Demand Liabilities
Demand Liabilities of a bank are liabilities which are payable on demand. These include current deposits, demand liabilities portion of savings bank deposits, margins held against letters of credit/guarantees, balances in overdue fixed deposits, cash certificates and cumulative/recurring deposits, outstanding Telegraphic Transfers (TTs), Mail Transfers (MTs), Demand Drafts (DDs), unclaimed deposits, credit balances in the Cash Credit account and deposits held as security for advances which are payable on demand. Money at Call and Short Notice from outside the Banking System should be shown against liability to others.
Time Liabilities
Time Liabilities of a bank are those which are payable otherwise than on demand. These include fixed deposits, cash certificates, cumulative and recurring deposits, time liabilities portion of savings bank deposits, staff security deposits, margin held against letters of credit, if not payable on demand, deposits held as securities for advances which are not payable on demand and Gold deposits.
Assets with the Banking System
Assets with the banking system include balances with banks in current account, balances with banks and notified financial institutions in other accounts, funds made available to banking system by way of loans or deposits repayable at call or short notice of a fortnight or less and loans other than money at call and short notice made available to the banking system. Any other amounts due from banking system which cannot be classified under any of the above items are also to be taken as assets with the banking system.
What's an NRE account?
A Non-Resident External (NRE) account is a bank account that's opened by depositing foreign currency at the time of opening a bank account. This currency can be tendered in the form of traveler's checks or notes.
What's an NRO account?
A Non-Resident Ordinary (NRO) account is the normal bank account opened by an Indian going abroad with the intention of becoming an NRI. An NRI can also open this account by sending remittances from his home country or by transferring funds from his other NRO account. It offers the same facilities as an NRE account, except that any repatriation done through this account should be reported to RBI by filling up prescribed forms.
How do NRE and NRO accounts differ?
Funds remitted from overseas sources or local funds that would otherwise have been sent to the accountholder abroad can instead be transferred to NRE Accounts. On the other hand, local funds that aren't eligible to be remitted abroad must be credited to an NRO account.
Can you transfer funds fromanNREto anNROaccount and vice versa?
It's easy to transfer funds fromanNREto an NRO account. But it's not possible to transfer funds from an NRO account to an NRE account. Once you transfer funds fromanNREtoanNRO account, the amount is non-repatriable. Consequently, you cannot transfer it back.
What's the difference in the tax treatment for interest earned on an NRE and an NRO account?
The interest earned on any type of NRO bank as well as the credit balances in this kind of account are taxed under the account holder's tax bracket. On the other hand, interest earned on the NRE account is totally exempted from income tax, and the credit balances in the account don't attract any wealth tax. Any gift given to a close relative doesn't attract gift tax.
RBI - The Reserve Bank of India is the apex bank of the country, which was constituted under the RBI Act, 1934 to regulate the other banks, issue of bank notes and maintenance of reserves with a view to securing the monetary stability in India.
Demand Deposit - A Demand deposit is the one which can be withdrawn at any time, without any notice or penalty; e.g. money deposited in a checking account or savings account in a bank.
Time Deposit - Time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain "term" or period of time. When the term is over it can be withdrawn or it can be held for another term.
Fixed Deposits - FDs are the deposits that are repayable on fixed maturity date along with the principal and agreed interest rate for the period. Banks pay higher interest rates on FDs than the savings bank account.
Recurring Deposits - These are also called cumulative deposits and in recurring deposit accounts, a certain amounts of savings are required to be compulsorily deposited at specific intervals for a specified period.
Savings Account - Savings account is an account generally maintained by retail customers that deposit money (i.e. their savings) and can withdraw them whenever they need. Funds in these accounts are subjected to low rates of interest.
Current Accounts - These accounts are maintained by the corporate clients that may be operated any number of times in a day. There is a maintenance charge for the current accounts for which the holders enjoy facilities of easy handling, overdraft facility etc.
FCNR Accounts - Foreign Currency Non-Resident accounts are the ones that are maintained by the NRIs in foreign currencies like USD, DM, and GBP etc. The account is a term deposit with interest rates linked to the international rates of interest of the respective currencies.
NRE Accounts - Non-Resident External accounts are the ones in which NRIs remit money in any permitted foreign currency and the remittance is converted to Indian rupees for credit to NRE accounts. The accounts can be in the form of current, saving, FDs, recurring deposits. The interest rates and other terms of these accounts are as per the RBI directives.
Cheque Book - A small, bound booklet of cheques. A cheque is a piece of paper produced by your bank with your account number, sort-code and cheque number printed on it. The account number distinguishes your account from other accounts; the sort-code is your bank's special code which distinguishes it from any other bank.
Cheque Clearing - This is the process of getting the money from the cheque-writer's account into the cheque receiver's account.
Clearing Bank - This is a bank that can clear funds between banks. For general purposes, this is any institution which we know of as a bank or as a provider of banking services.
Bounced Cheque - when the bank has not enough funds in the relevant account or the account holder requests that the cheque is bounced (under exceptional circumstances) then the bank will return the cheque to the account holder.
Credit Rating - This is the rating which an individual (or company) gets from the credit industry. This is obtained by the individual's credit history, the details of which are available from specialist organisations like CRISIL in India.
Credit-Worthiness - This is the judgement of an organization which is assessing whether or not to take a particular individual on as a customer. An individual might be considered credit-worthy by one organisation but not by another. Much depends on whether an organization is involved with high risk customers or not.
Interest - The amount paid or charged on money over time. If you borrow money interest will be charged on the loan. If you invest money, interest will be paid (where appropriate to the investment).
Overdraft - This is when a person has a minus figure in their account. It can be authorized (agreed to in advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because the account holder represents too great a risk to lend to in this way or because the account holder has not asked for an overdraft facility).
Payee - The person who receives a payment. This often applies to cheques. If you receive a cheque you are the payee and the person or company who wrote the cheque is the payer.
Payer - The person who makes a payment. This often applies to cheques. If you write a cheque you are the payer and the recipient of the cheque is the payee.
Security for Loans - Where large loans are required the lending institution often needs to have a guarantee that the loan will be paid back. This takes the form of a large item of capital outlay (typically a house) which is owned or partly owned and the amount owned is at least equivalent to the loan required.
Internet Banking - Online banking (or Internet banking) allows customers to conduct financial transactions on a secure website operated by the bank.
Credit Card - A credit card is one of the systems of payments named after the small plastic card issued to users of the system. It is a card entitling its holder to buy goods and services based on the holder's promise to pay for these goods and services.
Debit Card - Debit card allows for direct withdrawal of funds from customers bank accounts. The spending limit is determined by the available balance in the account.
