BANKING TERMS PART 1

      

--------BANKING AWARENESS BY B.K SHARMA-------

(PO IN VIJAYA BANK)

BANKING : Definition of Banking Business ‘Banking’ as defined in the Section 5 (b) of the Banking Regulations Act, 1949 is the business of "Accepting deposits of money from the public for the purpose of lending or investment". These deposits are repayable on demand or otherwise, and withdrawable by a cheque, draft, order or otherwise.

The deposits accepted by a Banking Company are different from those accepted by Non Banking Finance Company or any other company in the nature in which these are repayable. Banks are the only financial institutes which can accept demand deposits (Saving / Current) which can be withdrawn by a cheque. Section 6 of Banking Regulations Act, 1949 elaborately specifies the other forms of business which a banking company may carry in addition to banking as defined in section 5. These include in a nutshell Issuing Demand Drafts & Travellers Cheques Collection of Cheques, Bills of exchange Discounting and purchase of Bills Safe Deposit Lockers Issuing Letters of Credit & Letters of Guarantee Sales and Purchase of Foreign Exchange Custodial Services Investment services

doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company; any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage. No banking company shall engage in any form of business other than those referred to above

---------BANKING AWARENESS BY B.K SHARMA---------

1. What is the business bank can not do? Bank can not trade in commodities , real estates , and can not accept deposit without payment of interest (except current account ) RBI has also recently advised the bank on 21 April2016 for not doing the IAS services( investment advisory services ) in the branches.

2. What is a Non-Banking Financial Company (NBFC)? A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 ( now 2013) engaged in the business of loans and advances, acquisition of shares/stocks/bonds/ debentures/securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale/purchase/construction of immovable property. A non-banking institution which is a company and has principal business of receiving deposits under any scheme or arrangement in one lump sum or in installments by way of contributions or in any other manner, is also a non-banking financial company (Residuary non-banking company). Capital required for depositing accepting company is Rs500 cr . and other Rs2 cr

3. NBFCs are doing functions similar to banks.

What is difference between banks & NBFCs ?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below: NBFC cannot accept demand deposits; NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself; deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation (DICGC) is not available to depositors of NBFCs, unlike in case of banks. But NBFC can accept term deposits fore more than one year and less then five year period . the maximum rate of interest can be paid 12.5% p.a

4 . What is Private Banking? Banking services offered to high net-worth individuals. Private banking institution assists the high net-worth individual in investing his/her money in exchange for commissions and fees. The term "private" refers to the customer service being rendered on a more personal basis.

---------BANKING AWARENESS BY B.K SHARMA---------

5. What is BSBDA? Under the guidelines issued on August 10, 2012 by RBI: Any individual, including poor or those from weaker section of the society, can open zero balance account in any bank.

BSBDA guidelines are applicable to "all scheduled commercial banks in India, including foreign banks having branches in India". All the accounts opened earlier as 'no-frills' account should be renamed as BSBDA. Banks are required to convert the existing 'no-frills' accounts’ into 'Basic Savings Bank Deposit Accounts'. The 'Basic Savings Bank Deposit Account' should be considered as a normal banking service available to all customers, through branches. The aim of introducing 'Basic Savings Bank Deposit Account' is very much part of the efforts of RBI for furthering Financial Inclusion objectives.

6. What is BPS (Basis Points)? BPS is an acronym for basic points is used to indicate changes in rate of interest and other financial instrument. 1 BASIC POINT IS EQUAL TO 0.01% when we say that repo rate has been increased by 25 bps,it means that the rate has been increased by 0.25%

7. What is Money Laundering? Money laundering is the processes of concealing the source of obtain money. Money or funds obtained through illegal activities are presented as legitimate. PMLA 2002

---------BANKING AWARENESS BY B.K SHARMA---------

8. What is KYC? The Reserve Bank of India (RBI) has advised banks to follow ‘KYC guidelines’, wherein certain personal information of the account- opening prospect or the customer is obtained. The objective of doing so is to enable the Bank to have positive identification of its customers. This is also in the interest of customers to safeguard their hard earned money. The KYC guidelines of RBI mandate banks to collect three proofs from their customers. They are- Photograph Proof of identity Proof of address Now Aadhar card is E KYC acceptable in opening of account .

9. What is SWIFT? Society for worldwide Interbank financial tele- communication. India was 74th Nation to join SWIFT Network. SWIFT Code is a standard format of bank Identifier code. This code is used particularly in International transfer of money between banks. A majority of FOREX related message are sent to correspondent banks abroad through SWIFT. SWIFT Code consist 8 or 11 character when code is 8 digit, It is referred to primary office 4 – bank code ,

2 – country code , 2 – location code , 3 – branch code (optional).

10. What LIBOR? LIBOR is the average interbank interest rate at which a selection of banks on the London money market are prepared to lend to one another. LIBOR comes in 7 maturities (from overnight to 12 months) and in 5 different currencies. The official LIBOR

interest rates are announced once per working day at around 11:45 a.m. In the past, the BBA/ICE published LIBOR rates for 5 more currencies (Swedish krona, Danish krone, Canadian dollar, Australian dollar and New Zealand dollar) and 8 more maturities (2 weeks, 4, 5, 7, 8, 9, 10 and 11 months). LIBOR is watched closely by both professionals and private individuals because the LIBOR interest rate is used as a base rate (benchmark) by banks and other financial institutions. Rises and falls in the LIBOR interest rates can therefore have consequences for the interest rates on all sorts of banking products such as savings accounts, mortgages and loans.

11.What is SIBOR & SOR? The SIBOR (Singapore Interbank Offered Rate) and SOR (Swap Offer Rate) rates are benchmark rates for property loans in Singapore (both residential and commercial)

BANKING AWARENESS BY B.K SHARMA (PO IN VIJAYA BANK)