Scheduled And Non-Scheduled Banks In India the central banking authority is the Reserve Bank of India. It is also referred to as the Apex Bank. It functions under an act called The Reserve Bank of India Act, 1934. All the banks and other financial institutions operating in India come under the monitoring and control of RBI. RBI controls the banking sector in India through an Act called The Banking Regulations Act 1949. In the past, when there were very few banks, RBI used to include all the scheduled banks in its schedule. Nowaday, when the number of banks has gone up substantially, RBI has to change the schedule every now and then, hence irrespective of whether a bank finds its name in the schedule to the RBI Act or not, its schedule status can be found out from its banking licence. A Bank that is not a scheduled bank is referred to as non scheduled bank even in it is having banking licence. The difference lies in the type of banking activities that a bank can carry out in India. In the case of a scheduled bank, it is licensed by the RBI to carry on extensive banking operations including foreign exchange operations, whereas, a non-scheduled bank can carry out only limited operations. There are a number of factors considered by RBI to declare a bank as a scheduled bank, like the amount of share capital, type of banking activities that the bank is permitted to carry out etc. An example of difference between a scheduled and non-scheduled bank is dealing in Foreign Exchange.

Commercial And Co-operative Banks Commercial banks are by far the most widespread banking institutions in India. They provide major products and services in India. A commercial bank is run on commercial lines, for profits of the organization. A co-operative bank on the other hand is run for the benefit of a group of members of the co-operative body. A co-operative bank distributes only a very small portion of its profit as dividend, retaining a major portion of it in business. All the nationalized banks in India and almost all the private sector banks are commercial scheduled banks. There are a large number of private sector co-operative banks and most of them are non-scheduled banks. In the public sector also, within a state, starting from the State capital, there are State Co-operative Banks and District Central Co-operative Banks at the District level. Under the District Central Co-operative Bank, there are Co-operative Societies. At present, In India, the banks can be bifurcated into following categories. Public Sector Banks or Nationalized Banks, which are commercial and scheduled Examples: State Bank of India, Bank of India etc. Public Sector Banks, which are co-operative and non-scheduled-These are state owned banks like the Maharashtra State Co-operative Bank, Junnar Co-operative Society etc.

Private Sector Banks, which are commercial and scheduled-These could be foreign banks, as well as Indian Banks. Examples: Foreign Banks- CITI Bank, Standard Chartered Bank etc. Indian Banks Bank of Rajasthan Limited, VYSYA Bank Limited etc.

Private Sector Banks, which are co-operative and scheduled These are large co-operative sector banks but which are scheduled banks. Examples: Saraswat Co-operative Bank Limited, Cosmos Co-operative Bank Limited etc.

Private Sector Banks, which are co-operative and non-scheduled-These are small co-operative banks but which are non-scheduled. Examples: Local co-operative banks which operate within a town or a city. Example: Mahesh Sahakari Bank Limited.

Regional Rural Banks. These are state owned. These banks have been established with a view to developing the rural economy by providing, for the purpose of development of agriculture, trade, commerce, industry and other productive activities in the rural areas, credit and other facilities, particularly to the small and marginal farmers, agricultural labourers and artisans and small entrepreneurs

Gramin Banks, that are also state owned. They operate at still smaller level than RRBs and serve at villages level.

Foreign banks, These banks have Head Office outside India and branch in India, Besides, the Reserve Bank of India (hereinafter referred to as RBI) acts as the central bank of the country. RBI is responsible for development and supervision of the constituents of the Indian financial system (which comprises banks and non-banking financial institutions) as well as for determining, in conjunction with the central Government, the monetary and credit policies. They are also controlled by RBI.

Retail Banking Vs Wholesale Banking Whole sale banking typically involves a small number of very large customers such as big corporations and governments, whereas retail banking consists of a large number of small customers who consume personal banking and small business services. Wholesale banking is largely inter-bank; banks use the inter-bank markets to borrow from or lend to other banks/ large customers, to participate in large bond issues and to engage in syndicated lending. Retail banking is largely intra-bank; the bank itself makes many small loans.

Most of the Indian public sector banks practice retail banking; they are slowly practising the concept of wholesale banking. On the other hand, most of the wellestablished foreign banks in India and the recent private sector banks practice wholesale banking alongside retail banking.

As a result of this difference, the composition of income for a public sector bank is different. While a major portion of the income for large public sector banks is from lending operations, in the case of any private sector bank in India, the amount of non-operating income (other than interest income) is substantially higher. The composition of other income is commission on bills/ guarantees/ letters of credit, counselling fees, syndication fees, credit report fees, loan processing fees, correspondent bank charges etc. Global Banking Global Banking activities are an extension of various activities listed above into the international market. Global banking primarily consists of trade in international banking services and establishment of branches and subsidiaries in foreign countries.

Special Kinds Of Bank Branches Most Banks in India have special kind of branches. This is done to reap benefits of specialisation as activities done by these braches are quite complex and require specialised knowledge and attention. Types of some special branches are 1. Foreign exchange branches 2. NPA recovery branches 3. Service branches dealing in Clearing house operations/Corporate banking and Industrial finance branches 4. Personal banking branches 5. Housing finance branch 6. SSI branches 7. Agricultural finance branches

http://www.caclubindia.com/books/statutory_bank_branch_audit/Chapter2.asp

Capital

Capital Funds

Equity contribution of owners. The basic approach of capital adequacy framework is that a bank should have sufficient capital to provide a stable resource to absorb any losses arising from the risks in its business. Capital is divided into different tiers according to the characteristics / qualities of each qualifying instrument. For supervisory purposes capital is split into two categories: Tier I and Tier II.

Tier I Capital

A term used to refer to one of the components of regulatory capital. It consists mainly of share capital and disclosed reserves (minus goodwill, if any). Tier I items are deemed to be of the highest quality because they are fully available to cover losses Hence it is also termed as core capital.

Tier II Capital

Refers to one of the components of regulatory capital. Also known as supplementary capital, it consists of certain reserves and certain types of subordinated debt. Tier II items qualify as regulatory capital to the extent that they can be used to absorb losses arising from a bank's activities. Tier II's capital loss absorption capacity is lower than that of Tier I capital.

Revaluation reserves

Revaluation reserves are a part of Tier-II capital. These reserves arise from revaluation of assets that are undervalued on the bank's books, typically bank premises and marketable securities. The extent to which the revaluation reserves can be relied upon as a cushion for unexpected losses depends mainly upon the level of certainty that can be placed on estimates of the market values of the relevant assets and the subsequent deterioration in values under difficult market conditions or in a forced sale.

