Fiscal cliff

Fiscal cliff is a newly coined term in USA, referring to the effect of a number of laws which, if unchanged, could result in tax increases, spending cuts, and a corresponding reduction in the budget deficit beginning in 2013. These laws include tax increases due to the expiration of the so-called Bush tax cuts and across-the-board spending cuts under the Budget Control Act of 2011. The year-over-year changes for fiscal years 2012–13 include a 19.63% increase in tax revenue and 0.25% reduction in spending. The US Congressional Budget Office estimates that allowing certain laws on the books during 2012 to expire or take effect in 2013 (the baseline scenario) would cut the 2013 deficit approximately in half and significantly reduce the trajectory of future deficits and debt increases for the next decade and beyond. However, the 2013 deficit reduction would adversely impact the economy in the short-run. On the other hand, if Congress acts to extend current policies (the alternative scenario), deficits and debt will rise rapidly over the next decade and beyond, slowing the economy over the long run and dramatically increasing interest costs. Many experts have argued that the U.S. should avoid the fiscal cliff while taking steps to bring the long-term deficit and debt trajectory under control. For example, economist Paul Krugman recommended that the US focus on employment in the short-run, rather than the deficit. Federal Reserve Chair Ben Bernanke emphasized the importance of balancing long-term deficit reduction with actions that would not slow the economy in the short-run. Charles Konigsburg, who directed the bi-partisan Domenici-Rivlin deficit reduction panel, advocated avoiding the fiscal cliff while taking steps to reduce the budget deficit over time. He recommended the adoption of ideas from deficit panels such as Domenici-Rivlin and Bowles-Simpson that accomplish these two goals.

Cheque Truncation System (CTS)

Cheque Truncation System (CTS) is a process that will give banks the freedom to avoid transporting a physical cheque from the presenting bank (where the cheque is deposited) to the drawee bank (where it is issued). As per the CTS, instead of a physical cheque, an electronic image of the cheque will be sent to the drawee bank. Of course, this image will have all the necessary information needed to process the cheque. Right from the nine-digit MICR code, the date of the cheque and the details of the presenting bank, like branch, etc.

Banks get 3 more months to implement Basel III norms

 The Reserve Bank of India has extended the date for implementation of Basel III, the global capital norms for banks, by three months to April 1.

“The Reserve Bank of India has rescheduled the start date for implementation of Basel III to April 1, 2013 from January 1, 2013,” the central bank said.

The RBI, however, did not provide reasons behind the rescheduling.

The move, experts said, will provide additional time to some banks that need to enhance their capital base in line with the new norms for strengthening the resilience of the global banking system.

The RBI further said that India will closely monitor the progress on Basel III implementation in other countries, particularly the major ones, who are members of the Basel Committee.

The RBI had issued guidelines on the implementation of Basel III capital regulation in India in May this year. These guidelines were to be implemented from January 1, 2013 in a phased manner and were to be fully implemented by March 2018.

As per the new global norms, banks will have to hold core capital of at least 7 per cent of risk weighted assets by 2018.

In September, the RBI Governor, D. Subbarao, had said that Indian banks will require an additional capital of Rs 5 lakh crore to meet the new global banking norms.

Of the total Rs 5 lakh crore, equity capital will be Rs 1.75 lakh crore, while Rs 3.25 lakh crore will have to come as the non-equity portion.

The government, which owns 70 per cent of the banking system, alone will have to pump in Rs 90,000 crore equity to retain its shareholding in the public sector banks at the current level to meet the norms.

The Basel Committee recently said that the 11 member jurisdictions including India, Australia, Canada, China and Japan, have published the final set of Basel III regulations effective from the start date of January 1, 2013.

Seven other jurisdictions including the European Union and the US have issued draft regulations, and have indicated that they are working towards issuing final versions as quickly as possible. 

