What is a Bank?

A financial institution licensed as the receiver of deposits and lends them to the prospective borrowers as well as allows the depositors to withdraw their money from the accounts by cheque is a bank. There are two types of banks. They are

  1. Commercial Banks
  2. Investment Banks
What are Commercial Banks?

Commercial banks manage deposit accounts, such as checking and savings accounts, for individuals and businesses. They make loans to the public using the money held on deposit.

What are Investment Banks?

Investment banks differ strongly; these institutions facilitate the buying and selling of stocks, bonds and other investments, as well as helping companies to go public with initial public offerings (IPO).

What is a Non-Banking Financial Company?

Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 engaged in the business of loans and advances, acquisition of shares or stocks or bonds or debentures or securities issued by Government or local authority or other marketable securities of a like nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, purchase or sale of any goods (other than securities) or providing any services and sale or purchase or construction of immovable property.

What is difference between banks & NBFCs?

NBFCs lend and make investments and hence their activities are akin to that of banks; however there are a few differences as given below:

  • NBFC cannot accept demand deposits.
  • NBFCs do not form part of the payment and settlement system and cannot issue cheques drawn on itself.
  • Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available to depositors of NBFCs, unlike in case of banks.
What is meant by Priority Sector?

Priority sector refers to those sectors of the economy which may not get timely and adequate credit in the absence of this special dispensation. Typically, these are small value loans to farmers for agriculture and allied activities, micro and small enterprises, poor people for housing, students for education and other low income groups and weaker sections.

What are the different categories under Priority Sector?

Priority Sector includes the following categories:

  1. Agriculture
  2. Micro and Small Enterprises
  3. Education
  4. Housing
  5. Export Credit
  6. Others
What is meant by MSME?

MSME stands for Micro, Small and Medium Enterprises.

The Government of India has enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

A micro enterprise is an enterprise where investment in plant and machinery does not exceed Rs. 25 lakh.

A small enterprise is an enterprise where the investment in plant and machinery is more than Rs. 25 lakh but does not exceed Rs. 5 crore.

A medium enterprise is an enterprise where the investment in plant and machinery is more than Rs.5 crore but does not exceed Rs.10 crore.

What is meant by Basis Points?

A basis point is a unit of measure to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent). In most cases, it refers to changes in interest rates and bond yields.

For example, if the RBI has announced that it reduced current SLR 22 by 25 basis points, it means the new SLR will be 21.75.

What is meant by NPA?

NPA stands for Non-Performing Assets. An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank.

The net non-performing assets (NPAs) of banks had gone up 51% in FY13 to RS.92825/- crores. According to a recent CRISIL report, the gross NPAs of banks are slated to increase from 3.3% in March 2013 to 4% by March 2014.

Who is a Wilful Defaulter?

A person is declared “Wilful Defaulter” when he defaults in repayment obligations by him to the lender even though he has the capacity to honour the said obligations or when he diverted the  funds for other purposes or when he siphoned off the funds so that the funds have not been utilized for the specific purpose for which finance was availed of, nor are the funds available with the person in the form of other or when he disposed off or removed the movable fixed assets or immovable property given by it for the purpose of securing a term loan without the knowledge of the bank/lender.

What is meant by SARFAESI Act?

SARFAESI stands for Securitisation and Reconstruction of Financial Assets and Enforcement of Security InterestThe Act was passed on 2002.

This Act empowers banks and financial institutions to auction properties (residential and commercial) when borrowers fail to repay their loans. This Act helps the bank to recover the bad loans.

SARFAESI Act was based on recommendation of two Committees.

1. Committee on Banking Sector Reforms – Narasimhan Committee II.

2. Restructuring of weak Public Sector Banks – Verma Committee.

 

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