Loan - A loan is a type of debt. In a loan, the borrower initially receives or borrows an amount of money, called the principal, from the lender, and is obligated to pay back or repay an equal amount of money to the lender at a later time. There are different kinds of loan such as the house loan, auto loan etc.
Bank Rate - This is the rate at which central bank (RBI) lends money to other banks or financial institutions. If the bank rate goes up, long-term interest rates also tend to move up, and viceversa.
CRR - Cash reserve Ratio (CRR) is the amount of funds that the banks have to keep with RBI. If RBI decides to increase the percent of this, the available amount with the banks comes down. RBI is using this method (increase of CRR rate), to drain out the excessive money from the banks.
SLR - SLR stands for Statutory Liquidity Ratio. This term is used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved to liabilities (deposits). It regulates the credit growth in India.
ATM - An automated teller machine (ATM) is a computerised telecommunications device that provides the clients with access to financial transactions in a public space without the need for a cashier, human clerk or bank teller. On most modern ATMs, the customer is identified by inserting a plastic ATM card with a magnetic stripe or a plastic smart card with a chip, that contains a unique card number and some security information such as an expiration date or CVV. Authentication is provided by the customer entering a personal identification number (PIN)
REPO RATE: - Under repo transaction the borrower places with the lender certain acceptable securities against funds received and agree to reverse this transaction on a predetermined future date at agreed interest cost. Repo rate is also called (repurchase agreement or repurchase option).
REVERSE REPO RATE: - is the interest rate earned by the bank for lending money tothe RBI in exchange of govt. securities or "lender buys securities with agreement to sell them back at a predetermined rate".
CASH RESERVE RATIO: - specifies the percentage of their total deposits the commercial bank must keep with central bank or RBI. Higher the CRR lower will be the capacity of bank to create credit.
SLR: - known as Statutorily Liquidity Ratio. Each bank is required statutorily maintain a prescribed minimum proportion of its demand and time liabilities in the form of designated liquid asset. OR "Every bank has to maintain a percentage of its demand and time liabilities by way of cash, gold etc".
BANK RATE: - is the rate of interest which is charged by RBI on its advances to commercial banks. When reserve bank desires to restrict expansion of credit it raises the bank rate there by making the credit costlier to commercial bank.
OVERDRAFT:- It is the loan facility on customer current account at a bank permitting him to overdraw up to a certain agreed limit for a agreed period ,interest is payable only on the amount of loan taken up.
PRIME LENDING RATE: It is the rate at which commercial banks give loan to its prime customers.
What is Basel Norms ?
Bureau of International Settlement (BIS) headquarters at Basel, Switzerland has appointed a committee to supervise and to set some standards for International Banks. This committee is known as Basel Committee on Bank Supervision (BCBS). The rules and regulations for Banks issued by this committee were called Basel Norms / Accords. There are three Basel Norms, namely Basel I, II and III.
Basel I Accord :
This was issued in 1988. This accord focused on the capital adequacy of financial institutions. Banks that operate internationally are required to have a risk weight of 8% or less. India adopted Basel I Norms in the year 1999.
Basel II Acord :
This is the second of the Basel Accords, published in the year 2004. This consists of the recommendations on Banking Laws and Regulations issued by BCBS.
Basel III Accord :
Basel III guidelines were released in the year 2010. This is to enhance the banking regulatory framework. It builds on the Basel I and Basel II documents and seeks to improve the banking sector's ability to deal with financial and economic stress, improve risk management and strengthen the banks' transparency.
SARFAESI act 2002. hERE R D DETAILS:
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002, allows banks and financial institutions to auction properties (residential and commercial) when borrowers fail to repay their loans. It enables banks to reduce their non-performing assets (NPAs) by adopting measures for recovery or reconstruction.
When do properties fall under this Act?
If a borrower defaults on repayment of his/her home loan for six months at stretch, banks give him/her a 60-day period to regularise the repayment, that is, start repaying. On failure to do so, banks declare the loan an NPA and auction it to recover the debt.
How is the auction price decided?
It depends on the market value of the property. Professional valuers determine the property value based on which banks fix a reserve or minimum bid price. The valuations tend to be on the conservative side as it is a distress sale. If the price fetched exceeds the bank's dues, the excess amount is given to the borrower.
Where can buyers get information about the auctions?
Banks advertise such sales in at least one English and one regional newspaper, 30 days prior to the auction.
How can you bid?
Interested bidders must submit their bids in a sealed envelope to the bank. Along with the bid, they must also deposit a certain percentage of the reserve price as earnest money deposit. This amount differs across banks and is refundable if one withdraws from the process or does not win.
On the auction day, the sealed envelopes are opened in front of the bidders and the highest bid is announced. Bidders may or may not get another chance to revise their bids. If you win, you have to pay up to 25 per cent of your bid amount to confirm the purchase. The bank may allow you to pay the remaining in 10-15 days. You can apply for a loan for the same.
What are the pros and cons of such buys?
Typically, these properties are 20-30 per cent cheaper than the market price. Also, since the bank had previously lent against the property, there is clarity on property title.
However, these properties are sold on an 'as-is' basis. There may be pending dues or even litigations. These liabilities, unless checked carefully, can get transferred to you automatically.
Self Help groups (SHGs)
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A Self Help Group is an association of the poor people specially women who belong to the same social & economic background. The SHGs are usually informal groups of a locality or area, whose members have a common need and importance towards collective action. These groups normally consist of 10 to 20 members. Members of the group meet regularly, make their share of contribution. The SHGs bank linkage model has become famous in rural areas where as without bank linkage SHGs are also functioning.
The SHG promotes small saving among its members, which are then kept with a bank. This common fund is then given a name. SHGs have been generally formed for specific issues. The main purpose of SHGs is to mobilize savings among their members and used resources to meet the emergent credit needs of the members of the group. SHGs generally work according to the local requirement.
Objectives
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The Objectives of Forming SHG are as Follows
. To build mutual trust and confidence between the bankers and the rural poor people.
. To encourage banking activities in a segment of the population in which formal financial institutions fell difficult to cover.
Main features
Some Common Features of The Functioning of SHGs are as Follows:
. The SHGs create the common fund by contributing their small savings.
. Every member of the group actively participates in the functioning of SHGs and they meet regularly.
. Their accounts and proceeding are maintained by the leader and leader is selected or elected among the group members.
. Amount of loans are small and for short period.
. Loan is sanctioned on 'trust' with minimum documentation and without any security.
. The rate of interest differs from group to group. It is generally little higher than that of charged by banks.
. Repayment of loan amount is generally on time.
