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Banking Ombudsman
1. What is the Banking Ombudsman Scheme?
The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995.
2. Who is a Banking Ombudsman?
The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.
3. How many Banking Ombudsmen have been appointed and where are they located?
As on date, fifteen Banking Ombudsmen have been appointed with their offices located mostly in state capitals. The addresses and contact details of the Banking Ombudsman offices have been provided in the annex.
4. Which are the banks covered under the Banking Ombudsman Scheme, 2006?
All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.
The Banking Ombudsman Scheme enables an expeditious and inexpensive forum to bank customers for resolution of complaints relating to certain services rendered by banks. The Banking Ombudsman Scheme is introduced under Section 35 A of the Banking Regulation Act, 1949 by RBI with effect from 1995.
2. Who is a Banking Ombudsman?
The Banking Ombudsman is a senior official appointed by the Reserve Bank of India to redress customer complaints against deficiency in certain banking services.
3. How many Banking Ombudsmen have been appointed and where are they located?
As on date, fifteen Banking Ombudsmen have been appointed with their offices located mostly in state capitals. The addresses and contact details of the Banking Ombudsman offices have been provided in the annex.
4. Which are the banks covered under the Banking Ombudsman Scheme, 2006?
All Scheduled Commercial Banks, Regional Rural Banks and Scheduled Primary Co-operative Banks are covered under the Scheme.
Foreign Exchange reserves
Total of a country's gold holdings and convertible foreign currencies held in its banks, plus special drawing rights (SDR) and exchange reserve balances with the International Monetary Fund (IMF).
Foreign Exchange reserves are maintained primarily to protect a country’s domestic currency from losing its value or, in other words, to avoid a currency crisis.
Just like other goods, a country’s currency can lose its value when demand for it falls or when there is excess supply of it. Such a situation may arise when investors do not want to stay invested in that country and want to transfer their funds out of that country or from the currency of that country. For example, suppose due to any reason a foreign investor wants to sell out his equity holdings in Indian companies and want to transfer these funds to the USA. In this case, he or she would convert the Indian rupees received by selling the equities into US dollars. If a large number of investors do this simultaneously while the reverse (fresh investments by foreign investors into Indian equities) is not happening, it will lead to a fall in the value of the rupee. Which is to say, it would lead to the depreciation of the Indian rupee against the dollar and there is a net outflow of dollars. Sometimes this depreciation (or need for devaluation) could be large in magnitude. Such instability in exchange rates and loss of confidence in the currency have an effect on the economy. So to avoid such sudden changes and to maintain confidence in the currency, reserves are maintained.
CASA
CASA ratio is the ratio of the deposits in the form of Current Account & Savings Account to the total deposits.. it should be higher for a bank because interest paid on savings account is very low and no interest is paid on current account deposits. In this way, the banks get money at low cost..
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How is CASA different from term and demand deposits?
Current and saving accounts remain operational. Depositors don't need to give prior notice to withdraw money, however, in case of term deposits, the money is locked in for a specific period. If a depositor wishes to withdraw the money before maturity, he may have to pay a fine. Usually, an overdraft facility is available with the current account deposit. Demand deposit gives you the facility to withdraw your money anytime.
Current and saving accounts remain operational. Depositors don't need to give prior notice to withdraw money, however, in case of term deposits, the money is locked in for a specific period. If a depositor wishes to withdraw the money before maturity, he may have to pay a fine. Usually, an overdraft facility is available with the current account deposit. Demand deposit gives you the facility to withdraw your money anytime.
How is it important for banks?
Islamic banking
Concepts of Islamic bank
Islamic bank is purely based on Islamic law. The most important feature of Islamic bank is prohibition on interest. According to Islamic law, accepting of interest is Haraam (means forbidden). Interest is represented as riba in Arabic language. Quran has a strong words (2: 275-279) against the acceptance of interest on the use of money capital.
Islamic banking does not allow charging of interest for loan. In Islamic banking, instead of giving the money to buyer for buying an item, the bank can directly buy the item from the seller and can resell to buyer with a profit. In case there is an delay in payment of monthly rentals, the bank can accept fine from borrower and can be used for public welfare. This concept is called Murabaha. They can also accept service charge from loan.
In the case of deposits, the bank can give rewards to person who puts their money on bank. It is known as Hibah. But this reward is not guaranteed. The bank has a choice to give this reward. Bank has a responsibility to give the exact amount back to the depositor.
Progress of Islamic bank in India
.
