1.

General Anti-Avoidance Rules:

Tax Avoidance is an area of concern across the world. The rules are framed in different countries
to minimize such avoidance of tax. Such rules in simple terms are known as General Anti Avoidance
Rules or GAAR. GAAR is a set of general rules enacted so as to check the tax avoidance. GAAR is a
concept which generally empowers the Revenue Authorities in a country to deny the tax benefits of
transactions or arrangements which do not have any commercial substance or consideration other than
achieving the tax benefit. Whenever revenue authorities question such transactions, there is a conflict
with the tax payers.
GAAR in India
In India, GAAR came to light with the release of draft Direct Taxes Code Bill (popularly known as
DTC 2009) on 12th August 2009. It contained the provisions for GAAR. followed by tabling in the
Parliament on 30th August, 2010, a formal Bill to enact the law known as the Direct Taxes Code 2010.
The same was to be made applicable w.e.f 1st April, 2012. However, owing to negative publicity and
pressures from various groups, GAAR was postponed to at least 2013, this will be postponed for 3 years
(2016-17).
2. Bank rate:
Bank Rate is the rate at which RBI allows finance to commercial banks. Bank Rate is a tool, which
central bank uses for short-term purposes. Any upward revision in Bank Rate by RBI is an indication that
banks should also increase deposit rates as well as Base Rate. Thus any revision in the Bank rate
indicates that it is likely that interest rates on your deposits are likely to either go up or go down.
3. CRR (Cash Reserve Ratio):
CRR means Cash Reserve Ratio. Banks in India are required to hold a certain proportion of their
deposits in the form of cash. However, actually Banks dont hold these as cash with themselves, but
deposit such case with Reserve Bank of India (RBI) / currency chests, which is considered as equivalent to
holding cash with RBI. This minimum ratio (that is the part of the total deposits to be held as cash) is
stipulated by the RBI and is known as the CRR or Cash Reserve Ratio.
4. Marginal Standing Facility:
The Marginal Standing Facility (MSF) Scheme is operational on the lines of the existing Liquidity
Adjustment Facility Repo Scheme (LAF Repo) i.e. commercial banks can borrow money from RBI. The
basic difference between Repo and MSF scheme is that in MSF banks can use the securities under SLR to
get loans from RBI and hence MSF rate is 1% more than repo rate.
5. Repo Rate:
The rate at which the RBI lends money to commercial banks is called repo rate, a short term for
repurchase agreement. A reduction in the repo rate will help banks to get money at a cheaper rate. When
the repo rate increases borrowing from RBI becomes more expensive.
6. Statutory liquidity ratio (SLR) ::
Statutory liquidity ratio is in the form of cash (book value), gold (current market value) and
balances in unencumbered approved securities. SLR stands for Statutory Liquidity Ratio. This term is
used by bankers and indicates the minimum percentage of deposits that the bank has to maintain in form
of gold, cash or other approved securities. Thus, we can say that it is ratio of cash and some other approved
to liabilities (deposits). It regulates the credit growth in India.
7. Reverse Repo Rate:
The rate at which banks park their money with Reserve Bank is called the reverse repo rate.
8. Capital Adequacy Ratio::
Capital Adequacy Ratio is the capital to assets ratio which banks are required to maintain against
risks. It is also known as Capital to Risk (Weighted) Assets Ratio (CRAR).
9. Certificate of Deposit (CD):
A time deposit that is payable at the end of a specified term. CDs generally pay a fixed interest
rate and generally offer a different interest rate than other types of deposit accounts. If an early
withdrawal from the CD prior to the end of the term is permitted, a penalty is usually assessed. CD is sold
at discount value and being a money market instrument, can be transferred to other person through
negotiation.
10. Tier 1 capital:

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A term used to describe the capital adequacy of a bank. Tier I capital is core capital; this includes
equity capital and disclosed reserves. Tier 1 is a bank's core capital. The main components of Tier 1 are
ordinary shareholders equity; retained earnings; perpetual (undated) non-cumulative preferred stock (Tier
1 Preferred); reserves created by appropriations of retained earnings, share premiums and other
surpluses; and minority interests. The equity and reserves element of Tier 1 is often referred to as 'Core
Tier 1'. The Tier 1 Preferred elements are often known as 'hybrid instruments' because they have a mix of
both debt and equity features.
11. Tier 2 capital:
Tier 2 capitals, or supplementary capital, include a number of important and legitimate constituents of a
bank's capital base. Things which include in tier 2 capital
Undisclosed reserves and cumulative perpetual preference shares.
Revaluation Reserves General Provisions and loss reserves
Hybrid debt capital instruments such as bonds.
Long term unsecured loans Debt Capital Instruments.
Redeemable cumulative Preference shares
Perpetual cumulative preference shares.
12. Credit-Worthiness:
This is the judgment of an organization which is assessing whether or not to take a particular
individual on as a customer. An individual might be considered credit-worthy by one organization but not
by another. Much depends on whether an organization is involved with high risk customers or not.
13. Demand Deposit:
A Demand deposit is the one which can be withdrawn at any time, without any notice or penalty;
e.g. money deposited in a checking account or savings account in a bank.
14. FCNR Accounts:
Foreign Currency Non-Resident accounts are the ones that are maintained by the NRIs in foreign
currencies like USD, DM, and GBP etc. The account is a term deposit with interest rates linked to the
international rates of interest of the respective currencies.
15. Overdraft:
This is when a person has a minus figure in their account. It can be authorized (agreed to in
advance or retrospect) or unauthorized (where the bank has not agreed to the overdraft either because the
account holder represents too great a risk to lend to in this way or because the account holder has not
asked for an overdraft facility).
16. NRE Accounts:
Non-Resident External accounts are the ones in which NRIs remit money in any permitted foreign
currency and the remittance is converted to Indian rupees for credit to NRE accounts. The accounts can be
in the form of current, saving, FDs, recurring deposits. The interest rates and other terms of these
accounts are as per the RBI directives.
18. Security for Loans:
Where large loans are required the lending institution often needs to have a guarantee that the
loan will be paid back. This takes the form of a large item of capital outlay (typically a house) which is
owned or partly owned and the amount owned is at least equivalent to the loan required.
19. Time Deposit:
Time deposit is a money deposit at a banking institution that cannot be withdrawn for a certain
"term" or period of time. When the term is over it can be withdrawn or it can be held for another term.
20. Composite credit / loan :
Credit is the main input for sustained growth of small scale sector and its availability continues to
be a matter of concern. Credit provided for fixed asset is called long term credit and credit provided for
running the industrys day to day requirements is called short-term or working capital. Provision of credit
by banks and financial institutions for working capital and fixed capital of micro and small enterprises is
called as composite credit.
Government encourages banks to provide composite credit to micro and small enterprises. In the
year 2000, the composite loan limit was Rs.25 lakhs which has increased to Rs. 1 crore in 2004. Under
Composite Loan Scheme, the SSI units can obtain working capital and term loan together from a single
agency.
The composite loan scheme is subject to following parameters
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1. The debt equity ratio should be 3 : 1 in the total project outlay after taking into account the amount of
investment / incentives available for project.
2. Margin requirement for all backward areas in state is 25%, and for other areas and municipal limits of
cities of State is 30%.
3. The State Financial Corporation (SFC) will have first charge on fixed assets and hypothecation of
current assets. It may also ask for collateral security against Working Capital Loan.
21. Bancassurance:
Bancassurance refers to the distribution of insurance products and the insurance policies of
insurance companies which may be life policies or non-life policies like home insurance - car insurance,
medi-policies and others, by banks as corporate agents through their branches located in different parts of
the country by charging a fee.
22. Brick & Mortar Banking :
Brick and Mortar Banking refers to traditional system of banking done only in a fixed branch
premises made of brick and mortar. Now there are banking channels like ATM, Internet Banking, tele
banking etc.
23. Consumer Protection Act :
It is implemented from 1987 to enforce consumer rights through a simple legal procedure. Banks
also are covered under the Act. A consumer can file complaint for deficiency of service with Consumer
District Forum for amounts up to Rs.20 Lacs in District Court, and for amounts above Rs.20 Lacs to Rs.1
Crore in State Commission and for amounts above Rs.1 Crore in National Commission.
24. Core Banking Solutions (CBS) :
Core Banking Solutions is a buzz word in Indian banking at present, where branches of the bank
are connected to a central host and the customers of connected branches can do banking at any breach
with core banking facility.
25. Crossing of Cheques:
Crossing refers to drawing two parallel lines across the face of the cheque. A crossed cheque cannot
be paid in cash across the counter, and is to be paid through a bank either by transfer, collection or
clearing. A general crossing means that cheque can be paid through any bank and a special crossing,
where the name of a bank is indicated on the cheque, can be paid only through the named bank.
26. Debtor :
A person who takes some money on loan from another person.
27. Endorsement:
When a Negotiable Instrument contains, on the back of the instrument an endorsement, signed by
the holder or payee of an order instrument, transferring the title to the other person, it is called
endorsement.
28. Factoring:
Business of buying trade debts at a discount and making a profit when debt is realized and also
taking over collection of trade debts at agreed prices.
29. Forfeiting:
In International Trade when an exporter finds it difficult to realize money from the importer, he
sells the right to receive money at a discount to a forfeiter, who undertakes inherent political and
commercial risks to finance the exporter, of course with assumption of a profit in the venture.
30. Indemnifier:
When a person indemnifies or guarantees to make good any loss caused to the lender from his
actions or others' actions.
31. Indemnity:
Indemnity is a bond where the indemnifier undertakes to reimburse the beneficiary from any loss
arising due to his actions or third party actions.
32. Interest Warrant:
When cheque is given by a company or an organization in payment of interest on deposit, it is
called interest warrant. Interest warrant has all the characteristics of a cheque.
33. KYC Norms:
Know your customer norms are imposed by R.B.I. on banks and other financial institutions to
ensure that they know their customers and to ensure that customers deal only in legitimate banking
operations and not in money laundering or frauds.
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34. Law of Limitation:

Limitation Act of 1963 fixes the limitation period of debts and obligations including banks loans
and advances. If the period fixed for particular debt or loan expires, one can not file a suit for is recovery,
but the fact of the debt or loan is not denied. It is said that law of limitation bars the remedy but does not
extinguish the right.
35. Letter of Credit:
A document issued by importers bank to its branch or agent abroad authorizing the payment of a
specified sum to a person named in Letter of Credit (usually exporter from abroad). Letters of Credit are
covered by rules framed under Uniform Customs and Practices of Documentary Credits framed by
International Chamber of Commerce in Paris.
36. Material Alteration:
Alteration in an instrument so as to alter the character of an instrument for example when date,
amount, name of the payee are altered or making a cheque payable to bearer from an order one or opening
the crossing on a cheque.
37. Merchant Banking:
When a bank provides to a customer various types of financial services like accepting bills arising
out of trade, arranging and providing underwriting, new issues, providing advice, information or
assistance on starting new business, acquisitions, mergers and foreign exchange.
38. Moratorium:
R.B.I. imposes moratorium on operations of a bank; if the affairs of the bank are not conducted as
per banking norms. After moratorium R.B.I. and Government explore the options of safeguarding the
interests of depositors by way of change in management, amalgamation or take over or by other means.
39. Pledge:
A bailment of goods as security for payment of a debt or performance of a promise, e.g pledge of
stock by a borrower to a banker for a credit limit. Pledge can be made in movable goods only.
40. Promissory Note:
Promissory Note is a promise / undertaking given by one person in writing to another person, to
pay to that person , a certain sum of money on demand or on a future day.
41. Underwriting:
Underwriting is an agreement by the underwriter to buy on a fixed date and at a fixed rate, the
unsubscribed portion of shares or debentures or other issues. Underwriter gets commission for this
agreement.
42. MICR:
Magnetic ink character recognition (MICR) is a character-recognition technology used mainly by
the banking industry to ease the processing and clearance of cheques and other documents. The MICR
encoding called the MICR line, is at the bottom of cheques and other vouchers and typically includes the
document-type indicator, bank code, bank account number, cheque number, cheque amount, and a control
indicator. The technology allows MICR readers to scan and read the information directly into a datacollection device. A typical MICR code may contain the following details:
Cheque Serial Number
Account Number
Branch or city code of a bank
Transaction code
43. Cheque Truncation System or CTS 2010 :
The full form of CTS is Cheque Truncation System. RBI has decided to launch this system and all
banks across India are required to follow RBI guidelines in this regard. As per RBI guidelines, now all
banks have to issue cheques conforming to the CTS 2010 standards with uniform features.
Under the CTS system, the physical movement of cheques between banks will be eliminated. At
present, when you issue a cheque to someone, he has deposit the cheque in his bank to get credit. Then
this cheque moves physically from his bank to your bank which involves a lot of time and risk. Now
under CTS, instead of physical movement of the cheque, an electronic image of the cheque will be
transmitted to the drawee branch / bank. The presenting bank will retain the physical cheque. Along
with the electronic image, certain key relevant information is also transmitted, such as date of
presentation, presenting bank details, data on the MICR band.