Categorization of IDBI Bank Ltd. as OTHER PUBLIC SECTOR BANK by RBI
Industrial Development Bank of India Ltd. (since renamed as IDBI Bank Ltd.) was incorporated under Companies Act 1956, as a Limited Company, registered with the Registrar of Companies, Maharashtra, Mumbai vide Certificate of incorporation dated 27th September, 2004. In terms of the Articles of Association of the IDBI Bank Ltd., the Central Government being a shareholder of the company shall, at all times, maintain not less than 51% of the Issued Capital of the company. Considering the shareholding pattern, IDBI Ltd. has been categorized under a New Sub-Group "Other Public Sector Banks".
Reserve Bank of India has, vide its letter no DBOD. BP. 1630/21.04.152/2004-05 dated April 15, 2005 confirmed that IDBI Ltd. (since renamed as IDBI Bank Ltd.) may be considered as Government-owned bank.
IDBI Bank Ltd. to be Treated on PAR with Nationalised Banks/SBI
Ministry of Finance has vide its circular no. F.No. 7/96/2005-BOA dated December 31, 2007 advised Secretaries of all Ministries/Departments of Government of India that the bank may be treated on par with Nationalised Banks/State Bank of India by Govt. Departments/Public Sector Undertakings/other entities for all purposes, including deposits/bonds/investments/guarantees etc. and Government business.
Export Credit Guarantee Corporation of India (ECGC)
The Export Credit Guarantee Corporation of India Limited (ECGC) is a company wholly owned by the Government of India based in Mumbai, Maharashtra. It provides export credit insurance support to Indian exporters and is controlled by the Ministry of Commerce. Government of India had initially set up Export Risks Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation of India in 1983.
ECGC of India Ltd, was established in July, 1957 to strengthen the export promotion by covering the risk of exporting on credit. It functions under the administrative control of the Ministry of Commerce & Industry, Department of Commerce, Government of India. It is managed by a Board of Directors comprising representatives of the Government, Reserve Bank of India, banking, insurance and exporting community.
ECGC is the fifth largest credit insurer of the world in terms of coverage of national exports. The present paid-up capital of the company is Rs.900 crores and authorized capital Rs.1000 crores. Shri Anand Sharma, Minister of Commerce & Industry, Government of India, inaugurated the first overseas office of ECGC in London on September 17, 2013.
What does ECGC do?
1) Provides a range of credit risk insurance covers to exporters against loss in export of goods and services.
2) Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them.
3) Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan.
How does ECGC help exporters?
1) Offers insurance protection to exporters against payment risks
2) Provides guidance in export-related activities
3) Makes available information on different countries with its own credit ratings
4) Makes it easy to obtain export finance from banks/financial institutions
5) Assists exporters in recovering bad debts
6) Provides information on credit-worthiness of overseas buyers
Need for export credit insurance
Payments for exports are open to risks even at the best of times. The risks have assumed large proportions today due to the far-reaching political and economic changes that are sweeping the world. An outbreak of war or civil war may block or delay payment for goods exported. A coup or an insurrection may also bring about the same result. Economic difficulties or balance of payment problems may lead a country to impose restrictions on either import of certain goods or on transfer of payments for goods imported. In addition, the exporters have to face commercial risks of insolvency or protracted default of buyers. The commercial risks of a foreign buyer going bankrupt or losing his capacity to pay are aggravated due to the political and economic uncertainties. Export credit insurance is designed to protect exporters from the consequences of the payment risks, both political and commercial, and to enable them to expand their overseas business without fear of loss.
Cooperation agreement with MIGA (Multilateral Investment Guarantee Agency) an arm of World Bank. MIGA provides:
1) Political insurance for foreign investment in developing countries.
2) Technical assistance to improve investment climate.
3) Dispute mediation service.
Under this agreement protection is available against political and economic risks such as transfer restriction, expropriation, war, terrorism and civil disturbances etc.
An important function performed by the commercial banks is the creation of credit. The process of
banking must be considered in terms of monetary flows, that is, continuous
depositing and withdrawal of cash from the bank. It is only this activity which
has enabled the bank to manufacture money. Therefore the banks are not only the
purveyors of money but manufacturers of money.
Basis of Credit Creation:
The basis of credit money is the bank deposits. The bank
deposits are of two kinds viz.,
(1) Primary deposits and (2)
Derivative deposits.
1)
Primary Deposits: Primary deposits arise or formed when cash or cheque is
deposited by customers. When a person deposits money or cheque, the bank will
credit his account. The customer is free to withdraw the amount whenever he
wants by cheques. These deposits are called "primary deposits" or "cash
deposits." It is out of these primary deposits that the bank makes loans and
advances to its customers. The initiative is taken by the customers themselves.
In this case, the role of the bank is passive. So these deposits are also
called "passive deposits." These deposits merely convert currency money into
deposit money. They do not create money. They do not make any net addition to
the stock of money. In other words, there is no increase in the supply of
money.
2) Derivative Deposits: Bank deposits also arise when a
loan is granted or when a bank discounts a bill or purchase government
securities. Deposits which arise on account of granting loan or purchase of
assets by a bank are called "derivative deposits." Since the bank play an
active role in the creation of such deposits, they are also known as "active
deposits." When the banker sanctions a loan to a customer, a deposit account is
opened in the name of the customer and the sum is credited to his account. The
bank does not pay him cash. The customer is free to withdraw the amount
whenever he wants by cheques. Thus the banker lends money in the form of
deposit credit. The creation of a derivative deposit does result in a net
increase in the total supply of money in the economy, Hartly Withers says
"every loan creates a deposit." It may also be said "loans make deposits" or
"loans create deposits." It is rightly said that "deposits are the children of
loans, and credit is the creation of bank clerk's pen."
Granting a loan is not the only method of creating deposit
or credit. Deposits also arise when a bank discounts a bill or purchase
government securities. When the bank buys government securities, it does not pay
the purchase price at once in cash. It simply credits the account of the
government with the purchase price. The government is free to withdraw the
amount whenever it wants by cheque. Similarly, when a bank purchase a bill of
exchange or discounts a bill of exchange, the proceeds of the bill of exchange
is credited to the account of the seller and promises to pay the amount
whenever he wants. Thus asset acquired by a bank creates an equivalent bank
deposit. It is perfectly correct to state that "bank loans create deposits."
The derivate deposits are regarded as bank money or credit. Thus the power of
commercial banks to expand deposits through loans, advances and investments is
known as "credit creation."
Thus, credit creation implies multiplication of bank
deposits. Credit creation may be defined as "the expansion of bank deposits
through the process of more loans and advances and investments."