First Indian Bank to launch the e-Gift card facility

Axis Bank, India’s third largest private sector Bank announced the launch of ‘Axis Bank e- Gift Card’, thereby becoming India’s first bank to offer to all bank’s domestic customers an option to buy an e- Gift Card. The Axis Bank e- Gift Card offers customers an alternate channel through which they can buy a gift card for their dear ones. The facility of e- Gift Card can be availed at www.gogiftacard.com where a
customer can buy and send a card of his choice by either e-mailing it or sending it via SMS to their loved ones. Domestic customers can purchase these online e- Gift Cards using their credit / debit card issued by their respective bank. All purchase transactions shall be limited to sites that support verified by Visa and MasterCard Secure Code for two factor authentication.

Zero Balance Account for Beneficiaries of Government Programmes

The Reserve Bank of India (RBI) has advised all Scheduled Commercial Banks (SCBs) on 10.8.2012 to offer a ‘Basic Savings Bank Deposit Account’ and also convert existing basic banking ‘no-frills’ accounts’ to ‘Basic Savings Bank Deposit Account’. Such accounts do not have the requirement of any minimum balance and comes with the facility of ATM Card or ATM-cum-Debit Card. However, the holders of such accounts are not eligible to open any other savings bank deposit account in that bank. Under Financial Inclusion, banks have already opened 3.16 crore accounts by March 31, 2012.

Chandrashekhar panel to frame rules for foreign investors

Market regulator SEBI on December 12 said it has appointed a committee under ex-Cabinet secretary K M Chandrashekhar to frame a single set of guidelines for all types of foreign investors.

The committee will suggest ways to simplify the investment process for all overseas entities like foreign institutional investors, foreign venture capital investors (FVCIs), qualified financial/institutional investors (QFIs), and NRIs, among others, and also to strengthen surveillance over them.

NBFCs may need prior RBI nod for ownership change

Non-banking financial companies (NBFC) would need RBI’s prior approval before making changes in their ownership control, a draft guideline of the central bank said on December 12.

The draft guidelines, based on the Usha Thorat Committee report, also seek to make mandatory for all deposit-taking NBFCs to obtain credit rating.

Appointment of CEOs of NBFCs with asset size of Rs.1,000 crore and above would require the RBI approval, it added.

“In the interest of good governance and the sensitivities associated with NBFCs... such companies, whether listed or not, will need to comply with Clause 49 of SEBI’s listing agreement on corporate governance including induction of independent directors,” the draft said.

The draft norms said existing unrated NBFCs-D will be given one year to get rated, “thereafter, they would not be allowed to accept any fresh deposits or renew existing deposits, till they get themselves rated,” it said.

On change in control or transfer of shareholding, the draft said that all registered NBFCs should take prior approval from the RBI where there is a change in control and increase of shareholding to the extent of 25 per cent by individuals or groups, directly or indirectly.

Regarding non-performing assets (NPAs), the RBI has proposed that asset classification and provisioning norms should be made similar to that of banks for all registered NBFCs irrespective of the size.

At present, the period for classifying loans into NPAs in case of NBFCs is higher at 180/360 days compared to 90 days for banks.

The RBI has sought stakeholder comments on the draft norms by January 10.

Reserve Bank tightens norms for issue of debit cards

The Reserve Bank of India (RBI) on December 12 stipulated that debit cards would be issued to customers having Savings Bank and Current Accounts but not to cash credit or loan account holders.

Banks may issue only online debit cards, including co-branded debit cards where there is an immediate debit to the customers’ account, and where straight through processing is involved, RBI said.

“Banks are, henceforth, not permitted to issue offline-debit cards. Banks which are now issuing offline debit cards may conduct a review of their offline debit card operations and discontinue operations of such cards within a period of six months from the date of this circular,” RBI said in a notification to all banks.

Banks were also asked to ensure that customers were duly informed regarding switching over to online debit cards. However, till such time as offline cards were phased out, the outstanding balances / unspent balances stored on the cards would be subject to computation of reserve requirements.

Banks should undertake review of their operations/issue of debit cards on half-yearly basis. The review would include, inter-alia, card usage analysis, including cards not used for long durations due to their inherent risks.

