The Banking Regulation Act was passed as the Banking Companies Act 1949 and came into force wef 16.3.49. Subsequently it was changed to Banking Regulations Act 1949 wef 01.03.66. Summary of some important sections is provided hereunder.(Note: The section no. is given at the end of each item. For details, kindly refer the bare Act.) 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, drafts order or otherwise (5 (i) (b)). Banking company means any company which transacts the business of banking (5(i)(c) Transact banking business in India (5 (i) (e). Demand liabilities are the liabilities which must be met on demand and time liabilities means liabilities which are not demand liabilities (5(i)(f) Secured loan or advances means a loan or advance made on the security of asset the market value of which 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.
Introduction to Payment Systems in Banking System
Payment Systems encompass a set of instruments and means generally acceptable in making payments, the institutional and organizational framework governing such payments and the operating procedures and communications network used to initiate and transmit payment information from payer to payee and to settle payments. Payment system facilitates the exchange of goods and services between economic agents using an accepted medium of exchange. A modern payment system typically has a range of specialized subsystems developed to serve particular sets of customers; some of these clear and settle small payments, some large payments, while some cover both large and retail settlements. The Bank for International Settlements defines payment systems as “a set of instruments, procedures and rules for the transfer of funds among system participants”. The proposed Payment System legislation in our country defines a ‘payment system’ as “a system that enables payment to be effected between a payer and a beneficiary Continue reading
Reputation Risk in E-Banking
Reputation Risk in E-Banking is the current and prospective risk to earnings and capital arising from negative public opinion. A bank’s reputation can be damaged by Internet banking services that are poorly executed (e.g., limited availability, buggy software, poor response). Customers are less forgiving of any problems and thus there are more stringent performance expectations from the Internet channel. Hypertext links could link a bank’s site to other sites and may reflect an implicit endorsement of the other sites. Risk of damage to the bank’s reputation goes along with the other risks. It can arise, for example, from operational risk even if customers suffer no actual damage. If a hacker successfully breaks into a bank’s website and makes alterations, the bank concerned can suffer substantial damage to its reputation although customers’ balances are safe and the hacker has not obtained any financial benefit. This does not only affect the individual Continue reading
Operating Lease – Definition and How It Differs From a Finance Lease
The International Accounting Standards Committee defines an Operating Lease as “any lease other than a finance lease”. An Operating Lease has the following characteristics: The lease term is significantly less than the economic life of the equipment. The lessee enjoys the right to terminate the lease at short notice without any significant penalty. The lessor usually provides the operating know-how, suppliers, the related services and undertakes the responsibility of insuring and maintaining the equipment in which case an operating lease is called a ‘wet lease’. An operating lease where the lessee bears the costs of insuring and maintaining the leased equipment is called a ‘dry lease’. From the features of an operating lease, it is evident that this form of a lease does not shift the equipment-related business and technological risks from the lessor to the lessee. The lessor structuring an operating lease transaction has to depend upon multiple leases Continue reading
Provision for Depreciation
Depreciation is the cost allocated as expense which has the effects of reducing the value of a fixed asset during the period it is used by a business. It is a non-cash expense and need to be charged to the Profit & Loss account yearly which lowers the company’s profit which increasing free cash flow. Fixed assets are long life. They are bought to assist in the operation of business but not with the main purpose of resale. They are in fact revenue-generating assets as they help to gain profit depending on their useful lives. Depreciable items include machinery, vehicles, buildings and fixtures. There are reasons why assets may depreciate: Obsolescence: Assets are replaced because new and more efficient technology has been developed. Depletion or Exhaustion: The values of assets such as mines, quarries and oil wells diminish due to the extraction of raw materials from them. Passage of Time: Continue reading
Lease vs Hire Purchase
The concept of leasing can be understood by comparing the lease to the purchase of a specific asset. If a firm wishes to obtain the service of a specific asset, it has two alternatives: Purchase or Lease. To purchase the asset, the firm must payout a lump sum or agrees to some type of installment plan that involves incurring a long term liability. Leasing the assets, on the other hand, provides the firm with asset’s services without necessarily incurring any capital liability. Leasing is a source of financing as it enables the firm to obtain the use of assets in exchange for agreeing to pay lease rentals. In case of leasing, the asset is handed over by the lessor to the lessee in return for a lease rental. The ownership and the title to the assets remain with the lessor. The lessor, however, recovers the cost of the assets as Continue reading