It means a system of banking in which a banking organisation works at more than one place. The main place of business is called head office and the other places of business are called branches. The head office controls and co-ordinates the work at branches. The day-to-day operations are performed by the branch manager as per the policies and directions issued from time to time by the head office. This system of banking is prevalent throughout the world. In India also, all the major banks have been operating under branch banking system. Advantages of Branch Banking: 1. Better Banking Services: Such banks, because of their large size can enjoy the economies of large scale viz., division of work and specialisation. These banks can also afford to have the specialised services of bank personnel which the unit banks can hardly afford. 2. Extensive Service: Branch banking can provide extensive service to cover large area. They can open their branches throughout the country and even in foreign countries. 3. Decentralisation of Risks: In branch banking system branches are not concentrated at one place or in one industry. These are decentralised at different places and in different industries. Hence the risks are also distributed. 4. Uniform Rates of Interest: In branch banking, there is better control and coordination of the central bank. Consequently interest rates can be uniform. 5. Better Cash Management: In branch banking there can be better cash management as cash easily be transferred from one branch to another. Therefore, there will be lesser need to keep the cash idle for meeting contingencies. 6. Better Training Facilities to Employees: Under branch banking the size of the bank is quite large. Therefore, such banks can afford to provide better training facilities to their employees. Almost every nationalised bank in India has its separate training college. 7. Easy and Economical Transfer of Funds: Under branch banking, a bank has a widespread of branches. Therefore, it is easier and economical to transfer funds from one branch to the other. 8. Better Investment of Funds: Such bank can afford the services of specialised and expert staff. Therefore they invest their funds in such industries where they get the highest return and appreciation without sacrificing the safety and liquidity of funds. 9. Effective Central Bank Control: Under branch banking, the central bank has to deal only with a few big banks controlling a large number of branches. It is always easier and more convenient to the central bank to regulate and control the credit policies of a few big banks, than to regulate and control the activities of a large number of small unit banks. This ensures better implementation of monetary policy. 10. Contacts with the Whole Country: Under branch banking, the bank maintains continual contacts with all parts of the country. This helps it to acquire correct and reliable knowledge about economic conditions in various parts of the country. This knowledge enables the bank to make a proper and profitable investment of its surplus funds. 11. Greater Public Confidence: A bank, with huge financial resources and number of branches spread throughout the country, can command greater public confidence than a small unit bank with limited resources and one or a few branches. Disadvantages of Branch Banking: Following are the disadvantages of branch banking: 1. Difficulties of Management, Supervision and Control: Since there are hundreds of branches of a bank under this system, management, supervision and control became more inconvenient and difficult. There are possibilities of mismanagement in branches. Branch managers may misuse their position and misappropriate funds. There is great scope for fraud. Thus there are possibilities of fraud and irregularities in the financial management of the bank. 2. Lack of Initiative: The branches of the bank under this system suffer from a complete lack of initiative on important banking problems confronting them. No branch of the bank can take decision on important problems without consulting the head office. Consequently, the branches of the bank find themselves unable to carry on banking activities in accordance with the requirements of the local situation. This makes the banking system rigid and inelastic in its functioning. This also leads to "red-tapism" which means "official delay." 3. Monopolistic Tendencies: Branch banking encourages monopolistic tendencies in the banking system. A few big banks dominate and control the whole banking system of the country through their branches. This can lead to the concentration of resources in the hands of a small number of men. Such a monopoly power is a source of danger to the community, whose goal is a socialistic pattern of society. 4. Regional Imbalances: Under the branch banking system, the financial resources collected in the smaller and backward regions are transferred to the bigger industrial centres. This encourages regional imbalances in the country. 5. Continuance of Non-profitable Branches: Under branch banking, the weak and unprofitable branches continue to operate under the protection cover of the stronger and profitable branches. 6. Unnecessary Competition: Branch banking is delocalised banking, under branch banking system, the branches of different banks get concentrated at certain places, particularly in big towns and cities. This gives rise to unnecessary and unhealthy competition among them. The branches of the competing banks try to tempt customers by offering extra inducements and facilities to them. This naturally increases the banking expenditure. 7. Expensiveness: Branch banking system is much more expensive than the unit banking system. When a bank opens a number of branches at different places, then there arises the problem of co-ordinating their activities with others. This necessitates the employment of expensive staff by the bank. 8. Losses by Some Branches Affect Others: When some branches suffer losses due to certain reasons, this has its repercussions on other branches of the bank. Thus branch banking system as well as unit banking system suffer from defects and drawbacks. But the branch banking system is, on the whole, better than the unit banking system. In fact, the branch banking system has proved more suitable for backward and developing countries like India. Branch banking is very popular and successful in India. A comparison between unit banking and branch banking is essentially a comparison between small-scale and large-scale operations.
The banking
system in different countries vary substantially from one another. Broadly
speaking, however, there are two important types of banking systems, viz.,
"unit banking" and "branch banking".
Unit
Banking 'Unit banking' means a
system of banking under which banking services are provided by a single banking
organisation. Such a bank has a single office or place of work. It has its own
governing body or board of directors. It functions independently and is not
controlled by any other individual, firm or body corporate. It also does not
control any other bank. Such banks can become member of the clearing house and
also of the Banker's Association. Unit banking system originated and grew in
the U.S.A. Different unit banks in the U.S.A. are linked with each other and
with other financial centres in the country through "correspondent banks."
Advantages of Unit Banking: Following are the main advantages of unit banking: 1. Efficient Management: One of the most important advantages of unit banking system is that it can be managed efficiently because of its size and work. Co-ordination and control becomes effective. There is no communication gap between the persons making decisions and those executing such decisions. 2. Better Service: Unit banks can render efficient service to their customers. Their area of operation being limited, they can concentrate well on that limited area and provide best possible service. Moreover, they can take care of all banking requirements of a particular area. 3. Close Customer-banker Relations: Since the area of operation is limited the customers can have direct contact. Their grievances can be redressed then and there. 4. No Evil Effects Due to Strikes or Closure: In case there is a strike or closure of a unit, it does not have much impact on the trade and industry because of its small size. It does not affect the entire banking system. 5. No Monopolistic Practices: Since the size of the bank and area of its operation are limited, it is difficult for the bank to adopt monopolistic practices. Moreover, there is free competition. It will not be possible for the bank to indulge in monopolistic practices. 6. No Risks of Fraud: Due to small size of the bank, there is stricter and closer control of management. Therefore, the employees will not be able to commit fraud. 7. Closure of Inefficient Banks: Inefficient banks will be automatically closed as they would not be able to satisfy their customers by providing efficient service. 8. Local Development: Unit banking is localised banking. The unit bank has the specialised knowledge of the local problems and serves the requirement of the local people in a better manner than branch banking. The funds of the locality are utilized for the local development and are not transferred to other areas. 9. Promotes Regional Balance: Under unit banking system, there is no transfer of resources from rural and backward areas to the big industrial and commercial centres. This tends to reduce regional imbalance.