Banking Glossary

ATM
An automated teller machine (ATM) is a machine in which a customer can use his card along with PIN to get cash, information and other services.
Bank Guarantee
Bank guarantee is a promise by a bank on behalf of its customer to a third party to pay an amount specified in the guarantee deed in case the customer fails to perform the obligation as stipulated in the deed.
Banking Ombudsman
Banking Ombudsman is an independent dispute resolution authority set up by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.
Bills
Bills are financial negotiable instruments such as Bills of Exchange or Promissory Notes. Bill of Exchange is issued by a seller to his buyer directing him to make payment for the goods supplied/ services rendered. Bill in the form of a promissory note is issued by a buyer to his seller undertaking to make payment for the goods received/ services rendered.
Bill Purchase / Discounting
Bill purchase / discounting are modes of extending credit to the seller of goods who has raised demand / usance bill of exchange. Demand bills are purchased and usance bills are discounted.
Card
Card is a general term for any plastic card, which a customer may use to pay for goods and services or to withdraw cash. In this Code, it includes ATM/ Smart/Debit/Credit cards.
Cash Credit/Overdraft
Cash credit/overdraft is a form of credit facility in which a borrower is sanctioned a pre- arranged limit with the freedom to borrow as much money as he requires. In case of flow of credit to the account, he can withdraw afresh subject to the limit sanctioned. As such, the limit works as a revolving line of credit. Bank charges interest on the outstanding balances.
Cash losses
Cash losses mean net losses minus depreciation.
Cheque Collection Policy
Cheque Collection Policy refers to the policy followed by a bank in respect of various local and outstation cheques and instruments deposited with the bank for credit to an account.
Compensation Policy
Compensation Policy refers to the policy followed by a bank for compensating its customers for the financial losses incurred by them (the customers) due to the acts of omission or commission on the part of the bank.
Credit facilities/ Bank Loan
Credit facilities from the bank may be in the form of a term loan or in the form of overdraft or cash credit that is extended by a bank to its customer for a specified period and he is charged interest on the outstanding balances.
Credit Information Companies (CICs)
Credit Information Companies are companies formed and registered under the Companies Act, 1956 and which have been granted a Certificate of Registration by the Reserve Bank. These companies are empowered to collect data on credit from credit institutions who are its members and disseminate
the same after analysis, to its members and specified users.
Current Account
A form of demand deposit wherefrom withdrawals are allowed any number of times depending upon the balance in the account or up to a particular agreed amount.
Customer
An MSE or its authorised representative who has an account with a bank or who avails of other products/ services from a bank.
Deceased account
A Deceased account is a deposit account in which case either the single account holder has deceased or in case of joint accounts one or more of joint account holders has/have deceased.
Demat accounts
A Demat account refers to dematerialised account and is an account in which the stocks of investors are held in electronic form.
Deposit Accounts
• “Savings deposits” means a form of demand deposit which is subject to restrictions as to the number of withdrawals as also the amounts of withdrawals permitted by the bank during any specified period.
• “Term deposit” means a deposit received by the bank for a fixed period withdrawable only after the expiry of the fixed period and includes deposits such as Recurring/Short Deposits/Fixed Deposits/ Monthly Income Certificate/Quarterly Income Certificate etc.
• “Notice Deposit” means term deposit for specific period but withdrawable on giving at least one complete banking day’s notice.
Electronic Clearing Service
The Electronic Clearing Service (ECS) is an online transmission system which permits the electronic transmission of payment information by the banks/branches to the Automated Clearing House (ACH) via a communication network.
Electronic Funds Transfer
Electronic Funds Transfer (EFT) is a scheme introduced by RBI to help banks to offer their customers facility of transfer of funds from account to account from one bank branch to another in places where EFT service is available.
Equity
Equity means a part of capital of a corporate entity that is represented by the shares of the company whether in physical or dematerialised form.
Factoring
Factoring is a financial option for the management of receivables. It is the conversion of credit sales into cash.
Government bond
Government bond means a security, created and issued by the Central or State Government for raising a public loan.
Guarantee
A promise given by a person.
Improper conduct of account 
Issuing of cheque on the account without sufficient balance in the account; frequent returns of inward / outward cheques in the account; account has been overdrawn, or the account holder has exceeded its agreed credit limit; non compliance of KYC procedure; fraud/malfeasance or fraudulent intention exhibited by the customer; suspicious transactions/ engagement in money laundering activity under the scope of PMLA Act, 2002 etc. are instances of improper conduct of account.
Letter of Credit
A letter of credit is a document issued by a bank, which usually provides an irrevocable undertaking for payment to a beneficiary against submission of documents as stated in the Letter of Credit.
Mail
Mail is a letter in a physical or electronic form.
Merchant Services
Merchant services generally refer to merchant accounts allowed to trading and service establishments for acceptance of payments through credit/ debit cards. The cards may be accepted over the counter through card terminals i.e. Point of Sale (POS) machines or over phone or through internet.
Micro and Small Enterprises
Micro and Small Enterprises are those enterprises engaged in manufacturing or rendering services.
A micro enterprise is defined as:
An enterprise engaged in the manufacture or production of goods pertaining to any industry where the investment in plant and machinery does not exceed Rs. 25 lakh
or
