A

A TO Z OF BANKING

HAND BOOK

ON

A TO Z OF BANKINGUNION BANK OF INDIA

STAFF COLLEGE

BANGALORE

A

ABC ANALYSIS

ABC Analysis is a technique of exercising selective control over the inventory items. The technique is based on this assumption that a firm should not exercise the same degree of control on all items of inventory. It should rather keep greater control over those items, which are more costly as compared to those items, which are less costly. According to this approach, the inventory items are divided into three categories A B & C. Category A may include more costly items, while category B may consist of less costly items and category C of the least costly items. Thus, it is a selective approach to inventory control, which calls for a greater concentration on inventory items accounting for the bulk of usage value.

ACCEPTANCE CREDIT

An Acceptance Credit is one under which the drafts are drawn on the issuing bank or on the correspondent bank at specified usance. It stipulates that the beneficiary must draw a bill of exchange for a particular tenor.

ACCEPTOR

In case of a bill of exchange, the drawee becomes acceptor when he accepts the bill i.e. signs his assent upon the bill and delivers the same or gives notice of such signing to the holder or some person on his behalf.

ACCOMMODATION BILL

A bill drawn, accepted or endorsed without consideration. In other words, a bill to which a person called an accommodation party puts his name to oblige or accommodate another person without receiving any value or consideration for so doing is called an accommodation bill. The primary objective of such a bill is to enable the maker to raise funds there against.

ACCOUNT PAYEE CROSSING

It is a direction to the collecting banker to ensure that the amount is credited in the account of the person mentioned as payee in the cheque. If it fails to do so it will loose statutory protection available to a collecting banker.

ACCOUNTING RATE OF RETURN

The rate of return on an investment defined as accounting profit divided by book value of investment. It is also referred to as the average rate of return.

ACCRUAL PRINCIPLE

As per this principle revenues and expenses are recognized in the period in which activities that cause those revenues and expenses occur.

ACID TEST RATIO

It indicates the extent to which the liquid resources of the unit are available quickly to meet its quick liabilities. It is also known as quick ratio and calculated by dividing quick assets by quick liabilities.

Quick assets are calculated by deducting inventory from the current assets. Likewise, quick liabilities are calculated by deducting short-term bank borrowing from the current liabilities. The ideal ratio is 1:1. A higher current ratio but low quick ratio means large stock of inventory.

ACTUAL COSTS

The expenses for which the firm paid or actually received the benefits during the period.

ADVISING BANK

Who advises the Credit to the beneficiary, thereby ensuring the genuineness of the Credit. It is normally situated in the country/place of the beneficiary.

AGING SCHEDULE

A statement showing age-wise distribution of debtors (accounts receivable).

AGRICULTURIST

A person having skill to cultivate

AGRO EXPORT PROJECTS

One of the main objectives of the current Export Import Policy, is to enhance export capabilities of agricultural sector. Because of application of biotechnology in agriculture and liberalized policy of the Government, financing Hitech Agro Export Project units (EOU) in the identified thrust area like, plantation, floriculture, fruits and vegetables, animals, fishery mushrooms etc are on rise.

But a good number of EOUs in agriculture have been set up by the first generation entrepreneurs, who need adequate exposure on the critical areas and issues of the project management, technology, post-harvest handling and marketing etc before granting advances by the bank.

AIR CONSIGNMENT NOTE

It is otherwise called as Air Receipt. It is issued generally by forwarding agents. It is not negotiable instrument.

AIRWAY BILL

It is an acknowledgement issued by an Airlines Company or their authorized agents stating that they have received the goods detailed therein for dispatch by Air to the named consignee at the address stated therein. It is not a title to goods and therefore it is not a negotiable instrument.

AMERICAL DEPOSITORY RECEIPTS (ADR)

ADRs are US security, created by a US Bank, which is a repackaged form of a non-US security. The ADR itself acts as evidence of ownership of specified number of shares of the foreign security, while the underlying shares are held in a depository in the issuing companys home country. Indian companies, which have a large market capitalization with regular capital requirements and aspirations to be global player, raise funds through ADR issue.

AMERICAN OPTION

It is a type of derivative where the customer has option to exercise his option at any time during the period covered by the contract.

AMORTIZATION

This term is used in two senses: (i) repayments of loan over a period of time (ii) write off of expenditure (like issue cost of shares) over a period of time.

ANGLE OF INCIDENCE

The angle formed at the intersection of the total revenue line and the total cost line on the cost volume profit graph.

ANNUAL REPORT

The report issued annually by a company to its shareholders. It contains primarily the financial statements. In addition, it presents the managements view of the operations of the previous year and the prospects for future.

ANNUITY

A series of periodic cash flows.

APPROVED SECURITIES

Securities such as Government of India loans, State Government loans and other trustee securities defined under Section 20 of the Indian Trusts Act, 1882, are called approved securities for the purpose of computing the Statutory Liquidity Ratio (SLR) that banks have to maintain under Section 24 of the banking Regulations Act, 1949.

ARBITRAGE

A deal, where something is bought in one market and sold in another market to take the advantage of the price difference.

ARTICLES OF ASSOCIATION (A.A.)

These are the rules, regulations and byelaws for the internal management of the affairs of a company. They are framed with the objective of carrying out the aims & objects as set out in the Memorandum of Association. The articles are next in importance to the memorandum.

ASSET COVERAGE RATIO

Asset Coverage ratio is derived as below:

(Net Worth-Net NPA) X 100

Total assets

The Verma Committee on weak banks suggested that the banks should have a coverage ratio of atleast 0.5% for banks with a high level of NPAs the asset coverage ratio may be negative which indicates that NPAs of the bank exceeds the net worth.

ASSET LIABILITY MANAGEMENT (ALM)

It is a process of managing Balance Sheet without affecting Net Interest Margin within the overall risk bearing capacity of a bank.

ASSETS

Assets represent resources, which are owned by a business.

ASSIGNMENT

It is a process by which one can transfer his right / interest / title over his actionable claims to another.

ATTAINED VOLUME

The level of activity production, sales or other activity) actually reached during fiscal period.

AUCTIONABLE CLAIMS

It is a claim to any debt (other than debt & secured by mortgage, hypothecation and pledge) or to any beneficial interest in immovable property which is not in ones possession.

AUTHORISED CAPITAL

It is the maximum amount of capital that the company is legally authorized to raise.

AUTOMATED TELLER MACHINE

ATM is a facility whereby a customer of a bank needing money urgently, can make use of this facility at any time as the ATM is open 24 hours of the day, every day (including Sundays and other holidays).

AVERAGE COLLECTION PERIOD

The ratio of receivables to average credit sales per day.

B

BACK - TO- BACK CREDIT

It is also called Countervailing Credit. When a Credit is opened with the security of another credit, the credit thus opened is termed as back-to-back Credit.

BADLA

It is a method of carrying forward of transactions from one settlement period to another without affecting delivery of shares.

BAILMENT

It is delivery of goods by one person to another for some purpose, upon a contract, that they shall, when the purpose is accomplished, be returned or otherwise disposed of according to the directions of the person delivering them.

BAIT MONEY

Soiled notes of small denomination kept in hand balance for identifying culprits in case of looting of bank cash are known as bait money.

BALANCE OF PAYMENT

It is a systematic record of all economic transactions between the residents of the reporting country and the residents of foreign countries during a given period of time i.e. all payments to and receipts from abroad.

BALANCE SHEET

A balance sheet is a statement of the assets and liabilities of a business as at particular date.

BALLOON PAYMENT

Repayment of the major or a large part of a loan in a single payment, following smaller instalments is referred to as balloon payment. For example, for a term loan of Rs. 10800/- granted, the repayment stipulated may be: 59 monthly instalments of Rs. 175/- each and a balloon payment of Rs. 475/-.

BANK FOR INTERNATIONAL SETTLEMENT (BIS)

It is the worlds oldest multilateral financial institution owned and controlled by Central Banks of different countries having headquarters at Basle, Switzerland. Capital Adequacy Norm was first recommended by BIS, which is also known as BIS standard.

BANK MARKETING

The matching of the bank resources with the customers needs in the most profitable manner. This is what bank marketing means-satisfying customers needs at a profit.

BANK NOTE

All currency notes issued by the RBI are called bank notes, which bear the signature of the Governor of RBI.

BANK RATE

In terms of Section 49 of the Reserve Bank of India Act, the Bank rate is defined as the standard rate at which it is prepared to buy or rediscount bills of exchange or other commercial paper eligible for purchase under the Act. Now it has become a reference rate for commercial banks.

BANK RECEIPT

It is an acknowledgement from the selling bank to the buying bank that the selling bank has received payment for certain securities already in its custody and it will deliver them within a certain time. A bank receipt is valid for 90 days. As the securities are bulky documents and are cumbersome to transfer, receipt is issued instead of delivering the securities. The receipt so issued by the bank is called bank receipt. It is non-transferable and can be issued by banks and recognized institutions only.

