HAND BOOK

ON
A TO Z OF BANKING

UNION 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.
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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.
4

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.
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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.

11

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 submarket 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 predetermined 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.

12

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 POINT
It is that point of sale at which the unit does not incur cash profit or cash loss.

13

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 EXPORT
Export 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.

14

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.

15

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.

16

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.

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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.

18

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.

19

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

20

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)

21

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.

22

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.

23

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 Intensity =
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 10 th 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 30 th day after the
expiry of the normal transit period, in case of demand bills and on 30 th day after
notional due date, in case of unpaid usance bills. This is known as
crystallization.

24

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).

25

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.
Current Ratio =

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.

26

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.
DEBENTURES
Debentures 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 RATIO
It 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.

27

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 EXPORT
Certain 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.

28

DEFERRED PAYMENT EXPORT

Export 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.
29

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.

30

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.

31

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.

32

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.

33

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.

34

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.

35

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.

36

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
37

Funds acquired from external sources by borrowing or issuing additional

equity or preference stock.

38

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.

39

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.

40

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.
41

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
42

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.

43

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.

44

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.

45

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.

46

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.

47

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

48

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.

49

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
expected from it. It is also referred to as the fair value or reasonable
investment value
INVENTORY TURNOVER RATIO
It is calculated by dividing cost of sales by Average Inventory. Higher the
compared to last year or compared to that of units in the same
indicates better management of inventory.
50

benefits
value or

turnover
industry

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 CAPITAL
A 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.

51

J
JOINT DEED OF HYPOTHECATION
It is a security document through which assets of the company like inventories
and receivables are charged to the bank under consortium lending.

JOINT PRODUCTS
Products that are produced by a single process but are not identifiable as
individual products until some definite point in the manufacturing process.
JOINT STOCK COMPANY
It is an artificial person with perpetual succession brought into existence under
the provisions of company Act.
JUNK BONDS
These are high interest rate bonds issued by companies whose credit rating from
rating agencies is below the investment grade.

52

K
KARTA
The eldest male member of the Hindu Undivided Family (HUF) is called Karta
and other male members are called Co-parceners. Karta has powers to borrow,
execute documents, and pledge securities on behalf of the family for the
purpose of family business & legal necessity of the family. His liability is
unlimited while that of co-parceners is limited to the shares in the Joint family
estate.
KHOKHA
When a hundi is paid up & cancelled, it is called a khokha.
KITE-FLYING
Kite flying is raising money by accommodation bills.

53

L
LABOUR EFFICIENCY VARIANCE
The variance resulting from a difference between the actual time worked.,
priced at standard labour rates, and the standard quality (Based on realized
production) also priced at standard rates. This is a quantity variance and
results from efficient or inefficient use of labour.
LAND HOLDING
Self owned land. All the land in which one person has permanent and heritable
right of occupancy.
LASH BILL OF LADING
It is issued by operators stating that goods are received and put on board a
barge to be carried and put on a parent vessel. Thus a Bill of Lading issued by
LASH operator is the same as received for shipment bill of lading until it bears
a clause that the barge is put on board the parent vessel (then it becomes on
board bill of lading & becomes acceptable like a regular bill of lading).
LAST IN FIRST OUT (LIFO)
A method of inventory valuation, Under this method stock is valued at prices
appertaining to earlier dates which will usually result in a lower valuation and
consequently lower profit. While a more conservative figure is therefore
reported by using LIFO it is not considered as appropriate in the vast majority
of cases, particularly in inflationary times, since the unit price is often
considerably different from prices currently being paid.
LEAD BANK SCHEME
LBS was introduced by RBI in December 1969 on the recommendation of
Gadgil study Group & Nariman Committee of Bankers to ensure co-ordination
among various banks & Govt. Agencies for developmental efforts requiring
bank credit. All districts in the country were allotted among public sector banks
& a few Pvt. Sector banks to assume lead responsibility in each district. The
district allotted to a particular bank is known as Lead District & the bank
concerned as Lead Bank. Union Bank of India has lead bank responsibility of
11 districts in 3 states. I.e.Varanasi; Chandauli, Bhadohi, Maunathbhanjan,
Azamgarh, Ghazipur, Jaunpur in U.P., Rewa, Sidhi in M.P. & Ernakulam &
Idukki in Kerala.
LEASING
It is a contract whereby one party (the lessor) conveys the real estate to
another (the lessee) for a suitable period, usually at a specified rent.
LEVERAGED LEASE
When a leasing company borrows money from bank/financiers to buy a
particular equipment with the purpose of lease, It is known as leveraged lease.

LENDING ON SWAP
It refers to selling spot and buying it forward.

54

LETTER OF ADMINISTRATION
It is a Court order, which names a person (called administrator) for
administering the assets of the deceased.
LETTER OF COMFORT
A security document obtained by banks and financial institutions to secure the
money and liabilities due and owing from time to time, from their constituents,
particularly in foreign exchange transactions which is akin to a letter of
guarantee.
LETTER OF NEGATIVE LIEN
It is an undertaking giving by the borrower not to create any charge on its
unencumbered assets with-out prior permission from the bank
LEVERAGE
In financial analysis, leverages represent the influence of one financial
variable over some other related variables.
LIABILITIES
Liability is what a business owes to others.
LIBID
It is bid rate, which represents the rate at which banks in London will pay for
Euro-Currency deposits. Bid rate are lower than offer rates usually by 1/8 to
%
LIBOR
It is London Inter bank offer rate, which represents the rate at which the banks
in London will lend a currency to other banks for a given period of time. It is
fixed everyday at 11 a.m.]
LIEN
It is a right of the creditor to retain goods or securities belonging to the debtor
until the debt are repaid.
LIMEAN
It is the mean rate between the offered rate and bid rate prevailing in the
London Inter bank Market for funds.

55

LINE OF CREDIT
An agreement under which a financial institution agrees to provide credit upto a
specified limit during a given period.
LIQUID ASSETS
Liquid assets are those, which are readily available to meet immediate liabilities
or contingencies and include, cash at bank or in hand, and short term
investments.
LIQUIDATION VALUE
The amount of money that could be realised if an asset were sold of a concern
as on a particular date.
LIQUIDITY
A firm's liquidity refers to its ability to meet its obligations in the short run
(defined usually as a period of one year). An asset's liquidity refers to how
quickly it can be sold at a reasonable price.
LIQUIDITY RATIO
Ratio of tangible net worth and long term liabilities to fixed assets is known as
liquidity ratio. It should be more than one.
LIQUIDITY RISK
Inability to pay desired withdrawals due to asset liabilities mismatch.
LOAN SYNDICATION
This refers to loan arranged by a Bank for a borrower through group of banks by
forming a syndicate. It is alternative to consortium form of lending.
LOAN SYSTEM FOR DELIVERY OF BANK CREDIT
In Case of borrowers enjoying fund based working capital limit of Rs. 10 crores
and above from the banking system the working capital will be sanctioned in
form of demand loan to the extent of not less than 80 percent repayable in
balloon and bullet instalments. Banks have been permitted to fix the minimum
period of loan for working capital purposes with the consultation with the
borrowers, even on different maturity basis.

56

LOBBY BANKING
A system first introduced in U.K., whereby a plastic card gives access to
customers outside banking hours, to a lobby area where they may make
deposits and withdrawals via teller machines, check their balances and order
cheque books.
LOCAL AREA BANKS (LABs)
LABs are newly set-up private sector banks to cater the credit needs of local
people restricted to three geographically contiguous districts duly licensed under
Banking regulation Act and registered as a public limited company.

LOK ADALAT
The concept of Lok Adalat was introduced by the then Chief Justice of India Sri
P.N. Bhagwati in the year 1982 with an objective of expeditious disposal of case
at less legal expenses for effective mediation and conciliation to reduce burden
of court. Cases upto Rs. 5 lacs can be settled in Lok Adalat.

LONG FORM BILL OF LADING

In this Bill of Lading the terms and conditions of carriage are given on the Bill of
Lading itself.
LONG POSITION
An investor is said to have a long position in an asset if he either currently owns
or entitled to future delivery of shares/assets.
It also refers to an excess of purchases over sales in the same currency.
LORO ACCOUNTS
It denotes the account of another bank (i.e. third bank). It also refers to current
accounts of banks with the foreign banks in terms of foreign currency held on
behalf of their clients.
LOSS ASSET
An asset, which is considered uncollectable and is of such little value that its
continuance as bankable asset is not warranted.

57

M
MAGNETIC INK CHARACTER RECOGNITION (MICR)
Cheques, Drafts, Dividend Warrants & other instruments in MICR format
contain a code line at the bottom, which contains coded information printed
in magnetic ink. MICR code helps in mechanical sorting of the clearing
cheques bankwise and branchwise at a very high speed through a machine
called Reader Sorter.
MAJORITY RULE VOTING
A system of voting under which a group holding a majority of shares as the
power of electing the entire board of directors.
MAKER
The person who makes a promissory note is called maker.
MANDATE
It is a letter of authority given by an account holder to his banker to allow
certain named person to operate his account on his behalf.
MARGIN
That portion of money or security, which is retained in favour of the bank, is
called margin. The margin may be in the case of advances or in the case of
acceptance for customers or issuing Guarantees.
MARGIN OF SAFETY
The amount by which actual sales exceed breakeven sales.
MARGIN COST
The change in total costs resulting from a one unit increases in quantity
produced.
MARGINAL COST OF CAPITAL
The cost of capital that represents the weighted cost of each additional
rupee of financing from all sources, debt preferred stock, and common
stock.
MARGINAL FARMER
Who has 1 hectare or less of Dry land. Incase of irrigated land it will be 50%
of Dry land.

