The Reserve Bank of India participates in the payment systems as a user of the system, as the service provider for various components of the systems and is also the regulator of the systems in many instances. As a user, the RBI submits instruments for clearing in the cheque-based clearing operations. RBI also participates as a user in the Electronic Clearing Service (ECS)and EFT systems for making its own internal payments to its employees, vendor payments etc. Similarly, RBI transactions in Repo / Reverse Repo under LAF, Open Market Operations etc., would also be settled through the respective components of payment systems. As a provider of payment system services, the RBI has taken many initiatives as can be seen under the evolution of payment systems in the country in the development and operationalisation of the systems. Under this, the clearing houses and ECS systems are managed by the Reserve Bank Continue reading
Business Finance
Business Finance is that business activity which is concerned with the acquisition and conservation of capital funds in meeting financial needs and overall objectives of business enterprises.
Important Functions of Development Banks
Development banks have been started with the motive of increasing the pace of industrialization. The traditional financial institutions could not take up this challenge because of their limitations. In order to help all round industrialization development banks were made multipurpose institutions. Besides financing they were assigned promotional work also. Some important functions of these institutions are discussed as follows: 1. Financial Gap Fillers Development banks do not provide medium-term and long-term loans only but they help industrial enterprises in many other ways too. These banks subscribe to the bonds and debentures of the companies, underwrite to their shares and debentures and, guarantee the loans raised from foreign and domestic sources. They also help undertakings to acquire machinery from with in and outside the country. 2. Undertake Entrepreneurial Role Developing countries lack entrepreneurs who can take up the job of setting up new projects. It may be due to lack of Continue reading
Financial Derivative Types: Options – Definition, Types and Benefits
In the volatile environment, risk of heavy fluctuations in the prices assets is very heavy. Option is yet another tool to manage such risks. As the very name implies, an option contract gives the buyer an option to buy or sell an underlying asset (stock, bond, currency, commodity etc.) at a predetermined price on or before a specified date in future. The price so predetermined is called the ‘strike price’ or ‘exercise price’. Option is a contract that provides a right but does not impose any obligation to buy or sell a financial instrument, say a share or security. It can be exercised by the owner. Option offers the buyer, profits from favorable movement of prices say of shares or foreign exchange. Writer: In an options contract, the seller is usually referred to as a “writer” since he is said to write the contract. It is similar to the seller Continue reading
Customer Service Strategies in Banking Sector
Today, banking sector is seen as a catalyst in economic growth of a country and, lot is expected from the banking fraternity. The recognition of banking, as a tool for all inclusive growth by economists, financial planners, reformist etc has made it an important sector in the Government’s planning of economic growth. The banking sector in India is there fore witnessing tremendous changes because of political, social and economic changes that are taking place domestically and internationally. The concept of banking, which was earlier restricted to accepting of deposits from public for the purpose of, has also undergone sea change. Today the banking sector is seen as a vehicle for all inclusive economic growth, social responsibility and equiv-distribution of national resources. Today banks are wooing existing customers, prospective customers by offering new facilities, products, and services in order to retain/increase their base in market. The way the banking has changed, Continue reading
Three Pillars of the Basel II Accord
While Basel I framework was confined to the prescription of only minimum capital requirements for banks, the Basel II framework expands this approach not only to capture certain additional risks in the minimum capital ratio but also includes two additional areas, viz. Supervisory Review Process and Market Discipline through increased disclosure requirements for banks. The main purpose of Basel II framework is to create an international standard that banking regulators can use when creating regulations about how much capital banks need to put aside to guard against the types of financial and operational risks banks face while maintaining sufficient consistency so that this does not become a source of competitive inequality amongst internationally active banks. Advocates of Basel II believe that such an international standard can help protect the international financial system from the types of problems that might arise should a major bank or a series of banks collapse. Continue reading
Industrial Finance Corporation of India (IFCI)
At the same time raw industrial units were to be set up for industrializing the country. Government of India came forward to set up the Industrial Finance Corporation of India (IFCI) in July 1948 under a Special Act. The Industrial Development Bank of India, scheduled banks, insurance companies, investment trusts and co-operative banks are the shareholders of IFCI. The Government of India has guaranteed the repayment of capital and the payment of a minimum annual dividend. Since July I, 1993, the corporation has been converted into a company and it has been given the status of a Ltd. Company with the name Industrial Finance Corporations of India Ltd. IFCI has got itself registered with Companies Act, 1956. Before July I, 1993, general public was not permitted to hold shares of IFCI, only Government of India, RBI, Scheduled Banks, Insurance Companies and Co-operative Societies were holding the shares of IFCI. Management Continue reading