BANKERS ACCEPTANCE

When a draft has been accepted by a bank and the bank guarantees that payment will be made at some date in future, that certified draft is called a bankers acceptance.

BANKERS LIEN

A bankers lien is the right to retain the goods & securities belonging to the debtor for all dues payable by him, unless there is an agreement to the contrary and in case of default the bank can sell the goods after giving him a reasonable notice. Therefore, it is also said to be an implied pledge.

BANKING

Banking means, accepting, for the purpose of lending or investment, of deposits of money from public, repayable on demand or otherwise, and withdrawable by cheque or order or otherwise.

BANKING OMBUDSMAN

Banking Ombudsman is an authority appointed by RBI to look into the complaints of customers relating to deficiencies in the services of all scheduled commercial banks and all scheduled primary Co-operative banks.

BANKRUPTCY

A state in which a firm (or individual) is unable to meet its obligations and, hence, its assets are surrendered to a court for administration.

BASIS POINT

One basis point is the last decimal in the quotation of an exchange rate. In case of interest rate one basis point means 0.01%.

BATTERY SYSTEM

It is a system of poultry farming where the birds are reared in wire cages. Each cage is divided into sub units with in-built provisions for watering, feeding, egg collection and disposal of droppings. The cages are arranged inside the poultry house in a single or multiple decks.

BEAR

It indicates the behaviour of some one who anticipates that the price will fall in the capital market.

BEARER SECURITY

A security for which possession is the primary evidence of ownership.

BEE KEEPING

The word Bee-Keeping involves rearing of bees, in scientifically manufactured wooden boxes. The place where the bee colonies are kept in wooden boxes is known as Apiary. Bee keeping is an ideal subsidiary occupation and does not require much time and capital. As India is predominantly an agricultural country, bee Keeping is a suitable activity to augment the income of the farmers.

BEAR MARKET

A market dominated by bears. (A bear is an operator who has a pessimistic view of future).

BID BOND GUARANTEE (Earnest Money guarantee)

This guarantee is required by the exporters who want to participate in global tender. It is required in lieu of earnest money. It is a kind of financial guarantee.

BILL BUYING RATE

This rate is applied when a foreign bill is purchased. When a bill is purchased the proceeds will be realized by the bank after it is presented to the drawee at the overseas centre, In case of usance bill the proceeds will be realized on due date of the bill which includes the transit period and the usance period of the bill

BILL OF EXCHANGE

It is an instrument in writing signed by the maker containing unconditional order directing certain person to pay a certain sum of money only to or to the order of a certain person or to the bearer of the instrument (Sec. 5 of N.I.Act)

BILL OF LADING

This is a transport document representing movement of goods by sea. It is a formal receipt issued by the ship owners or their authorized agents stating that the goods mentioned therein are shipped on a specified date and vessel and are deliverable to the person mentioned therein or to the order after payment of dues to the shipping company. It is a document of title to goods. It is quasi-negotiable instrument.

BILL SELLING RATE

This rate is to be used for all transactions, which involve handling of documents by the bank; for example payment against import bills.

BIO FERTILIZERS

Bio fertilizers are carrier based preparations containing mainly effective strains of micro organism, which are useful for nitrogen fixation in leguminous and non leguminous plants, solubilization and uptake of phosphate and synthesis of growth promoting substances in agriculture. They provide plant nutrients at low cost and also improve soil and utility and therefore, included under Hi-tech agricultural financing.

BIO PESTICIDES

Considering the harmful effects of chemical pesticides emphasis has been given to popularize Integrated Pest Management through distribution/sale of bio-control products, disease free or resistant material preparation containing micro-organism etc, developed by Biotechnological means. Some products developed from NEEM, PONGAMIA & ADATHODA have insecticidal properties. There are several potential biotic agents known as bio-pesticides which are being maintained at various laboratories which may be exploited for bio-control programmes under agriculture which may be covered under Hi- tech Agricultural lending.

BLOCK LEVEL BANKERS COMMITTEE (BLBC)

BLBC has been constituted at each block level to ensure co-ordination among banks and with block officials in implementation of Block level credit Plan under Service Area Approach.

BLOCKED ACCOUNTS

Non-resident funds which cannot be transferred freely.

BLUE CHIP COMPANY

Large, stable, well established company.

BOND

An instrument for long-term debt.

BONUS SHARES

Shares issued to existing shareholders as a result of capitalization of reserves.

BOOK BUILDING

It is a method of floating a public offer that allows the issuer to price his offer of securities based on the market demand.

BOOK VALUE

This is accounting value of an asset, and refers to its historical cost less depreciation. In case of equity share the book value per share is the net worth of the company divided by the number of outstanding shares.

BOOK VALUE WEIGHTS

The percentage of financing provided by different capital sources as measured by their book values from the companys balance sheet.

BORROWING ON SWAP

It refers to buying a spot and selling it forward.

BOUGHT OUT DEAL

An existing company off loads a part of the promoters capital to a wholesaler instead of making a public issue.

BREACH OF TRUST

As per the Indian contract Act 1872 in the event of breach of contract, the aggrieved party earns certain rights including the right to claim damages or loss arising therefrom.In case of a trust account the bank must take all possible precautions to protect the interest of the beneficiaries of the trust. In case there is misuse of trust money with the knowledge of a banker, he is liable for breach of trust and will be required to compensate the beneficiary for any loss. But a bank is not bound by trust, if it is not within his knowledge.

BREAK-EVEN POINT

It is the quantum of sales at which the unit is just able to recover all expenses so that neither a profit is made nor any loss incurred.

BRICK & MORTAR BANKING

It means banking at a fixed branch premises

BRIDGE LOAN

Loans granted by banks by way of interim finance for a short duration as stopgap arrangements pending the disbursement of the permanent facility by the concerned financial institution/Bank or consortium of Banks or raising of additional capital through the market, of floatation of debentures.

BROAD MONEY (M3)

It represents realistically money supply. It is calculated by adding the following balances: I) Currency with the public II) Demand Deposits with Banks III) Post Office Savings Bank Deposits IV) Time Deposits with Banks V) Other Deposits with RBI.

BROKER

A person (agency) who arranges the purchase and sale of an asset by acting as an intermediary between the purchasers and the seller.

BUDGET DEFICIT

It is difference between total receipts and total expenditure.

BUDGET FACTOR

A cost factor used to determine the amount of cost allowed under given operating conditions. It is used especially in a system of flexible budgeting for cost control purposes.

BULL

It indicates the behaviour of someone who expects that the price will rise in the capital market.

BULLET REPAYMENT

A borrowing with no amortization. Repayment of the principal occurs only at maturity/at a time.

BUSINESS RISK

The risk arising from variation in earnings before interest and tax.

BUSINESS TO BUSINESS (B 2 B)

It is a type of E-Commerce, where businesses sell & buy from other businesses on line.

BUSINESS TO CUSTOMER (B 2 C)

It is a segment of E-Commerce where the businesses directly sell to the end consumers. Thus it is concept of on-line shopping where you can now buy almost all products or services.

BUY-BACK OF SHARES

A company may purchase its own shares or other specified securities subject to provisions contained in new Sec 77 A (2) Sec 77 B introduced by the companies (Amendment) Act 1999 which is termed as buy back of shares.

BUYERS CREDIT SCHEME

Under this scheme, an overseas buyer obtains credit from a bank or a financial institution in the suppliers country to make payment to the supplier for the goods supplied.

C

CALL MONEY

Loans made available by banks/financial institutions/insurance companies with excess liquidity to other banks/financial institutions etc. in need of accommodation.

CALL MONEY MARKET

It is basically inter bank market centralized primarily in Mumbai but with sub-market in Delhi, Kolkata, Chennai & Ahmedabad. The participants of this market are commercial banks & co-operative banks, who can borrow & lend funds like; Call money, on overnight basis & Notice Money up to maximum 14 days.

CALL OPTION

A type of derivative under which the customer has option to buy.

CALL PROVISION

A stipulation in a bond or preferred stock contract enabling the issuing firm to call back (repurchase) the outstanding bonds or preferred stock at a pre-determined price.

CAMELS RATING

The RBI takes into account Capital Adequacy, Asset Quality, Management, Earnings, Liquidity, Systems and Control for the purpose of rating the soundness of Indian Banks which is known as CAMELS Rating.

CAPACITY COSTS

Expenses incurred on the basis of a certain amount per period of time, independently of the number of units that might be produced during that period. Generally such costs are incurred in order to provide a certain capacity for the firms production and sales activities. Also called fixed costs.

CAPACITY VARIANCE

The variance that arises when the attained level of activity is anything other than normal capacity. It represents the difference between the total standard fixed overhead applied to attained volume of production and the budgeted fixed overhead for the period.

CAPITAL ACCOUNT CONVERTIBILITY

The currency of a country is deemed to be convertible on capital account when the local financial assets can be converted into foreign financial assets and vice versa, at market determined exchange rates. It enables the country to integrate its economy with the global economy.