MARGINAL REVENUE
The change in total revenue resulting from on one-unit increase in quantity
sold.

58

MARKET MAKER
A market maker is one who offers a two way quote at any time during the
trading season, ensuring a reasonable spread. In India, the Over The
Counter Exchange of India (OTCEI) acts as market maker in the capital
market. Likewise, Primary Dealers are expected to be market makers for the
Govt. securities as they provide two way quotes. Market making brings the
much-needed liquidity to the concerned market.
MARKET SEGMENTATION
It means to recognize & understand that a market area is composed of
different customers (buyers) who have different needs & wants and
accordingly react differently to the different products and services offered by
a banks branch. Because each segment of the market area will throw up
different opportunities for the branch.
MARKET VALUE
The value observed in the market place, where buyers and sellers negotiate
a mutually acceptable price for the asset.
MARKET VALUE WEIGHTS
The percentage of financing provided by different capital sources, measured
by the current market prices of the firms bonds and preferred and common
stock.
MARKETABLE SECURITIES
Security investments that the firm can quickly convert into cash balances.

MARKETING AND SELLING

Selling focuses on the need of the seller, marketing on the need of the
buyer. Selling is pre-occupied with the sellers need to convert his product to
cash; marketing with the idea of satisfying the needs of customer by means
of products and whole cluster of things associated with creating, delivering
and finally consuming it.
MARKETING MIX
The marketing mix comprises of four Ps (1) Product, (2) Place (3) Price &
(4) Promotion. For a branch marketer, Place has three sub components
People, Presentation & Process (systems & procedures)
MASTER BUDGET
A budget covering all aspects of a firm's working. It is also referred to as the
comprehensive budget.

59

MATCHING PRINCIPLE
According to this principle, expenses are matched with revenues.

MATERIAL ALTERATION
Any alteration in a cheque, which makes a significant change in the
mandate given by the drawer, is called material alteration. For example
change in date, amount etc. Certain alterations are permitted i.e. filling
blanks of inchoate instrument, conversion of a blank endorsement in full,
qualified acceptance, crossing of open cheques, conversion of general
crossing to special crossing, change of bearer to order, completing of date
etc.
MATERIAL PRICE VARIANCE
The variance resulting from the difference between the actual price paid for
materials purchased (actual quantity or number of units) and the standard price
paid for the same quantity. This is spending variance and results from
purchasing material at any price other than the standard price.
MEDIUM FARMER
One whose land holding is 4 hectare or less of Dry land or 2 hectors of
irrigated land.
MEMORANDUM OF ASSOCIATION (M.A.)
It is a basic document of the company, which contains fundamental
conditions upon which alone the company is allowed to be incorporated.

MERCHANT BANKING
Merchant Banking is an agency, retained by a company to advise and assist
in capital structuring/restructuring & its mobilisation with the prescribed &
regulatory framework. Thus the merchant bankers role can be institutional
loan syndications, institutional placements, advisory services including
mergers/ acquisitions/ alliance and primary market.

MERGER
A combination of two or more firms into one firm. A merger may involve
absorption (acquisition) or consolidation. In absorption one firm acquires one or
more other firms. In a consolidation two or more firms combine to form a new
entity. We use the term merger and amalgamation interchangeably.
MIADI HUNDI
It is similar to usance bill and payable after a specific period.
MIBOR
Like Libor efforts are being made to establish Mumbai Interbank offer rate at
which bank will lend funds in Mumbai Inter Bank Market.

60

MICRO CREDIT
It means small loans to poor people for self-employment projects that
generate income to care for themselves & their families. It is a powerful antipoverty tool.
MINOR
Minor is a person who has not completed the age of eighteen years. Before
the completion of the age of 18 years if a guardian is appointed by a Court,
in that case the minority extends to the age of twenty one. All agreements
with a minor are void ab-initio.
MIRROR ACCOUNT
It is an account maintained by the banks in India in their ledger the details of
NOSTRO accounts in foreign as well as Indian currency.
MISCELLANEOUS ASSETS
Assets which are not fixed assets and which cannot be classified either as
current assets or marketable investments and, which are not of an intangible
nature are called miscellaneous assets.
MIXED COST
A cost (whether single expense cost element or total class of costs) made up of
both variable and fixed factors.
MONEY MARKET
It can be defined as a centre in which financial institutions congregate for
the purpose of dealing impersonally in monetary assets. It is a market for
short-term money & financial assets, which are near substitute for money.

MONEY MEASUREMENT PRINCIPLE

Financial accounting is concerned with only those facts, which are
expressible in monetary terms.
MONOPOLIES AND RESTRICTIVE TRADE PRACTICES (MRTP) ACT
The central legislation, which seeks to check the concentration of economic
power in private hands and the prevalence of monopolies and restrictive
trade, practices.

MORTGAGE
It involves the transfer of interest, in specific immovable properties, for the
purpose of securing an existing or future debt or for performance of an
engagement which may give rise to a pecuniary liability.

61

MULTINATIONAL COMPANY
A company, which has, direct investment into or more countries.

MULTIPLE DISCRIMINANT ANALYSIS

A statistical technique for determining a discriminant function which provides
a reasonable basis for classifying an item into various categories (for
example debtors may be classified into good debtors and bad debtors)
based on certain observable and quantifiable characteristics.
MULTIPLE FINANCING
Where the credit needs of different divisions of a borrowing company are
met independently by different banks, without any formal agreement
amongst them.
MUTILATED CHEQUE
A cheque which is torn into two or more pieces. Such cheques should not be
paid unless the mutilation is confirmed by drawer or collecting banker.

MUTILATED NOTES
It is a cut note in which a portion is missing or which is composed of pieces.
Some types of mutilated notes can be exchanged by all branches while
some others can be exchanged only by the currency chest branches.

MUTUALLY EXCLUSIVE PROJECTS

A set of projects that perform essentially the same task, sot that acceptance of
one will necessarily mean rejection of the others.

62

N
NARROW BANKING
It has been advocated by Tarapore committee on Capital Account
Convertibility as a solution to the problem of NPAs. A narrow bank is a bank
that has narrowed its asset portfolio to only highly marketable liquid assets
such as treasury bills. Thus all the incremental liabilities of such banks are
invested in zero risk or nearly zero risk securities to control NPAs and
minimize Capital Adequacy Requirements.
NARROW MONEY (M1)
It is computed by adding 1) Currency in circulation with public and 2) Demand
Deposit from public, with different Banks and RBI.
NATIONAL CLEARING
This clearing is being run by RBI for instruments drawn on Mumbai, Chennai,
Kolkata & Delhi at present, where the fate of clearing instruments is made
known to the presenting banker within four days of its lodgment.

NATIONAL SMALL INDUSTRIES CORPORATION (NSIC)

A Central agency which seeks to aid counsel, assist, finance, protect and
promote the interest of small industry in the country.
NEGOTIABLE INSTRUMENT
Certain instruments which are freely transferable by mere delivery, if payable
to bearer and by endorsement and delivery, if payable to order and a person
taking such instruments bonafide for value gets an absolute title to the
instruments not withstanding any defect in the title of the transferor or any
other party. Such instruments are called negotiable instruments.
Negotiable Instrument is defined in Section 13 of NI Act-1881. It means
Promissory Note, Bill of Exchange & Cheque payable to order or bearer.

NEGOTIATION BACK
It may sometimes happen during the course of negotiation that the instrument
comes back to the same person who had endorsed it previously. This is
termed Negotiation back.
NEGOTIATION CREDIT
It can be a sight or usance Credit where Draft is usually drawn. The
negotiation may be restricted to specific bank or may be a Freely Negotiable
Credit whereby any bank may negotiate it.
NET ASSET VALUE (NAV)
The NAV of a Mutual Fund Scheme is the value per unit that it would be
realised, less liabilities as on a particular date. If it is more than the face
value, it means the money has appreciated & vice versa.

63

NET CROPPED AREA

Actual land area available for cultivation.
NET PRESENT VALUE (NPV)
It is calculated by deducting present value of cash out flows from the present
value of cash inflows for a given project.
NET PROFIT MARGIN
It is calculate by formula: Net income / sales. This ratio measures the net income
of the firm as percentage to sale.
NET PROFIT RATIO
It is a measure of over all profitability of the business. It is calculated as
under:
Net Profit
Net Sales
X 100

Net Profit Ratio =

NET WORKING CAPITAL

It is the excess of current assets over current liabilities, which is arranged
from long term sources of the business concern. It is also known as Liquid
Surplus, Current Surplus or Working Capital Surplus.
NET WORTH
The Net Worth of an enterprise is the owners stake in the business.
NICHE BANKING
Niche banking means class or private banking as opposed to the concept
of mass banking. Niche banking would mean catering to specialized sectors
and particular industries where each bank has a strong hold.
NOMINAL INTEREST RATE
Interest rate expressed in money terms
NOMINATED BANK
It is the bank nominated and authorized by the issuing Bank, to pay, to incur a
deferred payment undertaking, to accept the Draft or to negotiate. In a freely
negotiable credit any bank may be a nominated Bank.