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RBI has originally decided that CTS will be effective from 1st January 2013, but then it was
announced that it will be effective from 1st April, 2013. However, as per RBI guidelines dated 18th
March, 2013, now this deadline has been revised and it will be effective from 1st August, 2013 (i.e. non
CTS cheques will be valid till 31st July, 2013).
44. Clean note-policy :To give the citizens good quality currency notes and coins while the soiled notes are withdrawn out
of circulation. The Reserve Bank has also instructed the banks to issue only good quality clean notes to the
public and refrain from recycling the soiled notes received by them over their counters. Three reasons
behind the clean note policy of RBI : Banks should do away with stapling of any note packet and instead secure note packets with paper
bands,
Banks should sort notes into re-issuables and non-issuables, and issue only clean notes to public;
and,
Banks should forthwith stop writing of any kind on watermark window of bank notes.
45. SWIFT code:SWIFT code is a standard format of Bank Identifier Codes (BIC) and it is unique identification
code for a particular bank. These codes are used when transferring money between banks, particularly for
international wire transfers. Banks also used the codes for exchanging other messages between them. The
SWIFT code consists of 8 or 11 characters. When 8-digits code is given, it refers to the primary office.
First 4 characters - bank code (only letters)

Next 2 characters - ISO 3166-1 alpha-2 country code (only letters)

Next 2 characters - location code (letters and digits) (passive participant will have "1" in the second
character)

Last 3 characters - branch code, optional ('XXX' for primary office) (letters and digits)

46. IFSC code:IFSC Code is Indian Financial System Code, which is an eleven character code assigned by RBI to
identify every bank branches uniquely, that are participating in NEFT system in India. This code is used
by electronic payment system applications such as RTGS, National Electronic Fund Transfer and CFMS.
The code is of 11 characters. The first part is the first 4 alphabet characters representing the Bank. Next
character is 0(zero), this is reserved for future use. The branch code is the last six characters.
47. Islamic Banking:
Islamic banking is banking or banking activity that is consistent with the principles of sharia and
its practical application through the development of Islamic economics. As such, a more correct term for
'Islamic banking' is 'Sharia compliant finance'. Sharia prohibits the fixed or floating payment or
acceptance of specific interest or fees for loans of money. Investing in businesses that provide goods or
services considered contrary to Islamic principles is also haraam .Although these principles have been
applied in varying degrees by historical Islamic economies due to lack of Islamic practice, only in the late
20th century were a number of Islamic banks formed to apply these principles to private or semi-private
commercial institutions within the Muslim community. The Kerala government has got a go-ahead from
the Reserve Bank of India to launch a financial institution following the principles of Islamic finance.
Cheraman Financial Services Limited (CFSL) will be floated by Kerala State Industrial Development
Corporation to function as a non-banking finance company (NBFC).
48. Cheque:"Cheque is an instrument in writing containing an unconditional order, addressed to a banker,
sign by the person who has deposited money with the banker, requiring him to pay on demand a certain
sum of money only to or to the order of certain person or to the bearer of instrument."
Types of cheques:
Bearer Cheque: When the words "or bearer" appearing on the face of the cheque are not
cancelled, the cheque is called a bearer cheque. The bearer cheque is payable to the person
specified therein or to any other else who presents it to the bank for payment. However, such
cheques are risky; this is because if such cheques are lost, the finder of the cheque can collect
payment from the bank.