CAPITAL ADEQUACY NORM

As per RBI guidelines the Banks are required to maintain unimpaired minimum capital funds equivalent to the prescribed ratio on the aggregate of risk weighted assets and other exposures on an on going basis, which is known as Capital Adequacy Norm.

CAPITAL BUDGET

Projected capital expenditures usually prepared annually.

CAPITAL GAINS/LOSSES

Gains/losses arising from the sale of capital assets.

CAPITAL MARKET

It is the market for financial assets that have long or indefinite maturity. There are two segment of capital market Primary Market, where new issues are made and Secondary Market, where outstanding issues are traded.

CAPITAL OUTPUT RATI0

It co-relates capital to the output. Planners these days make scientific estimates of the capital output ratio for the various sectors of the economy. Agriculture needs low capital output ratio. It was in India in 1951 as low as 1.6. In contrast industries have a higher capital output ratio. In the domain of industries, basic-heavy industries have still higher capital output ratio. A modern steel plant or hydroelectric project requires at least 5 to 7 units of capital for one unit of output.

CAPITAL RECEIPT

It is the revenue generated from market borrowings, provident funds, small savings and external receipts.

CAPITAL RESERVES

These are built out of capital profits of the company, like share premium, profits out of forfeiture of shares, sale of fixed assets etc.

CAPITAL STRUCTURE

The composition of firms long term finances consisting of equity capital, preferential capital and long term debt.

CAPITALISED INTEREST

It is the amount of interest expenses for the period a company records on its Balance Sheet rather than on its Profit & Loss account. It matches with the interest expenses during construction period or pre-operation.

CARD RATE

It is a standard rate of exchange quoted to the customers for purchase or sale of a foreign currency, by a bank. Card rate is loaded with usual margin of profit.

CASH BREAK EVEN POINTIt is that point of sale at which the unit does not incur cash profit or cash loss.

CASH BUDGET

A statement showing the forecast of cash receipts, cash disbursements and net cash balance over a period of time.

CASH CREDIT

An arrangement whereby the bank allows the borrower to borrow up to a certain limit, the cash credit limit.

CASH CREDIT SYSTEM FOR PRODUCTION CREDIT

Cash credit system of financing crop production is extended to such progressive farmers who cultivate more than one seasonal crop in a year. The limit, which is the total of various sub-limits for different seasons in the year, is granted for one year. Every year a new limit will have to be sanctioned or existing limit may be renewed based on production plan submitted by farmer.

CASH EXPORTExport where proceeds of export payment are contracted to be received within six months from the date of shipment.

CASH FLOW STATEMENT

It is a statement depicting change in cash position from one period to another of an undertaking.

CASH POSITION

It is the balance outstanding in the banks nostro account abroad.

CASH RESERVE RATIO (CRR)

As per Section 42 of RBI Act- 1934, all scheduled banks are required to maintain cash reserve by keeping a specified percentage of its Net Demand and Time Liabilities (NDTL) as current account balance with RBI which is know as CRR.

CATEGORY A BRANCH

Those branches of a bank, maintaining nostro accounts abroad.

CATEGORY B BRANCH

Those branches of a bank authorized to deal in foreign exchange business but not having nostro accounts abroad.

CATEGORY C BRANCHES

All other branches of a bank, which handle foreign exchange transactions through A or B category branches.

CERTAINTY EQUIVALENT

A certain cash flow which is equal in desirability to uncertain cash flow.

CERTIFICATE OF COMMENCEMENT OF BUSINESS

This certificate is issued by the Register of Companies only to Public Limited Companies after ensuring that the minimum capital required by the company is subscribed by the public.

CERTIFICATE OF DEPOSIT (CD)

It is a document to title of a term deposit from 15 days to one-year period. All commercial banks excluding RRBs are authorized to issue CDs in form of usance promissory notes, which are transferable by endorsement and delivery.

CERTIFICATE OF INCORPORATION

This certificate is issued by the Registrar of Companies, which is treated as birth certificate of the company. It is the conclusive proof that the company is duly incorporated by-law & registered.

CERTIFICATE OF REGISTRATION OF CHARGE

As per Section 132 of Companies Act 1956, on registration of the charge over the assets of the company, the Registrar of Companies issues a certificate of registration of charge stating the amount secured by the charge. This certificate is a conclusive evidence that the Registrar has entered the particulars in the register and that the prescribed particulars have been presented to him.

CHARGE CARD

It entitles the card holder to purchase goods or services usually from the issuers retail outlets up to prescribed limit and requiring payment at regular interval (usually monthly) . The charge cards do not have facilities of roll over credit.

CHARTER PARTY BILL OF LADING

It is a Bill of Lading, which is issued to a charter party i.e. those parties who have hired the space in the vessel either in full or in part. Such Bill of Lading are generally not acceptable because Sea Charters are full of problems and the ship owners may exercise lien over the goods in case charterers do not pay the hire charges.

CHEAP MONEY

Money is said to be cheap when it can be borrowed at a low rate of interest.

CHEQUE

It is a bill of exchange drawn on specified banker and payable on demand. (Sec. 6 of N.I.Act)

CHEQUES MARKED GOOD FOR PAYMENT

When the drawee banker marks a cheque good for payment, it undertakes to honour the same when presented for payment. A bank should avoid marking cheques good for payment. This system is not in practice now.

CLAUSED BILL OF LADING

It is also called Foul Bill of Lading or Dirty Bill of Lading. It is opposite to a Clean Bill of Lading and contains super imposed clauses or reservation declaring defective nature of goods, its packing etc. this type of Bill of Lading is neither good for the seller nor the buyer so also Bankers.

CLAYTONS RULE

As per this rule, each withdrawal in the running account like cash credit account is considered as a new loan and each deposit as a repayment of the loan in the order in which it is made. The first debit in the account is considered to have been discharged or reduced by the first item in the credit side and accordingly other entries follow suit in chronological order. To avoid application of Claytons Rule, the bankers stop operation of the running accounts in case of death of a partner/guarantor/joint account holders etc.

CLEAN BILL OF LADING

A clean Bill of Lading is one which bears no super imposed clause or notation, which expressly declares the defective condition of the goods or packaging.

CODICIL

It is an instrument made in relation to a will extending, altering or adding to form a part of the will.

COLLATERAL SECURITIES

The securities offered by the borrower in addition to the prime security for advances are called collateral securities.

COLLECTION FLOAT

The amount of cheques deposited by the firm in the bank but not cleared.

COMBINED TRANSPORT BILL OF LADING

It is also known as Multi Model Bill of Lading issued by a shipping company or their agents who act as multi-modal transport operators and carry the goods all the way through (from start to end) accepting the liabilities for performance of carriage and for losses and damages to goods wherever they occur. In a Through Bill of Lading there is no such guarantee.

COMMERCIAL BILL

It is an instrument drawn by the seller of goods on the buyer of goods. Under the new bill market scheme, the commercial banks can rediscount with approved institutions the bills, which were originally arisen out of genuine commercial transactions.

COMMERCIAL CROPS (Cash Crop)

Oil seeds-Groundnut, Mustard etc.

Fibre crops-Cotton, Jute etc.

Others-sugarcane, Potato, Tobacco etc.

COMMERCIAL INVOICE

It is the basic document in any trade. It is the sellers bill of merchandise.

COMMERCIAL PAPER

It is an unsecured Usance Promissory Note negotiable by endorsement and delivery privately placed by gilt-edged companies with investors through banks and other financial institutions. A commercial paper is a window for short-term funds for the corporate sector.

COMMON SEAL

Since a company has no physical existence, it must act through its agents and all such contracts entered into by its agents must be under the seal of the company. The common seal acts as the official signature of the company.

COMMUNITY BANKING

Providing financial and other types of support to the weaker sections of the community.

COMPANIES ACT

A comprehensive piece of legislation regulating the functioning of joint stock companies in India.

COMPENSATING BALANCE

A balance of a given amount that the firm maintains in its demand deposit account. It may be required either by a formal or informal agreement with the firms commercial bank. Such balances are usually required by the bank (1) on the unused portion of a loan commitment, (2) on the unpaid portion of an outstanding loan, (3) in exchange of certain services provided by the bank, such as cheque clearing or credit information. These balances raise the effective rate of interest paid on borrowed funds.

COMPOUND INTEREST

Interest on interest.

COMPOUNDING

The process of determining the final value of an amount when compound interest applies.

COMPREHENSIVE BUDGET

Detailed schedules appropriate to each of the key functions in the organisation, together with the entire companys plan, summarized in a projected cash flow budget and proforma financial statement.

CONCENTRATION BANK

A bank where the firm maintains a major disbursing account.

CONFIRMED CREDIT

It is a Letter of Credit to which another bank other than the issuing bank has added its confirmation or guarantee. Thus, there is double guarantee in such Credit and it is more favourable to beneficiary.

CONFIRMING BANK

Who adds its guarantee to the credit opened by another bank, thereby undertaking the responsibility of payment/negotiation/acceptance under the credit, in addition to that of issuing Bank.

CONGLOMERATE

A multifaceted undertaking involved in variety of products and services.

