Banking Terms

4:36 PM Thinker

                                             

                                   Indian financial System

A financial system work as  an intermediate and facilitate the flow of funds from the areas of surplus to area of deficit.


Major function performed by Indian financial system :

1. Saving function
2. Liquidity function
3. Risk Function
4. Policy function
5. Payment function

                                                  Financial Market

can be divided in to two parts

1. Money Markets:Have short term maturity ie less than or equal to 1 year.some example of money markets are,

• Call Money Market-Maturity Period from 1 to 15 days

                                         Money lent for 1 days is called as Call Money

                                        Money Lent for >1 But <15 days -called as Notice Money

Call money borrowed from the market to meet various requirement of commercial bill market and 

banks.Bank borrow in capital market to meet CRR ,and sudden demand of fund.

         

                           Call money market located in Mumbai,Kolkata,Chennai,Delhi, Ahmadabad.

Participant in this market are split in two category

1. Who can lend and borrow money Ex.RBI,its intermediaries like DHFC,STCI, and commercial bank
2. who can only lend money Ex,Financial Institution,Mutual funds

 Interest rate paid  on call loans called as Call rates

• Commercial paper and Deposits(CP):

unsecured

issued in form of Promissory notes

CP issued by -corporate,primary dealer(PD)

                   -all India Financial institution (FI)

CP issued always in multiple of 5 lack

Participant should obtain Credit rating from  

• CRISIL( Credit rating information service of India Ltd)
• ICRA(Information and credit rating agency of India Ltd)
• CARE(Credit analysis and research Ltd)
• FITCH rating India pvt Ltd

Rating should be P-2 of CRISIL or equivalent

Corporate is eligible to issue CP net worth of 4 crore


Financial institution -issue should not exceed 100% of their net worth.


Issuer appoint -Issuing and paying agent (  IPA)
                      -all scheduled bank act as IPA.


CP attract stamp duty -0.25 % for primary issue except bank 0.05%.
                                   -no stamp duty for secondarily issue 

• Certificates of Deposits(CD)

lowest risk next to T-bill.


secure


Negotiable promissory notes


Issued  by Scheduled commercial bank  selected all India financial institution , 


Regional rural and Local area bank can not issue CD.

Minimum amount for investment 1 lakh


should not be - less than 7 days or more than 1 yrs for bank
                      -less than 1 yr or more than 3 yr for financial institution.






2.Capital Market:

• Primary market-borrow from the market
• Secondary Market-liquidity function 

 

A company can raise a capital through issue of Shares and debenture by means of 

• Public Issue-involve raising of fund directly from the Public
• Right Issue-raising additional finance from existing members on pro rata basis.
• Bonus issue-some company distribute profit to existing shareholders by the way of  full paid Bonus shares in lieu of dividend.
• Private placement-is the direct sale by Public limited company or private limited company to limited number of sophisticated investors such as UTI GIC.
• Bought out Deal(BOD)

                         

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                             Types of Govt Securities

• Govt securties are also called as Gilt-edge securties(Intrest and principle payment gauranted).
• Long term securties >10 yrs
• Medium dated >5-10 yrs
• Short term <5 yrs
• securties are of following types

1. Central Govt securties
2. State govt Securties
3. Securties Gaurded by Central govt for All India Financial Insitution like IDBI,ICICI ,IFCI.
4. Securties Gaurded by Statte Govt for Insitution like Electrical Baoard,Housing Board.
5. Treassury bill issued by RBI.

Securties are issued in three form-

1. Stock Certificate-When Public debt issued in the form of stockthe owner get a certificate specifying that he is a registerd holder in the book of Public Debt office(PDO).The certificate indicate the intrest rate,inerest due date and face value of stock.
2. Promissory Notes-Promissory notes contain a promise by the president of India or the Governor of the state for the payment to the holder the consideration along with the interst.
3. Bearer Bonds
   
   
   
   
   
   

                    

   
   

                 MARKET OF GOVT SECURITIES-

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   • PRIMARY MARKET:

   
   

   
   

   
   

   1. Quantum of Issue-The govt of India declares its quantum of borrowing in its budget statement. They are issued by RBI on behalf of Govt of India to finance the deficit and public secter development programme.
   2. Timing of issue-auction are usually timed during high liquidity to raise the maximum amount at the best price .
   3. Term of Issue-all related terms are drawn by RBI.
   4. Procedure of Issue -issued by Public Debt office of the RBI.

   
   

   
   

   Investors :

   1. Commercial Bank
   2. Financial Institution
   3. Large corporate bodies
   4. RBI
   5. Foreign Institutional Investors.

   
   

   
   

   SECOUNDRY MARKET:RBI approved brokers are permitted to transact bussiness in securities with bank,institutions and RBI.

   Investors in secondary market are Financial institution ,the broker and RBI.

   
   

   
   

   T-Bills:

   • Treasury bill are raised to meet short term requirement of Govt of India.
   • T Bills are issued in form of Promissory Notes(or Scrips) or credited to SGL account (Subsidiary General Ledger).
   • T-Bills are issued for minimum for Rs 25,000 and in multiple of Rs 25,000 thereof.
   • Types of T-bills-

   1. 364 days T-bills
   2. 182 Days T-Bills
   3. 91 Days T-Bills

   At present GOI issue only 91 Days and 364 Days T- Bills.

   
   

   
   

   
   

   
   

   PUBLIC SECTOR UNDERTAKING (PSU) Bonds:

   • Issued by public sector units such as Indian Rail,Nuclear power corporation,MTNL,Coal India,etc
   • These bond carry 7 yrs Maturity
   • Normally of two types

   1. Taxable-carry a coupon rate of 13% pa
   2. Non Taxable-Carry a coupon rate of 9% pa( issued by Indian Rail,Urban development corporation only)

   • minimum of 5 crore.