Leverage

Ratio of assets to capital.

Capital reserves

That portion of a company's profits not paid out as dividends to shareholders. They are also known as undistributable reserves and are ploughed back into the business.

Deferred Tax Assets

Unabsorbed depreciation and carry forward of losses which can be set-off against future taxable income which is considered as timing differences result in deferred tax assets. The deferred Tax Assets are accounted as per the Accounting Standard 22.

Deferred Tax Liabilities

Deferred tax liabilities have an effect of increasing future year's income tax payments, which indicates that they are accrued income taxes and meet definition of liabilities.

Subordinated debt

Refers to the status of the debt. In the event of the bankruptcy or liquidation of the debtor, subordinated debt only has a secondary claim on repayments, after other debt has been repaid.

Hybrid debt capital instruments

In this category, fall a number of capital instruments, which combine certain characteristics of equity and certain characteristics of debt. Each has a particular feature, which can be considered to affect its quality as capital. Where these instruments have close similarities to equity, in particular when they are able to support losses on an ongoing basis without triggering liquidation, they may be included in Tier II capital.

BASEL Committee on Banking Supervision

The BASEL Committee is a committee of bank supervisors consisting of members from each of the G10 countries. The Committee is a forum for discussion on the handling of specific supervisory problems. It coordinates the sharing of supervisory responsibilities among national authorities in respect of banks' foreign establishments with the aim of ensuring effective supervision of banks' activities worldwide.

BASEL Capital accord

The BASEL Capital Accord is an Agreement concluded among country representatives in 1988 to develop standardised risk-based capital requirements for banks across countries. The Accord was replaced with a new capital adequacy framework (BASEL II), published in June 2004. BASEL II is based on three mutually reinforcing pillars hat allow banks and supervisors to evaluate properly the various risks that banks face. These three pillars are:Minimum capital requirements, which seek to refine the present measurement frameworksupervisory review of an institution's capital adequacy and internal assessment process;market discipline through effective disclosure to encourage safe and sound banking practices

Risk Weighted Asset

The notional amount of the asset is multiplied by the risk weight assigned to the asset to arrive at the risk weighted asset number. Risk weight for different assets vary e.g. 0% on a Government Dated Security and 20% on a AAA rated foreign bank etc.

CRAR(Capital to Risk Weighted Assets Ratio)

Capital to risk weighted assets ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets for credit risk, market risk and operational risk. The higher the CRAR of a bank the better capitalized it is.

Credit Risk

The risk that a party to a contractual agreement or transaction will be unable to meet its obligations or will default on commitments. Credit risk can be associated with almost any financial transaction. BASEL-II provides two options for measurement of capital charge for credit risk1.standardised approach (SA) - Under the SA, the banks use a risk-weighting schedule for measuring the credit risk of its assets by assigning risk weights based on the rating assigned by the external credit rating agencies.2. Internal rating based approach (IRB) - The IRB approach, on the other hand, allows banks to use their own internal ratings of counterparties and exposures, which permit a finer differentiation of risk for various exposures and hence delivers capital requirements that are better aligned to the degree of risks. The IRB approaches are of two types:a) Foundation IRB (FIRB):The bank estimates the Probability of Default (PD) associated with each borrower, and the supervisor supplies other inputs such as Loss Given Default (LGD) and Exposure At Default (EAD).b) Advanced IRB (AIRB):In addition to Probability of Default (PD), the bank estimates other inputs such as EAD and LGD. The requirements for this approach are more exacting. The adoption of advanced approaches would require the banks to meet minimum requirements relating to internal ratings at the outset and on an ongoing basis such as those relating to the design of the rating system, operations, controls, corporate governance, and estimation and validation of credit risk components, viz., PD for both FIRB and AIRB and LGD and EAD for AIRB. The banks should have, at the minimum, PD data for five years and LGD and EAD data for seven years. In India, banks have been advised to compute capital requirements for credit risk adopting the SA.

Market risk

Market risk is defined as the risk of loss arising from movements in market prices or rates away from the rates or prices set out in a transaction or agreement. The capital charge for market risk was introduced by the BASEL Committee on Banking Supervision through the Market Risk Amendment of January 1996 to the capital accord of 1988 (BASEL I Framework). There are two methodologies available to estimate the capital requirement to cover market risks:1) The Standardised Measurement Method: This method, currently implemented by the Reserve Bank, adopts a building block approach for interest-rate related and equity instruments which differentiate capital requirements for specific risk from those of general market risk. The specific risk charge is designed to protect against an adverse movement in the price of an individual security due to factors related to the individual issuer. The general market risk charge is designed to protect against the interest rate risk in the portfolio.2) The Internal Models Approach (IMA): This method enables banks to use their proprietary in-house method which must meet the qualitative and quantitative criteria set out by the BCBS and is subject to the explicit approval of the supervisory authority.

Operational Risk

The revised BASEL II framework offers the following three approaches for estimating capital charges for operational risk:1) The Basic Indicator Approach (BIA): This approach sets a charge for operational risk as a fixed percentage ("alpha factor") of a single indicator, which serves as a proxy for the banks risk exposure.2) The Standardised Approach (SA): This approach requires that the institution separate its operations into eight standard business lines, and the capital charge for each business line is calculated by multiplying gross income of that business line by a factor (denoted beta) assigned to that business line.3) Advanced Measurement Approach (AMA): Under this approach, the regulatory capital requirement will equal the risk measure generated by the banks internal operational risk measurement system. In India, the banks have been advised to adopt the BIA to estimate the capital charge for operational risk and 15% of average gross income of last three years is taken for calculating capital charge for operational risk.

Internal Capital Adequacy Assessment Process (ICAAP)

In terms of the guidelines on BASEL II, the banks are required to have a board-approved policy on internal capital adequacy assessment process (ICAAP) to assess the capital requirement as per ICAAP at the solo as well as consolidated level. The ICAAP is required to form an integral part of the management and decision-making culture of a bank. ICAAP document is required to clearly demarcate the quantifiable and qualitatively assessed risks. The ICAAP is also required to include stress tests and scenario analyses, to be conducted periodically, particularly in respect of the banks material risk exposures, in order to evaluate the potential vulnerability of the bank to some unlikely but plausible events or movements in the market conditions that could have an adverse impact on the banks capital.