CONSERVATISM PRINCIPLE

This principle says, anticipate no profit but provide for all the possible losses.

CONSORTIUM ADVANCES

Credit facilities, extended to a borrower jointly by more than one financial institution operating under some mutual agreement and acting under a leader chosen among the participants.

CONSUMER

As per Sec 2 (1) (d) of the Consumer Protection Act, 1986; consumer means any person, who buys any goods and services for consideration which has been paid or promised or partly paid & partly promised.

CONSUMER PROTECTION ACT (COPRA)

It came into force w.e.f. 15.04.1987 with the objective to provide the consumer a simple, speedy and inexpensive way of redressal of his grievances in case of deficiency/defect in the goods and services bought/used by him for a consideration. For hearing such complaints, there are three types of agencies. At district level, there is Consumer Disputes Redressal Forum (also known as District Forum), at State level there is Consumer Dispute Redressal Commission (also known as State Commission) and National level, there is National Consumer Redressal Commission (also known as National Commission.

CONSUMPTION CREDIT

It is used for purchase of consumption goods.

CONTAINER. BILL OF LADING

It is a Bill of Lading, which indicates that the goods are carried in a container as one unit of cargo.

CONTINGENT LIABILITIES

It refers to a claim or right to claim on the concern which is not accepted/ considered as liability as on the date of Balance Sheet but may give rise to a liability on the happening of a certain event.

CONTINGENT CONTRACT

Contingent contract is a contract to do or not to do something, if some event, incidental to such contract, does or does not happen.

CONTRACT

A contract is an agreement enforceable by law.

CONTRIBUTION MARGIN

The difference between revenue and variable cost. Unit contribution margin is the difference between unit selling price and unit variable cost. Total contribution margin is the difference between total revenue and total variable cost.

CONTRIBUTION MARGIN RATIO

The ratio of unit contribution margin to unit selling price. Equivalently, it is defined as the ratio of total contribution margin to total revenue

CONTRIBUTION PRICING

An approach to pricing which emphasizes the contribution margin and the behaviour of costs and revenues with respect to changes in volume.

CONTROLABILE COSTS

Expenses which are, to a major extent, the responsibility of a specific individual or department within an organisation & which can be reduced without affecting the business & profitability.

CONVENTIONAL COSTING

The conventional method of recording and reporting costs for income determination (matching expenses against revenue of fiscal period) which regards unit product cost as consisting of direct material, direct labour, variable factory overheads and fixed factory overhead.

CONVERSION COST

The sum of the cost of direct labour and overhead cost incurred in the process of changing or covering the raw material into the finished product

CONVERSION PRICE

The price, in terms of rupees at par with the convertible security paid per share of equity stock obtained through conversion.

CONVERSION RATIO

The number of equity shares exchangeable per bond or preferred stock at the time of conversion.

CONVERTIBLE SECURITY

Bond or preferred stock which is convertible into equity shares at the option of the holder.

CO-OPERATIVE SOCIETY

It is an association registered under the provisions of the Co-operative Societies Act of the State concerned.

CORPORATE ADVISORY SERVICES

These services are being rendered by banks with the help of highly qualified staff to highly demanding corporate clients for their varied needs like GDR/ADR, Euro loans and new methods of risk management like, swap, option, future etc

Cost insurance & Freight (CIF)

The price quoted under this contract includes cost of goods, freight charges up to named destination and insurance covering the voyages as per INCOTERMS. (International Commercial Terms)

COST OF CAPITAL

The minimum rate of return the firm must earn on its investments in order to satisfy the expectations of investors who provide the funds to the firm. It is often measured as the weighted arithmetic average of the cost of various sources of finance tapped by the firm.

COST OF PREFERRED STOCK

The rate of return that must be earned on the preferred stockholders investment to satisfy their required rate of return.

COST OVER RUN.

It means escalation of project cost due to one reason or other. It may be due to inflation or time over run.

COUNTRY RISK

Risk of non-payment of export proceeds attached to a country due to unstable political climate or dwindling foreign exchange reserve is termed as Country Risk.

COUPON RATE

The rate of interest payable on a security is known as Coupon Rate.

COUPON RATE SWAP

It allows moving from fixed rate to floating rate of interest.

COVERAGE RATIOS

A group of ratios that measure a firms ability to meet its recurring fixed charge obligations, such as interest on long-term debt, lease payments, and/or preferred stock dividends.

CREDIT CARD

It is an instrument of payment, which enables the cardholder to obtain either goods or services from merchants where arrangements have been made to reimburse the merchant. The outstanding amount is payable by the cardholder to the bank over a specified period which carries a fixed amount of interest also. Credit card mechanism is based on the principle buy now, pay later.

CREDIT MONITORING ARRANGEMENTS (CMA)

Credit Authorization Scheme (CAS) in terms of which sanction of working capital limit (including commercial bills discounting) to any single borrower from the entire banking system beyond a prescribed cut-off point, requiring prior authorization of RBI was withdrawn in 1989 and in its place Credit Monitoring Arrangement (CMA) involving post sanction scrutiny of proposal relating to sanction of term loans as well as working capital limits beyond stipulated levels was introduced. However, in tune with the policy of the deregulation, the RBI has dispensed with the arrangement for post sanction scrutiny of proposals relating to term loans as well as working capital limits beyond stipulated levels.

However, a new system of reporting has been introduced to replace the erstwhile CMA. Sanction/change in credit limits in accounts with credit Limit of Rs 10 crore and above are reported individually on weekly basis and in accounts with credit limit of Rs 1 crore and above are to be reported collectively an a monthly basis to the RBI.

CREDIT PERIOD

The lengths of time customers are allowed to pay for their credit purchases.

CREDIT RATING

Credit Rating may be defined as an opinion of a Credit Rating Agency (CRA) as to the issuers (i.e. borrower of money) capacity to meet its financial obligation to the Depositor/ Bond holder (i.e. lender on a particular issue or type of instrument) in a timely manner.

CREDIT RISK

It is the risk of non-repayment involved in any lending. The primary danger in granting credit is the chance that the borrower will not repay the loan. This uncertainty is known as Credit or Default Risk.

CREDITORS VELOCITY

It is also known as Creditors Turnover Ratio or period of credit enjoyed. It is calculated by dividing Average outstanding of payable by credit purchase per day.

CROCKA BILL OF LADING

Crocka Bill of Lading on the face of it is a Bill of Lading covering goods carried by road issued by sea carriers. It can not be deemed as Ocean Bill of Lading though it is issued by a shipping company/or their agents.

CROP LOANS (PRODUCTION FINANCE)

Crop Loans are those loans granted for raising various crops to persons engaged in cultivation of crops as owners of land or as permanent tenant/lease holders for shorter period.

CROP ROTATION

The practice of growing different crops in a particular sequence in a field.

CROPPING INTENSITY

Extent to which a particular plot of land has been used repeatedly during a year.

Gross cropped area

Net Cropped area

CROPPING PATTERN

Pattern of crop rotation in an area.

CROSS RATE

In case the price of one currency is not quoted against the other currency, the parity between them is obtained by using an intermediary currency. This rate thus applied is called a cross rate and the principle applied for obtaining the cross rate is called the Chain Rule.

CROSSING

Crossing means drawing two parallel transverse lines across top left hand corner of a cheque or draft with or without any word. It is an instruction to the paying banker to pay such cheque through a banker only and not directly to the person presenting it at the counter in case of general crossing & in case of special crossing, not otherwise than to the banker to whom it is crossed or his agent for collection.

CRYSTALISATION

All foreign currency import bills under L.C., in the event of non-retirement, are to be converted into rupee liability on the 10th day after the date of receipt of documents at the L.C. opening branch, in case of demand bills and on due date, in case of usance bills. This is known as crystallization of import bills.

Likewise, exporters are liable for repatriation of proceeds of export bills negotiated/purchased/discounted or sent for collection. In case of unpaid export bills negotiated/purchased/discounted, the authorized dealers are required to crystallize the foreign currency liability into rupee liability on 30th day after the expiry of the normal transit period, in case of demand bills and on 30th day after notional due date, in case of unpaid usance bills. This is known as crystallization.

CRYSTALLIZATION OF FLOATING CHARGE

A floating charge may crystallize to become fixed charge when the company ceases to carry on business or upon commencement of winding up proceedings of the company or when debenture holders intervene by moving court for realization of their dues.

CUM DIVIDEND

With Dividend

CUM RIGHTS

With rights

CUMULATIVE DIVIDENDS

A feature of preferred stock that requires all past dividends on preferred stock to be paid before any equity dividends is paid.

CUMULATIVE PREFERENCE SHARES

A preference share is cumulative preference share when the arrears of dividends are accumulated and such arrears are paid first of all whenever dividend is declared.

CURRENCY RISK

It is the risk of exchange rate volatility.

CURRENT ASSETS

Such assets, which are converted into, cash within the operating cycle of the business. They are also known as Liquid Assets or Floating Assets or Gross Working Capital.