Disadvantages
of Unit Banking: 1. No Economies of Large Scale: Since the size of a unit bank
is small, it cannot reap the advantages of large scale viz., division of labour
and specialisation.
2. Lack of Uniformity in
Interest Rates: In unit banking system there will be large number of banks in
operation. There will be lack of control and therefore their rates of interest
would differ widely from place to place. Moreover, transfer of funds will be
difficult and costly.
3. Lack of Control: Since the
number of unit banks is very large, their co-ordination and control would
become very difficult.
4. Risks of Bank's Failure:
Unit banks are more exposed to closure risks. Bigger unit can compensate their
losses at some branches against profits at the others. This is not possible in
case of smaller banks. Hence, they have to face closure sooner or later.
5. Limited Resources: Under
unit banking system the size of bank is small. Consequently its resources are
also limited. Hence, they cannot meet the requirements of large scale
industries.
6. Unhealthy Competition: A
number of unit banks come into existence at an important business centre. In
order to attract customers they indulge in unhealthy competition.
7. Wastage of National
Resources: Unit banks concentrate in big metropolitan cities whereas they do
not have their places of work in rural areas. Consequently there is uneven and
unbalanced growth of banking facilities.
8. No Banking Development in
Backward Areas: Unit banks, because of their limited resources, cannot afford
to open uneconomic branches in smaller towns and rural areas. As such, these
areas remain unbanked.
9. Local Pressure: Since unit
banks are highly localised in their business, local pressures and interferences
generally disrupt their normal functioning.
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`GSation of resources in the hands of a small number of men. Such a
monopoly power is a source of danger to the community, whose goal is a
socialistic pattern of society.
4. Regional Imbalances: Under the branch banking system, the financial
resources collected in the smaller and backward regions are transferred to the
bigger industrial centres. This encourages regional imbalances in the country.
5. Continuance of Non-profitable Branches: Under branch banking, the weak and
unprofitable branches continue to operate under the protection cover of the
stronger and profitable branches.
6. Unnecessary Competition: Branch banking is delocalised banking, under branch
banking system, the branches of different banks get concentrated at certain
places, particularly in big towns and cities. This gives rise to unnecessary
and unhealthy competition among them. The branches of the competing banks try
to tempt customers by offering extra inducements and facilities to them. This
naturally increases the banking expenditure.
7. Expensiveness: Branch banking system is much more expensive than the unit
banking system. When a bank opens a number of branches at different places,
then there arises the problem of co-ordinating their activities with others.
This necessitates the employment of expensive staff by the bank.
8. Losses by Some Branches Affect Others: When some branches suffer losses due
to certain reasons, this has its repercussions on other branches of the bank.
Thus branch banking system as well as unit banking system suffer from defects
and drawbacks. But the branch banking system is, on the whole, better than the
unit banking system. In fact, the branch banking system has proved more
suitable for backward and developing countries like India. Branch banking is
very popular and successful in India. A comparison between unit banking and
branch banking is essentially a comparison between small-scale and large-scale
operations.
What are the Consequences of Falling Indian Rupee ?
1.Rising Import bill - As already discussed, most of the imports are settled in US Dollars, the importers have to pay the bills in dollars for their import, for e.g Crude oil. As the price of rupee falls, importers have to spend more rupees to convert them into US dollars to settle the bills, which in turn leads to inflated import bills, which subsequently is reflected in rising CAD, leading to further depreciation of rupee.
2. Inflation- As imports become costlier, the prices of the imported goods is bound to increase. This will lead to reduction in savings as the person has to spend more to purchase the commodity and the common man is bound to suffer. Most of the impact can be seen on price of Petrol/Diesel due to rise in their cost in the international market.
3. Unemployment- Jobs are less created, and existing employees face the wrath of falling rupee. This can be explained with a simple example: Suppose company A is a manufacturing unit, and imports components from outside. As value of rupee falls, import bills sore high thereby decreasing company's margin of profit. To cut cost, employees are retrenched/ lay off from the company. Same can be explained for a company who have taken external commercial borrowing in US dollars, whose repayment cost increases due to depreciating rupee thereby compromising with company's profit.
4. Costlier Foreign Travel / Foreign education- due to depreciating rupee, person has to loosen his wallet more to pay for overseas education and travel abroad.
5. Costlier Home loans/ car loans etc- In order to curb the falling rupee, RBI resorts to higher lending rates to reduce flow of money in the market which make loans dearer. By doing so, the value of rupee appreciates as foreign investors are lured to India in order to fetch higher returns by parking their money here.
What Steps are taken by Indian govt to stop the fall of rupee?
Few of the steps taken by Indian govt are as below :
1. By increasing exports- This has a simple logic. By increasing the exports, we will increase the inflow of US dollars to our country, which will consequently decrease the CAD which in turn will help in appreciation of rupee.
2. Increasing Bank Interest rate for N.R.Is- N.R.Is will repatriate more dollars to our country in order to gain more interest on their deposits, which will in turn increase the inflow of foreign currency into the country, thereby releasing pressure from Indian rupee.
3. Increased Import Duty on Gold- Indian govt (Finance Ministry) raised import duty on gold from 6% to 8%, as gold imports are one of the major contributor to India's rising current account deficit. We have already understood above that how current account deficit affects value of currency.
4. Sell dollars to state owned oil firms- RBI recently announced to sell dollars to three state owned oil firms, which will consequently reduce the demand of dollar in the Forex market (as explained in point above), thereby expecting the rise in the value of rupee.
IMF projected 5.4 percent economic growth for India in 2014-15
International Monetary Fund (IMF) on 20 February 2014 released its annual report on the state of the Indian economy and projected that India's economic growth for 2014-15 will be 5.4 percent. In its release it said that India has restored macroeconomic and financial stability but structural impediments to growth and persistently high inflation is the major areas of concern. It has also suggested India to strengthen its inflation management policies and do away with supply bottlenecks for better GDP.
In its forecast, IMF (multilateral agency) said that inflation driven food prices seems to remain near double digits in 2014-15. It also said that the tight monetary policy would slow the growth recovery. In its forecast for the fiscal year 2013-14, it projected that India's growth will be 4.6 percent and will pick up to 5.4 percent in 2014-15 at factor cost. These projections of India were a conclusion of its annual discussions with India.
India's National Food Security Act has been described by IMF as landmark legislation which will ensure that a majority of population of the country will have access to adequate quantities of food at affordable prices. IMF also said that the Consumer Price Index (CPI) could push up due to weaker rupees and ongoing energy price increases.
To tackle price rise, IMF has asked the high Inflation countries of G20 nations like India to strengthen their fiscal and monetary policy framework. For G20 countries, IMF has also asked to better their supply infrastructure, which will help in doing away bottlenecks to achieve faster growth poverty reduction and job creation.