Supervisory Review Process (SRP)

Supervisory review process envisages the establishment of suitable risk management systems in banks and their review by the supervisory authority. The objective of the SRP is to ensure that the banks have adequate capital to support all the risks in their business as also to encourage them to develop and use better risk management techniques for monitoring and managing their risks.

Market Discipline

Market Discipline seeks to achieve increased transparency through expanded disclosure requirements for banks.

Credit risk mitigation

Techniques used to mitigate the credit risks through exposure being collateralised in whole or in part with cash or securities or guaranteed by a third party.

Mortgage Back Security

A bond-type security in which the collateral is provided by a pool of mortgages. Income from the underlying mortgages is used to meet interest and principal repayments.

Derivative

A derivative instrument derives its value from an underlying product. There are basically three derivativesa) Forward Contract- A forward contract is an agreement between two parties to buy or sell an agreed amount of a commodity or financial instrument at an agreed price, for delivery on an agreed future date. Future Contract- Is a standardized exchange tradable forward contract executed at an exchange. In contrast to a futures contract, a forward contract is not transferable or exchange tradable, its terms are not standardized and no margin is exchanged. The buyer of the forward contract is said to be long on the contract and the seller is said to be short on the contract.b) Options- An option is a contract which grants the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset, commodity, currency or financial instrument at an agreed rate (exercise price) on or before an agreed date (expiry or settlement date). The buyer pays the seller an amount called the premium in exchange for this right. This premium is the price of the option.c) Swaps- Is an agreement to exchange future cash flow at pre-specified Intervals. Typically one cash flow is based on a variable price and other on affixed one.

Duration

Duration (Macaulay duration) measures the price volatility of fixed income securities. It is often used in the comparison of interest rate risk between securities with different coupons and different maturities. It is defined as the weighted average time to cash flows of a bond where the weights are nothing but the present value of the cash flows themselves. It is expressed in years. The duration of a fixed income security is always shorter than its term to maturity, except in the case of zero coupon securities where they are the same.

Modified Duration

Modified Duration = Macaulay Duration/ (1+y/m), where y is the yield (%), m is the number of times compounding occurs in a year. For example if interest is paid twice a year m=2. Modified Duration is a measure of the percentage change in price of a bond for a 1% change in yield.

Non Performing Assets (NPA)

An asset, including a leased asset, becomes non performing when it ceases to generate income for the bank.

Net NPA

Gross NPA (Balance in Interest Suspense account + DICGC/ECGC claims received and held pending adjustment + Part payment received and kept in suspense account + Total provisions held).

Coverage Ratio

Equity minus net NPA divided by total assets minus intangible assets.

Slippage Ratio

(Fresh accretion of NPAs during the year/Total standard assets at the beginning of the year)*100

Restructuring

A restructured account is one where the bank, grants to the borrower concessions that the bank would not otherwise consider. Restructuring would normally involve modification of terms of the advances/securities, which would generally include, among others, alteration of repayment period/ repayable amount/ the amount of installments and rate of interest. It is a mechanism to nurture an otherwise viable unit, which has been adversely impacted, back to health.

Substandard Assets

A substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardize the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.

Doubtful Asset

An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, - on the basis of currently known facts, conditions and values - highly questionable and improbable.

Loss Asset

A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value.

Off Balance Sheet Exposure

Off-Balance Sheet exposures refer to the business activities of a bank that generally do not involve booking assets (loans) and taking deposits. Off-balance sheet activities normally generate fees, but produce liabilities or assets that are deferred or contingent and thus, do not appear on the institution's balance sheet until and unless they become actual assets or liabilities.

Current Exposure Method

The credit equivalent amount of a market related off-balance sheet transaction is calculated using the current exposure method by adding the current credit exposure to the potential future credit exposure of these contracts. Current credit exposure is defined as the sum of the positive mark to market value of a contract. The Current Exposure Method requires periodical calculation of the current credit exposure by marking the contracts to market, thus capturing the current credit exposure. Potential future credit exposure is determined by multiplying the notional principal amount of each of these contracts irrespective of whether the contract has a zero, positive or negative mark-to-market value by the relevant add-on factor prescribed by RBI, according to the nature and residual maturity of the instrument.

Earnings

Total income

Sum of interest/discount earned, commission, exchange, brokerage and other operating income.

Total operating expenses

Sum of interest expended, staff expenses and other overheads.

Operating profit before provisions

Net of total income and total operating expenses.

Net operating profit

Operating profit before provision minus provision for loan losses, depreciation in investments, write off and other provisions.

Profit before tax (PBT)

(Net operating profit +/- realized gains/losses on sale of assets)

Profit after tax (PAT)

Profit before tax provision for tax.

Retained earnings

Profit after tax dividend paid/proposed.

Average Yield

(Interest and discount earned/average interest earning assets)*100

Average cost

(Interest expended on deposits and borrowings/Average interest bearing liabilities)*100

Return on Asset (ROA)- After Tax

Return on Assets (ROA) is a profitability ratio which indicates the net profit (net income) generated on total assets. It is computed by dividing net income by average total assets. Formula- (Profit after tax/Av. Total assets)*100

Return on equity (ROE)- After Tax

Return on Equity (ROE) is a ratio relating net profit (net income) to shareholders equity. Here the equity refers to share capital reserves and surplus of the bank. Formula- Profit after tax/(Total equity + Total equity at the end of previous year)/2}*100

Accretion to equity

(Retained earnings/Total equity at the end of previous year)*100

Net Non-Interest Income

The differential (surplus or deficit) between non-interest income and non-interest expenses as a percentage to average total assets.

Net Interest Income ( NII)

The NII is the difference between the interest income and the interest expenses.

Net Interest Margin

Net interest margin is the net interest income divided by average interest earning assets.

Cost income ratio (Efficiency ratio)

The cost income ratio reflects the extent to which non-interest expenses of a bank make a charge on the net total income (total income interest expense). The lower the ratio, the more efficient is the bank. Formula: Non interest expenditure / Net Total Income * 100.

Funds and Investment

CASA Deposit

Deposit in bank in current and Savings account.

High Cost Deposit

Deposits accepted above card rate (for the deposits) of the bank.

Liquid Assets

Liquid assets consists of: cash, balances with RBI, balances in current accounts with banks, money at call and short notice, inter-bank placements due within 30 days and securities under held for trading and available for sale categories excluding securities that do not have ready market.