CURRENT LIABILITIES

It refers to liabilities payable within a period of one year (from the date of Balance Sheet).

CURRENT RATIO

It indicates the extent to which the enterprise can meet its current liabilities out of its current assets and it is calculated by formula :

Current Assets

Current Liabilities.

CUSTODIAL SERVICES

Services like, safe custody, registration of shares, income collection, keeping track over the announcement of board meetings, dividend, right declarations, bonus issues etc. offered to the investors by the custodian is covered under custodial services.

CUSTOMER DELIGHT

A standard of services where customer is not only satisfied but also delighted by the services rendered to him.

In the competitive banking scenario, we need individual effort as much as organizational efforts in enhancing customer satisfaction. Organization can bring in efficiency via products, systems and delivery mechanism. This will facilitate good customer service and satisfaction. To transform customer satisfaction to customer delight, it is only the individual initiative that can perform this role. One has to strive to succeed customer expectation, consistently, at all times. We will then become Delightful people to bank with.

CUSTOMER SERVICE

A good customer service means being efficient, reliable, courteous, caring and professional every time. Providing such service is a continuous activity day after day. Some time they are unreasonable. Nevertheless, they are8 always customers requiring prompt & efficient service. Most businesses get customers, successful businessmen retain them. Keeping customers happy is not just good public relations, its an essential part of sound banking strategy.

CUSTOMER TO CUSTOMER (C 2 C)

It is a type of E-Commerce where buying & selling activities take place between customers. The visible examples are auction sites. If one has something to sell, then he can get listed to an auction site and others can bid for it. However, this type of EC is not very common at present.

D

DARSHANI HUNDI

It is similar to demand bills and payable at sight.

DAY LIGHT LIMIT

It refers to the maximum amount an authorized dealer is willing to put at risk at any point of time during the dealing day, to meet the needs of the customers & corespondents.

DAYS SALES OUTSTANDING

The ratio of receivables outstanding to average daily sales.

DCF

Abbreviation for discounted cash flow. Whereby the present value of future receivables is insecured.

DEAD INVENTORY (DEAD STOCK)

Dead inventories are slow moving or obsolete items. They are not to be classified as current assets in a balance sheet. They are classified as ONCA.

DEAR MONEY (borrowing of money on higher rate)

Money is said to be dear when, owing to the supply being scarce, it can be borrowed only at a higher rate of interest.

DEBENTURESDebentures are long term borrowing from public on convertible or non-convertible terms.

DEBT-ASSET RATIO

A leverage ratio defined as total debt divided by total assets.

DEBT CAPACITY

The maximum amount of debt that a firm can raise at a given point of time.

DEBT EQUITY RATIOIt measures the proportion of outside liabilities to tangible net worth of the enterprise.

Total Outside Liabilities

Debt Equity Ratio = ------------------------------

Tangible Net Worth.

DEBT RECOVERY TRIBUNAL

Special tribunals set-up under Debt Recovery Tribunal Act of Govt. of India for speedy disposal of recovery suits of Rs 10.00 lacs and above.

DEBT-SERVICE COVERAGE RATIO

It serves as a useful guide in determining the repayment schedule of a term loan. It is calculated as under:

Profit after Tax + Depreciation + interest

Instalment on Term loan + interest on term loan

The ideal ration is 2:1. Where the DSCR is low, the repayment period can be extended or the proposal should not be considered for finance. Where the DSCR is very high, the repayment period may be shortened.

DEBTORS VELOCITY

It is calculated by formula Average Outstanding of Receivables divided by Credit Sales per day. It is also known as Debtors Turnover Ratio or Average collection Period. Lower the period quicker is the realization of cash and better is the efficiency.

DECISION TREE ANALYSIS

A method of analyzing problems involving alternative sequential decision with uncertain out comes.

DEEMED EXPORTCertain specified transactions, which do not involve transfer of goods outside the country but none the less results in earning or saving of foreign exchange, are known as Deemed Exports.

DEEP LITTER SYSTEM

This is a system of Poultry Farming where the floor of the poultry house is covered with litter composed of saw dust, paddy husk, groundnut shells, maize cobs, wheat and paddy straw chapped in to small pieces to a floor thickness of 3.

DEEP-SEA FISHING

The term indicates exploitation of fishery resources beyond 40 fathoms depths.

DEFAULT RISK

The uncertainty of expected returns from a security attributable to possible changes in the financial capacity of the security issuer to make future payments to the security owners. Treasury securities are considered to be default free. Default risks is also refer to as financial risk in the context of marketable security management.

DEFERRED CREDIT

Under this Credit, full or part of the amount is payable after a specified future period as per agreed terms. It is generally used where a portion of the value of goods is paid after verification of goods by the buyer or assessing the value of goods taking into account quality, shortages etc.

DEFERRED EXPORTS

If the export proceeds are to be received after six months from the date of shipment, these are referred to as Deferred Exports.

DEFERRED PAYMENT CREDIT

It is a usance credit where, payment will be made by designated bank on due date determined in accordance with stipulation of the credit, without the drawing of drafts.

DEFERRED PAYMENT EXPORTExport where part or full export proceeds is contracted to be received after prescribed period of six months from the date of shipment.

DEFERRED PAYMENT GUARANTEE

A Deferred Payment Guarantee is one whereby the banker guarantees payment by his customer of the amount to be paid by the customer, which has been spread over or deferred over a period of time. Normally, this type of guarantee is required by the customer when he desires to purchase machinery or goods on credit.

DEGREE OF FINANCIAL LEVERAGE

The percentage change in earning per share as a result of one- percent change in earnings before interest and fax.

DEGREE OF OPERATING LEVERAGE

The percentage change in earnings before interest and taxes as a result of one percent change is sales.

DEGREE OF TOTAL LEVERAGE

The percentage change in earnings per share as a result of one- percent change in sales.

DEMAND BILL

It is payable on demand or presentation

DEMAND COLLECTION AND BALANCE (DCB) REGISTER

A register in which Demand, Collection (Recovery) and Balance (Overdue) of term loans is recorded to arrive at recovery against demand and overdue on a particular day.

DEMAND DRAFT

It is an instrument in writing, containing an unconditional order, drawn by one Branch of a bank upon another Branch of the same Bank, directing to pay on demand a certain sum of money only to or to the order of the person (payee) named therein.

DEMONETISATION

It takes away the legal tender character of the currency, which is demonetized. It is done by the Central Government on the recommendation of RBI for the purpose of checking black money and tax evasion.

DEPOSITORY RECEIPTS

Straight equity issues in the international markets are made in the form of depository receipts. Depository receipts are issued not by the company but an international bank acting as a depository.

DEPRECIATION

Annual reduction in the cost of an asset to provide for its Wear and Tear in accounting terms.

DERIVATIVE DEPOSITS

Deposits created at the instance of Commercial Banks (through giving more and more loans) are known as derivative deposit or secondary deposit.

DERIVATIVE USANCE PROMISSORY NOTE (DUPN)

In order to avoid physical delivery of bills to the rediscounting institutions, RBI has permitted banks to generate DUPN on the strength of commercial bills held by them. DUPNs are exempted from payment of advalorem stamp duty. Banks get these DUPNs rediscounted with DFHI, which in turn sells these DUPNs to other investors interested in such instruments.

DERIVATIVES

It Is a security, whose value depends upon the value of other more basic underlying variable. It is a risk management tool.

DEVALUATION

The reduction in the exchange value of countrys currency in terms of other currencies.

DIFFERENTIAL INTEREST RATES

Under the scheme, the nationalized banks are required to provide finances to the economically weaker sections of the society, at a rate of interest lower than the usual rates to enable them to rise above their present economic level through productive endeavour.

DIRECT BILLS

Direct bills are those drawn in a currency of the country and made payable in that country (or reimbursable in that country).

DIRECT LABOUR COSTS

The cost of any operation performed by a productive worker directly on any part of the product, which contributes to its finished form.

DISCOUNT AND FINANCE HOUSE OF INDIA (DFHI)

This institution has been promoted by RBI with the main objective to develop an active secondary market for the money market instruments. It also borrows & lends call money on behalf of banks.

DISCOUNTING

The process of finding the present value of future cash flow or a series of future cash flows.

DISCRETIONARY COSTS

Fixed costs, which result from a management decision to undertake a particular programme and which can be changed at managements wishes. Also called programmed costs.

DISTRICT CONSULTATIVE COMMITTEE (DCC)

DCC is the central point for successful working of the lead bank scheme. It is necessary to hold such meeting quarterly where programme of District Credit Plan, Govt. Sponsored Schemes & other operational issues of the bankers are discussed.

DISTRICT LEVEL REVIEW COMMITTEE (DLRC)

This meeting is held in the second & fourth Quarter every year to review the achievements against targets of annual Action Plan of the district.

DIVERSIFICATION

Investment in more than one risky assets with the objective of risk reduction.

DIVIDEND PAYMENT

Payment made by a company to its stockholders out of profit.

DIVIDEND YIELD

The ratio of the current dividend to the current market price of a share.