The G20 leaders' meet will start in Sydney on 22 February 2014.
Earlier on 17 February 2014, the Union Finance Minister of India, P Chidambaram in his interim budget projected that the economy will pick up and the objective of 6 percent growth is doable in the fiscal year 2014-15. RBI appointed committee has also suggested focus of the central bank should be towards CPI inflation and its recommendation it has asked to bring down the CPI inflation to 8 percent in 2014-15 and to 6 percent by 2016.
About the International Monetary Fund (IMF) :
The International Monetary Fund (IMF) is an organization of 188 countries and is working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world. It is headquartered in Washington, US. The IMF has played a part in shaping the global economy since the end of World War II.
List of Committees Related to Banking & Finance in India
A C Shah Committee- NBFC
A Ghosh Committee- Final Accounts
A Ghosh Committee- Modalities Of Implementation Of New 20 Point Programme
A Ghosh Committee- Frauds & Malpractices In Banks
Abid Hussain Committee- Development Of Capital Markets
Adhyarjuna Committee:Changes In NI Act And Stamp Act
AK Bhuchar Committee:Coordination Between Term Lending Institutions And Commercial Banks
B Eradi Committee:Insolvency And Wind Up Laws
B Sivaraman Committee:Institutional Credit For Agricultural & Rural Development
B Venkatappaiah Committee:All India Rural Credit Review
BD Shah Committee:Stock Lending Scheme
BD Thakar Committee:Job Criteria In Bank Loans (Approach)
Bhagwati Committee:Unemployment
Bhagwati Committee:Public Welfare
Bhave Committee:Share Transfer Reforms
Bhide Committee:Coordination Between Commercial Banks And SFC's
Bhootlingam Committee:Wage, Income & Prices
C Rao Committee:Agricultural Policy
CE Kamath Committee:Multi Agency Approach In Agricultural Finance
Chatalier Committee:Finance To Small Scale Industry
Chesi Committee:Direct Taxes
Cook Committee (On Behalf Of BIS - Under Basel Committee ):Capital Adequacy Of Banks
D R Mehta Committee:Review Progress And Recommend Improvement Measures Of IRDP
Damle Committee:MICR
Dandekar Committee:Regional Imbalances
Dantwala Committee:Estimation Of Employments
Dave Committee:Mutual Funds (Functioning)
Dharia Committee:Public Distribution System
DR Gadgil Committee:Agricultural Finance
Dutta Committee:Industrial Licensing
G Lakshmai Narayan Committee:Extension Of Credit Limits On Basis Of Consortium
G Sundaram Committee:Export Credit
Gadgil Committee (1969):Lead Banking System
Godwala Committee:Rural Finance
Goiporia Committee:Customer Service In Banks
GS Dahotre Committee:Credit Requirements Of Leasing Industry
GS Patel Committee:Carry Forward System On Stock Exchanges
Hathi Committee:Soiled Banknotes
Hazari Committee (1967):Industrial Policy
IT Vaz Committee:Working Capital Finance In Banks
J Reddy Committee:Reforms In Insurance Sector
James Raj Committee:Functioning Of Public Sector Banks
Jankiramanan Committee:Securities Transactions Of Banks & Financial Institutions
JV Shetty Committee:Consortium Advances
K Madhav Das Committee:Urban Cooperative Banks
Kalyansundaram Committee:Introduction Of Factoring Services In India
Kamath Committee:Education Loan Scheme
Karve Committee:Small Scale Industry
KB Chore Committee:To Review The Symbol Of Cash Credit Q
Khanna Committee:Non Performing Assets
Khusrau Committee:Agricultural Credit
KS Krishnaswamy Committee:Role Of Banks In Priority Sector And 20 Point Economic Programme
L K Jha Committee:Indirect Taxes
LC Gupta Committee:Financial Derivatives
Mahadevan Committee:Single Window System
Mahalanobis Committee:Income Distribution
Marathe Committee:Licensing Of New Banks
ML Dantwala Committee:Regional Rural Banks
Mrs. KS Shere Committee:Electronic Fund Transfer
Nadkarni Committee:Improved Procedures For Transactions In PSU Bonds And Units
Nariman Committee:Branch Expansion Programme
Narsimham Committee:Financial System
Omkar Goswami Committee:Industrial Sickness And Corporate Restructuring
P R Nayak Committee:Institutional Credit To SSI Sector
P Selvam Committee:Non Performing Assets Of Banks
PC Luther Committee:Productivity, Operational Efficiency & Profitability Of Banks
PD Ojha Committee:Service Area Approach
Pendarkar Committee:Review The System Of Inspection Of Commercial, RRB And Urban Cooperative Banks
Pillai Committee:Pay Scales Of Bank Officers
PL Tandon Committee:Export Strategy
PR Khanna Committee:Develop Appropriate Supervisory Framework For NBFC
Purshottam Das Committee:Agricultural Finance And Cooperative Societies
R Jilani Banks:Inspection System Of Banks
R S Saria Committee:Agricultural Finance And Cooperative Societies
Raghavan Committee:Competition Law
Raja Chelliah Committee:Tax Reforms
Rajamannar Committee:Centre - State Fiscal Relationships
Rajamannar Committee:Changes In Banking Laws , Bouncing Of Cheques Etc.