An enterprise engaged in rendering services where investment in equipment does not exceed Rs. 10 lakh.
A small enterprise is defined as :
An enterprise engaged in manufacture or production of goods pertaining to any industry where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore
or
An enterprise engaged in rendering services where investment in equipment is more than Rs. 10 lakh but does not exceed Rs. 2 crore.
National Electronic Funds Transfer
National Electronic Funds Transfer (NEFT) system is a nation-wide funds transfer system to facilitate transfer of funds from one bank branch to any other bank branch in the country.
Net worth
Net worth means sum of Capital and free reserves minus accumulated losses.
Nomination Facility
The nomination facility enables the bank to: make payment to the nominee of a deceased depositor, of the amount standing to the credit of the depositor, return to the nominee, the articles left by a deceased person in the bank’s safe custody, release to the nominee of the hirer, the contents of a safety locker, in the event of death of the hirer.
Non-Fund based facility
Non-fund based facilities are such facilities extended by banks which do not involve outgo of funds from the bank when the customer avails the facilities but may at a later date crystallise into financial liability if the customer fails to honour the commitment made by availing these facilities. Non-fund based facilities are generally extended in the form of Bank Guarantees, Acceptances and Letters of Credit.
Non Performing Asset
A Non Performing Asset (NPA) is a loan or an advance where
i) interest and/ or installment of principal remain overdue for a period of more than 90 days in respect of a term loan.
ii) the account remains ‘out of order’ in respect of an Overdraft/Cash Credit (OD/CC).
iii) the bill remains overdue for a period of more than 90 days in the case of bills purchased or discounted.
Originator
An organisation which collects payments from a customer’s account in line with customer’s instructions.
Other Security Information
A selection of personal facts and information (in an order which the customer knows), which may be used for identification when using accounts.
Out-of-date (stale) cheque
A cheque, which has not been paid because the date written on the cheque is a date exceeding three months from the time of its presentation.
‘Out of Order’ status
An account should be treated as ‘out of order’ if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as ‘out of order’.
Overdue
Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.
PAN
The Permanent Account Number (PAN) is an all India unique Number having ten alphanumeric characters allotted by the Income Tax Department, Government of India. It is issued in the form of a laminated card. It is permanent and will not change with change of address of the assessee or change of Assessing Officer.
Password
A word or a set of numbers or an alphanumeric combination for an access code, which the customer has chosen, to allow him to use a phone or Internet banking service. It is also used for identification.
Payment and Settlement System
Payment and Settlement System means financial system creating the means for transferring money between suppliers and user of funds usually by exchanging debits or credits among financial institutions.
PIN
A confidential number, use of which along with a card allows customers to pay for articles/services, withdraw cash and use other electronic services offered by the bank.
Real Time Gross Settlement
The acronym ‘RTGS’ stands for Real Time Gross Settlement. RTGS system offers the fastest means of transfer of funds through banking channel. Settlement of transactions under RTGS takes place on one-to-one basis, which is termed as ‘Gross’ settlement and in ‘real time’ i.e. without any waiting period.
Reasonable
Governed by or being in accordance with reason and sound thinking; being within the bounds of common sense; not excessive or extreme.
Repossession
Repossession is the process by which a creditor with a loan secured on house or goods (e.g. car) takes possession of the security, if the debtor does not repay as per the terms of the loan agreement.
Rehabilitation Package
Rehabilitation package is the package drawn for the rehabilitation of a sick unit. The package has to be drawn in accordance with the RBI stipulations and it usually consists of
i) Working Capital with relaxation in the rate of interest in terms of regulatory guidelines
ii) Funded Interest Term Loan
iii) Working Capital Term Loan
iv) Term Loan
v) Contingency Loan Assistance
Smart Cards
A smart card is a plastic card about the size of a credit card, with an embedded microchip which can process data. It provides a secure way of identification, authentication and storage of data. It can be used for telephone calling, electronic cash payments, and other applications.
Security
Represents assets used as support for a loan or other liability. In the event of the borrower defaulting on the loan, the lender bank can claim these assets in lieu of the sum owed.
Primary security is the asset created out of the credit facility extended to the borrower and / or which is directly associated with the business / project of the borrower for which the credit facility has been extended.
Collateral security is any other security offered for the said credit facility. For example, hypothecation of jewellery, mortgage of house etc. Services
i) In respect of small and micro service enterprises, services refer to small road and water transport operators, small business, professional and self-employed persons, and all other service enterprises.
ii) Services rendered by the banks include various facilities like remittance (issue of DDs, MTs, TTs etc), receipt and payment of cash, exchange of notes and foreign exchange etc. provided by the banks to the customers.
Sick Unit
Sick unit refers to a unit whose account has remained substandard for more than six months or there has been erosion in net worth due to accumulated cash losses to the extent of 50% of the net worth during the previous accounting year and the unit has been in commercial production for at least
two years.
Substandard
A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months.
Tariff Schedule
The schedule containing charges levied by a bank on the products and services offered by it to its customers.
Unpaid Cheque
This is a cheque, which is returned ‘unpaid’ (bounced) by the drawee bank.