DOCTRINE OF CONSTRUCTIVE NOTICE

Every outsider dealing with a company is deemed to have notice of the contents of the Memorandum & Articles of Association, which on registration with R.O.C. assumes the character of a public document. This is known as constructive notice of M & A. It is not a positive doctrine but negative one.

DOCTRINE OF INDOOR MANAGEMENT

In so far as the internal proceedings of the company are concerned, outsiders dealing with it are entitled to assume that all internal procedures have been duly complied with as required by the Memorandum and Articles of Association. This is known as the Doctrine of Indoor Management.

DOCTRINE OF ULTRA VIRES

Ultra Vires means beyond powers. The term Ultra Vires the company means the doing of the act is beyond the legal powers and authority of the company. Such acts are absolutely void and even the whole body of shareholders can not ratify it. However, if an act is Ultra Vires the directors (beyond their powers, but within the powers of the company), the shareholders can ratify it by a resolution in general meeting. If an act is Ultra Vires the Articles, the company can ratify it by altering the Articles by a special resolution at general meeting.

DOCUMENTARY BILLS

Bills accompanied by documents of title to goods (e.g.-railway receipt, Motor lorry receipts, bill of lading, warehouse receipts etc) are called documentary bills, otherwise these are clean bills.

DOCUMENTARY CREDITS

It is also known as Letter of Credit. It is an instrument of settling trade payments. It is an arrangement whereby a Bank acting at the request of customer undertakes to pay a third party by a given date according to agreed stipulations and against presentation of documents, the counter value of goods or services dispatched / supplied, rendered or otherwise.

Documentary credit in India is governed by Uniform Custom & Practices for Documentary Credit UCPDC 500 of International Chamber of Commerce which is effective from 1.1.1994.

DOUBLE READY FORWARD.

Double ready forward is essentially a switch followed by a reverse re-purchase/sale arrangement, between two operators, each conducting a ready forward deal. It is called double ready forward because two banks do ready forward transactions with each other.

DOUBTFUL ASSET

The realization of which has become doubtful in the assessment of a concern. In case of banks a doubtful asset is one which has remained NPA (Non Performing Asset) for a period exceeding eighteen months.

DRAWEE

The person on whom the bill of exchange or cheque is drawn and who is directed to pay is called drawee. In case of cheque and draft the drawee is always a banker.

DRAWEE IN CASE OF NEED

When in the bill or in any endorsement thereon the name of any person is given in addition to the drawee to be referred in case of need, such person is called drawee in case of need. It may be given in the bill by the drawer at the time when it is drawn or by some subsequent endorser. In short, it is an alternate drawee.

Where a drawee in case of need is named in a bill of exchange or in any endorsement thereon, the bill is not dishonoured until it has been dishonoured by such drawee in case of need.

DRAWER

The person who makes or draws a bill of exchange or cheque, is called drawer.

DRAWING POWER

The bank advances to the party against the value of security after maintaining a margin say 25% of the market value of the security. The borrower is allowed to withdraw from the bank only say 75% of the value of securities within the sanctioned limits in cash credit, overdraft or loan accounts.

DRIP IRRIGATION SYSTEM

It is an advanced method of applying irrigation water and fertilizer near the root zone of the crops with the help of low cost plastic pipes and emitters. It prevents water loss and well suited even for unlevelled / undulating land and crops like grape, tea, coffee etc. This finance is covered under the sub head, Minor Irrigation in Agriculture lending.

DRY LAND

Land entirely dependent on rainfall for raising crops.

DU PONT SYSTEM

A system of financial analysis, pioneered by the Du Pont Company, which helps in understanding profitability in terms of profit margin and asset turnover.

DUAL ASPECT PRINCIPLE

A fundamental principle of accounting according to which the total of assets and the total of equities are always equal.

DUMMY LEDGER

Dummy ledger is a replica of running ledger. It is required to be maintained by all the branches in respect of all NPA accounts.

DURATION APPROACH

Duration method evaluates the impact of interest rate changes on the market value of assets & liabilities. The duration of an asset or liability is calculated as the weighted average maturity of the resultant cash flows, the weights being the present value of the cash flows. Greater the value of duration gap, higher is the interest rate risk exposure of the assets/liabilities. How much interest rate risk a bank should assume, depends upon the capacity of the bank.

E

EBIT

Abbreviation for earnings before interest and taxes

E-COMMERCE

Electronic Commerce refers to paperless exchange of business information between organizations & individuals. It extends to any form of buying & selling by customers & companies over a Computer Network.

EDI FACTORING

To assist international factoring, Factor Chain International (FCI) has developed this special communication system to be used by its members i.e. factoring companies. EDI stands for Electronic Data Interchange and is a unique invention. EDI FACTORING facilitates paperless trading. By adopting this system, the members of FCI, may gain unique opportunities & advantages over their competitors both in domestic and international factoring markets.

EFFICIENT MARKET

A market in which the values of all assets and securities at any instant in time fully reflect all available information.

EFFICIENT MARKET HYPOTHESIS

The argument that the process in the securities markets reflects all available information.

ELECTRONIC FUND TRANSFER AT THE POINT OF SALE (EFTPOS)

It is a payment system which enables goods or services to be paid for, by transmitting over a communication network the details of transactions to both the customer and retailers bank without use of paper voucher. This system of payment combines two distinct methods of payments viz.; Plastic Cards & Electronic Banking.

ELECTRONIC BANKING

It refers to the provision of banking products & services through electronic channels i.e. Telephone, Personal Computer, Television, Internet etc.

ELECTRONIC CREDIT CLEARING SYSTEM

Under this system, companies who have to make bulk payments to a large number of beneficiaries, prepare their credit instruction on the magnetic media, submit the same to RBI through their bankers. RBI process the data, arrive inter-bank settlement & provide bank & branch-wise reports containing the details of payments to facilitate fast payment to the beneficiaries.

ELECTRONIC DATA INTERCHANGE (EDI)

It is electronic exchange of business documents, which can be used to transmit financial information & payments in electronic form.

ELECTRONIC DEBIT CLEARING SYSTEM

It covers payment to utility companies like telephone & electricity bills etc. from a large number of consumers bank accounts through clearinghouse with the help of floppy files.

ELECTRONIC FUND TRANSFER

It facilitates transfer of funds from one branch of a bank to any other branch of any bank within the shortest time.

ELECTRONIC MONEY

It is transformation of traditional money into Digital Money. It is digitized form of money. It may be Smart Card based or E-Cash based.

ENDORSEE

The person to whom the bill, note or cheque is endorsed is called endorsee.

ENDORSEMENT

Where a maker or holder of a negotiable instrument signs the same, otherwise than such maker, for the purpose of negotiation on the back or face thereof or on a slip of paper annexed thereto (known as allonge) such act is known as endorsement.

ENDORSEMENT SANS RECOURSE

Here, an endorser of a negotiable instrument may, by express words in endorsement excludes his own liability thereon.

ENDORSER

The person who endorses the bill, note or cheque to another is called endorser.

EQUITABLE MORTGAGE A MORTGAGE BY DEPOSIT OF TITLE DEED

It is also known as mortgage by deposit of title deed where a debtor or his authorized agent delivers to his creditor, documents of title to property, with intent to create security thereon. Such mortgage can be created only at notified places & no writing or registration is required for this mortgage.

EQUITY

The net worth of a firm consisting of paid up equity capital + reserve & surplus.

EQUITY SHARES

These shares received the residue of the distributed profit after commitment on preference shares and any other shares carrying priority have been meet. Equity share holders have voting right

ESCROW

When a negotiable instrument is delivered conditionally or for some special purpose as a collateral security or for safe custody and not for transferring absolutely the property there in, it is known as escrow.

ESTIMATED ANNUAL VOLUME

Capacity determined each year in the light of forecast volume. It is useful for planning materiel purchases, labour needs and cash requirements.

EUR

ISO currency code for Euro

EURIBOR

European Interbank Offer Rate. Cross-Euroland Euro Interbank reference rate.

EURO-CONVERTIBLE BOND (ECB)

It is a foreign currency dominated quasi-debt instrument, which can be converted into equity usually in accordance with the predetermined formula or retained as a bond, as per the investors choice.

EURO-CURRENCY

Common currency of 11 European countries.

EUROPEAN OPTION

A type of derivative where the option can be exercised only on a specified date mentioned.

EX DIVIDEND DATE

The date on which the right to current dividend does not accompany the stock if traded.

EXCHANGE EARNERS FOREIGN CURRENCY ACCOUNT (EEFC)

Exporter/ beneficiaries of a foreign exchange remittance have been permitted by RBI to maintain foreign currency accounts in designate currencies with authorized dealers to the extent of 50% & 70% in case of units in EPZs in current account with cheque issuing facilities.

EXCHANGE POSITION

It is the net balance of the total of purchases & sales made by the bank in a particular currency.

EXCHANGE RATE

The rate at which one currency is converted into another currency is called exchange rate. The exchange rate may be quoted in two ways i.e. direct or indirect. In India at present direct quotation are being used.

