a position to implement the DTC from April 01. NHPC.India among the first few countries in the world to implement a broad-based counter-cyclic policy package to respond to the negative fallout of the global slowdown. Endeavour to introduce GST by April.A major concern during the second half of 200910 has been the emergence of double digit food inflation. Overview of the Economy . . and overtime reduce the volatility in demand for fertiliser subsidy and contain the subsidy bill. Tax reforms . 2011. which should bring down the inflation in the next few months and ensure that there is better management of food security in the country. .To quickly revert to the high GDP growth path of 9 per cent and then find the means to cross the ‘double digit growth barrier’. .000 crore during the current year.Fiscal policy shaped with reference to the recommendations of the Thirteenth Finance Commission. Fertiliser subsidy . .Decision on these recommendations will be taken in due course.To harness economic growth to consolidate the recent gains in making development more inclusive.time4education. Siddamsetty Complex. . mobilise resources and gear them towards building the productivity of the economy.A Nutrient Based Subsidy policy for the fertiliser sector has been approved by the Government - and will become effective from April 01.2 per cent. Triumphant Institute of Management Education Pvt. Petroleum and Diesel pricing policy .0() HO: 95B. . The final figure expected to be higher when the third and fourth quarter GDP estimates for 2009-10 become available.Expert Group to advise the Government on a viable and sustainable system of pricing of petroleum products has submitted its recommendations. there is a need to review public spending. This will raise about Rs.To address the weaknesses in government systems. . This will lead to an increase in agricultural productivity and better returns for the farmers.com SM501003/23 . Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.

carpets. to enhance the productivity of the dry land farming areas. Non Banking Financial Companies could also be considered. covering (a) Agricultural production . (b) Reduction in wastage of produce . Ltd. Banking Licences . handlooms and small and medium enterprises.Methodology for calculation of indirect foreign investment in Indian companies has been clearly defined.Complete liberalisation of pricing and payment of technology transfer fee and trademark. if they meet the RBI’s eligibility criteria.com website : www.Rs. . . (7. Financial Stability and Development Council . which will address issues related to regulation in corporate sector in the context of the changing business environment. 2009 in the Parliament to replace the existing Companies Act.Government will follow a four-pronged strategy. water conservation and preservation of biodiversity. Public Sector Bank Capitalisation . Secunderabad – 500 003. Exports .Government to address the issue of opening up of retail trade. Triumphant Institute of Management Education Pvt. .000 “pulses and oil seed villages” in rain-fed areas during 2010-11 and provide an integrated intervention for water harvesting.RBI is considering giving some additional banking licenses to private sector players. Siddamsetty Complex.An apex level Financial Stability and Development Council to be set up with a view to strengthen and institutionalise the mechanism for maintaining financial stability. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. West Bengal and Orissa. It will help in bringing down the considerable difference between farm gate.Rs.time4education. 2nd Floor.This Council would monitor macro-prudential supervision of the economy. 2011. . . Jharkhand. including the functioning of large financial conglomerates.Government has introduced the Companies Bill.Deficit in the storage capacity met through an ongoing scheme for private sector participation FCI to hire godowns from private parties for a guaranteed period of 7 years. Chattisgarh.200 crore provided for sustaining the gains already made in the green revolution areas through conservation farming. watershed management and soil health.16. Agriculture Growth . Eastern UP.500 crore provided to ensure that the Public Sector Banks are able to attain a minimum 8 per cent Tier-I capital by March 31. wholesale and retail prices.0() HO: 95B.Government to provide further capital to strengthen the RRBs so that they have adequate capital base to support increased lending to the rural economy. which involves concurrent attention to soil health. brand name and royalty payments.400 crore provided to extend the green revolution to the eastern region of the country comprising Bihar. .300 crore provided to organise 60.Improving Investment Environment Foreign Direct Investment Number of steps taken to simplify the FDI regime.Rs.Rs. Corporate Governance . 1956. Recapitalisation of Regional Rural Banks (RRB) . and address interregulatory coordination issues.Extension of existing interest subvention of 2 per cent for one more year for exports covering handicrafts.com SM501003/24 .

A “Coal Regulatory Authority” to create a level playing field in the coal sector proposed to be set up.Appropriate Banking facilities to be provided to habitations having population in excess of 2000 by March.2230 crore in 2009-10 to Rs. the Government has decided to set up five more such parks. 2010 under the Debt Waiver and Debt Relief Scheme for Farmers. for preservation or storage of agricultural and allied produce.31. .In view of the recent drought in some States and the severe floods in some other parts of the country.In addition to the ten mega food park projects already being set up.Schemes on bank protection works along river Bhagirathi and river Ganga-Padma in parts of Murshidabad and Nadia district of West Bengal included in the Centrally Sponsored Flood Management Programme. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.Augmentation of Rs. the period for repayment of the loan amount by farmers extended by six months from December 31.Plan allocation to Ministry of Health & Family Welfare increased from Rs.In addition.752 crore provided for Railways. including sea beaches and forest cover. Inclusive Development .000 crore.time4education.com SM501003/25 .300 cr. including for farm level pre-cooling. (d) Impetus to the food processing sector . . . increased to 2% for 2010-11. in 2009-10 to Rs.17.Allocation for National Ganga River Basin Authority (NGRBA) doubled in 2010-11 to Rs.com website : www.Another 25 per cent of the plan allocations are devoted to the development of rural infrastructure.500 crore.Allocation for road transport increased by over 13 per cent from Rs.The spending on social sector has been gradually increased to Rs. (7.1.National Clean Energy Fund for funding research and innovative projects in clean energy technologies to be established.22. Secunderabad – 500 003.An Annual Health Survey to prepare the District Health Profile of all Districts shall be conducted in 2010-11. . 2009 to June 30.3. . .200 crore provided as a Special Golden Jubilee package for Goa to preserve the natural resources of the State. which shall be contributed by Government of India. For the year 2010-11.Plan outlay for the Ministry of New and Renewable Energy increased by 61 per cent from Rs. marine products and meat. the target has been set at Rs. By this arrangement.19.000 habitations. Education .5. states will have access to Rs. Ltd.(c) Credit support to farmers . . Energy .552 crore provided for infrastructure development which accounts for over 46 per cent of the total plan allocation.0() HO: 95B. 2012. RBI and NABARD. .520 crore to Rs.Plan allocation for school education increased by 16 per cent from Rs.674 crore in 2010-11. .1.19. it is proposed to cover 60.130 crore in 2010-11.1. Triumphant Institute of Management Education Pvt. .534 cr.External Commercial Borrowings to be available for cold storage or cold room facility.675 crore for elementary education under the Thirteenth Finance Commission grants for 2010-11. . .620 crore in 2009-10 to Rs.800 cr.3. for 2010-11.100 crore each for the Financial Inclusion Fund (FIF) and the Financial Inclusion Technology Fund.Plan allocation for power sector excluding RGGVY doubled from Rs.Banks have been consistently meeting the targets set for agriculture credit flow in the past few years. 2nd Floor.Incentive of additional one per cent interest subvention to farmers who repay short-term crop loans as per schedule. Siddamsetty Complex. which is 37% of the total plan outlay in 2010-11. .73. . Financial Inclusion . Infrastructure .Government proposes to introduce a competitive bidding process for allocating coal blocks for captive mining to ensure greater transparency and increased participation in production from these blocks. Health . in 2009-10 to Rs. which is about Rs. .036 cr.Rs.75. .16.000 crore in 2010-11.894 crore.Insurance and other services to be provided using the Business Correspondent model.26.37. in 2010-11.Rs.950 crore more than last year. Environment and Climate change .Rs.