Funding Volatility Ratio

Liquid assets [as above] to current and savings deposits - (Higher the ratio, the better)

Market Liability Ratio

Inter-bank and money market deposit liabilities to Average Total Assets

ALM

Asset Liability Management (ALM) is concerned with strategic balance sheet management involving all market risks. It also deals with liquidity management, funds management, trading and capital planning.

ALCO

Asset-Liability Management Committee (ALCO) is a strategic decision making body, formulating and overseeing the function of asset liability management (ALM) of a bank.

Banking Book

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

Venture Capital Fund

A fund set up for the purpose of investing in startup businesses that is perceived to have excellent growth prospects but does not have access to capital markets.

Held Till Maturity(HTM)

The securities acquired by the banks with the intention to hold them up to maturity.

Held for Trading(HFT)

Securities where the intention is to trade by taking advantage of short-term price / interest rate movements.

Available for Sale(AFS)

The securities available for sale are those securities where the intention of the bank is neither to trade nor to hold till maturity. These securities are valued at the fair value which is determined by reference to the best available source of current market quotations or other data relative to current value.

Yield to maturity (YTM) or Yield

The Yield to maturity (YTM) is the yield promised to the bondholder on the assumption that the bond will be held to maturity and coupon payments will be reinvested at the YTM. It is a measure of the return of the bond.

Convexity

This represents the rate of change of duration. It is the difference between actual price of a bond and the price estimated by modified duration.

Foreign Currency Convertible Bond

A bond issued in foreign currency abroad giving the investor the option to convert the bond into equity at a fixed conversion price or as per a pre-determined pricing formula.

Trading Book

Investments in trading book are held for generating profits on the short term differences in prices/yields. Held for trading (HFT) and Available for sale (AFS) category constitute trading book.

CRR

Cash reserve ratio is the cash parked by the banks in their specified current account maintained with RBI.

SLR

Statutory liquidity ratio is in the form of cash (book value), gold (current market value) and balances in unencumbered approved securities.

Stress testing

Stress testing is used to evaluate a banks potential vulnerability to certain unlikely but plausible events or movements in financial variables. The vulnerability is usually measured with reference to the banks profitability and /or capital adequacy.

Scenario Analysis

A method in which the earnings or value impact is computed for different interest rate scenario.

LIBOR

London Inter Bank Offered Rate. The interest rate at which banks offer to lend funds in the interbank market.

Basis Point

Is one hundredth of one percent. 1 basis point means 0.01%. Used for measuring change in interest rate/yield.

Fraud

Frauds have been classified as under, based mainly on the provisions of the Indian Penal Code(a) Misappropriation and criminal breach of trust.(b) Fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property.(c) Unauthorised credit facilities extended for reward or for illegal gratification.(d) Negligence and cash shortages.(e) Cheating and forgery.(f) Irregularities in foreign exchange transactions.(g) Any other type of fraud not coming under the specific heads as above.

Asset Securitisation

Securitization

A process by which a single asset or a pool of assets are transferred from the balance sheet of the originator (bank) to a bankruptcy remote SPV (trust) in return for an immediate cash payment.

Special Purpose Vehicle (SPV)

An entity which may be a trust, company or other entity constituted or established by a Deed or Agreement for a specific purpose.

Bankruptcy remote

The legal position with reference to the creation of the SPV should be such that the SPV and its assets would not be touched in case the originator of the securitization goes bankrupt and its assets are liquidated.

Credit enhancement

These are the facilities offered to an SPV to cover the probable losses from the pool of securitized assets. It is a credit risk cover given by the originator or a third party and meant for the investors in any securitization process.

Custodian

An entity, usually a bank that actually holds the receivables as agent and bailee of the trustee.

First loss facility

First level of credit enhancement offered to an SPV as part of the process in bringing the securities issued by SPV to investment grade.

Second loss facility

Credit enhancement providing the second or subsequent tier of protection to an SPV against potential losses.

Value at Risk (VAR)

VAR is a single number (currency amount) which estimates the maximum expected loss of a portfolio over a given time horizon (the holding period) and at a given confidence level. VaR is defined as an estimate of potential loss in a position or asset/liability or portfolio of assets/liabilities over a given holding period at a given level of certainty. The following are the three main methodologies used to calculate VaR: Parametric Estimates Estimates VaR using parameters such as volatility and correlation. Accurate for traditional assets and linear derivatives, but less accurate for non linear derivatives. Monte Carlo simulation- Estimates VaR by simulating random scenarios and revaluing positions in the portfolio. Appropriate for all types of instruments, linear and nonlinear. Historical simulation- Estimates VaR by reliving history; takes actual historical rates and revalues positions for each change in the market

Commercial real estate

commercial real estate is defined as fund based and non-fund based exposures secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction etc.)

NDS-OM Web

Primary Member (PM)

A member of NDS-OM (having Constituent Subsidiary General Ledger (CSGL) and current account with RBI) who authorizes their Gilt Account Holders to have direct access to the web enabled NDS-OM system.

Gilt Account Holders (GAHs)

Non-NDS members who have gilt account and current account with PMs are termed as GAHs. GAHs permitted by RBI include NBFCs, Provident Funds, Pension Funds, Mutual Funds, Insurance Companies, Cooperative Banks, Regional Rural Banks, Trusts, Corporates, Individuals etc.

Dedicated URL ndsind.com

Dedicated URL is a secure site, i.e., https// accessible only through deployment of requisite digital certificates and tokens (for non-repudiation of transactions). The issuance and management of digital certificates and security tokens would be the responsibility of the PM as part of GAH creation and activation process. Regular renewals thereof would also be the PMs responsibility.

Digital Certificates and e-tokens (PM)

Digital certificates are digital signatures to be obtained by PM from any Government Recognized Certifying Authority designated by RBI, on behalf of GAH. For added security, the certificates need to be installed in an e-token as per specifications approved. The digital certificate and token specifications needs to be SHA 2 (2048 bit) compliant. Without the Digital certificate and e-token, the GAH cannot log in to the NDS OM web based module. The Primary member will be responsible for obtaining/renewal and intimating revocation to RBI/CCIL of the Digital Certificate for such GAH users.

NDS OM Administrator (CCIL; NDS OM Admin)

The Administrator (CCIL) is the person who creates and activates the GAH in the web-based system on the request of the PM and also authorizes the employees of GAH (GAH Users created by PM) to access the system by generating login and password.

Authorized Users of Gilt Account Holder (GAH User)

Once GAH is created as a client of PM in the web-based system by CCIL (the NDS OM Admin), Users of GAH are created by PM and later authorized by CCIL to access and operate the system. While authorizing, CCIL generates the login ID and password for the GAH Users and forwards the same to PM. PM in turn forwards the same to GAH to enable its employees (GAH Users) to log-in to the Web Based Application (https://www.ndsind.com).