NOMINATION OF SHARES
Every holder of shares in, or debentures of, a company may, at any time can
nominate, a person to whom his shares in or debentures of, the company
shall vest in the event of his death. This facility has been introduced by
Company (Amendment) Act, 1999.

64

NON PERFORMING ASSET (NPA)

An Advance which ceases to generate income for the Bank.
NON RESIDENT (EXTERNAL) RUPEE ACCOUNT SCHEME (NRE
ACCOUNT)
It is a repatriable rupee account for NRIs of Indian nationality/origin and
OCBs maintained in savings, current, cumulative or fixed deposit form.
NON RESIDENT (SPECIAL) RUPEE ACCOUNT SCHEME (NRSR)
With effect from 15 th April 1999, a new type of deposit account i.e. NRSR has
been introduced for NRIs who would voluntarily undertake not to seek
repatriation of funds held and/or interest thereon. Such accounts may be
maintained in the form of current, savings, and cumulative or fixed deposit
accounts.
NON- RESIDENT INDIAN
Sec. 2w of FEMA defines NRIs as Indian citizens who stay abroad for
employment or for carrying a business or vocation or for any other purpose in
circumstances indicating an indefinite period of stay & also Indian citizens
working abroad on deputation or assignments.
NON RESIDENT ORDINARY (NRO) ACCOUNT
When a resident becomes non-resident, the rupee deposits accounts held by
him get designated as NRO account. Balances in these accounts are not
normally eligible for remittance abroad.
NON-PROFIT MAKING COMPANY
Such companies are formed for the promotion of art, literature, religion etc
and licensed by the Central Government Under Sec. 25 of Companies Act,
1956. Such companies need not add the word Limited to their name and
banks are permitted to open Savings Bank Accounts for them.

NON-RESIDENT (NON REPATRIABLE) RUPEE DEPOSIT SCHEME

(NRNRRDS)
It is a term deposit account open by NRIs & foreign nationals of Indian origin
for a period of 6 months to 3 years where only interest is repartriable.
NORMAL CAPACITY
That level of factory operations, which is considered normal in view of market
constraints over a period of the next three to five years.
NOSTRO ACCOUNT
Foreign currency accounts maintained by home currency banks with banks in
overseas centres.
NOTE LENDING SYSTEM
Under this arrangement, the borrower takes a loan, usually of 90 days
duration, against a promissory note.

65

NOTING
It is a process of gathering the evidence of dishonour of a bill with signature
& seal of a Notary Public.

66

O
OFFSHORE BANKING
The term offshore banking connotes banking that generally covers only nonresidents and does not mix into the mainstream of domestic banking. It normally
refers to financial activity geared to meet the special needs of international
enterprises and international investors outside the purview of domestic
monetary and fiscal policies.
OFF-SHORE FISHING
The term indicates exploitation of fishery resources beyond 10 & upto 40
fathoms.
ON BOARD BILL OF LADING
This Bill of Lading acknowledges the goods having been put on the board of a
ship for shipment. Hence this type of Bill of Lading is safer for the importer and
is a good delivery under sale contract for an exporter. In international trade
generally only On Board Bill of Lading are called for.

OPEN MARKET OPERATION

Buying & selling of securities or other assets like foreign exchange and gold by
RBI with an objective to alter the liquidity position of the banks is known as
open market operation.
OPERATING PROFIT MARGIN
Net operating income/sales. A firms earnings before interest and taxes. This ratio
serves as an overall measure of operating effectiveness.
OPERATING PROFIT RATIO
It is a measure of efficiency of the unit & calculated as follows:Operating Profit
Net Sales
X100

Operating profit Ratio =

OPERATING RISK
When the systems simply do not function properly resulting in loss of funds.

OPERATING STATEMENT
The Profit & Loss Account is required by the Banks in a specified format which
is known as operating statement. It helps to point out the efficiency/inefficiency
in the business concern.
OPERATIONAL HOLDING
The net area of land available for farm operations.

67

OPERATIVE LEASE
It is basically a short-term lease where the period of lease is very small as
compared to the life of the assets and the lease is usually cancelable.

OPPORTUNITY COST
The rate of return that can be earned on the best alternative investment.
OPTIONAL CAPITAL STRUCTURE
The capital structure that minimizes the firms composite cost of capital (Maximizes
the common stock price) for raising a given amount of funds.
OPTIONS
It is a contract wherein the buyer of the option has a right to buy or sell but not
obligation, a fixed amount of foreign currency at a fixed rate on a date in future.
OVER NIGHT LIMIT
Over night limits are the maximum amount an AD is willing to put at risk at a
time when the forex market is closed in time zone where the AD is operating.

OVER APPLIED OVERHEAD

The amount by which the overhead applied to attain production at a predetermined
rate, exceeds the overhead actually incurred during the period.
OVERCAPITALISATION
A unit is said to have been overcapitalized when its owned and borrowed
capital exceeds its fixed and current assets. Such units show accumulated
losses in the asset side of the balance sheet.
OVERDRAFT SYSTEM
Under this arrangement the borrower is allowed to overdraw on his current account
with the banker upto a certain specified limit during a given period.

OVERHEAD EFFICIENCY
The variance resulting from a difference between the actual quantity factor of
overhead cost (e.g. time worked) incurred, priced at the standard variable overhead
rate and the standard quantity (based on realized production), also priced at the
standard variable overhead rate. This is a quantity variance and results from efficient
or inefficient use of variable productive resources.
OVERSEAS CORPORATE BODY (OCB)
Means a company, partnership firm, society or other corporate body owned
directly or indirectly to the extent of atleast sixty percent by NRIs & includes
overseas trust in which not less than 60% beneficial interest is held by NRIs
directly or indirectly but irrevocably.

68

OVERTRADING
A unit is said to be overtrading when it accepts sales orders disproportionate to
its working capital. It results in heavy loss and may even bring closure of the
unit. In this situation there may be high turnover ratios and lower current ratio.
OWNERS EQUITY
Whatever a business owes to the owners is known as owners equity.

69

P
PACKING CREDIT
It is Pre-shipment credit facility sanctioned for purchasing, processing and
packing of goods meant for export.
PAID UP CAPITAL
It refers to the amount, which is actually paid by the shareholders out of the
amount subscribed by them.
PARIPASSU CHARGE
A charge of securities given to more than one creditor with the condition that
all will be entitled to the charge on equal footing in proportion to the amount
of their advances is called paripassu charge.
PARTICULAR LIEN
It gives right to retain the goods & securities for a particular or specified
dues from the borrower and not for the other dues from him.
PARTNERSHIP
It is the relationship between persons, who have agreed to share the profits
of a business carried on by all or any of them acting for all.
PAY BACK PERIOD
It is the time required to recover the entire investment of a project from the
future cash flows.
PAY OUT RATIO
The proportion of earnings paid out by way of dividends.

PAYEE
The person named in the bill, note or cheque to whom or to whose order the
money is to be paid is called the payee.
PAYMENT CREDIT
It is a sight credit, which will be paid at sight basis against presentation of
requisite documents to the designated paying bank.
PAYMENT FLOAT
The amount of cheques issued by the firm but not paid for by the bank.

70

PAYMENT IN DUE COURSE

A payment can be called payment in due course only if it is made :
In accordance with the apparent tenor of the instrument.
In good faith & without negligence
To any person in possession of the instrument under the circumstances,
which do not afford a reasonable ground to believe, that the person
receiving the payment is not entitled for the same.

PERFORMA INVOICE
It is basically a form of quotation by the seller to the potential buyer. It is a
sort of invitation to the buyer from the seller to place a firm order on him.

PERFORMANCE BUDGETING
It involves evaluation of performance of the organisation in context of both
specific as well as overall objectives of the organisation. It presupposes the
crystal clarity of organizational objectives in general and short term, business
objectives as stipulated in the budget, in particular by each employee of the
organisation irrespective of his level. It, thus provides a definite direction to each
employee & also a control mechanism to higher management.
PERFORMANCE GUARANTEE
It is a guarantee issued by a Bank, at the request of its constituent in lieu of
security deposit towards the due performance of a contract or obligation
him.
PERMANENT INVESTMENT
An investment that the firm expects to hold longer than one year. The firm
makes permanent investment in fixed and current assets in contrast with
temporary investment.
PERSONAL BANKING
Under this innovative concept, the banks have adopted their own strategies
for successful mobilisation of business, by tapping high potential target
group like professionals, housewives, executives, pensioners etc, through
changing their products and services in tune with the changing financial
needs of this group of people, which may include deposit and investment
services, consumer finance, housing loans, credit cards, fund transfer,
instant cash withdrawals, safe deposit lockers etc., by changing the lay out
of the branch to their suitability.