An amount of Rs.400 crore in 2010-11.3.48. 2nd Floor.com website : www. .000 per annum during the financial year 2010-11.Allocation for Housing and Urban Poverty Alleviation raised from Rs. .10.400 crore in 2010-11. .850 crore to Rs. Urban Development and Housing .10 lakh.Rural Development Rs. where the cost of the house does not exceed Rs. Ltd.100 crore in 2010-11. Allocation for this scheme increased to Rs.A new initiative.000 crore allocated for rural infrastructure programmes under Bharat Nirman.Allocation for Mahatma Gandhi National Rural Employment Guarantee Scheme stepped up to Rs. - Rs.time4education. This fund will support schemes for weavers. Siddamsetty Complex. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.000 crore.Additional central assistance of Rs.Unit cost under Indira Awas Yojana increased to Rs.Allocation for this sector to be increased from Rs.1.Allocation to Backward Region Grant Fund enhanced by 26 per cent from Rs.150 crore last year.45.0() HO: 95B.100 crore provided for Rural Development. bidi workers etc.700 crore provided for this scheme for the year 2010-11. Micro.000 and a maximum contribution of Rs.66.1. . Rs.The corpus for Micro-Finance Development and Equity Fund doubled to Rs.200 crore provided for drought mitigation in the Bundelkhand region.500 in the hilly areas.48.Scheme of one per cent interest subvention on housing loan upto Rs. .1000 crore. .000 in the plain areas and to Rs.20 lakh — announced in the last Budget — extended up to March 31. wherein Triumphant Institute of Management Education Pvt. Secunderabad – 500 003.7.5. Small & Medium Enterprises .300 crore in 2010-11.060 crore to Rs.794 crore to Rs. .12. .800 crore in 2009-10 to Rs.Allocation for urban development increased by more than 75 per cent from Rs.1. “Swavalamban” will be available for persons who join New Pension Scheme (NPS).000 crore in 2010-11. with a minimum contribution of Rs. . Unorganised Sector National Social Security Fund for unorganised sector workers .National Social Security Fund for unorganised sector workers to be set up with an initial allocation of Rs. rickshaw pullers.400 crore for the year 2010-11.1.High Level Council on Micro and Small Enterprises to monitor the implementation of the recommendations of High-Level Task Force constituted by Prime Minister.Rashtriya Swasthya Bima Yojana benefits extended to all such Mahatma Gandhi NREGA beneficiaries who have worked for more than 15 days during the preceding financial year.com SM501003/26 . toddy tappers. . 2011.270 crore allocated for Rajiv Awas Yojana as compared to Rs.2.40. (7.1. .5.

. .The net tax revenue to the Centre as well as the expenditure provisions in 2010-11 have been estimated with reference to the recommendations of the Thirteenth Finance Commission. .1.An extensive skill development programme in the textile and garment sector to be launched by leveraging the strength of existing institutions and instruments of the Textile Ministry to train 30 lakh persons over 5 years. Adequate funds will be made available to support the action plan. Siddamsetty Complex.National Skill Development Corporation has approved three projects worth about Rs.Government has approved the setting up of the National Mission for Delivery of Justice and Legal Reforms to help reduce legal backlog in courts from an average of 15 years at present to 3 years by 2012.“Saakshar Bharat” to further improve female literacy rate launched with a target of 7 crore nonliterate adults which includes 6 crore women. . . the Ministry will be able to revise rates of scholarship under its post-matric scholarship schemes for SCs and OBC students.48.1.47.Government will contribute Rs.Rs.Planning Commission to prepare an integrated action plan for the thirty-three left wing extremism affected districts. Plan outlay of the Ministry of Social Justice and Empowerment enhanced by 80 per cent to Rs.Allocation for Defence increased to Rs.900 crore allocated to the Unique Identification Authority of India (UIDAI) for 2010-11.4500 crore.0() HO: 95B. Budget Estimates 2010-11 .118 crore.com SM501003/27 .651 crore.000 crore for capital expenditure.1.com website : www. . With this enhancement. - - Mahila Kisan Sashaktikaran Pariyojana to meet the specific needs of women farmers to be launched with a provision of Rs. Allocation of Rs. Ltd.7. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.The Gross Tax Receipts are estimated at Rs.100 crore made for this initiative. Secunderabad – 500 003.100 crore as a sub-component of the National Rural Livelihood Mission.Financial Sector Legislative Reforms Commission to be set up to rewrite and clean up the financial sector laws to bring them in line with the requirements of the sector.000 per year to each NPS account opened in the year 2010-11.The Non Tax Revenue Receipts are estimated at Rs. 2nd Floor. Skill development .60. UIDAI will be able to meet its commitments of issuing the first set of UID numbers in the coming year.45 crore to create 10 lakh skilled manpower at the rate of one lakh per annum.1.Plan outlay for Women and Child Development stepped up by almost 50 per cent. Triumphant Institute of Management Education Pvt. (7. Security and Justice .time4education. Strengthening Transparency & Public Accountability . .344 crore including Rs. Social Welfare .46.

6 per cent over last year.3.Provide project import status with a concessional import duty of 5 per cent for the setting up of mechanised handling systems and pallet racking systems in ‘mandis’ or warehouses for food grains and sugar as well as full exemption from service tax for the installation and commissioning of such equipment. Triumphant Institute of Management Education Pvt.1.Rate reduction in Central Excise duties to be partially rolled back and the standard rate on all non-petroleum products enhanced from 8 per cent to 10 per cent ad valorem.5 lakh Income above Rs.50 per tonne to be levied. and Y Processing units for such produce.8 per cent and 4. 2nd Floor.To build the corpus of the National Clean Energy Fund.08.com .408 crore.Income tax slabs for individual taxpayers to be as follows: Income upto Rs.Provide project import status at a concessional customs duty of 5 per cent with full exemption from service tax to the initial setting up and expansion of Y Cold storage. Fiscal deficit for BE 2010-11 at 5. Ltd.5 per cent of GDP.092 crore and Rs. . and pulses to be exempted from service tax. Secunderabad – 500 003.35.11. Conscious effort made to avoid issuing bonds to oil and fertilizer companies.Some structural changes in the excise duty on cigarettes. Infrastructure . clean energy cess on coal produced in India at a nominal rate of Rs. .010 crore.8 lakh 30 per cent - - Deduction of an additional amount of Rs. Siddamsetty Complex. cigars and cigarillos to be made coupled with some increase in rates. Indirect Taxes . the actual net market borrowing of the Government in 2010-11 would be of the order of Rs.To exempt the testing and certification of agricultural seeds from service tax. which works out to Rs.000 allowed. While there is 15 per cent increase in Plan expenditure. Some critical parts or sub-assemblies of such vehicles exempted from basic customs duty and special additional duty subject to actual user condition.The transportation by road of cereals.1 lakh on tax savings.73. . the increase in Non Plan expenditure is only 6 per cent over the BE of previous year.Project import status to ‘Monorail projects for urban transport’ at a concessional basic duty of 5 per cent granted.Central Excise duty on LED lights reduced from 8 per cent to 4 per cent at par with Compact Fluorescent Lamps.8 lakh Income above Rs. Environment . The Plan and Non Plan expenditures in BE 201011 are estimated at Rs. Transportation by rail to remain exempt.657 crore respectively. Proposals on direct taxes estimated to result in a revenue loss of Rs. a nominal duty of 4 per cent on such vehicles imposed. respectively. which is an increase of 8.1 per cent for 2011-12 and 2012-13. (7.45. the comparable fiscal deficit is 6.To remedy the difficulty faced by manufacturers of electric cars and vehicles in neutralising the duty paid on their inputs and components. chewing tobacco etc to be enhanced.com website : www.000 crore for the year. . The rolling targets for fiscal deficit are pegged at 4.749 crore.0() HO: 95B. These parts would also enjoy a concessional CVD of 4 per cent. Government would like to continue with this practice of extending Government subsidy in cash. This would leave enough space to meet the credit needs of the private sector. .20. Compounded levy scheme for chewing tobacco and branded unmanufactured tobacco based on the capacity of pouch packing machines to be introduced.6 lakh and 10 per cent upto Rs. inclusive of oil and fertilizer bonds. cold room including farm precoolers for preservation or storage of agriculture and related sectors produce.- - - - - - The total expenditure proposed in the Budget Estimates is Rs. for investment in long-term infrastructure bonds as notified by the Central Government.8 per cent in 2008-09. . Agriculture & Related Sectors . Excise duty on all non-smoking tobacco such as scented tobacco.5 lakh and 20 per cent upto Rs.81.1.26.6 lakh Nil Income above Rs.3.7. over and above the existing limit of Rs. snuff. Taking into account the various other financing items for fiscal deficit. Against a fiscal deficit of 7.9 per cent as per the Revised Estimates for 2009-10.time4education. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. thereby bringing all subsidy related liabilities into Government’s fiscal accounting. This cess will also apply on imported coal. SM501003/28 Direct Taxes .3.

