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Did You Know

 

Collateral 

 

Collateral is the assets in term of property, fixed deposit, insurance, gold etc. which are provided by the borrower to the bank for the security against his borrowing. If the borrower defaults to repay the loan, bank takes charge against the asset and sells the asset to recover the loan.

 

Bank’s right of set off 

 

Bank’s right of set off is statutory right which gives the power to the bank to set off any dues in an account of a customer with the credit balance in another account of the same customer.

 

Banker’s lien

 

Banker’s line is type of right that provides an authority to a bank to claim automatically over the customer’s property or assets or money that come in bank’s possession in the normal course of its business.

 

Basel II & III

 

Basel Committee on Banking Supervision has published the Basel II & III which are the Basel Accords.  Basel II was published in June 2004 to create an international standard for banking regulators. Basel II provides the guidelines for the capital requirement for a bank to guard against the types of financial and operation risks banks face.

 

Basel III is the third or latest Basel Accords which is published by Basel Committee on Banking Supervision in 2010-11, is a global banking standard for bank capital adequacy, stress testing and market liquidity risk and the same is to be introduced from 2013 until 2018.

 

Wholesale Banking

 

Wholesale Banking services are only available for large corporate client, mid-size companies, and companies in international trade. Wholesale Banking products are working capital finance, currency conversion, large trade transaction etc.

 

Banking Ombudsman

 

Banking Ombudsman is a separate body from the bank which is handled by senior officials appointed by Reserve Bank of India. If any bank customer is not satisfied with the resolution provided by the bank against his/her complaint in respect of certain service of the bank, he/she can address his/her complain to Banking Ombudsman.

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Factoring 

 

Factoring is a mode of working capital finance. Factoring company ('Factor') provides the financing against the account receivable ('Invoice') of a company. Normally factor advances up to 85% of the invoice value as soon as the invoice in raised and balance amount once the invoice is paid.

 

Shipping Guarantee

 

A Shipping Guarantee is a non-fund base facility of a bank which allows a customer to take delivery of shipped goods prior to submission of the bill of lading and other necessary shipping documents.

 

Deferred Payment Guarantee

 

Deferred Payment Guarantee is a facility where bank has guaranteed the timely repayment of the finance extended by the supplier of the capital asset to the buyer. If the buyer is unable to repay as per the terms agreed upon, the supplier can revoke the guarantee issued by the bank.

 

Performance Guarantee

 

Performance Guarantee is issued by a bank on behalf of the seller and in favor of the buyer to secure the performance as per the contractual agreement. The buyer can revoke the guarantee if the seller is unable to perform as per the contractual agreement.

 

Payment Guarantee/ Loan Guarantee

 

A Payment Guarantee/Loan Guarantee is issued by a bank on behalf of the borrower to compensate any loss is suffered by the lender if the borrower defaults the loan.

 

Guaranty for Warranty Obligation

 

Guaranty for Warranty Obligation is issued by a bank to compensate any loss is suffered by the buyer for non-performance of the obligation by the seller during the warranty period.

 

Advance Payment Guarantee 

 

An Advance Payment Guarantee is issued by a bank when the buyer pays the full/ part of contact price in advance and the buyer wants the bank guarantee in his favor for security of his advance if the seller is not able to deliver goods/service on time or if the goods/services is below the required standard.

 

Bid Bond Guarantee

 

A Bid Bond Guarantee is issued by a bank on request of the company submitting the tender and in favor of the company inviting the tender to compensate any loss for refusal to sign the contact, tender withdrawal by the company who has submitted the tender. 

 

Net Interest Income (NII)

 

NII is the difference between the income generated by the interest bearing assets like commercial loans, retail loans etc. and the expanses for the interest burden liabilities which are the deposits from the customers.

 

Letter of Credit

 

A written commitment by the importer’s bank (called ‘issuing bank’) to the seller for the payment of goods/ services sold to the importer.  In any case, the importer is unable to pay the dues on due date, the issuing bank would responsible for the specific commitment amount.

