Banking Terms

Banking Book

The banking book comprises assets and liabilities, which are contracted basically on account of relationship or for steady income and statutory obligations and are generally held till maturity.

These securities are accounted for in a different way than those in the trading book, which are traded on the market and valued by the performance of the market.

In other words, an accounting book that includes all securities that are not actively traded by the institution, that are meant to be held until they mature.

Bank Rate

The Bank Rate (BR) has been defined in See 49 of RBI Act 1934 as the 'standard rate at which RBI is prepared to buy or rediscount bills of exchange or other commercial papers eligible for purchase under this act'. The RBI uses its lending power to banks (a) to influence their credit allocation and (b) to develop a genuine bill market in India.

Also, it is called an official interest rate at which the central bank rediscounts the approved bills held by a commercial bank. If the central bank wishes to control credit and inflation, it will increase the bank rate.

CBS

• CBS stands for Core Banking Solutions.
• Core or centralized banking solution is a heart of banking system
• This is a process by which a bank has interconnect their maximum branches through wide area network and only this system provide a facility of any branch or any time banking.

ICOR

ICOR stands for Incremental Capital Output Ratio.

ICOR is the Ratio of investment to growth which equals to one, divided by the marginal product of Capital. The higher the ICOR indicates lower the productivity of capital and lower the ICOR reflects high productivity of Capital. ICOR is the topic or instrument by which the Economic growth rate of company decided.

ICOR is calculated as:

ICOR = ­Annual Investment/Annual Increase in GDP

Global Depository Receipt (GDR)

Global Depository Receipt is a bank certificate issued in more than one country for shares in a foreign company. These shares are held by a foreign branch of an International bank. These shares are trades as domestic shares but are offered for sale globally through the various bank branches. A GDR is a very similar to an American Depository Receipt.

Automatic Stabilizer

Automatic Stabilizer is program that enhances and diminishes automatically for equalizing current economic trends without assistance of government. The best example for automatic stabilizer is unemployment insurance as it automatically replaces the lost income for people who have lost their jobs.

Also, Automatic Stabilizers are features of the tax and transfer systems that tend by their design to offset fluctuations in economic activity without direct intervention by policymakers.

Selective Credit Control

Selective Credit Control (SCC) refers to the directives issued by RBI u/s 21 of Banking Regulation Act 1949 to regulate flow of bank credit against security of sensitive/selected commodities. With a view to prevent speculative holding of essential commodities with the help of bank credit, RBI issues from time to time, directive covering the margin requirements and the level and quantum of accommodation that could be granted against the SCC items.

Selective controls are designed to check the conduct of lenders only, they also influence the attitude of the borrowers, by prescribing the terms on which certain kinds of loans may be made.

BANKING AWARENESS PRACTICE QUESTIONS

1. A draft issued by the bank has been lost by the payee. He sends a letter to the issuing bank to stop payment. Bank will:
a) Note caution and will advice the payee to contact purchaser of the draft
b) Not act on the request
c) Stop payment
d) Performs no action
e) None of the above

2. Mutual funds are required to be registered with:
a) AMFI
b) SEBI
c) IBA
d) RBI
e) NABARD

3. What is Yield Curve Risk?
a) It is a line of graph plotting the yield of all maturities of a particular instrument
b) Yield curve changes its slope and shape from time to time
c) Yield curve can be twisted to the desired direction through the intervention of RBI
d) All of the above
e) None of the above

4. The biggest international financial centre in the world:
a) Frankfurt
b) Geneva
c) London
d) New York
e) Paris

5. The expansion of BIFR, in the context of the Indian Industry is:
a) Board for Industrial and Financial Reconstruction
b) Bureau for Industrial and Financial Reconstruction
c) Board for Investment and Financial Reconstruction
d) Bureau for Investment and Financial Reconstruction
e) None of these

6. The largest financial conglomerate of India is:
a) HDFC Bank
b) ICICI Bank
c) IFCI
d) SBI
e) None of these

7. Under which of the following methods of depreciation, amount of depreciation varies every
year?
a) Written Down Value Method
b) Straight Line Method
c) Amount of depreciation does not vary on year to year basis
d) Either a or b
e) None of these

8. Usually, the validity period of an Income Tax Refund Order is:
a) 1 month
b) 2 months
c) 3 months
d) 6 months
e) 4 months

9. Which of the following is true about "White Card"?
a) It is related to companies producing milk products
b) It does not carry on its face, the brand of the issuer
c) It is meant to covert blank money into the economy
d) It is a card that provides white money
e) None of these

10. First bank in India to launch its interactive banking service through Dish TV:
a) HSBC
b) ICICI Bank
c) HDFC Bank
d) Axis Bank
e) None of these

11. First Indian Governor of the RBI:
a) C.D. Deshmukh
b) Sachindra Ray
c) S. Mukherjee
d) D.I.G. Patel
e) None of the above

12. CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) has been set up on
the recommendations of:
a) Narashimham Committee
b) Ghosh Committee
c) Chore Committee
d) Kapoor Committee
e) Krishna Committee

13. The primary relationship between the banker and the customer is that of:
a) Trustee and beneficiary
b) Debtor and Creditor
c) Principal and agent
d) Lesser and lessee
e) None of these