Islamic bank has not yet started in India. Many advocates are trying their best to create an Islamic bank in India. Under the legal formalities of RBI it is little bit difficult. Recently Prime Minister Manmohan Singh has asked the RBI to take a look at the demand for creating Islamic banking in India. In Kerala the first Islamic bank is going to start with good assistance from Kerala Government. Now it is running as non-banking finance company (NBFC).
Financial ratios
The overall financial health of a company can be captured by eight primary financial parameters: capital structure, interest coverage, debt service coverage, net worth, profitability margin, return on capital employed, net cash accrual to debt ratio and current ratio
. Other financial ratios such as asset turnover ratio, inventory turnover ratio, dividend pay out, debtor levels, and return on net worth are also important but the eight parameters are sufficient for a primary definition of a company’s overall financial risk profile.
. Other financial ratios such as asset turnover ratio, inventory turnover ratio, dividend pay out, debtor levels, and return on net worth are also important but the eight parameters are sufficient for a primary definition of a company’s overall financial risk profile.A company’s capital structure commonly referred to as gearing, leverage, or debt/equity ratio, reflects the extent of borrowed funds in the company’s funding mix. The equity component in a company’s capital employed has no fixed repayment obligations; returns to investors depend on the profits made by the company. Debt, on the other hand, carries specified contractual obligations of interest and principal. These will necessarily have to be honoured, in full, and on time, irrespective of the volatility witnessed in the business. A company’s capital structure is invariably a function of the strategy its management adopts.
Interest coverage represents the extent of cushion that a company has in meeting its interest obligations from surpluses generated from its operations. The interest coverage ratio links a company’s financial charges to its ability to service them from cash generated from operations.
The Debt service coverage ratio (DSCR) indicates a company’s ability to service its debt obligations, both principal and interest, from earnings generated from its operations. The textbook definition of DSCR assumes that debt repayment gets higher priority over working capital expansion. In practice, however, the priority is often reversed: working capital funding takes priority over other payments. Low DSCRs may not necessarily have an unfavourable impact on ratings; the company’s ability to replace its existing debt with fresh funds may act as a favourable factor.
A company’s net worth represents shareholders’ capital that does not have fixed repayment or servicing obligations. It therefore provides a cushion against adverse business conditions.
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Wholesale Banking
Wholesale banking is the provision of services by banks to the like of large corporate clients, mid-sized companies, real estate developers and investors, international trade finance businesses, institutional customers (such as pension funds and government entities/agencies), and services offered to other banks or other financial institutions. In essence, wholesale banking services usually involve high value transactions.
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Wholesale banking contrasts with retail banking, which is the provision of banking services to individuals.
(Wholesale finance means financial services, which are conducted between financial services companies and institutions such as banks, insurers, fund managers, and stockbrokers.)
Modern wholesale banks are engaged in: finance wholesaling, underwriting, market making, consultancy, mergers and acquisitions, fund management.
Universal Banking includes not only services related to savings and loans but also investments. However in practice the term ‘universal banks’ refers to those banks that offer a wide range of financial services, beyond commercial banking and investment banking, insurance etc. Universal banking is a combination of commercial banking, investment banking and various other activities including insurance. If specialised banking is the one end universal banking is the other. This is most common in European countries.
DEPOSITORY
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A Depository is like a bank where securities are held in electronic (dematerialised) form. In India, currently there are two Depositories -National Securities Depositories Limited (NSDL) and Central Depository Services Limited (CDSL). Under the Depositories Act, investors can avail of the services of the Depositories through Depository Participants (DP). DP's are like bank branches wherein legible securities in physical form need to be deposited for converting the same to electronic (demat) form. |
E-Banking
"E-Banking is an umbrella term for the process by which a customer may perform banking transactions electronically without visiting a brick-and-mortar institution."
Online banking or Internet banking
In simple terms it does not involve any physical exchange of money, but it’s all done electronically, from one account to another, using the Internet.
From a personal computer, you can access your bank account information, and perform many banking functions, like transferring money, making a loan payment.Once you register yourself on a bank website, you can view your accounts, credit card & home loan balances,Accrued interest, fees and taxes,Transaction details of each account,Pay bills,Transfer funds to third party accounts which you nominate,Open a deposit right from the terminal you are sitting at.However, till now Internet services in India only allows for a minimum level of interactivity such as answering e-mail queries,Feedback forms,Articles asking for readers’ opinion at the end
An accountholder, armed with a password, can use the Net to order a cheque book, stop payment of a cheque and spot the balance and individual operations in the account and transfer funds.
Net profit to awf: The ratio is a foolproof indicator of excellent utilization of resources and optimum leveraging of funds.