EXCHANGE RISK

In case of Foreign exchange transactions the uncertainty about the rate that would prevail on a future date is known as exchange risk. Forward exchange contract is a device to cover the exchange risk.

EXIM BANK

It is a public sector financial institution established for the purpose of financing, facilitating, promoting, foreign trade in any country.

EXIM POLICY

It is the export-import policy announced by the Government of India.

EXPECTED RETURN

The arithmetic mean or average of all possible outcomes where those outcomes are weighted by the probability that each will occur.

EXPIRED COST

The basic notion of an expense. It is the measure of the value of an economic service which was used up during a fiscal period and which helped produce the firms revenue during that period.

EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD.(ECGC)

It is a company owned by G.O.I under the administrative control of Ministry of Commerce which issues insurance policies for the exporters & export credit guarantee to the banks apart from providing other useful information to the exporters & banks related to various risks.

EXTERNAL FUNDS

Funds acquired from external sources by borrowing or issuing additional equity or preference stock.

F

FACE VALUE

The amount mentioned on the face of any instrument.

The amount the firm promises to pay the bondholder or preference stockholder at the time of maturity. It is also referred to as the par value or principal value.

FACTORING

Factoring is a continuing arrangement between a financial institution (Factor) and a business concern (Client) selling goods or services to trade customers whereby the Factor purchase the clients accounts receivables/book debts either with or without recourse to the client, and in relation thereto also provides assistance by way of credit investigation, sales ledger management.

FACTOR OF COST

The two basic determinants of cost, quantity & the rate of cost per unit, useful in the establishment of standards for cost control & budget purposes

FACTORY OVERHEAD

A major manufacturing cost element containing all manufacturing expenses other than direct material and direct labour. Also called factory burden.

FARMER

The term farmer means the person responsible for the management and operation of the farm. He exercises control over farming resources of a farming unit and decides how they shall be used. The land, which he operates, may be owned or rented from other sources.

FAVOURABLE VARIANCE

A variance when actual costs are less than budgeted costs or when actual revenues exceed budgeted revenues.

FEDAI

Foreign Exchange Dealers Association of India is a non-profit making body to further the interests and regulate the dealings of and between authorized dealers in foreign exchanges, both inter se and with the public, brokers, RBI and others. It is the mouthpiece of Authorized Dealers.

FINANCIAL ASSET

A piece of paper representing claim on real assets.

FINANCIAL ENGINEERING

It is a design, development & implementation of innovative financial instruments and process & the formulation of creative solutions to the problem of finance.

FINANCIAL GUARANTEE

Guarantee issued in respect of purely monetary obligations.

FINANCIAL INSTITUATION

Institutions engaged in financial activity. Examples: insurance companies, commercial banks, leasing companies etc.

FINANCIAL INTERMEDIARIES

Financial institutions, which borrow money, form some one and lend it to others.

FINANCIAL LEASE

This type of lease is used as a method of financing capital expenditure. It is also known as capital lease or full payout lease.

FINANCIAL LEVERAGE

It means utilisation of outside borrowing to increase return on shareholders fund.

FINANCIAL RATIO

A ratio based on figures obtained from the firms financial statements and supposedly reflects some aspect of the firms financial condition and performance.

FINANCIAL RISK

The risk which arises from the use of debt capital.

FINANCIAL STRUCTURE

The pattern of total financing employed by a firm.

FIRST IN FIRST OUT (FIFO)

A method of inventory identification and valuation. Using FIFO as a basis for valuing stock assumes that the oldest stock is used first and thus the remaining stock is valued at the more recent prices, which are usually higher.

FISCAL DEFICIT

Total deficit of the Budget i.e. Budget deficit + Borrowings + Other liabilities.

FIXED ASSETS

Those assets, which are acquired by a concern for, use over long period of time.

FIXED BUDGET

A plan of operations drawn up for only one level of estimated annual volume.

FIXED CHARGE

It attracts to a specific property (i.e. mortgage or charge on heavy machinery) of the company and does not change during subsistence of the charge.

FIXED COSTS

Costs that remain invariant with changes in output. Examples: rent, depreciation, and managerial salaries.

FIXED CREDIT

It is available for fixed amount and period. In this type of Credit, the Credit gets exhausted, once it is utilized for stipulated amount and after the stated validity date.

FLEXIBLE BUDGET

A Budget statement showing how costs vary with changes in activity level.

FLEXIBLE BUDGETING

A method of planning operations, for purposes of cost control, which permits allowed costs to be adjusted to the attained level of volume.

FLOAT

Funds represented by cheques which have been issued but which have not been collected.

FLOATATION COSTS

The legal, printing, postage, underwriting brokerage, and other costs of issuing securities.

FLOATING CHARGE

It is a charge on assets of a company in general and shifting in nature (i.e. charge on stocks in trade).

FLOATING LIEN

A general lien against a companys assets.

FOOD GRAIN CROPS

Cereals- Maize, Wheat, Rice etc

Pulses- Gram, Pea, Arhar etc

Millets- Jowar, Bajra & small grain crops.

FORAGE CROPS

Berseem, Lucerne, Dinanath Grass, Nappier Grass, Owpea, Bajra, Oats etc.

FORECAST VOLUME

The level of activity (production, sales or other activity) anticipated by management for the coming fiscal period and around which the fixed budget is constructed.

FOREIGN CURRENCY NON RESIDENT ACCOUNT (FCNR-B SCHEME)

RBI has permitted opening of Term Deposit accounts in designated foreign currencies with authorized dealers in India by NRIs & OCBs which is repatriable account but the exchange risk will be borne by the authorized dealers.

FORFEITING

Non-recourse discounting of Export receivables is termed as forfeiting. It is thus a means of financing exports.

FORWARD CONTRACT

It is a transaction, where delivery of foreign currency takes place after a future date.

FORWARD RATE

Forward rates are not necessarily equal to the ready/spot rate. They are generally quoted at a higher (premium) or lower (discount) rates for future deliveries. They are generally quoted as a margin (or difference) against the spot rate for the currency concerned.

FORWARD RATE AGREEMENT (FRA)

The FRA can be defined as an agreement between two parties that determines the interest rate that will apply to a notional future loan or deposit for an agreed amount and specified period. It can be used to manage interest rate risk when the risk is a one period risk.

FORWARD TRADING

It refers to settlement of transaction of shares in specified group, which are carried out on a specified date on delivery of shares by the sellers and receipt of payment from the buyers.

FREE CURRENCY

Money that may be exchanged for the money of another country without restriction.

FREE ON BOARD (FOB)

As per INCOTERMS, the price quoted under this contract includes charges up to the preparation of goods for export and placing them on board of the named vessel in the sellers country. The term is normally followed by the name of the port in the sellers country, for example. FOB Mumbai.

FREE TRADE ZONES (FTZ)

These are industrial estates cordoned off from domestic tariff areas, where trade barriers applicable to rest of the economy do not apply. Here export oriented units can operate free of import duties or qualitative restrictions and are given other advantages including tax exemption. These are also known as export processing zones.

FULL COST PRICING

A method, which sets the price of a product at an amount equal to, its budgeted manufacturing cost plus a normal markup. Also called cost plus pricing

FUND FLOW STATEMENT

It is a statement of sources and uses of funds for a given period.

FUTURE

It is a type of derivative where there is an obligation to buy or sale on the stated exchange, a stated quantity of foreign exchange at a future date at agreed price.

G

GAP APPROACH

It addresses the rate sensitivity of assets and liabilities. The gap is the difference between the existing Rate Sensitive Assets (RSA) and Rate Sensitive Liabilities (RSL) in a particular time period. Interest rate risk is minimized if the gap is managed to near zero for each period.

GENERAL LIEN

It is the right to retain the goods and securities belonging to the debtor for all dues payable by him.

GILT-EDGED SECURITIES

Securities issued by the Central or the State Government for the purpose of raising a public loan.

GLOBAL DEPOSITORY RECEIPTS (GDRs)

It is Dollar-dominated instrument usually listed in Luxembourg and traded in London, in the over-the-counter market or among a restricted group such as qualified institutional buyers in USA. It represents certain number of shares without having voting rights. The shares are issued by a company to an intermediary called depository, who subsequently issues GDRs. The physical possession of such shares is with another intermediary called custodian, who is the agent of the depositary.

GOING CONCERN PRINCIPLE

Accounting is based on the premise that the business firm will remain a going concern for an indefinitely long period.

GOODWILL

Intangible assets represented by the excess off purchase price over book value

GR FORM

GR Forms are printed by the RBI and made available to exporters through authorized dealers which is used by the exporters for declaration of value of goods exported other than by post.

GREEN CLAUSE CREDIT

It is an extended form of Red clause Credit in the sense that it not only provides for advance towards purchase, processing and packaging but also for warehousing & insurance charges at port, when the goods are stored pending availability of ship/shipping space.

GREEN SHOE OPTION

It refers to the option of the issuer of any financial instrument to retain certain portion of over subscription (with the approval of appropriate authority).