PERSONAL COMPUTER BANKING

It lets customers access information on their accounts through a dial-up
connection with their bank. The customers can perform basically all
transaction that are available with telephone banking and also down load
the information.
71

PETRO-DOLLAR
The Organisation of Petroleum Exporting Countries (OPEC) has
accumulated large foreign exchange resources, which is commonly known
as Petro-Dollar.
PLASTIC MONEY
The card-based payment mechanism is popularly known as the plastic
money.
PLEDGE
Bailment of goods as a security for payment of a debt or performance of a
promise is known as pledge.

PORTFOLIO
A combination of assets
POST DATED CHEQUE
A cheque bearing a future date. The bank should not pay such cheques
because it will not be treated as payment in due course.
POTENTIALLY SICK INDUSTRIAL UNIT
An industrial unit whose accumulated losses at the end of any financial year
have resulted the erosion of 50% or more of its peak level net worth during
the immediate preceding four financial years.
POWER OF ATTORNEY
It is a stamped document executed in presence of a notary public to convey
powers to the agent to do acts on behalf of the principal.
PP FORM
It is an export declaration form to be used in case of exports to be made to
any country by post.
PRE-EMPTIVE RIGHT
It is an export declaration form to be used in case of exports to be made to
any country by post.
PREFERENTIAL SHARE CAPITAL
Which has a priority over equity shares in receiving dividend & also getting
back capital at the time of winding up.
PRESENT VALUE
It is the value of a future stream of payments or receipts discounted at a given
rate to the present time.

72

PRICE/EARNINGS (P/E) RATIO

The ratio of market price per share to earnings per share. This ratio shows what
investors are willing to pay per rupee of earnings.
PRIMARY MARKET
The market in which financial securities are issued.
PRIME COST
The sum of the two manufacturing cost elements known as direct labour and
direct material.
PRIME MINISTERS ROZGAR YOJANA FOR EDUCATED UNEMPLOYED
YOUTH (PMRY)
The Prime Ministers Rozgar Yojana (PMRY) has been introduced, on 2 nd
October 1993, to provide employment to educated unemployed poor by
setting up micro enterprises. Under this scheme, the beneficiaries may
undertake any of the activity from industries, services or business. The
scheme was initiated in urban areas of the country during 1993-94 but it has
been extended now to whole of the country. The educated unemployed
person whose family income does not exceed Rs. 40,000/- p.a shall be
covered under this scheme.

73

PRIME RATE
It is the rate of interest charged by first class banks in USA on advances to
their first class customers.
In India each bank fixes its own prime-lending rate for advances.
PRIME TERM LENDING RATE (PTLR)
It is the interest rate at which the bank is willing to lend to its Prime
Customers (near zero risk) for Term Loan of three years and above. It
changes from time to time and varies from bank to bank.
PRIME-INS
An European country that wishes to join EMU but is not judged to have yet
met the convergence criteria.
PRIVATE LIMITED COMPANY
A company which by its articles, restricts transfer of its shares, limits the
number of its members to 50 and prohibits any invitation to the public to
subscribe for any shares or debentures of the company.
PRIVATE PLACEMENT
It is a system by which the companies offer shares privately without inviting
any public subscription.
PROBATE
It is a copy of the will certified under the seal of the Court of competent
Jurisdiction confirming that the will has been duly executed and has the
force to be acted upon. It confers authority to the executor to discharge the
directions made in the will.
PROCESSING FLOAT
Funds tied up during the time required for the firm to process remittance
Cheques before they can be deposited in the bank.
PRODUCTION CREDIT
It is a credit used for purchase of inputs for production of crops.

PROFIT
The excess of a firm's operating revenue over the expenses of producing
that revenue in a given fiscal period.

PROFIT & LOSS STATEMENT

This statement shows the performance of the concern during the relevant
period --- the sources & amount of Revenue earned, the expenses incurred
& profit made by the business.

74

PROFIT BUDGET
A budget of forecasted profits based on information gleaned from the cost
and sales budgets.

PROFIT CENTRE
An organizational unit which is responsible for revenues and costs and
consequently profits.

PROFIT MARGIN
The ratio of profit to sales. Several profit margin ratios are used. The two
most commonly used are: gross profit margin (gross profit divided by sales)
and net profit margin (net profit divided by sales).

PRO-FORMA FINANCIAL STATEMENTS

Literally, 'according to form' financial statements. They are the basic
financial statements projected to the end of the next fiscal period in
accordance with the provisions of the planning budget.

PROGRESSIVE TAX STRUCTURE

A tax structure in which the marginal tax rate increases

PROMISSORY NOTE
It is an instrument in writing signed by the maker containing unconditional
undertaking to pay a certain sum of money only to or to the order of a
certain person of bearer of the instrument (Sec. 4 of N.I. Act). General public
is prohibited to issue Promissory Note payable to bearer.

PROPRIETORSHIP
A business firm owned by a single individual.

PROSPECTUS
A document issued to describe a new security issue.

PROTESTING
Protest is the certificate issued by the Notary Public containing the facts of
dishonour.

75

PROXY
A member is entitled to attend and vote at a meeting of the company
personally or by Proxy. A Proxy is an authority to represent and vote for
another person in a meeting. It is also an instrument appointing a person as
proxy. The person so appointed is also called a proxy. Thus, it is the
authorization given by one person to another to vote on his behalf in the
stockholders meeting.
PUBLIC DEBT
Public Debt is the debt, which a State owes to its subjects or to the nationals
of other countries. Public debt arises due to borrowing by the Government.
PUBLIC LIMITED COMPANY
A company which by its articles, does not restrict the right to transfer its
shares, if any, does not limit the number of its Shareholders and does not
prohibit any invitation to the public to subscribe for any shares or
debentures of the company.
PURDANASHIN WOMEN
A purdanashin woman is one who remains in complete seclusion and does
not transact with people other than her family members. She can avoid a
contract if there is undue influence on her for signing the contract.

PUT OPTION
It is a type of derivative under which the customer has an option to sale.

76

Q
QUALIFIED ACCEPTANCE
An acceptance in which the drawee accepts the bill subject to certain conditions.
QUASI-CREDIT FACILITIES
Facilities like letters of credit and guarantees issued by banks in favour of their
clients.
QUASI EQUITY
These items are not contributed by the owners but are as good as capital i.e.
Seed Capital Assistance for SSI and Unsecured loan from friends and relatives
etc.
QUICK ASSET
It is that part of current asset which is convertible into cash within a relatively
shorter period, such as cash in hand, cash at Bank, call loans, marketable
securities, customers accounts etc.

77

R
R- RETURN
All foreign exchange transactions made by authorized dealers are reported to
RBI on R-Returns.
READY FORWARD TRANSACTION
An arrangement for simultaneous sale and repurchase of securities at a price
fixed at the time of sale is known as a ready forward transaction. The difference
between the two prices is the yield on the transaction.

REALISATION PRINCIPLE
According to this principle, revenue is deemed to be earned when it is realised.

RECAPITALISATION BONDS
The Government of India has infused substantial Capital into Nationalized Banks
to soften the impact of losses suffered by some of them and to meet capital
adequacy norms. The banks were required to invest these funds in special type
of non-transferable bonds, known as recapitalisation bond. These bonds appear
on the asset side as a part of banks investment portfolio while the funds are
shown as equity in liability side of the balance sheet.

RECEIVED FOR SHIPMENT BILL OF LADING

It is merely acknowledgement that the goods have been received by the ship
owner or their agents for shipment. It is not a safe document.
RED CLAUSE LETTER OF CREDIT
It is also called Anticipatory Credit. The Red Clause letter of credit is
so called because it contains a special clause printed or typed in red
permitting the correspondent bank in the exporters country which
advises the credit to grant advances at its discretion to the beneficiary
(exporter) even before the shipment is made.
REDEEMABLE PREFERENCE SHARES
Preference shares which are repurchaseable at par at a certain date or at some time
between two stated dates

78

REIMBURSING BANK
It is the bank authorized to honour the reimbursement claim in settlement of
negotiation/acceptance/payment lodged with it by the paying, negotiating or
accepting bank. It is normally the bank with which the issuing bank has an
account from which payment is to be made.

RELATIONSHIP BANKING
It focuses on existing clientele. It means optimum exploitation of existing
business potential by getting maximum share of the customers wallet, because
it is cost effective to sell additional products to the existing customers. Therefore,
under relationship banking, efforts are made to get more business from the
existing customers & their friends & relatives.
REORGANISATION
An adjustment in the financial structure of a firm on order to enhance its viability.
For example- conversion of proprietary firm into partnership etc.

