01. What do you know by stale cheque?- When the cheque becomes out of date and cannot be encashed, it is termed as stale cheque. For example, the validity period of any cheque is three months and when a cheque dated: 10.01.2012 is presented for payment on 10.01.2013, it is considered as a stale cheque, since the cheque is more than three months old.
02. What do you mean by post dated cheque?- When the date of the cheque is beyond the date on which the cheque is presented for payment, the cheque is considered to be post dated. For example, when a cheque dated: 10.02.2013 is presented for payment on 10.01.2013, it is considered to be a post dated cheque.
03. What do you know by current chest? – Currency chests are operated by RBI so that they can provide good quality currency notes to the public. However, RBI has appointed commercial banks to open and monitor currency chests on behalf of RBI. The cash kept in currency chests is considered to be kept in RBI and
04. What is meant by minimum balance to be maintained in the accounts? In the case of savings bank and current account deposits, the banks stipulates a minimum balance to be maintained. The minimum balance varies from bank to bank and when the balance in the account falls below the minimum balance then banks debit the account with some penal charges. Some banks insist quarterly average minimum balance to be maintained instead of regular minimum balance to be maintained.
05. What do you mean by tax deduction at source? TDS means tax deducted at source. Banks must deduct tax from the interest paid on the fixed deposit when the interest paid on fixed deposits to a customer exceeds Rs. 10000/- during the accounting year. TDS is applicable to fixed deposits only and is applicable to savings bank deposits.
06. What do you mean hindu undivided family? – HUF means Hindu Univided family and it is the legal entity duly recognized by the laws in India. The account of hindu undivided family is operated by Karta and karta is the seniormost male member in the family. The remaining members in the family are called as coparceners. Banks can open deposit accounts and also extend loan facilities to hindu undivided family.
07. What do you know by MICR? – MICR means magnetic ink character recognition. Nowadays, the cheques are issued in MICR formats in metropolitan centres namely; Mumbai, Chennai, Kokatta, Bangalore etc. The micr code is readable by a reader sorter computer which helps in quick sorting of the cheques towards immediate adjustment of the amount to be received and paid by the banks in the clearing house. MICR code consists of the following namely; the cheque number, name of the city, name of the bank, name of the branch, account category etc. and banks simply type the amount of the cheque in the MICR portion using scanners so that the sorter reader is able to read the entire information in regard to the cheque instantaneously.
08. What do you mean by cheque truncation? – Under cheque truncation, the physical cheque is replaced by the digital image of the cheque after scanning. Once the cheque is truncated the physical cheque is cancelled and from the moment of truncation only the digital image has life. The digital image of the cheque which contains the digital signature of a bank officer as to its authenticity is processed by all banks and payment is effected. Cheque truncation helps in quick processing of the cheques drawn even on far away places since there is no necessity to physically move the cheque from one place to another place.
09. What do you mean by ECS?- ECS means electronic clearing service and this facility is used where a large number of small value payments or receipts are to be made or received. ECS can be used for either debit transactions or credit transactions. When a company wants to pay dividends to large number of shareholders, they use ECS credit facility and by debiting the company’s account, the shareholders accounts are credited with the dividend amount instantaneously. Similarly when an accountholder can use ECS debit facility towards effecting payment to telephone charges each month.
10. What do you mean by bankassurance? Hitherto banks were dealing with acceptance of deposits and lending loans to the customers apart from undertaking certain ancillary services. Nowadays banks started selling insurance policies of prominent insurance companies by having tie up arrangements with such companies and banks earn commission for such transactions.
11. What do you mean by Universal banking? – Universal banking is the concept under which banks can provide various types of services namely; deposits, loans, safe deposit lockers, safe custody services, dealing with mutual fund schemes, selling insurance policies, selling gold coins, dealing with issue of shares and debentures etc. Thus at present banks are becoming like a supermarket for all kinds of financial products and such concept is called as universal banking.
12. What do you mean by Regional Rural Banks? – The Regional Rural Banks are relatively new banking institutions which were added to the Indian banking scene since October, 1975. The distinctive feature of a rural bank is that though it is a separate body corporate with perpetual succession and common seal, it is very closely linked with the commercial bank which has sponsored the proposal to establish it.
13. What do you mean by National Housing Bank?- National Housing Bank was established under the National Housing Bank act, 1987 as an apex body and the key function of National Housing Bank is the development of the housing sector and it is a wholly owned subsidiary of Reserve Bank of India. National Housing Bank undertakes the following activities namely; promotion and development of housing finance companies; regulation and supervision of housing finance companies and providing both direct finance and indirect finance to housing sector.
14. What do you mean by NABARD? – National Bank for agriculture and rural development was set up in 1982 as an apex development bank in the field of agricultural finance and rural development. NABARD is set up by the Government for the purpose of facilitating credit flow for promotion and development agriculture and integrated rural development. It covers supporting all other allied economic activities in rural areas, promoting sustainable rural development and ushering in prosperity in the rural areas
15. What do you mean by EXIM Bank? – Export and Import Bank of India was set up during the year, 1982 for the purpose of financing, promoting and facilitating foreign trade in the country. It is wholly owned by the Government of India. The bank apart from enhancing exports from the country, integrates the country’s foreign trade and investment with the overall economic growth.