Rakesh Mohan Committee:Petro Chemical Sector
Ram Niwas Mirdha Committee (JPC):Securities Scam
Rangrajan Committee:Computerization Of Banking Industry
Rangrajan Committee:Public Sector Disinvestment
Rashid Jilani Committee:Cash Credit System
Ray Committee:Industrial Sickness
RG Saraiya Committee (1972):Banking Commission
RH Khan Committee:Harmonization Of Banks And Ssis
RK Hajare Committee:Differential Interest Rates Scheme
RK Talwar Committee:Customer Service
RK Talwar Committee:Enactment Having A Bearing On Agro Landings By Commercial Banks
RN Malhotra Committee:Reforms In Insurance Sector
RN Mirdha Committee:Cooperative Societies
RV Gupta Committee:Agricultural Credit Delivery
S Padmanabhan Committee:Onsite Supervision Function Of Banks
S Padmanabhan Committee:Inspection Of Banks (By RBI)
Samal Committee:Rural Credit
SC Choksi Committee:Direct Tax Law
Shankar Lal Gauri Committee:Agricultural Marketing
SK Kalia Committee:Role Of NGO And SHG In Credit
SL Kapoor Committee:Institutional Credit To SSI
Sodhani Committee:Foreign Exchange Markets In NRI Investment In India
SS Kohli Committee:Rehabilitation Of Sick Industrial Units
SS Kohli Committee:Rationalization Of Staff Strength In Banks
SS Kohli Committee:Willful Defaulters
SS Nadkarni Committee:Trading In Public Sector Banks
SS Tarapore Committee:Capital Account Convertibility
Sukhmoy Chakravarty Committee:To Review The Working Of Monetary System
Tambe Committee:Term Loans To SSI
Tandon Committee:Follow Up Of Bank Credit
Tandon Committee:Industrial Sickness
Thakkar Committee:Credit Schemes To Self Employed
Thingalaya Committee:Restructuring Of RRB
Tiwari Committee:Rehabilitation Of Sick Industrial Undertakings
UK Sharma Committee:Lead Bank Scheme (Review)
Usha Thorat Panel: Financial Inclusion
Vaghul Committee:Mutual Fund Scheme
Varshney Committee:Revised Methods For Loans (>2 Lakhs)
Venketaiya Committee:Review Of Rural Financing System
Vipin Malik Committee:Consolidated Accounting By Banks
VT Dehejia Committee:To Study Credit Needs Of Industry And Trade Likely To Be Inflated
Vyas Committee:Rural Credit
Wanchoo Committee:Direct Taxes
WS Saraf Committee:Technology Issues In Banking Industry
Y H Malegam Committee:Disclosure Norms For Public Issues
YV Reddy Committee:Reforms In Small Savings
Know the difference between CIBIL credit score and report
Having a spotless credit profile is a must these days. The tendency to take a loan or leverage oneself is high given the wide range of options available in the markets. Off late, I encountered a unique situation in which my friend N Rajesh, a Warangal-based businessman asked me: how does the bank come to know whether I am repaying on time by a mere look at my credit score?
This question triggered a thought in me as to a possibility of confusion among borrowers regarding the difference between CIBIL score and CIBIL report. For me, as systems develop and borrowing capacity of people enhance, it is very important that this difference is understood.
Credit score is a number arrived at by using information in your credit records submitted by all your lenders to the credit bureau. Credit score is a numerical value at a given moment of time that helps the lenders to assess the credit risk associated with lending money to you.
Higher the number means lower the risk of default for the lender. In India, a number more than 750 out of 900 is treated to be a good score by lenders when they look at CIBIL credit score.
The credit bureau may use multiple factors such as credit lines offered to you, the repayment history, credit utilisation information, and details of loans secured or unsecured loans to arrive at credit score.
The score changes over a period of time and improves if you keep a tab on the extent of credit you avail of and service your loans on time. If you borrow beyond your repaying capacity and fail to repay in time, this score falls, thereby spoiling your credit profile.
However, the numerical value does not offer any other information pertaining to the borrower to the lender. That is where credit report comes into the picture.
Your credit report is a holistic document, which also includes your credit score. A credit report offers wide range of information, besides this. A credit report offers information pertaining to name, gender, age, address, and PAN card number that helps in identifying an individual.
Credit bureaus also have information about the types of loans you have home loan, personal loans, credit cards and the outstanding on each of these. Credit report provides all loans' details along with age of each loan and your repayment history too. If you have defaulted on any loan or settled a loan in the past, credit report reveals it to the lenders.
Credit reports also enlist number of inquiries. This is the number of times lenders have accessed your credit report while assessing your loan application.
By now, you must have understood that credit report is far more informative in comparison with credit score. While credit score simply gives one numerical value, credit report offers many more qualitative and quantitative inputs to the lenders along with the identification details.
It helps lenders to take an informed decision while lending money. As a borrower you should keep a track of your credit profile. Hence, it is of paramount importance that one keeps track of one's investments and liabilities. One of the simplest ways to keep your credit profile is to leverage oneself well within our repaying capacity.
The very decision to stretch oneself at a time when saving money is a daunting task, it is crucial that you leverage less and save more. Lastly, do ask for your credit report at least once in a year.
A look at the credit score mentioned in credit report gives you a fair idea of where do you stand in the eyes of lenders and running through credit report helps you identify if there are any lapses at the credit bureau's end.
CIBIL and CRISIL
CRISIL (Credit Rating Information Services of India Limited) is a Credit rating Company for Commercial entities. Credit Rating and Information Services of India Ltd. Is a global analytical company providing ratings, research, and risk and policy advisory services. Major shares of the CRSIL is owned by a company called Standard and Poor's, which is again a part of The McGraw-Hill Companies. McGraw-Hill Companies is worlds leading credit rating agency. CRISIL Research is India's largest independent research house which helps the client to make business and investment decisions. CRISIL Equities , Mutual Fund Research and Indices - IISL India Index Services and Products Ltd (IISL), a joint venture between NSE and CRISIL Ltd., was set up in May 1998 to provide a variety of indices and index related services and products for the Indian capital markets. CRISIL Infrastructure Advisory provides practical and innovative solutions to governments, donor funded agencies and leading organizations in over 20 emerging economies across the world to help improve infrastructure service delivery.
CIBIL [Credit Information Bureau (India) Limited] is a credit information company for both consumers and Commercial entities. . CIBIL provides this information to its members in the form of credit information reports (CIRs).CIBIL's members include all leading banks, financial institutions, non-banking financial companies, housing finance companies, state financial corporations and credit card companies.
Budget Deficit-
When the expenditure exceeds the revenue, then the budget is considered as failure as there is shortage of funds. This situation is called Budget Deficit.
Capital Budget-
The budget which is comprises of loans and advances that are granted to union and state territory by the union government, government companies and other parties is Capital Budget. It also contains included capital receipt and payments by the government.
Capital Expenditure-
Government's total expenditure on acquiring assets that may include investment in machinery, land or building and shares. Its scope extends to the payments, advancement that are approved by the state government, union territory and public sector organisation by the central government.
Fiscal Deficit-
The difference between revenue receipt and total expenditure.
Revenue Deficit-
The difference between Revenue expenditure and Revenue receipt.
Bimal Jalan Committee on New Bank Licences submitted its report to RBI
Bimal Jalan Committee on New Bank Licenses submitted its report to the Reserve Bank of India (RBI) on 25 February 2014. The report contains names of entities eligible for bank licences.
The committee was constituted by RBI under the chairmanship of Bimal Jalan in October 2013. RBI had constituted the committee to examine the criteria, business plans and corporate governance practices of applicants applying for new bank Licenses.
Other members of the committee are former RBI Deputy Governor Usha Thorat, former Securities and Exchange Board of India Chairman C B Bhave and Nachiket M Mor, Director of the Central Board of Directors of the RBI.
The central bank issued guidelines for licensing of new banks on 22 February 2013.
There are around 25 players in the group to get bank license, among them primarily are Public sector units, India Post and IFCI and private sector Anil Ambani group and Aditya Birla group. Bajaj Finance, Muthoot Finance, Religare Enterprises and Shriram Capital have also applied.