Client Head (PM)

The Client Head is the super user at the PM end. Only Client Head has privileges to perform actions like create GAH users, modify users, suspend users, unlock, log-off users, reset the login password of users, set risk limits & take action on client bids etc. Only one user is possible in every PM environment.

Transactional User (GAH)

These are GAH employees (GAH Users) who are authorized by PM to place, modify, cancel their bids, view status of their bids and view the limits set by the PM & along with the current utilization.

View Only User (GAH)

These are GAH employees (GAH Users) who have been provided with View only rights by the PM. These employees have an aggregated view of all the activities and risk limits of all transactional users under the respective GAH. It also includes view of issuance details and aggregate view of bidding and allocation details of all transactional users.

Single Order Limit (SOL) for Trades

SOL shall mean the maximum order quantity (in terms of face value) that can be placed by the concerned user through a single order.

Price/Yield Range Settings for Trades

NDS-OM Web shall validate that the price/yield of every order placed by a GAH user is within the range specified by the Primary Member vis--vis the last traded price/yield for the concerned security in the specific market.

Security Stock Balances Settings for Trades

Primary Members shall update the Security Stock Balances for each of their GAH. Once input, NDS-OM shall automatically update the security balances based on activity undertaken on NDS-OM Web on the same lines as that of NDS-OM. Adequacy of available free balances for each security shall be validated before accepting a sale order(s) for any security. If the balance is not adequate, the respective sale order shall be rejected.

Activity Control Settings for Trades

Primary Members shall assign Buy and / or Sell privileges to each of the Transactional Users of their GAH through activity control settings.

Funding Limits Settings for Trades

Funding limits for trades represent the net aggregate settlement consideration amount up to which the concerned GAH can accumulate net long fund positions arising out of trades concluded on NDS-OM Web. This control shall be set for every GAH at the GAH user level. This limit constitutes a trading limit which shall get reinstated at the beginning of every trading session for every GAH.

Turnover Limits for Trades

Turnover limits represent the gross amount in face value terms computed by aggregating individual "buys" + "sells" orders inputted on behalf of a GAH across all its users. This value is expressed in consideration terms of the underlying security instrument and shall reflect the total aggregate value that can be undertaken by the GAH for that trading session. This control shall be set for every GAH at the user level. This limit constitutes a trading limit which shall get reinstated at the beginning of every trading session for every GAH;