16. What do you mean by SIDBI? – SIDBI was established for the purpose of assisting and promoting small scale industry. It was established on 2.4.1990. It is the principal financial institution established for the promotion, financing and development of industry in the small scale sector and to coordinate the functions of the institutions engaged in the promotion and financing or developing industry in the small scale sector.
17. What do you mean by NBFCs? – Non Banking Finance Companies provide finance for small ventures but at the same time they are more customer oriented and operate at low volumes compared to the banks. They also collect deposits from customers and offer slightly higher interest rates on deposits compared to the banks.
18. What do you mean NEFT and RTGS – The two options namely – national electronic funds transfer and RTGS – real time gross settlement offered by Reserve Bank of India allow electronic transfer of funds from the remitter who has an account in one bank to the beneficiary who has account in any other bank/branch. The transfer can be carried out using the internet banking facility. The minimum amount that can be transferred by RTGS is Rs. 2.00 lakh and there is no such limit for transfer through NEFT. It is settled in batches at times defined by the Reserve Bank of India. RTGS transactions are settled continuously as and when they are put through. The transfer of funds through NEFT and RTGS can also be carried out by submitting the remittance form at the remitter’s bank branch.
19. What do you mean IFSC code? – IFSC means Indian financial system code. It is a eleven digit code to identify the bank branch. IFSC code is used while transferring the funds using RTGS and NEFT payments.
20. What do you mean by financial inclusion? In spite of vast growth in the banking system, a large number of poor people are still not served by any bank. They are living outside the purview of any bank. Financial inclusion is delivery of financial services at an affordable cost to the vast population of disadvantaged/low incomes sections of the society
21. What do you mean No frill accounts? No frill accounts are accounts with very low or nil minimum balance as well as charges to be opened by the banks as targeted by Reserve Bank of India. KYC norms are relaxed for opening no frill accounts so that people living in rural and semi urban areas can open the accounts conveniently. Overdrafts upto Rs. 25000.00 are allowed in the no frill accounts
22. What do you mean by narrow banking? – It is the system of banking under which the bank accepts deposits from the public and places the funds accepted in 100 percent risk free assets with maturity matching for its liabilities. The bank takes no risk of lending at all.
23. Who are business facilitators and business correspondents? – RBI has permitted the banks to use the services of business facilitators and correspondents with effect from 2006. The services of non governmental officers, microfinance institutions and civil society organizations can be utilized by the banks. They help the banks in identifying the borrowers processing their applications etc. without involving in business transactions. No approval of RBI is necessary. Correspondents will do all the above and will also participate in business transactions in a small way.
24. What do you mean by non performing assets? – Non performing assets means bad loans. When the principal and interest in the account becomes overdue for more than 90 days, it is treated as non performing assets. Non performance assets are classified into sub standard assets, doubtful assets and loss assets. Banks are willing to keep the level of non performance accounts at the lowest.
25. What are the major risks faced by banks according to Basel II norms? – Banks are facing credit risk, market risk and operational risk. When the bank lends an advance, it faces credit risk and sometimes the banks may not be able to recover the loan amount from the borrowers. In the case of failure of any bank product, the banks face market risk and operational risk occurs on account of failure of systems available in the bank branches namely; staff unrest; striking employees; computer failure; automated teller machines out of order etc.
26. What do you mean by merchant banking? – Merchant banking stands for provision of various services to corporate clients by helping them to access capital market. Merchant banks help the corporate customers to approach the capital market with initial public offers for the purpose of collection of capital by way of shares.
27. What do you mean by demat accounts? Demat means dematerialization. During the early days, shares and debentures certificates were issued in physical form in the form of certificates. At present, they are issued in electronic form. It is the process by which paper securities are converted to electronic form so that they can be stored, sold and transferred easily.
28. What is a depository? – A depository holds the securities of the investors in electronic form. In our country there are two depositories namely; NSDL – National Securities Depositories Limited promoted by National Stock Exchange and CDSL – Central Depository Services Limited promoted by Bombay Stock Exchange.
29. What do you know by consortium financing? When a corporate is in need of huge finance – say Rs. 200 crores and above, banks join together and extend the loan facilities by sharing the loan amount between themselves. This reduces the risk for each bank. The banks jointly process the application of the borrower and sanction the advance and this is called consortium lending.
30. What do you mean by repo rate? – It is the rate at which RBI lends short term funds to the commercial banks against securities. In order to temporarily expand the money supply, the central bank decreases repo rates enabling the banks to swap the government securities for cash. Repo is the abbreviation of Repurchase and to contract the money supply RBI increases the repo rates.