In the past 20 years, the RBI has licensed 12 banks in the private sector in two phases. Ten banks were licensed on the basis of guidelines issued in January 1993.
Kotak Mahindra Bank and Yes Bank were the last two entities to get banking licenses from the RBI in 2003-04.
India has 27 public sector banks, 22 private sector banks and 56 regional rural banks.
Capital Expenditures:
An expenditure which results in the acquisition of permanent asset which is intended lo be permanently used in the business for the purpose of earning revenue, is known as capital expenditure. These expenditures are 'non-recurring' by nature. Assets acquired by incurring these expenditures are utilized by the business for a long time and thereby they earn revenue. For example, money spent on the purchase of building, machinery, furniture etc. Take the case of machinery-machinery is permanently used for, producing goods and profit is earned by selling those goods. This is not an expenditure for one accounting period, machinery has long life and its benefit will be enjoyed over a long period of time. By long period of time we mean a period exceeding one accounting period.
Moreover, any expenditure which is incurred for the purpose of increasing profit earning capacity or reducing cost of production is a capital expenditure. Sometimes the expenditure even not resulting in the increase of profit earning capacity but acquires an asset comparatively permanent in nature will also be a capital expenditure.
It should be remembered that when an asset is purchased, all amounts spent up to the point till the asset is ready for use should be treated as capital expenditure. Examples are: (a): A machinery was purchased for $50,000 from Karachi. We paid carriage $1,000, octroi duty $500 to bring the machinery from Karachi to Lahore. Then we paid wages $1,000 for its installation in the factory. For all these expenditures, we should debit machinery account instead of debiting carriage A/c, octroi A/c and wages A/c. (b): Fees paid to a lawyer for drawing up the purchase deed of land, (c): Overhaul expenses of second-hand machinery etc. (d): Interest paid on loans raised to acquire a fixed asset etc.
Examples:
Purchase of furniture, motor vehicles, electric motors, office equipment, loose tools and other tangible assets.
Cost of acquiring intangible assets like goodwill, patents, copy rights, trade marks, patterns and designs etc.
Addition or extension of assets.
Money spent on installation and erection of plant and machinery and other fixed assets.
Wages paid for the construction of building.
Structural improvements or alterations in fixed assets resulting in an increase in their useful life or profit earning capacity.
Cost of issue of shares and debentures (certain expenditures are incurred by the companies when share and debentures are issued).
Legal expenses on raising loans for the purchase of fixed assets.
Interest on loan and capital during the construction period.
Expenditures incurred for the development of mines and plantations etc.
Money spent to bring a second-hand asset into working condition.
Cost of replacing factory building from an old place to a new arid better site.
Premium given for a lease.
Revenue Expenditure:
All the expenditures which are incurred in the day to day conduct and administration of a business and the effect-of which is completely exhausted within the current accounting year are known as "revenue expenditures". These expenditures are recurring by nature i.e. which are incurred for meeting day today requirements of a business and the effect of these expenditures is always short-lived i.e. the benefit thereof is enjoyed by the business within the current accounting year. These expenditures are also known as "expenses or expired costs." e.g. Purchase of goods, salaries paid, postages, rent, traveling expenses, stationery purchased, wages paid on goods purchased etc.
This expenditure is incurred on items or services which are useful to the business but are used up in less than one year and, therefore, only temporarily increase the profit-making capacity of the business.
Revenue expenditure also includes the expenditure incurred for the purchase of raw material and stores required for manufacturing saleable goods and the expenditure incurred to maintain the- fixed assets in proper working conditions i.e. repair of machinery, building, furniture etc.
Following are the examples of revenue expenditure.
Wages paid to factory workers.
Oil to lubricate machines.
Power required to run machine or motor.
Expenditure incurred in the ordinary conduct and administration of business, i.e. rent, , carriage on saleable goods, salaries, wages manufacturing expenses, commission, legal expenses, insurance, advertisement, free samples, postage, printing charges etc.
Repair and maintenance expenses incurred on fixed assets.
Cost of sale-able goods.
Depreciation of fixed assets used in the business.
Interest on borrowed money.
Freight, cartage, octroi duty, transportation, insurance paid on sale-able goods.
Petrol consumed in motor vehicles.
Service charges to motor vehicles.
Bad debts.
Capital and Revenue Receipts:
When the business receives money it is again of two sorts. It my be a long-term receipt, a contribution by the owner, either to start the business off or to increase the funds available to it. It might be a mortgage or an which brings money into the business for a long-term, but in this case it is not the owner of the business but some other investor who is supplying the money.
On the other hand, the receipt may be a short-term receipt, one which is truly a profit of the business. It may be rent received, commission received or cash for sale of goods made that day, or at some previous time.
Capital Receipt:
Receipts which are non-recurring (not received again and again) by nature and whose benefit is enjoyed over a long period are called "Capital Receipts", e.g. money brought into the business by the owner (capital invested), loan from bank, sale proceeds of fixed assets etc. Capital receipt is shown on the liabilities side of the Balance Sheet.
Revenue Receipt:
Receipts which are recurring (received again and again) by nature and which are available for meeting all day to day expenses (revenue expenditure) of a business concern are known as "Revenue receipts", e.g. sale proceeds of goods, interest received, commission received, rent received, dividend received etc.
Difference
Revenue Receipt
1. It has short-term effect. The benefit is enjoyed within one accounting period.
2. It occurs repeatedly. It is recurring and regular.
3. It is shown in profit and loss account on the credit side.
4. It does not produce capital receipt.
5. This does not increase or decrease the value of asset or liability.
6. Sometimes, expenses of capital nature are to be incurred for revenue receipt, e.g. purchase of shares of a company is capital expenditure but dividend received on shares is a revenue receipt.
Capital Receipt
1. It has long-term effect. The benefit is enjoyed for many years in future.
2. It does not occur again and again. It is nonrecurring and irregular.
3. It is shown in the Balance Sheet on the liability side.
4. Capital receipt, when invested, produces revenue receipt e.g. when capital is invested by the owner, business gets revenue receipt (i.e. sale proceeds of goods etc.).
5. The capital receipt decreases the value of asset or increases the value of liability e.g. sale of a fixed asset, loan from bank etc.
6. Sometimes expenses of revenue nature are to be incurred for such receipt e.g. on obtaining loan (a capital receipt) interest is paid until its repayment.
guys want 2 ask ........y do most ppl prefer bob or pnb over oder bnks ???? wen salary is almst same in all bnks(or may b slightly more in dese 2 )....but wrk pressure in dese bnks is more comprd 2 oder bnks
Can any1 who is already working in psu bank throw some light on allowances that 1 gets apart from inhand around 27k ??