Acceleration - A standard clause in a mortgage instrument permitting the lender to demand full payment of principal from the borrower upon default of the obligation Account History - The payment history of an account over a specified period of time, including the number of times the account was past due or over limit. Bank Guarantee - Bank Guarantee could be a finance guarantee or a performance guarantee. Under finance guarantee, the bank guarantees the beneficiaries (The person named in the guarantee to receive the guaranteed sum under stated circumstances), certain amount on behalf of its customers who has commercial relationship with the beneficiary. Under performance guarantee, the bank guarantees performance of a contract or goods/ services supplied under a contract by its customers. However, even in the later case, if its customers fail to deliver, it settles the claim of the beneficiary in money terms only; the bank does not fulfil the contract, obligation of its customer. Bank Statement - A periodic record of a customer's account that is issued at regular intervals, showing all transactions recorded for the period in question. Bill - Usually mistaken for commercial invoice. Actually bill in the banking parlance means a bill of exchange drawn by a seller on the buyer whenever he sells goods or services on payment later basis. Such a transaction is also referred to as a credit transaction. The bill is routed through the bank for collection of amount from the buyer. Commercial invoice is a part of the document submitted to the bank by the seller. A bill of exchange is an order made to the buyer by the seller that in exchange for the goods or services sold by him on credit, the buyer is required to pay on a specific date a certain amount with or without interest to him or to any other directed party. Cash Credit - A credit facility under which a customer draws up to the preset limit, subject to availability of sufficient security with the bank. The difference between an overdraft and cash credit account is that while the former is extended more to individuals, and less for business, the latter is extended only to business bodies. The cash credit facility is unique to India, as in most of the countries it is called overdraft. Further the cash credit facility is more or less on a permanent basis so long as the business is going on. Internationally at the end of specific period the overdraft facility is withdrawn and the customer is required to pay back the amount lent by the bank. The purpose of cash credit is for working capital. The operations are similar to overdraft. Cash Reserve Ratio - Called in short CRR. Suppose a bank has total deposits of Rs.100 Bn and is required to maintain a CRR of say 5%. This means that the bank should maintain in current accounts with the central bank or any other approved bank balances, not less than Rs. 5 Bn. This much amount is impounded and kept in the free form. And the bank cannot lend this money. This acts as a buffer to the bank. In India, RBI decides from time to time and at present it is 5% of the deposits, held by the bank. Credit Report - It is called by different names. At times it is referred to as credit information report. At other times it is also called customers confidential report. Bankers report also means the same. With the growth of commerce within a country and abroad, most of the times, trade is done with the organizations about which you are in the dark. The banker provides good platform for knowing something about the business enterprise with which you are likely to deal. There are accepted abbreviations internationally for denoting the soundness or the lack of it of a business enterprise. These abbreviations are commonly used in such reports. You can seek confidential informations about your prospective customers about whom you do not have sufficient knowledge. The banker provides this information for a fee which includes the fees that they have to remit to international credit agencies. Daily Product Basis - This is the basis on which interest is usually determined on credit facilities, like loan, overdraft, cash credit etc. for this; the basis is 365 days in a year. Some banks do take 360 days in a year also. There is no hard and fast rule in this behalf. e.g A bank has given a customer an overdraft facility to the extent of Rs.10,000/- for 45 days at 6% p.a. on a daily product basis the interest is determined as under. Step No 1. 10000*45 days= known as product= 450000 Step No 2. Determination of annual average as rate of Interest is on annual basis i.e. 450000/365=Rs. 1233/-. This means that on a 365 days per year basis, drawing Rs. 10000/- for 45 days is equivalent to drawing Rs. 1233/- through out the year, i.e. on annual basis. Step No 3. Calculation of interest at 6% p.a is equal to 1233*0.06= Rs. 73.98. This means that by adopting daily product basis we are converting the amount drawn for a period less than a year to its annual equivalent so that the rate of Interest, which is universally on annual basis can be applied to determine the quantum of interest. Discount - Less than face value. If the value of the bill is Rs. 100/- and in case the bank gives the finance against the same, the amount of finance will be less than Rs. 100/-, say Rs. 98/-. Rs 98 is the discounted value of the bill for Rs. 100/-, while the difference of Rs. 2/- is known as discount. Discount is the interest recovered upfront, especially in the case of those bills for which payment will be forthcoming after a specific or extended period. Letter of Credit - Seller A enters into contract with Buyer B. One of the terms of supply is that buyer will establish a letter of credit in favour of the seller through his bank. The buyer approaches his bank, which, on certain conditions, agrees to extend this facility. Under this facility, the buyers bank gives commitment of payment to the seller through his bank. The commitment is dependent upon the seller fulfilling specific conditions as per the L/C. The conditions are: The seller should furnish proof of dispatch of goods or services and submit all the documents required under the L/C. Then, the buyers bank will pay the amount of bill drawn by the seller on the buyer under this agreement. International letter of credit are by and large, irrevocable (cannot be cancelled by the buyer without the consent from the seller). Loan - A lump-sum amount given to the customers, either in one installment or in two or three installments, and repayment over a period of time in monthly or quarterly, or half yearly or annual (very rarely) installments. Interest may be recovered separately from the customer who is called borrower or combined with the installment. In case it is combined with the installment it is called equated installment. If interest is recovered separately it is usually on a quarterly basis. Loans against property and for the purpose of owning flats/ apartments/ houses are known as mortgage loans. Margin Money Margin money is like a security deposit retained by the bank till the loan is fully settled. The banks sanction the credit limit after retaining a margin on the value of the security offered. The percentage of margin requirements varies as per RBI guidelines. Monthly Product Basis - In India, in the savings account, the product is taken on a monthly basis; the rule is interest is paid on the minimum balance in the account between the 10th and the last day of every month. This means that any credit to the account after the tenth of the month is ignored for the particular month, while debit is taken into account. Accordingly let us say for example. The following minimum credit balances in the savings account earning 3.5 % pa interest in India January, 20051000 February, 2005 800 March, 2005150 April, 2005250 May, 2005300 June, 2005 300 Suppose the Interest is payable every half-year and accordingly this customer will be entitled to 1.75 % for the half year ending June 2005. In order to determine the correct half yearly interest, you need to find out the annual equivalent of the deposit that the customer has kept in his savings account. Then divide the sum of the monthly products by 12. The annual equivalent amount is RS 233.33 and the interest at 3.5% p.a. for the half year on this work out to be Rs 8.17. This is the way the interest is found out on a monthly product basis. Overdraft - An extension of current account in which the customer is allowed to withdraw more than the credit balance lying in the account. This may be a temporary accommodation to tide over temporary cash crunch or on a regular basis. If permitted on a regular basis, withdrawals are allowed up to a ceiling (called a limit), subject to availability of sufficient security with the bank. In case the overdraft is given to the business enterprises and it is for day-to-day operations, it is known as working capital. Remittance A facility, by which its customers at one place makes funds available to the bank and the bank in exchange, makes the funds available to the customer or any other specified party at the required place, within the same country or abroad. Remittance can be in the form of Demand Draft (DD), mail Transfer (MT), Telegraphic Transfer (TT), Electronic mail transfer (EMT) through computer networking (or satellite channel), International Money Order (IMO) etc. Repayment Holiday - Whenever a loan is taken especially for acquiring fixed assets, the repayment does not start immediately. It starts after the fixed assets starts giving a return especially in the case of business enterprises. This is not so in the case of personal loans. The period during which there is no repayment is known as repayment holiday period. This is also known as moratorium period. The period is longer in the case of industrial loans and minimum or absent in case of personal loans. It should be noted that during this period, Interest is charged and there is no period on non-levy of interest. Although there may be a period of non-recovery of Interest. That is interest although levied, not recovered for a specific period. Again if this is the case interest on interest is recovered. RTGS refers to the settlement system where, settlement of payments on an individual order basis are done on continuous basis, without netting debits with credits across the books of a central bank. RTGS system is also defined as a gross settlement system, in which both processing and final settlement of funds transfer instructions take place continuously (i.e. on real time basis).Thus we can say that RTGS system reduces settlement risk because inter-bank settlements are done throughout the day, rather than just at the end of the day. One of the main attraction of the RTGS systems is that payee banks and their customers receive fundswith certainty, or so-called finality, during the day, enabling them to use the funds immediately without exposing themselves to risk. RTGS is a system where both the processing and final settlement take place on real time basis. RTGS is regarded as the centerpiece of an integrated payments system.Settlement risk refers tothe risk whena settlement (in a transfer system)does not take place as expected. This can happen due to various reasons, e.g.one party may default on its clearing obligations to one or more counter parties. Thus, settlement risk consists of two components namelycredit and liquidity risks. Credit risk arises when a counter party fails to meet an obligation for full value on due date and thereafter Statutory Reserve Ratio Called in short SLR. In the above example, suppose the bank is supposed to maintain SLR of 25%, this means that over and above CRR the bank is expected to keep aside an amount of Rs. 25 Bn. This will be kept in easy-toencash securities like, treasury bills of the government and any other approved securities. In India at present it is 25%. This again acts as buffer to the bank and prevents the bank from lending the entire amounts of deposits kept with it by various customers. Stock & Receivables Audit is one of the most important aspects of the overall exercise of audit of any organization. In stock and receivable audit, auditor ensures himself about the quantity, quality, composition and actual value of the stock and the debtors. Syndication Making arrangement for loans for borrowers. Should not be confused for granting of loans. The bank may or may not participate in the loan process, but would assume responsibility for getting in principle sanction from all participating banks and financial institutions. Syndication fees are part of non-interest income as no funds are involved in the activity. For example. An Indian company wants a foreign currency loan of 100 mn Rs. Making arrangement for this is known as syndication. Even if the arranging bank participates in the loan, by granting a portion of it, syndication is different from it. It gets paid separately for this activity.