REPOs (REPURCHASE OPTION)

Sale of securities with a simultaneous commitment to repurchase them at a
future date at predetermined rate is called REPOs. Banks use REPOs deal for
adjusting SLR/CRR positions.
REQUIRED RATE OF RETURN
Rate of return required by investors on their investment.
RESERVE BANK OF INDIA (RBI)
the central banking authority of India set up under Reserve Bank of India Act 1934.
RESIDENT FOREIGN CURRENCY (RFC) ACCOUNT
This Scheme has been drawn up by RBI to enable returning Indians to open &
maintain foreign currency accounts with authorized dealers in India in form of
current, savings (without cheque book facility) or term deposit account. The
funds under these accounts can be freely utilized for bonafide remittance outside
India by the account holder.
RESTRICTIVE ENDORSEMENT
Generally an endorsee of a negotiable instrument is fully competent to negotiate
it further, but restrictive endorsement takes away the negotiability of such
instrument by prohibiting further endorsement.

79

RETAIL BANKING
Retail banking is a combination of product development and selling strategies
essentially focussed on personal banking segment. It is a very personalized
service, sold through individual efforts with extensive involvement of all the
employees of the bank. Reasons for targeting retail banking in a big way are:It is a growing market. It is an assured market It is profitable. It is simple to
deliver. It allows extensive participation.

RETAIL TRADE
It includes retail traders with credit limits not exceeding Rs. 5.00 lacs.
RETAINED EARNINGS
The portion of net income which is ploughed back in the business.

RETURN ON EQUITY
The ratio of equity earnings to net worth.

REVENUE RESERVES
These reserves are created from revenue profits earned out of normal business
operations.
REVOCABLE LETTER OF CREDIT
Which can be revoked i.e. cancelled or amended by the bank issuing the credit,
without notice to the beneficiary.
REVOLVING CREDIT
It is one where, under the terms and conditions of the Credit, the amount is revived
and reinstated without requiring specific amendments to the credit.

RIGHTS ISSUE
Issue of securities offered to existing share holders on a pre-emptive basis.
RISK
Risk refers to variability. It is measured in financial analysis generally by standard
deviation or by bet coefficient.
RISK ADJUSTED DISCOUNT RATE
The discount rate applicable to a risk investment. It is equal to the risk free rate of
return plus a risk premium reflecting the risk characterizing the investment.

80

RISK AVERSION
A dislike for risk. Generally investors are risk averse. Their required rate of return
varies with the level of risk- the higher the level of risk, the higher the required rate of
return.
RISK LESS RATE RETURN
The rate of return on risk free investment, such as the interest rate on short term
government securities.
RISK PREMIUM
The additional return expected for assuming risk.
RULE OF APPROPRIATION
When a borrower owing several debts makes payment, the creditor should
appropriate it as per rules of appropriation which are laid down in Section 59, 60
& 61 of Indian Contract Act. It is the customers right to have the amounts, which
he pays in, credited to such accounts he likes. But if he fails to exercise this right
at the time of paying the amounts, the banker can appropriate the payment at his
discretion. When neither the customer gives instructions, nor the banker makes
use of his right to appropriate it then, the rule of Claytons case applies.
RURAL BRANCH
Which is located in rural area with population less than ten thousand. However,
rural area as per NABARD & NHB is a place with population not exceeding
50000.
RURAL INFRASTRUCTURE DEVELOPMENT FUND (RIDF)
Scheduled commercial banks are required to make contribution equivalent to the
shortfall in achieving the benchmark of 18% for credit to agriculture subject to
maximum of 1.5 % of net bank credit to this fund of NABARD upto 5 years
maturity period where they get a floating rate of interest equivalent to 0.5% point
over maximum permissible rate on these term deposits. This fund is utilized by
NABARD for rural development.

81

S
SALE AND LEASE BACK ARRANGEMENT
An arrangement arising when a firm sells land & buildings, or equipment that it
already owns and simultaneously enters into an agreement to lease the property
back for a specified period, under specific terms.
SALES MIX
The composition of the total sales of a multi product firm in terms of the relative sales
of each product line.
SALVAGE VALUE
The value realised from the disposal of an asset.
SAMIS
The service area plans have become an important segment of the Lead Bank
Scheme. The entire monitoring and information system under Lead Bank
Scheme has changed & the RBI has introduced uniform system for monitoring &
reporting of the progress at a regular interval which is known as Service Area
Monitoring and Information System (SAMIS)
SATELLITE BRANCH
A branch of a bank which functions for one or two days in a week as adjuncts to
full-time (base) branch and attends to the conduct and development of banking
business at such rural centres where conditions do not warrant the
establishment of a full-fledged branch.
SDR (SPECIAL DRAWING RIGHTS)
SDR is the international reserve asset created by the IMF. SDRs are the
entitlements granted to the member countries enabling them to draw from the
IMF apart from their quota. The arrangement is similar to a bank granting credit
limit to its customers.
SEASONS OF CROP PRODUCTION
Rabi:
Under this season crop sowing is normally done during October/November and
harvesting is done in the month of April /May.
Kharif:
The crop season normally begins in June/July and harvesting is done in
October/November.
Summer or Zaid:
The crop season generally starts in February/March and ends in June / July .
SECOND BENEFICIARY OF CREDIT
It is the person in whose name the first or original Beneficiary of Credit has
transferred the credit designated as transferred. The transferee enjoys almost
the same right of original beneficiary subject to terms of transfer.
SECONDARY MARKET
The market for outstanding securities.

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SECRET RESERVES
Which are not shown in the Balance Sheet but built by simple method of profit
much lower than the actual due to excessive depreciation etc.
SECURED ADVANCE
Advances where the market value of the security at any time is not less than the
advances outstanding.
SECURITIES AVAILABLE FOR SALE
As per the guidelines of RBI, Banks are required to classify their securities for
the purpose of valuation of their investment portfolio w.e.f. Half Year September
2000 under three categories: 1. Held-to-Maturity, 2.. Held for Trading & 3.
Available for Sale. The securities, which do not fall under 1&2 above, are
classified under Available for Sale.

SECURITIES EXCHANGE BOARD OF INDIA (SEBI)

It is a statutory body to protect the interest of investors and to promote, develop
and regulate the securities market.
SECURITIES HELD FOR TRADING
The securities acquired by the banks with the intention to trade by taking
advantage of short-term price/interest rate movements are classified under this
category. Such securities are to be sold within 90 days.
SECURITIES HELD TO MATURITY
Securities acquired by the banks with the intention to hold them upto maturity
are classified under this category as per the RBI guidelines.

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SECURITISATION
It is a process whereby the assets in the form of loans and receivables are
pooled together and the underlying cash flow is used to create guarantees for
securities that are issued out of the pool. These securities are offered either to
retail or institutional investors.
SELECTIVE CREDIT CONTROL
As per Section 21 of Banking Regulation Act (1949), the Reserve Bank of India
is authorized to regulate the bank credit against certain selected essential
commodities so as to prevent their speculative hoarding and rise in their prices
which is known as qualitative or selective Credit Control. This control is
exercised by prescribing minimum margin, ceiling on level of credit and/or
minimum rate of interest.
SELF-HELP GROUPS (SHGs)
Self-help group is a homogeneous group of rural poor voluntarily formed to save
whatever amount they can conveniently save out of their earnings and mutually
agree to contribute to a common fund of the Group to be lent to the members for
meeting their productive and emergent credit needs.
SENSEX
It is Bombay Stock Exchange (BSE) sensitivity Index based on high and low in
the weighted market capilisation of thirty specified shares.
SENSITIVITY ANALYSIS
While calculating the projected profit of a project, are taken into account the most
likely value of inputs and output. However, the future being uncertain, the cost of
certain inputs may go high or price of products may come down which may upset
the entire calculation of profit. Therefore, the analysis should be done to test the
viability of the project under worst circumstances by taking critical factors into
account. This analysis is known as sensitivity analysis.
SERICULTURE
It is one of the most integrated rural industries ancillary to agriculture. The
different aspects of this industry are mulberry cultivation, silk worm rearing,
reeling, twisting, weaving and fabrication.
SERVICE AREA APPROACH
On the basis of Dr. P.D.Ojha Committee recommendations & RBI guidelines, all
the villages of the country have been allotted to bank branches for overall
economic development in a phased manner.

SET OF BILLS
Bills of exchange may be drawn in parts, each part being numbered and
containing a provision that it shall continue payable only so long as the others
remain unpaid. All the parts together make a set, but the whole set constitutes
only one bill and is extinguished when one of the parts, if a separate bill, would
be extinguished.

84

SET OFF
Where there is credit balance in an account and debit balance in another of a
customer, the banker has right to adjust the credit balance with debit balance and
arrive at the net sum due. This right of the banker is known as Set-Off.

SHADOW ACCOUNTS
The proforma accounts, which reflect the shadow of the Nostro Accounts, are
called Shadow Accounts.
SHARE CAPITAL
Amount contributed by shareholders of a company towards capital.

SHORT FORM BILL OF LADING

In such Bill of Lading detailed terms and conditions are not stated on Bill of
Lading and even if stated, it may be by reference to other documents or sources.
Generally Charter Party Bill of Lading are of this nature.