14. A debt becomes time-barred after:
a) One year
b) Two and a half year
c) Three years
d) Five years
e) Six years

15. In the matter of handling bills of exchange for collection, the relationship between customer and
the bank is:
a) Trustee and the beneficiary
b) Principal and agent
c) Bailor and bailee
d) All of the above
e) None of the above

16. Hypothecation is:
a) A transaction of conditional sale
b) A legal transaction whereby goods may be made available as security for a debt
c) Transfer of ownership by the borrower to the lender
d) Either a or b
e) None of the above

17. Payment of a cheque may be countermanded by the ___
a) Payee
b) Drawer
c) True owner
d) Drawee
e) None of these

18. J.S. Verma Committee Report relates to:
a) Strengthening of weak banks
b) Corporate Governance
c) Bank Mechanization
d) All of the above
e) None of the above

19. AUsance Bill when presented for acceptance has to be accepted/ dishonoured within:
a) 24 hours
b) 36 hours
c) 48 hours
d) 60 hours
e) 26 hours

20. Invoice is a:
a) Accounting document
b) Legal document
c) Commercial document
d) All of the above
e) None of the above

21. When does a person become insolvent?
a) When he left with no property of his own
b) When he declares an insolvent by the Court
c) When he terminates from a job he was holding
d) When he declares himself to be an insolvent
e) None of the above

22. When two parties make an arrangement to exchange future cash flows, it is called:
a) Options
 b) Arbitrage
c) Swap
d) Futures
e) None of the above

23. Which of the following banks enjoys the reputation of being at the top in market capitalization among all the private banks?
a) ICICI Bank
b) HDFC Bank
c) Axis Bank
d) Yes Bank
e) IDBI Bank

24. "Claused Bill of Landing" is one which indicates:
a) Remaining constant in project cost
b) Escalation in Project Cost
c) Decrease in Project Cost
d) All of the above
e) None of the above

Answers:
1) a 2) b 3) d 4) c 5) a 6) d 7) a 8) c 9) b 10) c
11) a 12) d 13) b 14) c 15) b 16) b 17) b 18) a 19) c 20) c
21) b 22) c 23) b 24) b

Banking related developments during the year 2014

Kerala became first state with bank accounts for all families.

Federal Bank bagged CNBC TV18 Financial Inclusion Award.

ICICI Bank customer can recharge Delhi Metro cards with SMS.

Yes bank has recently launched 'Saaf suthra Bharat' campaign in Sri Nagar. The bank successfully launched this campaign contributing to the Swachch bharat abhiyan.

Axis Bank launches ''smart selfservice terminal'' that enables the customers to deposit as well as withdraw cash from the same machine.

Private sector Indus Ind Bank has launched video-branch, claiming to be a first-of-its-kind service; enabling customers interact with the staff of the bank through video conference facility.

ICICI bank has launched a new mobile named iMobile app for its windows phone customers.

The Reserve Bank of India has cancelled the certificate of registration of NBFCs (Siber Financial Services Private Limited, Sri Vishnu Finance & Investment Private Limited, Margdarsi Investment
and Leasing Company Private Limited.) for carrying on the business of non-banking financial institution.

CSR was made 2% compulsory through Companies Act 2013. RBI further simplifies KYC Norms regarding bank accounts as "One Documentary Proof of
Address is enough to open bank account".

Domestic banks will need US $200 billion additional capital over the next five years to meet Basel
- III norms for capital adequacy and the demand for funds as growth picks up, Fitch Ratings.

State bank of India has tied up with Bangalore-based mobile payments service provider Ezetap Mobile Solutions Pvt. Ltd. in association with Ezetap the bank has planned to roll out "ATM cum POS terminals".

Kotak Mahindra bank has introduced ''Kaypay payment system''. This allows the face book users to send money to each other.

Insurance Regulatory and Development Authority (IRDA) aligned it's corporate governance
and disclosure norms in accordance with the new Companies Act, 2013, through a 12-member
committee.

Non-Scheduled UCBs are permitted to "Internet Banking (View Only) Facility" for Customers.

Bank of India got approval to open branch in Vietnam.

As per the new guidelines of the Reserve Bank of India (RBI), banks in six metros - New Delhi,
Mumbai, Chennai, Kolkata, Hyderabad and Bangalore - are free to charge other bank customers
beyond 3 ATM transactions per month. Banks have also been allowed to restrict free
transactions to 5 for customers at it's own ATM network.

HDFC became first listed Indian company to have 75% shareholding by FIIs.

S&P (Standard and Poor) downgraded credit rating of Indian Overseas Bank to speculative grade.

FDI limits allowed - Public Sector Banks: 20%. Private Sector Banks: 74%.

Kotak Mahindra bank to acquire ING Vysya Bank.

RBI allows FIIs to buy equity in Yes Bank.

Exim Bank to set up Rs. 1,500 crore funds to assist ship-building industry. To give a boost to ship building in the country, the Export-Import Bank of India (Exim Bank) is planning to set PMJDY scheme, was announced in Modi's first Independence Day speech on 15 August 2014.