The validity of the exemption from special additional duty is being extended till March 31.500 crore for the year.500 crore for the year. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Triumphant Institute of Management Education Pvt.Proposals relating to service tax are estimated to result in a net revenue gain of Rs. 2nd Floor. exemptions from basic.Rate of tax on services retained at 10 per cent to pave the way forward for GST.- To encourage the domestic manufacture of mobile phones accessories.0() HO: 95B. - Service Tax . (7. Proposals relating to Indirect Taxes estimated to result in a net revenue gain of Rs. . Siddamsetty Complex. the net revenue gain is estimated to be Rs. Ltd.com SM501003/29 . Proposals on direct taxes estimated to result in a revenue loss of Rs. Secunderabad – 500 003.26. 2011.000 crore for the year.3. CVD and special additional duties are now being extended to parts of battery chargers and hands-free headphones.time4education.com website : www.000 crore for the year.20.46. Taking into account the concessions being given in the tax proposals and measures taken to mobilise additional resources.

0() HO: 95B. CSIR and DRDO. 2nd Floor.RFID technology for tracking of wagons to provide modern trolleys at all important stations to be handled by uniformed attendants for senior citizens and ladies. Commitments Fulfilled . Railway Research .To set up Shambhu Mitra Cultural Complex with performing arts and a music academy at Howrah.10 more stations identified to be converted as World Class Stations. Secunderabad. . . Secunderabad – 500 003. vendors and hawkers. . Ltd. . .Automatic fire and smoke detection system to be introduced in 20 long distance trains.RRB examination fee for woman candidates and those belonging to minority and economically backward classes waived. Siddamsetty Complex. (7.‘Inclusive growth and expansion of rail network’ for development of the country. Staff Welfare and Health .To set up Rabindra Museum at Howrah and Gitanjali Museum at Bolpur to commemorate 150th birth anniversary of Rabindranath Tagore. Passenger Amenities / Facilities 94 stations to be upgraded as Adarsh Stations.A new scheme “House for All” to be launched.To set up 50 crèches for children of women employees and 20 hostels.Six clean drinking water bottling plants to be set up through PPP for providing cheap bottled drinking water.Railways will be lead partners of Common Wealth Games. . .time4education. .1800.Astro-turfs to be provided at more places for hockey. SM501003/30 Triumphant Institute of Management Education Pvt. Sports . . .Of the 120 new trains.Five Sports Academies at Delhi. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. .To set up a state-of-the-art advanced loco pilot training centre at Kharagpur. 50 Kendriya Vidyalayas.To set up a Railway Cultural & Heritage Promotion Board for coordinating and supervising all related activities on the railways.Special Task Force to clear proposals for investments within 100 days.Railways first recipient of Rashtriya Khel Protsahan Puraskar . 117 would be flagged off by the end of March 2010. .com website : www. from unorganised sector and socially challenged.SMS updates of reservation status and punctuality of trains to passengers.RAIL BUDGET (2010-2011) Introduction . an advanced railway track training centre at Beleghata and four multidisciplinary training centres.All the unmanned LCs to be manned within five years.Work initiated in all the 67 Multi-functional Complexes (MFCs). . . . Culture and Heritage . English and in local State languages and examination for a particular post will be held on the same date simultaneously by all RRBs. .Introduction of e-ticket based mobile vans for issuing tickets.A separate structure will be created within the Railways for implementation of the business models. Development of Adarsh Stations started in phases.To extend Rashtriya Swasthya Bima Yojana to all licensed porters. Kolkata & Mumbai to be setup.MOU entered with Ministry of Health and Ministry of Human Resource Development for setting up of hospitals and educational institutions on surplus railway land.To set up about 522 hospitals and diagnostic centres. . .Allotment of iron ore rakes to be rationalised scientifically and would be accessible through the web.Scope of safety-related retirement scheme to be expanded to cover all safety category staff with a grade pay of Rs. Railways to run a Commonwealth exhibition train. Railways will also provide more numbers of community centres and stadia. Infrastructure .com . . . 10 residential schools on the pattern of Navodaya Vidyalaya. .To modernise and augment the capacity of CLW to 275 locomotives.Construction of additional 93 Multi Functional Complexes.A Centre for Railway Research to be set up at IIT. Multi-level parking through PPP route. .500 per employee. implemented within three months of announcement. Kharagpur. . Chennai. to provide residences to all railway employees in the next ten years with the help of Ministry of Urban Development. .12 companies of women RPF personnel named ‘Mahila Vahini’ to be raised. model degree colleges and technical and management institutions of national importance to benefit railway employees and their children.Recruitment policy of the Railway Recruitment Boards (RRBs) has been reviewed.Contribution to Staff Benefit Fund to be enhanced to Rs. To establish strong research partnerships with premier institutes like IITs.All question papers to be set in Hindi. . extensions and increase in frequencies announced. . .SMS updates on the movement of wagons to freight customers. Urdu. Safety and Security .Izzat Scheme. . NITs. .Economic viability and social responsibility – main consideration for taking up of the projects.