SHORT POSITION
An investor is said to have a short position if he is obliged to deliver the
share/assets in future. This investor will profit if the stock price falls before he
must deliver shares.
SIBOR
It represents Singapore Inter-bank offer Rate. It is the rate at which principal
banks in Singapore offer to lend Asian Dollars and other currencies to other
banks.
SICK BANK
According to the new norms of RBI, a sick bank is to be so categorized when the
non-performing asset breaches 15 percent, capital adequacy ratio (CAR) falls
below the level of 50% of the minimum prescription and the bank shows loss for
three consecutive year.
SICK SSI UNIT
An SSI unit including a unit in tiny sector, is considered sick when (I) any of its
borrowal accounts, has become doubtful advance with the Bank and (ii) its net
worth has eroded due to accumulated losses, to the extent of 50% or more of its
peak term during the proceeding two accounting years.
In respect of advances to Artisans and very small SSI (Village & cottage
Industries) in villages & small towns with population not exceeding 50,000/- it
may be considered sick (I) if it defaults continuously for a period of one year in
payment of interest & installments of principal and (ii) there are persistent
irregularities in the operation of its credit limit with the bank.
SIDCs (STATE INDUSTRIAL DEVELOPMENT CORPORATION)
State level development institutions which seek to serve as catalytic agents in the
industrialization process.

85

SIMPLE MORTGAGE
Here the mortgagor gives personal undertaking to the mortgagee to repay the
amount due under the mortgage. If the mortgager fails to repay the amount the
mortgagee shall have right to have mortgaged property sold through the court
and the proceeds of sale applied in payment of the mortgage money to the extent
necessity.
SIMULATION
A technique of risk analysis which seeks to develop the simulated probability
distribution of a criterion of merit like net present value or internal rate of return
on the basis of the quantity, selling price, project life, etc. and the criterion of
merit.
SINKING FUND
A required annual payment that allows periodic retirement of debt.
SMALL BUSINESS
A unit engaged in providing services other than professional services where the
original cost of the equipment used for the business does not exceed Rs. 10.00
lacs and maximum bank finance upto Rs. 10.00 lacs within which working capital
limit upto Rs. 5.00 lacs.
SMALL FARMER
One whose land holding is 2 hectares or less of Dry land.
SMALL ROAD & WATER TRANSPORT OPERATORS (SWRTOs)
Who own a fleet of vehicles not exceeding ten vehicles, including the one
proposed to be financed by the Bank.
SMALL SCALE INDUSTRIES (SSI)
It refers to industrial units which engaged in activities like manufacturing,
processing, preservation of goods, mining, quarrying, servicing/ repairing of
machinaries/vehicles whose investment in plant and machinery at original cost
does not exceed Rs. 1.00 Crore
SMART CARD
It holds personal information about the cardholder and can be used with a
personal identification number (PIN) it has a magnetic strip to read pre recorded
information stored in a card.

SOFT CURRENCY
A currency, which has an instable, value because of internal economic weakness,
balance of payments deficits or international speculative dealing and therefore
vulnerable to devaluation.
SOFT LOANS
Loans given to sick units to help them modernize, increase productivity and
improve their financial viability at concessional rate of interest with longer
repayment period.
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SOFTEX FORM
This export declaration form is used by the exporters in case of export of
computer software in non-physical form.
SOILED NOTES
A soiled note is one, which has become dirty due to usage and where no portion
of the note is missing. Such notes should be freely accepted for exchange by
cashiers at counter.
SOLE PROPERITAR FIRM
A Business owned by a single individual.

SOLVENCY
A unit is said to be solvent when its outside liabilities are less than total tangible
assets.
SPONTANEOUS FINANCING
The trade credit and other accounts payable that arise spontaneously in the firm's day
to day operations.
STOCK SPLIT
In a stock split, the par value per share is reduced and the number of shares is
increased proportionately.
STABLE MONETARY UNIT PRINCIPLE
Financial accounting is based on the assumption that the monetary unit remains
stable.
STALE CHEQUE (OUTDATED CHEQUE)
A cheque becomes stale six months after its date of issue and it should not be
paid unless it is revalidated by the drawer.
STATE FINANCIAL CORPORATIONS (SFCS)
State level financial institutions catering mainly to the credit of small and medium
scale sector.
STATEMENT OF CHANGES IN FINANCIAL POSITION
A basic accounting statement, also known as a sources and uses of funds
statement, identifying how the form acquired its funds for the period and what it
did with those funds.

87

STOCK EXCHANGES
Formal organizations involved in the trading of securities. Such exchanges are
tangible entities that conduct auction markets in listed securities.

SUBSCRIPTION PRICE
Price at which the issue of a security can be subscribed to by the investors.

SUNK COSTS
Costs which have already been incurred and which cannot be reversed.

SYNERGY
Gain from combining two or more units. In a synergistic merger the earnings of
the combined entity are expected to exceed the sum of the earnings of the
combining entities.

SYSTEMATIC RISK
Risk that cannot be diversified away. It is also referred to as market risk or nondiversifiable risk.

STANDARD ASSET
An asset, which does not disclose any problem and does not carry more than
normal risk attached to the business. Such assets are not NPAs.

88

STANDBY LETTER OF CREDIT

It is not an ordinary letter of credit but is a sort of stand by or back up credit.
These credits are very rarely used in India but very much in use in certain
countries like USA. These credits are generally used as substitute for
performance guarantee, mostly by banks in countries where, by law they are
precluded from issuing guarantees. No transport document is called for under this
credit.
STANDING COMMITTEE
It is a sub committee of DCC, constituted at each district to monitor the progress
under Govt. sponsored schemes and other important matters. The meeting of
standing committee is held every month.

STATUTORY LIQUIDITY RATIO (SLR)

A banking company is required to maintain at the close of business or any day a
certain percentage of its Net Demand and Time Liabilities in India in form of
Cash, Gold and unencumbered approved securities as per Sec. 24 of Banking
Regulation Act 1949, which is known as SLR.

STOCK INVEST
It is a non transferable instrument with irrevocable instructions payable at all
branches of issuing bank which can be used by the investor for applying for
shares and debentures without parting with his money, because the money
remains in his SB/Term Deposit account till the shares/debentures are allotted
and the instrument is presented for payment.
STRAIGHT BILL OF LADING
A Bill of Lading, which is issued directly in the name of consignee, is called
Straight Bill of Lading. In this case, the goods will be delivered directly to the
named consignee. It does not require any endorsement either in blank or
otherwise by the shipper. From banker's point of view this type of Bill of Lading is
not safe.
STRATEGIC BUSINESS RISK
This is the risk that the entire lines of business may succumb to competition or
obsolescence. This risk also occurs when a Bank is not ready or able to compete
in a new developing line of business.

SUBORDINATED DEBT
A subordinated debt is one, which in the event of the borrower's insolvency ranks for
payment after some other creditors. A Bank which lends money to a borrower on
hypothecation subject to prior charge of another creditor is the second charge holder
and the debt is a subordinated debt.

89

SUBSCRIBED CAPITAL
It is a portion of issued capital, which has been accepted/agreed, by the shareholders
to subscribe.
SUBSIDIARY COMPANY
A company is known as a subsidiary company of another company when control is
exercised by the latter called holding company) over the former.
SUBSIDIARY GENERAL LEDGER FORM (SGL)
Subsidiary general ledger form is the form for transfer of government securities
from subsidiary general ledger account of the bank to subsidiary general
ledger account of another bank maintained with public debt office of RBI. The
subsidiary general ledger form is signed by both transferor and transferee
banks.
SUB-STANDARD ASSET
Such an asset which has been classified as NPA for a period not exceeding
eighteen months.
SUCCESSION CERTIFICATE
It is a document issued by a Court, which gives authority to a person named in
the document to collect debts and securities (i.e. Credit balances & transferable
securities) due to a deceased person.
SWADHAN
It is a Shared Payment Network System (SPNS) established by I.B.A. in Mumbai
& near by areas for providing any time & anywhere banking services with the help
of ATM to the customers of different participating banks.
SWAP
It refers to simultaneous sale at spot and purchase forward to foreign vice versa.
SWAPTIONS
It is combination of an option and a swap. In fact it is an option to enter into a SWAP,
SWAPTIONS may be :
PAYER SWAPTION Where the buyer has the right to pay an agreed fixed rate
and receive a floating rate as per the agreed benchmark usually LIBOR.
- RECEIVER SWAPTION Where the buyer has right to receive an agreed fixed
rate and pay a floating rate.
SWARNA JAYANTI GRAM SWAROJGAR YOJNA (SGSY)
It has been launched from April 1999, by government of India. With the introduction of this
scheme the following existing schemes have been discontinued :
I.R.D.P., TRYSEM, DWCRA, SITRA (Supply of improved tool kits to Rural Artisans), GKY,
MWS (Million Well Scheme)
SGSY is a holistic programme of micro enterprises covering all aspects of selfemployment such as organisation of the poor into Self-Help Groups, Training Credit,
Technology, Infrastructure and Marketing. The objectives of the scheme are : To bring
the assisted rural poor families (Swarojgaries) above the poverty line in three years by
providing income generating assets through a mix of bank credit and Govt. subsidy. It
would mean, ensuring that the family has a monthly net income of at least Rs.2, 000/per month.
-

90

SWARNA JAYANTI SHAHARI ROZGAR YOJANA (SJSRY)