Net profit to net worth:The ratio is equivalent of the return on net worth ratio used in other industries. It is indicator of profitability and return on shareholders’ funds.
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Net profit to net worth:The ratio is equivalent of the return on net worth ratio used in other industries. It is indicator of profitability and return on shareholders’ funds.
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Operating profits to net worth This is a corollary to NP/NW ratio and is another indicator of shareholders’ return.
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Capital adequacy ratio This ratio relates a bank’s core net worth to its risk-weighted assets. The ratio is internationally accepted risk-driven measure of a bank’s degree of capitalization. A higher ratio indicates that a bank is well capitalized vis-a-vis its perceived risks. It is an excellent indicator of a bank’s long term solvency.
Risk adjusted net interest margin: is refinement of net intt. margin which factors into provisions made against loan losses. RANIM represents NII, net of provisions for probable loan losses as a percentage to total earning assets.
Business: is equal to aggregate deposits plus aggregate advances.
Cash cover-age ratio i.e. cash divided by total business liabilities X 100. An increasing trend signifies presence of more of idle investments.
Non-perform-ing advances ratio i.e. non-performing advances divided by total or net advances X 100. An increasing trend implies gradual increase in bad credit portfolio.
Total business growth ratio i.e. current period’s business divided by last period’s business. An increasing trend shows improvement.
Priority sector ratio i.e. PS advances divided by total advances X 100. The ratio shows the advances mix.
Aggregate deposits are the total deposits of a bank at the close of the accounting year. These include deposits from public and deposits from banks. From a different angle, the aggregate deposits equal the total of all demand and time deposits. A high deposit figure signifies a bank’s brand equity, branch network and deposit mobilisation strength.
Net profits are the profits net of provisions, amortization and taxes.
Operating profits Net profits before provisions and contingencies are called operating profits. This is an indicator of a bank’s profitability at the operating level.
Total debt: Total debt equals total borrowings plus aggregate deposits. Total borrowings include borrowings in India and outside India. In turn, borrowings in India include borrowings from RBI, borrowings from other banks and borrowings from other institutions and agencies. It indicates a bank’s propensity to leverage its net worth.
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Net worth This is aggregate of core equity capital and reserves and surplus. The net worth is tangible which is net of accumulated losses and unamortized preliminary expenses. It stands for the core strength of a bank and denotes a bank’s margin of safety, its cushion for all creditors and its base foundation.
Total debt to net worth: The ratio is expressed as a number. The corresponding ratio in a manufacturing company is termed the debt-equity ratio. This ratio denotes a bank’s degree of leveraging, relative to its net worth. A higher ratio is proof of bank’s ability to leverage its net worth effectively.
Gross advances These include overdraft, bills purchased, cash credit, loans and term loans including food credit. From a different angle, aggregate advances include advances inside India and advances outside India. When the food credit is reduced from the gross advances, it amounts to non-food credit.
Invest-ments Investments include investments in government securities, shares, bonds, commercial papers and debentures and other approved securities.
Interest income The sum total of discount, interest from loans, advances and investment and from balance with RBI and other interest flows.
Interest income to average working funds: Expressed as a percentage, this ratio shows a bank’s ability to leverage its average total resources in enhancing its main stream of operational interest income.
Non-interest income This is other income of a bank. It includes items such as exchange commission, brokerage, gains on sale and revaluation of investments and fixed assets and profits from exchange transactions.
Non-interest income to average working funds This ratio denotes a bank’s ability to earn from non-conventional sources. In a liberalized environment, this ratio assumes significance. For, it mirrors a bank’s ability to take full advantage of its operational freedom.
Operating expenses Equals the non-interest expenses. The operating expenses to AWF ratio explains the overall operational efficiency of a bank. In fact, this ratio is one of the indictors of profitability of a bank.
Interest spread: This is the excess of total interest earned over total interest expended. The ratio of interest spread to AWF: shows the efficiency of bank in managing and matching interest expenditure and interest income effectively. Interest spread is critical to a bank’s success as it exerts a strong influence on its bottom line.
Net spread: is an alternative term for operating profit in the banking industry. The net spread to AWF ratio reveals a lot about the overall operational efficiency of a bank.
1. SLR (Statutory Liquidity Ratio)
It is the amount any scheduled commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers. SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit.