 

UCPDC 600 

 

UCPDC i.e. The Uniform Customs and Practice for Documentary Credits is a set of rules on the issuance and use of letters of credit. UCPDC 600 is issued by International Chamber of Commerce’s (IIC) and UCPDC600 is the latest version of the rules on that govern the issuance and use of letters of credit worldwide. 

 

The Oldest Surviving Banks In World

 

Though the below mentioned banks are not the first bank in the world, but rather

 

a) Bank of New York (now Bank of New York Mellon), New York (Founded 1784)

 

b) The Bank of Scotland (now Halifax Bank of Scotland), Edinburgh, Scotland (Founded 1695)

 

c) C. Hoare & Co., London, England (Founded 1672)

 

d) Berenberg Bank, Hamburg, Germany (Founded 1590)

 

e) The Oldest Bank in the World: Banca Monte dei Paschi di Siena,  Siena, Italy (Founded 1472)

 

 

Bank Guarantee

 

Bank Guarantee is an instrument issued by the Bank to the beneficiary in which the Bank agrees to repay the guarantee amount against the non-performance of some action/performance of a party. Bank issues the difference kind of Bank Guarantees, namely,

 

•Bid Bond Guarantee

 

•Advance payment Guarantee

 

•Guaranty for warranty obligation

 

•Payment Guarantee/Loan Guarantee

 

•Performance Guarantee

 

•Deferred payment Guarantee

 

•Shipping Guarantee

 

•Trade Credit Guarantee

 

•Standby LC

 

 

MICR Code

 

Magnetic Ink Character Recognition, or MICR, is a character recognition technology used primarily by the banking industry to facilitate the processing and clearance of cheques and other document. In a cheque, the white area at bottom of the cheque is called MICR line where you will get 9 digits MICR code. In 9 digits MICR code, first 3 digits represent the city code, next 3 digits to bank code and last 3 digits to branch code.

 

Debt Recovery Tribunal (DRT)

 

Debt Recovery Tribunal (DRT) is a body for expeditious adjudication and recovery of debts due to banks and financial institutions. DRT has been constituted under Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act,1993. A bank can file a case against the customer in DRT if the current outstanding amount including all charges is more than INR 10,00,000.

 

External Commercial Borrowings (ECB)

 

External Commercial Borrowings (ECB) is commercial loan for Indian corporations and Public Sector Undertakings (PSUs) availed from the non-resident lenders in form of commercial bank loans, buyers' credit, suppliers' credit, fixed and floating rate bonds (without convertibility), credit from official export credit agencies and borrowings from the private sector window of multilateral financial institutions such as International Finance Corporation (IFC) etc. ECB is not allowed in stock market investment and speculation in real estate.

 

SARFAESI

 

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI),2002 is a tool to all the banks and financial institutions to reduce their non-performing assets (NPAs). Banks and financial institutions can call for an auction of the mortgage properties (residential and commercial) when borrowers fail to repay their loans as per SARFAESI Act.

 

Credit Counseling/Debt Counselling

 

Credit Counselling (is also known as Debt Counselling) is a process by which a Credit Counselor educates the individual how to prepare a proper plan and budget on spending to control his/her financial situation and how to relief from the debts. Credit Counselling provides a Debt Management Plan which helps the individual for future financial planning also. Sometime Credit Counselling also involves negotiating with the creditors to help the individual to repay his/her debt with proper repayment plan.

 

Participatory Notes

 

The overseas investors who wish to invest in the Indian Stock market without registering themselves with Securities and Exchange Board of India (SEBI), they use the Participatory Notes which are commonly known as P-Notes or PNs. The Participatory Notes are instruments issued by registered foreign institutional investors (FII) to overseas investors.