SJSRY, operative from 1st December, 1997, has been launched by the Government of India to
provide gainful employment to urban poor (living below the poverty line) who are unemployed
or under employed, through setting up of self employment ventures or provision of wage
employment. This scheme has replaced four existing schemes :
Nehru Rozgar Yojana (NRY), Scheme for Urban Micro Enterprises (SUME), Urban Poverty
Eradication Programme (PMIUPEP)
SWEAT EQUITY SHARES
Means equity shares issued at discount or for consideration other than cash for
providing know how or making available rights in the nature of intellectual
property rights or value additions by whatever name called.
SWIFT
SWIFT or Society for Worldwide Interbank Financial Telecommunication is a
cooperative society created under Belgian law and registered in Brussels. It
operates a computer guided communication system to rationalize international
payment transfers. Indian Banks are also members of SWIFT.
SWITCH
Banks have with them different kinds of securities carrying different coupon rates. A
bank, which is saddled with a stock of low coupon rate securities, may decide to sell
them to buy higher coupon rate securities to improve its income flow. Replacing one
set of securities with another is called switch.
SWOT ANALYSIS
It is useful tool for planning and deciding strategies for marketing activities. It involves
recognition of both existing as well as those, which could be acquired, and also an
assessment of business potential coupled with the opportunities and threats (including
risk & competition) associated with the potential. Then, matching of the resources with
the potentials after analyzing various external factors, which influence the marketing
activity. The word SWOT is an abbreviation of strength, weakness, opportunities and
threats.

91

T
TAXABLE INCOME
Total income net of permissible deductions, which is subject to Tax.
TECHNICAL INSOLVENCY
Situation in which the firm can no longer honour its financial obligations. Although its
assets may exceed its total liabilities, thereby indicating a positive net worth, the
company simply does not have sufficient liquidity to pay its debts.
TEMPORARY INVESTMENTS
These investments are comprised of the firm's investment in current assets that will be
liquidated and not replaced within a period of one year of less. Examples include
seasonal expansions in inventories and accounts receivable.
TERM LOAN
A loan which is generally repayable in more than one year and less than ten years.
THEORETICAL CAPACITY
Full engineered capacity; the maximum production of which the plant is capable,
running full shifts, with no interruptions.
TIMES INTEREST EARNED RATIO
Earnings before interest and taxes (EBIT) interest expenses. A ratio that measures the
firms ability to meet its annual operating earnings.
TOTAL ASSET TURNOVER RATIO
It is ratio of net sales to total assets.
TRADE CREDIT
Inter firm credit arising form credit sales. It is recorded as an account receivable by
the seller and as an account payable by the buyer.
TRANSIT FLOAT
Funds tied up during the time necessary for a deposited cheque to clear through the
commercial banking system and become usable funds to the company.
TANGIBLE NET WORTH
The Figure obtained after deducting the book value of the intangible assets from the
owners equity.

92

TECHNOLOGY RISK
Technology risk is the risk due to adverse impact created by change of
technology. A bank may not keep up with the technological change and so miss
the opportunities to improve its operations and provide services to the
demanding customers.
Very costly commercial investments have been made by banks in communication
and information system, so the quality of the equipment to keep pace with new
development must be maintained.
TELE-BANKING
Tele banking is carrying transactions through the medium of the telephone. It
enables customers of a bank to operate their accounts simply by telephoning the
Bank. Tele banking offers a variety of services such as ordering a cheque book,,
getting the balance and exchange rates, opening a fixed deposit account,
transferring funds, ordering a demand drafts or a pay order and knowing the fate
of a deposited cheque.
TERM MONEY MARKET
Development Financial Institutions borrow from this market for a maturity period
of 3 to 6 months within the limit prescribed by RBI for each institution. As per IBA
ground rules, lenders can not pre-maturely recall these funds.
TIME OVERRUN
It means delay in the implementation of the project (may be due to scarcity of
fund or any other reason)
TINY ENTERPRISES
It refers to industrial units having investment in plant and machinery not
exceeding Rs.25 lacs irrespective of location of the unit.
TISSUE CULTURE
It is an established method of micro propagation of plants, flowering shrubs and
trees. This technology is one of the main ways to reproduce crops that are
difficult to propagate by conventional method such as seeds, cutting, grafting.
Tissue culture basically consists of taking a small amount of tissue from a plant,
placing it in an artificial environment and growing it. With this technology there is
a rapid vegetative multiplication of superior mother plants in the shortest time
span, which leads to high productivity per plant. Bank finance is also available
for this Hi tech agricultural activity.

93

TOKEN MONEY
Metal coins of all denomination are called token money.
TOTAL QUALITY MANAGEMENT
It refers to the quality of goods and services from beginning to end. It signifies an
effort, a commitment to the best quality of products and services available. TQM
is not just the quality; it aims at reducing costs. TQM has become a catch ward
of the modern industry.
TRANSFER PRICE MECHANISM
It is technique used by banks to determine the cost of funds transferred to and from
Head/Central office and arrive at a notional profit or loss of a branch before it is
categorized as profit making or loss-incurring branch. Transfer Price Mechanism is
used by all the banks but with slight variations in the methodologies applied and
advantages derived.
TRANSFERABLE CREDIT
It is a Credit, which can be transferred by the Original Beneficiary in favour of a
Second Beneficiary or several Second Beneficiaries.
TREND ANALYSIS
Study of one-year financial statement hardly serves any purpose for the banker.
Therefore, 3 to 5 years-financial statements should be studied and trend of sales,
cost of production different financial ratios etc should be compared during these
years. Then it should be analyzed that whether the unit is prospering or deteriorating.
This is known as trend analysis.
THROUGH BILL OF LADING
A Bill of Lading issued for the entire voyage covering several modes of transport
and/or transshipments is called Through Bill of Lading. This is used when the goods
have to take more than one mode of transport.
TRUST
Trust is an obligation, annexed to the ownership of property and arising out of a
confidence reposed in and accepted by the owner or declared and accepted by
him for the benefit of another or of another and the owner.
TRUST DEED
It is a document through with a trust is formed. It records the rights and
obligations of trustees. It should be registered.
TRUST RECEIPT FACILITY
Under the circumstances, when the goods pledged to the bank or goods covered
under bill purchased are released before receiving payment against a duly stamped
Letter of Trust executed by the borrower, where the borrower agrees to hold the
goods and its sale proceeds in Trust for the bank is known as Trust Receipt Facility.
TT BUYING RATE
This is the exchange rate applied when the transaction does not involve any delay in
realization of the foreign exchange by the bank i.e. when the nostro account of the
bank is already credited.
TT SELLING RATE
This exchange rate is used for all transactions which do not involve handling of
documents by the bank.
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TURNOVER RATIOS
These ratios measure the asset use or effectiveness in use of resources. The various
turnover ratios are (i) Sales Net Worth, (ii) Sales to total assets (less intangible),(iii)
Stocks to sales, (iv) Raw materials to consumption, (v) Stocks-in process to
production, (vi) Stores to consumption, (vii) Finished goods to sales (viii) Book debts
to sales.

U
UNDER APPLIED OVERHEAD
The amount by which actual overhead costs exceed the amount of overhead applied to
production at a predetermined overhead rate.
UNEXPIRED COST
Stored-up service potential to be realised as economic benefit in future. It represents asset
value.
UNIT TRUST OF INDIA (UTI)
An investment company, UTI aims at mobilising the savings of the public and channelises
them into productive corporate investments. It is the largest mutual fund first by GOI.
UNLISTED SECURITY
Security which is not listed on a recognised stock exchange.
UNSYSTEMATIC RISK
Risk that can be diversified away. It is also referred to as unique risk, specific risk, residual
risk, or diversifiable risk.
ULTRA VIRES
A Latin term meaning " beyond the powers". It is a legal term applied to any action,
which is outside the powers or authority given by law and therefore, invalid.

UNDER CAPITALISATION
The situation happens when the owned capital of the unit is much less compared to its
borrowed fund. it is risky for the creditor.
UNDERTRADING
It means lower volume of sales and under utilisation of assets.it is a sign of sickness of the
unit. continuos undertrading leads to forced liquidation of the unit.
UNDERWRITING
It is an undertaking by a party/institution to take up the shares specified in the agreement
of underwriting if the public or other persons fail to subscribe for them.
UNIFIED EXCHANGE RATE SYSTEM
Effective from 1 st March 1993, Govt. of India has replaced the earlier exchange rate
system by unified exchange rate system where exchange rate of Indian rupee is
market driven.

95

UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDIT (UCPDC)

The International Chamber of Commerce formulated a set of guiding principles/rules
designated as the Uniform Customs and Practice for Documentary Credits. These
rules govern the letter of credit transactions in India and most of the countries all over
the world who have accepted them.
UNION CASH
A product of our bank to take care of the financial requirement maximum upto Rs. 5,000/of retired employees drawing pension/fixed income through a Bank and also to meet
temporary mismatch of cash flows of mid size corporates & other borrowers having sound
financial ratings.
UNION COMFORT
A lending scheme of our Bank for meeting personal expenses & purchase of consumer
durable upto Rs. 1.00 lacs
UNION EDUCATION
Educational loan scheme of our Bank to provide financial assistance on reasonable terms
to meritorious students to persue higher/professional/technical education upto Rs.7.5 lacs
for studies in India and Rs.15 lacs for studies abroad.