Annual Plan 2010-11 . east-west.The current dividend liability to be fully discharged. implementing and monitoring these projects.Service charge on e-tickets to be reduced to Rs. protect and promote Railways’ wetlands and forest areas.To introduce ten rakes with green toilets and install on diesel locomotives a GPS-based optimised driver guidance system. Budgeted operating ratio 92. Secunderabad – 500 003. Kisan Vision Project initiated at six locations. standard setting.To provide rail link between Akhaura on Bangladesh side and Agartala on Indian side.3701 cr sought for 11 National Projects.426 cr. and dependent children up to 18 years. . to be executed through PPP mode. . . Second unit to be installed at ICF.Freight loading targeted at 944 MT – an increment of 54 MT. 2 for gauge conversion. New Azadpur and Singur as pilot projects. .e.Highest ever Plan Outlay at Rs.A modified wagon investment scheme for high capacity general purpose and special purpose wagons to be introduced. Budget Estimates 2010-11 . Two workshops for POH of high axle load wagons to be set up in Maharashtra and Dankuni.1001cr.Cancer patients going for treatment to get 100% concession in 3 AC and Sleeper Class . namely Dankuni.765 crore..Private operators to be permitted to invest in infrastructure and run special freight train.. Bhubaneshwar/ Kalahandi. . .0() HO: 95B. . . . .41.Technicians of regional film industry when travelling for film production related work to be eligible for 75% concession in Second Sleeper and 50% concession in higher classes in all trains.More services to start in Chennai and Kolkata areas.100 per wagon in freight charges for food-grains for domestic use and kerosene. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Guwahati and Haldia under PPP/JV mode.- - - - A Diesel Multiple Unit (DMU) factory to be set up at Sankrail. Concessions . A new MLR workshop of 250 coach capacity to be set up at Anara (Adra).54 Surveys for new lines.Preliminary Engineering-cum-Traffic Survey (PETS) to be taken up for north-south. Carbon Footprint . .4411cr. . Wagon repair shop to be set up at Badnera.com website : www. . Five state-of-the-art wagon factories to set up at Secunderabad.To set up automobile and ancillary hubs at 10 locations. Mechheda. SM501003/31 Freight Business .. To set up a National High Speed Rail Authority for planning.88. Annual Plan kept at Rs.6608 crore. New Jalpaiguri..50% concession to spouse of the correspondents extended to the companion of those correspondents who do not have a spouse.Gross Traffic Receipts kept at Rs. an increase of 10.800 km of gauge conversion and 700km of doubling targeted.94. A Design Development and Testing Centre for Wheels to be set up at RWF. . east-south and south-south DFCs.Master Plan for the development of rail infrastructure in the Northeast region to be drawn up in consultation with the Northeast Development Council and the state authorities concerned. Y Passenger Amenities – Rs.40. . 2nd Floor. number of passengers likely to grow by 5.101 new suburban services to be introduced in Mumbai area. .284 cr. an increase of Rs.6 million CFLs to railway employees.Railways to distribute 2. . Financial Performance in 2009-10 . .Gross Traffic Receipts estimated at Rs.7%.Reduction of Rs. . A new Rail Axle Factory to be set up in New Jalpaiguri under PPP/JV mode. Aquisition of 18000 wagons.6490 cr more than 2009-10.Six high speed passenger corridors identified. Other Projects . . Bangalore. i. Centres of Excellence in Wagon Prototyping to be set up at Kharagpur Workshop.The dividend payable to general revenues kept at Rs.20 for AC Class.3 %.Several projects being taken up on cost sharing basis with State Governments and on PPP mode. i. Y New Lines – Rs.1142 cr over 2009-10. Jogbani (India) – Biratnagar (Nepal) new line and Jaynagar (India) – Bijalpur (Nepal) gauge conversion with extension upto Bardibas (Nepal) have been taken up to improve transport infrastructure between the two countries. .1021 km of New Lines to be completed.e. Triumphant Institute of Management Education Pvt.To new Railway projects viz.1302 cr. To set up a refrigerated container factory on PPP mode at Budge Budge. New Suburban services .To set up 10 Rail Eco-parks to conserve.Surveys for 114 socially desirable projects connecting backward areas to be taken up. . Rs.com . Y Metro Projects – Rs. Barddhaman.3%. (7.The full impact of VI CPC fully absorbed within the Railway resources.Loading target of 882 MT likely to surpassed by 8 MT in 2009-10.time4education. Nasik. 7 for doubling and 5 others to be taken up.356 crore. Ltd. 9 new new line projects announced. Siddamsetty Complex. .10 for Sleeper Class and Rs.Additional budgetary support of Rs.

.Ladies special trains to be renamed as ‘Matrabhoomi specials’.A new weekly express train service ‘Janmabhoomi express’ to start between Ahmedabad and Udhampur. Other New Train Services 54 new train services to be introduced. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. 2nd Floor. 9 MEMU and 8 DEMU services to start. Triumphant Institute of Management Education Pvt. 6 long route Duronto trains and 4 short distance Duronto day trains to be introduced. .com SM501003/32 . .3 unreserved trains named as ‘Karambhoomi trains’ to be introduced.Special Trains .Sanskriti Express to run across the country to mark the 150th birth anniversary of Kabiguru Rabindranath Tagore. . It is also proposed to take this train to Bangladesh. Siddamsetty Complex.time4education. (7.Extension of 21 trains and increase in frequency of 12 trains announced. . - Special tourist trains called “Bharat Tirth” to start on 16 routes.com website : www. Secunderabad – 500 003.28 new passenger train services. Ltd.0() HO: 95B.

Ltd. 1. Colonial exploitation 4. Secunderabad – 500 003. power.0() HO: 95B. primary education. • • • • • • • Resource poor economy Role of investment for the Government Socialistic thinking 5 yr plans – License Raj Sellers market No pressure on manufacturer to improve quality Ready market – no price for innovation Part 2: INDIAN ECONOMY AT AGLANCE • • • • • • Illiteracy (Literacy – 64. Services . banking.com SM501003/33 . animal husbandry Secondary mineral. other services Distribution of GDP 20% Pre-LPG • • • • • • • • Sellers market created corruption.transport. Traditional industries (Cotton Textiles – low valueaddition) Part 1: Historical Overview Characteristics of Indian Economy from 1947 to 1991 → Pre-Liberalisation. Per capita income) Low level of technology and productivity Poverty 46% of children suffer from malnutrition.25% live in villages High density of population – 324/sq. (7. Privatisation & Globalisation (LPG) Era. High savings and low capital formation INDIAN ECONOMY AT AGLANCE • • • • • • • Low per capita income Over sized population (1. communication. mining.7% female literates) Low HDI – 134 (Calculated using Life expectancy at birth. Food-deficient 3.OVERVIEW OF INDIAN ECONOMY The Indian Economy Salient Features of Indian Economy in the PreIndependence Era.8% . forestry. Zamindari system 5.3% male and 53. in 1947) 2. inefficiency and obsolescence Lack of customer service Monopoly Inward looking economy Few luxuries Feeling of shortage in the economy Huge trade deficit Forex reserves . manufacturing industries. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Siddamsetty Complex.38% growth) Dependence on primary production 72. Agrarian economy (70% GDP from Agri. fishery.$1 bn Economic reforms from 1991 in a Nut Shell 1 Generation Reforms • • • • • • • 2 • • • • • • nd st 61% Agriculture Manufacturing 19% Services De – License Import liberalization Reform Taxation – Direct & Indirect Forex norms – Allowed FII & FDI Stock Exchange reforms – SEBI Banking sector reforms RBI relaxes controls Generation Reforms Infrastructure Telecom reforms Insurance – GIC & LIC Labour law reforms Disinvestment Power sector reforms Distribution of Workforce 28% 12% Agriculture Manufacturing 60% Services Triumphant Institute of Management Education Pvt. 2nd Floor.km High rate of un employment Improper distribution of wealth Part 3: Sector-wise Analysis The 3 sectors of Economy • • • Primary – agriculture.time4education.75. trade.com website : www.