Read more at:http://www.caclubindia.com/books/statutory_bank_branch_audit/Chapter3.asp

Organisational StructureThe entire organised banking system comprises of scheduled and non-scheduled banks. Largely, this segment comprises of the scheduled banks, with the unscheduled ones forming a very small component. Banking needs of the financially excluded population is catered to by other unorganised entities distinct from banks, such as, moneylenders, pawnbrokers and indigenous bankers.Scheduled BanksA scheduled bank is a bank that is listed under the second schedule of the RBI Act, 1934. In order to be included under this schedule of the RBI Act, banks have to fulfill certain conditions such as having a paid up capital and reserves of at least 0.5 million and satisfying the Reserve Bank that its affairs are not being conducted in a manner prejudicial to the interests of its depositors. Scheduled banks are further classified into commercial and cooperative banks. The basic difference between scheduled commercial banks and scheduled cooperative banks is in their holding pattern. Scheduled cooperative banks are cooperative credit institutions that are registered under the Cooperative Societies Act. These banks work according to the cooperative principles of mutual assistance.Scheduled Commercial Banks (SCBs):Scheduled commercial banks (SCBs) account for a major proportion of the business of the scheduled banks. As at end-March, 2009, 80 SCBs were operational in India. SCBs in India are categorized into the five groups based on their ownership and/or their nature of operations. State Bank of India and its six associates (excluding State Bank of Saurashtra, which has been merged with the SBI with effect from August 13, 2008) are recognised as a separate category of SCBs, because of the distinct statutes (SBI Act, 1955 and SBI Subsidiary Banks Act, 1959) that govern them. Nationalised banks (10) and SBI and associates (7), together form the public sector banks group and control around 70% of the total credit and deposits businesses in India. IDBI ltd. has been included in the nationalised banks group since December 2004. Private sector banks include the old private sector banks and the new generation private sector banks- which were incorporated according to the revised guidelines issued by the RBI regarding the entry of private sector banks in 1993. As at end-March 2009, there were 15 old and 7 new generation private sector banks operating in India.Foreign banks are present in the country either through complete branch/subsidiary route presence or through their representative offices. At end-June 2009, 32 foreign banks were operating in India with 293 branches. Besides, 43 foreign banks were also operating in India through representative offices.

Regional Rural Banks (RRBs) were set up in September 1975 in order to develop the rural economy by providing banking services in such areas by combining the cooperative specialty of local orientation and the sound resource base which is the characteristic of commercial banks. RRBs have a unique structure, in the sense that their equity holding is jointly held by the central government, the concerned state government and the sponsor bank (in the ratio 50:15:35), which is responsible for assisting the RRB by providing financial, managerial and training aid and also subscribing to its share capital.Between 1975 and 1987, 196 RRBs were established. RRBs have grown in geographical coverage, reaching out to increasing number of rural clientele. At the end of June 2008, they covered 585 out of the 622 districts of the country. Despite growing in geographical coverage, the number of RRBs operational in the country has been declining over the past five years due to rapid consolidation among them. As a result of state wise amalgamation of RRBs sponsored by the same sponsor bank, the number of RRBs fell to 86 by end March 2009.Scheduled Cooperative Banks:Scheduled cooperative banks in India can be broadly classified into urban credit cooperative institutions and rural cooperative credit institutions. Rural cooperative banks undertake long term as well as short term lending. Credit cooperatives in most states have a three tier structure (primary, district and state level).Non-Scheduled Banks:Non-scheduled banks also function in the Indian banking space, in the form of Local Area Banks (LAB). As at end-March 2009 there were only 4 LABs operating in India. Local area banks are banks that are set up under the scheme announced by the government of India in 1996, for the establishment of new private banks of a local nature; with jurisdiction over a maximum of three contiguous districts. LABs aid in the mobilisation of funds of rural and semi urban districts. Six LABs were originally licensed, but the license of one of them was cancelled due to irregularities in operations, and the other was amalgamated with Bank of Baroda in 2004 due to its weak financial position.Business SegmentationThe entire range of banking operations are segmented into four broad heads- retail banking businesses, wholesale banking businesses, treasury operations and other banking activities. Banks have dedicated business units and branches for retail banking, wholesale banking (divided again into large corporate, mid corporate) etc.

Retail bankingIt includes exposures to individuals or small businesses. Retail banking activities are identified based on four criteria of orientation, granularity, product criterion and low value of individual exposures. In essence, these qualifiers imply that retail exposures should be to individuals or small businesses (whose annual turnover is limited to Rs. 0.50 billion) and could take any form of credit like cash credit, overdrafts etc. Retail banking exposures to one entity is limited to the extent of 0.2% of the total retail portfolio of the bank or the absolute limit of Rs. 50 million. Retail banking products on the liability side includes all types of deposit accounts and mortgages and loans (personal, housing, educational etc) on the assets side of banks. It also includes other ancillary products and services like credit cards, demat accounts etc.The retail portfolio of banks accounted for around 21.3% of the total loans and advances of SCBs as at end-March 2009. The major component of the retail portfolio of banks is housing loans, followed by auto loans. Retail banking segment is a well diversified business segment. Most banks have a significant portion of their business contributed by retail banking activities. The largest players in retail banking in India are ICICI Bank, SBI, PNB, BOI, HDFC and Canara Bank.Among the large banks, ICICI bank is a major player in the retail banking space which has had definitive strategies in place to boost its retail portfolio. It has a strong focus on movement towards cheaper channels of distribution, which is vital for the transaction intensive retail business. SBIs retail business is also fast growing and a strategic business unit for the bank. Among the smaller banks, many have a visible presence especially in the auto loans business. Among these banks the reliance on their respective retail portfolio is high, as many of these banks have advance portfolios that are concentrated in certain usages, such as auto or consumer durables. Foreign banks have had a somewhat restricted retail portfolio till recently. However, they are fast expanding in this business segment. The retail banking industry is likely to see a high competition scenario in the near future.Wholesale bankingWholesale banking includes high ticket exposures primarily to corporates. Internal processes of most banks classify wholesale banking into mid corporates and large corporates according to the size of exposure to the clients. A large portion of wholesale banking clients also account for off balance sheet businesses. Hedging solutions form a significant portion of exposures coming from corporates. Hence, wholesale banking clients are strategic for the banks with the view to gain other business from them. Various forms of financing, like project finance, leasing finance, finance for working capital, term finance etc form part of wholesale banking transactions. Syndication services and merchant banking services are also provided to wholesale clients in addition to the variety of products and services offered.Wholesale banking is also a well diversified banking vertical. Most banks have a presence in wholesale banking. But this vertical is largely dominated by large Indian banks. While a large portion of the business of foreign banks comes from wholesale banking, their market share is still smaller than that of the larger Indian banks. A number of large private players among Indian banks are also very active in this segment. Among the players with the largest footprint in the wholesale banking space are SBI, ICICI Bank, IDBI Bank, Canara Bank, Bank of India, Punjab National Bank and Central Bank of India. Bank of Baroda has also been exhibiting quite robust results from its wholesale banking operations.Treasury OperationsTreasury operations include investments in debt market (sovereign and corporate), equity market, mutual funds, derivatives, and trading and forex operations. These functions can be proprietary activities, or can be undertaken on customers account. Treasury operations are important for managing the funding of the bank. Apart from core banking activities, which comprises primarily of lending, deposit taking functions and services; treasury income is a significant component of the earnings of banks. Treasury deals with the entire investment portfolio of banks (categories of HTM, AFS and HFT) and provides a range of products and services that deal primarily with foreign exchange, derivatives and securities. Treasury involves the front office (dealing room), mid office (risk management including independent reporting to the asset liability committee) and back office (settlement of deals executed, statutory funds management etc).Other Banking BusinessesThis is considered as a residual category which includes all those businesses of banks that do not fall under any of the aforesaid categories. This category includes para banking activities like hire purchase activities, leasing business, merchant banking, factoring activities etc.Products of the Banking IndustryThe products of the banking industry broadly include deposit products, credit products and customized banking services. Most banks offer the same kind of products with minor variations. The basic differentiation is attained through quality of service and the delivery channels that are adopted. Apart from the generic products like deposits (demand deposits current, savings and term deposits), loans and advances (short term and long term loans) and services, there have been innovations in terms and products such as the flexible term deposit, convertible savings deposit (wherein idle cash in savings account can be transferred to a fixed deposit), etc. Innovations have been increasingly directed towards the delivery channels used, with the focus shifting towards ATM transactions, phone and internet banking. Product differentiating services have been attached to most products, such as debit/ATM cards, credit cards, nomination and demat services.