Banking Codes and Standards Board of India

In November 2003, RBI constituted the Committee on Procedures and Performance Audit of Public Services under the Chairmanship of Shri S.S.Tarapore (former Deputy Governor) to address the issues relating to availability of adequate Banking Services to common man. The mandate to the Committee included identification of factors that inhibited the attainment of best customer services and suggesting steps to improve the quality of banking services to individual customers. The Committee felt that in an effort to continuously upgrade the package of services that banks offered to their customers there was a need of benchmarking of such services. After in depth study at the grass root level the Committee concluded that there was an institutional gap for measuring the performance of banks against a bench mark reflecting the best practices (Code and Standards). Therefore, the Committee recommended setting up of the Banking Codes and Standards Board of India broadly on the lines of Banking Codes and Standards Board functioning in U.K.

Among the existing institutional structures, the Scheme of Banking Ombudsman, which has been functioning for quite some time, does not look into systemic issues with a view to enforcing a prescribed quality of service. Ideally, such a function should be performed by a Self Regulatory Organisation (SRO) but in view of the existing framework of the banking sector in India, it was felt that an independent, autonomous Board will be best suited for the function. Therefore, Dr. Y.V. Reddy, Governor, Reserve Bank of India, in his Monetary Policy Statement (April 2005) announced setting up of the banking Codes and standards Board of India in order to ensure that comprehensive code of conduct for fair treatment of customers was evolved and adhered to.

The Banking Codes and Standards Board of India has been registered as a separate society under the Societies Registration Act, 1860. Therefore, it would function as an independent and autonomous body.

The Banking Codes and Standards Board of India is not a Department of the RBI. Reserve Bank has agreed to lend it financial support for a limited period. It is an independent banking industry watch dog to ensure that the consumer of banking services get what they are promised by the banks.

To ensure that the Board really functions as an autonomous and independent watchdog of the industry, the Reserve Bank also decided to extend financial support to the Board by way of meeting its full expenses for the first five years. This was to enable the Board to reach its economic critical mass that will make it truly independent in its functioning and take a view on any bank without its existence coming under any threat. On its part, RBI would derive supervisory comfort in case of banks which are members of the Board. In substance, the Board has been set up to ensure that common man as a consumer of financial services from the banking Industry is in a no way at a disadvantageous position and really gets what it has been promised.