15 Important Banking and Financial Awareness

1.         What is NPA  ?

 Non – Performing Assets; If a loan is unpaid according to the payment schedule fixed, such loans are classified by banks as NPA. 

2.         What is ‘spread’  ?  

The difference between the average cost of funds and average returns to investments is known as ‘spread’ in banking parlance.

3.         What is Repo and Reverse Repo  ?

Repo and Reverse repo are instruments available with RBI to control short term liquidity in the market.  Repo is the rate at which RBI lends money to commercial banks, while Reverse repo is the rate at which RBI absorbs excess liquidity from the banking system. Usually Repo rate is higher than the reverse repo rate.

4.         What do you mean by liquidity  ?

The ability of an asset to be converted into cash quickly and without any price discount.

5.What do mean by Non-interest income  ?

Banks generate income through interest and non-interest.  Interest is charged on loans and advances, while non- interest income is derived by selling third party products, like insurance, mutual funds.

6.         What are the laws that governing banks in India  ? 

They are the Reserve Bank of India Act 1935 and the Banking Regulation Act 1949.

7.         What do you mean by dishonouring of cheques  ?

 A cheque if is unpaid on presenting in a bank, for the want of funds or so is a dishonoured cheque.

8.         What do you mean by scheduled banks  ? What are nationalized banks  ? What are public sector banks  ?

Schedule banks are those banks that are included in the second schedule to the RBI Act 1935.  To get included in the II Schedule of RBI Act, (i) the bank must have a minimum paid up capital of Rs.5 lacs.  (ii) it must be a banking company registered under the Companies of India Act 1956.  (iii) it must make undertaking that their actions will not be detrimental to the interests of the depositors.

9.         What is mobile banking  ?

Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication devices.

10.       What are SEZs  ?

A Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment.

11.       What is FII ( Foreign Institutional Investor )  ?

Foreign institutional investor means an entity established or incorporated outside India which proposes to make investment in India.  Such investments are called Foreign Institutional Investment.  FIIs invest in India through financial assets like shares debts etc.

12.       What is FDI ( Foreign Direct Investment)  ?

I am giving you a few definitions on FDI.--- “Direct investment in business operations in a foreign country.”   “Acquisition or construction of physical capital by a firm from one (source) country in another (host) country.”   “investment made by a foreign individual or company in productive capacity of another country – for example, the purchase or construction of a factory.”

13.       What is RTGS  ?

The acronym "RTGS" stands for Real Time Gross Settlement. RTGS system is a funds transfer mechanism where transfer of money takes place from one bank to another on a "real time" and on "gross" basis. This is the fastest possible money transfer system through the banking channel. Settlement in "real time" means payment transaction is not subjected to any waiting period. The transactions are settled as soon as they are processed. "Gross settlement" means the transaction is settled on one to one basis without bunching with any other transaction. Considering that money transfer takes place in the books of the Reserve Bank of India, the payment is taken as final and irrevocable.

14.       How RTGS is different from National Electronics Funds Transfer System (NEFT)?

NEFT is also an electronic fund transfer system that operate on a deferred net settlement (DNS) basis which settles transactions in batches. In DNS, the settlement takes place at a particular point of time. All transactions are held up till that time. For example, NEFT settlement takes place 6 times a day during the week days (9.30 am, 10.30 am, 12.00 noon. 1.00 pm, 3.00 pm and 4.00 pm) and 3 times during Saturdays (9.30 am, 10.30 am and 12.00 noon). Any transaction initiated after a designated settlement time would have to wait till the next designated settlement time. Contrary to this, in RTGS, transactions are processed continuously throughout the RTGS business hours (9.00 am to 4.30 pm on week days and 9.00am to 12.00 noon on Saturday).

15. Is there any minimum / maximum amount stipulation for RTGS transactions?

The RTGS system is primarily for large value transactions. The minimum amount to be remitted through RTGS is Rs.1 lakh. There is no upper ceiling for RTGS transactions. No minimum or maximum stipulation has been fixed for EFT and NEFT transactions.