According to RBI (SLR is defined as following):
In terms of Section 24 (2-A) of the B.R. Act, 1949 all Scheduled Commercial Banks, in addition to the average daily balance which they are required to maintain under Section 42 of the RBI Act, 1934, are required to maintain in India,
a) in cash, or
b) in gold valued at a price not exceeding the current market price,
or
c) in unencumbered approved securities valued at a price as specified by the RBI from time to time.
an amount of which shall not, at the close of the business on any day, be less than 25 per cent or such other percentage not exceeding 40 per cent as the RBI may from time to time, by notification in gazette of India, specify, of the total of its demand and time liabilities in India as on the last Friday of the second preceding fortnight
At present, all Scheduled Commercial Banks are required to maintain a uniform SLR of 24 per cent of the total of their demand and time liabilities in India as on the last Friday of the second preceding fortnight which is stipulated under section 24 of the B.R. Act, 1949.
What is the Need of SLR?With the SLR (Statutory Liquidity Ratio), the RBI can ensure the solvency a commercial bank. It is also helpful to control the expansion of Bank Credits. By changing the SLR rates, RBI can increase or decrease bank credit expansion. Also through SLR, RBI compels the commercial banks to invest in government securities like government bonds..
2. CRR (Cash reserve Ratio)
It is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
According to RBI , CRR is defined as following :
In terms of Section 42(1) of the RBI Act 1934, Scheduled Commercial Banks are required to maintain with RBI an average cash balance, the amount of which shall not be less than 3 per cent of the total of the Net Demand and Time Liabilities (NDTL) in India, on a fortnightly basis and RBI is empowered to increase the said rate of CRR to such higher rate not exceeding twenty percent of the Net Demand and Time Liabilities (NDTL) under the RBI Act, 1934. At present, effective from the fortnight beginning June 14, 2003, the rate of CRR is 5 per cent of the NDTL.
Demand Liabilities
These liabilities include all liabilities which are payable on demand and they include current deposits, balances in overdue fixed deposits, cash certificates and cumulative/recurring deposits, Mail Transfer (MTs), Demand Drafts (DDs), unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand.
Time Liabilities
Time Liabilities are those which are payable otherwise than on demand and they include fixed deposits, cash certificates, cumulative and recurring deposits, staff security deposits, deposits held as securities for advances which are not payable on demand, India Millennium Deposits and Gold Deposits.
1. What is a Repo Rate?
A: Repo rate is the rate at which our banks borrow rupees from RBI. Whenever the banks have any shortage of funds they can borrow it from RBI. A reduction in the repo rate will help banks to get money at a cheaper rate. When the repo rate increases, borrowing from RBI becomes more expensive.
2. What is Reverse Repo Rate?
A: This is exact opposite of Repo rate. Reverse Repo rate is the rate at which Reserve Bank of India (RBI) borrows money from banks. RBI uses this tool when it feels there is too much money floating in the banking system. Banks are always happy to lend money to RBI since their money is in safe hands with a good interest. An increase in Reverse repo rate can cause the banks to transfer more funds to RBI due to this attractive interest rates.
What is the difference between Bank Rate and Repo Rate?
Bank Rate vs Repo Rate
Bank Rate is the rate at which RBI allows finance to commercial banks in India. There are difference types of refinance that can be availed by banks and these are linked to Bank Rate. Thus, banks can borrow at this rate only to the extent of their eligibility for refinance.
Bank Rate is the rate at which RBI allows finance to commercial banks in India. There are difference types of refinance that can be availed by banks and these are linked to Bank Rate. Thus, banks can borrow at this rate only to the extent of their eligibility for refinance.
On the other hand, Repo is a money market instrument, which enables collateralised short term borrowing and lending through sale/purchase operations in debt instruments. Under a repo transaction, a holder of securities sells them to an investor with an agreement to repurchase at a predetermined date and rate. In the case of a repo, the forward clean price of the bonds is set in advance at a level which is different from the spot clean price by adjusting the difference between repo interest and coupon earned on the security. In the money market, this transaction is nothing but collateralised lending as the terms of the transaction are structured to compensate for the funds lent and the cost of the transaction is the repo rate. Thus, a bank can borrow under repo provided he has the extra securities which it can lend temporarily to RBI for borrowing short term funds.
What is relation between Inflation and Bank interest Rates?
Now a days, you might have heard lot of these terms and usage on inflation and the bank interest rates. Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also
Now a days, you might have heard lot of these terms and usage on inflation and the bank interest rates. Bank interest rate depends on many other factors, out of that the major one is inflation. Whenever you see an increase on inflation, there will be an increase of interest rate also
3. What is CRR Rate?
A: Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.3
4. What is SLR Rate?
A: SLR (Statutory Liquidity Ratio) is the amount a commercial bank needs to maintain in the form of cash, or gold or govt. approved securities (Bonds) before providing credit to its customers.