Other banking products include fee-based services that provide non-interest income to the banks. Corporate fee-based services offered by banks include treasury products; cash management services; letter of credit and bank guarantee; bill discounting; factoring and forfeiting services; foreign exchange services; merchant banking; leasing; credit rating; underwriting and custodial services. Retail fee-based services include remittances and payment facilities, wealth management, trading facilities and other value added services.Bank rate[edit]RBI lends (no collateral required for long term lendings) to the commercial banks through its discount window to help the banks meet depositors' demands and reserve requirements for long term. The interest rate the RBI charges the banks for this purpose is called bank rate. If the RBI wants to increase the liquidity and money supply in the market, it will decrease the bank rate and if RBI wants to reduce the liquidity and money supply in the system, it will increase the bank rate. The bank rate has lost its significance as a monetary policy tool as the central bank signals stance through changes in repo, the rate at which banks borrow short-term funds from RBI. The Bank Rate, which is the standard rate at which the RBI buys or re-discount bills of exchange or other commercial paper, is presently usedReserve requirement cash reserve ratio (CRR)[edit]Every commercial bank has to keep certain minimum cash reserves withReserve Bank of India. Consequent upon amendment to sub-Section 42(1), the Reserve Bank, having regard to the needs of securing the monetary stability in the country, RBI can prescribe Cash Reserve Ratio (CRR) for scheduled banks without any floor rate or ceiling rate. Before the enactment of this amendment, in terms of Section 42(1) of the RBI Act, the Reserve Bank could prescribe CRR for scheduled banks between 5% and 20% of total of their demand and time liabilities. RBI uses this tool to increase or decrease the reserve requirement depending on whether it wants to effect a decrease or an increase in the money supply. An increase in Cash Reserve Ratio (CRR) will make it mandatory on the part of the banks to hold a large proportion of their deposits in the form of deposits with the RBI. This will reduce the size of their deposits and they will lend less. This will in turn decrease the money supply.Statutory liquidity ratio (SLR)[edit]Apart from the CRR, banks are required to maintain liquid assets in the form of gold, cash and approved securities. Higher liquidity ratio forces commercial banks to maintain a larger proportion of their resources in liquid form and thus reduces their capacity to grant loans and advances, thus it is an anti-inflationary impact. A higher liquidity ratio diverts the bank funds from loans and advances to investment in government and approved securities. In well-developed economies, central banks use open market operationsbuying and selling of eligible securities by central bank in the money marketto influence the volume of cash reserves with commercial banks and thus influence the volume of loans and advances they can make to the commercial and industrial sectors. In the open money market, government securities are traded at market related rates of interest. The RBI is resorting more to open market operations in the more recent years. Generally RBI uses three kinds of selective credit controls:1. Minimum margins for lending against specific securities.2. Ceiling on the amounts of credit for certain purposes.3. Discriminatory rate of interest charged on certain types of advances.Direct credit controls in India are of three types:1. Part of the interest rate structure, i.e., on small savings and provident funds, are administratively set.2. Banks are mandatory required to keep 22% of their deposits in the form of government securities.3. Banks are required to lend to the priority sectors to the extent of 40% of their advances.

REVERSE REPO RATE:

Reverse repo rate is the rate at which the central bank of a country (RBI in case of India) borrows money from commercial banks within the country.

Definition:Reverse repo rate is the rate at which the central bank of a country (Reserve Bank of India in case of India) borrows money from commercial banks within the country. It is a monetary policy instrument which can be used to control the money supply in the country.

Description:An increase in the reverse repo rate will decrease the money supply and vice-versa, other things remaining constant. An increase in reverse repo rate means that commercial banks will get more incentives to park their funds with the RBI, thereby decreasing the supply of money in the market.MARGINAL STANDING FACILITY RATE:MSF rate is the rate at which banks borrow funds overnight from the Reserve Bank of India (RBI) against approved government securities. This came into effect in may 2011. Under the Marginal Standing Facility (MSF), currently banks avail funds from theRBIon overnight basis against their excess statutory liquidity ratio (SLR) holdings. Additionally, they can also avail funds on overnight basis below the stipulatedSLRup to 2.5% of their respective Net Demand and Time Liabilities (NDTL) outstanding at the end of second preceding fortnight.

BASE RATE:The Base Rate is the minimum interest rate of a Bank below which it cannot lend, except in cases allowed by RBI.CURRENT RATESPOLICY RATES:BANK RATE : 9.0%REPORATE:8.0%REVERSEREPORATE:7.0%MARGINAL STANDING FACILITY RATE:9.0%RESERVE RATIOS:SLR: 22%CRR: 4%LENDING/DEPOSIT RATE:BASE RATE: 10 10.25SAVINGS DEPOSIT RATE:4TERM DEPOSIT RATE: 8 9.05