subsidies Main Exports • • • • • • Gems and Jewellery Petroleum Products Textiles Engineering goods Chemicals Leather goods Weaknesses • Fragmented land holdings 59% of holdings are marginal (<1 hectare) • • 21% of holdings are small (1–2 hectare) Low productivity Average yield is 2890 kg per hectare which • is much lower than China. Japan • NPK abuse Monsoon dependence • 60% arable land without irrigation • Main Imports • • • • • Crude oil Machinery Uncut gems Fertilizers Chemicals • Weaknesses • • • Sharecropping. Huge unorganised sector: 100 + times size of organized sector Main Exports • • • • • Rice Cashewnuts Tea Coffee Horticulture products Main Industries • • • • • • • Textile Synthetic Fibres Mineral products Chemicals Automobiles + Components Cement Machinery and equipment Main Imports • • Vegetable oil Pulses Strengths • • • • Huge arable land area Diverse soil types. landless labour Seasonal and disguised unemployment Poor infrastructure • Electricity • Roads and transport • Farm Mechanisation Illiteracy Low awareness about improved methods / • products Strengths • • • • • • • Huge. Secunderabad – 500 003. low-cost labour force Educated. oilseeds. 2nd Floor.0() HO: 95B. Bajra etc.time4education. (MSP) on pulses.Agriculture Sector Overview • • • • • • Growth rate of 2% approximately Green Revolution helped to achieve self sufficiency in food. White. milk and oil seeds.com website : www. skilled workforce English Language Skills Good Managerial Skills Variety of raw materials available Strong Economy Stable Polity • Triumphant Institute of Management Education Pvt.com SM501003/34 . Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Oilseeds Sugarcane Industrial Sector Overview • • • Growth rate of 8% approximately Size: <20% of Chinese industry. 43% land arable 60% of arable land . (7. Yellow Revolutions increased the production of marine products.monsoon dependent Minimum Support Price. Siddamsetty Complex. Blue. Ltd. sugarcane to help farmers Weaknesses • • • • State disparity Distortion of production by subsidies Financing at usurious rates by local moneylenders Low remuneration to farmer – middleman Opportunities • • • • • • Horticulture Organic Farming Fisheries Packaged / processed farm products Productivity improvements Use of IT / Communications Main Crops • • • • • Rice Wheat Coarse cereals – Jowar. climate Huge labour force Government focus.

Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Hyderabad. (7. 2nd Floor. Secunderabad – 500 003.Weaknesses • • • • • • Lack of infrastructure High cost of utilities Red tape Cascading effect of indirect taxes High cost of finance Tardy Judicial System Important Areas • • • Second largest scientific and technical manpower Among 10 largest retail markets One of the biggest exporter of commercial services Strengths • • • • • Huge educated labour force: Low labour cost: Outsourcing to India can result in 50-60% savings for foreign companies Less capital – intensive than manufacturing Inherent advantages in tourism. Ltd. Bangalore.0() HO: 95B. Siddamsetty Complex. health industries Opportunities • • • • Drugs & Pharmaceuticals Transport Biotechnology Automobiles + Components Weaknesses Services Sector Overview • • • • High growth rate Growth largely fuelled by IT and BPO industries Concentration in urban areas STPs in Gurgaon.com SM501003/35 .time4education. Mumbai • • • High attrition rates in IT and BPO industry Lack of world – class infrastructure Low investment in R&D + Education Opportunities • • • • • Health – Medical Tourism / Wellness Hospitality Off – shore Consultancy Retail KPOs Key Sectors • • • • • • Hotels + Tourism Transport Communication Financial services ITES BPO Triumphant Institute of Management Education Pvt.com website : www.

Refers to the lowest interest rate payable by borrowers having the highest credit rating. It seeks to make profit out of differences in prices of a security in two markets. the speculator will purchase them in the cheaper market and sell in the dearer market. Brain Drain Means the migration of educated and skilled labour from poorer to richer countries. Blue Chip A consistently growing company both in terms of profit as well as market share is called a blue-chip company. which is expressed as a percentage and not a flat amount. These items only form a part of the balance of payments. Blue Collar Jobs Persons who are unskilled and depend upon manual labour are said to be engaged in blue collar jobs. Bear A bear is a speculator who sells securities in anticipation of a fall in prices of securities. (3) of stocks held by manufacturers and merchants during a period of rising prices. by a single producer or supplier. when maximum prices have been fixed. Ltd. Barter Refers to the method of exchanging goods and services directly for other goods and services without employing a separate unit of account or medium of exchange. Appreciation An increase in the value: (1) of stocks and shares when their prices rise on the stock exchange. Backward Linkage Refers to the relationship between an industry or firm and the suppliers of its inputs. A boom reaches a peak when the economy has been working at full capacity. which also get influenced by (1) ‘invisible’ items and (2) movement of capital. even though their current price on the stock exchange may be higher or lower. Thus. It is also known as pure monopoly or perfect monopoly. Administered Prices A price set not by the force of demand and supply but by some authority like the government or a regulatory authority. Arbritrage It is a speculative activity.com .com website : www. This kind of situation rarely arises in real life. which is imposed on commodities in proportion to their value i.e. trading may occur at prices above the maximum. Black Market Any illegal market which has been established in a context where prices have been fixed at minimum or maximum level. for which there exists no substitute. the ‘visible’ balance.. It is opposite of slump or recession.0() HO: 95B. Balance of Payments Refers to the relation between the payments of all kinds made from one country to the rest of the world and its receipts from all other countries. Secunderabad – 500 003. (7.time4education. i.. namely the prices at which they were purchased. a duty. Triumphant Institute of Management Education Pvt. Balanced Budget A budget is said to be a balanced budget when current income equals to current expenditure. Ad Valorem Tax A duty. SM501003/36 Balance of Trade Refers to the relationship between the values of a country’s imports and exports. usually by government. 2nd Floor. A change in the output of the industry will get transmitted backwards to the suppliers of its inputs by changing the demand for inputs. Siddamsetty Complex.e.ECONOMIC & BUSINESS GLOSSARY Absolute Monopoly Means the control of the entire output of a commodity or service. Book Value In its balance sheet a company may value assets in the form of asset investments at the prices shown in its books. Backward Integration Blue Chip Rate The expansion of a business which takes the form of acquiring control over firms supplying it with its raw materials. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. (2) of a currency when its value increases in terms of other currencies. If the price of a certain share is higher in one market than in another. Boom Refers to a period of expansion of business activity.

Central Excise Duties A bull is a speculator who purchases securities in anticipation of a rise in prices of securities.I. e. Business cycle Fluctuations in business conditions/economy like prosperity recession depression and recovery. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Brokerage A fixed cost which is charged by the broker for arranging investments. For business purposes..I. Secunderabad – 500 003. term. quotation implies that the seller must ship the goods. which is completely self-sufficient and insulated from external processes. Bull Capital Capital is one of the factors of production and has been defined as wealth used in the production of further wealth. commodity. C. which are produced within the country. Insurance and Freight) Term used of goods shipped where the price includes shipping and insurance charges. Budget A budget is a financial statement showing the estimates of receipts and expenditure.g.Brand A brand is a name. machinery of all kinds.0() HO: 95B. Closed Economy A concept which is used mainly in theoretical models to describe an economy having no external trade. Cash Market The term used for a market for the immediate delivery of. symbol. Break-Even Carrying on business in which neither profit nor loss is made. Triumphant Institute of Management Education Pvt. Call – Option Refers to a contract giving the option for buying shares at a future date within a prearranged time limit. and payment for.time4education. This term is synonymous with ‘producers’ goods’. Budget Deficit Budget deficit is the difference between total revenues and total expenditure. Capital Goods Goods which are made for the purpose of producing consumer goods and other capital goods. Ltd. where that difference has been positive. The budget is divided into two parts : (a) revenue budget and (b) capital budget. He is employed by other people on account of his knowledge of market conditions and procedures and because of his expert knowledge of the commodity dealt in.g. Capital Market A market comprising institutions which are involved in the purchase and sale of securities. Buyers market A situation favouring buyers where supply exceeds demand and there is an abundance of goods and services. A C. Bullion Precious metals like gold or silver which have been held in bulk in the form of ingots or bars. sign.com SM501003/37 . known as ‘brokerage’. Siddamsetty Complex.com website : www. 2nd Floor.F (Cost.F. A Broker is usually paid commission for his services. capital generally has to be considered in terms of money. Broker One who buys and sells bonds and other financial assets. as follows: Pr ofit Primary ratio = Capital Capital Gain Refers to the difference between the purchase price of an asset and its resale price at some later date. encashment of bonds and other financial assets. meeting all charges upto ‘on board’ and paying insurance and freight. or design. commonly called the primary ratio. Capital Employed. (7. But commodities on which State Governments impose excise duties (as for instance. These duties are levied by the Central Government on commodities. e. intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. or a combination of them. on liquor and drugs) are exempted from Central Excise Duties. Return On The relation of profit to the estimate of average capital employed to yield a ratio. the new issue market and the stock exchange.