31. What do you mean reverse repo ? – The reverse repo rate is the interest rate that banks receive if they deposit money with the central bank. This reverse repo rate is always lower than the repo rate. Increases or decreases in the repo and reverse repo rate have an effect on the interest rate on banking products such as loans, mortgages and savings.
32. What do you mean by CRR? – CRR means Cash Reserve Ratio and as per the stipulations by Reserve Bank of India, all banks are in a position to maintain a certain percentage of their deposits (technically called as net demand and time liabilities) in their account with the RBI. CRR ranges from 5 percent to 15 percent. By increasing CRR by merely 0.25 percent, an amount of Rs. 15000 crores of liquid funds can be transferred from the commercial banks to the coffers of RBI. When CRR is reduced, the liquid funds are transferred from RBI to commercial banks.
33. What do you mean by SLR? – Statutory Liquidity Ratio refers to the stipulation by RBI that approximately 25 percent of the banks deposits is to be kept in the form of government securities, gold and cash. Primarily SLR refers to the amount invested by the banks in Government of India securities. RBI has the right to change the statutory liquidity ratio from time to time. On reduction of SLR, the availability of funds for the banks moves up and banks tend to more loans to the common public. In the case of increase in SLR, banks reduce bank lending.
34. What do you mean by PLR? – Prime lending rate is the rate at which commercial banks are willing to lend to their triple A rated No 1 borrowers. The lending rates by the bank for other borrowers whose credit worthiness is low will be more than prime lending rate. RBI has deregulated the lending rates that are to be charged by the banks for advance above Rs. 2 lakhs.
35. What do you mean by BPLR? – It is the rate at which commercial banks must charge to all their advances less than Rs. 2 lakhs.
36. Who is a non resident Indian? – Non resident Indian is the person who is the Indian citizen who is residing in abroad for more than 182 days and has gone for abroad for the purposes namely; business, studies and employment.
37. What are the different types of accounts that can be opened by Non Resident Indians? – Non resident ordinary account, Non resident External account, FCNR account and RFC account.
38. What are the different currencies in which FCNR accounts can be opened? – FCNR accounts can be opened in the following currencies namely; US dollar, pound sterling, Euro, Australian dollar, Japanese Yen and Canadian dollar. FCNR accounts can be opened for a minimum period of one year and maximum period of three years
39. What are the traditional functions of RBI? – The traditional functions of RBI are – issue of currency, forex management, export assistance, clearing house functions, change of currency, transfer of currency, publication of statistics and other information and training in banking.
40. What are the developmental functions of RBI? – The developmental functions of RBI are – agriculture development, promotion of industrial finance, promotion of export through refinance, development of bill market, development and regulation of banking system.
41. What are the regulatory functions of RBI? – The regulatory functions of RBI are – qualitative credit control, bank rate, differential rate of interest, open market operations, Maintenance of CRR and SLR, direct action, credit authorization scheme and moral persuasion
42. What are the different types of financial institutions in our country? – The various financial institutions in our country are – RBI – Reserve Bank of India; SEBI – Securities and Exchange Board of India and IRDA – Insurance Regulatory and Development Authority of India. RBI monitors the various banks in the country; SEBI monitors and regulates capital markets and IRDA monitors the functions of insurance companies.
43. What are the different types of banks in our country? – In our country the following banks are available – savings banks; commercial banks; industrial banks; development banks; land development banks; indigenous banks; central bank; cooperative banks; exchange banks and consumer banks
44. What are the different types of secondary functions of any bank? – They are agency or representative functions; general utility services and social development functions.
45. What do you mean by agency or representative functions of any bank? – They are collection and payment of various items; purchase and sale of securities; trustee and executor; remitting money; purchase and sale of financial exchange; letter of references and other agency functions.
46. What are the general utility services offered by the banks? – They are locker facilities; business information; help in transportation of goods; acting as a referee; issuing of letters of credit; acting as underwriters; issue of traveler cheques; issue of gift cheques and dealing in merchant banking activities
47. What are the social development functions of a bank ? – They are capital formation; inducement to innovations; impact on the rate of interest; role on the development of rural sector; helping in pushing up the demand
48. Can you name some items which are covered under negotiable instruments act? – They are promissory notes, bills of exchanges; cheques, exchequer bills; circular notes; dividend warrants; share warrants; bearer debentures; bank notes and bank drafts
49. What do you mean by priority sector advance? – In order to boost development of agriculture and industries, Government of India has stipulated certain norms under which banks are in a position to allocate 40 percent of their advances exclusively to certain categories of borrowers called as priority sector advances. The following are classified into priority sector advances namely – retail traders, small business, professional and self employed; agriculture; small scale industries, self help groups, differential rate of interest and SC/ST beneficiaries
50. What do you mean by weaker sections? – The following categories are termed as weaker sections namely – small business enterprises; marginal farmers; artisans/village and cottage industries for whom loans are granted upto Rs. 50000.00; SGSY beneficiaries; SC/ST beneficiaries; DIR beneficiaries; SJSRY beneficiaries; SLRS; self help groups and people belonging to minority community.