SLR rate is determined and maintained by the RBI (Reserve Bank of India) in order to control the expansion of bank credit. SLR is determined as the percentage of total demand and percentage of time liabilities. Time Liabilities are the liabilities a commercial bank liable to pay to the customers on their anytime demand. SLR is used to control inflation and propel growth. Through SLR rate tuning the money supply in the system can be controlled efficiently.
5. What is Bank Rate?
A: Bank rate, also referred to as the discount rate, is the rate of interest which a central bank charges on the loans and advances that it extends to commercial banks and other financial intermediaries. Changes in the bank rate are often used by central banks to control the money supply.
6. What is Inflation?
A: Inflation is as an increase in the price of bunch of Goods and services that projects the Indian economy. An increase in inflation figures occurs when there is an increase in the average level of prices in Goods and services. Inflation happens when there are fewer Goods and more buyers; this will result in increase in the price of Goods, since there is more demand and less supply of the goods.
7. What is Deflation?
A: Deflation is the continuous decrease in prices of goods and services. Deflation occurs when the inflation rate becomes negative (below zero) and stays there for a longer period.
8. What is PLR?
A: The Prime Interest Rate is the interest rate charged by banks to their most creditworthy customers (usually the most prominent and stable business customers). The rate is almost always the same amongst major banks. Adjustments to the prime rate are made by banks at the same time; although, the prime rate does not adjust on any regular basis. The Prime Rate is usually adjusted at the same time and in correlation to the adjustments of the Fed Funds Rate. The rates reported below are based upon the prime rates on the first day of each respective month. Some banks use the name "Reference Rate" or "Base Lending Rate" to refer to their Prime Lending Rate.
9. What is Deposit Rate?
A: Interest Rates paid by a depository institution on the cash on deposit.
10. What is FII?
A: FII (Foreign Institutional Investor) used to denote an investor, mostly in the form of an institution. An institution established outside India, which proposes to invest in Indian market, in other words buying Indian stocks. FII's generally buy in large volumes which has an impact on the stock markets. Institutional Investors includes pension funds, mutual funds, Insurance Companies, Banks, etc.
11. What is FDI?
A: FDI (Foreign Direct Investment) occurs with the purchase of the “physical assets or a significant amount of ownership (stock) of a company in another country in order to gain a measure of management control” (Or) A foreign company having a stake in a Indian Company.
12. What is IPO?
A: IPO is Initial Public Offering. This is the first offering of shares to the general public from a company wishes to list on the stock exchanges.
13. What is Disinvestment?
A: The Selling of the government stake in public sector undertakings.
14. What is Fiscal Deficit?
A: It is the difference between the government’s total receipts (excluding borrowings) and total expenditure. Fiscal deficit in 2009-10 is proposed at 6.8% of GDP.
15. What is Revenue deficit?
A: It defines that, where the net amount received (by taxes & other forms) fails to meet the predicted net amount to be received by the government. Revenue deficit in 2009-10 is proposed at 4.8% of GDP.
16. What is GDP?
A: The Gross Domestic Product or GDP is a measure of all of the services and goods produced in a country over a specific period; classically a year. GDP during 2008-09 is 6.7%.
17. What is GNP?
A: Gross National Product is measured as GDP plus income of residents from investments made abroad minus income earned by foreigners in domestic market.
18. What is National Income?
A: National Income is the money value of all goods and services produced in a country during the year.
19. What is Per Capita Income?
A: The national income of a country, or region, divided by its population. Per capita income is often used to measure a country's standard of living.Per capita income during 2008-09 estimated by CSO: Rs.25, 494.
20. What is Vote on Account?
A: A vote-on account is basically a statement ,where the government presents an estimate of a sum required to meet the expenditure that it incurs during the first three to four months of an election financial year until a new government is in place, to keep the machinery running.
21. Difference between Vote on Account and Interim Budget?
A: Vote-on-account deals only with the expenditure side of the government's budget, an interim Budget is a complete set of accounts, including both expenditure and receipts.
22. What is SDR?
A: The SDR (Special Drawing Rights) is an artificial currency created by the IMF in 1969. SDRs are allocated to member countries and can be fully converted into international currencies so they serve as a supplement to the official foreign reserves of member countries. Its value is based on a basket of key international currencies (U.S. dollar, euro, yen and pound sterling).
23. What is SEZ?
A: SEZ means Special Economic Zone is the one of the part of government’s policies in India. A special Economic zone is a geographical region that economic laws which are more liberal than the usual economic laws in the country. The basic motto behind this is to increase foreign investment, development of infrastructure, job opportunities and increase the income level of the people.
· What is corporate governance?
· What is Fiscal Policy?
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