Contango A stock exchange term meaning carry-over. Contraband Goods brought into a country illegally without paying customs duty. Current Liabilities Debts. Ltd. like a refrigerator or a washing machine. Deflation is that state of falling prices which occurs at that time when the output of goods and services increases Triumphant Institute of Management Education Pvt. The term ‘Contango’ is also used to mean the extra payment itself. Convertibility Refers to the freedom to exchange any currency for another currency at the current exchange rate. the stockholders. Consumer’s Surplus Means the excess of the price which a person would be willing to pay rather than go without an article over that which he/one actually pays. (7.time4education. capital allowance) have been deducted but before dividends are allowed for.e. accounts receivable. as distinct from. before any dividend has been paid to ordinary shareholders. or where liabilities exceed assets at a specific point in time. Countervailing Duty A duty imposed on imported goods where there is evidence of an export subsidy in the country of origin which may adversely affect the domestic producers in the importing country.com SM501003/38 . short-term loans. one year). that will have to be paid off during the current fiscal period. say foodstuffs. Contract An agreement.. Current Assets Items such as cash.Company A joint stock company is a legal entity set up for the purpose of conducting commercial or industrial operations. Customs Duties These are taxes on imports. and it is usually on a scale much larger for the sole proprietor or partnership to manage or fund. Conglomerate A group of companies making different types of products. and inventories – assets that could be turned into cash at a reasonable predictable value within a relatively short time period (typically. It is a direct tax which is calculated on profits after interest payments and allowance (i. such as accounts payable. Consumer Goods Products in the actual form in which they reach domestic consumers. marketable securities. Debenture It is a long term loan taken by a company Deficit Refers to a situation where outgoings exceed income on an ongoing basis. Secunderabad – 500 003. it may be termed as consumer’s rent. 2nd Floor.com website : www. and with a capital divided into shares. Siddamsetty Complex. and unpaid taxes.0() HO: 95B. Corporate Paper Notes which are sold by large corporations in the money market as a means of getting funds. Ex: Tata Group Consumer Durable A commodity of relatively long life. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Corporation The term used for a contemporary form of business having two distinct characteristics: it is a legal entity separated from its owners. Deflation Deflation is the reverse case of inflation. held by members. Consumption Means the act of using goods and services to satisfy current wants. A broker who wishes to postpone settlement of a transaction to the following account may do so on payment of interest on the sum due. Cooperation Cooperation refers to the collective efforts of people who associate voluntarily to achieve specified objective. Corporation Tax It is a tax on the company’s profit. oral or written whereby one party undertakes to do or not to do something for the other party to the contract. Cumulative Preference Share A preference share which entitles the holder to receive not only the current dividend but also any unpaid arrears.

and to prevent both parties being ruined by it. Downsizing Reducing the number of employees to increase profits or for survival.com . Duopsony Refers to a market situation in which there are only two buyers of a particular goods/service. Ltd. Dividend Warrant A draft issued by a limited company and made payable to a shareholder for the amount of dividend due to him for a stated period.0() HO: 95B. Generally at a high price. Depreciation Reduction in the value of good by wear and tear.more rapidly than the volume of money in the economy. Such a situation can be given to cut-throat competition of a particularly irrelevant type. Economies of Scale Refers to the reduction in the average cost of a product in the long run. Derivatives Any form of security such as option contracts which are derived from ordinary bonds and shares. A policy adopted to check inflation by restricting demand. Selling below cost price to capture a market. it entitles the holder to take possession of the goods. each agreeing not to compete against the other in its share of the market. Dividends are usually declared annually but many companies pay something on account as an interim dividend. less will be bought than at a low price. Most of the business is over the counter and involving a lot of risk. Elasticity The degree of responsiveness of demand or supply to a change of price. Elasticity may be defined as a measure of the percentage change in one variable in respect of a percentage change in another variable. Dividend In the case of limited companies. Ex: The 1929 Great Depression in the USA. Direct selling Selling directly from the producer/manufacturer to the end user eliminating middlemen. they may agree to share the market. Disposable Income Earnings which remain after paying income and other taxes and other mandatory payments. Depository An organization which holds securities and settles trade by recording change of ownership. Duopoly A form of imperfect competition where there are only two producers of a commodity. They are also known as ‘long run increasing returns’. Dumping Means the sale of a good in a foreign market at a price below its marginal cost. 2nd Floor. SM501003/39 Triumphant Institute of Management Education Pvt. Derivative instruments can be bought or sold on stock exchanges or future exchanges. Siddamsetty Complex. Economic Growth The rate of expansion of the national income or total value of production of goods and services of a country.time4education. If the price rises. Demand By demand is meant the quantity of a commodity that will be bought at a particular price and not merely the desire for a thing. Disinflation A mild form of deflation. Depression A severe and prolonged recession leads to a depression. It is a generic term for options. In the deflation the general price level falls and the value of money rises. the rate of dividend is the amount of distributed profit as a percentage of the nominal value of the share capital to which it relates. (7. resulting from an expanded level of output. Demurrage A penalty imposed for delay in taking delivery of goods.com website : www. futures and swaps. Elasticity of Supply Means the response of supply to a change in the price of commodity. the amount demanded normally decreases. Elasticity of Demand Means the response of demand to a change in the price of commodity. Secunderabad – 500 003. Dock Warrant A receipt for goods stored in a warehouse. If the price rises. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. perhaps on a territorial basis. the quantity demanded normally increases. It can be regarded as similar to “Take home pay”.

or securities at a fixed future date at a price agreed in a contract.com website : www. Excise Duties Taxes on home produced goods to raise revenue. Excise duties may be imposed either to raise revenue or to check the consumption of the commodities on which they are imposed. The value written on a coin or a bank note is also termed as face value.F. Factors of Production The resources required for production. F. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. The FDI relationship consists of a parent enterprise and a foreign affiliate which together form a transnational corporation. Foreign direct investment (FDI) The investment made to acquire lasting interest in enterprises operating outside of the economy of the investor. Triumphant Institute of Management Education Pvt. often used to describe a share in a company.com SM501003/40 . as distinct from customs duties which are taxes on imports not primarily imposed to raise revenue.I. Exchange Exchange is the act of obtaining a desired product from someone by offering something in return. services owned by another organization.0() HO: 95B. property. An F. It represents the total amount of borrowed funds required by the Government to completely meet its expenditure. Finished Goods Refers to the goods. which are used for the purpose of consumption and not utilized as inputs by the firms in the process of production. (7. Export The term used for a goods/service which is produced in one country and sold to a consumer in another.time4education. insurance. Fixed Cost Refers to the production costs which tend to be unaffected by variations in the volume of output. Factors of production are resources required for production.O. Face Value Means the nominal value. the buyer must take responsibility. Entrepot Importing goods for the purpose of exporting Ex: Singapore Equity Another name for ownership.O. Entrepreneurs are responsible for such economic decisions as what to produce.B. Ltd. equipment. he pays all expenses up to that point. equipment. materials. of a security (bond/share).B. (Free on Board) Term used of goods shipped where the price does not include shipping and insurance charges. Siddamsetty Complex. and all subsequent expenses Forward Market A Forward market transaction involves a contract to buy or sell commodities. Fiduciary A person or a legal body acting on behalf of others who have a beneficial interest in investment or other property Ex: the executor of a will. 2nd Floor. Fiscal Deficit This is the gap between the Government’s total spending and the sum of its revenue receipts and non-debt capital receipts. From there on. as distinct from the market value. Labour. how much to produce and what method of production to adopt. Fixed Assets Includes the monetary value of the company’s plant. Secunderabad – 500 003. Floor Price The minimum price level below which a firm can no longer realise a profit. Fiscal Policy Generally refers to the use of taxation and government expenditure for regulating the aggregate level of economic activity. and other items used on a continuing basis to produce its goods and services. paying for freight. Capital and Entrepreneur (Organization). Franchise A type of licensing arrangement in which an organization sells a package containing a trademark.Entrepreneur The term used for the organizing factor in production. Foreign Institutional Investor (FII) FII means an entity established or incorporated outside India which proposes to make investment in the financial markets in India. The four factors of production are Land. opposite to C. quotation implies that the exporter will deliver the goods free on board a ship in accordance with the contract at the port named. patents.