UNION GREEN CARD (UGC)

Union Green Card is to be issued to farmers in order to meet any urgent agricultural
credit requirement for agricultural operations as also working capital requirement for
allied activities like dairy, poultry etc of cultivators upto Rs 2,00,000/- The limit to be
fixed on the basis on annual requirement/assessments maximum upto Rs. 2,00, 000/and should be renewed every year on expiry of 12 months. Cash disbursement upto
Rs. 25,000/- can be allowed and one time cash disbursement shall be restricted to
Rs.10,000/- Repayment period is within 12 months of availment or harvesting
marketing of crops/ proceeds whichever is earlier.
It is encashable both at issuing branch as well as link branch situated at
Taluka/District headquarter branch.
UNION GOLD
A loan product of our bank to provide alternate source of credit to needy farmers as well as
other individual against pledge of gold ornaments.
UNION HEALTH
A new loan product for financing qualified registered medical practitioner/dentist for
acquiring premises/equipments & medical etc subject to minimum of Rs. 2.lacs.

96

UNION HOMES
A new loan product of our Bank to provide financial assistance for purchase/construction
repair/extension of houses/Flat & also repayment of loan availed from other agency upto
Rs 25 lacs (maximum Rs. 10 lacs for repairs).
UNION MILES
A lending scheme of an Bank for purchase of new two/four wheeler for
personal/professional use up to Rs.8.00 lacs.
UNION RENT
An innovative lending scheme of our Bank against rent receivables to meet the
contingencies or for any productive purposes. this finance is given to the owners of the
property who have rented out the same to institutions on lease basis.
UNION SHARES
A lending scheme of our Bank in form of fund based/non fund based limit to any
individual/share and stock broker/market maker/corporate against shares. (maximum upto
Rs.20 lacs to individuals and Rs.5.00 crores to others).
UNION SMILE
A new product of our Bank for financing pensions/salaried class through over draft in their
S.B. A/cs to meet the unforeseen expenses up to maximum 90% of one month
pension/salary credited in the account.
UNION TRADE
A lending scheme of our Bank to meet the working capital requirements of wholesale/retail
traders/manufactures and traders.
UNIVERSAL BANKING
Universal Banking means providing entire range of financial services i.e. commercial
banking & investment banking activities with both, equity & debts by the same
institution under one roof. It has been Okayed by RBI, on the basis of
recommendation of
Khan Committee, Tarapore Committee & Narasimhamam
Committee on financial sector reforms, subject to prudential norms.
USANCE BILL
It is payable only after a fixed tenor from the date of the bill or from the date of
acceptance of the bill. Usance bill can be dishonoured due to non-acceptance or non
payment.
US GAAP
The term refers to Generally Accepted Accounting Principles which are accepted in USA.
Accountants have considerable freedom to accept their own ideas as to the best recording
and reporting specific events. But in context of US GAAP are established by the Financial
Accounting Standard Board, created in 1973 which is a non governmental organisation.

V
VARIABLE COSTS
Costs which are dependent upon the level of activity. This increases as activity increases,
and vice versa.

97

VENTURE CAPITALISTS
Investors interested in supplying capital to particularly high-risk situations, such as start
ups or firms denied conventional financing.
VERTICAL MERGER
A merger between a supplier and its customer.
VALUE AT RISK (VAR)
Value at Risk is a risk measurement and management tool. It is defined as an
estimate of potential loss in a position of asset or portfolio of assets over a given
holding period at a given level of certainty.
VALUE DATE
A value date for the foreign exchange transaction is the day on which cash flows are
to take place. There are internationally accepted rules for working out these value
dates. Value today (cash) & Value Tomorrow (TOM) transactions are not very
common as value spot transaction i.e. two business days later & in case of holidays
next business day.
VENTURE CAPITAL
It refers to financing of opportunities based on the technological innovations in
contrast to the conventional security based lending. In other words, Venture Capital is
the financing of new (commercially untried) ideas or technologies.
VERMICULTURE
It is a system of raring of Earthworms and processing organic wastes through the
Earthworms internal system. The gut of the earth worm acts as an ideal bio
reactor. The digestive juices and enzymes of the earthworm also add to the
processing and in the conversion and enriching of the organic matter apart from the
bacteria. What comes out finally is VERMI COMPOST. Banks can grant advances
for vermiculture and vermi based mechanical units under innovating term landing
under agriculture.
VERY SMALL APERTURE TERMINAL (VSAT)
It is digital satellite communication network that directly connects geographically
dispersed offices/ operational locations into an integrated network.

VIKASH VOLUNTEER VAHINI (V.V.V.)

It is a group of dedicated people to educate the borrowers regarding proper utilisation
of bank credit & its timely repayment, formed at the initiation of NABARD with the Cooperation of financing banks in rural areas. Under this programme, a formal group of
15-20 progressive farmers in the service area of a sponsor bank is established,
popularly known as Farmers Club , whose members are known as Volunteers. They
help banks & borrowers in qualitative lending & timely recovery apart from other rural
development activities

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VIRTUAL BANKING
It refers to banking services delivered to the customer by means of a Computer
Controlled System that does not directly involve the usual banks branch. In a Virtual
Bank the traditional paradigm of a customers interaction with the bank is replaced by
an electronic paradigm which is new and innovative.
VOSTRO ACCOUNTS
Accounts of overseas banks maintained with banks in home country in the home
currency. Home country banks Nostro a/cs are overseas banks Vostro a/cs and viceversa.
VP/COD FORM
It is an export declaration form to be used by the exporter when export are made to
any country by post parcel under arrangements to realize proceeds through postal
channel on value payable or cash delivery basis.

W
WRITTEN DOWN VALUE METHOD
A depreciation method according to which the depreciation is charged at a certain
percentage to the written down value of the asset.
WARRANT
A warrant is a call option on the share of the company, which entitles investors to
equity shares after a specified period of time. It can be traded separately like shares.
WEAKER SECTION
It comprises of small/marginal farmers, Landless labourers, tenant farmers, share
croppers, beneficiaries under IRDP, SGSY, SUME, SJSRY, SC/ST, SLRS, Artisans,
Village & Cottage industries with Credit Limit upto Rs. 25000/- , PMRY eligible
a/csSelf Help Group etc.
WEIGHT CERTIFICATE
It is a document certifying the weight of goods given by the exporter countersigned by
independent agency.
WET LAND
Land receiving continuos water in case of need throughout the year from sources like
tanks, rivers, canals etc.
WORKING CAPITAL GAP
It has been defined as the difference between current assets and current liabilities
other than bank borrowings.
WORKING CAPITAL TERM LOAN (WCTL)
In case of rehabilitation of sick units, the extent of irregularity in cash credit on
account of non-payment principal, which is transferred to term loan, is known as
Working Capital Term Loan.
WORLD BANK
International Bank for Reconstruction & Development (IBRD) is known as World
Bank, which is a corporate organisation owned by the Government of different
countries. It facilities international investment of capital for production purposes in
member countries, besides encouraging foreign private investment by providing
guarantee.

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WEAK BANK
According to the new norms of RBI, a Weak Bank is to be so categorised when the
non-performing asset is more than 10 percent. but less than 15 percent capital
adequacy ration (CAR) falls below the level of 75% of the minimum prescription and
the bank shows loss for two out of three consecutive year.

X
X-EFFICIENCY
A situation in which a firms total costs are not minimized because the actual output from
given inputs is less than the maximum feasible level. This outcome is also termed a
situation of technical inefficiency. X-efficiency is a direct function of monopoly of market
power in which competitive pressures are weakened. The term was originally applied to
the manager-worker relationship but can be extended to deal with the manager-owner
relationship.

Y
YIELD TO MATURITY
It is a new valuation norm prescribed by RBI for investment portfolio of banks in
approved securities. In this method, the expected market price is calculated first,
which is sum total of discounted value of maturity value of the security and
discounted value of future interest earning. The difference between the expected
market price and current market price, if the latter is lesser than the former, is to be
provided for by the bank. Higher the Yield to Maturity, higher will be the expected
price and need for higher depreciation.

Z
ZERO BASE BUDGETING
Budgeting in which figures are developed from the scratch every year.
ZERO COUPON BONDS
Bonds issued at deep discount, calculated to provide investors with an appropriate
annual yield but only at final maturity.
ZERO RISK WEIGHTED ASSETS
Various items appearing in the asset side of the balance sheet of a bank are
assigned different risk weights and the value of each asset on the balance sheet are
multiplied by relevant weight to arrive at risk adjusted value of the assets for the
purpose of capital adequacy norms prescribed by the RBI. However there are some
assets for which risk weight has been assigned Zero, for example cash and RBI
Balance, S.L.R. Assets, Recapitalisation Bonds, Advance against banks term
deposits, NSC, KVP, IVP, LIC policy etc. Such assets are known as Zero risk
weighted assets.

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