 

Clearing Corporation of India Ltd (CCIL)

 

The Clearing Cororation of India Ltd (CCIL) was set up in April,2001 with the objective of exclusive clearing and settlement services for transactions in Money, Government Securities and Foreign Exchange. After setting up CCIL, there is huge improvement in the efficiency of the transaction settlement process. 

 

Debit & Credit Cards Transaction

 

As per report publised by RBI, total number of Debit Card and Credit Card transactions in India in April, 2015 were 695.65 Million and 57.73 Million respectively and total amount were involved INR 2,115,389.23 Million in Debit Card and INR 181,501.41 Million in Credit Card.

 

SBLC

 

Standby Letter of Credit (SBLC) is a written commitment of a Bank that issues it to pay a certain amount of money on behalf of the Bank's Client in favour of a beneficiary in case the Client/Buyer is not able to fulfill its financial obligation to the beneficiary/ Seller. It is akin to "Financial Bank Guarantee"

 

INCOTERMS

 

Trade terms published by the International Chamber of Commerce (ICC) that are commonly used in both international and domestic trade contracts. Incoterms, short of "International Commercial Terms," are used to make international trade easier by helping traders in different countries understand once another.

 

Capital account convertibility (CAC)

 

CAC means freedom to convert currency, both in terms of outflows and inflows, for capital transactions. 

 

Savings Accounts for Minors 

  

RBI has allowed minors aged more than 10 years to open and operate savings bank accounts independently. Bank can offer additional banking facilities to minors viz. internet banking, ATMs / debit cards and cheque book facilities, provided these accounts aren't overdrawn and that the accounts always remain in credit balance. The aim of this move is to help children understand money matters, help them feel empowered and introduce them the banking system at an early age, so that the banking habit can grow at early of stage of the life. 

 

Special Drawing Rights (SDRs)

 

Special drawing rights (SDRs) are supplementary foreign exchange reserve assets of member countries defined and maintained by the International Monetary Fund (IMF). The IMF uses SDRs for internal accounting purposes and SDRs are not a currency. SDRs are a claim to currency held by IMF member countries. IMF allocates SDRs to its member countries and SDRs are backed by the full faith and credit of the member countries' governments.

 

Debit Note

 

A document used by a purchaser to inform a vendor of the quantity and dollar amount of goods being returned, and requesting that the dollar amount be returned to the purchaser. A debit note is often used to return goods on credit. The vendor then issues a credit note to the purchaser indicating that the goods have been received, and that the purchaser will not have to pay for them. 

 

Base Rate

 

New reference rate used by banks for loan pricing w.e.f July 2010. Base rate captures cost of deposits, cost of capitals and unallocable (common) overheads. Banks are not allowed to lend base rate except for certain specified category or borrowers. 

 

Anywhere Banking

 

Customer can deposit/ withdraw cash at any branch other than the branch in which he holds the account. Anywhere banking frees the customer from geographical boundaries and limitations and gives the flexibility to the customer to use his account across the board.

 

Co-Borrower

 

A person who applies for any loan with the primary borrower and takes on the responsibility for repayment of the debt. This is done to improve the eligibility for loan and simultaneously mitigating the risk of banks who can exercise the option of recovery from both parties- jointly as well as severally. 

 

Basis Point


One hundredth of a percentage point. Basis points are used in currency and bond markets where the size of trades mean that large amounts of money can change hands on small price movements . 

 

Acid Test Ratio


The value of cash equivalents and accounts receivable (the quick assets) divided by current liabilities. Also known as quick asset ratio or liquidity ratio, it is a measurement of corporate liquidity.

 

CRR

 

Cash Reserve Ratio is the amount of mandatory funds that commercial banks have to keep with RBI. It is always fixed as a percentage of total demand and time liabilites. 
 

CGTMSE

 

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was established in 2000 with the object to help the Micro and Small Enterprises for getting the bank credit without the hassles of collaterals or third party guarantee. CGTMSE is set up jointly by Government of India and SIDBI.