the tax rate is not uniform but rises progressively with the rise in money income. Invoice A document used in business giving a complete summary of a transaction involving the sale of goods. Secunderabad – 500 003. Intermediate Goods The goods which find use at some point in the production process of other goods. transport. Hypermarket A hypermarket is a multi-brand. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. He is not allowed to deal with non-members directly. power. Infrastructure Services which are regarded as essential for the creation of a modern economy. Jobber A jobber is an independent dealer in securities. Inflation is a state in which the value of money is falling i.Franchising In general. Triumphant Institute of Management Education Pvt. Lateral Integration This occurs when a firm branches or absorbs other businesses engaged in producing commodities related in same way to its own main products. The income tax is progressive. Grey market A market in shares which are yet to be issued. education. He purchases and sells securities in his own name.time4education. Futures Trading in shares or commodity for delivery at a later date. Siddamsetty Complex.e. Good This term is used of any commodity or service for which there is a demand. irrespective of whether it is in any sense ‘good’ or ‘bad’. i. A fixed and binding contract for a standard amount to be bought at a fixed price at a fixed future date. Horizontal Integration With reference to the structure of an industry it is the tendency to specialize in single processes instead of undertaking the entire production of the commodity from start to finish. 2nd Floor. health services. housing. work in progress and finished goods in organization maintained to meet its operational needs.0() HO: 95B. multi-department store under one roof meant to offer cost-effective shopping for household requirements.HUMAN DEVELOPMENT INDEX TWas developed by UNDP in 1996 and Tmeasures physical quality of life in a country along 3 key parameters O/LIHH[SHFWDQF\DWELUWK O1RRI\HDUVLQVFKRRO O3HUFDSLWDLQFRPH India ranks 134 out of 182 countries in 2009.com SM501003/41 . Free Market Income Tax Personal income tax is levied on individuals by the Central Government and the proceeds are shared between the Centre and the States. e. (7.. franchising may be regarded as a vertical marketing system in which a manufacturer or service organization confers upon an individual or firm the privilege of a marketing a product or service. that is. A situation of a steady and sustained rise in general prices is usually known as inflation. GDP (Gross Domestic Product) measures the total final outputs of goods and services produced by the country’s economy.com website : www. within the country’s territory by residents and non residents. A futures contract is for a purchase of commodities for delivery at a date in the future. Inflation Refers to a market in which there is an absence of intervention by government and where the process of demand and supply are permitted to operate freely. It may be the same or less than the authorised capital. A term used for the quantity of stock held by a business. HDI . Hierarchy The line of authority in an organization that runs in order of rank from top management to the lowest level of the enterprise..e. prices are rising.. Ltd. Issued Capital The actual amount of capital issued by a company and allotted in shares to investors. Inventory The raw materials.g. rather than final consumption. Laissez – Faire Refers to a policy of non-interference by the State in economic affairs. Labour All human resources which are available to society for use in the process of production.

amongst the owners. without any restriction. An economy based on free enterprise in which forces of demand and supply are allowed to operate freely. Liquidation (Winding – Up) Refers to the process where-by the existence of a company gets terminated.com SM501003/42 . Matrix Structure The process of planning. leading. Manpower In ordinary language. the lines of direction are straight and vertical. Management Market Leader A company which has a major market share of a product/service. manpower means the organisation of work force for its utilization in different sectors of the economy. First Out) This is a method of costing adopted by firms which carry many items of stock of the same kind bought at different times and at different prices as shown in the books. (7. An organizational structure in which each employee reports to both a functional or division manager and to a project group manager. Maturity Means the date on which a loan or bond or debenture becomes due and is to be paid off i. offering and exchanging products of value with others. whereas under the LIFO system it is assumed to have been purchased last. or a new firm gets created utilising the assets of the absorbed firms. and controlling the work of members of an organization and of using all available organizational resources to reach stated organizational goals. Under the more common FIFO system. Equilibrium of prices and quantities are determined in a market economy through the laws of supply and demand. Every superior has complete command over his subordinates and every subordinate is directly accountable to only one superior immediately above him. Ltd.com website : www. In non-marketing terms the function of a market is to enable an exchange of goods or services to take place. Liquidation It refers to the termination (or winding up) of a registered company. 2nd Floor. organizing. Market Price Means the price determined by the equilibrium between demand and supply in a market period (or very short period). the capital refunded. Liquidation takes place because of company’s insolvency. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Limited Liability Means the restriction of an owner’s loss in a business to the extent of the capital that he has invested in it. In economics. assets are turned into cash for settling outstanding debts and for apportioning the balance.time4education. among its members. Market Forces Refers to pressures by the free play of market supply and demand.0() HO: 95B. its property having been realized and distributed among its creditors and in the event of a surplus. Triumphant Institute of Management Education Pvt. Market Economy Means an economy in which crucial economic decisions and choices are made in a decentralized manner by private individuals and firms operating through a free price-and-market mechanism. Market A market consists of all the potential customers sharing a particular need or want who might be willing and able to engage in exchange to satisfy that need or want. if any. In liquidation. Merger Means a union of two or more firms in a transaction by which one absorbs the other(s). manpower means the working population of a country. a means by which buyers and sellers are brought into contact with one another. Here. Marketing Mix The blending of variables like product pricing promotion and distribution to form a marketing strategy. it is assumed that whenever an item is sold it was the first to be purchased.LIFO (Last In. Secunderabad – 500 003. which induce adjustment in prices and / or quantities traded. Line Organisation Line organisation refers to a direct chain of command from top to bottom. Ex: LIC is the market leader in life insurance. Indian economy is an example of a mixed economy. Marketing Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating.. Mixed Economy It refers to that economic system in which both private and public sector co-exist. Siddamsetty Complex.e.