GROSS COST

The acquisition value of a fixed asset (with no reduction for accumulated depreciation) used in calculating return on capital.

GROSS CROPPED AREA

Total of the crop grown area of a plot during a year.

GROSS PROFIT RATIO

It indicates the efficiency in production of the business & calculated as :

Gross Profit X 100

Net sales

GROSS WORKING CAPITAL

Funds required to finance total current assets of a unit are called gross working capital.

GROUND RULES AND CODE OF ETHICS (GRACE)

GRACE has been prescribed by Indian Banks Association and its member banks have voluntarily agreed to observe it in letter and spirit. These rules relate to limitations on giving prizes & gifts, insurance benefits linked to deposits, advertisements, period of deposits, introduction of new deposit accounts, calculation of interest etc. by the banks.

GUARANTEE

It is a contract to perform the promise or discharge the liability, of a third person in case of his default.

H

HEALTH CERTIFICATE

When animals or plants etc., are exported, generally the importer insists on a certificate of health by a recognized agency indicating the health and transportability of export product. Sometimes it may also be required by laws of either the importers country or the exporters country.

HEDGE FUNDS

Hedge Funds can be defined as electric investment pools organized as private partnerships for wealthy individuals & institutions, and very often, for offshore residents, primarily for tax and regulatory purposes whose managers are paid on a fee-for-performance basis.

HEDGING

Means risk taken to offset an equal amount of opposite risk. It involves (1) Identification of risks, (2) Management of such risks, (3) Strategy for risk management and (4) Choice of instruments for hedging.

HI TECH AGRICULTURAL BRANCHES

In the contest of economic liberalization and reforms being implemented, a new farm policy was announced by Government of India for increasing agricultural production, which will support the processing and marketing both domestic as well as export needs. For this purpose the RBI has advised banks to open specialized branches known as Hi Tech Agricultural Branches.

HIRE PURCHASE

Hire purchase is an agreement under which goods are let on hire bases and under which the hirer has option to purchase the same. It involves delivery of possession of goods to the hirer and on payment of last installment the property passes on the hirer.

HOLDER

To become holder of a negotiable instrument one should have acquired the instrument lawfully and in proper manner and he should be payee or endorsee if it is an order instrument and bearer, if it is a bearer instrument.

HOLDER FOR THE VALUE

A holder is called a holder for the value if the value of a bill/cheque is partly or fully paid at any time either by him or any party prior to him.

HOLDER-IN-DUE COURSE

Where the payee/endorsee of an order cheque or possessor of a bearer cheque satisfies following three conditions, he can claim himself as holder-in-due course

1. He should have got the instrument for lawful consideration & not by way of gift.

2. He should have become holder of the instrument before maturity.

3. He should have become holder of the instrument in good faith i.e. without having sufficient cause to believe that any defect existed in the title of the person from whom he derived his title.

HOLDING COMPANY

A company is known as the holding company of another company if it has control over that company.

HOME BANKING

Under this system customers can do their banking not only when they want to do but also from the convenience, comfort, privacy & security of their homes by using internet/other Networks, PC/Television and Telephone/Modem.

HORIZENTAL MERGER

A merger between one or more firm engaged in same line of activity.

HORTICULTURAL CROPS

Fruit crop- Apple, Mango, Orange etc.

Plantation -Coconut, Cashewnut, Coffee, Rubber etc.

Vegetable crops- Cabbage, Cauliflower, Brinjal etc.

Condiments and spices -Chilies, ginger etc

Medicinal plants- Poppy, Isabgol, Coca, Belladonna etc.

Aromatic plants-Palmarosa, Centronella Grass, Rose, Mint etc.

Flowering Plants or Ornamental plants-Rose, Jasmine, Chrysanthemum etc.

HOT MONEY

It refers to vast sum of international money transferred by the owner into another country for investment for speculative purposes.

HOUSE BILL OF LADING

This type of Bill of Lading is one issued generally by an association of forwarding agencies or non-vessel-owning carriers (shipping people) like FIATA (International Federation of Forwarding Agents Association based in Zurich). Such bills of lading are safe only when issued subject to ICC Rules, but liability in this case is limited.

HURDLE RATE

In investment decision making taking into account the minimum acceptable rate of return on a project.

I

INCOME STATEMENT (PROFIT & LOSS STATEMENT)

A basic accounting statement that measures the results of a firms operations over a specified period, commonly one-year. Also known as the profit and loss statement. The bottom line of the income statement shows the forms profit or loss for the period.

INCREMENTAL ANALYSIS

Analysis of the additional costs or benefits of one alternative vis--vis another.

INCREMENTAL CAPITAL OUTPUT RATIO

Is ratio between the additional capital and additional output than is raised. Incremental ratio shows the units of capital that have to be used or invested for raising a unit of output. Such a ratio depends upon the sector whether it is agriculture cottage industry or large-scale industry or heavy industry and the methods of production and technology that is used.

INCREMENTAL CASH FLOW

The cash flow that reserve from the exception of a capital budgeting project.

INCREMENTAL COSTS

Costs incurred as a result of taking on an additional piece of business, which would be avoided if that piece of business, were forgone. Also called differential costs.

INCURRED COSTS

Expenses for which the company paid or actually received benefits during the period. Also called actual costs.

INCURRED OVERHEAD RATE

The relationship of the overhead cost incurred in a given period and the appropriate activity base.

INDENTURE

A formal agreement between the issuer and purchasers of a bond.

INDIRECT LABOUR

The cost of labour, other than direct labour, incurred in facilitating the production process.

INDUSTRIAL POLICY RESOLUTION

A central resolution which provides the framework for government regulations, restrictions, and incentives.

INFLATION PREMIUM

A premium for anticipated inflation that investors require in addition to the pure rate of interest.

INSOLVENCY

The inability of a firm to meet its debt obligations.

INTEREST RATE COLLAR

It is the combination of the two types of interests rates (i.e. fixed & floating).

INTEREST RATE SWAP

It allows companies to move from fixed to floating rate of interest or vice-versa.

INTEREST RISK

Interest rate at which funds can be borrowed also varies from one source to another. In case a bank borrows, at a very higher rate of interest, funds of long maturities and deploys the same on credit where the rate of interest may go down subsequently, the bank will face erosion of profit. This type of risk of loss, which is caused due to mismatch of interest rates of sources and uses of funds, is called interest risk. It can create a liquidity crisis also.

INTERNAL FINANCING

Funds generated internally, internal financing consists of retained earnings plus depreciation and other non cash charges.

INTERNAL RATE OF RETURN (IRR)

It is the rate of discount at which present value of cash inflows is equal to the present value of cash out flows.

INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA)

It is a subsidiary of World Bank formed to provide soft loans to under- developed and developing countries at a very low rate of interest.

INTERNATIONAL FACTORING

It means an arrangement between a factor & his client which includes atleast two of the following services to be provided by the factor (1) Maintenance of Account (2) Finance (3) Collection of debt & (4) Protection against credit risk. In international Factoring there are four parties The exporter-Who is called the client The importer-Who is called a customer. Export factor & Import Factor. It is entirely invoice based export finance technique.

INTERNATIONAL MONETARY FUND (IMF)

It is an autonomous international financial institution having its headquarter at Washington and 155 countries as members. It provides foreign exchange resources for overcoming balance of payment problem by allowing several types of drawing facilities through Special Drawing Rights (SDR) depending upon the quota of the country.

INTERNET BANKING

Internet is a global matrix of inter-connected computer network using the Internet Protocol (IP) to communicate with each other. Internet Banking is done over a highly accessible public network. It is accessible to any one using the Internet, not just the bank customers.

INTRINSIC VALUE

The intrinsic value of an asset is the present value of the stream of benefits expected from it. It is also referred to as the fair value or reasonable value or investment value

INVENTORY TURNOVER RATIO

It is calculated by dividing cost of sales by Average Inventory. Higher the turnover compared to last year or compared to that of units in the same industry indicates better management of inventory.

INVESTMENT BANKER

The financial specialist who underwrites and distributes new securities and advises corporate clients about raising new funds.

INVESTMENT OPPORTUNITY SCHEDULE

A listing or graphical representation of a firms investment opportunities arranged on the order of projects internal rate of return

IRREVOCABLE CREDIT

It is a firm undertaking on the part of the issuing bank and can not be cancelled or amended without the consent of the parties to the L.C., particularly the beneficiary.

ISO 9000

ISO stands for the International Organisation for standardization, which currently comprises the standards bodies of 91 nations. Its function is to develop global standards in an effort to improve the exchange of goods and services internationally. The ISO standards are quality management and quality assurance standards.

ISSUE HOUSE

An agency which performs a variety of functions relating to security issue.

ISSUED CAPITALA portion of the authorized capital which is offered for subscription to the public.

ISSUING BANK

The bank which opens the Credit i.e. it is the bank which creates a Credit and undertakes to make payment.

J

JOINT DEED OF HYPOTHECATION