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Order Cheque: When the word "bearer" appearing on the face of a cheque is cancelled and when
in its place the word "or order" is written on the face of the cheque, the cheque is called an order
cheque. Such a cheque is payable to the person specified therein as the payee, or to any one else to
whom it is endorsed (transferred).
Uncrossed / Open Cheque: When a cheque is not crossed, it is known as an "Open Cheque" or an
"Uncrossed Cheque". The payment of such a cheque can be obtained at the counter of the bank. An
open cheque may be a bearer cheque or an order one.
Crossed Cheque: Crossing of cheque means drawing two parallel lines on the face of the cheque
with or without additional words like "& CO." or "Account Payee" or "Not Negotiable". A crossed
cheque cannot be encashed at the cash counter of a bank but it can only be credited to the payee's
account.
Anti-Dated Cheque: If a cheque bears a date earlier than the date on which it is presented to the
bank, it is called as "anti-dated cheque". Such a cheque is valid up to six months from the date of
the cheque.
Post-Dated Cheque: If a cheque bears a date which is yet to come (future date) then it is known
as post-dated cheque. A post dated cheque cannot be honoured earlier than the date on the cheque.
Stale Cheque : If a cheque is presented for payment after six months from the date of the cheque
it is called stale cheque. A stale cheque is not honoured by the bank.
At par cheque: With the computerization and networking of bank branches with its
headquarters, a variation to the local cheque has become common place in the name of at par
cheque. At par cheque is a cheque which is accepted at par at all its branches across the country.
Unlike local cheque it can be present across the country without attracting additional banking
charges.
Bankers cheque: It is a kind of cheque issued by the bank itself connected to its own funds. It is
a kind of assurance given by the issuer to the client to alley your fears. The personal account
connected cheques may bounce for want of funds in his account. To avoid such hurdles, sometimes,
the receiver seeks bankers cheque.
Travelers cheques: They are a kind of an open type bearer cheque issued by the bank which can
be used by the user for withdrawal of money while touring. It is equivalent to carrying cash but in
a safe form without fear of losing it.
49. Core Banking Solutions (CBS) :
Core Banking Solutions (CBS) or Centralized Banking Solutions is the process which is completed
in a centralized environment i.e. under which the information relating to the customers account (i.e.
financial dealings, profession, income, family members etc.) is stored in the Central Server of the bank
(that is available to all the networked branches) instead of the branch server. Depending upon the size and
needs of a bank, it could be for the all the operations or for limited operations. This task is carried through
advance software by making use of the services provided by specialized agencies.
Due to its benefits, a no. of banks in India in recent years have taken steps to implement the CBS with a
view to build relationship with the customer based on the information captured and offering to the
customer, the customized financial products according to their need.
Advantages: The CBS process is advantageous both to the customers and the banks in the following
manner:
Customer:
1.Transaction of business from any branch, ATM that offers him anytime anywhere banking facility.
2. Lower incidence of errors. Hence accuracy in transactions.
3. Better funds management due to immediate availability of funds.
Banks:
1. Standardization of process within the bank.
2. Better customer service leading to retention of customer and increased customer traffic.
3. Availability of accurate data & Better use of available infrastructure
4. Better MIS and reporting to external agencies such as Govt., RBI etc.
5. Increased business volume with better asset liability management and risk management.
50. Camels Rating:

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Measure of the relative soundness of a bank. CAMELS ratings-the term stands for Capital, Assets
management, earnings, Liquidity and sensitivity to market risk-are calculated on a 1-5 scale, and is used
by bank supervisory agencies to evaluate bank condition. A rating of 1 is given to banks with the strongest
performance ratings; banks given a CAMELS rating of 4 or 5 are placed on the watch list of banks in need
of supervisory attention. Individual CAMELS ratings are disclosed to bank management, though not to
the general public.
51. Capital Adequacy Ratio:
Capital adequacy ratios (CARs) are a measure of the amount of a bank's core capital expressed as
a percentage of its risk-weighted asset.
Capital adequacy ratio is defined as:
CAR

Tier1capital Tier 2capital

-Risk weightedas sets

52. Foreign Exchange Regulation Act (FERA) :

The Foreign Exchange Regulation Act (FERA) was legislation passed by the Indian Parliament in
1973 by the government of Indira Gandhi and came into force with effect from January 1, 1974. FERA
imposed stringent regulations on certain kinds of payments, the dealings in foreign exchange and
securities and the transactions which had an indirect impact on the foreign exchange and the import and
export of currency. The bill was formulated with the aim of regulating payments and foreign exchange.
Regulated in India by the Foreign Exchange Regulation Act(FERA),1973.
Consisted of 81 sections.
FERA Emphasized strict exchange control.
Control everything that was specified, relating to foreign exchange.

Law violators were treated as criminal offenders.

Aimed at minimizing dealings in foreign exchange and foreign securities.

FERA was introduced at a time when foreign exchange (Forex) reserves of the country were low,
Forex being a scarce commodity. FERA therefore proceeded on the presumption that all foreign exchange
earned by Indian residents rightfully belonged to the Government of India and had to be collected and
surrendered to the Reserve bank of India (RBI). FERA primarily prohibited all transactions, except ones
permitted by RBI.
Objectives:
To regulate certain payments.
To regulate dealings in foreign exchange and securities.
To regulate transactions, indirectly affecting foreign exchange.
To regulate the import and export of currency.
To conserve precious foreign exchange.
The proper utilization of foreign exchange so as to promote the economic development of the
country.
53. Foreign Exchange Management Act (FEMA):
The Foreign Exchange Management Act, 1999 was enacted to consolidate and amend the law
relating to foreign exchange with the objective of facilitating external trade and for promoting the orderly
development and maintenance of foreign exchange market in India. FEMA extends to the whole of India.
The Act also applies to all branches, offices and agencies outside India owned or controlled by a person
resident in India and also to any contravention committed there under outside India by any person to
whom this Act is applies.
Activities such as payments made to any person outside India or receipts from them, along with
the deals in foreign exchange and foreign security is restricted. It is FEMA that gives the central
government the power to impose the restrictions.
Restrictions are imposed on people living in India who carry out transactions in foreign exchange,
foreign security or who own or hold immovable property abroad.

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Without general or specific permission of the MA restricts the transactions involving foreign
exchange or foreign security and payments from outside the country to India the transactions
should be made only through an authorized person.
Deals in foreign exchange under the current account by an authorised person can be restricted by
the Central Government, based on public interest.
Although selling or drawing of foreign exchange is done through an authorised person, the RBI is
empowered by this Act to subject the capital account transactions to a number of restrictions.
People living in India will be permitted to carry out transactions in foreign exchange, foreign
security or to own or hold immovable property abroad if the currency, security or property was
owned or acquired when he/she was living outside India, or when it was inherited by him/her from
someone living outside India.
Exporters are needed to furnish their export details to RBI. To ensure that the transactions are
carried out properly, RBI may ask the exporters to comply to its necessary requirements.

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