which is engaged in international trade.Most Favoured Nation An agreement between two countries that each will offer the best possible trade terms in commercial contracts. They include rent of premises. Over Draft A loan limit in a current account. Predatory Pricing Means the practice of diminishing prices down to unprofitable levels for a period. SM501003/43 Triumphant Institute of Management Education Pvt. Paid – Up Shares Shares are fully paid – up when the full amount has been paid. the net asset value per share usually represents the fund’s market price. Net National Product (NNP) When depreciation is deducted from GNP i. Par Value Means the nominal or face value of a share or security. It may be less than the authorised capital. An economy where crucial economic processes are determined to a large extent not by market prices. Planned obsolescence A marketing strategy to encourage replacement of old models or styles by introducing new models or styles. a primary function of management. Net Profit Means gross profit minus deduction of tax payments and depreciation provisions. carry a high price. National Income In the simplest way it can be defined as ‘factor income accruing to the national residents of a country. Net national product at factor cost is called National Income. Ltd. The appropriate amount of depreciation is deducted from the original cost of purchase of the asset to give its net book value.. such as water is normally valued little. how to do it and who is to do it..time4education. Paradox of Value Means paradox on which an essential to life item. Gross National Product. Open Economy An economy. implies looking ahead and deciding in advance what to do. The actual amount of capital that shareholders have subscribed. Siddamsetty Complex. Sometimes shares are only partly paid – up. which is paid up by the shareholders. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Option An option to sell or purchase within a period.com . etc. such as diamonds. Also it is the amount of money that has to be paid for a commodity or service. Premium Securities are said to be ‘at a premium’ when they stand above par on the stock exchange. Price Refers to the value of a commodity or service in terms of money. when to do it. Point of purchase display A display at a place closely associated with purchase decisions like check out counter. It is the sum of domestic factor income and net factor income earned from abroad. For a mutual fund. (7. so as to weaken or eliminate existing competitors. we get Net National Product (NNP). 2nd Floor. Planned Economy A statement of the value of fixed assets which is used in accounting. the company being able to call for the balance to be paid whenever it requires this additional capital. but a luxury item. research. Net Book Value Paid – Up Capital That part of the issued capital. Secunderabad – 500 003. Planning Planning. but by an economic planning body.com website : www. The display stimulates impulse buying. salaries of salesmen.0() HO: 95B. The degree of openness of an economy is appreciated by the rise of its foreign trade sector relative to its gross domestic product. Niche A narrow specialized market. NAV (Net Asset Value) The value of a fund’s investment.e. Overheads Costs which are not directly chargeable to any unit produced. MNC (Multi National Corporation) A large corporation with operations and decisions spread over several countries but controlled by a central headquarters.

Producers’ Goods Refers to goods made for the purpose of producing consumer goods and other capital goods e. Profit Margin Refers to profit per unit of output which is expressed as a percentage of price. inform and sell goods and services to the consumer. Scientific Management “It is the art of knowing exactly what you want men to do and then seeing that they do it in the best and cheapest way”.W. Recession Slowing down of the economy over a period of two to three quarters. Triumphant Institute of Management Education Pvt. It is the process of establishing a time sequence for the work to be done. 2nd Floor. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Rate of Return Refers to the basis of earnings from the investment of capital. The situation favours a seller. Secunderabad – 500 003. Productivity Means output per unit of input employed. sales promotion and personal selling to communicate. The term ‘Product’ can be used to cover both ‘goods and services’. publicity.com SM501003/44 . mines that constitute the natural wealth of a nation.com website : www. Also termed as overseas derivative instruments [ODI’S]. Rate of Turnover The number of times the value of the average stock of a business is sold during a period. Scab (also called blackleg) A scab is a worker who goes on working when there is a strike.g. P – Notes A system by which certain overseas entities can invest in India’s capital markets. It is often used to compare the standards of living between countries. machinery of all kinds. (7. Product A product can be defined as anything that can be offered to satisfy a need or want. Pyramid/Ponzi An illegal system of paying off old investors with new investments. Purchasing Power Parity (PPP) An exchange rate between two currencies such that the same basket of goods and services could be bought in each country if the cost were converted at that exchange rate. (F. Siddamsetty Complex. forestry and fishing. Schedule A schedule specifies time limits within which activities are to be completed. Profit Total Revenue less all costs and expenses. [Many countries are currently in Recession] Reinsurance Insurers passing on parts of the risk to other parties in return for a proportional share of premium Sandwich Boards Boards carried in front of and behind a person to carry advertisements Sandwich Man A man who carries sandwich boards to carry advertisements. Primary Deficit The primary deficit is the fiscal deficit minus interest payments.Price Discrimination Refers to the charging of different prices to different groups of individuals for the same goods or services for reasons not associated with difference in costs. where earnings are expressed as a proportion of the outlay. Primary Industry Refers to the production of goods from agriculture.0() HO: 95B. It tells how much of the Governments borrowings are going towards meeting expenses other than interest payments.time4education. This is synonymous with capital goods. Promotion mix Using advertising. A constant stream of new investments is needed for the success of this “model”. Shell Company A company listed in the stock exchange but which does not trade. Ltd. Taylor) Sellers market Demand exceeds supply.

LAND REVENUE. An investor who wishes to sell or buy securities must act through a broker. Ex: a spot market for oil Other variations of the use of spot are spot cash. One of the attractive features is the maintenance of strict secrecy regarding the name of the account holder. Strategy A strategy may be defined as an administrative course of action designed to achieve success in the face of difficulties. Vendor Commonly known as supplier. • Indirect Taxes Levied on goods and services.time4education. Start-Up Business founded by individuals intending to change the environment of a given industry by the introduction of either a new product or a new production process. Also called span of management control. Ltd.Span of Control The number of subordinates reporting directly to a given Spin Off A secondary product developed from the main product. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education. Universal Service Obligation A fund created by imposing a cess on telecom companies to recover part of the costs incurred by the Government for extending telecom network in rural areas. INCOME TAX. A person who buys new shares and sells them immediately to make a profit. (7. superior.A. In organizational terms.T (Value – Added Tax) A tax levied on the value of each of the processes carried out by a business. V. Only members are admitted and business is transacted according to a prescribed set of rules.0() HO: 95B. Tax havens A financial off shore centre that offers a more favourable tax environment to non-residents. Variable Costs Expenses that vary directly with the amount of work being performed. EXCISE TAX. Spot Price or rate Price or rate for something which is delivered immediately. SERVICE TAX… Traded Options Options to buy or sell shares at a certain price at a certain date in the future which themselves can be bought or sold. Turnover Total sales of a business during a particular period. liability to pay tax is NOT passed on to someone else. GIFT TAX etc…. e. selection. compensation. Strategic Planning Strategic planning is long term in nature. Staffing Staffing is the process of filling all positions in the organisation with adequate and qualified personnel. Siddamsetty Complex. It consists of manpower planning. CUSTOMS DUTY.g. so that he hopes to sell soon at profit.com website : www.g. Stock Exchange A highly organised market for dealings in stocks and shares. CORPORATION TAX. This will create an impression that SM501003/45 Triumphant Institute of Management Education Pvt. WEALTH TAX. spot price and spot rate. Synergy The situation in which the whole is greater than its units. It has mainly an external focus as it is designed to achieve the organisational objectives in the face of challenges and opportunities. e. Wash Sales It is a transaction in which a speculator sells a security and then buys it at a higher price through another broker. An individual or business who sells goods to other business. Secunderabad – 500 003. Strategic planning is formulated mainly at the top level of management. Buying something for immediate delivery. traders / producers pay it. synergy means the departments that interact cooperatively are more productive than they would be if they operated in isolation. 2nd Floor.com . training. Liability passed on to end customer. integration and maintenance of employees. recruitment. Taxes • Direct Taxes Direct incidence of tax on the person who pays the tax. VAT. Spot One common meaning is immediate or now. Stag A speculator who buys a large amount of a new issue of shares or stock if he thinks the price is likely to rise above the offer price when dealings in it begin on the stock exchange.

As a result.com website : www. people may be induced to purchase them at a very high price. Triumphant Institute of Management Education Pvt. (7. Wind Up To bring a limited company to an end either voluntarily or by order of the court.time4education. 2nd Floor. Secunderabad – 500 003. based on its current earnings in relation to its current price on the stock exchange. Wear and Tear The depreciation of the value of a thing as a result of ordinary usage as distinct from damage resulting from negligence or accidental causes.there is great demand for that security. 80–20 Principle A rule of thumb stating that 80% of a firms business is generated by approximately 20% of its customers. Ltd. Yield The return on a security. Siddamsetty Complex.com SM501003/46 . Money produced as a return on an investment. Tel : 040–27898194/95 Fax : 040–27847334 email : info@time4education.0() HO: 95B.

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